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INTRODUCTION Price is the currency value a customer is asked to pay for the product or service offered for sale by the seller.
It determines : The competitive positioning, The profitability & The relative quality perception
Price Escalation
Price escalation refers to the added costs incurred as a result of exporting products from one country to another
1.
Costs of Exporting: the term relates to situations in which ultimate prices are raised by shipping costs, insurance, packing, tariffs, longer channels of distribution, larger middlemen margins, special taxes, administrative costs, and exchange rate fluctuations
3.
Inflation: Inflation causes consumer prices to escalate and the consumer is faced with rising prices that eventually exclude many consumers from the market
5.
Exchange Rate Fluctuations and Varying Currency Values: Currency values swing vis--vis other currencies on a daily basis, which may make it necessary to increase prices
Lower tariffs
Modify product
Cost Competition Irregular or Unaccounted Payment in Exportimport Purchasing Power (McDonalds) Buyers Behavior Foreign Exchange Fluctuations
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2. Marginal Cost Pricing: It is cost of producing & selling one more unit. It sets the lower limit to which a firm can reduce its price without affecting its overall profitability. Benefits In cases 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; this pricing is used as a tool to penetrate international markets. 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 has to be recovered. This tends to trigger a price war in overseas markets & leads to price undercutting among suppliers. Use of marginal cost pricing with little information on prevailing market prices leads to unrealistically low price quotations.
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B. MARKET-BASED PRICING Assessment of prevailing prices in international markets, propensity of buyer to pay, competitive positioning, customer needs. Leadership positioning Follow the competition positioning Below the competition positioning Advantages: More flexible, hence benefits of market opportunity can be obtained. When PLC is short, this method is suitable. Risk of product becoming out of date decreases. Disadvantages: Not easy to estimate market changes If demand is less in a market compared to others, it may mislead.
TRANSFER PRICING
It refers to the pricing strategy adopted for intrafirms sales whether within the same borders or outside the state borders but to the same corporate units to which this firm belongs. It is a strategy by which a transaction between the buyer and seller belonging to the same corporate parent takes place. The international marketing firms will have to adhere to the local laws, taxes, duties, tariffs and other government regulations.
Transfer Pricing
Home Country
Foreign Country
Taxes Tariffs
Taxes
Help coordinate production, sales and pricing decisions of the dierent divisions (via an appropriate choice of transfer prices). Transfer prices make managers aware of the value that goods and services have for other segments of the rm.
occur
between
two
DUMPING
It means selling of a product below the cost of production or at a lower price in overseas markets compared to domestic markets. It is considered to be an unfair trade practice by the WTO. Antidumping duties can be levied on imports of such products under the agreement on Anti-dumping practices. For dumping to occur, the following conditions need to be satisfied: The industry must be imperfectly competitve so that the firm acts as price setter rather than a price taker. Market must be so segmented as to make it difficult for the domestic buyers to purchase goods intended for overseas markets.
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FORMS OF DUMPING Sporadic Dumping (occasionally selling excess goods in overseas market at low price) Predatory Dumping Persistent Dumping( consistent tendency to sell the goods at lower prices in international markets)
GREY MARKETING
It means export or import of goods and marketing them through unauthorized channels. International brands with high price differentials and low cost of arbitrage constitute typical grey market goods. Gray Market - An unofficial market in which goods are bought and sold at prices lower than the official price set by a regulatory agency
Authorized Exports
Re-import
Parallel Import
COUNTER TRADE
It is a practice where price setting and trade financing are tied together in one transaction. Transaction involves reciprocal commitments other than cash payments.
Factors contributing to counter trade include: Importing countrys inability to pay in hard currency. Importing countrys regulations to conserve hard currency Importing countrys concern about balance of trade. Exploring opportunities in new markets Gaining access to capital goods markets in countries with shortage of hard currency.
COUNTRY X
EXPORTER/ IMPORTER
GOODS/SERVICES
FIG.1:SIMPLE BARTER
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Clearing Arrangement: Existed between India and USSR under the Rupee Payment Agreement
COUNTRY X
EXPORTER/ IMPORTER
GOODS/SERVICES
FIG.2:CLEARING ARRANGEMENT
COUNTRY X EXPORTER
GOODS/SERVICE A
COUNTRY Y IMPORTER
PAYMENT OR GOODS/SERVICE C
GOODS/SERVICE B
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COUNTER PURCHASE (involves two separate transactions) Also known as Parallel Barter.
GOODS/SERVICES
COUNTRY Y
PAYMENT (HARD CURRENCY)
IMPORTER
COUNTRY X
EXPORTER
GOODS/SERVICES
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BUY-BACK (COMPENSATION)
CAPITAL GOODS/TECHNOLOGY
COUNTRY X
PAYMENT (HARD CURRENCY)
COUNTRY Y
IMPORTER OR LICENSEE
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OFFSET
EXPORT
COUNTRY X
COUNTRY Y
EXPORTER
INVESTMENT
Countertrade
Advantages Facilitates sale of products in emerging markets Can help an exporting company bypass trade restrictions Disadvantages Foreign lenders could have prior claim on goods Restrict profit margins Encourage economic inefficiency Prices are distorted Could receive inferior quality goods Exchange partners can become competitors Involves extensive negotiations
PRICING STRATEGIES
Value and Skimming Pricing Penetration Pricing Strategy Pricing with Demand Curve Geographical Pricing Dual Standards Conspicuous (Attractive) Pricing Psychological Pricing/Odd-pricing Value-added Pricing Complementary Product Pricing Price Discounts Promotional Pricing
PRICING PROCESS
INFORMATION OF COST: INFORMATION OF FOREIGN MARKET PRICES OF THE PRODUCT CHECKLIST OF INFORMATION REQUIRED: Information on Total Market Information on Competition Information on Govt. Policies Information on Prices Information on Production And Cost Information on Revenue And Profit