Lecture 8

Price Dynamics y Pricing is the only revenue generating element of the marketing mix y Pricing is a means of attracting and communicating an offer to a potential buyer y Pricing is a competitive tool. . y Pricing can be use to position the product or service in the marketplace.

Price Dynamics y Skimming Using high-priced unique products To achieve the highest possible contribution in a short initial time period Then gradually lowering the price as the market y Market Pricing Following competitive pricing in the target market Adjusting production & marketing mix to competitive conditions .

Penetration Pricing y Offering low pricing to generate volume sales y Which hopefully will compensate for low margins. .Price Dynamics continued ..

The Setting of Export Prices Customer Purchase Factors y y y y Pricing Policies Factors Profit maximization market share survival return on investment competitive policies copy competitive pricing follow competitive pricing price to discourage competitive entry Ability to pay Price-quality relationship Reaction to marketing mix Market support .

regardless of buyer s location in the market(s) Dual pricing differentiates between domestic and export prices y Cost-plus method allocates domestic and foreign costs to the product Marginal cost method considers direct costs of producing and selling exports as floor (lowest) price y .Export Pricing Strategy y Cost-oriented pricing Standard worldwide price.

Export Pricing Strategy continued y Market-differentiated pricing based on the dynamics of the marketplace y changes in competition. etc. exchange rates. .

Export-Related Costs y Export-related costs Cost of modifying a product for a foreign market Operational costs of exporting Cost incurred in entering the foreign market y Price escalation for exports results from Clear-cut and hidden costs .

y Methods for combating price escalation Reorganize the channel of distribution Product adaptation Change tariff or tax classifications Overseas assembly or production ..Export-related Costs continued .

insurance and Freight (CIF) Delivered duty unpaid (DDU) Delivery duty paid .Terms of Sale y Incoterms are the internationally accepted standard definitions for terms of sale set by the International Chamber of Commerce (ICC) since 1936 y Incoterms Exworks (EXW) Free carrier (FCA) Free alongside ship (FAS) Free on board (FOB) Cost and freight (CFR) Cost.

Negotiating Terms of Payment y Considerations The amount of payment and the need for protection Terms offered by competitors Practices in the industry Capacity for financing international transactions Relative strength of the parties involved .

The Risk Triangle BUYER¶S PERSPECTIVE SELLER¶S PERSPECTIVE .

Terms of Payment Types of Payment Cash in Advance y Not widely used except for first time transactions Letter of Credit y y Promise to pay Irrevocable. revolving Drafts y y Similar to personal check Must obtain shipping documents prior to delivery Documentary collection y y Bank acts as collection agent Draft may be sold at discounted rate for immediate cash . confirmed.

. y Open account Common of doing business in the domestic market No written evidence of debt exists No guarantee of payment Exporter puts full fait y Consignment Selling Most favourable to the importer Allow the importer to differ payment until goods are sold Places all the burden on the exporter Objective entry to specific markets through intermediaries .Terms of payment continued .

. y Be aware that price is only one part of a comprehensive package. payment terms. then on price. product features y Know conditions in importer s market y Focus negotiations first on substantive issues (quality and delivery)..Price Negotiations . Avoid early price concessions y Carefully consider concessions that reduce price or profitability discounts.

Leasing y Reduces the amount of investment required to place the product in service. especially in less developed markets y May produce a total net income greater than that of an outright sale y Offers the opportunity to provide ancillary services that increase the total value of the exported asset .

Dumping y Ranges of dumping Predatory dumping y is intentional selling at a loss to increase market share Unintentional dumping y occurs when market factors cause the import s selling price to fall below prices in the exporter s home market y Remedies for dumping Antidumping duty y are levied on imported goods sold at less than fair market value Countervailing duties y are imposed on imports which are subsidized in the exporter s home country .

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