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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