Copyright? 2001 by Harcourt,Inc.,All rights reserved,Requests for permissions to make copies of any part of the work should be mailed to
the following address,Permissions Department,Harcourt,Inc.,6277 Sea Harbor Drive,Orlando,Florida 32887-6777.
INTERNATIONAL MARKETING 6e
Export Pricing Strategies
Chapter 11
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-2
Price
Pricing is the only revenue generating
element of the marketing mix.
Pricing is a means of attracting and
communicating an offer to a potential buyer.
Pricing is a competitive tool.
Pricing can be used to position the product or
service in the marketplace.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-3
Pricing Challenges/Strategies
Skimming
Using high-priced unique products to achieve the
highest possible contribution in a short initial time
period,then gradually lowering the price as the
market.
Market Pricing
Following competitive pricing in the target market;
adjusting production and marketing mix to
competitive conditions.
Penetration Pricing
Offering low pricing to generate volume sales
which hopefully will compensate for low margins.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-4
The Setting of Export Prices
Factors affecting
customer purchasing
decisions
ability to pay
price-quality relationship
reaction to marketing mix
market support S t a ge 5
S e l e c t i ng t he S pe c i f i c P r i c e
S t a ge 4
P r i c i ng P ol i c y D e t e r m i na t i on
S t a ge 3
P r i c i ng P ol i c y S e l e c t i on
S t a ge 2
M a r k e t M i x C om po s i t i on
S t a ge 1
T a r ge t M a r k e t A na l y s i s
Stages in Setting
of Prices
Source,Reprinted by permission of Harvard Business Review,An
excerpt from Alfred R,Oxenfeldt,“Multistage Approach to Pricing,”
Harvard Business Review 38 (July-August 1960),126,Copyright?
by the President and Fellows of Harvard College; all rights reserved.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-5
Export Pricing Strategy
Cost-oriented pricing
Standard worldwide price- regardless of buyer’s
location in the market(s)
Dual pricing differentiates between domestic and
export prices
– Cost-plus method allocates domestic and foreign costs
to the product.
– Marginal cost method considers direct costs of
producing and selling exports as floor (lowest) price.
Market-differentiated pricing
based on the dynamics of the marketplace
– changes in competition,exchange rates,etc.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-6
Export-related Costs
Export-related costs
Cost of modifying a product for a foreign market
Operational costs of exporting
Cost incurred in entering the foreign market
Price escalation for exports results from
Clear-cut and hidden costs
Methods for combating price escalation
Reorganize the channel of distribution
Product adaptation
Change tariff or tax classifications
Overseas assembly or production
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-7
Terms of Sale
Incoterms are the internationally accepted standard
definitions for terms of sale set by the International
Chamber of Commerce (ICC) since 1936.
Incoterms
exworks (EXW)
free carrier (FCA)
free alongside ship (FAS)
free on board (FOB)
cost and freight (CFR)
Cost,Insurance and freight (CIF)
delivered duty paid (DDP)
delivered duty unpaid (DDU)
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-8
Selected Trade Terms
EXW FCA
(Named Inland
Carrier at
Named Inland
Point of
Departure
FCA
(Named Inland
Carrier at
Named Inland
Port of
Exportation
FAS
(Named Port
of Shipment)
F.O.B.
Vessel
(Named Port
of Shipment)
Origin
(Factory,Mine,
Plantation,
Warehouse)
Inland Carrier Dock at Port
of Shipment
Vessel
United States
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-9
Selected Trade Terms
CFR CIF
(Named
Port of
Destination
FAS
(Named Port
of Shipment)
DDU / DDP
(Named Place
of Destination)
Inland CarrierDock at Port
of Destination
Vessel
Country of Destination
Destination
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-10
Distribution Adjustment to Decrease Price Escalation
Producer ImportAgent
Processing
and Packing
Plant
Primary
Wholesaler
Intermediary
Wholesaler
Small
Wholesaler Retailer
Producer ImportAgent
Processing
and Packing
Plant
Retailer
Depots
Distribution
Wholesalers
Distribution
Centers
A,Retail Price,170 yen/300g package
B,Retail Price,128 yen/300g package
A,Conventional Route
B,Restructured Route
Savings of 25% by restructuring
Source,Michael R,Czinkota,“Distribution of Consumer Products in
Japan,An Overview,” International Marketing Review 2 (Autumn
1985),39-51.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-11
Negotiating Terms of Payment
Considerations
The amount of payment and the need for
protection
Terms offered by competitors
Practices in the industry
Capacity for financing
international transactions
Relative strength of the
parties involved
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-12
The Letter of Credit
Irrevocable versus revocable
irrevocable letter cannot be cancelled,
guaranteeing payment
Confirmed versus unconfirmed
U.S,bank confirms letter,assumes collection risk
Revolving versus nonrevolving
Most letters are nonrevolving- good only for a
single transaction.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-13
Foreign
Bank
U.S.
Company
U.S.
