This presentation has information about International pricing methods & factors affecting International pricing & Incoterms used in International trade

1. Presented By:
Pankaj Agarwal(1215)
Rashmi Kumari(1217)
Shashank(1218)
Srijita Dutta(1220)
International Pricing Decision
Preparation for Export Price Quotation

2.  Global pricing is one of the most critical and complex issues in
international marketing.
 Price is the only marketing mix instrument that creates revenues. All
other elements entail costs.
 A company’s global pricing policy may make or break its overseas
expansion efforts.
 Multinationals also face the challenges of how to coordinate their
pricing across different countries.
International Pricing

3. Significance of export pricing decisions for developing countries:
 Lower production & technology base – higher cost of production
 Little bargaining power to negotiate – compelled to sell products at
below cost of production
 Less/ marginal value addition of the products – limited scope for
realizing optimal prices
 Appropriate pricing strategies with innovation – success in
international markets
3
Export pricing & developing countries

4. 4
Pricing Methods
PricingMethods
Cost based pricing
Full cost pricing
Marginal cost pricing
Market based pricing

5. • Based on the cost of the product
• Certain percentage of profit and other expenses may be added to
the cost
• No optimum method for following reasons:
– May be too low vis-à-vis competitors, and importers may earn a huge
margin
– May be too high, making goods non competitive and rejection of offers
5
Cost based pricing

6. • Used during the initial stages of internationalization
• Adding a mark-up on the total cost determine price
Benefits:
– Ensures fast recovery of investments
– Useful for firms dependent on international markets than domestic markets
– Eases operation and implementation of marketing strategies
Disadvantages:
– Overlooks prevailing international market price- either uncompetitive due to
high price or low price
6
Full cost pricing

7. • Marginal cost- cost of producing and selling one more unit
• Sets a lower limit to which a firm can lower its price without affecting
its overall profit
• Fixed cost is recovered from the domestic market and uses variable
costing for international market
• Used when to penetrate international market
7
Marginal cost pricing

8. • Exporters in developing countries generally are
– price followers than price setters.
– having limitations to offer unique products
• This makes them assess the prevailing price in the international
markets and top down calculation to arrive at the cost of the product
• Beneficial as it allows to meet the competitor price in the market
8
Market-based pricing

9. Factors
affecting
International
Pricing
Competition
Cost
Product
Differentiation
Exchange
Rate
Government
Factor
Economic
condition of
the importing
country

10. Should keep low in the short run for a long term gain
May operate at no profit no loss level initially
Cost of promotion
Cost of distribution
Cost

11. Import substitution
Local as well as foreign
Competition pricing will depend on trade agreement
Initial low cost products can be offered to gain market share
Competition

12. Can accelerate market share growth
Spurs buying if a strong USP exist
Can create a niche product if put in IPR
Can be used to fix varying prices
Product Differentiation

13. Exchange rate fluctuation can be offsite in a
probabilistic market condition
Higher price can be fixed for a favoured currency
payment
Hedging should be done if payments are to be received
over a period of time
Uncovered interest rate parity can also be used to
neutralize the effects of exchange rate fluctuation
Exchange Rates

14. Economic Conditions of the
Importing Country
Exports should take into consideration:
• Per capita income
• Spending pattern
Demand means:
• Desire to acquire something
• Willingness to pay for it
• Ability to pay for it

15. Margin Regulation ( Profit rates )
Price floors and price ceilings indicating lowest and
highest price levels
Subsidies provided by the Govt.
Tax concessions as in SEZs
Encouragement to local exporters through finance,
inputs at lower indexes
Government Factors

16. 16
Cont’d..

17. Standard Approach
Competitive Pricing
Domestic price plus
Marginal pricing
Pricing Strategies

18. Standard Approach
Some firms use a standard worldwide price approach where
the exporter does not adjust the product price, regardless of
any outside factors. This method often limits sales potential,
because flexibility is often required to successfully enter a
market. However, this approach may work with certain
products that are in high demand. An alternative to a standard
price might be average pricing, when a certain profit margin is
maintained on a worldwide basis, including the domestic
market.
Contd….

19.  Competitive Pricing
Competitive Pricing is based on evaluating the price of competitive
products in the target market
 Domestic Pricing
Begin with the “Ex-Works" or the “FOB Factory” price of product that
includes possible sales agents’ commissions or distributor discounts
 Marginal Pricing
By far, this method is the most logical since it considers all of the
direct costs relative to international trade, and does not burden
export sales with domestic overhead costs. Begin with the actual
cost of manufacture. Add the costs of:
1. Product modification for international sale
• 2. Distributor discounts or sales commissions
3. Allowances for promotion or financing
4. Special packaging for international shipping
5. Administrative cost relative to international trade
Contd….

