This document discusses global pricing strategies in international marketing. It begins by explaining that international pricing is more complex than domestic pricing due to additional factors like exchange rate fluctuations and inflation. It then outlines various pricing approaches used in international markets, including cost-based pricing, full cost pricing, and marginal cost pricing. Marginal cost pricing sets price at or above marginal cost to maximize contributions. The document also discusses market-based pricing and uses an example to illustrate how to calculate international prices using a top-down approach. Finally, it briefly explains countertrade as a pricing tool, providing examples of different countertrade types like barter, counterpurchase, offset, and switch trading.
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International marketing has become a major concern
for business schools to develop global strategies
to lead and sustain in the much expanded and
competitive arena. Liberalization thus catalyzing
market competition, poses challenge for the
managers in handling the rigors of expanding
global marketplace.
Syllabus aims at providing contemporary
knowledge & skills on issues of global
marketing management.
IILM-GSM
Importance of this course
Global Marketing Management
3. 07/06/10 3
Course: Global Marketing Management
1. Framework of Global Marketing Management
2. Global Marketing Research
3. Decision Making in International Marketing
4. Foreign Market Entry & Export Marketing
5. Product Planning & Development
6. Global Pricing Strategies
7. Global Distribution System
8. Promoting Product Internationally
IILM-GSM
Global Marketing Management
5. 07/05/10 5
Contents
• International Pricing Compared to Domestic Pricing
• International Pricing Objectives/ Strategies
• International Pricing Framework
• Pricing Approaches for International Markets
Cost-based Pricing
Full-cost Pricing
Marginal cost pricing
Market-based Pricing
• Countertrade as a Pricing Tool
• Terms of Payment in International Marketing
IILM-GSM
Global Marketing Management Global Pricing Strategies
6. 07/05/10 6
International Pricing Compared to
Domestic Pricing
In International markets, however, pricing decisions are
much
more complex, because they are affected by a number of
additional external factors, such as
• Fluctuation in Exchange Rates
• Accelerating Inflation in Certain Countries
• Use of alternative payment methods such as leasing,
barter and counter-trade
IILM-GSM
Global Marketing Management Global Pricing Strategies
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International Pricing Objectives
In order to determine the price of a new product in the
international market, the objectives are as:
1. Maximum Current Profit
2. Maximum Market share
3. Maximum Market Skimming
4. Product-Quality Leadership
IILM-GSM
Global Marketing Management Global Pricing Strategies
SKIMMIMG
PENETRATION
PRICING
High price
Low price
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International Pricing Framework
IILM-GSM
Global Marketing Management Global Pricing Strategies
INTERNAL EXTERNAL
Firm-Level Factors
• Corporate & marketing
objectives
• Competitive strategy
• Firm positioning
• Product development
• Production location
• Market entry modes
Environmental Factor
• Government influences and
constraints: import control,
taxes, price control
• Inflation
• Currency fluctuation
• Business cycle stage
Product Factors
• Stage in PLC
• Place in product line
• Important product features
• Product positioning
• Product cost structure
(manufacturing, experience
effects, etc)
Market Factors
• Customers’ perceptions
• Customers’ ability to pay
• Nature of competition
• Competitors’ objectives,
strategies and relative SW
• Grey market appeal
Pricing Strategies
• Pricing level (first-time)
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International Pricing Framework
IILM-GSM
Global Marketing Management Global Pricing Strategies
INTERNAL EXTERNAL
Firm-Level Factors Environmental Factor
Product Factors Market Factors
Pricing Strategies
• Pricing level (first-time)
• Price changes over PLC
• Pricing across products
• Pricing across countries
Terms of business
• Terms of sale
• Terms of payment
Other elements
of marketing mix
Firm performance
Sales, shares, contribution
margins, profits, image etc.
