Why is export pricing different?
Pricing for any market requires an understanding of relative costs, demand and competitionin that market. In offshore markets these factors vary greatly from those in Australia. Carefulanalysis of prevailing conditions in the markets you choose, and an accurate assessment of the way to structure your export price, determine whether you can be competitive and writeprotable business.
Options for calculating export price
The traditional method of price calculation is the “cost-plus” approach. The price calculation willinclude the components of domestic price, but the addition of costs that are specic to exporttransactions can render a price constructed on this basis uncompetitive.Marginal (or ‘differential’) costing is a technique commonly employed in export and produces amore competitive price to assist market entry. This method establishes the base price of a productor service using the direct costs of production and sales, with xed costs apportioned to thevolume of the sale.Care must be taken to ensure that your existing business continues to run at stable volumes andthat your marginal price is applied to new business. A marginal costing example has been providedwithin this guide.Other pricing techniques are more emotive and can involve predatory pricing at a loss to gainmarket access. Operating in this manner requires an agile ‘on the ground’ presence to capture newbusiness and combat your competitors’ response. Unfortunately, being a “price taker” provides thebuyer with a negotiating advantage, as your opening price is often perceived as a base level fromwhich future discounting is anticipated.
The ‘top down’ method
An alternative pricing technique to the ‘cost plus’ method is working back from a market price that you will have to meet to be competitive. An example of this technique is provided to enable you towork back to compute your ex-works price to be competitive in the export market.
What are the export components I need to consider?
Export market development can involve a range of costs that do not apply to domestic sales. Yourknowledge of these costs will only be developed through experience. It is critical at the outset that you recognise these costs and include realistic values for them.Some of the costs specic to export transactions include market research, travel, internationalcommunications, production of export literature (including translation), freight forwarding andother logistics charges. These also include export packing, product modications, packaging,labeling and compliance with foreign standards, insurance, credit checking, export documentation,export nancing charges and training of an overseas distributor’s staff. Austrade’s EMDG programprovides a level of rebate for these costs. Full details are available on the Austrade website.
Exporting will place differentdemands on your nances.‘Cost plus’ is the traditionalapproach to pricing inany market.Marginal costing is astandard export pricingtechnique – but it assumes you have stable revenuesin your domestic business.Beware of aggressivepricing to gain marketentry. It can set your baseprices in the buyers mind.Matching market priceis essential to gain marketshare. