Chapter-10 International Pricing Factors and Approaches

Chapter 10
International Pricing

International Marketing
Chapter-10 International Pricing

Objectives
What determines export prices
What are the objectives of pricing
What factors affect pricing
what are the approaches in export
pricing
What is transfer pricing
What is dumping

What are the steps involved in pricing
What are the steps in retrograde pricing
What are export price quotation and
incoterms
What are the information requirements
of export pricing


Introduction
Right price is one of the important
determinants of business success.
The uniqueness of price in the
marketing mix is that it is the only
element that generates revenue.
At the outset one may think that price
must cover at least the full cost of
production and marketing.

Types Of Costs In Export
Marketing
1. Production costs
2. Selling and delivery costs


Productions Costs
1. Fixed costs
2. Variable costs


Pricing Objective
1. Market penetration
2. Market share
3. Market skimming
4. Fighting competition
5. Preventing new entry
6. Shorten pay-back period
7. Early cash recovery

8. Meeting export obligation
9. Disposal of surplus
10. Optimum capacity utilization
11. Return on investment
12. Profit maximization


Factors Affecting Pricing
International marketing objective
Costs
Competition
Product differentiation
Exchange rate
Market characteristics
Image
Government factor Marketing
International

Cost Based Pricing
Cost based pricing, also known as cost plus
pricing, is a common method of pricing.
Under this method the price includes a
certain percentage of profit margin on the
sum total of the full cost of production,
marketing costs and an allocation of the
overheads.
That is, price=(fixed costs+variable
costs+overheads+marketing costs)+
specified percentage of the total costs

Market Oriented Pricing
This is a very flexible policy in the sense
that it allows the prices to be changed in
accordance with the changes in market
conditions.
The product may be priced high when
demand conditions are very good and the
price may be lowered when the market is
sluggish if that helps increasing sales.
This method is sometimes referred to as
what the traffic will bear method.

Break Even Price
Break-even price is the price for a given level
of output at which there is neither any loss
nor profit.
Break-even analysis helps to understand the
minimum sales required to avoid any loss and
also the profit or loss at various levels of
sales.
The break-even point(BEP) is the point of
sales at which there is neither any loss nor
any profit.

Calculation Of BEP In Terms
Of Physical Units
BEP = FC α FC
SP-VC C
Where
FC = fixed cost
VC = variable cost
SP = selling price
C = contribution per unit ( C=SP-VC )

Marginal Cost Pricing
Marginal cost pricing approach is
common in evaluating the profitability
of new orders in case of firms with
excess capacity.
Under the marginal cost pricing, the
relevant cost considered for pricing is
the variable cost, the fixed cost is
excluded from the calculation of the
cost of the product. Marketing
International

Creative Pricing
Marginal costing may give scope for
creative pricing.
Creative pricing means taking
advantage of the flexibility between the
lower limit of break-even price and the
upper limit of the competitor’s price for
similar product.


Transfer Pricing
Transfer pricing or intra company pricing
refers to the pricing of goods transferred
from operations or sales units in one
country to the company’ s unit elsewhere.
The appropriate basis for intracompany
transfers often depends on the nature of
the subsidiaries, the market conditions and
government policies and regulations.

Some studies show that, in most cases,
setting up transfer prices remains the
absolute prerogative of the parent
company executives regardless of the
firm’s nationally.


Steps In Pricing
1. Defining pricing objectives
2. Analyzing market characteristics
3. Calculating costs
4. Calculating value of incentives
5. Determining export price


Export Price Quotations And
Incoterms
EXW – EX WORKS
FCA – Free carrier
FAS – Free Alongside Ship
FOB – Free On Board
CFR – Cost And Freight
CIF – Cost, Insurance and Freight
CPT – Carriage Paid To

CIP – Carriage and Insurance Paid To
DAF – Delivered At Frontier
DES – Delivered Ex Ship
DEQ – Delivered Ex Quay
DDU – Delivered Duty Unpaid
DDP - Delivered Duty Paid


Documents Required Under
Various Terms
EXW – Ex Works
FCA – Free Carrier
FAS- Free Alongside Ship
FOB – Free on Board
CFR – Cost and Freight
CIF – Cost, Insurance and Freight
CPT – Carriage Paid to

CIP – Carriage and Insurance Paid to
DAF – Delivered at Frontier
DES – Delivered Ex Ship
DEQ – Delivered Ex Quary
DDU – Delivered Duty Unpaid
DDP – Delivered Duty Paid


Information Requirement For
Export Pricing
Information on the total market
Information on competition
Information on prices
Information on Government policies
Information on production and costs
Information on revenue and profits


Summary
There are two types of cost in export
marketing; production costs and selling and
delivery costs.
The factors which affect pricing policies are;
international marketing objective, costs,
competition, product differentiation,
exchange rate, market characteristics, image
and government factors.
Cost is one of the most important factor in
export pricing besides supply conditions and
demand and competitive conditions.

Chapter-10 International Pricing Factors and Approaches

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