Transcript c01

Chapter 11
Export Pricing
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Price Dynamics
• 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.
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Price Dynamics
• 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
ASSESSMENT OF PRICING ENVIRONMENTS
INTERNAL
EXTERNAL
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2
Market-related factors
•
Nature of demand/target
audience characteristics
•
Government regulations (e.g.,
duties)
•
Exchange rate stability
Industry-related factors
•
Competition intensity
•
Nature of competition
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2
3
Marketing Mix
•
Product (e.g., old/new;
standardized/differentiated
•
Distribution system (e.g., length)
•
Promotion needs (e.g., sales efforts)
Company characteristics
•
Extent of internationalization
•
Countries exported to
Management attitudes
•
Importance of exports
•
Overall price position of firm
Pricing Policy Selection
Pricing Strategy Determination
Setting of Specific Price
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The Setting of Export Prices
Customer Purchase Factors
•
•
•
•
ability to pay
price-quality relationship
reaction to marketing mix
market support
Pricing Policies Factors
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•
•
•
•
profit maximization
market share
survival
return on investment
competitive policies
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–
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copy competitive pricing
follow competitive pricing
price to discourage competitive
entry
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Export Pricing Strategy
• Cost-oriented pricing
– Standard worldwide price- regardless of buyer’s
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.
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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
– Clear-cut and hidden costs
• Methods for combating price escalation
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–
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Reorganize the channel of distribution
Product adaptation
Change tariff or tax classifications
Overseas assembly or production
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Terms of Sale
• Incoterms are the internationally accepted standard
definitions for terms of sale set by the International
Chamber of Commerce (ICC) since 1936.
• Incoterms
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–
–
–
–
–
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exworks (EXW)
free carrier (FCA)
free alongside ship (FAS)
free on board (FOB)
cost and freight (CFR)
delivered duty paid (DDP)
delivered duty unpaid (DDU)
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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.
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The Risk Triangle
BUYER’S PERSPECTIVE
SELLER’S PERSPECTIVE
Source: Adapted from Chase Manhattan Bank, Dynamics of Trade Finance (New York: Chase Manhattan Bank, 1984),5
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Terms of Payment
Types of Payment
– Cash in Advance
• Not widely used except for first time transactions
– Letter of Credit
• Promise to pay
• Irrevocable, confirmed, revolving
– Drafts
• Similar to personal check
• Must obtain shipping documents prior to delivery
– Documentary collection
• Bank acts as collection agent
• Draft may be sold at discounted rate for immediate cash
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Managing Foreign Exchange
Risk
• 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.
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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
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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
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Sources of Export Financing
• Commercial banks
– first rate credit risks only
– enhanced services
– overseas reach
• Forfeiting and Factoring
– uses bills of exchange or promissory notes to pay
at time of shipment
– may use discounts to purchase receivables
• Official Trade Financing
– loans or guarantees
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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 importer’s market.
• Focus negotiations first on
substantive issues (quality
and delivery), then on price.
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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.
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Dumping
• Ranges of 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
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