Product, Promotion and ”Free Market” Pricing in the Indirect Export Channel

Abstract

This empirical study of Export Management Companies (EMCs) concerns pricing methods used in transactions between the EMC and the domestic producer. The results suggest that both the nature of the promotional function which the producer subcontracts to the EMC and the type of product which the producer sells to the EMC impact the pricing method. When the producer subcontracts or spins off a promotional function to an EMC, the EMC passes on the costs to the producer by receiving a discount from the producer. The needs of the producer-to have at least some minimal profit on every sale and to reduce risk by having aneven profit flow per product sold-interact with factors such as the magnitude and predictability of costs associated with each promotional function to indicate an appropriate pricing method. In regard to the type of product sold, the commodity cost content as a percentage of total production cost will impact the pricing method insofar as producers of products with high commodity cost content are u...