Chap014Questions

305Chapter14–PricingforInternationalMarketsDiscussionQuestions1.Define:DumpingSkimmingCompensationdealCountertradeParallelimportsVariable-costpricingPriceEscalationFull-costpricingExclusivedistributionBarterProductbuy-backCounterpurchaseAdministeredpricingTransferpricingCountervailingdutyAdvancedPricingAgreement(APA)Cartel2.Discussthecausesandsolutionsofparallelimportsandtheireffectonprice.Parallelimportsdevelopwhenimportersbuyproductsfromdistributorsinonecountryandselltheminanothertodistributorswhoarenotpartofthemanufacturer’sregulardistributionsystem.Thispracticeislucrativewhenwidemarginsexistbetweenpricesforthesameproductsindifferentcountries.Thereareavarietyofconditionsthatcancreatetheprofitableopportunityforaparallelmarket.Variationsinthevalueofcurrenciesbetweencountriesfrequentlyleadtoconditionsthatmakeparallelimportsprofitable.WhenthedollarwashighrelativetotheWestGermanmark,CabbagePatchdollswerepurchasedfromGermandistributorsatwhatamountedtoadiscountandresoldintheUnitedStates.Purposefullyrestrictingthesupplyofaproductinamarketisanotherpracticethatcancauseabnormallyhighpricesandthusmakeaparallelmarketlucrative.SuchwasthecasewiththeMercedes-BenzautomobilewhosesupplywaslimitedintheU.S.AmericanscouldbuyaMercedes-BenzautomobilewhichwaspartiallysuppliedbyAmericansreturningtotheUnitedStateswithcarstheycouldsellfordoublethepricetheypaidinGermany.Thissituationpersisteduntiltherelativevalueofthedollartothemarkweakenedandthepricedifferentialcreatedbylimiteddistributionevaporated.Pricingpoliciesthatpermitlargepricedifferentialsbetweencountrymarketsisanotherconditionconducivetothecreationofparallelmarkets.JapanesemerchantshavelongmaintainedveryhighpricesforconsumerproductssoldwithintheJapanesemarket.Asaresult,pricesforJapaneseproductssoldinothercountriesareoftenlowerthantheyareinJapan.Forexample,JapanesecanbuyCannonCamerasfromNewYorkcatalogueretailersandhavethemshippedtoJapanforapricebelowthatofthecamerapurchasedinJapan.Inadditiontothehigherpricesforproductsathome,therisingvalueoftheyenmakesthesepricedifferentialsevenwider.Forexample,theNewYorkpriceforPanasoniccordlesstelephonesis$59.95versus$152inTokyoandtheSonyWalkmanis$89.00versus$165.23.ForeigncompaniesdoingbusinessinJapangenerallyfollowthesamepatternofhighpricesfortheproductstheysellinJapan,thuscreatinganopportunityforparallelmarketsintheirproductsalso.EastmanKodakpricesitsfilmhigherinJapanthaninotherpartsofAsia.EnterprisingmerchantsbuyKodakfilminSouthKoreaforadiscountandresellitinJapanat25%lessthantheauthorized306JapaneseKodakdealers.Forthesamereasons,Coca-ColasyrupimportedfromLosAngelesischeaperthanthatpurchasedthroughnormalchannelsinJapan.307Thepossibilityofparallelmarketoccurswheneverpricedifferencesaregreaterthanthecostoftransportationbetweentwomarkets.InEurope,becauseofdifferingtaxesandcompetitivepricestructures,pricesforthesameproductvarybetweencountries.Whenthisoccurs,itisnotunusualforcompaniestofindthemselvescompetinginonecountrywiththeirownproductsimportedfromalowerpricedcountry.PerfumeanddesignerbrandslikeGucciandCartierareespeciallypronetograymarkets.Tomaintaintheimageofqualityandexclusivity,pricesforsuchproductstraditionallyincludehighprofitmarginsateachlevelofdistribution,differentialpricesamongmarkets,limitedquantities,anddistributionthatisrestrictedtoupscaleretailers.IntheU.S.,wholesalepricesforexclusivebrandsoffragrancesareoften25%morethanwholesalepricesinothercountries.ThesearetheidealconditionsforalucrativegraymarketforunauthorizeddealersinothercountrieswhobuymorethantheyneedatwholesalepriceslowerthanU.S.wholesalerspay.TheythenselltheexcessataprofittounauthorizedU.S.retailers,butatalowerpricethantheretailerwouldhavetopaytoanauthorizedU.S.distributor.Topreventparallelmarketsfromdevelopingwhensuchmarketingandpricingstrategiesareused,companiesmustmaintainstrongcontrolsystems.Thesecontrolsystemsaredifficulttomaintainandthereremainsthesuspicionthatsomecompaniesarelessconcernedwithcontrollinggraymarketsthantheyclaim.3.Whyisitsodifficulttocontrolconsumerpriceswhensellingoverseas?Therearemanyvariableswhichmustbeconsideredwhenattemptingtocontrolconsumerpricesoverseas.Amongtheseare:tariffsonimports,“dumping”tariffs,salestaxes,distributivechannelcosts,addedmiddlemencosts,andshippingcosts.Itisverydifficulttocontrolconsumerpriceswhensellingoverseas.Priceescalationisoneofthemainreasons,aspricesescalatedifferently.Someprofiteeringisalsofoundinsomecountries,thusupsettinganyconsumerpricecontrol.Dumping,beingdefineddifferently,istreateddifferentlyundervariouslawsmakingformorevariedprices.Firmsoperatingoverseashavelesswaystoprotectthemselvesfrompricevariationsandfluctuatingexchangeratesalsotendtoincreasepricefluctuations.Inaddition,manyretailersoverseasdon’tlikepricecompetitionandavoiditifpossiblebyraisingorloweringtheirprices.4.Explaintheconceptof“priceescalation”andtellwhyitcanmisleadaninternationalmarketer.Priceescalationispriceincreasesduetoaddedcostsproducedbysuchthingsastariffs,taxes,longerlinesofdistribution,etc.Itcanmisleadmanyinternationalmarketersi