International Marketing - Chapter 18: Pricing for International Markets

Chapter 18Pricing for International MarketsInternational Marketing15th edition Philip R. Cateora, Mary C. Gilly, and John L. GrahamPricing PolicyParallel ImportsParallel importsDevelop when importers buy products from distributors in one country and sell them in another to distributors who are not part of the manufacturer’s regular distribution systemOccur whenever price differences are greater than cost of transportation between two marketsMajor problem for pharmaceutical companiesExclusive distribution.Roy Philip 2Variable-cost pricing Firm is concerned only with the marginal or incremental cost of producing goods to be sold in overseas marketsFull-cost pricing Companies insist that no unit of a similar product is different from any other unit in terms of cost Each unit must bear full share of the total fixed and variable costFull-Cost Versus Variable-Cost PricingRoy Philip 3Skimming Versus Penetration PricingSkimming Used by a company when the objective is to reach a segment of the market that is relatively price insensitive Market is willing to pay a premium price for the value receivedPenetration pricing policy Used to stimulate market and sales growth by deliberately offering products at low pricesRoy Philip 4Sample Causes and Effects of Price EscalationRoy Philip 5Exhibit 18.2Approaches to Lessening Price Escalation (1 of 2)Lowering cost of goodsManufacturing in a third countryEliminating costly functional featuresLowering overall product qualityLowering tariffsReclassifying products into a different, and lower customs classificationModify product to qualify for a lower tariff rate within classificationRequiring assembly or further processingRepackagingRoy Philip 6Approaches to Lessening Price Escalation (2 of 2)Lowering distribution costsShorter channelsReducing or eliminating middlemenUsing foreign trade zones to lessen price escalationEstablish free trade zones (FTZs) or free portsTax-free enclave not considered part of countryPostpones payment of duties and tariffsDumpingUse of marginal (variable) cost pricingSelling goods in foreign country below the price of the same goods in the home marketRoy Philip 7How Are Foreign Trade Zones Used?Roy Philip 8Exhibit 18.3Leasing in International Markets(1 of 2)Selling technique that alleviates high prices and capital shortagesOpens the door to a large segment of nominally financed foreign firms Firms can be sold on a lease option but might be unable to buy for cashCan ease the problems of selling new, experimental equipment Because less risk is involved for the users9Roy Philip Leasing in International Markets(2 of 2)Helps guarantee better maintenance and service on overseas equipmentHelps to sell other companies in that countryRevenue tends to be more stable over a period of time than direct salesLeasing disadvantagesInflation may lead to heavy losses at end of contract periodCurrency devaluation, expropriation and political risks10Roy Philip Countertrade as a Pricing ToolTypes of countertradeBarterCompensation dealsCounterpurchase or offset tradeProduct buyback agreement11Roy Philip Countertrade as a Pricing ToolProblems of countertradingDetermining the value of and potential demand for the goods offeredBarter housesThe Internet and countertradingElectronic trade dollarsUniversal Currency/IRTAProactive countertrade strategyIncluded as part of an overall market strategyEffective for exchange-poor countries12Roy Philip Transfer Pricing Strategy(1 of 2)Prices of goods transferred from a company’s operations or sales units in one country to its units elsewhereMay be adjusted to enhance the ultimate profit of companyBenefitsLowering duty costsReducing income taxes in high-tax countriesFacilitating dividend repatriation when dividend repatriation is curtailed by government policy13Roy Philip Transfer Pricing Strategy(2 of 2)ObjectivesMaximizing profits for corporationFacilitating parent-company controlProviding all levels of management control over profitabilityArrangements for pricing goods for intracompany transferSales at the local manufacturing cost plus a standard markupSales at the cost of the most efficient producer in the company plus a standard markupSales at negotiated pricesArm’s-length sales using the same prices as quoted to independent customers14Roy Philip