Welcome to class of International Pricing by Dr Welcome to class of International Pricing by Dr. Satyendra Singh Professor, Marketing and International Business University of Winnipeg Canada s.singh@uwinnipeg.ca http://abem.uwinnipeg.ca www.abem.ca/conference

Factors Affecting International Pricing… Inflation Exchange Rate Fluctuations Parallel Imports Price Escalation Government Influences

Factors Affecting International Pricing… Inflation Eliminates consumer’s purchasing power Inflation  Adjust price  Delayed payment will erode profit Problem with consignment basis shipment I.e paid when sold Strategy Careful price quotations and supply contracts Increase brand value Retain and win trust of customers

Factors Affecting International Pricing… Exchange Rate Fluctuations It fluctuates Govt. may intervene if too much fluctuations Weak currency  export and vice-versa Monitor other currencies movement also Strategy Review entire operation system Adjust cost structure Increase brand value Check mode of operation in foreign markets Exports vs. licensing vs. investment

Strategies Under Varying Currency Conditions Source: S. Tamer Cavusgil, “Unraveling the mystique of export pricing,” Chapter 71 in Sidney J. levy, George R. Frerichs and Howard l. Gordon (eds), The Dartnell Marketing Manager’s Handbook (Chicago: Dartell Corporation, 1994), Figure 2, p. 1362.

Factors Affecting International Pricing… Parallel Imports Distributors in one country sell in another country Not illegal Overstocking Distributor bankrupt Exclusive distributors, luxury products, upscale retailers, margin  Internet I.e. inexpensive music CDs Italy… Drugs/medicine Canada USA Strategy Self-certify the product! Language, packaging For sale in specific country only Product is not suitable for another country e.g. too sweet/color Warranty/repair not transferable between countries Close relationship with distributors

Factors Affecting International Pricing… Price Escalation A direct result of products moving across borders Manufacturers Importers Distributor  Jobber  Consumer Import duty (Fixed/unit, Valorem/values of goods x%, both $1 per unit + x% of its value), VAT, PST/GST Operating costs  Additional transportation costs Two distributors: high lot and low lot Insurance, packaging, country of origin, other admin. costs Strategy Move to low cost manufacturing countries Lower distribution costs Lower features and lower quality Re-classification of the product to save on duty (art vs. jewellery) Adjust dimension (shoes less thick, larger containers)

Causes and Effects of Price Escalation Source: CIF Cost, Insurance, Freight, The exhibit assumes that all domestic transportation costs are absorbed by the exporter. Just for illustration purposes.

Factors Affecting International Pricing… Government Influences Reduces the impact of price competition or eliminate it Keeps retail margins below exorbitant level Correlation between car-owners and superstores visits Maximum/suggested retail price Limited period of discount  EU Feb & Aug. Wal-mart Everyday Low Price (EDLP) i.e., No discount Displaced sales Strategy North American Approach Govt creates environment conducive to conducting business Adjusting interest rate Monitoring the market to prevent abuses Canada Competition Bureau Cocoa, coffee, sugar, wheat  Board