Chapter 10 : Export Pricing Strategies

Learning Objectives:

• Understand the pricing dynamics for international markets

• Variables to be considered in setting export prices

Objectives

Terms of sale

Terms of payment

• Price escalation

• Adjusting to foreign currency fluctuations

• Price negotiations

• Intrafirm pricing

•Leasing

• Dumping

•Gray markets

Pricing Dynamics

• Skimming• Market Pricing• Penetration Pricing

International Pricing Situations• First time pricing• Second time pricing• Multi product pricing• Foreign market pricing• Intracompany pricing

Export Pricing Strategies• Standard worldwide price• Dual price• Cost-plus method• Marginal cost method• Market differentiate pricing

Export Related Costs and Pricing Escalation

• Cost of modifying a product for a foreign market• Operational costs of exporting• Costs incurred in entering foreign market• Value Added Tax (VAT)

Export Price Escalation

• See table 10.2 P.342

Adjustment to Decrease Price Escalation • Rearrange distribution• Eliminate costly features• Downsize the product• Assemble or manufacture the product in foreign markets• Adapt the product to escape tariffs and tax levies

Terms of Sale

Incoterms [International Accepted Definitions Approved by International Chamber of Commerce (ICC)]

• Exworks (EXW) • Free Carrier (FCA)• Free Alongside Ship (FAS)• Free On Board (FOB)• Cost and Freight (CFR)• Deliver Duty Paid (DDP)• Deliver Duty Unpaid (DDU)

Consideration For Negotiating Terms of Payment

• The amount of payment and the need for protection• Terms offered by competitors• Practice in the Industry • Capacity for financing international transactions• Relative strength of parties involved

Terms of Payment• Cash in advance• Letter of Credit• Open Account• Consignment (See Figure 10.5 P.347)

Letter of Credit• Irrevocable (V.S) Revocable• Confirmed (V.S) Unconfirmed• Revolving (V.S) Unrevolving

Adjusting to Foreign Currency Fluctuations

• Forward Exchange Market• Price Manipulation

Price Negotiation

Leasing

Dumping

• Predatory (Intentional) dumping• Unintentional dumping

Coordination of Multi-Country Pricing to Avoid Gray Markets

Transfer Pricing

Determinants to transfer pricing

• Tax Regimes• Local Market Condition• Market Imperfections• Morale of Local Country Manager

Setting transfer price

Minimize the risk of transfer Pricing tax audit