Unit 10.02Understand the components of

International pricing and payment

Goals Explain each of the four global pricing

strategies. Describe methods of international

payments.

Terms

price price floor price ceiling penetration pricing skim pricing

market pricing prestige pricing elasticity of demand letter of credit

GLOBAL PRICING STRATEGIES

Price The amount of money, goods, or services

needed to acquire a given quantity of other goods or services

There are different strategies to set price in an international market.

Price (cont.)

• Price must be justified against benefits customer will receive

• Price for a product is usually paid in money (currency)

– Ancient form of exchange based on barter (products directly exchanged for other products)

• Price is a strategic tool that can be changed easily and rapidly to manage inventory, increase sales, or to compete against other companies

Strategies to set prices: Price floor

the lowest price a company can charge and still cover costs

If price is too low, may be accused of dumping

Price ceiling the maximum price that can be charged in a

market. Usually set by the value customers see in a product.

http://www.youtube.com/watch?v=XgBPAucs-W4 Price floor and ceiling videos

Dumping• Predatory dumping

• is intentional selling at a loss to increase market share

• Unintentional dumping

• occurs when market factors cause the import’s selling price to fall below prices in the exporter’s home market

• Remedies for dumping

– Antidumping duty

• are levied on imported goods sold at less than fair market value

– Countervailing duties

• are imposed on imports which are subsidized in the exporter’s home country

• http://www.dw.de/china-slaps-anti-dumping-tax-on-eu-produced-chemical/a-16910695

• China & EU dumping war video

Strategies to set prices(continued)

penetration pricing Sets a low price compared to competitors. Helps a company to capture market share. Often used for short term till market goals are

met.

skim pricing a temporary strategy where a company sets a

high price for a brief time. Ideal for new, innovative products. http://www.youtube.com/watch?v=OiyclgBa3jw Penetration and skimming pricing video

Strategies to set prices(cont..)

market pricing pricing that can be justified by the competitive

advantages of a product relative to products already in the marketplace.

Prices are set higher or lower based on competitive advantages.

prestige pricing a company sets a high price throughout the life of a

product to signal quality. Example :BMW automobiles or Louis Vuitton accessories http://www.businessdictionary.com/videos/?518086734 Masstige product video

Strategies to set prices (continued)

Standard Global Pricing Setting the same price everywhere Unlikely to be used globally Online environments do allow for single

global pricing. Ex: iTunes offers products at a single global price. Individuals from around the world can go online and purchase the same products at same pricing.

http://www.youtube.com/watch?v=-tw5tRQc044 7.15 video on global pricing

Factors effecting international pricing

1.Elasticity of demand• the relationship between changes in a product’s price and

the demand for that product• inelastic products that offer few substitutes may have

higher prices while elastic products that offer several good substitutes will have lower prices.

2.Government regulations(tariffs, VATs).

3.Stability of exchange rates.

4.Other external factors such as political stability

5. Export-related costs

Price escalation

• Export-related costs

– Cost of modifying a product for a foreign market

– Operational costs of exporting

• Shipping, insurance, overseas promotion

– Cost incurred in entering the foreign market

• Taxes, tariffs, exchange rate fluctuations

• Methods for combating price escalation

– Reorganize the channel of distribution

– Product adaptation

– Change tariff or tax classifications

– Overseas assembly or production

INTERNATIONAL PAYMENTS

A secure way of making international payments must be agreed upon by the buyer and the seller.

FORMS OF INTERNATIONAL PAYMENT

– Cash in Advance• Not widely used except for first time

transactions• Most favorable term for exporters• Buyer incurs most risk

– Letter of Credit• Promise to pay• Irrevocable, confirmed, revolving• Risk is shifted to seller

– Drafts• Similar to personal check

FORMS OF INTERNATIONAL PAYMENT

– Documentary collection• Bank acts as collection agent• Draft may be sold at discounted rate for

immediate cash

– Open Account• No written evidence of debt exists

• No guarantee of payment

– Consignment Selling• Allows importer to defer payment until goods are

actually sold (most favorable term for importer)

• All risk is on exporter

IMH 10.02 Activity• Students work in pairs and complete the following:

• Provide an example of each of the following form of payments encountered in the International Marketplace. Example must clearly define the companies and product involved in the transaction. Include advantages and disadvantages for each company

– Cash in advance

– Letter of credit

– Draft

– Documentary collection

– Open account – terms

– Consignment selling