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Chapter 14 Pricing Strategies and Tactics
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  1. Chapter 14 Pricing Strategies and Tactics

  2. Price Dynamics • Price • Competitive tool • Pricing decisions

  3. Price Dynamics • The alternatives strategies for first-time pricing are: • Skimming: • Market pricing: • Penetration pricing:

  4. Price Dynamics • Price changes occur when • In multiple-product pricing, items are priced indicating:

  5. The Setting of Export Prices • Factors to be considered while establishing the basic premise for pricing:

  6. The Setting of Export Prices • Export pricing strategy • Standard worldwide price: • Dual pricing: • Cost-plus method: • Marginal cost method: • Market-differentiated pricing:

  7. The Setting of Export Prices • Export-related costs: Exist along with the normal costs • Include:

  8. The Setting of Export Prices • Price escalation: • Value-added tax (VAT):

  9. The Setting of Export Prices • Methods that focus on cost cutting are:

  10. Terms of Sale • Incoterms:

  11. Terms of Payment • Exporter’s credit policy determines: • Factors for negotiating terms of payment:

  12. Terms of Payment • Cash in advance: • Most favorable term to the exporter • Letter of credit:

  13. Terms of Payment • Draft: • Documentary collection: • Shipping documents and the draft are presented to the importer through banks acting as the seller’s agent

  14. Terms of Payment • Banker’s acceptance: • Discounting: • Open account:

  15. Terms of Payment • Consignment selling: • Most favorable term to the importer

  16. Getting Paid for Exports • Commercial risk: • Commercial defaults result from: • Political risk:

  17. Getting Paid for Exports • Factors that complicate the assessment of a foreign private buyer:

  18. Managing Foreign Exchange Risk • Approaches to protect against currency related risks: • Forward exchange market: • At which it will buy the foreign currency the exporter will receive when the importer makes payment

  19. Managing Foreign Exchange Risk • An option: • Currency futures market: • Minimum transaction sizes are smaller on the futures market

  20. Managing Foreign Exchange Risk • Techniques to adjust pricing in view of either a more favorable or an unfavorable domestic currency rate: • Pass-through: • Absorption: • The goal is long-term market-share maintenance in a highly competitive environment

  21. Managing Foreign Exchange Risk • Pricing-to-market: • Other adjustment strategies

  22. Sources of Export Financing • International marketers assist customers abroad in securing appropriate financing • Export financing terms affect the final price paid by buyers • Commercial banks

  23. Sources of Export Financing • Forfaitingand Factoring • Forfaiting: • The importer pays the exporter with bills of exchange or promissory notes

  24. Sources of Export Financing • Benefits to the exporter are: • Factoring houses: • Provide the exporter with complete financial package –

  25. Sources of Export Financing • Official trade finance –

  26. Sources of Export Financing • Advantages of trade financing:

  27. Leasing • Leasing companies develop new value-added services • Lessors have evolved into partners in business activities

  28. Pricing within Individual Markets • It is determined by: • Corporate objectives: • Costs: Used as a basis for price determination • Include • Customer behavior and market conditions: Demand sets a price ceiling • Price elasticity of consumer demand:

  29. Pricing within Individual Markets • Market structure: • Environmental constraints

  30. Pricing Coordination • Necessary in regional markets such as the European Union • Important with more global and regional brands in the global marketer’s offering • Has to be on worldwide basis as parallel imports surface in markets in which price discrepancies exist

  31. Transfer Pricing • Pricing of sales to members of the extended corporate family • Has to be managed in a world characterized by:

  32. Transfer Pricing • Establish the appropriate transfer price to achieve the following objectives:

  33. Transfer Pricing • From a company-wide perspective: • Can be based on costs or on market prices • Allows the company to repatriate revenues

  34. Transfer Pricing • International transfer pricing objectives leads to conflicting objectives when: • Three philosophies of transfer pricing have emerged over time: • Arm’s-length price:

  35. Transfer Pricing • Transfer pricing challenges • Performance measurement • Taxation • External -

  36. Countertrade • Countertrade: Conditions that support business activities are:

  37. Countertrade • Countertrade transactions are beneficial • Use of countertrade

  38. Countertrade • Excellent mechanism to gain entry into new markets • Provides stability for ________ sales • Under certain conditions, it ensures the quality of an international transaction