Significance of pricing in international Markets. To Examine various pricing approaches in International Markets. The terms of Payment.

The terms of Delivery. The Concept of Dumping in international Markets. To describe transfer pricing in international Markets. To explain the concept of International Marketing.

Pricing is especially important in international marketing strategy decisions, due to its effect on product positioning, market segmentation, demand management, and market share dynamics.

Exporters determine export prices on ex-works price level and add a certain percentage of profit and other expenses depending upon the terms of delivery. LIMITATIONS The price quoted by the exporter on the basis of cost calculations maybe too low vis--vis competitors, thus allowing importers to earn huge margins. Price quoted may be high making goods incompetitive followed with rejection. It takes no account of demand and there is no way of determining if potential customers will purchase the product at the calculated price.

The most common pricing approach used by exporters in initial stags of their internationalization, includes adding a mark-up on the total cost to determine price. BENEFITS It is widely used by exporters in the initial phases of international marketing. It ensures fast recovery of investments. It is useful for firms that are primarily dependent on international markets and register very low or negligible sales in domestic markets. It eases operation and implementation of marketing strategies. BOTTLENECKS It often overlooks the prevailing price structure in international markets that may either make the product uncompetitive or prevent the firm from charging higher prices

Marginal cost is the cost of producing one more unit. It sets the lower limit to which a firm can reduce its price without affecting its overall profitability. REASONS FOR ADOPTING Where foreign markets are used to dispose of surplus production, marginal cost pricing provides an alternate market outlet. Products from developing countries seldom compete on the basis of brand image or unique value; marginal cost pricing is used as a tool to penetrate international markets. Marginal cost pricing provides some advantage that the firm would forego if it does not export at the marginal-cost-based price. LIMITATIONS In case the firm is selling most of its output in international markets, it cannot use marginal cost pricing as the fixed cost also to be recovered. Pricing based on marginal cost may be charged, as dumping in overseas markets is liable to action and subject to investigations. Such pricing tends to trigger a price war in the overseas market and leads to price undercutting among suppliers. Little information may lead to low price quotations.

Exporters in developing countries are generally sellers of marginal products with small market shares not enough to influence the market prices, thus they are generally price followers rather than setters. Their pricing decisions involve assessment of prevailing prices in international markets and a top down calculations as follows : Establish the current market price for comparative and/or substitutive products in the target markets. Establish all the elements of the market price, such as VAT , margins for the trade and the importer ,import duties ,freight and insurance costs, etc. Make a top down calculation, deducting all the elements of the expected market price of the product(s) in order to arrive at the exworks ,ex-factory, or ex-warehouse price. Assess if this can be met. If not, re- calculate the cost price by finding ways to decrease costs in the factory or organization or to decrease the marketing budget , which also burdens export-market price. Estimate total sales over a three-year period, add total planned expenses, including those of the export

Make a bottom-up calculation per product item, dividing the supporting budgets over the total number of items to be sold. Set the final market price. Test the price(through market research)

Production plant locations National Market Size Distribution system used Competitors and tracking costs Economic climate Currency fluctuations and exchange rates

Plant Location Selecting a country with 1. Low labor cost 2. Lower taxes 3. Low exchange rates determine the extent to which a company can control costs and price their products competitively.

National Market Size Company can use its potential volume of sales to estimate the price at which they will need to market their product .

Exchange Rate

> Due to discrepancies in the value of different currency, similar products in different countries may be priced differently. > Companies often have to adjust prices due to fluctuations in exchange rates. > Bill foreign customers in domestic currency.

Government Regulations

>Price ceilings as well as price floors on certain products affects the pricing of product. >Regulations placed on the prices of similar products may affect potential demand and thus price

Distribution

The distribution network by which they are selling their products overseas. E.g.- if a company is selling a product through franchise licenses, they will likely price their products differently than if they were selling them wholesale to local distributors, as their profit structure would be different.

Competitors and tracking costs

Intensity of competition in a foreign market affects price, which therefore makes a foreign entrant to track the competitive pricing by the other established players.

