Chapter 14 Pricing Strategies and Tactics
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Transcript of Chapter 14 Pricing Strategies and Tactics
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 14Pricing Strategies and Tactics
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Price Dynamics• Price• • Competitive tool
• • Pricing decisions
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Price Dynamics
• The alternatives strategies for first-time pricing are:• Skimming:
• Market pricing:
• Penetration pricing:
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Price Dynamics
• Price changes occur when • • •
• In multiple-product pricing, items are priced indicating:• • •
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The Setting of Export Prices
• Factors to be considered while establishing the basic premise for pricing: •
•
•
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The Setting of Export Prices
• Export pricing strategy• Standard worldwide price:
• Dual pricing:
• Cost-plus method:• Marginal cost method:
• Market-differentiated pricing:
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The Setting of Export Prices
• Export-related costs: Exist along with the normal costs • Include:
• • •
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The Setting of Export Prices• Price escalation:
•
• Value-added tax (VAT):
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The Setting of Export Prices• Methods that focus on cost cutting are:
• • • •
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Terms of Sale
• Incoterms:
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Terms of Payment
• Exporter’s credit policy determines:•
• Factors for negotiating terms of payment:• • • • •
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Terms of Payment
• Cash in advance:
• Most favorable term to the exporter • Letter of credit:
• • •
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Terms of Payment
• Draft:
• Documentary collection:
• Shipping documents and the draft are presented to the importer through banks acting as the seller’s agent
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Terms of Payment• Banker’s acceptance:
• Discounting:
• Open account:
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Terms of Payment• Consignment selling:
• Most favorable term to the importer
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Getting Paid for Exports
• Commercial risk:
• Commercial defaults result from:• • • •
• Political risk:
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Getting Paid for Exports• Factors that complicate the assessment of
a foreign private buyer:• • • • • •
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Managing Foreign Exchange Risk• Approaches to protect against currency
related risks:• •
• Forward exchange market:
• At which it will buy the foreign currency the exporter will receive when the importer makes payment
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Managing Foreign Exchange Risk
• An option:
• Currency futures market:
• Minimum transaction sizes are smaller on the futures market
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Managing Foreign Exchange Risk
• Techniques to adjust pricing in view of either a more favorable or an unfavorable domestic currency rate:• Pass-through:
• Absorption:
• The goal is long-term market-share maintenance in a highly competitive environment
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Managing Foreign Exchange Risk
• Pricing-to-market:
• Other adjustment strategies• • •
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Sources of Export Financing
• International marketers assist customers abroad in securing appropriate financing
• Export financing terms affect the final price paid by buyers
• Commercial banks• • •
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Sources of Export Financing
• Forfaiting and Factoring• Forfaiting:
• The importer pays the exporter with bills of exchange or promissory notes
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Sources of Export Financing• Benefits to the exporter are:
• • • •
• Factoring houses:
• Provide the exporter with complete financial package –
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Sources of Export Financing
• Official trade finance –
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Sources of Export Financing• Advantages of trade financing:• • • • • •
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Leasing
• Leasing companies develop new value-added services • •
• Lessors have evolved into partners in business activities
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Pricing within Individual Markets
• It is determined by:• Corporate objectives:
• Costs: Used as a basis for price determination• Include
• Customer behavior and market conditions: Demand sets a price ceiling• Price elasticity of consumer demand:
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Pricing within Individual Markets• Market structure:
• Environmental constraints• • •
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Pricing Coordination
• Necessary in regional markets such as the European Union
• Important with more global and regional brands in the global marketer’s offering
• Has to be on worldwide basis as parallel imports surface in markets in which price discrepancies exist
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Transfer Pricing
• Pricing of sales to members of the extended corporate family
• Has to be managed in a world characterized by:• • • •
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Transfer Pricing
• Establish the appropriate transfer price to achieve the following objectives:• • • • • •
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Transfer Pricing
• From a company-wide perspective:• • •
• Can be based on costs or on market prices
• Allows the company to repatriate revenues
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Transfer Pricing
• International transfer pricing objectives leads to conflicting objectives when: •
• Three philosophies of transfer pricing have emerged over time:
• • • Arm’s-length price:
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Transfer Pricing
• Transfer pricing challenges• Performance measurement
• •
• Taxation• External -
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Countertrade
• Countertrade: Conditions that support business activities are:• • • •
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Countertrade
• Countertrade transactions are beneficial•
• Use of countertrade• •
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Countertrade
• Excellent mechanism to gain entry into new markets
• Provides stability for ________ sales• Under certain conditions, it ensures the
quality of an international transaction