20. Example of Export Price
Escalation
The following is a basic example of the difference between a domestic sale
followed by an export sale where the wholesaler imports directly.
Expense Domestic
Example
Export Example
(same channel,
wholesaler Import)
Manufacturing $3.25 $3.25
Transportation(CIF) NA $1.10
Tariff (20% of CIF) NA $0.87
Wholesaler pays landed cost $3.25 $5.22
Wholesale margin $1.08 $1.73
Retailer pays $4.33 $6.95
Retailer Margin $2.17 $3.48
Retail Price $6.5 $10.48

21. International Commercial Terms
of Sale: INCOTERMS
INCOTERMS are divided into four main components and are built around the
main carriage of the shipment.
E-Terms (origin terms):
EXW/Ex-Works (named place): This represents the least amount of
responsibility on the part of the exporter in moving the goods to the destination.
It indicates the seller makes the goods available to the buyer at the seller’s
premises or other location, not cleared for export through customs and not
loaded on any vehicle.
F-Terms (pre-main carriage terms):
These terms represent some responsibility upon the buyer to quote the price of
making the goods available at an airport, usually with FCA, or a seaport, with
FAS and FOB.
FCA/Free Carrier (named place): The seller delivers the goods to the carrier
named by the buyer, at a specified price, cleared for export. The seller is
responsible for loading the goods on the mode of transport at any location
indicated. This term is also used for all modes of transport.

22. Contd..
FAS/Free Alongside Ship (named port of shipment): This term is
used for maritime and inland waterway only, and indicates the sellers’
responsibility is to deliver the goods along-side the vessel at the
named port of shipment, also customs cleared for export.
FOB/Free on Board (named port of shipment): This term is also
used for maritime and inland waterway only, as the seller delivers the
goods across the ships rail, cleared for export. This term is closely
matched to the American Term “FOB Vessel” and is what most
buyers mean when they just use the term “FOB” without any further
specification, although the exporter should verify this fact.

23. C-Terms (main carriage terms):
These terms include the price of freight as well as all other incidentals,
including insurance in the case of CIF and CIP.
CFR/Cost & Freight (named port of destination): This term indicates that
the seller would deliver the goods across the ships’ rail and also prepay the
ocean transportation charges to the port of importation. It is intended for use
on maritime and inland waterway shipments only, and requires customs
clearance for export. Insurance is not included in this type of quotation, which
most closely resembles the American term C&F.
CIF/Cost Insurance & Freight (named port of destination): This term is
an extension of CFR, adding the responsibility of the seller to obtain and
prepay for insurance against loss on behalf of the buyer. Other than that, you
could say it is “CFR + Insurance” and matches the American Term CIF as
well, except for that it is for maritime and inland waterway only.

24. Contd..
CPT/Carriage Paid To (named place of destination): This term is similar to
CFR with the exception that it is for all modes of transport. The seller must
deliver the goods to the carrier; customs cleared for export and prepay the
freight charges to the destination. It does not include the responsibility of the
seller to obtain and prepay for insurance against loss on behalf of the buyer.
CIP/Carriage & Insurance Paid To (named place of destination): This
term is similar to CIF with the exception that it is used for all modes of
transport. The seller is obligated to place the goods on board the carrier;
customs cleared for export, and prepay the freight charges to the destination
and obtain insurance against loss on behalf of the buyer.

25. D-Terms (post-main carriage or
arrival terms):
DAF/Delivered at Frontier (named place): The term frontier is another name
for border. The seller is responsible for delivering the goods for the buyer’s
disposal on any means of transport. This does not include the cost of unloading
the goods or clearing the goods for import, but does require export clearance.
DES/Delivered Ex Ship (named port of destination): This maritime and
inland waterway only term is rarely used for U.S. exports because of the modes
of transport available to us, and is where the seller makes the goods available
to the buyer on board a ship at the port of import not cleared for import and
without the container off-loading charges.
DEQ/Delivered Ex Quay (named port of destination): This term is rarely used
from the U.S., and implies that the seller also pays for the off-loading charges
beyond DES. Quay is another term used for pier or wharf.

26. Contd..
DDU/Delivered Duty Unpaid (named place of destination): This term is
used for any mode of transport, and involves the seller delivering the goods to
the buyer, but not with customs clearance for import and not including off-
loading from the delivery vehicle. The buyer is responsible for customs
clearance, duties and brokerage. This term is more useful for smaller
shipments and samples delivered via courier without seller responsibility for
customs procedures at the destination.
DDP/Delivered Duty Paid (named place of destination): DDP represents
the greatest responsibility on the part of the exporter, who is quoting to pre-pay
and be responsible for everything in getting the goods delivered to the buyer’s
facility, including customs clearance and the payment of duties.
Example of an invoice