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Executing the Transactions

Section III. Executing the Transactions. Chapter 7. Pricing in International Trade. Export Competitiveness. Price and nonprice factors: - Reliability - Delivery time - Product reliability - Product quality - Design flexibility - Support services - Financial services.

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Executing the Transactions

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  1. Section III Executing the Transactions

  2. Chapter 7 Pricing in International Trade

  3. Export Competitiveness • Price and nonprice factors: - Reliability - Delivery time - Product reliability - Product quality - Design flexibility - Support services - Financial services

  4. Export Pricing Objectives • Market share • Profits • Targeted level of return on investment

  5. Pricing and Markup Policy • High markups (few competitors, differentiated products) • Low markups (increased competition)

  6. Determinants of Export Price • Internal variables • Cost of production • Cost of market research • Business travel • Product modification • Packing • Consultants • Freight forwarders • Level of product differentiation

  7. Determinants of Export Prices (cont.) • External variables • Supply and demand • Location and environment of foreign market • Home country regulations

  8. Approaches to Export Pricing • Cost-based pricing: Export price is based on full cost and markup or full cost plus a desired amount of return on investment. • Marginal pricing: Export price is based on the variable cost of producing the product.

  9. Approaches to Export Pricing (cont.) • Skimming versus penetration pricing: Price skimming is charging a premium price for a product; penetration pricing is based on charging lower prices for exports to increase market share. • Demand-based pricing: Export price is based on what the market could bear. • Competitive pricing: Export prices are based on competitive pressures in the market.

  10. Terms of Sale Group E • Ex-works: Buyer or agent must collect the goods at the seller’s works or warehouse. Group F • Free carrier (FCA): Place of delivery could be the carrier’s cargo terminal (seller not obligated to unload) or a vehicle sent to pick up the goods at the seller’s premises (seller required to load the goods on the vehicle).

  11. Terms of Sale (cont.) • Free alongside ship (FAS): Requires the seller to deliver goods to a named port alongside a vessel to be designated by the buyer. Seller’s responsibilities end on delivery alongside the vessel. • Free on board (FOB): Seller is obliged to deliver the goods on board a vessel to be designated by the buyer.

  12. Terms of Sale (cont.) Group C • Cost, insurance, freight (CIF): This term requires the seller to arrange for carriage by sea and pay freight and insurance to a port of destination. • Cost and freight (CFR): It is similar to CIF term except that the seller is not obligated to arrange and pay for insurance. • Carriage paid to (CPT): It is similar to CFR term except that it may be used for any mode of transportation. • Carriage and insurance paid (CIP): It is similar to CPT term except that the seller is required to arrange and pay for insurance.

  13. Terms of Sale (cont.) Group D • Delivery at frontier (DAF): Seller bears all risk of loss to the goods until the time they have been delivered to buyer at the frontier. • Delivery ex ship (DES): This term requires the seller to deliver goods to a buyer at an agreed port of arrival. • Delivery ex quay (DEQ): Seller is required to deliver goods at the quay at the port of destination. • Delivered duty paid (DDP): Goods placed at the buyer’s disposal on any means of transport not unloaded at the port of arrival. • Delivered duty unpaid (DDU): Similar to DDP except that the seller pays for import duties.

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