Export Pricing Strategies

Copyright © 2001 by Harcourt, Inc.. All rights reserved. Requests for permissions to make copies of any part of the work should be mailed to the following address: Permissions Department, Harcourt, Inc., 6277 Sea Harbor Drive, Orlando, Florida 32887-6777.

INTERNATIONAL MARKETINGINTERNATIONAL MARKETING

Export Pricing StrategiesExport Pricing Strategies

Copyright © 2001 by Harcourt, Inc. All rights reserved. 11-2

PricePrice

Pricing is the only revenue generating Pricing is the only revenue generating element of the marketing mix.element of the marketing mix.

Pricing is a means of attracting and Pricing is a means of attracting and communicating an offer to a potential buyer.communicating an offer to a potential buyer.

Pricing is a competitive tool.Pricing is a competitive tool. Pricing can be use to position the product or Pricing can be use to position the product or

service in the marketplace.service in the marketplace.


Pricing ChallengesPricing Challenges

SkimmingSkimming• Using high-priced unique products to achieve the Using high-priced unique products to achieve the

highest possible contribution in a short initial time highest possible contribution in a short initial time period, then gradually lowering the price as the period, then gradually lowering the price as the market.market.

Market PricingMarket Pricing• Following competitive pricing in the target market; Following competitive pricing in the target market;

adjusting production and marketing mix to adjusting production and marketing mix to competitive conditions.competitive conditions.

Penetration PricingPenetration Pricing• Offering low pricing to generate volume sales Offering low pricing to generate volume sales

which hopefully will compensate for low margins.which hopefully will compensate for low margins.


The Setting of Export PricesThe Setting of Export Prices

Factors affecting Factors affecting customer purchasingcustomer purchasing decisions decisions• ability to payability to pay• price-quality relationshipprice-quality relationship• reaction to marketing mixreaction to marketing mix• market supportmarket support

Stage 5Selecting the Specific Price

Stage 4Pricing Policy Determ ination

Stage 3Pricing Policy Selection

Stage 2M arket M ix Com position

Stage 1T arget M arket Analysis

Stages in Setting Stages in Setting of Pricesof Prices

Source: Reprinted by permission of Harvard Business Review. An excerpt from Alfred R. Oxenfeldt, “Multistage Approach to Pricing,” Harvard Business Review 38 (July-August 1960): 126. Copyright © by the President and Fellows of Harvard College; all rights reserved.


Export Pricing StrategyExport Pricing Strategy

Cost-oriented pricingCost-oriented pricing• Standard worldwide price- regardless of buyer’s Standard worldwide price- regardless of buyer’s

location in the market(s)location in the market(s)• Dual pricing differentiates between domestic and Dual pricing differentiates between domestic and

export pricesexport prices– Cost-plus method allocates domestic and foreign costs Cost-plus method allocates domestic and foreign costs

to the product.to the product.– Marginal cost method considers direct costs of Marginal cost method considers direct costs of

producing and selling exports as floor (lowest) price.producing and selling exports as floor (lowest) price.

Market-differentiated pricingMarket-differentiated pricing• based on the dynamics of the marketplacebased on the dynamics of the marketplace

– changes in competition, exchange rates, etc.changes in competition, exchange rates, etc.


Export-related CostsExport-related Costs

Export-related costsExport-related costs• Cost of modifying a product for a foreign marketCost of modifying a product for a foreign market• Operational costs of exportingOperational costs of exporting• Cost incurred in entering the foreign marketCost incurred in entering the foreign market

Price escalation for exports results fromPrice escalation for exports results from• Clear-cut and hidden costsClear-cut and hidden costs

Methods for combating price escalationMethods for combating price escalation• Reorganize the channel of distributionReorganize the channel of distribution• Product adaptationProduct adaptation• Change tariff or tax classificationsChange tariff or tax classifications• Overseas assembly or productionOverseas assembly or production


Distribution Adjustment to Decrease Price EscalationDistribution Adjustment to Decrease Price Escalation

ProducerProducer ImportImportAgentAgent

Processing Processing and Packing and Packing PlantPlant

Primary Primary WholesalerWholesaler

Intermediary Intermediary WholesalerWholesaler

Small Small WholesalerWholesaler RetailerRetailer

ProducerProducer ImportImportAgentAgent

Processing Processing and Packing and Packing PlantPlant

RetailerRetailerDepotsDepots

Distribution Distribution WholesalersWholesalers

Distribution Distribution CentersCenters

A. Retail Price: 170 yen/300g packageA. Retail Price: 170 yen/300g packageB. Retail Price: 128 yen/300g packageB. Retail Price: 128 yen/300g package

A. Conventional RouteA. Conventional Route

B. Restructured RouteB. Restructured Route

Savings of 25% by restructuringSavings of 25% by restructuring

Source: Michael R. Czinkota, “Distribution of Consumer Products in Japan: An Overview,” International Marketing Review 2 (Autumn 1985): 39-51.


Negotiating Terms of PaymentNegotiating Terms of Payment

ConsiderationsConsiderations• The amount of payment and the need for The amount of payment and the need for

protectionprotection• Terms offered by competitorsTerms offered by competitors• Practices in the industryPractices in the industry• Capacity for financing Capacity for financing

international transactionsinternational transactions• Relative strength of the Relative strength of the

parties involvedparties involved


The Letter of CreditThe Letter of Credit

Irrevocable versus revocableIrrevocable versus revocable• irrevocable letter cannot be cancelled, irrevocable letter cannot be cancelled,

guaranteeing paymentguaranteeing payment Confirmed versus unconfirmedConfirmed versus unconfirmed

• U.S. bank confirms letter, assumes collection riskU.S. bank confirms letter, assumes collection risk Revolving versus nonrevolvingRevolving versus nonrevolving

• Most letters are nonrevolving- good only for a Most letters are nonrevolving- good only for a single transaction.single transaction.


