International Marketing Practices

products. It should be noted that there is high risk associated with a high price in that the consumer base is not particularly receptive. • Export pricing on a par with domestic pricing. This approach allows the exporter to maintain a safe price, eliminating a majority of the risk associated with prices above or below their standard prices. The price can change as the exporter gains experience within a foreign market. • Differential pricing. This strategy consists of essentially charging different prices for each export market. Differential pricing only makes sense when different markets have different demand elasticities and when markets are effectively separated. Factors That Affect Export Pricing There are several factors in export pri g that are not usually part of domestic pricing decisions. Factors that should be considered when making export pricing decisions are outlined in this section; however, the following list is not intended to be a comprehensive account of all cost items to consider. Terms of sale. This is probably the most important factor to consider for export pricing. The terms of sale define the responsibility of the buyer and seller in an export operation [94], or, simply, who pays what. The international terms of sale, or Incoterms (International Commercial Terms), distribute the costs and risks between the parties at different points in the exporting process, which will be explained further in Chapter 4. If the terms of sale are Ex works (EWX), the buyer accepts all the costs and risks of transporting the goods from the point of origin to the final destination; thus, the price quoted does not include any additional costs from exporting. On the other hand, in a delivered duty paid (DDP) deal, the seller assumes maximum responsibility and incurs all costs for transporting and delivering the goods at the buyer’s facility, including import duties [94]. Terms of payment. Parties entering into an export agreement must negotiate and agree upon the payment and credit policies, known as terms of payment. There is a range of available payment terms, but advanced cash payments present the least risk to the seller. However, the most common practice is a letter of credit (see details in Chapter 5), by which a bank promises payment in exchange for the agreed documentation, usually the bill of lading [94]. Terms of payment affect price in a number of ways. For example, terms that require a longer time between sale and payment carry higher financing costs and higher risks from inflation and exchange rate effects. Factors that affect these negotiations are the amount to be paid, insurance, financing, competitors’ pricing, and the negotiation power of the buyer. Tariffs, taxes, and fees. Tariffs, or duties, are flat rate charges incurred when importing or exporting a product to protect domestic share in a market or drive government revenue [1]. Tariffs can be expressed as a specific charge per unit of

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