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International pricing

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International Pricing: Dr. Gopal Thapa

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International pricing

  1. 1. International Pricing Dr. Gopal Thapa Associate Professor Tribhuvan University
  2. 2. Pricing ◼ Pricing is an act of determining price for the product. ◼ Pricing in international marketing is a tricky problem as well as a technical job ◼ It is a competitive weapon in international marketing 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  3. 3. Types of International Pricing Policy ◼ Export pricing/Free market pricing ◼ Administered pricing ◼ Transfer pricing ◼ Foreign market pricing 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  4. 4. Export Pricing ◼ Export pricing is a policy whereby the firms determine prices independently by the free play of demand and supply factors ◼ It is also known as free market pricing ◼ Exporters assume that there is perfect competition in the market. ◼ Competition and demand factors are considered ◼ It is based on cost plus method 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  5. 5. Constraints or Problems in Export Pricing ◼ Price escalation ◼ Price for the product may unnecessarily increase or decrease due to the changes in transportation cost, custom duties, distributor’s charges. ◼ E.g. FOB, C& F, CIF ◼ International dumping ◼ Dumping is the unfair practice of cutting prices for injury, destruction, or prevention of domestic industry ◼ Dumping is illegal in many counties 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  6. 6. Types of Dumping ◼ Predatory dumping: Selling the product at a loss to gain access to the market and thus drive out the competitors ◼ Persistent dumping: Sells at lower prices in one market than in others ◼ Sporadic dumping: Firms cut the price of the unsold stocks ◼ Unintentional dumping: due to the time lag between sales agreement and arrival of products ◼ Reverse dumping; low price in home country 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  7. 7. Export Pricing strategy ◼ Penetration pricing ◼ Low price in the initial stage ◼ Skimming pricing ◼ High price in the initial stage ◼ Market holding pricing ◼ Setting price at competitive rate 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  8. 8. Administered Pricing Policy ◼ Administered pricing relates to attempts to administer prices for an entire market, including a country, region, or the continent as a whole ◼ Such prices may be arranged through ◼ The cooperation of competitors ◼ National , state or local governments ◼ By international agreement The end goal of all administered pricing activities is to reduce the impact of price competition 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  9. 9. Forms of Administered Pricing ◼ Counter trades ◼ Switch trading ◼ Leasing international 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  10. 10. Counter Trade ◼ Countertrade means exchanging goods or services which are paid for, in whole or part, with other goods or services, rather than with money ◼ In dealings between sovereign states, the term bilateral trade is used. OR "Any transaction involving exchange of goods or service for something of equal value." 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  11. 11. Need of Counter trade ◼ Shortage of convertible currency ◼ Liquidity problems ◼ Develop new markets ◼ Stimulation of jobs and Industry ◼ To balance overseas trade ◼ Ensure future selling contracts (Counter purchase) ◼ To gain a competitive edge over other suppliers. ◼ It has become popular as a means of financing international trade to reduce risks or overcome problems associated with various national currencies 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  12. 12. Forms of Counter Trade ◼ Barter ◼ Switch Trading ◼ Counter purchase ◼ Buyback ◼ Compensation trade ◼ Offset 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  13. 13. Barter ◼ Exchange of goods or services directly for other goods or services without the use of money as means of purchase or payment. Examples : Indo Iraq Wheat and Rice for Oil deal 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  14. 14. Switch Trading ◼ It involves at least three parties. This means a country may barter goods from another country which may be of no use to itself so it sells the goods to other country for hard cash ◼ Brazil exported corn to East Germany (before Unification) and received products in return. Germany did not use corn , so it sold the corn to other countries for hard cash 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  15. 15. Counter Purchase ◼ Counter purchase is a reciprocal buying agreement. It occurs when a firm agrees to purchase a certain amount of materials in future back from a country to which a sale is made. 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  16. 16. Compensate Trade ◼ Compensation trade is a form of barter in which one of the flows is partly in goods and partly in hard currency 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  17. 17. Offset ◼ Agreement that a company will offset a hard - currency purchase of an unspecified product from that nation in the future. ◼ Agreement by one nation to buy a product from another, subject to the purchase of some or all of the components and raw materials from the buyer of the finished product, or the assembly of such product in the buyer nation. 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  18. 18. International Transfer Pricing ◼ It is intra-company pricing ◼ It is a pricing policy that attempts to set price to be charged by the head office to its subsidiaries in foreign market. 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  19. 19. Transfer Pricing Strategies ◼ Transfer at direct cost ◼ Transfer at a competitive price derived from end market price ◼ Transfer at direct cost plus additional expenses ◼ Transfer at an Arm’s-length price 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  20. 20. Foreign Market Pricing ◼ It is concerned with pricing policy within foreign markets. ◼ Each foreign subsidiary may have separate pricing policy as determinants may vary market to market ◼ It is also called decentralized pricing policy 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  21. 21. Determinants of Foreign Market Pricing ◼ Company goals ◼ Costs ◼ Demand pattern ◼ Competition ◼ Tax policy ◼ Distribution structure 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal
  22. 22. Any Queries? Thank You 6/2/2020 Copy right reserved: Dr. Gopal Thapa, Tribhuvan University, Nepal

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