slide1
Download
Skip this Video
Download Presentation
Chapter 18

Loading in 2 Seconds...

play fullscreen
1 / 14

Pricing for International Markets - PowerPoint PPT Presentation


  • 174 Views
  • Uploaded on

Chapter 18. Pricing for International Markets. International Pricing Approach. Full Cost vs Variable Cost. Skimming vs Penetration. Costs of Exporting.  Taxes  Tariffs  Administrative Costs  Inflation  Exchange Rate Fluctuations  Varying Currency Values.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Pricing for International Markets' - tuan


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
slide1

Chapter 18

Pricing for International Markets

international pricing approach
International Pricing Approach

Full Cost vs Variable Cost

Skimming vs Penetration

slide3

Costs of Exporting

 Taxes

 Tariffs

 Administrative Costs

 Inflation

 Exchange Rate Fluctuations

 Varying Currency Values

export strategies under varying currency conditions
Export Strategies Under VaryingCurrency Conditions

When Domestic Currency is WEAK...

When Domestic Currency is STRONG...

Stress, price benefits

Expand product line and add more costly features

Shift sourcing and manufacturing to domestic market

Exploit export opportunities in all markets

Conduct conventional cash-for-goods trade

Use full-costing approach, but use marginal-cost pricing to penetrate new/competitive markets

Engage in nonprice competition by improving quality, delivery, and after-sale service

Improve productivity and engage in vigorous cost reduction

Shift sourcing and manufacturing overseas

Give priority to exports to relatively strong-currency countries

Deal in countertrade with weak-currency countries

Trim profit margins and use marginal-cost pricing

SOURCE: S. Tamur Cavusgil, "Unraveling the Mystique of Export Pricing,"Business Horizons, May-June 1988, figure 2, p. 58.

export strategies under varying currency conditions5
Export Strategies Under VaryingCurrency Conditions

When Domestic Currency is WEAK...

When Domestic Currency is STRONG...

Speed repatriation of foreign-earned income and collections

Minimize expenditures in local, host country currency

Buy needed services (advertising, insurance, transportation, etc.) in domestic market

Minimize local borrowing

Bill foreign customers in domestic currency

Keep the foreign-earned income in host country, slow collections

Maximize expenditures in local, host country currency

Buy needed services abroad and pay for them in local currencies

Borrow money needed for expansion in local market

Bill foreign customers in their own currency

SOURCE: S. Tamur Cavusgil, "Unraveling the Mystique of Export Pricing,"Business Horizons, May-June 1988, figure 2, p. 58.

sample causes and effects of price escalation
Sample Causes and Effects of Price Escalation

Foreign Foreign Foreign

Example 1: Example 2: Example 3:

Assuming the Importer and Same as 2 but

same channels with same margins with 10 percent

Domestic wholesaler import- and channels cumulative

Example ing directly turnover tax

Manufacturing net $ 5.00 $ 5.00 $ 5.00 $ 5.00

Transport, c.i.f. n.a. 1.10 1.10 1.10

Tariff (20 percent c.i.f. value) n.a. 1.22 1.22 1.22

Importer pays n.a. n.a. 7.32 7.32

Importer margin when 1.83

sold to wholesaler +0.73 *

(25 percent) on cost n.a. n.a. 1.83 2.56

Wholesaler pays landed cost 5.00 7.32 9.15 +9.88

3.29 +0.99 *

Wholesaler margin (331/3 percent on cost) 1.67 2.44 3.05 =4.28

Retailer pays 6.67 9.76 12.20 14.16

7.08

+1.42 *

Retail margin (50 percent on cost) 3.34 4.88 6.10 =8.50

Retail price 10.01 14.64 18.30 22.66

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

price escalation the lower prices are at home
Price EscalationThe Lower Prices are at Home

