International Pricing Decision

Preparation for Export Price

Quotation

Presented By:
Pankaj Agarwal(1215)
Rashmi Kumari(1217)
Shashank(1218)
Srijita Dutta(1220)
International Pricing

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 companys 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.
Export pricing & developing countries

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
Pricing Methods
Pricing Methods

Full cost pricing

Cost based pricing
Marginal cost
pricing
Market based
pricing

4
Cost based pricing
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--vis competitors, and importers may earn a

huge margin

May be too high, making goods non competitive and rejection of

offers

5
Full cost pricing
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
Marginal cost pricing

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
Market-based pricing
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
 Competition

Economic
condition of
Cost
the importing
country
Factors
affecting
International
Pricing

Government Product
Factor Differentiation

Exchange
Rate
Cost

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
Competition

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
Product Differentiation

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

Exchange Rates

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
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
Government Factors

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
Contd..

Purchasing
power: of the customers vary widely among
countries. Eg. Mac Donald hamburger prices vary from USD
1.2 in China to USD 4.5 in Switzerland.

Big Mac Index was invented by economist for cross country

comparison of currencies based on Mac Donalds Big Mac
which is produced locally and in 120 countries
simultaneously.
Buyers Behaviour: how demanding and knowledgeable
and how price sensitive they are.

16
Pricing Strategies

Standard Approach

Competitive Pricing

Domestic price plus

Marginal pricing
Contd.

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.
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
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 Export Example
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
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 sellers 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
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.
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.
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.
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 buyers 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.
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 buyers facility, including customs
clearance and the payment of duties.
Example of an invoice
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