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www.sba.muohio.eduOAKENFGhomepageSpring_202003

VIEWS: 2 PAGES: 18

									Pricing for International Markets
 International Pricing
Full Cost vs Variable Cost

Skimming vs Penetration
           What is dumping?

 Companies   may be accused of dumping if
 the price of their product in foreign markets
 is:-
  – Lower than competition in the country of
    origin
  – Lower than normal export prices
               Dumping Tariffs
  What factors influence consumer
         prices overseas?
 Tariffs on imports
 “Dumping” tariffs
 Sales taxes
 Distributive channel costs
 Added middlemen costs
 Shipping costs
 Fluctuating exchange rates
          Price Escalation - The Lower Prices
                      are at Home
                         New York           London          Paris            Tokyo   Mexico City

Aspirin                      $ 0.99           $ 1.23           $ 7.08         $ 6.53     $ 1.78
Cup of coffee                   1.25             1.50            2.10           2.80        0.91
Movie                           7.50           10.50             7.89          17.29       4.55
Compact disk                   12.99           14.99           23.16           22.09      13.91
Levi 501 jeans                 39.99           74.92           75.40           79.73      54.54
Ray-Ban sunglasses            45.00            88.50           81.23          134.49      89.39
Sony Walkman                   59.95           74.98           86.00          211.34     110.00
Nike Air Jordans             125.00           134.99          157.71          172.91     154.24
Gucci men's loafers          275.00           292.50          271.99          605.19     157.27
Nikon camera                 629.95           840.00          691.00          768.49   1,054.42


    SOURCE: "Tourists and Bargains Galore," Fortune, June 13, 1994, p. 12.
 Sample Causes and Effects of Price
           Escalation
                                                   Foreign            Foreign          Foreign
                                                 Example 1:          Example 2:      Example 3:
                                                Assuming the        Importer and   Same as 2 but
                                              same channels with   same margins    with 10 percent
                                   Domestic   wholesaler import-   and channels      cumulative
                                   Example       ing directly                       turnover tax

Manufacturing net                   $ 5.00            $ 5.00             $ 5.00          $ 5.00
Transport, c.i.f.                     n.a.              1.10               1.10            1.10
Tariff (20 percent c.i.f. value)      n.a.              1.22               1.22            1.22
Importer pays                         n.a.              n.a.               7.32            7.32
Importer margin when                                                                       1.83
sold to wholesaler                                                                       +0.73 *
(25 percent) on cost                  n.a.              n.a.              1.83             2.56
Wholesaler pays landed cost           5.00              7.32              9.15           +9.88
                                                                                           3.29
                                                                                         +0.99 *
Wholesaler margin
  (331/3 percent on cost)             1.67              2.44              3.05           =4.28
Retailer pays                         6.67              9.76             12.20           14.16
                                                                                          7.08
                                                                                         +1.42 *
Retail margin (50 percent on cost) 3.34                 4.88              6.10           =8.50
Retail price                      10.01                14.64             18.30           22.66

  Notes: a. All figures in U.S. dollars; c.i.f = cost, insurance, and freight; n.a. = not applicable.
         b. The exhibit assumes that all domestic transportation costs are absorbed by the middleman.
         c. Transportation, tariffs, and middleman margins vary from country to country, but for
            purposes of comparison, only a few of the possible variations are shown.
  * Turnover Tax
        How can price escalation be
             counteracted?
   Reduce the price of the product, tariffs, or any other cost
    in marketing the product
   Offsetting tariffs and transportation charges by the net
    price for goods sold in foreign markets -> dumping
    allegations
   Modify the product in a way that tariffs are reduced
   Manufacture within the country -> eliminate tariffs and
    most transportation costs; lower labor costs
   Shorten channels of distribution
   Eliminate costly functions and features of product
     Changing currency values have an
        impact on export strategies
                       Price resistance since it
 Strong   dollar      takes a large quantity of local
                       currency to buy a U.S. dollar


                       Demand for U.S. goods
   Weak dollar        increase since fewer units of
                       local currencies are needed
                       to buy a U.S. dollar

                        Cost plus pricing
                      Potential for Gray Markets

                                            Average Tokyo               Shop America
Product                                      Retail Price               Catalog Price
Audio cassette                                 $11 - $14                      $6 - $8
Auto-Reverse Walkman                                   70                             50
Braun Juicer                                           32                             20
Canon Autoboy Camera                                  260                         180
Channel No. 5 (1/2 oz)                                153                             85
Compact disk                                      15 - 20                       8 - 11
Lady Remington shaver                                  86                             46
Rolex watch                                         4,857                       3,078

SOURCE: Shop America LTD. as quoted in "Can This Catalog Company Crack the Japanese
Marketing Mass?" Business Week, March 19, 1990, p. 60.
      Parallel Imports - What causes
                  them?
   Variations in value of currencies b/w countries - e.g.
    Cabbage Patch Dolls

   Purposely restricting supply of a product in a market -
    e.g. Mercedes-Benz

   Pricing policies that permit large price differentials - e.g.
    Japanese Domestic pricing vs. foreign -> Cannon
    Cameras

   Price differences greater than the cost of transportation
    between countries e.g. Cartier and Gucci
               Countertrades
•Results from shortages in hard currency available to
industrializing nations

•Communist countries must purchase goods from non-
Communist suppliers with monies earned from Western
nations

•LDCs’ inflation-ridden or weak currencies are reserved
for top priority purchases; countertrading used for less
important goods
   Countertrades

Barter

Compensation Deals

Counterpurchase or Offset Trade

Product Buy-Back Agreement
Why Purchasers Impose
Countertrade Obligations
To Preserve Hard Currency

To Improve Balance of Trade

To Gain Access to New Markets

To Upgrade Manufacturing Capabilities

To Maintain Prices of Export Goods
      Types of Software Piracy

 Business  Software Piracy by End-Users
 Piracy of Entertainment Software
 Optical Disk Manufacturing and
  Smuggling
 Unlicensed Use of Educational Software
 Internet Piracy and Piracy Tools
  (Hackz/Crackz)
              Business Software Piracy
                            Rates and Losses

Rates and Losses
 Vietnam                             97%              $8 million
 China                               96%              $843
 Indonesia                            million
 Thailand                            92%              $33 million
 Philippines                         84%              $40 million
 Malaysia                            78%              $25 million
Source: 1998 BSA/SIIA Piracy Study
                                      75%              $67 million
                                     Source: 1998 BSA/SIIA Piracy Study
       Business Software Piracy

Rates and Losses
 Korea             65%              $117
 Hong Kong          million
 Taiwan            59%              $69 million
 Singapore         58%              $110
                     million
                    54%              $49 million


                   Source: 1998 BSA/SIIA Piracy Study
      Entertainment Software Piracy

 China                               95%               $1.42 billion
 Hong Kong                           72%               $112 million
 Thailand                            93%               N/A
 Singapore                           73%               N/A

Source: IDSA Software Piracy Study   Source: Interactive Digital Software Ass’n
          Recurring Problems

 Inadequate  Substantive Protection and
  Broad Exceptions to Exclusive Rights
 Insufficient Civil Remedies to Pursue End-
  User Piracy
 Ineffective Criminal Penalties and
  Enforcement
 Ineffective Border Control

								
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