John Wiley &Sons, Inc c GLOBAL PRICING Chapter Thirteen

John Wiley &Sons, Inc c Global Pricing 4 Overview 4 1. Drivers of Foreign Market Pricing 4 2. Price Escalation 4 3. Pricing in Inflationary Environments 4 4. Currency Fluctuations 4 5. Transfer Pricing 4 6. Global Pricing and Antidumping Legislation 4 7. Coordinating Prices 4 8. Countertrade

John Wiley &Sons, Inc c Overview

John Wiley &Sons, Inc c Drivers of Foreign Market Pricing –Exhibit 13-1 Highest and Lowest Prices in ECU of Products in EC Cities 4 Company Goals 4 Company Costs 4 Customer Demand –Exhibit 13-2 An Example of Downsizing with Price Adjustment

John Wiley &Sons, Inc c Drivers of Foreign Market Pricing (cont) 4 Competition –Exhibit 13-3 The Cost of a Pack of Marlboro Cigarettes vs The Highest- and Lowest- Price Brands in Each Market 4 Distribution Channels 4 Government Policies

John Wiley &Sons, Inc c Managing Price Escalation –1. Rearrange the distribution channel –2. Eliminate costly features (or make them optional) –3.Downsize the product –4. Assemble or manufacture the product in foreign markets –5. Adapt the product to escape tariffs and tax levies

John Wiley &Sons, Inc c Pricing in Inflationary Environments 4 Ways to safeguard against inflation –1. Modify components, ingredients, parts, and/or packaging materials. –2. Source materials from low-cost suppliers –3. Shorten credit terms –4. Include escalator clauses in long-term contracts

John Wiley &Sons, Inc c Pricing in Inflationary Environments (cont) –5. Quote prices in a stable currency –6. Pursue rapid inventory turnovers –7. Draw lessons from other countries

John Wiley &Sons, Inc c Pricing in Inflationary Environments (cont) 4 Courses of action with price controls –1. Adapt the product line –2. Shift target segments or markets –3. Launch new products or variants of existing products –4. Negotiate with the government –5. Predict incidence of price controls

John Wiley &Sons, Inc c Currency Fluctuations –Exhibit 13-4 Exporter Strategies under Varying Currency Conditions 4 Currency Gain/Loss Pass Through –Exhibit 13-5 A Numerical Illustration of Pass- Through and Local Currency Stability –Exhibit 13-6 Retail Price Changes During Dollar Appreciations: Japanese and German Exports to the U.S. Market 4 Currency Quotation

John Wiley &Sons, Inc c Transfer Pricing 4 Determinants of Transfer Prices –Tax regimes –Local market conditions –Market imperfections –Joint partner venture –Morale of local country managers

John Wiley &Sons, Inc c Transfer Pricing (cont) 4 Setting Transfer Prices 4 Minimizing the Risk of Transfer Pricing Tax Audits –Exhibit 13-7 Decision Model Making for Assessing Risk of TP Strategy

John Wiley &Sons, Inc c Global Pricing and Antidumping Regulation 4 Trading-up 4 Service Enhancement 4 Distribution and Communication

John Wiley &Sons, Inc c Coordinating Prices 4 1. Nature of customers 4 2. Nature of channels 4 3. Nature of competition 4 4. Market integration 4 5. Internal organization 4 6. Government regulation

John Wiley &Sons, Inc c Coordinating Prices (cont) 4 Aligning Pan-Regional Prices –Exhibit 13-8 Frame 1 Development of Prices in Europe –Step 1: Determine Optimal price for Each Country –Step 2: Find out whether parallel imports (“gray markets”) are likely to occur at these prices –Step 3: Set a pricing corridor

John Wiley &Sons, Inc c Coordinating Prices (cont) 4 Implementing Price Coordination –1. Economic Measures –2. Centralization –3. Formalization –4. Informal Coordination

John Wiley &Sons, Inc c Countertrade 4 Forms of Countertrade –Exhibit 13-9 Classifications of Forms of Countertrade –Non cash payments Simple Barter, Clearing Agreement, Switch Trading –Cash payment flows Buy-back (Compensation), Counterpurchase, Offset

John Wiley &Sons, Inc c Countertrade (cont) 4 Motives Behind Countertrade –Gain access to new or difficult markets –Overcome exchange rate controls or lack of hard currency –Overcome low country credit worthiness –Increase sales volume –Generate long-term customer goodwill

John Wiley &Sons, Inc c Countertrade (cont) 4 Shortcomings of Countertrade –No “in-house” use for goods offered by customers –Timely and costly negotiations –Uncertainty and lack of information on future prices –Transaction costs