Duty and Tariffs These restrictive practices affects international pricing and adds to the final price, burdening consumers. Purchasing Power Parity A buyers strength to buy a product as reflected by PPP affects international pricing for a product. Cultural Differences Culture perceive the value of certain products, which in turn affects how much they are willing to pay for them. Eg- in US women's handbags often are seen as a status symbol. Female consumers, therefore, often are willing to pay high prices.

Buyers Behavior Buyers from high income countries are more demanding and knowledgeable and the buying decision is primarily based on superior performance attributes whereas the buyers from low income countries have been separated to make choices based on the price of the product and services.

These conditions include overall parent company objectives, the competition, the consumer, cost, and government regulation.
The prices in various regions of the world should be kept fairly uniform. Ethical consideration considerations in the foreign market differ from those in the domestic market. Price segmentation becomes more significant in the foreign market. Government play an prominent role in pricing in almost all countries. Price control means that an application to increase price must be filed with the government, together with supporting data of cost increases

Under this the payment is remitted by the buyer in advance either by a draft mail or Telegraphic transfer. Generally these payments are made on the basis of sample receipt and its approval by the buyer.

The exporter and the importers agrees upon the sales terms without documents calling for payment.However,the exporter prepares the invoice,and the importer can take delivery of goods without making the payment first . In this the exporting and importing firms settle their accounts through periodic remittances.

Under the consignment sales, the shipment of the goods is made to the oversees consignee and the title of goods is retained with the exporter until it is finally sold.

A documentary credit represents the commitment of a bank to pay the sellers of goods a certain amount of money provided he presents stipulated documents evidencing the shipment of goods. The operation of letter of credit is governed by the uniform Customs & Practices for Documentary Credits(UCPDC) of the International Chamber Of Commerce.

Exporting goods to another country at rates much lower than those prevailing and being charged by the firm in its home country Company uses profits to sell at much lower prices in foreign markets Builds market share Suppresses profitability of competitors with open home markets Dumping is legal under GATT rules unless its injurious effect on the importing country's producers can be established. For that anti dumping practice is introduced The sale of an imported product at a lower price lower than that normally charged in a domestic market

Transfer pricing strategy refers to the pricing strategy adopted for intrafirms sales whether within the same border or outside the state border but to the same corporate units to which this firm belongs.

When multinational firms transfer product across international borders, transfer prices are relevant in the calculation of income taxes, and are sometimes relevant in connection with other international trade and regulatory issues.

COST BASED TRANSFER PRICING STRATEGY Firms add to the full cost, the additional costs incurred on marketing, research and development and other logistic activities in reaching the product to the subsidiary. MARKET BASED TRANSFER PRICING STRATEGY Are generally appropriate in a perfect market, where there is homogeneous product with only one price for both sellers and buyers and no buying or selling costs. NEGOTIATED TRANSFER PRICING International marketing firms are also at liberty to negotiate the transfer prices between themselves. These negotiated prices could be anywhere between the total cost prices and the market based prices.

A grey market also known as parallel market is the trade of a commodity through distribution channels which, while legal, are unofficial, unauthorized, or unintended by the original manufacturer. The marketing channels for grey markets involve unauthorized market intermediaries. Unauthorized broker and border suppliers run a parallel marketing network not authorized by the parent company, to earn an extra buck from the prices differentials of international products.

Extension/Ethocentric

Have a common price all over the world. A global standard price. Ideal for big industries as of Aircrafts, computers etc. Homogeneity of prices eliminates grey markets. Not suitable when there is competition from local manufacturers.

Adaptation/Polycentric

Different prices in different markets. The only control is setting transfer prices within corporate system. It prevents problems of arbitrage when the disparities in local market prices exceed the transportation and duty costs separating markets.

Innovation/Geocentric

Use a regional(global) standard pricing plus a local mark-up . Base price is derives from cost plus formula. Affected by local tax laws leading to grey markets. Pricing an entire product line is a problem, mark-ups can be different in different countries.