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INTERNATIONAL PRICING STRATEGY Pricing is critical and complex variable Pricing decision affects the company’s ability to stay in the market Unpredictable market forces such as cost, competition, and demand threaten with numerous pitfalls for international pricing 5/23/2017 1 Importance of Pricing Pricing decision directly affects revenue and thus profitability of any business, be it domestic or international Appropriate pricing aids proper growth, as development of mass market depends to a large extent on price. 5/23/2017 2 Uniform Versus Differentiated Pricing The decision between uniform and differentiated pricing would be dictated by such factors as: - competitive conditions - life style - position of the product - product diffusion process - regulatory considerations 5/23/2017 3 Uniform Versus Differentiated Pricing - channel structure - company objectives, and - consumer price perceptions 5/23/2017 4 International Pricing Setting International pricing is affected by differences in costs, demand conditions, competition and government laws 5/23/2017 5 Pricing orientation The Cost Approach (computing all relevant costs and then adding a desired profit mark up to arrive at price) The Market Approach (an estimate is made to the acceptable price in the target segment. The price is in the view point of the customer) 5/23/2017 6 Factors affecting Export Pricing The price destination (who will pay the price?) The nature of the product (raw, semi-processed or finished, services, or intangible property) The currency used for the billing. 5/23/2017 7 Export Pricing Quotation Ex factory Free along-side-ship (FAS) Free on board (FOB) Cost insurance and freight (CIF) Delivery duty paid (Rendu) 5/23/2017 8 FACTORS AFFECTING PRICING DECISIONS Cost Competition Purchasing Power of Customers Buyers’ Behaviour (Cultural influence) 5/23/2017 9 TRANSFER PRICING This is the price of international transaction between related parties/Countries/firms. When the parties are not related, then it is called : Arm’s length Price. Mainly, it is for allocation of profits among the subsidiaries and the parent company. It becomes more complicated when the taxation system between the countries is incompatible. 5/23/2017 10 Objectives of TRANSFER PRICING Maximize overall after-tax profits Reducing incident of customs duty payments Overcoming quota restrictions Reducing exchange rate differential problems etc 5/23/2017 11 Finally Dumping Practice of pricing exports at levels lower than the domestic price. Is a way of setting differential prices to achieve certain objectives. WTO is now prohibiting the dumping at the international legal perspective 5/23/2017 12