Blog

Pricing has to be worked out form two angles, on the one hand what price fits in the market – your market research should help you determine this, and on the other hand on the costing side. Buyers will seek to pay as late as possible, whilst accepting late payment could make you more appealing to do business with from their perspective, every additional day of waiting for payment adds to your costs.

 

 

Calculating Unit Cost

On the costing side the starting point is calculating your unit cost. A very basic unit cost = (total fixed costs + total variable costs) divided by your total units produced. However, export can involve a lot more additional costs such as listed below.

Additional Cost of Exporting
• International market research
• Travel to overseas markets
• International communications
• International promotion material
• Product modifications
• Packaging and labelling adaptations
• Product liability insurance or other insurances
• Higher shipping costs Import duty and taxes
• Customs clearance/broker fee
• Compliance with foreign standards
• Credit checking
• Export financing charges
• Offering credit to buyers
• International trade fair costs

 

 

Factors affecting price positioning

The price on the market end of spectrum will change according to several different factors including global supply and demand, trends influencing value perception, intensity of competition, size of the market influencing volume bargaining power, etc.
Calculating a separate price for each of your export markets is important because the price that end users are willing to pay for your products or services will not be the same in all markets around the world.
• For products, distributor, wholesaler and retail mark-ups are often different in each market and industry, which will affect the final price of your products. Remember to include questions about these mark-up costs when you are doing your initial market research.
• Your competitors and the way they price their products or services will probably be different in different markets, and you have to take this into account when setting your prices.
Manage price changes carefully
Exporters need to adjust prices for many reasons including increases in the cost of production such as raw materials, currency fluctuations and inflationary increases. But customers don’t like surprises and although price increases are part of doing business, it’s wise to give as much notice as possible.
You will need to advise your customers or in-market partners when your prices change – and why. You will also need to give sufficient lead time for buyers to be able to pass price changes on to their customers.
Extending credit terms will have a real cost impact
As an exporter you may be asked to offer credit terms. Or you may find that you need to match your competitors on credit terms.
Extending credit terms will have a real cost impact on your company because cash flow is critical to any business.
If you decide to offer credit terms you will have to estimate the cost of the time it takes to receive payment at the end of the credit period and build this cost into your price.
Factoring in non-price aspects of the value equation
Although some products are sold purely on the basis of price, many exporters find that price is not the only factor that affects their success in attracting new customers. Credit terms, delivery speed and reliability, customer service and warranty, after-sales care and the quality of your product or service are all important in getting and keeping new international business. More and more buyers look at the exporter’s company values such as their position towards social and environmental sustainability.

 

 

Export quotations based on Incoterms

The way prices for products are quoted in international business is different to domestic sales. To ensure that both the buyer and the seller are clear about who pays for which costs, and where ownership transfers from seller to buyer, exporters use terms known as Incoterms.

EXW – Ex Works (insert place of delivery)

FCA – Free Carrier (Insert named place of delivery)

CPT – Carriage Paid to (insert place of destination)

CIP – Carriage and Insurance Paid To (insert place of destination)

DAP – Delivered at Place (insert named place of destination)

DPU – Delivered at Place Unloaded (insert of place of destination)

DDP – Delivered Duty Paid (Insert place of destination).

FAS – Free Alongside Ship (insert name of port of loading)

FOB – Free on Board (insert named port of loading)

CFR – Cost and Freight (insert named port of destination)

CIF – Cost Insurance and Freight (insert named port of destination)

The latter four are typical with respect to sea freight. In recent times a container crisis in the world has led to rapid increases in shipping costs putting those exporters that have agreed on a CIF and CFR price at great risk, since cost of freight is their responsibility, making their overall cost unmanageable. This is a very practical example of how incoterm pricing and contracts based thereon can influence situations significantly.