Chapter 10. International Pricing. International Marketing Chapter-10 International Pricing

Transcription

1 Chapter 10 International Pricing

2 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

3 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

4 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.

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

6 Productions Costs 1. Fixed costs 2. Variable costs

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

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

10 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

11 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.

12 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.

13 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 )

14 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.

15 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.

16 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.

17 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.

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

19 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

20 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

21 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

22 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

23 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

24 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.