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Pricing Approaches for International
Markets
IILM-GSM
Global Marketing Management Global Pricing Strategies
The various approaches/ strategies used for pricing in
international markets are as:
1. Cost-based Pricing
2. Full Cost Pricing
3. Marginal Cost Pricing
4. Market-based Pricing
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Pricing Approaches for International
Markets: Cost-based Pricing
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Global Marketing Management Global Pricing Strategies
• Costs are widely used by firms to determine prices in
international markets especially in the initial stages.
• Generally, new exporters determine export prices on
‘ex-works’ price level and add a certain percentage
of profit and other expenses depending upon the
terms of delivery.
It is a popular myth that costs determine the
price, specially in international markets.
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Pricing Approaches for International
Markets: Cost-based Pricing
IILM-GSM
Global Marketing Management Global Pricing Strategies
However, such cost-based pricing methods are not
Optimum because of following reasons:
The price quoted by the exporter on the basis of
cost calculations may be too low vis-à-vis
competitors, thus allowing importers to earn huge
margins.
The price quoted by the exporters may be too high,
making their goods uncompetitive and resulting in
outright rejection of the offer.
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Pricing Approaches for International
Markets: Cost-based Pricing
IILM-GSM
Global Marketing Management Global Pricing Strategies
It is a popular myth that costs determine the
price.
• In fact, it is the interaction of a variety of factors such
as costs, competitive intensity, demand, structure,
consumer behavior etc. that contributes to price
determination in international markets.
• Therefore, a market-based pricing approach is
generally preferred to a cost-based pricing approach.
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Pricing Approaches for International
Markets: Full Cost Pricing
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Global Marketing Management Global Pricing Strategies
• It includes adding a mark-up on the product’s cost to
determine price.
• Now assume, manufacturer wants to earn a 20 % markup
on sales. The manufacturer’s markup price is given by:
Markup price =
e.g. Phillips, wanted to make a profit on each player but
Japanese competitors priced low and succeed in
building their market share rapidly.
UNIT COST
(1- Desired return on sales)
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Pricing Approaches for International
Markets: Full Cost Pricing
IILM-GSM
Global Marketing Management Global Pricing Strategies
The major benefits of this approach are:
It ensures fast recovery of investments.
It is useful for firms that are primarily dependent on
the international markets and register very low
sales in domestic markets.
It is widely used by exporters in the growth phases
of international marketing.
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Pricing Approaches for International
Markets: Marginal Cost Pricing
IILM-GSM
Global Marketing Management Global Pricing Strategies
• As the intensity of competition in international
markets is much higher than the domestic market,
competitive pricing becomes a precondition for
success.
• A large number of firms adopt this pricing approach.
Marginal cost is the cost of producing and selling one
more unit. It sets the lower limit to which a firm can
reduce its price without affecting its overall
profitability.
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Pricing Approaches for International
Markets: Marginal Cost Pricing
IILM-GSM
Global Marketing Management Global Pricing Strategies
Variable Cost
Volume
TotalCost
Domestic Sales Exports
Fixed Cost
Variable
Cost
Total Costs Marginal Cost
(MC)
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Pricing Approaches for International
Markets: Marginal Cost Pricing
IILM-GSM
Global Marketing Management Global Pricing Strategies
Major reasons for adopting this approach are:
• In cases where foreign markets are used to dispose of
surplus production, marginal cost pricing provides an
alternate market outlet.
• Products from developing countries seldom compete on
the basis of brand image or unique value, MCP is used as
a tool to penetrate international markets.
Why it makes sense to use Marginal Costing
in Export Pricing?
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Pricing Approaches for International
Markets: Marginal Cost Pricing
IILM-GSM
Global Marketing Management Global Pricing Strategies
Twinkle Illuminations is a Kolkata-based firm with an
installed capacity of producing 10,000 units of
designer lamps per annum with a fixed cost of US$
500,000. The variable cost is US$ 100 per unit. It
sells 5,000 units in domestic market at $230 per unit.
The firm receives an export order for 40,000 units @ US$
130 per unit. Now the firm has to decide whether it would
be able to export 40,000 units at US$ 130 per unit.
Apparently, it does not cover the total cost of US$ 200 per unit.
