Pricing for International Markets. Pricing for International Markets. I.Price Escalation - firms must often adjust their prices upwards in international markets. Reasons: Costs related to transportation, insurance, tariffs, taxes, storage, documentation, packing and middleman margins.
Pricing for International Markets
I.Price Escalation - firms must often adjust their prices upwards in international markets.
Reasons: Costs related to transportation, insurance, tariffs, taxes, storage, documentation, packing and middleman margins.
A. Ways to Reduce Price Escalation
Sample Causes and Effects of Price Escalation
Example 1:Example 2:Example 3:
Assuming theImporter andSame as 2 but
same channels withsame marginswith 10 percent
Domestic wholesaler import-and channelscumulative
Example ing directlyturnover tax
Manufacturing net$ 5.00$ 5.00$ 5.00$ 5.00
Tariff (20 percent c.i.f. value)n.a.188.8.131.52
Importer margin when1.83
sold to wholesaler+0.73 *
(25 percent) on costn.a.n.a.1.832.56
Wholesaler pays landed cost5.007.329.15+9.88
Wholesaler margin (331/3 percent on cost)1.672.443.05=4.28
Retail margin (50 percent on cost)3.344.886.10=8.50
Notes:a.All figures in U.S. dollars; c.i.f = cost, insurance, and freight; n.a. = not applicable.
b.The exhibit assumes that all domestic transportation costs are absorbed by the middleman.
c.Transportation, tariffs, and middleman margins vary from country to country, but for purposes of comparison, only a few of the possible variations are shown.
* Turnover Tax
The Lower Prices are at Home
New YorkLondonParisTokyoMexico City
Aspirin$ 0.99$ 1.23$ 7.08$ 6.53$ 1.78
Cup of coffee1.251.502.102.800.91
Levi 501 jeans39.9974.9275.4079.7354.54
Ray-Ban sunglasses 45.0088.5081.23134.4989.39
Sony Walkman 59.9574.9886.00211.34110.00
Nike Air Jordans 125.00134.99157.71172.91154.24
Gucci men's loafers 275.00292.50271.99605.19157.27
SOURCE: "Tourists and Bargains Galore," Fortune, June 13, 1994, p. 12.
Benefits of A Foreign Trade Zone (FTC)
II.Pricing and the Product Life Cycle
III. Export Pricing Strategy
1)Standard worldwide prices
3)Market differentiated pricing
IV. Counter-trade: A Sale that encompasses more than an exchange of goods and services for money.
A)Reasons for counter-trade
D)Reasons for growth
V.Terms of Payment
1) Cash in advance
2) Open accounts
3) Letters of credit
Leasing in International Markets
• Leasing opens the door to a large segment of nominally financed foreign firms that can be sold on a lease option but might be unable to buy for cash.
• Leasing can ease the problems of selling new, experimental equipment, since less risk is involved for users.
• Leasing helps guarantee better maintenance and service on overseas equipment.
• Equipment leased and in use helps to sell other companies in that country.
• Lease revenue tends to be more stable over a period of time than direct sales would be.
VII.Dumping: Selling goods overseas at a price lower than in the exporter’s home country or below cost.
A)Predatory vs. unintentional dumping
VIII.Gray Marketing - occurs when products are diverted from authorized channels in international markets and are sold at a lower price than is authorized by the manufacturer.
IX.Reasons for Increase in Gray Markets
1)More global products
2)Fluctuating exchange rates
5)“Free rider” opportunities
X.Dealing with Gray Markets
2)Adapt products to local markets
3)Change pricing policies