أ. شريف نايف عوايص

محاضر في ادارة الأعمال- رئيس قسم التسجيل - عمادة القبول والتسجيل

Ex.p Methods

Methods of Export Pricing

Cost Plus Pricing

This method is based on adding a desired markup on costs–including domestic costs and exporting costs(Documentation expenses, freight charges, custom duties and international sales and promotional costs) to arrive at the prices for export markets. Domestic marketing and promotional costs are not taken into account. This method permits the exporter to maintain his desired profit percentage to set a suitable export price.

Export related costs here will include Packaging, Foreign Market Research, Advertising and Marketing, Exchange Conversion/Fluctuation Costs, Translation, Consulting and Legal fees, Bank charges & other Financial Costs, Foreign Agent/Distributor Product Information and Training, After-Sales Service Costs etc.

Normally, exporters are guided by any one of the following:

  1. High Price Option: This approach will use higher mark-ups to produce big profits. It may work if a company is selling a new and unique product targeted at the upper-end of the market. This option is likely to attract competition and limit the market for the product while, at the same time, yield bigger margins.
  2. Moderate-Price Option:  This is the middle path focusing on a lower risk as compared to the high-or-low -price option. The emphasis is on matching competition, building a market position and earning a reasonable profit margin.
  3. Low-Price Option:  This route is generally taken to impede competition to penetrate a market, suitable in case one is trying to reduce inventory and does not have a long term commitment. Such pricing will result in low profit margins.

Marginal Cost Pricing

An improved version of cost plus method is called marginal cost pricing. The fixed cost including expenses incurred on modifications to the product for producing an additional unit for export is determined first. Variable export costs are then added to arrive at the realistic total cost for exports. Such costs invariably include Packaging, Foreign Market Research, Advertising and Marketing, Exchange Conversion/Fluctuation Costs, Translation, Consulting and Legal fees, Bank charges & other Financial Costs, Foreign Agent/Distributor Product Information and Training, After-Sales Service Costs etc. Margins are then applied to arrive at the export price. This result is a more realistic determination of cost of producing products for export.

Competitive Pricing

Costs are important in pricing decisions. However they should be looked at alongside the prices of competitive products in the target markets. Prices need to be set in tune with the competition. Most customers compare prices of alternatives before coming to a final decision. If one’s prices are set in isolation, these may not find favor with the customer except in cases where there is no competition.

Market Pricing

Extensive competition and availability of a variety of products have necessitated market pricing-also known as target pricing. Here, the exporter has to work on a price that the customer is willing to pay and focus shifts on managing costs as efficiently as possible. This has happened because the customer today is highly informed-he knows most costing and is ready to pay only what suits him. The exporter needs to work backwards from target price down to the costs and find margins for him by managing his overheads and other costs better.

Credit: International Business-MGU

 

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