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CHAPTER 6

INTERNATIONAL PRICING

VU THN



CONTENTS
01

Fundamental export pricing objectives and strategies

02

Determinants of an export price

03

Relation of export to domestic price policies

04

Exchange rate changes & currency issues

05

The price quotation

06

Transfer pricing & Countertrade


“Luxury goods makers need to balance
image and desirability with affordability
and their own strategic goals.”
—Government of Canada, 2017


INTRODUCTION
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Operate in multiple pricing environments
Complex task, numerous markets
Not determined is isolation
Affects ability to be profitable
A marketing tool
Other related issues such as terms of sale, counter-trade, dumping,
transfer pricing etc.
Digital impact
Transparency
“As digital eroded geographic borders, we consumers

Dynamic pricing
have become more used to seeing the way products are
priced elsewhere.”
(Smith, 2018)


TRENDS
•

Increased transparency on a global basis

•

Multinationals as ‘corporate citizens’

•

Pricing pressure from retailers

•

Consumers ability to shop around

•

Increasing level of value pricing

•

Focus on transfer pricing (inter-company)

•

Brexit effect? Russia-Ukraine War?


1.2 FUNDAMENTAL EXPORT PRICING OBJECTIVES & STRATEGIES
Skimming the market
getting the highest possible price out of a product’s
distinctiveness
• a high price is set until the small market at that price is
exhausted.
• the price may then be lowered to tap a second successive
market or income level
•


1.2 FUNDAMENTAL EXPORT PRICING OBJECTIVES & STRATEGIES
Penetration pricing
establishing a price sufficiently low to rapidly create a mass
market
- emphasis is placed on value rather than cost in setting the
price
-


1.2 FUNDAMENTAL EXPORT PRICING OBJECTIVES & STRATEGIES
Sliding down the demand curve
-

a variation of the skimming strategy
company reduces prices faster and further than it would be
forced to do in view of potential competition


1.2 FUNDAMENTAL EXPORT PRICING OBJECTIVES & STRATEGIES
Extinction pricing (Ðịnh giá hủy diệt)
-

to eliminate existing competitors from international markets
it may be adopted by large, low-cost producers as a conscious
means of driving weaker, marginal producers out of the
industry


1.2 FUNDAMENTAL EXPORT PRICING OBJECTIVES & STRATEGIES
Preemptive pricing (Định giá ngăn chặn)
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setting prices so low as to discourage competition
price will be close to total unit costs

Preemptive and extinction pricing strategies are both
closely associated with ‘dumping’ in international markets.


2. DETERMINANTS OF AN EXPORT PRICE
•

costs

•

market conditions and customer behavior (demand/ value)

•

competition

•

legal and political issues

•

general company policies (financial matters, production, organization
structure); and on marketing activities (products planning and
development, the product mix, marketing channels, sales promotion,
advertising, & selling)


2.1 COSTS
•

In the short run: direct costs (labor, raw materials, & shipping)

•

In the long run: full costs for all products

•

Price lining offering different products or services at various price
points to meet different customers’ need.

•

Dynamic pricing charge vary from one market to another, depending
on the market conditions, differences in costs, and variations in the
way consumers value the offering.


2.1 COSTS
•

Bundling – packaging a product with other goods and services – can
make it difficult for buyers to see through the costs of any single item
within the bundle

•

The basic categories of cost incurred to serve domestic and export
customers are the same, for example labor, raw materials,
component parts, selling, shipping, overheads.


2.2 MARKET CONDITIONS (DEMAND)
•

The utility/ value, placed on the product by purchasers sets the price

ceiling

•

establish the value of a product in an export market = establish a
demand schedule for the product

•

estimate a demand schedule, the market can be stratified, which
involves estimating the number of customers who will buy at several
levels of price


2.2 MARKET CONDITIONS (DEMAND)

Factors affecting price sensitivity


Cost figures of a consumer product


2.3 PRICING METHODS
COST-PLUS PRICING (MARKUP PRICING)
•Price = COGS + COGS x a%
•Advantages:
• Easy and fast calculation
• Costs arising during sales are included in the profit percentage

•Disadvantages:

• Inflexible, unsuitable for products whose prices change according to the
change in the supply and demand of the market
•Apply for products that are slow to change prices or must be sold within a day
after production


2.3 PRICING METHODS
BREAK-EVEN ANALYSIS AND TARGET PROFIT PRICING
Target price = units cost + target profit/ expected consumption quantity
Break-even volume formula:
"#

BEV= $ % &#
BEV: break-even volume
FC: fixed cost
P: price
VC: variables cost


2.3 PRICING METHODS
BREAK-EVEN ANALYSIS AND TARGET PROFIT PRICING


2.3 PRICING METHODS
PERCEPTION-BASED PRICING
•Price = COGS + buyer’s perception
•If the customer is interested in the product, the seller may charge a high price
•If the customer isn’t interested in the product, the seller should charge the original
price
•High quality products are expensive

2.3 PRICING METHODS
COMPETITION-BASED PRICING
•

Competition-based pricing involves setting prices based on competitors’
strategies, costs, prices, and market offerings.

•

Fast Moving Consumer Goods (FMCG) often apply this pricing methods, for
example, bottled water


2.4 COMPETITION
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price above, at the same level as, or below competition?

-

Barriers to provide ‘shelter’ from competition include having a
product distinctiveness , a brand prominence with high brand equity ,
and a well-established channel of distribution both between
countries and within a country that can provide greater dealer
strength


2.5 LEGAL/POLITICAL INFLUENCE

-

Legal and political factors act primarily to restrict the freedom of a
company to set prices strictly on the basis of economic
considerations.

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antidumping legislation

-

handle rebates, discounts, allowances, and even price escalation or
guarantee against price decline clauses in contracts

-

tariff levels

-

government intervenes in currency markets


3.1 EXPORT PRICES LOWER THAN DOMESTIC
•

the manufacturer’s product is probably less well known in foreign
markets than domestic ➝ to secure market acceptance and initial
purchase

•

the lure of increased sales volume in order to assist in absorbing
manufacturing and overhead costs

•

domestic customers are nationalistic and will pay a higher price for a
domestic product
⥤ may be considered to be dumping


3.2 EXPORT PRICES HIGHER THAN DOMESTIC
•

initial cost of equipping an organization to enter the export field

•

the complexities of procedure, difficulties in language, differing
commercial customs, and varying legal needs and tastes of customers
in export markets

•

extra investment and added expense in preparation of special
documents and forms in packing, preparation, and alteration of the
products

•

added risk in doing business abroad due to unsettled economic and