int. pricing factors 2

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Significance of pricing in international Markets. To Examine various pricing approaches in

International Markets.

The terms of Payment.

The terms of Delivery. The Concept of Dumping in international

Markets.

To describe transfer pricing in international

Markets. To explain the concept of International

Marketing.


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Pricing is especially important ininternational marketing strategy decisions,due to its effect on product positioning,market segmentation, demandmanagement, and market share dynamics.


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Exporters determine export prices on ex-works price leveland add a certain percentage of profit and other expensesdepending upon the terms of delivery.

LIMITATIONS

The price quoted by the exporter on the basis of costcalculations maybe too low vis--vis competitors, thusallowing importers to earn huge margins.

Price quoted may be high making goods incompetitivefollowed with rejection.

It takes no account of demand and there is no way ofdetermining if potential customers will purchase theproduct at the calculated price.


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The most common pricing approach used by exporters in initial stags of their

internationalization, includes adding a mark-up on the total cost to

determine price.

BENEFITS

It is widely used by exporters in the initial phases of international

marketing.

It ensures fast recovery of investments.

It is useful for firms that are primarily dependent on international markets

and register very low or negligible sales in domestic markets. It eases operation and implementation of marketing strategies.

BOTTLENECKS

It often overlooks the prevailing price structure in international markets

that may either make the product uncompetitive or prevent the firm fromchar in hi her rices


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Marginal cost is the cost of producing one more unit. It sets the lower limit to which a firmcan reduce its price without affecting its overall profitability.

REASONS FOR ADOPTING

Where foreign markets are used to dispose of surplus production, marginal cost pricing

provides an alternate market outlet.

Products from developing countries seldom compete on the basis of brand image or unique

value; marginal cost pricing is used as a tool to penetrate international markets.

Marginal cost pricing provides some advantage that the firm would forego if it does not

export at the marginal-cost-based price.

LIMITATIONS

In case the firm is selling most of its output in international markets, it cannot use marginal

cost pricing as the fixed cost also to be recovered.

Pricing based on marginal cost may be charged, as dumping in overseas markets is liable to

action and subject to investigations.

Such pricing tends to trigger a price war in the overseas market and leads to price

undercutting among suppliers.

Little information may lead to low price quotations.


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Exporters in developing countries are generally sellers of marginalproducts with small market shares not enough to influence the marketprices, thus they are generally price followers rather than setters.Their pricing decisions involve assessment of prevailing prices in

international markets and a top down calculations as follows : Establish the current market price for comparative and/or substitutive

products in the target markets.

Establish all the elements of the market price, such as VAT , margins forthe trade and the importer ,import duties ,freight and insurance costs,etc.

Make a topdown calculation, deducting all the elements of theexpected market price of the product(s) in order to arrive at the ex-works ,ex-factory, or ex-warehouse price.

Assess if this can be met.

If not, re- calculate the cost price by finding ways to decrease costs inthe factory or organization or to decrease the marketing budget , whichalso burdens export-market price.

Estimate total sales over a three-year period, add total plannedexpenses, including those of the export


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Make a bottom-up calculation per productitem, dividing the supporting budgets overthe total number of items to be sold.

Set the final market price.

Test the price(through market research)


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Production plant locations

National Market Size

Distribution system used Competitors and tracking costs

Economic climate

Currency fluctuations and exchange rates


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Selecting a country with

1. Low labor cost

2. Lower taxes

3. Low exchange ratesdetermine the extent to which acompany can control costs and price their productscompetitively.

Company can use its potential volume of sales toestimate the price at which they will need to markettheir product .


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> Due to discrepancies in the value of differentcurrency, similar products in different countriesmay be priced differently.

> Companies often have to adjust prices due tofluctuations in exchange rates.

> Bill foreign customers in domestic currency.

>Price ceilings as well as price floors on certain

products affects the pricing of product.>Regulations placed on the prices of similar

products may affect potential demand and thusprice


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The distribution network by which they areselling their products overseas. E.g.- if acompany is selling a product throughfranchise licenses, they will likely price theirproducts differently than if they were sellingthem wholesale to local distributors, astheir profit structure would be different.

