Ba447 International Pricing Considerations

2. Represents one of the most critical & complex issues in Int�l marketing (due to economic, financial & mathematical implications)

3. Price =sum of all values consumers exchange for benefits of having or using product �.

4. Price is only element in marketing mix that produces revenues; all others represent costs.

5. Pricing for International Markets Again the �basic Process� is �basically� the same

7. While the �basic Process� is �basically� the same it is nevertheless� more difficult to set & control prices when selling/operating Internationally for # of reasons

8. Complex & Varying Macro-Environmental Factors

9. Added layers of government & related bureaucratic costs Tariffs Sales taxes Fluctuating exchange rates Added administrative & legal costs Added promotional costs Added middlemen, transportation & channel costs Decreased familiarity & understanding of consumer calculation & evaluation of �value�

10. International Pricing Difficulties -Standardized pricing Differences in customers perceptions, spending power Nature & Scope of Competion in different markets Currency fluctuations Cost of logistics to different markets etc Difficulties -Differential pricing: Regional economic groupings result in increasing pressure towards price uniformity

11. Perhaps biggest headache will come from: Exchange Rate Fluctuations & Varying Currency Values: Currency values swing vis-�-vis other currencies on a daily basis

15. Added layers of government & related bureaucratic costs Tariffs Sales taxes Fluctuating exchange rates Added administrative & legal costs Added promotional costs Added middlemen, transportation & channel costs Decreased familiarity & understanding of consumer calculation & evaluation of �value�

17. Strategies to deal w/ Exchange Rate Fluctuations & Varying Currency Values:

19. Adjusting to Foreign Currency Fluctuations Forward rate exchange market �the exchange of currencies on a future date at an agreed upon exchange rate� Spot rate transaction �the exchange of currencies for immediate delivery� Price manipulation responses to currency movements -during a strong dollar Decrease the export price (absorption). Make no change in the dollar price (pass-through).

23. Countertrade A transaction with reciprocal commitments other than or in addition to cash cash.

24. Barter: is the direct exchange of goods between two parties in a transaction Compensation deals: is the payment in goods and in cash Counter-purchase or off-set trade: the seller agrees to sell a product at a set price to a buyer and receives payment in cash and may also buy goods from the buyer for the total monetary amount involved in the first contract or for a set percentage of that amount, which will be marketed by the seller in its home market Buy-back: This type of agreement is made the seller agrees to accept as partial payment a certain portion of the output that are produced from the plant or machinery that are sold to the buyer

26. COUNTERTRADING Approximately 25% of the international exchanges involve counter trading. Especially important to POOR COUNTRIES that have little cash for trade.

28. Is there a ready market for the goods bartered? Is the quality of the goods offered consistent and acceptable? Is an expert needed to handle the negotiations? Is the contract price sufficient to cover the cost of barter and net the desired revenue?

29. Countertrading Concerns Covert reduction of prices Circumvention of price & exchange controls May mask dumping activities Uniformly condemned though recognized as a necessity Countries actively engaged in countertrading while disparaging its use

30. One approach classifies international shipments as dumped if the products are sold below their cost of production The other approach characterizes dumping as selling goods in a foreign market below the price of the same goods in the home market

31. Another Pesky International Marketing Problem that a variation in the value of currencies between countries can cause is.....

32. Parallel Importing - develop when importers buy products from distributors in one country & sell them in another to distributors who are not part of the manufacturer�s regular distribution system The possibility of a parallel market occurs whenever price differences are greater than the cost of transportation between two markets. The flow of products thereby created is called parallel trade

33. Parallel Imports/ GREY MARKETING Other causes beyond variation in the value of currencies between countries On account of competition, firms may have to charge different prices from country to country Variation in the consumer demand &or perceptions between countries Purposefully restricted supply Pricing polices that permit large price differentials between country markets

34. For example, -- the heart drug Plavix costs $55 in France and sells for $79 in London Thus, it is possible for an intermediary to buy products in countries where it is less expensive and divert it to countries where the price is higher and make a profit Exclusive distribution, a practice often used by companies to maintain high retail �margins encourage retailers to stock large assortments, or to maintain the exclusive-quality image of a product, can create a favorable condition for parallel importing

37. Parallel imports can do long-term damage in the market for trademarked products Customers who unknowingly buy unauthorized imports have no assurance of the quality of the item they buy, of warranty support, or of authorized service or replacement parts If a product fails, the consumer blames the owner of the trademark, and the quality image of the product is sullied

38. �Parallel Importing is really disturbing� it takes years in marketing and promotions to make your products a leading brand then you see all your efforts go down the drain, as several retailers begin ordering direct from wholesalers abroad -- at a lower price. Due to their huge market, these wholesalers are able to obtain the best available price through volume purchase. This is not possible for us, consequently, we are not able to compete�

39. In the EU, parallel trade is commonplace and in some regions accounts for almost 20% of products utilized While in US practice is subject to increasingly strict regulatory guidelines Parallel Imports/ GREY MARKETING

41. In setting prices, managers need to consider the segment being targeted in a country for insight into price sensitivity, competition within the segment, and their costs. In addition, large price differences between country markets for the same brand can lead to product diversion through gray market distributors from higher priced to lower priced markets.

43. Additional complexities to address when determining your international pricing.. Terms of Delivery Terms of Payment

44. Key Variable in price determined by terms of delivery

45. Da terms-- Would you like: CIF, C&F, FAS, FOB FOB-icf FOB-pos Or FAS?

46. Who�s Responsible for Costs under Various Terms?

47. InternationalTransactions

49. Export Payment Terms Risk/Cost Tradeoff

50. Ultimatly Pricing Strategy depends on your Corporate Culture/ Orientation

52. Can Play the �ol international pricing shell game�

56. Your Pricing Objective

59. Can Drill down by country & segment

68. The expected discounts for the different distribution channels:

76. Selection of a Basis for Pricing Dimensions of Pricing Cost, demand, and competition Bases for Pricing Type of product Market structure of the industry Brand�s market share relative to competing brands Customer characteristics

77. Selection of a Basis for Pricing (cont�d) Cost-Based Pricing Adding a dollar amount or percentage to the cost of the product Cost-Plus Pricing Adding a specified dollar amount or percentage to the seller�s cost Markup Pricing Adding to the cost of the product a predetermined percentage of that cost

78. Selection of a Basis for Pricing (cont�d) Demand-Based Pricing Customers pay a higher price when demand for a product is strong and and a lower price when demand is weak. Effectiveness depends on marketer�s ability to estimate demand accurately. Competition-Based Pricing Pricing influenced primarily by competitors� prices Importance increases when competing products are relatively homogeneous May necessitate frequent price adjustments

81. Market Entry Pricing Skimming Vs. Penetration

82. Market Entry Pricing Low initial price with elastic demand Volume for lower production costs Imminent competition