New York London Paris Tokyo Mexico City

Aspirin $ 0.99 $ 1.23 $ 7.08 $ 6.53 $ 1.78

Cup of coffee 1.25 1.50 2.10 2.80 0.91

Movie 7.50 10.50 7.89 17.29 4.55

Compact disk 12.99 14.99 23.16 22.09 13.91

Levi 501 jeans 39.99 74.92 75.40 79.73 54.54

Ray-Ban sunglasses 45.00 88.50 81.23 134.49 89.39

Sony Walkman 59.95 74.98 86.00 211.34 110.00

Nike Air Jordans 125.00 134.99 157.71 172.91 154.24

Gucci men\'s loafers 275.00 292.50 271.99 605.19 157.27

Nikon camera 629.95 840.00 691.00 768.49 1,054.42

SOURCE: "Tourists and Bargains Galore," Fortune, June 13, 1994, p. 12.

cosmetics and haircare products imported into south africa
Cosmetics and Haircare ProductsImported into South Africa

Effect of Import Duties on Costs

Product Category:

Destination:

Duties:

Additional Taxes:

Result:

Cosmetics and Haircare Products Containing Alcohol.

South Africa

Importer pays duties, Specific Excise Taxes, and Import Surcharges based on F.O.B. value of product.

Ad Valorem Excise Tax assessed on F.O.B. value, plus 15 percent of F.O.B value, plus Import Duty and Value-added Tax based on F.O.B Value, Plus 14% of that value, plus the total of all non-rebated customs duties.

An item classified as a cosmetic and Haircare product with a F.O.B. value of $ 1 escalates to a final cost of $ 2.73.

cosmetics and haircare products imported into south africa9
Cosmetics and Haircare ProductsImported into South Africa

Calculations:

Duties: Import Duty = 40.0% Ad Valorem Excise Tax = 37.5% Import Surcharge = 40.0% VAT = 14.0%

Calculations: Import Duties = $0.40 (40% of F.O.B. Ad Valorem Excise Tax = 0.58 (See Calculations below) Import Surcharge = 0.40 (40% of F.O.B.)

(A) Total Duties = $ 1.38

Calculations: F.O.B. Value = $ 1.00 15 Percent of F.O.B. = 0.15 Import Duty = 0.40

(B) Subtotal Ad Valorem Value = $ 1.55 (C) AD Valorem Tax 37.5% of (B) = 0.58

SOURCE: South Africa\'s Customs Tariff (USDA Near East) August 1993.

cosmetics and haircare products imported into south africa10
Cosmetics and Haircare ProductsImported into South Africa

The VAT Tax is calculated as follows:

Calculations: F.O.B. = $ 1.00 14% of F.O.B. = 0.14 Total duties (A) above = 1.38

(D) Subtotal VAT value $ 2.52 (E) VAT = 14% of (D) $ 2.52 0.35

The final cost to the South African importer for these cosmetics is the F.O.B. value, plus all duties, plus the VAT which equals $ 2.73.

Calculations: F.O.B. = $ 1.00 Total Duties (A) = 1.38 VAT (E) = 0.35

Final cost to importer = $ 2.73

SOURCE: South Africa\'s Customs Tariff (USDOC Near East) August 1993.

slide11

Lessening Price Escalation

  •  Lower Cost of Goods
    • Lower Manufacturing Costs
    • Eliminate Functional Features
    • Lower Quality
  •  Lower Tariffs
    • Tariff Reclassification
    • Product Modification
    • Partial Assembly
    • Repack aging
  •  Lower Distribution Costs
    • Shorten Channels of Distribution
    • Lower Shipping Costs
  •  Foreign Trade Zones
lessening in international markets
Lessening 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.

countertrades
Countertrades

Barter

Compensation Deals

Counterpurchase or Offset Trade

Product Buy-Back Agreement

why purchasers impose countertrade obligations
Why Purchasers ImposeCountertrade Obligations

To Preserve Hard Currency

To Improve Balance of Trade

To Gain Access to New Markets

To Upgrade Manufacturing Capabilities

To Maintain Prices of Export Goods

ad