INTERNATIONAL MARKETING 6e Chapter 11 Export Pricing Strategies Copyright 2001 by Harcourt, Inc.. All rights reserved. Requests for permissions to make copies of any part of the work should be mailed to the following address: Permissions Department, Harcourt, Inc, 6277 Sea Harbor Drive, Orlando, Florida 32887-6777
Copyright © 2001 by Harcourt, Inc.. All rights reserved. Requests for permissions to make copies of any part of the work should be mailed to the following address: Permissions Department, Harcourt, Inc., 6277 Sea Harbor Drive, Orlando, Florida 32887-6777. INTERNATIONAL MARKETING 6e Export Pricing Strategies Chapter 11
Price Pricing is the only revenue generating element of the marketing mix Pricing is a means of attracting and communicating an offer to a potential buyer Pricing is a competitive tool Pricing can be used to position the product or service in the marketplace Copyright 2001 by Harcourt, Inc. All rights reserved
Copyright © 2001 by Harcourt, Inc. All rights reserved. 11-2 Price Pricing is the only revenue generating element of the marketing mix. Pricing is a means of attracting and communicating an offer to a potential buyer. Pricing is a competitive tool. Pricing can be used to position the product or service in the marketplace
Pricing Challenges /strategies 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 Market Pricing Following competitive pricing in the target market, adjusting production and marketing mix to competitive conditions Penetration Pricing Offering low pricing to generate volume sales which hopefully will compensate for low margins Copyright 2001 by Harcourt, Inc. All rights reserved 11-3
Copyright © 2001 by Harcourt, Inc. All rights reserved. 11-3 Pricing Challenges/Strategies 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. Market Pricing • Following competitive pricing in the target market; adjusting production and marketing mix to competitive conditions. Penetration Pricing • Offering low pricing to generate volume sales which hopefully will compensate for low margins
Ae Setting of Export prices Factors affecting Stages in Setting customer purchasing of Prices decisions Stage 1 Target Market Analysis ability to pay price-quality relationship Stage 2 Market Mix Composition reaction to marketing mix Stage 3 market support Pricing Policy Selection Stage 4 Pricing Policy Determination Stage 5 Selecting the Specific Price Source: Reprinted by permission of Harvard Business Revew. An excerpt from Alfred R. Oxenfeldt, "Multistage Approach to Pricing Copyright 2001 by Harcourt, Inc. All rights reserved Harvard Business Review 38 (July-August 1960): 126 CopyrightC.11-4 by the President and Fellows of Harvard College; all rights reserved
Copyright © 2001 by Harcourt, Inc. All rights reserved. 11-4 The Setting of Export Prices Factors affecting customer purchasing decisions • ability to pay • price-quality relationship • reaction to marketing mix • market support Stage 5 Selecting the Specific Price Stage 4 Pricing Policy Determination Stage 3 Pricing Policy Selection Stage 2 Market Mix Composition Stage 1 Target Market Analysis Stages in Setting of Prices Source: Reprinted by permission of Harvard Business Review. An excerpt from Alfred R. Oxenfeldt, “Multistage Approach to Pricing,” Harvard Business Review 38 (July-August 1960): 126. Copyright © by the President and Fellows of Harvard College; all rights reserved
Export Pricing Strategy n Cost-oriented pricing Standard worldwide price- regardless of buyer's location in the market(s) Dual pricing differentiates between domestic and export prices 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 Market-differentiated pricing based on the dynamics of the marketplace changes in competition, exchange rates, etc Copyright 2001 by Harcourt, Inc. All rights reserved
Copyright © 2001 by Harcourt, Inc. All rights reserved. 11-5 Export Pricing Strategy Cost-oriented pricing • Standard worldwide price- regardless of buyer’s location in the market(s) • Dual pricing differentiates between domestic and export prices – 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. Market-differentiated pricing • based on the dynamics of the marketplace – changes in competition, exchange rates, etc
