Getting started in export

Pricing for export is pivotal to the success of your exporting business. You need to determine the costs involved in producing your products, getting them to your foreign market and then selling them.

As you develop your pricing strategy, you need to be aware of and factor in all the additional costs that are involved in exporting your product. This includes, among others, production costs, advertising, customs duties, packaging and shipping. You also need to look at how competitive your pricing level is compared to your competition.

Some things you might consider when setting your price

Make the buyer's decision process as easy as possible by preparing your export price list in the currency of the port or country of destination.

Understand the way business is done in the export market and conduct your business similarly, offering the same value proposal as local suppliers. Payment terms, delivery and after-sale servicing are important considerations.

Consider currency fluctuations when preparing the price list. Include a proviso in your price list "prices subject to change" to cover you in the event of any price fluctuations.

Do not include "suggested retail prices" on your wholesale price list, unless requested, as this is not well received, especially in North America.

Remember that the retailer adds a mark-up on your product as well. While this does not directly affect the preparation of your wholesale price list, it is critical to understand what the retail price of your product would be to the end user. It is also important to understand how your prices stack up against your competitors' and make a determination whether the export market can bear your price.

Things to include when setting your export price list

When preparing an export price list, in many cases, the following costs may apply. These costs should be added to each item in your product line to be exported:

• Fixed costs
• Shipping ex factory to port of departure
• Air or sea freight and insurance
• Import duty and taxes
• Customs clearance/broker fee
• Ground transportation from port of entry to warehouse or customer, as appropriate
• Warehousing fees, if applicable
• Agent's commission or importer's mark-up, as appropriate
• Break-bulk fees, if third party warehouse applies
• Packaging and labelling to local standards
• Product certification, if required
• Product liability insurance
• Advertising and promotional costs

Different Methods for Calculating Price

There are different methods that you can use to calculate the price of your product.

Cost-plus method

In the cost-plus method the exporter starts with the domestic manufacturing cost and adds administration, research and development, overhead, freight forwarding, distributor margins, customs charges and profit. The net effect of this pricing approach may be that the export price escalates into an uncompetitive range (see Sample costing worksheet to a buyer).

Marginal cost pricing

This method considers the direct, out-of-pocket expenses of producing and selling products for export as a floor beneath which prices cannot be set without incurring a loss. This would include any product modifications plus economy of scale savings as the incremental cost of producing additional products for export should be lower than the earlier average production costs for the domestic market.

Buyer-based pricing

This method considers the perceived value of the product for the end buyer. It is more psychological than based on economics.

Competition-based pricing

This method benchmarks the price on the closest competitor's pricing level or the market average.

Price adjustment strategies

These strategies try to make your product more price competitive by using discount pricing and allowances, rebates, discriminatory pricing and promotional pricing (loss leaders to attract customers).

Based on material produced by Austrade Canada; Tradeport; and Australian Business Limited.