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Unit 10.02
Understand the components of
International pricing and payment
Goals
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Explain each of the four global pricing
strategies.
Describe methods of international
payments.
Terms
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price
price floor
price ceiling
penetration pricing
skim pricing
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market pricing
prestige pricing
elasticity of demand
letter of credit
GLOBAL PRICING STRATEGIES

Price

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The amount of money, goods, or services
needed to acquire a given quantity of other
goods or services
There are different strategies to set price in
an international market.
Price (cont.)
• Price must be justified against benefits
customer will receive
• Price for a product is usually paid in money
(currency)
– Ancient form of exchange based on barter
(products directly exchanged for other
products)
• Price is a strategic tool that can be changed
easily and rapidly to manage inventory,
increase sales, or to compete against other
companies
Strategies to set prices:

Price floor
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the lowest price a company can charge and
still cover costs
If price is too low, may be accused of
dumping
Price ceiling

the maximum price that can be charged in a
market. Usually set by the value customers
see in a product.

http://www.youtube.com/watch?v=XgBPAucs-W4
Price floor and ceiling videos

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
•
http://www.dw.de/china-slaps-anti-dumping-tax-on-eu-produced-chemical/a-16910695
•
China & EU dumping war video
Strategies to set prices(continued)
penetration pricing

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
Sets a low price compared to competitors.
Helps a company to capture market share.
Often used for short term till market goals are
met.
skim pricing
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a temporary strategy where a company sets a
high price for a brief time.
Ideal for new, innovative products.
http://www.youtube.com/watch?v=OiyclgBa3jw
Penetration and skimming pricing video
Strategies to set prices(cont..)
market pricing
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pricing that can be justified by the competitive
advantages of a product relative to products already
in the marketplace.
Prices are set higher or lower based on competitive
advantages.
prestige pricing

a company sets a high price throughout the life of a
product to signal quality.

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Example :BMW automobiles or Louis Vuitton accessories
http://www.businessdictionary.com/videos/?518086734
Masstige product video
Strategies to set prices (continued)
Standard Global Pricing
 Setting the same price everywhere
 Unlikely to be used globally
 Online environments do allow for single
global pricing. Ex: iTunes offers products at
a single global price. Individuals from
around the world can go online and
purchase the same products at same
pricing.

http://www.youtube.com/watch?v=-tw5tRQc044

7.15 video on global pricing
Factors effecting international
pricing
1.Elasticity of demand
the relationship between changes in a product’s price and
the demand for that product
• inelastic products that offer few substitutes may have
higher prices while elastic products that offer several good
substitutes will have lower prices.
•
2.Government regulations(tariffs, VATs).
3.Stability of exchange rates.
4.Other external factors such as political stability
5. Export-related costs
Price escalation
• Export-related costs
– Cost of modifying a product for a foreign market
– Operational costs of exporting
• Shipping, insurance, overseas promotion
– Cost incurred in entering the foreign market
• Taxes, tariffs, exchange rate fluctuations
• Methods for combating price escalation
– Reorganize the channel of distribution
– Product adaptation
– Change tariff or tax classifications
– Overseas assembly or production
INTERNATIONAL PAYMENTS

A secure way of making international
payments must be agreed upon by the
buyer and the seller.
FORMS OF INTERNATIONAL PAYMENT
– Cash in Advance
• Not widely used except for first time transactions
• Most favorable term for exporters
• Buyer incurs most risk
– Letter of Credit
• Promise to pay
• Irrevocable, confirmed, revolving
• Risk is shifted to seller
– Drafts
• Similar to personal check
FORMS OF INTERNATIONAL PAYMENT
– Documentary collection
• Bank acts as collection agent
• Draft may be sold at discounted rate for
immediate cash
– Open Account
• No written evidence of debt exists
• No guarantee of payment
– Consignment Selling
• Allows importer to defer payment until goods are
actually sold (most favorable term for importer)
• All risk is on exporter
IMH 10.02 Activity
• Students work in pairs and complete the following:
• Provide an example of each of the following form of
payments encountered in the International
Marketplace. Example must clearly define the
companies and product involved in the transaction.
Include advantages and disadvantages for each
company
– Cash in advance
– Letter of credit
– Draft
– Documentary collection
– Open account – terms
– Consignment selling