INTERNATIONAL MARKETING 6e

Chapter 11
Export Pricing Strategies

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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 use to position the product or
service in the marketplace.

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Pricing Challenges
 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.

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The Setting of Export Prices
 Factors affecting Stages in Setting
customer purchasing of Prices
decisions S ta g e 1
T a r g e t M a r k e t A n a ly s is
• ability to pay
S ta g e 2
• price-quality relationship M a r k e t M ix C o m p o s itio n

• reaction to marketing mix

S ta g e 3
• market support P r ic in g P o lic y S e le c tio n

S ta g e 4
P r ic in g P o lic y D e te r m in a tio n

S ta g e 5
S e le c tin g th e S p e c ific P r ic e

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 ©
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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.

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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

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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)
• delivered duty paid (DDP)
• delivered duty unpaid (DDU)
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Selected Trade Terms
EXW FCA FCA FAS F.O.B.
(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

Origin Inland Carrier Dock at Port Vessel

(Factory, Mine, of Shipment
Plantation,
Warehouse)
United States
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Selected Trade Terms
CFR CFI FAS DDU / DDP
(Named (Named Port (Named Place
Port of of Shipment) of Destination)
Destination

Vessel Dock at Port Inland Carrier Destination

of Destination

Country of Destination
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Distribution Adjustment to Decrease Price Escalation

A. Conventional Route
Processing
Import Intermediary Primary
Producer and Packing
Agent Wholesaler Wholesaler
Plant

Small A. Retail Price: 170 yen/300g package

Retailer
Wholesaler B. Retail Price: 128 yen/300g package
Savings of 25% by restructuring

B. Restructured Route
Processing Depots
Import
Producer and Packing Retailer
Agent Distribution
Plant Wholesalers
Distribution
Centers

Source: Michael R. Czinkota, “Distribution of Consumer Products in

Japan: An Overview,” International Marketing Review 2 (Autumn
Copyright © 2001 by Harcourt, Inc. All rights reserved. 1985): 39-51. 11-10
Negotiating Terms of Payment
 Considerations
• The amount of payment and the need for
protection
• Terms offered by competitors
• Practices in the industry
• Capacity for financing
international transactions
• Relative strength of the
parties involved

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The Letter of Credit
 Irrevocable versus revocable
• irrevocable letter cannot be cancelled,
guaranteeing payment
 Confirmed versus unconfirmed
• U.S. bank confirms letter, assumes collection risk
 Revolving versus nonrevolving
• Most letters are nonrevolving- good only for a
single transaction.

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Import / Export Trade Financing
 Minimizing the exposure of financial risk
 Trade financing using a Letter of Credit (L/C)

3
Foreign U.S.
Bank Bank

6&7
1 2 4

Product
Foreign exported U.S.
Company Company
5

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Drafts and Documentary Collection
 Drafts
• are similar to personal checks, but have a
documentary requirement that the buyer to obtain
shipping documents before taking possession of
the imported goods.
 Documentary collection
• Seller ships goods, then bank
acts as agent in collecting
payment through a sight or
time draft from the importer.
The draft becomes a banker’s acceptance and
may be sold at a discounted rate if the exporter is
in need of immediate cash.
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The Risk Triangle

Most Advantageous High Risk/High Trust

Consignment

Open Account

Documents against Acceptance

Letter of Credit

Confirmed Letter of Credit

Cash in Advance
Least Advantageous Low Risk/Low
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Adjusting to Foreign Currency Fluctuations
 Forward rate exchange market
• “the exchange of currencies on a future date at an
agreed upon exchange rate”
 Spot rate transaction
• “the exchange of currencies for immediate delivery”
 Possible price manipulation responses to
currency movements
• Make no change in the dollar price (pass-through).
• Decrease the export price (absorption).
• Pass-through only a portion of the increase.

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Exporter Strategies Under Varying Currency Conditions

Weak Position Strong Position

 Stress price benefits  Non-price competition

 Expand product line  Improve productivity/

 Shift sourcing to cost reduction

domestic market  Sourcing overseas

 Cash-for-goods trade  Prioritize exports

 Full costing  Countertrade with weak

 Speed repatriation currency countries

 Minimize expenditure in  Marginal-cost pricing

local currency  Slow collections

 Buy needed services

abroad
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Price Negotiations
 Be aware that price is only one part of a
comprehensive package. Avoid early price
concessions.
 Carefully consider concessions that reduce
price or profitability.
• discounts, payment terms, product features
 Know conditions in importer’s market.
 Focus negotiations first on
substantive issues (quality
and delivery), then on price.

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Leasing
 Leasing
• reduces the amount of investment required to
place the product in service, especially in less
developed markets.
• may produce a total net income greater than that
of an outright sale.
• offers the opportunity to provide
ancillary services that
increase the total
value of the
exported
asset.

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Dumping
 Ranges of dumping
• Predatory dumping
– is intentional selling at a loss to increase market share
• Unintentional dumping
– occurs when market factors cause the import’s selling
price to fall below prices in the exporter’s home market
 Remedies for dumping
• Antidumping duty
– are levied on imported goods
sold at less than fair market value
• Countervailing duties
– are imposed on imports which are subsidized in the
exporter’s home country

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