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Adopting Price

ADAPTING THE PRICE
Companies usually do not set a single price but rather a pricing structure that reflects variations in geographical demand and costs, market-segment requirements, purchase timing, order levels, delivery frequency, guarantees, service contracts, and other factors. As a result of discounts, allowances, and promotional support, a company rarely realizes the same profit from each unit of a product that it sells.
Geographical Pricing (Cash, Countertrade, and Barter)
Geographical Pricing involves the company in deciding how to price its products to different customers in different locations and countries. One issue is whether the company should charge higher prices to distant customers to cover the higher shipping costs or a lower price hoping for a higher sales volume generation ? Another issue is how to get paid. Many times buyers want to offer other items in payment and this practice has led to the rise of countertrade. Countertrade takes several forms:
• Barter: the direct exchange of goods, with no money and no third party involved.
• Compensation deal: Here the seller receives some percentage of the payment in cash and the rest in products.
• Buyback arrangement: The seller sells a plant, equipment, or technology to another country and agrees to accept as partial payment products manufactured with the equipment supplied.
• Offset: The seller receives full payment in cash but agrees to spend a substantial amount of that money in that country within a stated time period.
In recent years the definition of countertrade has been expanding to include contractual agreements by exporters that provide some benefit or compensation to the buyer as a condition of sale.
Price Discounts and Allowances
Most companies will modify their basic price to reward customers for such acts as early payment, volume purchases, and off-season buying. Descriptions of these price adjustments-called discounts and allowances follow.
Cash Discounts. A cash discount...