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Pricing Approaches for International
Markets: Marginal Cost Pricing
IILM-GSM
Global Marketing Management Global Pricing Strategies
• The firm would receive a contribution of US$ 30 per
unit for export.
Contribution = Selling Price – Variable Price
= US$ 30
It works out a total contribution on 40,000 units as US$
1200,000. It would lose this contribution in case the firm
does not accept the export order.
• The firm finds it difficult to sell beyond 5,000 units in
domestic market; so it has to look for alternative
marketing opportunities overseas.
The implication of accepting this order as follows:
21. Pricing Approaches for International
Markets: Market-based Pricing
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Global Marketing Management Global Pricing Strategies
INCOTERMS 2000 and its Applicability
Category Applicable for
sea transport
only
Applicable for all
modes of transport
(including water)
Departure terms EXW (ex-works)
Shipment terms,
main carriage
unpaid
FAS (Free alongside
ship)
FOB (Free on board)
FCA (Free carrier)
Shipment terms,
main carriage
unpaid
CFR (cost and freight)
CIF (cost, insurance and
freight)
CPT (carriage paid to)
CIP (carriage and insurance
paid to)
Delivery terms DES (delivered ex ship)
DEQ (delivered ex quay)
DAF (delivered at frontier)
DDU (delivered duty unpaid)
DDP (delivered duty paid)
22. Pricing Approaches for International
Markets: Market-based Pricing
IILM-GSM
Global Marketing Management Global Pricing Strategies
INCOTERMS 2000 and its Applicability
EXW (Ex Works) named place: It refers to any mode of
transportation. The seller makes goods available to the buyer at the
seller’s premises or other location, not cleared for export and not
loaded on a vehicle. The buyer bears all risks and costs involved in
taking the goods from the seller’s premises and thereafter.
FOB (Free on Board) named port of shipment: Maritime and
inland waterway only; seller delivers when the goods pass the
ship’s rail at the named port. The seller clears the goods for export.
CIF (Cost, Insurance and Freight) named port of destination:
The seller delivers the goods when the goods pass the ship’s rail at
the port of export. The seller pays cost and freight for bringing the
goods to the foreign port, obtain insurance against the buyer’s risk
of loss or damage, and clears the goods for export.
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Pricing Approaches for International
Markets: Market-based Pricing
IILM-GSM
Global Marketing Management Global Pricing Strategies
Top-down Calculation for International Pricing
Consumer Price 1160
VAT 160 + 16%
Market Price minus VAT 1000
Margin retailer 250 = 25%
Price to retailer 750
Margin wholesaler 90 + 12%
Price to wholesaler 660
Margin to importer 33 + 05%
Landed-cost Price 627
Import duties 110 + 20%
Other costs (storage, banking) 17
CIF (port of destination) 500
24. Pricing Approaches for International
Markets: Market-based Pricing
IILM-GSM
Global Marketing Management Global Pricing Strategies
Top-down Calculation for International Pricing
CIF (port of destination) 500
Transportation costs 130
Insurance costs 6
FOB (port of shipment) 364
Transportation costs factory to port 34
Export price ex-works (EXW) 330
Factory cost price 300
Export profit (per unit) 30
The ‘ex-works’ price US$ 330 is 28.4% of the price paid by the
consumer. It works out to be a ‘multiplier’ of 3.5. This
‘multiplier’ is used as a calculating aid while offering price
quotations in international markets.
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Countertrade as a Pricing Tool
IILM-GSM
Global Marketing Management Global Pricing Strategies
Countertrade is a unique way of setting overseas transactions.
At times, countries experience difficulty in generating
enough foreign exchange to pay for imports. They,
therefore, need to devise creative ways to get the products
they want.
For example, Canada and Australia found that they had to
enter into special agreement with McDonnell Douglas to
pay for military aircraft they wanted to purchase. Thus,
both MNCs and governments often are forced to resort to
creative ways of setting payment, many of which involve
trading of goods for goods as a part of the transaction.
