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1. Drivers of Foreign Market Pricing
Exhibit 13-1 Highest and Lowest Prices in ECU
of Products in EC Cities
Company GoalsCompany Costs
Customer Demand
Exhibit 13-2 An Example of Downsizing withPrice Adjustment
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1. Drivers of Foreign Market Pricing
(cont)
Competition
Exhibit 13-3 The Cost of a Pack of Marlboro
Cigarettes vs The Highest- and Lowest- PriceBrands in Each Market
Distribution Channels
Government Policies
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2. Managing Price Escalation
1. Rearrange the distribution channel
2. Eliminate costly features (or make them
optional)3.Downsize the product
4. Assemble or manufacture the product in
foreign markets
5. Adapt the product to escape tariffs and tax
levies
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3. Pricing in Inflationary Environments
Ways to safeguard against inflation
1. Modify components, ingredients, parts,
and/or packaging materials.2. Source materials from low-cost suppliers
3. Shorten credit terms
4. Include escalator clauses in long-termcontracts
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3. Pricing in Inflationary Environments
(cont)
5. Quote prices in a stable currency
6. Pursue rapid inventory turnovers
7. Draw lessons from other countries
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3. Pricing in Inflationary Environments
(cont)
Courses of action with price controls
1. Adapt the product line
2. Shift target segments or markets3. Launch new products or variants of existing
products
4. Negotiate with the government5. Predict incidence of price controls
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4. Currency Fluctuations
Exhibit 13-4 Exporter Strategies under Varying
Currency Conditions
Currency Gain/Loss Pass Through
Exhibit 13-5 A Numerical Illustration of Pass-
Through and Local Currency Stability
Exhibit 13-6 Retail Price Changes During
Dollar Appreciations: Japanese and GermanExports to the U.S. Market
Currency Quotation
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5. Transfer Pricing
Determinants of Transfer Prices
Tax regimes
Local market conditionsMarket imperfections
Joint partner venture
Morale of local country managers
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5. Transfer Pricing (cont)
Setting Transfer Prices
Minimizing the Risk of Transfer Pricing
Tax AuditsExhibit 13-7 Decision Model Making for
Assessing Risk of TP Strategy
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6. Global Pricing and Antidumping
Regulation
Trading-up
Service Enhancement
Distribution and Communication
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7. Coordinating Prices
1. Nature of customers
2. Nature of channels
3. Nature of competition
4. Market integration
5. Internal organization
6. Government regulation
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7. Coordinating Prices (cont)
Aligning Pan-Regional Prices
Exhibit 13-8 Frame 1 Development of Prices in
EuropeStep 1: Determine Optimal price for Each
Country
Step 2: Find out whether parallel imports (gray
markets) are likely to occur at these prices
Step 3: Set a pricing corridor
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7. Coordinating Prices (cont)
Implementing Price Coordination
1. Economic Measures
2. Centralization3. Formalization
4. Informal Coordination
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8. Countertrade
Forms of Countertrade
Exhibit 13-9 Classifications of Forms of
CountertradeNon cash payments
Simple Barter, Clearing Agreement, Switch Trading
Cash payment flows
Buy-back (Compensation), Counterpurchase, Offset
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8. Countertrade (cont)
Motives Behind Countertrade
Gain access to new or difficult markets
Overcome exchange rate controls or lack ofhard currency
Overcome low country credit worthiness
Increase sales volume
Generate long-term customer goodwill
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8. Countertrade (cont)
Shortcomings of Countertrade
No in-house use for goods offered by
customersTimely and costly negotiations
Uncertainty and lack of information on future
prices
Transaction costs