Top tips for export pricing
The right pricing and the way you provide quotes for your goods or services are both crucial for a successful and ongoing export business. Export pricing and domestic pricing are different: different overseas market conditions, different costs, different quoting formats and different currencies all affect what you charge your customers for your products or services. Pricing for any market requires an understanding of the relative costs, demand and competition of that market. Many overseas contacts you meet will want to know your price, so it is essential to have your pricing determined before you approach an overseas market.
The total cost of exporting
Before you can determine the prices you should be charging for your goods or services, you must first be clear about the total cost to your business of exporting that product or service. Developing your export markets can involve a range of costs that do not apply to domestic sales. These are general costs for exporting that are not specific to an individual contract or shipment. They could be considered your ‘fixed costs’ of exporting. How much you recover of these costs per unit or per order or contract is up to you, but these costs should be factored in before you start adding shipping costs, duties, etc. Costs may include:
Research into international markets
Travel to overseas markets
International communications
Production of export literature (including translations)
Modifications to your product or service
Packaging and labelling (products)
Product liability insurance or other insurances
Compliance with foreign standards
Credit checking
Export financing charges
Promotional costs
Different prices for different markets
Calculating a separate price for each of your export markets is important because:
For products, distributor, wholesale 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.
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.
Price changes
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.
Not always all about price
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.
Pricing for products
While most businesses spend the necessary time to gain a thorough understanding of price calculations for their domestic business, many do not put in the same amount of effort when it comes to their export markets.
Unfortunately, this can have a flow-on effect on both competitiveness and the profitability of the business.
Although some exporters simply charge their domestic price with no further thought, those who are successful over the longer term have almost always invested the necessary time to get their export pricing right.
Costs to include when setting export prices
Regardless of who arranges and pays for freight and costs such as import duties, you should know the costs your product attracts through the supply chain. Without knowing these costs, you can’t fully understand where your product fits into the market and therefore compare your price against those of your competitors.
Some examples of costs in the supply chain include:
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 the warehouse or the customer
Warehouse fees
Break-bulk fees, if third party warehouse applies
Agent's commission or importer's mark-up
Export quotations for products
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.
Pricing for services
A service export is an activity where there is a high degree of human involvement in the development and delivery of that activity. What is being provided tends to be less tangible (than products) and there is more variability in quality.
Pricing considerations may include:
Specific costs associated with services – withholding tax, visas, flights, establishing a presence (local or virtual), accommodation, transport, pre-sales visits, freight, insurance, wages, translation, IP protection, currency/exchange rates.
Business and cultural practices specific to the country eg. fixed price or negotiable, pre-sales effort required.
Competition within the market – local and international companies.
Ease of entering markets – local barriers, regulations, language etc.
Maturity of your industry in the target market – frontier v’s established.
Unique service offering – ability to charge premium prices, perception you want to create about the service offering.
Accounting for after sales costs.
Meeting the costs of complying with applicable international standards.
Opportunity costs – impact on domestic business, existing commitments, hiring of additional local staff.
Pricing models for services:
Cost plus – Cost plus pricing requires an accurate understanding of your total costs for delivering the service into the target market and ensuring sales success. Once the cost is decided, then a margin is added to reflect a price that is compatible with your perceived market position. It is important that you have an understanding of the average margin for your industry in the export market. In calculating cost plus you:
need a good understanding of costs, margins and overseas expenses
may not be competitive in some markets (under or over-priced).
You might be able to reduce the price or match a competitor’s price if local resources are cheaper than in Australia. Calculate final pricing by finding a balance between affordability for customers and your profit.
Competitive pricing - Competitive pricing can be good for market access, especially if new services can be released shortly after market entry with demonstrable benefits and features. Competitive pricing is acceptable if you can deliver at a similar cost structure to others in the market, otherwise you may experience margin squeeze. Competitive pricing can make premium pricing difficult in the future as it often signals a “value for money” or “affordable” market position. Input from market research, competitive analysis, discussions with representatives and customers about the competitiveness and positioning of your services will increase your understanding of the competitive pricing point of your service.
Premium pricing - Premium pricing is developed around a strategy of what the market will bear. This is a good export strategy not only because it is more profitable, but also provides more margin to cover cost increases, and may allow you to maintain a price in a foreign currency, absorbing negative impacts of changes in exchange rates. It will allow you to establish a premium brand in the market and allows you to reduce pricing to loyal clients without damaging your profit. There is perceived value in innovative and uniquely packaged services. If you can charge premium prices for your services, you can meet competitive threats over time.
Beachhead pricing - Beachhead pricing means pricing your service so that it is perceived as excellent value for money. Beachhead pricing can reduce the time to get market entry, while sacrificing early margins. The process must be tightly controlled so that your representatives/partners understand that market success will bring future price increases to cover lost margins and achieve rightful market positioning. It is a useful pricing strategy for your representatives / partners as it will allow them to get access to distribution channels at the launch of your service in the export market. It is recommended you use this strategy with caution.
Top tips about export pricing for products
Set a price that reflects your brand and promotion, but bear in mind that an unknown brand from your country may not be able to charge the same prices as well-known competitors, particularly those in-market.
Before you start quoting prices to your customers, be sure to factor in the promotional costs associated with supporting your products in-market.
You could create a problem for yourself if you quote a low price initially in order to get business, and assume that your prices will naturally increase over time. Buyers tend to expect the exact opposite: that is, they expect to get a price reduction to reward them for ongoing business, particularly if their orders increase in size and volume.
It is important that you know your profit margins and break even points; if you don’t have this information readily to hand you will not be able to make an informed decision if a customer asks you for a discount.
Discounts are a cost; before you offer a discount to a customer reflect on the effect it will have on your bottom-line.
The wise exporter learns about INCOTERMS so that they can quote using the correct international trade language. Both you and your customers should know who pays for what, and be absolutely clear at what precise point in the transaction ownership of the goods transfers from you to your customer.
If you have a website and successfully sell on-line you need to be careful that you don’t undercut either your in-market suppliers or in-market retailers.
And a final tip? We know that shipping costs can change quickly and exchange rates can fluctuate alarmingly. Both of these will affect your end costs, so be sure to regularly review your prices.
Top tips about export pricing for services
Set a price that reflects your brand and promotion, but bear in mind that an unknown brand from your own country may not be able to charge the same prices as well-known competitors, particularly those in-market.
Before you start quoting prices to your customers, be sure to factor in the promotional costs associated with supporting your services in-market.
You could create a problem for yourself if you quote a low price initially in order to get business, and assume that your prices will naturally increase over time. Buyers tend to expect the exact opposite: that is, they expect to get a price reduction to reward them for ongoing business, particularly if the amount of business they give you increase in size.
It is important that you know your profit margins and break even points; if you don’t have this information readily to hand you will not be able to make an informed decision if a customer asks you for a discount.
Discounts are a cost; before you offer a discount to a customer, reflect on the effect it will have on your bottom-line.