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Different Types of Countertrade
IILM-GSM
Global Marketing Management Global Pricing Strategies
Countertrade occurs when a firm accepts something than
money as payment for its goods or services. Thus,
countertrade is essentially a barter trade.
CounterTrade
Barter
Switch
Trading
Counter
Purchase
OffsetBuy-back
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Barter:
• Barter is the direct exchange of goods/services
between two parties without a cash transaction.
• In 1993, Eminence S A, one of France’s major cloth
makers, launched a five-year deal to barter $25
million worth of US produced underwear and
sportswear to customers in eastern Europe in
exchange for a variety of goods/services.
• Though examples do exist, barter is not very
common.
Different Types of Countertrade
IILM-GSM
Global Marketing Management Global Pricing Strategies
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Barter:
• There are two-fold problems associated with barter:
First, if goods are not exchanged simultaneously, one party
ends up financing the other for a period.
Secondly, firms engaged in barter run the risk of having to
accept the goods they do not want, cannot use, or having
difficulty reselling at a reasonable price.
• For these reasons, barter is viewed as the most
restrictive countertrade arrangement.
• It is primarily used for one-time only deals in transactions
with trading partners who are not creditworthy or
trustworthy.
Different Types of Countertrade
IILM-GSM
Global Marketing Management Global Pricing Strategies
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Counterpurchase:
• This is reciprocal buying agreement.
• It occurs when a firm agrees to purchase a certain amount of
materials back from a country to which a sale is made.
• Suppose a US firm sells some products to China. China pays
the US firm in dollars, but in exchange, the US firm agrees to
spend some of its proceeds from the sale on textiles produced
by China.
Thus, although China must draw on its foreign exchange
reserves to pay the US firm, it knows it will receive
some of these dollars back because of the
counterpurchase agreement.
Different Types of Countertrade
IILM-GSM
Global Marketing Management Global Pricing Strategies
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Counterpurchase:
In one counterpurchase deal, Rolls Royce sold jet parts
to Finland. As part of agreement, Rolls-Royce
agreed to use some of the proceeds from the sale of
purchase Finish-manufactured TV sets that it would
sell in UK.
Brazil has long been exporting vehicles, steel and farm
products to oil producing countries, from which it
buys oil in return.
Different Types of Countertrade
IILM-GSM
Global Marketing Management Global Pricing Strategies
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Offset:
• An example for an offset deal is that PepsiCo sells its
cola syrup to Russia for roubles and agrees to buy
Russian Vodka at a certain rate for sale in the US.
• Going by this example, offset resembles counterpurchase
agreement. But there is difference. The difference is that
Pepsi can fulfill the obligation with any firm in Russia.
• From an exporter’s perspective, offset is more attractive
than a straight counterpurchase deal because it gives the
exporter greater flexibility to choose the goods that it
wished to purchase.
Different Types of Countertrade
IILM-GSM
Global Marketing Management Global Pricing Strategies
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Switch Trading:
• Switch trading refers to the use of a specialized
third-party trading house in a countertrade
agreement.
• When a firm enters a counterpurchase or offset deal
with a country, it often ends up with what are called
counterpurchase credits, which can be used to
purchase goods from that country.
• Switch trading occurs when a third-party trading
house buys the firm’s counterpurchase credits and
sells them to another firm that can better use them.
Different Types of Countertrade
IILM-GSM
Global Marketing Management Global Pricing Strategies
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Switch Trading:
• For example, a US firm concludes a counterpurchase
agreement with Poland for which it receives some
number of counterpurchase credits for purchasing
Polish goods.
• The US firm cannot and does not want any Polish
goods, however it sells the credits to a third-party
trading house at a discount. The trading house finds a
firm that can use the credits and sells at a profit.
Different Types of Countertrade
IILM-GSM
Global Marketing Management Global Pricing Strategies
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Buyback:
• A buyback also called compensation occurs when
a firm builds a plant in a country- or supplies
technology, equipment, training, or other services to
the country- and agrees to take a certain percentage
of the plant’s output as partial payment for the deal.