ForeignForeignBankBank

U.S.U.S.CompanyCompany

U.S.U.S.BankBank

ForeignForeignCompanyCompany

11 22

33

44

55

6&7 6&7

ProductProductexportedexported

Import / Export Trade FinancingImport / Export Trade Financing

Minimizing the exposure of financial riskMinimizing the exposure of financial risk Trade financing using a Letter of Credit (L/C)Trade financing using a Letter of Credit (L/C)


Drafts and Documentary CollectionDrafts and Documentary Collection

DraftsDrafts• are similar to personal checks, but have a are similar to personal checks, but have a

documentary requirement that the buyer to obtain documentary requirement that the buyer to obtain shipping documents before taking possession of shipping documents before taking possession of the imported goods.the imported goods.

Documentary collectionDocumentary collection• Seller ships goods, then bank Seller ships goods, then bank

acts as agent in collecting acts as agent in collecting payment through a sight or payment through a sight or time draft from the importer. time draft from the importer. The draft becomes a banker’s acceptance and The draft becomes a banker’s acceptance and may be sold at a discounted rate if the exporter is may be sold at a discounted rate if the exporter is in need of immediate cash.in need of immediate cash.


Most AdvantageousMost Advantageous ConsignmentConsignment

Open AccountOpen Account Documents against AcceptanceDocuments against Acceptance

Letter of CreditLetter of Credit

Confirmed Letter of CreditConfirmed Letter of Credit

Cash in Advance Cash in Advance

Least AdvantageousLeast Advantageous

High Risk/High TrustHigh Risk/High Trust

Low Risk/Low Low Risk/Low TrustTrust

The Risk TriangleThe Risk Triangle


Adjusting to Foreign Currency FluctuationsAdjusting to Foreign Currency Fluctuations

Forward rate exchange marketForward rate exchange market• ““the exchange of currencies on a future date at an the exchange of currencies on a future date at an

agreed upon exchange rate”agreed upon exchange rate” Spot rate transactionSpot rate transaction

• ““the exchange of currencies for immediate delivery”the exchange of currencies for immediate delivery” Possible price manipulation responses to Possible price manipulation responses to

currency movementscurrency movements• Make no change in the dollar price (pass-through).Make no change in the dollar price (pass-through).• Decrease the export price (absorption).Decrease the export price (absorption).• Pass-through only a portion of the increase.Pass-through only a portion of the increase.


Exporter Strategies Under Varying Currency ConditionsExporter Strategies Under Varying Currency Conditions

Weak PositionWeak Position Stress price benefitsStress price benefits Expand product lineExpand product line Shift sourcing to Shift sourcing to

domestic marketdomestic market Cash-for-goods tradeCash-for-goods trade Full costingFull costing Speed repatriationSpeed repatriation Minimize expenditure in Minimize expenditure in

local currencylocal currency

Strong PositionStrong Position Non-price competitionNon-price competition Improve productivity/ Improve productivity/

cost reductioncost reduction Sourcing overseasSourcing overseas Prioritize exportsPrioritize exports Countertrade with weak Countertrade with weak

currency countriescurrency countries Marginal-cost pricingMarginal-cost pricing Slow collectionsSlow collections Buy needed services Buy needed services

abroadabroad


Price NegotiationsPrice Negotiations

Be aware that price is only one part of a Be aware that price is only one part of a comprehensive package. Avoid early price comprehensive package. Avoid early price concessions.concessions.

Carefully consider concessions that reduce Carefully consider concessions that reduce price or profitability.price or profitability.• discounts, payment terms, product featuresdiscounts, payment terms, product features

Know conditions in importer’s market.Know conditions in importer’s market. Focus negotiations first on Focus negotiations first on

substantive issues (quality substantive issues (quality and delivery), then on price. and delivery), then on price.


LeasingLeasing

LeasingLeasing• reduces the amount of investment required to reduces the amount of investment required to

place the product in service, especially in less place the product in service, especially in less developed markets.developed markets.

• may produce a total net income greater than that may produce a total net income greater than that of an outright sale.of an outright sale.

• offers the opportunity to provide offers the opportunity to provide ancillary services thatancillary services that

increase the total increase the total value of thevalue of the

exported exported asset.asset.


DumpingDumping

Ranges of dumpingRanges of dumping• Predatory dumpingPredatory dumping

– is intentional selling at a loss to increase market shareis intentional selling at a loss to increase market share

• Unintentional dumpingUnintentional dumping– occurs when market factors cause the import’s selling occurs when market factors cause the import’s selling

price to fall below prices in the exporter’s home marketprice to fall below prices in the exporter’s home market

Remedies for dumpingRemedies for dumping• Antidumping dutyAntidumping duty

– are levied on imported goods are levied on imported goods sold at less than fair market valuesold at less than fair market value

• Countervailing dutiesCountervailing duties– are imposed on imports which are subsidized in the are imposed on imports which are subsidized in the

exporter’s home countryexporter’s home country

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