Executing the TransactionsSection IIISection III

Pricing in International Trade

Price and nonprice factors:- Reliability- Delivery time- Product reliability - Product quality- Design flexibility - Support services- Financial services

Export CompetitivenessExport Competitiveness

Market shareProfitsTargeted level of return on investment

Export Pricing Objectives Export Pricing Objectives

High markups (few competitors, differentiated products)

Low markups (increased competition)

Pricing and Markup PolicyPricing and Markup Policy

Internal variables- Cost of production- Cost of market research- Business travel- Product modification - Packing- Consultants- Freight forwarders- Level of product differentiation

Determinants of Export PriceDeterminants of Export Price

External variables- Supply and demand- Location and environment of foreign

market- Home country regulations

Determinants of Export Determinants of Export Prices (cont.)Prices (cont.)

Cost-based pricing: Export price is based on full cost and markup or full cost plus a desired amount of return on investment.

Marginal pricing: Export price is based on the variable cost of producing the product.

Approaches to Export PricingApproaches to Export Pricing

Skimming versus penetration pricing: Price skimming is charging a premium price for a product; penetration pricing is based on charging lower prices for exports to increase market share.

Demand-based pricing: Export price is based on what the market could bear.

Competitive pricing: Export prices are based on competitive pressures in the market.

Approaches to Export Pricing Approaches to Export Pricing (cont.)(cont.)

Group E- Ex-works: Buyer or agent must collect the goods at

the seller’s works or warehouse.

Group F- Free carrier (FCA): Place of delivery could be the

carrier’s cargo terminal (seller not obligated to unload) or a vehicle sent to pick up the goods at the seller’s premises (seller required to load the goods on the vehicle).

Terms of SaleTerms of Sale

- Free alongside ship (FAS): Requires the seller to deliver goods to a named port alongside a vessel to be designated by the buyer. Seller’s responsibilities end on delivery alongside the vessel.

- Free on board (FOB): Seller is obliged to deliver the goods on board a vessel to be designated by the buyer.

Terms of Sale (cont.)Terms of Sale (cont.)

Group C- Cost, insurance, freight (CIF): This term requires the seller

to arrange for carriage by sea and pay freight and insurance to a port of destination.

- Cost and freight (CFR): It is similar to CIF term except that the seller is not obligated to arrange and pay for insurance.

- Carriage paid to (CPT): It is similar to CFR term except that it may be used for any mode of transportation.

- Carriage and insurance paid (CIP): It is similar to CPT term except that the seller is required to arrange and pay for insurance.

Terms of Sale (cont.)Terms of Sale (cont.)

Group D- Delivery at frontier (DAF): Seller bears all risk of loss to the goods

until the time they have been delivered to buyer at the frontier. - Delivery ex ship (DES): This term requires the seller to deliver

goods to a buyer at an agreed port of arrival. - Delivery ex quay (DEQ): Seller is required to deliver goods at the

quay at the port of destination. - Delivered duty paid (DDP): Goods placed at the buyer’s disposal

on any means of transport not unloaded at the port of arrival.- Delivered duty unpaid (DDU): Similar to DDP except that the

seller pays for import duties.

Terms of Sale (cont.)Terms of Sale (cont.)