• A US chemical company built a plant for an Indian
company and accepted partial payment in cash and
the reminder in chemicals manufactured at the plant.
Different Types of Countertrade
IILM-GSM
Global Marketing Management Global Pricing Strategies
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CONCLUSION
“Despite the inefficiencies, countertrade is common across
nations and about 20 percent of the world trade is accounted
for by the exchange of goods for goods. In fact, the
governments of developing nations sometimes insists on a
certain amount of countertrade. For example, all foreign
companies contracted by Thai state agencies for work costing
more than 500 million baht ($12.3 million) are required to
accept at least 30 percent of their payment in Thai agriculture
products. Between 1994 and mid-1998 foreign firms purchased
21 billion baht ($517 million) in Thai goods under
countertrade”.
Different Types of Countertrade
IILM-GSM
Global Marketing Management Global Pricing Strategies
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IILM-GSM
Global Marketing Management Global Pricing Strategies
• Every shipment abroad requires some kind of financing while in
transit. The exporter also needs funds to buy or manufacture its
goods. Similarly, the importer has to carry these goods in inventory
until they are sold.
• Usually, however, some in-between approach is chosen, involving
a combination of financing by the exporter, the importer, and one or
more financial intermediaries.
Terms of Payment in International
Transaction
The terms of payment describe how and when the
money should be transferred to the seller.
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Terms of Payment in International
Transaction
IILM-GSM
Global Marketing Management Global Pricing Strategies
The Five Principal Means of Payment in international trade,
ranked in order of increasing risk to the exporter, are:
1. Cash in Advance
2. Letter of Credit
3. Draft
4. Consignment
5. Open Account
International
Trade
Consignment
Open
Account
Cash in
Advance
Letter of
Credit
Draft
38. 07/03/15 38
1. Cash in Advance
• Cash in advance affords the exporter the greatest
protection because payment is received either before
shipment or upon arrival of the goods (and
presentation of documents).
• Political crises or exchange control in the purchaser’s
country may cause payment delays. In addition, where
goods are made to order, prepayment is usually
demanded, both to finance production and to reduce
marketing risks.
Payment Terms in International Marketing
IILM-GSM
Global Marketing Management Global Pricing Strategies
39. 07/03/15 39
2. Letter of Credit
• Letter of credit is a letter addressed to the seller, written
and signed by a bank acting on behalf of the buyer.
• In the letter, the bank promises that it will honor drafts
drawn on itself if the seller confirms to the specific
conditions set forth in the letter of credit.
• In exchange for the bank’s agreement, the importer
promises to pay the bank the amount of transaction and
an agreed fee.
• The letter of credit obviously becomes a financial contract
between the issuing bank and a designated beneficiary
that is separate from the commercial transaction.
IILM-GSM
Global Marketing Management Global Pricing Strategies
Payment Terms in International Marketing
40. 07/03/15 40
2. Letter of Credit: Advantage
1. A LOC reduces uncertainty. The exporter knows all the
requirements for payment because they are stipulated on the letter
of credit.
2. A LOC also reduces the danger that payment will be delayed or
withheld due to exchange control or other political risk.
1. The LOC ensures that the exporter delivers goods and produces
certain documents which are carefully examined by the bank.
2. Because a letter of credit is as good as cash, the importer can
usually command better credit terms and/or prices.
Exporter
Importer
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Global Marketing Management Global Pricing Strategies
Payment Terms in International Marketing
41. 07/03/15 41
2. Letter of Credit: Advantage
“ The letter of credit operations are quite simple. Consider the case
of USA Importers Inc, of Los Angeles. The company is buying spare
auto parts worth $38,000 from Japan Exporter Inc, of Tokyo, Japan.
USA Importers applies for, and receives, letter of credit for $38,000
from its bank, Wells Fargo”.
