Chapter 15: Pricing Strategies and Cost Analysis
Chapter 15 Summary
LO 15.1 Factors Determining Price and Pricing Strategies
- Price is determined by the cost of the product, the competitor’s price for a similar product, and market forces – supply and demand.
- There are various pricing strategies that organizations can select from: penetration pricing strategy, skimming pricing strategy, and flexible pricing strategy.
LO 15.2 International Pricing Constraints and Legislations
- Anti-dumping legislation limits exports from dumping lower-priced goods into a domestic market; the most common are tariffs and duties on imported goods.
- Resale price maintenance ensures that transferred prices of goods and services reflect the true value so that companies cannot use price manipulation to avoid taxes.
- Price level reviews are conducted by some countries to avoid inflation and excessive price increases.
LO 15.3 Internationally Accepted Trade Terms and Codes
- Incoterms developed by the International Chamber of Commerce minimize trade disputes due to misinterpretation and miscommunication when doing business internationally.
- The harmonized Commodity Description and Coding system developed by the World Customs Organization standardizes coding structure and product descriptions.
LO 15.4 Cost Elements of International Trade
- Cost elements that apply to international trade are product costs, export sales costs, and distribution costs, which also include freight forwarding costs and duty drawbacks.
