International Marketing
15th edition
Philip R. Cateora, Mary C. Gilly, and John L. Graham
Pricing Policy
Parallel Imports
18
• Parallel imports
– Develop when importers buy products from
distributors in one country and sell them in
another to distributors who are not part of the
manufacturer’s regular distribution system
• Occur whenever price differences are greater
.
than
cost of transportation between two markets
• Major problem for pharmaceutical companies
• Exclusive distribution
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Full-Cost Versus
Variable-Cost Pricing
18
• Variable-cost pricing
– Firm is concerned only with the marginal or
incremental cost of producing goods to be sold in
overseas markets
• Full-cost pricing
– Companies insist that no unit of a similar product
is different
from any other unit in terms of cost
– Each unit must bear full share of the total fixed
and variable cost
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Skimming Versus
Penetration Pricing
18
• Skimming
– Used by a company when the objective is to reach
a segment of the market that is relatively price
insensitive
– Market is willing to pay a premium price for the
value received
• Penetration pricing policy
– Used to stimulate market and sales growth by
deliberately offering products at low prices
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Sample Causes and Effects 18
of Price Escalation
Exhibit 18.2
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Approaches to Lessening
Price Escalation (1 of 2)
18
• Lowering cost of goods
– Manufacturing in a third country
– Eliminating costly functional features
– Lowering overall product quality
• Lowering tariffs
– Reclassifying products into a different, and lower
customs classification
– Modify product to qualify for a lower tariff rate
within classification
– Requiring assembly or further processing
– Repackaging
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Approaches to Lessening
Price Escalation (2 of 2)
18
• Lowering distribution costs
– Shorter channels
– Reducing or eliminating middlemen
• Using foreign trade zones to lessen price
escalation
– Establish free trade zones (FTZs) or free ports
• Tax-free enclave not considered part of country
• Postpones payment of duties and tariffs
• Dumping
– Use of marginal (variable) cost pricing
– Selling goods in foreign country below the price of
the same goods in the home market
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How Are Foreign
Trade Zones Used?
18
Exhibit 18.3
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Leasing in International
Markets(1 of 2)
18
• Selling technique that alleviates high prices and
capital shortages
• Opens the door to a large segment of nominally
financed foreign firms
– Firms can be sold on a lease option but might be
unable to buy for cash
• Can ease the problems of selling new,
experimental equipment
– Because less risk is involved for the users
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Leasing in International
Markets(2 of 2)
18
• Helps guarantee better maintenance and service
on overseas equipment
• Helps to sell other companies in that country
• Revenue tends to be more stable over a period of
time than direct sales
• Leasing disadvantages
– Inflation may lead to heavy losses at end of
contract period
– Currency devaluation, expropriation and political
risks
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Countertrade as a Pricing Tool
18
• Types of countertrade
–
–
–
–
Barter
Compensation deals
Counterpurchase or offset trade
Product buyback agreement
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Countertrade as a Pricing Tool
18
• Problems of countertrading
– Determining the value of and potential demand
for the goods offered
– Barter houses
• The Internet and countertrading
– Electronic trade dollars
– Universal Currency/IRTA
• Proactive countertrade strategy
– Included as part of an overall market strategy
– Effective for exchange-poor countries
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Transfer Pricing Strategy
(1 of 2)
18
• Prices of goods transferred from a company’s
operations or sales units in one country to its
units elsewhere
– May be adjusted to enhance the ultimate profit of
company
• Benefits
– Lowering duty costs
– Reducing income taxes in high-tax countries
– Facilitating dividend repatriation when dividend
repatriation is curtailed by government policy
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Transfer Pricing Strategy
(2 of 2)
18
• Objectives
– Maximizing profits for corporation
– Facilitating parent-company control
– Providing all levels of management control over profitability
• Arrangements for pricing goods for intracompany transfer
– Sales at the local manufacturing cost plus a standard markup
– Sales at the cost of the most efficient producer in the company
plus a standard markup
– Sales at negotiated prices
– Arm’s-length sales using the same prices as quoted to
independent customers
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