The actual process is shown in figure as:
IILM-GSM
Global Marketing Management Global Pricing Strategies
Payment Terms in International Marketing
42. 07/03/15 42
2. Letter of Credit:
Wells Fargo
Bank
Bank of
Tokyo
USA
Importers
Japan
Exporter
Process preceding creation of L/C
Process after creation of L/C
1. Purchase Order
2.L/Capplication
3. L/C delivered
4.L/Cnotification
5. Goods shipment
6.L/C,draft&
Shippingdocuments
7. L/C draft & documents delivered
8. Draft accepted & funds remitted
9.Payment
10.ShippingDocs.forwarded
11.L/Cpaidatmaturity
IILM-GSM
Global Marketing Management Global Pricing Strategies
Payment Terms in International Marketing
43. 07/03/15 43
3. Draft (also known as Bill of Exchange)
• Draft is written by an exporter on the importer directing the
letter to pay a certain sum on a specified date for having
goods shipped to the importer. The exporter submits the
bill to its banker who collects the stated amount from the
importer’s bank and remits the proceeds to the seller or to
the bearer.
• Draft has three parties- exporter (drawer), importer
(drawee) and the party who is entitled to receive payment
is called the payee.
IILM-GSM
Global Marketing Management Global Pricing Strategies
Payment Terms in International Marketing
44. 07/03/15 44
3. Draft (also known as Bill of Exchange)
• Draft serves three important functions:
1. It provides written evidence of obligations in a
comprehensive form.
2. It enables both parties to potentially reduce their costs
of financing.
3. It is a negotiable and unconditional instrument.
IILM-GSM
Global Marketing Management Global Pricing Strategies
Payment Terms in International Marketing
45. 07/03/15 45
4. Consignment
• Under the consignment the exporter sends goods, on
consignment, to the importer who arranges for the sale of
goods and makes payment to the exporter, after deducing
a specified commission.
• Goods on consignment are duly shipped to the importer,
but they are not sold. The exporter (consignor) retains title
to the goods until the importer (consignee) has sold them
to a third party.
• This agreement is normally made only with a related
company because of the high risks involved.
IILM-GSM
Global Marketing Management Global Pricing Strategies
Payment Terms in International Marketing
46. 07/03/15 46
5. Open Account
• Open account selling is shipping goods first and billing the
importer later.
• The credit terms are arranged between the buyer and the
seller but the seller has little evidence of the importer’s
obligation to pay a certain sum at a certain date.
• Sales on open account, therefore, are made only to a
foreign affiliate or to a customer with which the exporter
has a long history of favorable business dealings.
• The benefits include greater flexibility (no specific
payment dates are set) and involve lower costs, including
fewer bank charges than with other modes of payment.
IILM-GSM
Global Marketing Management Global Pricing Strategies
Payment Terms in International Marketing
Notes de l'éditeur
To arm or prepare in advance of a conflict
The part of the arm between the wrist and the elbow.
Also other factors like competition, buyer’s purchasing power..also affect pricing decisions
Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments. The lessee is the receiver of the services or the assets under the lease contract and the lessor is the owner of the assets. The relationship between the tenant and the landlord is called a tenancy, and can be for a fixed or an indefinite period of time (called the term of the lease). The consideration for the lease is called rent. A gross lease is when the tenant pays a flat rental amount and the landlord pays for all property charges regularly incurred by the ownership from lawnmowers and washing machines to handbags and jewellry.[1]
Survival
Companies pursue survival as their major objectives(short term) if they are plagued with overcapacity,intense competition, or changing consumer wants.
As long as prices cover variable costs and some fixed costs,the company stays in business.
Maximum Current Profit
Many companies try to set a price that will maximize current profits.
This strategy assumes that the firm has knowledge of its demand & cost functions;in reality,these are difficult to estimate.
Maximum Market Share
Some companies want to maximize their market share.They believe that a higher sales volume will lead to lower unit costs and higher long-run profit.
They set the lowest price assuming the market is price sensitive.e.g.TI
Maximum Market Skimming
Companies unveiling a new technology favor setting high prices to maximize market skimming.