Bank
Foreign
Company
1 2
3
4
5
6&7
Product
exported
Import / Export Trade Financing
Minimizing the exposure of financial risk
Trade financing using a Letter of Credit (L/C)
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-14
Drafts and Documentary Collection
Drafts
are similar to personal checks,but have a
documentary requirement that the buyer to obtain
shipping documents before taking possession of
the imported goods.
Documentary collection
Seller ships goods,then bank
acts as agent in collecting
payment through a sight or
time draft from the importer,
The draft becomes a banker’s acceptance and
may be sold at a discounted rate if the exporter is
in need of immediate cash.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-15
Most Advantageous
Consignment
Open Account
Documents against Acceptance
Letter of Credit
Confirmed Letter of Credit
Cash in Advance
Least Advantageous
High Risk/High Trust
Low Risk/Low Trust
The Risk Triangle
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-16
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”
Possible price manipulation responses to
currency movements
Make no change in the dollar price (pass-through).
Decrease the export price (absorption).
Pass-through only a portion of the increase.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-17
Exporter Strategies Under Varying Currency Conditions
Weak Position
Stress price benefits
Expand product line
Shift sourcing to
domestic market
Cash-for-goods trade
Full costing
Speed repatriation
Minimize expenditure in
local currency
Strong Position
Non-price competition
Improve productivity/
cost reduction
Sourcing overseas
Prioritize exports
Countertrade with weak
currency countries
Marginal-cost pricing
Slow collections
Buy needed services
abroad
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-18
Price Negotiations
Be aware that price is only one part of a
comprehensive package,Avoid early price
concessions.
Carefully consider concessions that reduce
price or profitability.
discounts,payment terms,product features
Know conditions in importer’s market.
Focus negotiations first on
substantive issues (quality
and delivery),then on price,
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-19
Leasing
Leasing
reduces the amount of investment required to
place the product in service,especially in less
developed markets.
may produce a total net income greater than that
of an outright sale.
offers the opportunity to provide
ancillary services that
increase the total
value of the
exported
asset.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-20
Dumping
Ranges of dumping
Predatory dumping
– is intentional selling at a loss to increase market share
Unintentional dumping
– occurs when market factors cause the import’s selling
price to fall below prices in the exporter’s home market
Remedies for dumping
Antidumping duty
– are levied on imported goods
sold at less than fair market value
Countervailing duties
– are imposed on imports which are subsidized in the
exporter’s home country
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-21
Dumping
Historical
Japanese Automakers (Intentional)
European Agricultural Products
Wage Difference Driven Unintentional dumping
Recent Vietnamese Dumping
– Coffee from jungles of Vietnam
– Catfish threatening American catfish producers
the following address,Permissions Department,Harcourt,Inc.,6277 Sea Harbor Drive,Orlando,Florida 32887-6777.
INTERNATIONAL MARKETING 6e
Export Pricing Strategies
Chapter 11
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-2
Price
Pricing is the only revenue generating
element of the marketing mix.
Pricing is a means of attracting and
communicating an offer to a potential buyer.
Pricing is a competitive tool.
Pricing can be used to position the product or
service in the marketplace.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-3
Pricing Challenges/Strategies
Skimming
Using high-priced unique products to achieve the
highest possible contribution in a short initial time
period,then gradually lowering the price as the
market.
Market Pricing
Following competitive pricing in the target market;
adjusting production and marketing mix to
competitive conditions.
Penetration Pricing
Offering low pricing to generate volume sales
which hopefully will compensate for low margins.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-4
The Setting of Export Prices
Factors affecting
customer purchasing
decisions
ability to pay
price-quality relationship
reaction to marketing mix
market support S t a ge 5
S e l e c t i ng t he S pe c i f i c P r i c e
S t a ge 4
P r i c i ng P ol i c y D e t e r m i na t i on
S t a ge 3
P r i c i ng P ol i c y S e l e c t i on
S t a ge 2
M a r k e t M i x C om po s i t i on
S t a ge 1
T a r ge t M a r k e t A na l y s i s
Stages in Setting
of Prices
Source,Reprinted by permission of Harvard Business Review,An
excerpt from Alfred R,Oxenfeldt,“Multistage Approach to Pricing,”
Harvard Business Review 38 (July-August 1960),126,Copyright?
by the President and Fellows of Harvard College; all rights reserved.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-5
Export Pricing Strategy
Cost-oriented pricing
Standard worldwide price- regardless of buyer’s
location in the market(s)
Dual pricing differentiates between domestic and
export prices
– Cost-plus method allocates domestic and foreign costs
to the product.
– Marginal cost method considers direct costs of
producing and selling exports as floor (lowest) price.
Market-differentiated pricing
based on the dynamics of the marketplace
– changes in competition,exchange rates,etc.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-6
Export-related Costs
Export-related costs
Cost of modifying a product for a foreign market
Operational costs of exporting
Cost incurred in entering the foreign market
Price escalation for exports results from
Clear-cut and hidden costs
Methods for combating price escalation
Reorganize the channel of distribution
Product adaptation
Change tariff or tax classifications
Overseas assembly or production
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-7
Terms of Sale
Incoterms are the internationally accepted standard
definitions for terms of sale set by the International
Chamber of Commerce (ICC) since 1936.
