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GLOBAL PRICING
Chapter Thirteen

John Wiley &Sons, In
c c 1998

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Global Pricing
 Overview
 1. Drivers of Foreign Market Pricing
 2. Price Escalation
 3. Pricing in Inflationary Environments
 4. Currency Fluctuations
 5. Transfer Pricing
 6. Global Pricing and Antidumping Legislation
 7. Coordinating Prices
 8. Countertrade

John Wiley &Sons, In
c c 1998

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Overview

John Wiley &Sons, In
c c 1998

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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 Goals
 Company Costs
 Customer Demand
– Exhibit 13-2 An Example of Downsizing with
Price Adjustment
John Wiley &Sons, In

c c 1998

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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- Price
Brands in Each Market
 Distribution Channels
 Government Policies

John Wiley &Sons, In
c c 1998

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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
John Wiley &Sons, In
c c 1998

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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-term
contracts

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c c 1998

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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

John Wiley &Sons, In
c c 1998

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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 markets
– 3. Launch new products or variants of existing
products
– 4. Negotiate with the government
– 5. Predict incidence of price controls
John Wiley &Sons, In
c c 1998

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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 PassThrough and Local Currency Stability
– Exhibit 13-6 Retail Price Changes During
Dollar Appreciations: Japanese and German
Exports to the U.S. Market
 Currency Quotation

John Wiley &Sons, In
c c 1998

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5. Transfer Pricing
 Determinants of Transfer Prices
– Tax regimes
– Local market conditions
– Market imperfections
– Joint partner venture
– Morale of local country managers

John Wiley &Sons, In
c c 1998

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5. Transfer Pricing (cont)
 Setting Transfer Prices

 Minimizing the Risk of Transfer Pricing

Tax Audits
– Exhibit 13-7 Decision Model Making for
Assessing Risk of TP Strategy

John Wiley &Sons, In
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6. Global Pricing and Antidumping
Regulation
 Trading-up
 Service Enhancement
 Distribution and Communication

John Wiley &Sons, In
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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
John Wiley &Sons, In
c c 1998

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7. Coordinating Prices (cont)
 Aligning Pan-Regional Prices
– Exhibit 13-8 Frame 1 Development of Prices in
Europe
– Step 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
John Wiley &Sons, In
c c 1998

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7. Coordinating Prices (cont)
 Implementing Price Coordination
– 1. Economic Measures
– 2. Centralization
– 3. Formalization
– 4. Informal Coordination

John Wiley &Sons, In
c c 1998

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8. Countertrade
 Forms of Countertrade
– Exhibit 13-9 Classifications of Forms of
Countertrade
– Non cash payments
• Simple Barter, Clearing Agreement, Switch Trading

– Cash payment flows
• Buy-back (Compensation), Counterpurchase, Offset

John Wiley &Sons, In
c c 1998

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8. Countertrade (cont)
 Motives Behind Countertrade
– Gain access to new or difficult markets
– Overcome exchange rate controls or lack of
hard currency

– Overcome low country credit worthiness
– Increase sales volume
– Generate long-term customer goodwill
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c c 1998

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8. Countertrade (cont)
 Shortcomings of Countertrade
– No “in-house” use for goods offered by
customers
– Timely and costly negotiations
– Uncertainty and lack of information on future
prices
– Transaction costs
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