INTERNATIONAL PRICE

DECISIONS
APPROACHES TO INTERNATIONAL
PRICING
PRICING STRATEGY
PENETRATION PRICING
Price set to ‘penetrate the market’

‘Low’ price to secure high volume

Typical in mass market products – chocolate

bars, food stuffs, household goods, etc.

Suitable for products with long anticipated life

cycles

May be useful if launching into a new market

 ADVANTAGES
1-Adoption and Diffusion
2-Not much competition in the initial phase
3-Good will among early customers
4-Cost efficiency
5-Competitors are kept at bay
6-Channel benefit
 DISADVANTAGES

1-The customer expects the prices to remain low for

a long term.

2-It is believed that penetration pricing cannot create

strong customer relationship and only attracts
customers on the lookout for a profitable deal.
MARKET SKIMMIMG
High price, Low volumes

Skim the profit from the market

Suitable for products that have short life cycles

or which will face competition at some point in the
future (e.g. after a patent runs out)

Examples include: Play station, jewellery, digital

technology, new DVDs, etc.
 ADVANTAGES
1-Price skimming helps in recovering the sunk costs.
2-Price skimming helps in segmenting the market.
3-The high price of the product brings huge benefits
for the dealers as well.
4-If the product is positioned well then its buyers are
more prestige conscious than price conscious.
 DISADVANTAGES
1-This policy is workable only when the product has
an inelastic demand curve.
2-It is difficult to maintain the stock for skimmed
products
3-Skimming attracts competitors
4-The rate of diffusion is slow for skimmed products.
5-Lowering of price should be done at an appropriate
time
 FIXED COST PRICING

Fixed costs that are always there, regardless of

how much or how little you sell, for example rent,
salaries and business rates.
 ADVANTAGES

It allows the buyer to set in advance an exact budget.

 DISADVANTAGES

Less flexible for managing changes or requests

 VARIABLE COST PRICING

Variable costs that rise as your sales increase,

such as additional raw materials, extra labour and
transport.
 ADVANTAGES
1. Inventory changes do not affect profit.
2. Cost-volume-profit relationship
3. Marginal products
4. Impact of fixed costs
5. Pricing policies
 DISADVANTAGES
1-Many are accustomed to the functional income
statement
2- May assign variable income a broader significance
than it has.
3-Over-emphasis may lead to improper decisions
regarding relevant costing.
FACTORS AFFECTING INTERNATIONAL
PRICING DIFFERENCES
Supply & Demand
• Supplier compete for consumers’ limited funds.
• Any increase in demand is followed by a higher price.
Eg: OPEC
Cost
• Export price must be lower than home market.
• Cost plus method: domestic marketing cost and fixed
costs must be paid by other countries.
• Marginal cost pricing: actual production cost+ foreign
marketing cost used as floor price.
Eg: British airways considered restrictions on discount,
able to increase its yield.
Elasticity and Cross Elasticity of Demand
• The measurement of how changing one economic
variable affects others.
• To be competitive doesn’t mean that a company’s
price must be at or below the market.
Eg:
• <2/3 of BMW owner are repeat buyer
• BMW prices its car 10-30% the competitors.
 DUMPING
• Dumping
Selling same product at different prices, at home and
abroad

• Product is said to have been dumped if it is

introduced into the commerce of another country at
less than the normal value of the product and it
causes/threatens material injury to an established
industry of the country
 TYPES OF DUMPING
• Sporadic Dumping: Manufacturer with unsold
inventories wants to get rid of distressed & excess
merchandise
• Predatory Dumping: Selling at a loss to gain access to
the market & perhaps to drive out competition &
gain monopoly.
• Persistent Dumping: consistent selling at lower prices
in one market than in other.
• Reverse Dumping: Dumping at manufacturer’s home
market by selling locally at lower price.
 LEGAL ASPECT OF DUMPING
• Most countries dumping laws that set a minimum
price or a floor price that can be charged in the
market.
Normal Value
• The normal value is the comparable price at which
the goods under complaint are sold, in the ordinary
course of trade, in the domestic market of the
exporting country or territory.
Export Price:
• The export price of goods imported in a country is the
price paid or payable for the goods by the first
independent buyer.

Margin of Dumping
• Margin of dumping refers to the difference between the
Normal Value of the like article and the Export Price of
the product under consideration.
Margin of dumping is normally established on the basis
of :
• A comparison of weighted average Normal Value
with a weighted average of prices of comparable
export transactions; or
• A comparison of normal values and export prices on
a transaction to transaction basis.
 WHO CAN FILE AN APPLICATION?
Express support of those who account for:
• More than 25% of total domestic production, and
• More than 50% production by those supporting and
those opposing the application.
 RELIEF TO THE DOMESTIC INDUSTRY
ANTI DUMPING DUTIES
• Duties are imposed on a source specific basis.
• Anti-dumping duty to the lower of the two i.e.
dumping margin and the injury margin (selling price
due to the domestic industry-landed cost of the
product under consideration).
PRICE UNDERTAKINGS
• The Designated Authority may suspend or terminate
investigation if the exporter concerned furnished an
undertaking to revise his price to remove the
dumping or the injurious effect of dumping as the
case may be.
 APPLICATION PROCEDURE
• Applications can be made by or on behalf of the
concerned domestic industry to the Designated
Authority in the Ministry of Commerce for an
investigation of any alleged dumping.
• The designated Authority may initiate an
investigation when there is sufficient evidence that
dumped imports are causing or are threatening to
cause material injury to the Indian industry
producing like articles.
• INFORMATION REQUIRED: name and address
of petitioner
• DURATION: not less than 6 months