Setting a price for your exports is no simple task – your target market's relative costs, the demands and your competition all have to be taken into account.
Do your groundwork
Before setting a price for your exports, you should consider:
- the average disposable income of your target consumer
- whether local cultural practices require you to offer a fixed or negotiable price
- if you're positioning your product and/or service as budget or premium
- the maturity of your industry – is it frontier or established?
- your exposure to foreign currency fluctuations – a forward exchange contract can provide you with a fixed, known rate of exchange, which will help you price your exports accurately.
- changing production costs – will you pass the added cost onto the consumer?
Buyers may expect to receive a price reduction to reward them for ongoing or increasing business. Decide if pricing your exports low to attract customers is appropriate.
Determine your export price
Common methods to determine export prices include:
- Cost Plus pricing – add the costs of exporting to the manufacturing cost.
- Downward pricing – to be competitive, work back from the market price that you'll have to meet.
- Differential pricing – establish the base price of a product and/or service using the direct costs of production and sales, with fixed costs apportioned to the volume of the sale. The concept of differential pricing is based on separating costs into fixed and variable costs. Fixed costs are items of expenditure that do not vary with the volume of goods produced. Variable costs are costs attributable to the volume of the production process, such as raw materials, labour, and manufacturing overheads.
Cost Plus and Downward pricing should be used in parallel to make sure the price meets customer expectations and doesn't cause your business to experience a loss.
When determining your export price, remember to consider the following associated costs:
- Freight and handling
- Insurance – including credit insurance
- Import duty and taxes
- Export licenses
- Customs clearance and/or broker fees
- Ground transportation from port of entry to the warehouse, or the customer
- Warehouse fees
- Finance and banking charges
- Market research and analysis
- Travel costs to the target market
- Packaging and labelling requirements
- Modifications to your product and/or service
- After-sales support
- Human resources – local and offshore
- Intellectual Property protection
- Currency and exchange rates
Remember – it's not just about price. Delivery speed and reliability, customer service, warranty, after-sales care, and the quality of your product and/or service all have an impact.