Slide chapter 18 : Pricing for International Markets - International Marketing 15th Philip R. Cateora, Mary C. Gilly, and John L. Graham

1. International Marketing
15th edition
Philip R. Cateora, Mary C. Gilly, and John L. Graham

2. 18Pricing Policy
Parallel Imports
• Parallel imports
– Develop 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 system
• Occur whenever price differences are greater
than cost of transportation between two markets
• Major problem for pharmaceutical companies
• Exclusive distribution
.
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3. 18
• Variable-cost pricing
– Firm is concerned only with the marginal or
incremental cost of producing goods to be sold in
overseas markets
• Full-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 cost
Full-Cost Versus
Variable-Cost Pricing
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4. 18Skimming Versus
Penetration Pricing
• Skimming
– 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 received
• Penetration pricing policy
– Used to stimulate market and sales growth by
deliberately offering products at low prices
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5. 18Sample Causes and Effects
of Price Escalation
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Exhibit 18.2

6. 18Approaches to Lessening
Price Escalation (1 of 2)
• Lowering cost of goods
– Manufacturing in a third country
– Eliminating costly functional features
– Lowering overall product quality
• Lowering tariffs
– Reclassifying products into a different, and lower
customs classification
– Modify product to qualify for a lower tariff rate
within classification
– Requiring assembly or further processing
– Repackaging
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7. 18Approaches to Lessening
Price Escalation (2 of 2)
• Lowering distribution costs
– Shorter channels
– Reducing or eliminating middlemen
• Using foreign trade zones to lessen price
escalation
– Establish free trade zones (FTZs) or free ports
• Tax-free enclave not considered part of country
• Postpones payment of duties and tariffs
• Dumping
– Use of marginal (variable) cost pricing
– Selling goods in foreign country below the price of
the same goods in the home market
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8. 18How Are Foreign
Trade Zones Used?
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Exhibit 18.3

9. 18Leasing in International
Markets(1 of 2)
• Selling technique that alleviates high prices and
capital shortages
• Opens 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 cash
• Can ease the problems of selling new,
experimental equipment
– Because less risk is involved for the users
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10. 18Leasing in International
Markets(2 of 2)
• Helps guarantee better maintenance and service
on overseas equipment
• Helps to sell other companies in that country
• Revenue tends to be more stable over a period of
time than direct sales
• Leasing disadvantages
– Inflation may lead to heavy losses at end of
contract period
– Currency devaluation, expropriation and political
risks
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11. 18
Countertrade as a Pricing Tool
• Types of countertrade
– Barter
– Compensation deals
– Counterpurchase or offset trade
– Product buyback agreement
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12. 18
Countertrade as a Pricing Tool
• Problems of countertrading
– Determining the value of and potential demand
for the goods offered
– Barter houses
• The Internet and countertrading
– Electronic trade dollars
– Universal Currency/IRTA
• Proactive countertrade strategy
– Included as part of an overall market strategy
– Effective for exchange-poor countries
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13. 18Transfer Pricing Strategy
(1 of 2)
• Prices of goods transferred from a company’s
operations or sales units in one country to its
units elsewhere
– May be adjusted to enhance the ultimate profit of
company
• Benefits
– Lowering duty costs
– Reducing income taxes in high-tax countries
– Facilitating dividend repatriation when dividend
repatriation is curtailed by government policy
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14. 18Transfer Pricing Strategy
(2 of 2)
• Objectives
– Maximizing profits for corporation
– Facilitating parent-company control
– Providing all levels of management control over profitability
• Arrangements for pricing goods for intracompany transfer
– Sales at the local manufacturing cost plus a standard markup
– Sales at the cost of the most efficient producer in the company
plus a standard markup
– Sales at negotiated prices
– Arm’s-length sales using the same prices as quoted to
independent customers
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