Pricing for International Markets International Marketing 15th edition Chapter 18 Pricing for International Markets Philip R. Cateora, Mary C. Gilly, and John L. Graham

Pricing Policy Parallel Imports Develop when importers buy products from distributors in one country and sell them in another to distributors who are not part of the manufacturer’s regular distribution system Occur whenever price differences are greater than cost of transportation between two markets Major problem for pharmaceutical companies Exclusive distribution . Roy Philip

Full-Cost Versus Variable-Cost Pricing Firm is concerned only with the marginal or incremental cost of producing goods to be sold in overseas markets Full-cost pricing Companies insist that no unit of a similar product is different from any other unit in terms of cost Each unit must bear full share of the total fixed and variable cost Roy Philip

Skimming Versus Penetration Pricing Used by a company when the objective is to reach a segment of the market that is relatively price insensitive Market is willing to pay a premium price for the value received Penetration pricing policy Used to stimulate market and sales growth by deliberately offering products at low prices Roy Philip

Sample Causes and Effects of Price Escalation Exhibit 18.2 Roy Philip

Approaches to Lessening Price Escalation (1 of 2) Lowering cost of goods Manufacturing in a third country Eliminating costly functional features Lowering overall product quality Lowering tariffs Reclassifying products into a different, and lower customs classification Modify product to qualify for a lower tariff rate within classification Requiring assembly or further processing Repackaging Roy Philip

Approaches to Lessening Price Escalation (2 of 2) Lowering distribution costs Shorter channels Reducing or eliminating middlemen Using foreign trade zones to lessen price escalation Establish free trade zones (FTZs) or free ports Tax-free enclave not considered part of country Postpones payment of duties and tariffs Dumping Use of marginal (variable) cost pricing Selling goods in foreign country below the price of the same goods in the home market Roy Philip

How Are Foreign Trade Zones Used? Exhibit 18.3 Roy Philip

Leasing in International Markets(1 of 2) Selling technique that alleviates high prices and capital shortages Opens the door to a large segment of nominally financed foreign firms Firms can be sold on a lease option but might be unable to buy for cash Can ease the problems of selling new, experimental equipment Because less risk is involved for the users Roy Philip

Leasing in International Markets(2 of 2) Helps guarantee better maintenance and service on overseas equipment Helps to sell other companies in that country Revenue tends to be more stable over a period of time than direct sales Leasing disadvantages Inflation may lead to heavy losses at end of contract period Currency devaluation, expropriation and political risks Roy Philip

Countertrade as a Pricing Tool Types of countertrade Barter Compensation deals Counterpurchase or offset trade Product buyback agreement Roy Philip

Countertrade as a Pricing Tool Problems of countertrading Determining the value of and potential demand for the goods offered Barter houses The Internet and countertrading Electronic trade dollars Universal Currency/IRTA Proactive countertrade strategy Included as part of an overall market strategy Effective for exchange-poor countries Roy Philip

Transfer Pricing Strategy (1 of 2) Prices of goods transferred from a company’s operations or sales units in one country to its units elsewhere May be adjusted to enhance the ultimate profit of company Benefits Lowering duty costs Reducing income taxes in high-tax countries Facilitating dividend repatriation when dividend repatriation is curtailed by government policy Roy Philip

Transfer Pricing Strategy (2 of 2) Objectives Maximizing profits for corporation Facilitating parent-company control Providing all levels of management control over profitability Arrangements for pricing goods for intracompany transfer Sales at the local manufacturing cost plus a standard markup Sales at the cost of the most efficient producer in the company plus a standard markup Sales at negotiated prices Arm’s-length sales using the same prices as quoted to independent customers Roy Philip