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Secrets of International Trading
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cost-plus method of pricing |
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Export Pricing Competitiveness The cost-plus method of export pricing helps to ensure that the exporter will be selling at a profit. However, it does not take into account the prices of competing products in the foreign market. Therefore, the next step in export pricing is for the exporter to check the competitiveness of his price in the target foreign market. When the exporter finds that his price is too high, he must decide whether other features of the product quality, design, uniqueness, promotion, etc. will offset this. If the exporter still considers his price to be too high, he may consider reducing it, perhaps temporarily, to get established in that foreign market, by: 1. Accepting a lower profit margin than normally desirable. 2. Recalculate his costs to reduce the contribution expected for fixed costs, or factory overhead -This technique, sometimes called marginal pricing, is possible only if the exporter has a substantial domestic market to pay for all the fixed costs. If the exporter finds that he cannot afford to lower his price, he must see whether he can improve the attractiveness of the non-price features of his product e.g. use of a brand name, better packaging, better promotion, faster installation and other initial and after-sales services. Or when the exporter finds that his product is priced lower than that of competitive products, he may decide to raise the price above that indicated by the cost-plus method. Clarification ahead of time whether the exporter will be required to provide agents or distributors with discounts, rebates, and promotional allowances is also important. |
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Secrets of International Trading APEC The EEC InCoTerms 2000 How to manage Export Promotion? How to Draft an Agency Agreement? Export Trade Barriers & Trade Blocks How to Develop an Export Market? How to Conduct Export Research?
Hazards of Export Packing & Shipping Export Shipment and Transportation |
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Because, the cost of these items must be included in the calculation of the export price. The exporter should also keep in mind that he might want to have the flexibility to offer a lower price, better credit, on more favorable delivery terms to attract special customers. So the cost of these concessions must be built into the overall export price. Export quotation may take various forms: a verbal agreement, a telephone, telex, cable, fax, airmailed letter or E-mail. It may also be a pro-forma invoice, which is an outline of what the commercial invoice would be-showing all details of the shipment. Export quotation should describe the goods, the quantity involved, the unit price, the total value, the delivery and payment terms. The export quotation, of which the price is one ingredient only, in business law, an offer. Once accepted by the buyer, an export contract comes into being. Should the foreign buyer respond to your offer with a counter-offer (e.g. agreeing to buy only, with different payment terms), then an export contract is formed only if you accept the counter-offer. The most usual form of export price quotation is CIF and a named foreign port. This means that the exporter is responsible for paying all costs until the goods arrive at the foreign port. The price is usually quoted in U.S. dollars. The foreign importer can then calculate his landed cost for the product by adding to the C.I.F. price quoted, the import duty, local taxes and local transportation costs. To make the product more attractive to foreign buyer, exporters sometimes quote FOB price and a named foreign port or city. Thus, for example, a Japanese firm may quote FOB Hamburg price to its European customers. Actually, these prices are identical with C.I.F. prices because all the cost of shipping the goods are paid by the exporter. The importer only need to add on the duty, taxes and transportation costs from Hamburg to his warehouse in Frankfurt, to calculate his final cost. On the other hand, the exporter may quote Special International Trade Terms F.O.B. Port Klang or F.O.B. KL International Airport. What this means is that the cost of transporting the goods up to the point where the goods are loaded onto the Ship or Airplane and any other service charges are paid by the exporter. The cost and all other charges for shipping from Port Klang or KL Airport to the importer warehouse will be paid by the importer. Back to page 1/3 This is page 2/3 Next page 3/3 Summary of Export Price Costing
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