Chapter 11: Export Pricing

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Chapter 11 Export Pricing
Presented by Samantha Koepp Natalia
Nolazco Francis Oliver
Texas A M Corpus Christi Summer 2008 July
28, 2008
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Price Is Dynamic

• Of the 4 Ps, price is about revenue
• Changes with market conditions
• Pricing should involve whole firm

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Pricing Challenges

• First-time pricing
• Skimming
• Market pricing
• Penetration pricing
• Changing pricing
• New product launch
• Change in cost of production
• Multiple-product pricing
• Economy, standard, luxury
• Fighting brand

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Determining Export PricesAssessment of Pricing
Environment

• External
• Market-related factors
• Nature of demand/target audience characteristics
• Government regulations
• Exchange rate stability
• Industry-related factors
• Competition intensity
• Nature of competition

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Determining Export PricesAssessment of Pricing
Environment

• Internal
• Marketing mix
• Product characteristics
• Distribution system
• Promotion needs
• Company characteristics
• Extent of internationalization
• Countries exported to
• Management attitudes
• Importance of exports
• Overall price position of the firm

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Pricing Policy Selection

• Objectives
• Profit maximization, market share, survival, ROI
• Competitive posture
• Copying competition prices, pricing to deter new
  entrants
• Decision control
• Degree of local control
• Flexibility

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Pricing Strategy Determination

• Standard worldwide price
• Differentiation/dual pricing
• Cost-based
• Cost-plus method
• Marginal cost method
• Market-based

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Price Escalation

• 1,300 Geochron clock becomes a 3,800 bargain in
  Japan
• Product modifications to fit foreign market
• Operational costs personnel, research,
  communication costs
• For-ex, credit, political risk tariffs/taxes

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Remedy for Price EscalationCost-cutting

• Shorten distribution channel
• Product adaptation cheaper components, optional
  features
• Take advantage of tariff/tax classifications
• Assemble/produce overseas Duty drawbacks

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Terms of Sale Incoterms

• EXW FCA FAS FOB
• CFR CIF CPT/CIP
• DDU - DDP

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Terms of Payment

• Amount of payment
• Competitors terms
• Industry practices
• Capacity for financing international transactions
• Relative strength of each party

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Methods of Payment

• Cash in advance
• Confirmed letter of credit
• Letter of credit
• Documents against payment
• Documents against acceptance
• Open account
• Consignment

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Letter of Credit

• Irrevocable/revocable
• Confirmed/unconfirmed
• Revolving/nonrevolving
• Drafts
• Sight draft
• Time draft
• Bankers acceptance
• Traders acceptance
• Discounting

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Foreign Exchange Risk

• Forward exchange
• Customized
• 1,000,000
• Futures
• Standard contracts of smaller size
• Options

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Pricing Strategy

• Pass through
• Absorption
• Pricing-to-market
• Locating cost centers

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Export Financing

• Commercial banks
• Services provided
• Affiliate network
• Forfaiting/factoring
• Official trade finance
• Export-Import Bank

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Leasing and Dumping

• Leasing
• Opportunity to add services
• Higher net income after write-offs
• Ability to lease in countries with trade deficits
• Dumping
• Predatory
• unintentional

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Chapter 17 Global Pricing

• Presented by
• Samantha Koepp
• Natalia Nolazco
• Francis Oliver

Texas A M Corpus Christi Summer 2008 July
28, 2008
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Transfer Pricing

• 2/3 of world trade takes place between related
  parties
• Appropriate pricing must be set to achieve
• Global competitiveness
• Reduction of tariffs and taxes
• Management of cash flows
• Minimization of foreign risk
• Avoidance of conflicts with governments
• Internal concerns

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Factors that influence transfer pricing

• Market conditions in target countries
• Competition in target countries
• Corporate taxes
• Economic conditions in target countries
• Import restrictions
• Customs duties
• Price controls
• Exchange controls
• Reasonable profit for foreign affiliates

