Pricing for International Markets International Pricing Full

Pricing for International Markets

International Pricing Full Cost vs Variable Cost Skimming vs Penetration

Price Escalation - The Lower Prices are at Home New York Aspirin London Paris Tokyo Mexico City $ 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 Domestic Example Manufacturing net Transport, c. i. f. Tariff (20 percent c. i. f. value) Importer pays Importer margin when sold to wholesaler (25 percent) on cost Wholesaler pays landed cost Foreign Example 1: Assuming the same channels with wholesaler importing directly Foreign Example 2: Importer and same margins and channels $ 5. 00 n. a. $ 5. 00 1. 10 1. 22 7. 32 n. a. 5. 00 n. a. 7. 32 1. 83 9. 15 1. 67 6. 67 2. 44 9. 76 3. 05 12. 20 Retail margin (50 percent on cost) 3. 34 Retail price 10. 01 4. 88 14. 64 6. 10 18. 30 Wholesaler margin (331/3 percent on cost) Retailer pays Foreign Example 3: Same as 2 but with 10 percent cumulative turnover tax $ 5. 00 1. 10 1. 22 7. 32 1. 83 +0. 73 * 2. 56 +9. 88 3. 29 +0. 99 * =4. 28 14. 16 7. 08 +1. 42 * =8. 50 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

What factors influence consumer prices overseas? F Tariffs on imports F “Dumping” tariffs F Sales taxes F Distributive channel costs F Added middlemen costs F Shipping costs F Fluctuating exchange rates

How can price escalation be counteracted? F F F 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

What is dumping? F 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

Changing currency values have an impact on export strategies F Strong F dollar Weak dollar Price resistance since it takes a large quantity of local currency to buy a U. S. dollar Demand for U. S. goods increase since fewer units of local currencies are needed to buy a U. S. dollar Cost plus pricing

Potential for Gray Markets Product Audio cassette Average Tokyo Retail Price Shop America Catalog Price $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 15 - 20 8 - 11 86 46 4, 857 3, 078 Compact disk Lady Remington shaver Rolex watch 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? F Variations in value of currencies b/w countries - e. g. Cabbage Patch Dolls F Purposely restricting supply of a product in a market - e. g. Mercedes-Benz F Pricing policies that permit large price differentials - e. g. Japanese Domestic pricing vs. foreign -> Cannon Cameras F Price differences greater than the cost of transportation between countries e. g. Cartier and Gucci

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

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

Business Software Piracy Rates and Losses F Korea F Hong Kong F Taiwan F Singapore F 65% million F 59% F 58% million F 54% $117 $69 million $110 $49 million Source: 1998 BSA/SIIA Piracy Study

Entertainment Software Piracy F China F 95% F Hong Kong F Thailand F Singapore F 72% Source: IDSA Software Piracy Study Source: Interactive Digital Software Ass’n F 93% F 73% $1. 42 billion $112 million N/A