Quiz 18: Pricing for International Markets
Define the following terms Parallel market : It refers to an unofficial market in goods or currencies that is found in a country with a controlled economy. Besides that, it refers to a market that trade in foreign currencies, stocks, shares and which runs at the same time as a country's own market. Gray market : This is a market that is unofficial but not illegal. Moreover, this market refers to the import and sale of goods by unlawful dealers. Also, in this instance, such activity is unsanctioned but not illegal. Moreover, the most common type of grey market is sale, by individuals or small companies who are not authorized by the manufacturer of imported goods which would otherwise be more expensive. Exclusive distribution : It's a point where suppliers and distributors enter into an exclusive contract. The contract enables the entitled distributor to sell a specific product. For example, Microsoft had an exclusive distribution deal with AT T to provide premium phones to consumers. Variable cost pricing : It's a pricing process wherein the selling price is established by adding a markup to total variable costs. Moreover, the markup helps in contributing to meet all or part of fixed costs and generates profit. Full cost pricing : It is a pricing exercise where the price of a product is evaluated by a firm on the grounds of its direct costs per unit of output plus a markup to cover the overhead costs and profits. Skimming : It's a pricing policy by which a firm alters the highest initial price that the customers are required to pay. So, as and when the demand of the first customers is satisfied, the firm drops the price to appeal more price sensitive segment. Penetration pricing policy : It's a pricing strategy that keeps a low initial price for a product. The purpose of the pricing strategy is to attract new customers that are based on the low cost. Moreover, this pricing policy is most effective for increasing market share and sale volume while discouraging competition. Price escalation : It's a type of disparity where goods have higher costs in a foreign market than in the domestic market due to exporting and transportation costs. Moreover, it means the sum of costs factors in the distribution channels that adds up to a higher final cost for a product in a foreign market. Dumping : It refers to a voracious pricing that is done when manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production. Countervailing duty : It refers to an import tax that is basically imposed on certain goods to prevent dumping or counter export subsidies. The duty is levied after an enquiry finds that a foreign country is subsidizing its exports or harming domestic producers in the importing country. Counter trade : It refers to a process of swapping goods or services which are paid for in part or whole with other goods or services than with money. Besides that, a monetary evaluation can be used in countertrade for accounting purposes. Barter : It basically refers to a system of exchange where goods or services are directly exchanged for other goods and services without using a medium of exchange such as money. Administered pricing : It is a type of pricing wherein the prices of goods are set by the internal pricing structures of firms that generally take into account cost than through the market forces of supply and demand. Cartel : It is a price reduction method wherein the set of firms or nations makes efforts to control the price or supply of a commodity such as oil through mutual restraint on production. Letters of credit : It refers to a letter that is issued by a bank to another bank to serve as a guarantee for payments made to a particular person under specified conditions. Bills of exchange : It refers to a written order that require them to make a specified payment to the signatory or to a named payee. Moreover, it's a non-interest written order that is used primarily in international trade and binds one party to pay a fixed sum of money to another party at a fixed future date. Forfaiting : It refers to a method of trade finance that enable exporters to attain cash by selling their medium term foreign account receivables at a discount on a without recourse basis. Besides that, the forfeiter can also be immunized from certain risks if the transaction involves payment by negotiable instrument.
Parallel imports stands for the imports of non-counterfeit goods from overseas without taking permission from the intellectual owner of that goods. It is also called as grey products and is related to international trade of intellectual property. The causes of parallel imports are that owing to the production of different versions of product in different markets, distributors and manufacturers set different prices for these products to earn good profits by the sale of these goods in the markets where the product is in good demand and due to non-availability people tend to pay any amount to buy that product. Another factor could also be that owing to the high price of the original imported product, the counterfeit product is manufactured and sold at comparative least prices giving rise to the occurrence and causes of parallel imports. The solutions to deal with parallel imports could be that government has to draft stringent policies and procedures to prevent occurrence of parallel imports in the country. The manufacturers and distributors should be made aware about the negative consequences of being a part of parallel imports and encouraging it. Similarly, the imports and exports taking place in the country should be monitored carefully and any discrepancy or irregularity in the prices of the imported goods should be taken as an alarm for the outcome of parallel imports. These way parallel imports are caused and are given solution for.
Pricing stands for the process of deciding a selling price of a particular product or a service placed for the purchase by its customers. The pricing depends upon the total cost of the product plus the profit that the seller adds to the final purchase amount of the product. It is so difficult to control consumer prices when selling overseas because when products are sold in foreign nations, the prices of those products are set depending upon the kind of expenses that the seller had to bear in the form of manufacturing cost, transportation to foreign nation, payment of taxes and excise duties etc. In this process, after evaluating the total cost for the product, the seller adds his profit and then the final price of the product is determined. This final price gets affected to a large scale by the currency value in the foreign nations like if a product that had been produced in CH Country in and sold in AM Country in dollars, then the price of that product is likely to get increased owing to the high amount of value of dollars in international markets. It is also the fact that seller of foreign products is not sure about the performance of its products in the overseas market whether the product will be capable of getting sold or not. This risk also has to be beared by the seller which increases his difficulty to control consumer prices when selling overseas. A sudden increase or decrease in the market value of the products sold by the foreign seller in overseas market could be another factor that causes difficulty in setting and controlling consumer prices at foreign nations.