Incoterms
exworks (EXW)
free carrier (FCA)
free alongside ship (FAS)
free on board (FOB)
cost and freight (CFR)
Cost,Insurance and freight (CIF)
delivered duty paid (DDP)
delivered duty unpaid (DDU)
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-8
Selected Trade Terms
EXW FCA
(Named Inland
Carrier at
Named Inland
Point of
Departure
FCA
(Named Inland
Carrier at
Named Inland
Port of
Exportation
FAS
(Named Port
of Shipment)
F.O.B.
Vessel
(Named Port
of Shipment)
Origin
(Factory,Mine,
Plantation,
Warehouse)
Inland Carrier Dock at Port
of Shipment
Vessel
United States
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-9
Selected Trade Terms
CFR CIF
(Named
Port of
Destination
FAS
(Named Port
of Shipment)
DDU / DDP
(Named Place
of Destination)
Inland CarrierDock at Port
of Destination
Vessel
Country of Destination
Destination
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-10
Distribution Adjustment to Decrease Price Escalation
Producer ImportAgent
Processing
and Packing
Plant
Primary
Wholesaler
Intermediary
Wholesaler
Small
Wholesaler Retailer
Producer ImportAgent
Processing
and Packing
Plant
Retailer
Depots
Distribution
Wholesalers
Distribution
Centers
A,Retail Price,170 yen/300g package
B,Retail Price,128 yen/300g package
A,Conventional Route
B,Restructured Route
Savings of 25% by restructuring
Source,Michael R,Czinkota,“Distribution of Consumer Products in
Japan,An Overview,” International Marketing Review 2 (Autumn
1985),39-51.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-11
Negotiating Terms of Payment
Considerations
The amount of payment and the need for
protection
Terms offered by competitors
Practices in the industry
Capacity for financing
international transactions
Relative strength of the
parties involved
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-12
The Letter of Credit
Irrevocable versus revocable
irrevocable letter cannot be cancelled,
guaranteeing payment
Confirmed versus unconfirmed
U.S,bank confirms letter,assumes collection risk
Revolving versus nonrevolving
Most letters are nonrevolving- good only for a
single transaction.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-13
Foreign
Bank
U.S.
Company
U.S.
Bank
Foreign
Company
1 2
3
4
5
6&7
Product
exported
Import / Export Trade Financing
Minimizing the exposure of financial risk
Trade financing using a Letter of Credit (L/C)
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-14
Drafts and Documentary Collection
Drafts
are similar to personal checks,but have a
documentary requirement that the buyer to obtain
shipping documents before taking possession of
the imported goods.
Documentary collection
Seller ships goods,then bank
acts as agent in collecting
payment through a sight or
time draft from the importer,
The draft becomes a banker’s acceptance and
may be sold at a discounted rate if the exporter is
in need of immediate cash.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-15
Most Advantageous
Consignment
Open Account
Documents against Acceptance
Letter of Credit
Confirmed Letter of Credit
Cash in Advance
Least Advantageous
High Risk/High Trust
Low Risk/Low Trust
The Risk Triangle
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-16
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”
Possible price manipulation responses to
currency movements
Make no change in the dollar price (pass-through).
Decrease the export price (absorption).
Pass-through only a portion of the increase.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-17
Exporter Strategies Under Varying Currency Conditions
Weak Position
Stress price benefits
Expand product line
Shift sourcing to
domestic market
Cash-for-goods trade
Full costing
Speed repatriation
Minimize expenditure in
local currency
Strong Position
Non-price competition
Improve productivity/
cost reduction
Sourcing overseas
Prioritize exports
Countertrade with weak
currency countries
Marginal-cost pricing
Slow collections
Buy needed services
abroad
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-18
Price Negotiations
Be aware that price is only one part of a
comprehensive package,Avoid early price
concessions.
Carefully consider concessions that reduce
price or profitability.
discounts,payment terms,product features
Know conditions in importer’s market.
Focus negotiations first on
substantive issues (quality
and delivery),then on price,
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-19
Leasing
Leasing
reduces the amount of investment required to
place the product in service,especially in less
developed markets.
may produce a total net income greater than that
of an outright sale.
offers the opportunity to provide
ancillary services that
increase the total
value of the
exported
asset.
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-20
Dumping
Ranges of dumping
Predatory dumping
– is intentional selling at a loss to increase market share
Unintentional dumping
– occurs when market factors cause the import’s selling
price to fall below prices in the exporter’s home market
Remedies for dumping
Antidumping duty
– are levied on imported goods
sold at less than fair market value
Countervailing duties
– are imposed on imports which are subsidized in the
exporter’s home country
Copyright? 2001 by Harcourt,Inc,All rights reserved,11-21
Dumping
Historical
Japanese Automakers (Intentional)
European Agricultural Products
Wage Difference Driven Unintentional dumping
Recent Vietnamese Dumping
– Coffee from jungles of Vietnam
– Catfish threatening American catfish producers