Prices start high(so that company could “skim” the maximum amount of revenue from various segments of the market) and are slowly lowered overtime…case of sony with play station
Product-Quality Leadership
A company might aim to be the product-quality leader in the market….caterpiller, honeywell, chevarolet from GM
Other Objectives
Nonprofit & public organizations may have other pricing objectives like partial cost recovery,knowing that it must rely on private gifts and public grants to cover remaining costs.
Grey maketing channels (parallel importing..page 398 joshi)
Customer perception ( needs and tastes)
Page 496 global marketing svend hollensen pearson chapter 16
Competitive strategy..like UVP or USP etc
Nature of competition..using tools like poters 5 force model
The term business cycle (or economic cycle) refers to economy-wide fluctuations in production or economic activity over several months or years. These fluctuations occur around a long-term growth trend, and typically involve shifts over time between periods of relatively rapid economic growth (expansion or boom), and periods of relative stagnation or decline (contraction or recession).[1]
These fluctuations are often measured using the growth rate of real gross domestic product. Despite being termed cycles, most of these fluctuations in economic activity do not follow a mechanical or predictable periodic pattern.
Gray mkting----This concept used in international business while exporting and importing….getting the electonics or music products without paying tax….go to the shop of mobile…they will sya..if u take bill then pay 10000..but without bill just pay 7000..
It is unofficual or unauthorized distribution chnnels through which they do gray marketing
A grey market or gray market also known as parallel market[1] is the trade of a commodity through distribution channels which, while legal, are unofficial, unauthorized, or unintended by the original manufacturer. The term gray economy, however, refers to workers being paid under the table, without paying income taxes or contributing to such public services as Social Security and Medicare.[2] It is sometimes referred to as the underground economy or "hidden economy."
A black market is the trade of goods and services that are illegal in themselves and/or distributed through illegal channels, such as the selling of stolen goods, certain drugs or unregistered handguns. The two main types of grey market are imported manufactured goods that would normally be unavailable or more expensive in a certain country and unissued securities that are not yet traded in official markets. Sometimes the term dark market is used to describe secretive, unregulated (though often technically legal) trading in commodity futures, notably crude oil in 2008.[3] This can be considered a third type of "grey market" since it is legal, yet unregulated, and probably not intended or explicitly authorized by oil producers.
Unlike black market goods, grey-market goods are legal. However, they are sold outside normal distribution channels by companies which may have no relationship with the producer of the goods. Frequently this form of parallel import occurs when the price of an item is significantly higher in one country than another. This situation commonly occurs with electronic equipment such as cameras. Entrepreneurs buy the product where it is available cheaply, often at retail but sometimes at wholesale, and import it legally to the target market. They then sell it at a price high enough to provide a profit but under the normal market price. International efforts to promote free trade, including reduced tariffs and harmonized national standards, facilitate this form of arbitrage whenever manufacturers attempt to preserve highly disparate pricing. Because of the nature of grey markets, it is difficult or impossible to track the precise numbers of grey-market sales. Grey-market goods are often new, but some grey market goods are used goods. A market in used goods is sometimes nicknamed a Green Market.
Price changes over PLC
Pricing across products (product line pricing)
Pricing across countries (standardization versus adaptation or customizatiuon ..check this)
Terms of payment—five principal means of payment in international business are
Cash in Advance
Letter of Credit
Draft
Consignment
Open Account
Terms of sale..in contractual terms…
We have already discussed the objectives,,now let us understand the apporaches or methods
So 20 % profit so cost based cost 120
20% markup ..full cost price 125
We see mkt based later on as an example
In indian markets……
as Philips, (Euronext: PHIA, NYSE: PHG) is a multinational Dutch electronics corporation.
