INTERNATIONAL MARKETING

Export Pricing Strategies

Copyright 2001 by Harcourt, Inc.. All rights reserved. Requests for permissions to make copies of any part of the work should be mailed to the following address: Permissions Department, Harcourt, Inc., 6277 Sea Harbor Drive, Orlando, Florida 32887-6777.

Price
Pricing

is the only revenue generating element of the marketing mix. Pricing is a means of attracting and communicating an offer to a potential buyer. Pricing is a competitive tool. Pricing can be use to position the product or service in the marketplace.

Copyright 2001 by Harcourt, Inc. All rights reserved.

11-2

Pricing Challenges
Skimming

Using high-priced unique products to achieve the highest possible contribution in a short initial time period, then gradually lowering the price as the market.
Market

Pricing

Following competitive pricing in the target market; adjusting production and marketing mix to competitive conditions.
Penetration

Pricing

Offering low pricing to generate volume sales which hopefully will compensate for low margins.
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The Setting of Export Prices

Factors

affecting customer purchasing decisions

ability to pay price-quality relationship reaction to marketing mix market support

Stages in Setting of Prices

Stage 1 Target Market Analysis

Stage 2 Market Mix Composition

Stage 3 Pricing Policy Selection

Stage 4 Pricing Policy Determination

Stage 5 Selecting the Specific Price

Source: Reprinted by permission of Harvard Business Review. An excerpt from Alfred R. Oxenfeldt, Multistage Approach to Pricing, Harvard Business Review 38 (July-August 1960): 126. Copyright by the President and Fellows of Harvard College; all rights reserved. 11-4

Copyright 2001 by Harcourt, Inc. All rights reserved.

Export Pricing Strategy

Cost-oriented

pricing

Standard worldwide price- regardless of buyers location in the market(s) Dual pricing differentiates between domestic and export prices
Cost-plus method allocates domestic and foreign costs to the product. Marginal cost method considers direct costs of producing and selling exports as floor (lowest) price.
Market-differentiated

pricing

based on the dynamics of the marketplace

changes in competition, exchange rates, etc.

Copyright 2001 by Harcourt, Inc. All rights reserved.

11-5

Export-related Costs
Export-related

costs

Cost of modifying a product for a foreign market Operational costs of exporting Cost incurred in entering the foreign market
Price

escalation for exports results from for combating price escalation

Clear-cut and hidden costs

Methods

Reorganize the channel of distribution Product adaptation Change tariff or tax classifications Overseas assembly or production
11-6

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Distribution Adjustment to Decrease Price Escalation

A. Conventional Route
Producer Import Agent Processing and Packing Plant Intermediary Wholesaler Primary Wholesaler

Small Wholesaler

Retailer

A. Retail Price: 170 yen/300g package B. Retail Price: 128 yen/300g package Savings of 25% by restructuring

B. Restructured Route
Producer Import Agent Processing and Packing Plant Depots Distribution Wholesalers Distribution Centers
Source: Michael R. Czinkota, Distribution of Consumer Products in Japan: An Overview, International Marketing Review 2 (Autumn 1985): 39-51.

Retailer

Copyright 2001 by Harcourt, Inc. All rights reserved.

11-7

Negotiating Terms of Payment

Considerations

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

Copyright 2001 by Harcourt, Inc. All rights reserved.

11-8

The Letter of Credit

Irrevocable

versus revocable

irrevocable letter cannot be cancelled, guaranteeing payment

Confirmed

versus unconfirmed

U.S. bank confirms letter, assumes collection risk

Revolving

versus nonrevolving

Most letters are nonrevolving- good only for a single transaction.

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11-9

Import / Export Trade Financing

Minimizing

the exposure of financial risk Trade financing using a Letter of Credit (L/C)
3 Foreign Bank 1 2 Product exported 5
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U.S. Bank 6&7 4

Foreign Company

U.S. Company

Drafts and Documentary Collection

Drafts

are similar to personal checks, but have a documentary requirement that the buyer to obtain shipping documents before taking possession of the imported goods.
Documentary

collection

Seller ships goods, then bank acts as agent in collecting payment through a sight or time draft from the importer. The draft becomes a bankers acceptance and may be sold at a discounted rate if the exporter is in need of immediate cash.
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The Risk Triangle

Most Advantageous Consignment Open Account Documents against Acceptance Letter of Credit High Risk/High Trust

Confirmed Letter of Credit

Cash in Advance

Least Advantageous
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Low Risk/Low Trust

11-12

Adjusting to Foreign Currency Fluctuations

Forward

rate exchange market

the exchange of currencies on a future date at an agreed upon exchange rate

Spot

rate transaction

the exchange of currencies for immediate delivery

Possible

price manipulation responses to currency movements

Make no change in the dollar price (pass-through). Decrease the export price (absorption). Pass-through only a portion of the increase.

Copyright 2001 by Harcourt, Inc. All rights reserved.

11-13

Exporter Strategies Under Varying Currency Conditions

Weak Position Stress price benefits Expand product line Shift sourcing to domestic market Cash-for-goods trade Full costing Speed repatriation Minimize expenditure in local currency Strong Position Non-price competition Improve productivity/ cost reduction Sourcing overseas Prioritize exports Countertrade with weak currency countries Marginal-cost pricing Slow collections Buy needed services abroad
11-14

Copyright 2001 by Harcourt, Inc. All rights reserved.

Price Negotiations
Be

aware that price is only one part of a comprehensive package. Avoid early price concessions. Carefully consider concessions that reduce price or profitability.
discounts, payment terms, product features
Know

conditions in importers market. Focus negotiations first on substantive issues (quality and delivery), then on price.

Copyright 2001 by Harcourt, Inc. All rights reserved.

11-15

Leasing
Leasing

reduces the amount of investment required to place the product in service, especially in less developed markets. may produce a total net income greater than that of an outright sale. offers the opportunity to provide ancillary services that increase the total value of the exported asset.

Copyright 2001 by Harcourt, Inc. All rights reserved.

11-16

Dumping
Ranges

of dumping

Predatory dumping
is intentional selling at a loss to increase market share

Unintentional dumping
occurs when market factors cause the imports selling price to fall below prices in the exporters 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 exporters home country
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