EID/U1 Topic 4 Export Costing and Pricing
Export Costing can be determine by the following factors:
- Range of products offered.
- Prompt deliveries and continuity in supply.
- After-sales service in products like machine tools, consumer durables.
- Product differentiation and brand image.
- Frequency of purchase.
- Presumed relationship between quality and price.
- Specialty value goods and gift items.
- Credit offered.
- Preference or prejudice for products originating from a particular source.
- Aggressive marketing and sales promotion.
- Prompt acceptance and settlement of claims.
- Unique value goods and gift items.
Price fixed for the export products or services which the exporter intends to sell in the overseas market is called export pricing. Export price of a given product is determined by many factors. There are a number of methods used for the purpose of costing in exports. These methods are divided into three groups.
- Job or Batch costing;
- Process costing; and
- Standard costing.
Marginal cost approach is also an important approach to export pricing.
Objectives of Export Pricing
Export pricing is a technique of fixing the prices of goods and services which are intended to be exported and sold in the overseas markets. Export pricing is much more difficult than domestic pricing, because the exporter has to take into account not only the cost of production but also the influence and impact of the conditions prevailing in the international markets.
Therefore export pricing is not just an arithmetical calculation, but a practical proposition based on market situation. The success of an export firm largely depends on its effective pricing policy.
The principal objectives of export pricing are as follows.
An exporter faces competition not only from his fellow-exporters, but also from other country exporters. In much competitive markets, one of the marketing tools which can make the exporter survive the competition is pricing.
Making price competitive, thereby earning less profit in order to survive, could be one of the objectives of pricing. Keeping prices competitive and maintaining low prices is a short-term objective, as every exporter aims at increasing profits at a later stage.
2. Maximum Sales Growth
As an exporter survives the competition, the objective shifts to having maximum sales growth. Depending upon competition and sensitivity of market to price, the final pricing decision needs to be taken. There are two alternatives available for this purpose.
- Setting lower prices to overseas buyers leads to higher sales volume, thereby earning more profits. For this purpose, market should be highly price sensitive. Such low prices discourage competition, thereby further increasing sales.
- Setting higher prices to indicate the superior quality of the product. Such indications lead consumers to rate products higher compared to that of competitors. Due to this perception, sales volume of the product increases.
3. Maximum Current Profit
An exporter may determine his object of securing maximum Profits. A price which would generate such a profit is to be established. For this purpose, it is necessary to have complete information of cost and demand. A price which can generate maximum cash flows or a higher rate of return is determined. But this objective is more of a short term nature and bases its performance on profits which may turn out to be dangerous in export markets.
4. Establishing Leadership
Another objective behind pricing is to establish not only a superior quality image, but also emphasize on leadership or number one position in the export markets. By charging a higher price and making a noticeable difference in the price as compared to that of competitors, this objective can be fulfilled.
Importance of Export Pricing
Price is one of the important elements in marketing mix and this is a delicate area of export marketing. It is rightly treated as an important factor in successful export strategy. The importance of export pricing can be summarized as follows:
- Consumers are extremely sensitive about quality and price of the product. If the price is not properly set, success of the firm in the international market becomes doubtful.
- The volume of sales and market demand depends on pricing policy.
- Competitive capacity in foreign market depends on the price fixed.
- It decides the success and failure of export efforts.
- Export pricing builds goodwill in the market.
- Export pricing helps in capturing foreign market.
- Develops brand image and product differentiation.
- Pricing helps in penetration of market by keeping them low initially and gradually raising them.
- Pricing not only helps in increasing profit and raising revenue, but also in enhancing market share of the product.
- Pricing helps by having good profitability to undertake diversification, research and development etc.