Page 162 - DMGT547_INTERNATIONAL_MARKETING

Unit 9: Terms of Payment and Delivery

Introduction Notes

A major challenge faced by international marketers is trying to set prices for their products and
services in foreign markets. There are many variable factors that influence international pricing,
such as currency exchange rates, economic conditions, production expenses, competitors and the
consumers in the target market. International pricing strategies require careful planning and
ongoing management in order to be effective.
There are various factors to be considered while setting prices, like the production costs incurred
by the company, standard of living and income level of the host country, openness of people,
and various other factors. International marketers should also consider the buying behaviour of
the population to determine what value people perceive certain products and services to be
worth.

The right international pricing strategies are crucial to the success of any companies marketing
efforts. The more you understand about your target market, the better you will be able to set
your prices at a level that will appeal to consumers whilst still generating a positive return for
your business.

9.1 Terms of Payment

The central bank of any country is usually the driving force in the development of the national
payment system. The Reserve Bank of India (RBI) as the central bank of the country has been
playing this developmental role and has taken several initiatives for a safe, secure, sound and
efficient payment system. The buyer and the seller incorporate the details in the contract of sale
itself that how payments for goods to be send. Depending upon the bargaining power of the
buyer and seller, provisions of Exchange Contracts in the countries concerned, the duration of
trade relationship between the buyer and seller and also the credit worthiness of the parties
concerned, terms of payment are arrived at. It can also be said in general that, terms of payment
reflects the extent to which the seller requires a guarantee of payment before he loses control
over the goods.

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Caution There are four main methods using by the exporters and importers to fulfil the
contract value. These are Advance payment, open Account System, Consignment Sale and
Documentary Collection.

9.1.1 Advance Payment

1. Meaning: An amount paid before it is earned or incurred,

Example: A prepayment by an importer to an exporter before goods are shipped, or a
cash advance for travel expenses.
2. This method is the most desirable for the Exporter; the Importer has to rely on the integrity
of the Exporter and his capacity to execute the order in time. More than that, the entire
transaction is financed by the Importer in this method thereby making the transaction
more costly for him; besides exposing the Importer to credit risks. On account of the above
factors some countries have imposed Exchange Control restriction regarding imports.
3. In India advance payment is allowed only in respect of import of books, periodicals, life
saving payment apparatus, capital goods, machinery and a few other items.

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