Philips is one of the largest electronics companies in the world. In 2010, its sales were €25.42 billion. The company employs 119,000 people in more than 60 countries.[1]
Panasonic…is a Japanese multinational consumer electronics ….sony from japan
Akai..from china
Cost based usrd in initial stage but full cost used in growth phases of international markets
Marginal cost pricing is a competitive pricing methods
The MC curve not pass through the origin..keep remember
Avoid dumping and use marginal cost pricing..a better idea in int pricing
Using a total cost approach, per unit cost can be worked out as follows:
Total cost= fixed cost + variable cost
= 500000+ US 5000*100
= 1000,000
Therfore total cost per unit= 1000,000/5000 = 200
For producing 10000 units..cost is 5L and 10L (variable cost) = 15 L
For producing another 30000…only varibale cost is 30L…fixed cost will be 0L
So for total 40000 prodcution..total cost is 15+ 30 == 45 L
If a offer is 130- each then he will get 130* 40000 ===52 L
So if accept he will get 52-45 = 7 L extra…
Marignal cost for producting 40000 is ….45L / 40000 == 112.50 so he can choose the offer of 130 ..not at all a problem
DEQ …named port of destination…
In incoterms 2011…they removed DES,DEQ, DDU and DAF and added two new DAT and DAP (Delivered at Place & Delivered at Terminal)..so now only 11 incoterms are there.previously 13 was there..introduced in 1936 by ICC..int chamber of commerec and they reviewed at every 10 years…
In fact, it is the interaction of a variety of factors such as costs, competitive intensity, demand, structure, incoterms..import export duties..trade barriers..govt regulations and incentives…consumer purchasing power and lot of other factors…behavior etc. that contributes to price determination in international markets.
Therefore, a market-based pricing approach is generally preferred to a cost-based pricing approach.
20 % is import duties…equal to 110..based on assumptions..all the percentages are on assumptions
Here 25 % is a markup…so 750/ (1-.25)= 1000
Assume from India to US..
Port at US..Port of Houston at Texas..or port of texas city at Texas
i.E 330 is 28.4% of 1160…
This top down calculations enable a firm to determine if it can meet competitiors market prices at the cost price level.
FOB..free on board..at Port at Mumbai..seller takes care of all
McDonnell Douglas was a major American aerospace manufacturer and defense contractor, producing a number of famous commercial and military aircraft. It formed from a merger of McDonnell Aircraft and Douglas Aircraft in 1967. McDonnell Douglas was based at St. Louis's Lambert International Airport, in Berkeley, Missouri,[2][3][4][5][6] near the city of St. Louis. The McDonnell Douglas Technical Services Company (MDTSC), a subsidiary of McDonnell Douglas, was headquartered in unincorporated St. Louis County, Missouri, United States.[7] McDonnell Douglas later merged with its rival, Boeing, in 1997.[1]
The company produced almost 30,000 aircraft from 1942 to 1945 and the workforce swelled to 160,000. Both companies suffered at the end of hostilities, facing an end of government orders and a surplus of aircraft.
Draw diagram…country X as exporter/importer and country Y as exporter/importer and
Inbetween 2 way flow of Goods/Services
Fraction of money exchange will take place in counterpurchase.
Draw the pic….as partial payment and partial goods/service back to exporter..
Finish manufactured means finland
Not draw picture..bcz it is just an value addition ..means more choice than counterpurchase
Draw a picture and add country Z where Switch trader or trading houses exixts
Third party might resides in third country Z
Drew picture… country X as exporter of capital goods and technology or licenser …who takes paymemt in hard currency alsong with taking output from capital goods and technology
country Y as importer of capital goods and technology or licensee….
Following are the grievances against the MNCs:
Costly damages inflicted with impunity
Nearer the home, the infamous Union Carbide caused the explosion at Bhopal, killing more than 20,000 instantly and injuring 1, 00,000 people. The company was forced to pay paltry $500 per person. Dow Chemical has bought the Bhopal plant, taking all of Union Carbide’s assets but assuming no liability.
Anderson ko phasi do
A financially strong exporter can finance the entire trade cycle out of its own funds by extending credit until the importer has converted these goods into cash. Alternatively, the importer can finance the entire cycle by paying cash in advance.
Cash in advance with least risk….
Open account with highest risk involve