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Achieving corporate goals with transfer pricing

• Cost based
• Market based
• Arms length price
• Tax liability
• U.S. 40
• EU 31.32
• Latin America 30.2
• Asia 30.37
• Poland and Slovakia 19

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Transfer Pricing Challenges

• Performance measurement
• Arm length pricing methods
• Comparable uncontrolled
• Resale
• Cost plus
• Comparable profits
• Profit split

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Pricing within individual markets

• Corporate objectives
• Financial
• Marketing related
• Costs
• Varying inflation rates
• Economic conditions
• Customer behavior and market conditions
• Price elasticity
• Consumers perception

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Pricing within individual markets

• Market Structure
• Price war
• Non price war
• Environmental constraints
• Price controls
• Defenses

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Dealing with Financial Crisis Causes of the
Crises

• Corporate socialism
• Corporate governance
• Banking stability management
• Global impact

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Dealing with Financial Crisis Consumer
Adjustment

• General reactions
• Reduce consumption wastefulness, careful
  decision-making, search for info.
• Product adjustments
• Necessities rather than luxuries, generic brands,
  local brands, smaller quantities
• Price adjustments
• Life cycle cost durability / value, economical
  prices
• Promotion adjustments
• Rational approach, reduce attraction to gifts,
  information rather than imagery
• Shopping adjustments
• Increased window shopping, discount stores, fewer
  end-of-aisle purchases

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Dealing with Financial Crisis Marketer Adjustment

• Marketing-mix strategies
• Withdraw for weak markets, fortify strong
  markets, acquire weak competitors, consider youth
  markets, resale market for durables
• Product strategies
• Prune weak products, avoid introducing new
  products, adaptive positioning, etc.
• Pricing strategies
• Improve quality while maintaining price, reduce
  price while maintaining quality, consider product
  life-cycle pricing
• Promotion strategies
• Maintain advertising budget, focus in print
  media, expert endorsements, advisory tone, etc.
• Distribution strategies
• Location is critical, sell in discount
  wholesale centers, prune marginal dealers,
  alternative channels.

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The Euro and Marketing Strategy

• Euro
• only one currency for 12 European nations as of
  January 1, 2002.
• firms required to reexamine business positioning
  (adv vs. disadv)
• push national markets closer with single currency
  and single cross-border price.
• Marketing strategy changes
• Transparent prices - require stronger promotions
  and education of products to consumers.
• seek to lower prices as slowly as possible.
• Make sure price differences reflect quality and
  service differences.

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Countertrade

• A sale that encompasses more than an exchange of
  goods, services, or ideas for money.
• A type of barter arrangement
• Beneficial to some countries than financial
  transactions alone
• Mechanism for firms to gain entry to new markets
• Long-term sales stability.
• Open markets for uncompetitive goods
• E-commerce may help develop online global trade
  economy to increase benefits of Countertrade

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Types of Countertrade

• Counter purchase or parallel barter
• two separate contracts and may include cash
• allows for imbalance in value of goods exchanged
• Buy pack or compensation arrangement
• supply of technology/equipment to produce goods
  sold with supplies brand for repayment
• Barter
• Exchange of goods, no money involved.
• Clearing arrangements
• clearing accounts established deposit/withdraw of
  countertrade activities - including
  switch-trading
• Switch-trading
• Credits in the account can be sold or transferred
  to third-party.
• Offset
• coproduction, licenses production,
  subcontracting, technology transfer, overseas
  investment

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Preparing for Countertrade

• In-House vs. Third Parties
• Import priorities.
• Goods highly desired vs. luxurious
• Counter trade cost into pricing.
• Determine goals objectives of the
  countertrading parties.
• Match strengths of the firm.
• Decide whether it should engage in countertrade.
• Asses risks involved.
• Evaluate the countertrade products.
• Evaluate the length of the relationship
  w/countertrade partner.

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Thank you Questions?