Export-related Costs. Export-related costs Cost of modifying a product for a foreign market Operational costs of exporting Cost incurred in entering the foreign market Price escalation for exports results from Clear-cut and hidden costs Methods for combating price escalation Reorganize the channel of distribution Product adaptation Change tariff or tax classifications Overseas assembly or production Copyright 2001 by Harcourt, Inc. All rights reserved
Copyright © 2001 by Harcourt, Inc. All rights reserved. 11-6 Export-related Costs Export-related costs • Cost of modifying a product for a foreign market • Operational costs of exporting • Cost incurred in entering the foreign market Price escalation for exports results from • Clear-cut and hidden costs Methods for combating price escalation • Reorganize the channel of distribution • Product adaptation • Change tariff or tax classifications • Overseas assembly or production
Terms of sale Incoterms are the internationally accepted standard definitions for terms of sale set by the International Chamber of Commerce(ICC)since 1936 n Incoterms exworks(EXW free carrier(FCA) free alongside ship(FAS) free on board(FOB) cost and freight(CF尺 Cost, Insurance and freight(CIF) delivered duty paid(DDP) delivered duty unpaid(DDU Copyright 2001 by Harcourt, Inc. All rights reserved
Copyright © 2001 by Harcourt, Inc. All rights reserved. 11-7 Terms of Sale Incoterms are the internationally accepted standard definitions for terms of sale set by the International Chamber of Commerce (ICC) since 1936. Incoterms • exworks (EXW) • free carrier (FCA) • free alongside ship (FAS) • free on board (FOB) • cost and freight (CFR) • Cost, Insurance and freight (CIF) • delivered duty paid (DDP) • delivered duty unpaid (DDU)
Selected Trade terms EXW FCA FCA FAS FOB Named Inland (Named Inland (Named Port Vessel Carrier at Carrier at of Shipment) (Named Port Named Inland Named Inland of Shipment) Point of Port of Departure Exportation oo⑥ Origin Inland carrier Dock at Port Vessel (Factory, Mine, of Shipment Plantation Warehouse) United states Copyright 2001 by Harcourt, Inc. All rights reserved
Copyright © 2001 by Harcourt, Inc. All rights reserved. 11-8 Selected Trade Terms EXW FCA (Named Inland Carrier at Named Inland Point of Departure FCA (Named Inland Carrier at Named Inland Port of Exportation FAS (Named Port of Shipment) F.O.B. Vessel (Named Port of Shipment) Origin (Factory, Mine, Plantation, Warehouse) Inland Carrier Dock at Port of Shipment Vessel United States
Selected Trade terms CFR CIF FAS DDU/DDP (Named (Named Port (Named Place Port of of Shipment) of Destination) Destination ⊙o Vessel Dock at Port Inland carrier Destination of Destination Country of Destination Copyright 2001 by Harcourt, Inc. All rights reserved
Copyright © 2001 by Harcourt, Inc. All rights reserved. 11-9 Selected Trade Terms CFR CIF (Named Port of Destination FAS (Named Port of Shipment) DDU / DDP (Named Place of Destination) Dock at Port Inland Carrier of Destination Vessel Country of Destination Destination
Distribution Adjustment to Decrease Price escalation A Conventional route Import Processing Producer and Packing Intermediary Primary Agent Plant Wholesaler Wholesaler Smal A Retail Price: 170 yen/300g package Wholesaler Retailer B Retail Price: 128 yen/300g package Savings of 25% by restructuring B. Restructured route Import Processing Depots Producer and Packing letai gent Distribution Plant Wholesalers Distribution Centers Source: Michael R Czinkota. "Distribution of consumer Products in Japan: An Overview, Intemational Mark eting Review 2(Autumn Copyright 2001 by Harcourt, Inc. All rights reserved 1985)39-51
Copyright © 2001 by Harcourt, Inc. All rights reserved. 11-10 Distribution Adjustment to Decrease Price Escalation Producer Import Agent Processing and Packing Plant Primary Wholesaler Intermediary Wholesaler Small Wholesaler Retailer Producer Import Agent Processing and Packing Plant Retailer Depots Distribution Wholesalers Distribution Centers A. Retail Price: 170 yen/300g package B. Retail Price: 128 yen/300g package A. Conventional Route B. Restructured Route Savings of 25% by restructuring Source: Michael R. Czinkota, “Distribution of Consumer Products in Japan: An Overview,” International Marketing Review 2 (Autumn 1985): 39-51