Executing the Transactions Section III

Pricing in International Trade

 Price and nonprice factors: - Reliability - Delivery time - Product reliability - Product quality - Design flexibility - Support services - Financial services Export Competitiveness

 Market share  Profits  Targeted level of return on investment Export Pricing Objectives

 High markups (few competitors, differentiated products)  Low markups (increased competition) Pricing and Markup Policy

 Internal variables -Cost of production -Cost of market research -Business travel -Product modification -Packing -Consultants -Freight forwarders -Level of product differentiation Determinants of Export Price

 External variables -Supply and demand -Location and environment of foreign market -Home country regulations Determinants of Export Prices (cont.)

 Cost-based pricing: Export price is based on full cost and markup or full cost plus a desired amount of return on investment.  Marginal pricing: Export price is based on the variable cost of producing the product. Approaches to Export Pricing

 Skimming versus penetration pricing: Price skimming is charging a premium price for a product; penetration pricing is based on charging lower prices for exports to increase market share.  Demand-based pricing: Export price is based on what the market could bear.  Competitive pricing: Export prices are based on competitive pressures in the market. Approaches to Export Pricing (cont.)

Group E - Ex-works: Buyer or agent must collect the goods at the seller’s works or warehouse. Group F - Free carrier (FCA): Place of delivery could be the carrier’s cargo terminal (seller not obligated to unload) or a vehicle sent to pick up the goods at the seller’s premises (seller required to load the goods on the vehicle). Terms of Sale

- Free alongside ship (FAS): Requires the seller to deliver goods to a named port alongside a vessel to be designated by the buyer. Seller’s responsibilities end on delivery alongside the vessel. - Free on board (FOB): Seller is obliged to deliver the goods on board a vessel to be designated by the buyer. Terms of Sale (cont.)

Group C - Cost, insurance, freight (CIF): This term requires the seller to arrange for carriage by sea and pay freight and insurance to a port of destination. - Cost and freight (CFR): It is similar to CIF term except that the seller is not obligated to arrange and pay for insurance. - Carriage paid to (CPT): It is similar to CFR term except that it may be used for any mode of transportation. - Carriage and insurance paid (CIP): It is similar to CPT term except that the seller is required to arrange and pay for insurance. Terms of Sale (cont.)

Group D - Delivery at frontier (DAF): Seller bears all risk of loss to the goods until the time they have been delivered to buyer at the frontier. - Delivery ex ship (DES): This term requires the seller to deliver goods to a buyer at an agreed port of arrival. - Delivery ex quay (DEQ): Seller is required to deliver goods at the quay at the port of destination. - Delivered duty paid (DDP): Goods placed at the buyer’s disposal on any means of transport not unloaded at the port of arrival. - Delivered duty unpaid (DDU): Similar to DDP except that the seller pays for import duties. Terms of Sale (cont.)