THARAKA DIASMBA(USA), BBA(USA), Dip in Mgt, ACIM(UK), FAEA(Dip in AEA-UK),

FinstSMM(UK), CPM(Asia), MSLIM, PM(Sri-Lanka)

Profit and cost factors that affect pricing

Market factors that affect pricingEnvironmental factors that affect

pricingManagerial issues in global pricing

Fixed costs – Do not change over a given range of output

Variable costs – Vary directly with output

Marginal profit – Amount in excess of variable costs

Transportation CostsTariffsTaxesLocal production costsChannel costs

Income level GNP per capita (within its citizens) GDP per capita (within its boundary) Disposable income Price elasticity▪ High income = lower elasticity▪ Lower income = higher elasticity

Importance of reassessing income level in developing countries

CultureBuyer PowerCompetition

Exchange rate fluctuations Inflation ratesPrice controlsDumpingCredit and collection infrastructure

Negotiate with government when costs increase

Decrease costs by modifying productLeave the marketDiversify markets

CIF (Cost Insurance and Freight) Seller pays for insurance and

transportation to foreign port of debarkation

CFR (Cost and Freight) Seller pays for transportation

FOB (Free on Board) Seller only pays to deliver goods to the

port of export

Transfer price – Price paid by importing or buying unit of a firm to the exporting unit of the same firm

Transaction risk – Risk that a change in exchange rates may occur between the invoicing date and the settlement date of the transaction

Foreign exchange price quotations: Spot price – Number of dollars to be paid for a

particular foreign currency purchased or sold today

Forward price – Number of dollars to be paid in a foreign currency bought or sold 30, 90, or 180 days from today

Customize products Maintain control over distribution and

subsidiaries Alert consumers to potential pitfalls of buying

parallel imports such as a nullified warranty Limit supplies of product in low-price markets Keep prices within a range of each other to

discourage arbitrage

Uniform pricing strategy Requires a company to charge the

same price everywhere when that price is translated into a base currency

Difficult to achieve because of different taxes, trade margins, customs duties, and currency fluctuations

Modified uniform pricing strategy Carefully monitoring price levels in

each country and avoiding large gray-trade-enticing gaps

Barter – Exchange of real goods Compensation Arrangement – Value of

export delivery partially offset by an import transaction, or vice versa Full versus partial Triangular

Offset – Selling company guarantees to use some products or services in the buying country in the final product

Cooperation agreements – Buyback arrangement where in payment for input good is paid for by output goods

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