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Chapter 18 – Pricing for International Markets
Teaching Objectives
Basic pricing policy questions that arise from the special cost, market, and competitive factors in foreign
markets are the focus of this chapter. The additional costs of international marketing that lead to price
escalation and ways to minimize these costs and countertrades as a special pricing problem should all be
stressed. The teaching objectives are to:
1) Review pricing policies as they are affected by the differences in international marketing and
especially parallel imports.
2) Explore fully the problem of price escalation and ways to lessen price escalation.
3) Examine foreign trade zones as an important means of controlling and possibly lessening some of the
costs associated with price escalation.
4) Discuss countertrades as an important tool in international pricing and the importance of taking a
proactive countertrade strategy.
Comments and Suggestions
1. With the continuing unification of the European Union, fluctuating exchange rates, the general
globalization of markets, and increasingly versatile technologies, parallel imports are a growing
problem. A discussion of this topic can be built around Crossing Borders 18-1.
2. When products are moved across borders, additional costs are incurred. Some can be attributed to the
extra cost of the physical movement of goods and others to tariffs and non-tariff barriers. Until that
time when there is truly free trade, international marketers will always be confronted with price
escalation. Greater profit and the ability to be more price competitive can be gained by the company
that controls, if not eliminate, many of the costs associated with price escalation. Exhibit 18-2,
Sample Causes and Effects of Price Escalation, is a hypothetical illustration of three different
situations of price escalation. As a side note, there have been many comments by business people on
this illustration and the unanimous response is that it is too conservative, i.e., the problem of price
escalation is often worse than illustrated.
3. Of the three ways of lessening price escalation, lowering tariffs either through reclassification or,
better yet, the elimination of a tariff often has the greatest impact. Also, lowering manufacturing costs
and distribution costs can be very effective if a company has had a tendency to overlook these costs.
Lessening Price Escalation, is a list of the different approaches that a company may use in lessening
prices escalation. A side note on marginal-cost pricing—a dumping charge is always lurking in the
background when using marginal cost pricing.
4. Foreign trade zones can be very useful in helping a company lessen the costs of exporting and
importing. Achieving the benefits of the steps for lessening price escalation can be aided by
effectively using a FTZ. FTZs are not always available in all countries but in those where they are,
their use should be evaluated carefully.
5. Countertrading continues to be important in many of the growth markets today. It is important to
stress that companies need to include countertrading as one of its pricing tools and to be proactive
rather than reactive. Cash is always preferred but those companies that plan ahead for the possibility
of being asked to accept some form of countertrade in order to consummate a sale have the most
success with this pricing issue.
Lecture Outline
I. Global Perspective
II. Pricing Policy
A. Pricing Objectives
B. Parallel Imports
III. Approaches to International Pricing
A. Full-Cost versus Variable-Cost Pricing
B. Skimming versus Penetration Pricing
IV. Price Escalation
A. Costs of Exporting
1. Taxes
2. Tariffs and Administrative Costs
3. Inflation
4. Deflation
5. Exchange-Rate Fluctuations
6 Varying Currency Values
7. Middleman and Transportation Costs
B. Sample Effects of Price Escalation
C. Approaches to Lessening Price Escalation
1. Lower Cost of Goods
2. Lower Tariffs
3. Lower Distribution Costs
D. Using Foreign-Trade Zones to Lessen Price Escalation
E. Dumping
V. Leasing in International Markets
VI. Countertrade as a Pricing Tool
A. Types of Countertrade
B. Problems of Countertrading
C. The Internet and Countertrade
D. Proactive Countertrade Strategy
VII. Transfer Pricing Strategy
VIII. Price Quotations
IX. Administered Pricing
A. Cartels
B. Government Influenced Pricing
X. Getting Paid
A. Letters of Credit
B. Bills of Exchange
C. Cash in Advance
D. Open Accounts
E. Forfaiting
