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Global Pricing Decisions

Global Pricing Decisions. Overview Of the four P’s, price alone generates revenue. Competitive pricing enhances market position and earnings. Pricing Methods. Cost-Oriented Methods - Focus on Cost, Not Market Conditions 1. Markup pricing - adding markup to unit cost of product

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Global Pricing Decisions

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  1. Global Pricing Decisions • Overview Of the four P’s, price alone generates revenue. Competitive pricing enhances market position and earnings

  2. Pricing Methods • Cost-Oriented Methods - Focus on Cost, Not Market Conditions 1. Markup pricing - adding markup to unit cost of product • Information needed: fixed cost, variable cost, expected sales, markup • Appeal is simplicity • Risks: overpricing and underpricing

  3. Pricing Methods • Drawbacks: lacks marketing orientation, difficult to implement • Advantage: firm won’t be blamed for price discrimination 2. Standard pricing - charging the same price in all countries

  4. Pricing Methods • Information needed: total investment, desired target return, unit cost, expected sales • Drawbacks: lacks marketing orientation, sales and cost estimates must be accurate 3. Target return pricing - setting a target rate or return

  5. Pricing Methods • Market-Oriented Methods - Focus on Both Market Conditions and Cost • Market-based pricing - may attract accusations of unfair pricing and encourage the practice of gray marketing • Strategic pricing-setting minimum standard price while giving local managers freedom to charge more

  6. Strategic Issues in Global Pricing • Managing Price Escalation - Increased Cost Due to International Product Transfers • Ship components, assemble locally • Downsize • Shorten distribution channel • Increase overall productivity

  7. Strategic Issues in Global Pricing • Transfer Pricing - Price Charged for Goods Transferred Intraorganisationally • Exchange Rate Fluctuations - Must Be managed to Control Gray Marketing and Accusations of Dumping

  8. Strategic Issues in Global Pricing • Gray marketing or Parallel Imports - Buying in Low-Price Countries, Selling in High-Price Countries • Causes: market-based pricing and exchange rate fluctuations • Remedial measures: narrow price differential, differentiate product

  9. Strategic Issues in Global Pricing • Dumping - Selling at Price Below Normal Value in Export Market • Sporadic - to reduce surplus inventory • Predatory - to drive out competitors, to gain market control • Persistent - high prices in protected markets, low in competitive markets

  10. Terms of Payment • EXW (Ex Works) - For Goods at Point of Origin • FAS (Free Alongside Ship) - For Goods Delivered Alongside Vessel • FOB (Free on Board) - For Goods Aboard Vessel • C&F (Cost and Freight) - For Goods at Overseas Port

  11. Terms of Payment • CIF (Cost, Insurance, Freight) - For Goods at Point of Debarkation • CPT (Carriage Paid To) - same as C&F for Nonwater Transportation • CIP (Carriage and Insurance Paid To) - Same as CIF for Nonwater Modes

  12. Modes of Payment • Cash in Advance • Open Account - Payment for Goods at Future Date

  13. Modes of Payment • Letter of Credit - Issued by a Bank • Revocable - can be altered by buyer after issuance • Irrevocable - cannot be altered without an agreement between the buyer and the seller • Confirmed -seller assured of payment by seller’s bank • Confirmed Irrevocable

  14. Modes of Payment • Draft or Bill of Exchange - Negotiable Instrument 1. Sight - payable upon presentation 2. Time - payable within specified period 3. Date - payable on specific future date

  15. Modes of Payment • Forfating - seller Paid by Bank, Not Buyer • Countertrade - Payment in Whole or in Part by Goods or Services • Barter - no money changes hands • Counterpurchase - goods purchased from each other with cash • Compensation deals - payment in both cash and goods • Buyback arrangements

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