Transcript INTERNATIONAL PRICING STRATEGY

INTERNATIONAL PRICING
STRATEGY
Pricing is critical and complex variable
Pricing decision affects the company’s ability to
stay in the market
Unpredictable market forces such as cost,
competition, and demand threaten with
numerous pitfalls for international pricing
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Importance of Pricing
Pricing decision directly affects revenue and thus
profitability of any business, be it domestic or
international
Appropriate pricing aids proper growth, as
development of mass market depends to a large
extent on price.
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Uniform Versus Differentiated Pricing
The decision between uniform and differentiated
pricing would be dictated by such factors as:
- competitive conditions
- life style
- position of the product
- product diffusion process
- regulatory considerations
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Uniform Versus Differentiated Pricing
- channel structure
- company objectives, and
- consumer price perceptions
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International Pricing Setting
International pricing is affected by differences in
costs, demand conditions, competition and
government laws
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Pricing orientation
The Cost Approach (computing all relevant costs
and then adding a desired profit mark up to
arrive at price)
The Market Approach (an estimate is made to
the acceptable price in the target segment. The
price is in the view point of the customer)
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Factors affecting Export Pricing
The price destination (who will pay the price?)
The nature of the product (raw, semi-processed
or finished, services, or intangible property)
The currency used for the billing.
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Export Pricing Quotation
Ex factory
Free along-side-ship (FAS)
Free on board (FOB)
Cost insurance and freight (CIF)
Delivery duty paid (Rendu)
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FACTORS AFFECTING PRICING
DECISIONS
Cost
Competition
Purchasing Power of Customers
Buyers’ Behaviour (Cultural influence)
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TRANSFER PRICING
This is the price of international transaction between
related parties/Countries/firms. When the parties are not
related, then it is called : Arm’s length Price.
Mainly, it is for allocation of profits among the subsidiaries
and the parent company. It becomes more complicated
when the taxation system between the countries is
incompatible.
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Objectives of TRANSFER PRICING
Maximize overall after-tax profits
Reducing incident of customs duty payments
Overcoming quota restrictions
Reducing exchange rate differential problems
etc
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Finally
Dumping
Practice of pricing exports at levels lower than
the domestic price.
Is a way of setting differential prices to achieve
certain objectives.
WTO is now prohibiting the dumping at the
international legal perspective
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