12
Pricing for
International and
Global Markets
Learning Objectives
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Differentiate between full-cost pricing and marginal-cost pricing and explain the
implications of both to global marketers.
Note how international transportation costs, tariffs, taxes, local production, and
channel costs all affect pricing decisions.
Explain how different income levels, buyer power, and competitive situations in
national markets can require different pricing strategies across these markets.
Compare and contrast the ways in which exchange rate fluctuations and inflation
rates complicate global pricing.
List various examples of government price controls that global marketers might
encounter.
Define dumping and describe how it can constrain pricing strategies.
Understand how the credit and collection infrastructure of a country can affect
pricing decision in that country.
Describe how global marketers can manage export price escalation, determine
transfer prices, and effectively quote prices in foreign currencies.
Define parallel imports, explain their causes, and list ways in which they may be
controlled.
Understand how the credit and collection infrastructure of a country can affect
pricing decisions in that country.
Differentiate among various forms of countertrade and balance the risk and
opportunities of dealing with noncash exchanges.
Chapter Outline
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Profit and cost factors that affect pricing
Market factors that affect pricing
Environmental factors that affect pricing
Managerial issues in global pricing
Profit and Cost Factors
• Fixed costs – Do not change over a
given range of output
• Variable costs – Vary directly with
output
• Marginal profit – Amount in excess of
variable costs
Profit and Cost Factors
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Transportation Costs
Tariffs
Taxes
Local production costs
Channel costs
Market Factors
• Income level
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GNP per capita
GDP per capita
Disposable income
Price elasticity
• High income = lower elasticity
• Lower income = higher elasticity
– Importance of reassessing income level in
developing countries
Market Factors
• Culture
• Buyer Power
• Competition
Environmental Factors
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Exchange rate fluctuations
Inflation rates
Price controls
Dumping
Credit and collection infrastructure
Managing under Price Controls
• Negotiate with government when costs
increase
• Decrease costs by modifying product
• Leave the market
• Diversify markets
Who Pays for Exporting Costs?
• CIF
– Seller pays for insurance and transportation
to foreign port of debarkation
• CFR
– Seller pays for transportation
• FOB
– Seller only pays to deliver goods to the port
of export
Transfer Pricing
• Transfer price – Price paid by
importing or buying unit of a firm to the
exporting unit of the same firm
Quoting Prices in a Foreign
Currency
• Transaction risk – Risk that a change in
exchange rates may occur between the
invoicing date and the settlement date of the
transaction
• Foreign exchange price quotations:
– Spot price – Number of dollars to be paid for a
particular foreign currency purchased or sold today
– Forward price – Number of dollars to be paid in a
foreign currency bought or sold 30, 90, or 180 days
from today
Managerial Responses to Gray
Markets
• Customize products
• Maintain control over distribution and subsidiaries
• Alert consumers to potential pitfalls of buying parallel
imports such as a nullified warranty
• Limit supplies of product in low-price markets
• Keep prices within a range of each other to discourage
arbitrage
Source: “UEA Sees First Imprisonment for Parallel Imports in the Middle East,” Al Bawaba, London, Oct. 12, 2009.
Setting Global Prices
• Uniform pricing strategy
– Requires a company to charge the same
price everywhere when that price is
translated into a base currency
– Difficult to achieve because of different
taxes, trade margins, customs duties,
and currency fluctuations
• Modified uniform pricing strategy
– Carefully monitoring price levels in
each country and avoiding large graytrade-enticing gaps
Countertrade
• Barter – Exchange of real goods
• Compensation Arrangement – Value of
export delivery partially offset by an import
transaction, or vice versa
– Full versus partial
– Triangular
Countertrade (cont.)
• Offset – Selling company guarantees to use
some products or services in the buying
country in the final product
• Cooperation agreements – Buyback
arrangement wherein payment for input good
is paid for by output goods