International Pricing Strategies: Factors, Methods, and Considerations

International Pricing Policies

• Pricing Policy Variables: Country, product type, competitive conditions, and active marketing efforts all influence pricing.
• Objectives: Pricing serves as an active marketing instrument and a static element in business decisions. Greater control often leads to greater achievement, and the complexity of the process increases with the number of countries involved.

Gray Markets and Price Differences

• Gray Markets: Price differences between markets, exceeding transportation costs, create opportunities for gray markets.
• Illicit Distribution: Importers buy products and sell them to distributors illegally. Exclusive distribution is used to maintain retail margins and quality image.

Pricing Methods

• Full-Cost Pricing: Each unit is treated the same in terms of cost.
• Variable Cost Pricing: Firms view foreign sales as bonus sales, assuming any return over variable costs contributes to net profit.
• Skimming: Used to target price-insensitive market segments.
• Penetration Pricing: Used to stimulate market growth and capture market share.

Price Escalation

• Price Escalation: Added costs incurred as a result of exporting products.

Factors Influencing Price Escalation

• Cost of Exporting: Taxes, tariffs, and administrative costs are passed to the buyer.
• Inflation: Rising prices affect consumers.
• Middleman and Transportation Costs: Longer channels lead to higher prices.
• Exchange Rate Fluctuations: Currency values change daily.

Strategies to Lower Price Escalation

• Lowering the cost of goods by eliminating features or manufacturing in other countries.
• Lowering tariffs by categorizing products.
• Lowering distribution costs.
• Utilizing foreign trade zones for manufacturing.

Dumping and Trade Regulations

• Dumping: WTO rules allow for duties on dumped goods. Countervailing duties restrict imports benefiting from subsidies.
• Dumping Definition: Selling below the cost of production or below the price of the same good at home.

Leasing and Countertrading

• Leasing: Eases the sale of new equipment, guarantees better maintenance, and helps sell to other companies in that country, providing stability.
• Countertrading:
  • Barter: Direct exchange of goods.
  • Compensation Deals: Payment in goods and cash.
  • Counter Purchase: Selling and buying products with an agreed price.
  • Buyback: Accepting a portion of the output as partial payment.

Reasons for Countertrading

• Preserving hard currency.
• Improving the balance of trade.
• Gaining new access.
• Upgrading manufacturing.
• Maintaining prices.
• Forcing reinvestment.

Price Quotations and Pricing Arrangements

• Price Quotations: Specify the currency and specific elements, and quantity definition.
• Administered Pricing: Attempts to establish prices for markets, arranged through cooperation and governments.
• Cartels: Various companies work together to control markets.

Payment Methods

• Letters of credit opened in favor of the seller by the buyer.
• Bills of exchange drawn by sellers on foreign buyers.
• Cash in advance.
• Open account.
• Forfaiting.