Terms of Sale and International Pricing Flashcards
What are the firm’s objectives?
- Revenue
- Market share
- Profit margin
- Positioning vs. competitors
- Long term vs short term
What is international pricing?
- Pricing is complex in international business, due to multiple currencies, trade barriers, added costs, and typically longer distribution channels.
- Prices affect sales and profits.
- Prices an escalate due to tariffs, taxes transportation, intermediary markups, and after-sales service.
What are the 4 biggest factors that affect pricing?
- Cost structure.
- Firm’s objectives.
- Competition.
- Supply & Demands.
What are the factors that affect international pricing?
- Nature of market: Local purchasing and distribution infrastructure are big factors.
- Nature of the product or industry: A specialized or highly advanced product, or an industry with few competitors, may favor charging a higher price.
- Type of distribution system: Channels are complex in some industries/countries, which pushes prices up.
- Location of the production facility: Location manufacturing near customers or in countries with low-cost labor facilitates lower prices.
Calculate the export price.
- Trade Terms = Terms of Sale (incoterms).*
Terms of payments = when do I get pay? … DOES NOT EQUAL incoterms - Define inclusions and exclusions related to price quoted.
- State the exact location where the goods’ responsibility is transferred from the seller to buyer.
- Valid only for the transfer of risks and resulting costs covering the goods shipped.
- Difference between trade terms and payment terms.
How do you set the price abroad?
We need to take in consideration if the product is imported or exporting and it’s total costs.
What are the 3 price strategies?
- Rigid cost-plus pricing (set a fixed price for all markets).
- Flexible cost-plus pricing (set price to accommodate local market).
- Incremental pricing (set a price to cover only variable costs…assumed the fixed costs are already paid).
What are the other 3 Pricing Market Strategies?
- Market Swimming
- Implies quality, uniqueness, technology.
- Generally fewer competition.
- Objective (generate profit) - Market Penetration
- Implies ‘basic’ product.
- Generally many competitors.
- Objective (economies of scale and market share). - Market Pricing
- Pricing as a function of certain key competitors.
What is Market Skimming?
- Deliberate attempt to reach a segment that is willing to pay a premium price.
- Often used in introductory phase of product life cycle.
- Goal is to maximize revenue on limiting volume and reinforce customer’s perception of high value.
What is Market Penetration?
- Uses price a competitive weapon to gain market position.
- Means that the product may be sold at a loss for a certain time to gain market share.
- Smaller compagnies new to exporting usually cannot absorb such losses but larger ones may occur.
What is International Price Escalation?
- Various factors can push up prices of the firm’s products in export markets.
- Causes include multilayered distribution channels, intermediary margins, tariffs, and other costs associated with foreign market.
- May result in overly high retail price in the target market, a competitive disadvantage for the exporter.
- Management can employ various strategies to reduce price escalation.
How to COMBAT International Price Escalation?
- Shorten the distribution channel (bypass intermediaries channels).
- Redesign product to remove costly features.
- Ship product unassembled, to qualify for lower import tariffs.
- Have product re-classified using a different tariff classification to qualify for lower tariffs.
- Move production or sourcing to another country to access lower labor costs or favorable currency rates.
What is Transfer Pricing?
- The pricing of intermediate or finished goods exchanged among the subsidiaries and affiliates of the same corporate family located abroad.
- May be used to repatriate profits from countries that restrict MNEs from talking their earnings out of the country.
- May be used to shift profits out of a high corporate tax country into a low corporate tax one, thereby increasing company-wide profits.
What are some Incoterms?
(Exporter = Sellers)
(Importers = Buyers)
EXW (EX Works) = The company to who you deliver must come get the shipment at their costs.
FOB (Free on Board) = You are responsible of all costs until the point of exportation, then it is their responsibilities & costs.
DDP (Delivered Duty Paid) = The exporter pays for everything. (transportation, duties, insurances), however the cost of the product will be increased.
CIF (Cost, Insurance and Freight) = Get in to the port in the foreign country, but then from there the importer is going to ay for the rest.
What are the expense t be covered in a trade between exporter and importer?
- Transport.
- Duties / Taxes.
- Insurance.
- Fees for doc.
- Brokage Fees.
