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- Set the right price for your export goods
Set the right export price
Setting an appropriate export price is critical to the success of your export operation.
Balancing the cost plus profit that will guarantee you a reasonable return, against what the market is willing to pay needs careful calculation. Options include:
- Cost plus pricing
Add the costs of exporting such as inland transportation, loading charges, freight costs and insurance plus profit margin to the basic cost of manufacturing. The resulting price may or may not be competitive in the market place.
- Top downwards (reverse) pricing
Start with the market price and deduct export costs to arrive at the manufactured cost plus profit. Using this method, you can identify how much you will need to reduce costs to be competitive or what discount you may need to offer customers to secure the export contract.
- Differential (marginal) pricing
With this method you treat exporting as an activity which is incremental to domestic business and therefore bears a reduced contribution to the businesses' fixed costs. You establish a base price from direct production and sales costs, with fixed costs apportioned to volume. This may produce a more competitive price, assuming that your domestic business produces stable revenues.
Export pricing considerations
Analysis of costs, market demand and competition determines pricing. A number of factors must be considered during the pricing process including:
Your cost structure – if you underestimate your costs, your profit margin will be lower than expected and you may face a loss. Make sure you understand the difference between your fixed costs and direct costs at varying levels of activity. Ensure you include all exporting costs, such as insurance, tariffs and customs fees in your calculations.
- Initial price position – once a market price is established it may prove difficult to increase. Avoid unnecessary concessions on price to gain an initial order.
- Market demand – how will demand for your product or service be influenced by price changes (price sensitivity)?
- Competitiveness – do your export prices reflect the quality of your products or services? You may need to consider modifying your product or service to meet market conditions (by, for example, producing a lower priced version)
- Market positioning – Will your product or service be pitched at a budget market or at the premium end? Can you create different products or services to sell at different price points?
- Timeframe – should you pursue long-term market penetration or a more opportunistic short-term strategy?
- Market culture – will local cultural practices require you to offer discounts or allowances in your export pricing?
- Legalities – are your prices likely to be viewed as being "fair" or is there a danger of anti-dumping laws being invoked? International agreements prohibit exports from being sold below their reasonable cost.
Case Study: How to export successfully
'You cannot expect to have a quality product in Australia and then stick to the same costing principles or margin exceptions when you export.'
Jarrod Edward, Ferndale Confectionery
Read more about How to export successfully