International Marketing15th edition

Philip R. Cateora, Mary C. Gilly, and John L. Graham

Pricing PolicyParallel Imports

• Parallel imports– Develop when importers buy products from

distributors in one country and sell them in another to distributors who are not part of the manufacturer’s regular distribution system

• Occur whenever price differences are greater than cost of transportation between two markets

• Major problem for pharmaceutical companies

• Exclusive distribution

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• Variable-cost pricing – Firm is concerned only with the marginal

or incremental cost of producing goods to be sold in overseas markets

• Full-cost pricing – Companies insist that no unit of a similar

product is different from any other unit in terms of cost

– Each unit must bear full share of the total fixed and variable cost

Full-Cost Versus Variable-Cost Pricing

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Skimming Versus Penetration Pricing

• Skimming – Used by a company when the objective is

to reach a segment of the market that is relatively price insensitive

– Market is willing to pay a premium price for the value received

• Penetration pricing policy – Used to stimulate market and sales growth

by deliberately offering products at low prices

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Sample Causes and Effects

of Price Escalation

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Exhibit 18.2

Approaches to Lessening Price Escalation (1 of 2)• Lowering cost of goods– Manufacturing in a third country– Eliminating costly functional features– Lowering overall product quality

• Lowering tariffs– Reclassifying products into a different, and

lower customs classification– Modify product to qualify for a lower tariff

rate within classification– Requiring assembly or further processing– Repackaging

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Approaches to Lessening Price Escalation (2 of 2)• Lowering distribution costs– Shorter channels– Reducing or eliminating middlemen

• Using foreign trade zones to lessen price escalation– Establish free trade zones (FTZs) or free ports• Tax-free enclave not considered part of

country• Postpones payment of duties and tariffs

• Dumping– Use of marginal (variable) cost pricing– Selling goods in foreign country below the

price of the same goods in the home market

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How Are Foreign Trade Zones Used?

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Exhibit 18.3

Leasing in International Markets(1 of 2)

• Selling technique that alleviates high prices and capital shortages

• Opens the door to a large segment of nominally financed foreign firms – Firms can be sold on a lease option but

might be unable to buy for cash

• Can ease the problems of selling new, experimental equipment – Because less risk is involved for the users

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Leasing in International Markets(2 of 2)

• Helps guarantee better maintenance and service on overseas equipment

• Helps to sell other companies in that country

• Revenue tends to be more stable over a period of time than direct sales

• Leasing disadvantages– Inflation may lead to heavy losses at end of

contract period– Currency devaluation, expropriation and

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Countertrade as a Pricing Tool

• Types of countertrade– Barter– Compensation deals– Counterpurchase or offset trade– Product buyback agreement

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Countertrade as a Pricing Tool

• Problems of countertrading– Determining the value of and potential

demand for the goods offered– Barter houses

• The Internet and countertrading– Electronic trade dollars– Universal Currency/IRTA

• Proactive countertrade strategy– Included as part of an overall market

strategy– Effective for exchange-poor countries

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Transfer Pricing Strategy(1 of 2)

• Prices of goods transferred from a company’s operations or sales units in one country to its units elsewhere– May be adjusted to enhance the ultimate

profit of company

• Benefits– Lowering duty costs– Reducing income taxes in high-tax countries– Facilitating dividend repatriation when

dividend repatriation is curtailed by government policy

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Transfer Pricing Strategy(2 of 2)

• Objectives– Maximizing profits for corporation– Facilitating parent-company control– Providing all levels of management control over

profitability

• Arrangements for pricing goods for intracompany transfer– Sales at the local manufacturing cost plus a standard

markup– Sales at the cost of the most efficient producer in the

company plus a standard markup– Sales at negotiated prices– Arm’s-length sales using the same prices as quoted to

independent customers

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