Overview

You have various options in your pricing strategy. Take a close look at the factors that determine a winning strategy.

1. Pricing Determinants

The final price that end users are willing to pay for your exports are not equivalent in all overseas markets. Hence, to determine the most suitable export price, you need to address the following questions:

• What type of market positioning and perception does your company want to convey through its pricing?
• Is the price competitive in your target market?
• What pricing options are available if your company’s costs increase or decrease?
• Is the demand for your product in the foreign market elastic or inelastic?
• Does the target country’s antidumping law pose a problem?

Three main determinants underlie your final export price: cost, demand in the target market, and competition.

To ensure all costs related to export are captured, you will benefit from grouping these costs into three main categories:

i. Local Export Costs
ll the local export costs that you should take into account are:

• Initial licensing costs (fees of setting up a business, etc.)
  
• Cost of funds (including bank charges)
  
• Production and modification costs (raw material, salaries, machinery amortization, etc.)
  
• Packaging and labelling
  
• Quality assurance
  
• Logistics and warehousing for raw materials or final goods
  
• Documentation cost
  
• Product liability insurance or other insurances
  
• Levies
  
  

ii. International Export Costs
International export costs to consider include, but are not limited to:

• Freight costs
  
• Travel to target markets
  
• Promotional fees or discounts
  
• Import duties or taxes
  
• Agent/broker and distributor commissions
  
  

iii. Other Export Costs

• Research into international markets
  
• Export-related training and seminars
  
• International communications and marketing costs
  
• Productions of export literature (including translations)
  
  

It is also crucial to take into account additional costs or fees that are usually charged by the importer such as tariffs, customs fees, currency fluctuation, shipping, and value-added taxes (VATs). These costs can substantially weigh on the final price paid by the importer.
Therefore, it is crucial that you familiarize yourself with International Commercial Terms or INCOTERMS. We provide an explanation about them in the logistics section of the guide.

2. Pricing Strategy

In many cases, you will not be able to set your own prices. The buyers’ negotiation power and competitors’ pricing levels will influence your pricing strategy options. Thus, your market research should provide insight into the retail and wholesale prices, appropriate margins, and the competitor’s prices. Therefore it is essential to consider some aspects while determining a pricing strategy. Some of these aspects include cost, demand, competition, image, and segment. In addition, you should consider the countermeasures that your competitors may take.

There are four basic pricing strategies:

Cost-plus pricing means cost + profit. You need to look at the cost of what you are selling (which means your production costs) and add the profit you should make. This strategy is used mostly in opportunity marketing. The focus here is more on selling than on sustainable long-term marketing.

Competitive pricing means establishing your market price by benchmarking with competitors’ prices and differentiating through the marketing-mix. The result should be a better price/performance ratio than the competitor.

Penetration pricing can be adopted by applying low margin (or even applying marginal costing) and selling at a price lower than those of all your competitors. The focus here is on entry and high volume. However, a negative side effect is that penetration pricing generates a low-quality image (price fighter), which may hinder upward marketing at a later stage.

Perceived value pricing strategy can be applied in markets where there is no competition yet or where your product is perceived as unique or superior. In such cases, the volumes may be small but the margins are high. This means that you can lower the price at a later stage to increase the volume.

3. Insights on Market Prices and Margins

In exports, it is customary to quote an Ex-Works or F.O.B. price. Often, exporters have no insight into the final consumer price of the product or the trade margins applied. However, international market research can provide you with the data that will enable you to position your product in the right price segment in order to offer your target market the desired price/product performance ratio. Therefore, it is highly recommended to research consumer, retail, or wholesale prices and the common profit margins in the chain. Additionally, it will help you understand your competitive position and the suitable pricing strategy to adopt.

In international marketing, pricing revolves around three correlated elements: your costs, your competitors, and your buyers. Whenever you face problems while positioning your product in a certain market segment at a certain price, you can quickly locate the problem and adjust your efforts by checking your marketing approach on the basis of these 3 elements. For example, if a buyer favors your product, but thinks your price is too high, either you are entering a very competitive market segment or the buyer perceives that the price of that product is too high in relation to the value it offers its final users. Both reasons require up-front market research.