Intensity of competition in a foreign marketaffects price, which therefore makes aforeign entrant to track the competitivepricing by the other established players.


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These restrictive practices affects

international pricing and adds to the finalprice, burdening consumers.

A buyers strength to buy a product as

reflected by PPP affects international pricing fora product.

Culture perceive the value of certain products,

which in turn affects how much they are willingto pay for them. Eg- in US women's handbagsoften are seen as a status symbol. Femaleconsumers, therefore, often are willing to payhigh prices.


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Buyers from high income countries are moredemanding and knowledgeable and thebuying decision is primarily based onsuperior performance attributes whereas thebuyers from low income countries have beenseparated to make choices based on the priceof the product and services.


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These conditions include overall parentcompany objectives, the competition, the

consumer, cost, and government regulation. The prices in various regions of the world should be kept fairly

uniform.

Ethical consideration considerations in the foreign market

differ from those in the domestic market. Price segmentation becomes more significant in the foreign

market.

Government play an prominent role in pricing in almost all

countries. Price control means that an application to increaseprice must be filed with the government, together withsupporting data of cost increases


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Under this the payment is remitted by thebuyer in advance either by a draft mail orTelegraphic transfer.

Generally these payments are made on thebasis of sample receipt and its approval bythe buyer.


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The exporter and the importers agrees uponthe sales terms without documents calling forpayment.However,the exporter prepares theinvoice,and the importer can take delivery of

goods without making the payment first . In this the exporting and importing firms

settle their accounts through periodicremittances.


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Under the consignment sales, the shipmentof the goods is made to the overseesconsignee and the title of goods is retainedwith the exporter until it is finally sold.


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A documentary credit represents thecommitment of a bank to pay the sellers ofgoods a certain amount of money providedhe presents stipulated documents evidencing

the shipment of goods. The operation of letter of credit is governed

by the uniform Customs & Practices forDocumentary Credits(UCPDC) of theInternational Chamber Of Commerce.


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Exporting goods to another country at rates much lower

than those prevailing and being charged by the firm in its

home country Company uses profits to sell at much lower prices in

foreign markets

Builds market share

Suppresses profitability of competitors with open homemarkets

Dumping is legal under GATT rules unless its injurious

effect on the importing country's producers can be

established. For that anti dumping practice is introduced

The sale of an imported product at a lower price lower

than that normally charged in a domestic market


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Transfer pricing strategy refers to the pricing strategy adopted for intra-firms sales whether within the same border or outside the state border

but to the same corporate units to which this firm belongs. When multinational firms transfer product across international borders, transfer

prices are relevant in the calculation of income taxes, and are sometimes relevantin connection with other international trade and regulatory issues.

COST BASED TRANSFER PRICING STRATEGY

Firms add to the full cost, the additional costs incurred on marketing,research and development and other logistic activities in reaching theproduct to the subsidiary.

MARKET BASED TRANSFER PRICING STRATEGY

Are generally appropriate in a perfect market, where there is

homogeneous product with only one price for both sellers and buyersand no buying or selling costs.

NEGOTIATED TRANSFER PRICING

International marketing firms are also at liberty to negotiate thetransfer prices between themselves. These negotiated prices could beanywhere between the total cost prices and the market based prices.


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A grey market also known as parallel market is the

trade of a commodity through distribution channelswhich, while legal, are unofficial, unauthorized, or

unintended by the original manufacturer.

The marketing channels for grey markets involveunauthorized market intermediaries.

Unauthorized broker and border suppliers run a parallel

marketing network not authorized by the parent

company, to earn an extra buck from the prices

differentials of international products.


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Have a common price all over the world. A global standard price. Ideal for big industries as of Aircrafts, computers etc. Homogeneity of prices eliminates grey markets. Not suitable when there is competition from local manufacturers.

Different prices in different markets. The only control is setting transfer prices within corporate

system. It prevents problems of arbitrage when the disparities inlocal market prices exceed the transportation and duty costsseparating markets.

Use a regional(global) standard pricing plus a local mark-up . Base price is derives from cost plus formula. Affected by local tax laws leading to grey markets. Pricing an entire product line is a problem, mark-ups can be

different in different countries

int. pricing factors 2

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