Ch-11-17 Pricing Decisons (1) (1)

8/13/2019 Ch-11-17 Pricing Decisons (1) (1)

1/17

Chapter 11Export Pricing


2/17

Product

Price

Promotion

Place


3/17

Price is the only element generating revenue

Pricing strategy involves: skimming, penetration

Depends on the entry strategy of the firm

Pricing Situations could be as follows

First-Time Pricing

Changing Pricing-proactive or reactive Multiple-Product Pricing

Pricing Dynamics


4/17

EXTERNAL1 Market-related factors

Nature of demand/targetaudience characteristics

Government regulations(e.g., duties)

Exchange rate stability

2 Industry-related factors Competition intensity

Nature of competition

INTERNAL1 Marketing Mix

Product (e.g., old/new;standardized/differentiated

Distribution system (e.g.,length)

Promotion needs (e.g., sales

efforts)2 Company characteristics

Extent of internationalization

Countries exported to

3 Management attitudes

Importance of exports

Overall price position of firm

ASSESSMENT OF PRICING ENVIRONMENTS

Pricing Policy Selection

Pricing Strategy Determination

Setting of Specific Price

Exhibit 11.2

Stages in SettingExport Prices


5/17

Standardization vs. Adaptation inPricing

Price differentiation/adaptation can bebased on

Cost-plus

Marginal cost

Full vs. variable cost

Market differentiated

Export Pricing Strategy


6/17

Reasons for Price Escalation

Cost of exporting Taxes, tariffs and administrative costs

Inflation/deflation Exchange rate fluctuations Varying currency values Middlemen and transportation costs

See Exhibit 11.4 as an example of PriceEscalation


7/17

Overcoming Price Escalation

Lowering cost of goods

Adapt the product

Using efficient method of manufacturing Global sourcing, off-shore manufacturing, produce overseas

Lowering product quality

Take a lower profit

Lowering distribution costs

Using Foreign Trade Zones (FTZ)

Reorganize the channel of distribution

Use new or more economical tariff or tax classification


8/17

Term of Sale Incotermsthe internationally accepted standard

definitions for terms of sale set by the InternationalChamber of Commerce (ICC)

Four Categories E-termsSeller make the goods available to the buyer

only at the sellers own premises F-termsSeller is called upon to deliver the goods to a

carrier appointed by the buyer

C-termswhereby the seller has to contact for carriagebut without assuming risk of loss or damage to the goodsor additional costs after the dispatch

D-termsseller has to bear all the costs and risks to bringthe goods to the destination determined by buyer


9/17

Selected Trade Terms

(Incoterms) Ex-works (EXW)

Free carrier (FCA)

Free alongside ship (FAS)

Free on board (FOB)

Cost and freight (CFR) Delivered duty paid (DDP)

Delivered duty unpaid (DDU)


10/17

Getting Paid for Exports

Risks involved and how to overcome them

Commercial risk

Political risk

Buyers credit worthiness

Foreign Exchange risk

Letter of Credit Methods of Payment


11/17

Export Import Process

Informs

Exporter

Exporters

Bank

Importer

Importers

Bank

Receivespayment

Ships

Bill of lading

Informs

Reimbursement

Payment Opens Letter ofCredit


12/17

Exporter Strategies UnderVarying Currency Conditions


13/17

Methods of Payment(see Exhibit 11.7)

Cash in advance

Letter of credit

Drafts-similar to a personal check

Documentary collection

Bankers acceptance

Discounting Open account

Consignment selling


14/17

Sources of Export Financing

International marketers assist their customersabroad in securing appropriate financing

Commercial Banks Forfaiting and Factoring

Official trade finance


15/17

Sources of Export Financing

The following entities insure credit risks forexports.

Export credit agencies (ECAs) Export-Import Bank of the United States (Ex-Im

Bank) The Overseas Private Investment Corporation

(OPIC) The Agency for International Development (AID) The U.S. Department of Agricultures Commodity

Credit Corporation (CCC) Small Business Administration (SBA)


16/17

Leasing

Trade liberalization is expected to benefitlessors both through expected growth in

target economies and eradication of countrylaws and regulations hampering outsidelessors.

Total net income from leasing is often higher

than it would be if the unit was sold.


17/17

Dumping

Definition Predatory vs. Unintentional dumping Remedies for dumping

Antidumping dutyis a duty imposed onimports alleged to be dumped or sold at lessthan fair market value on a domesticmarketplace

Countervailing dutiesa duty imposed onimports alleged to be priced at less than fairmarket value, due to subsidization of anindustry by a foreign government

Documents

Ch-11-17 Pricing Decisons (1) (1)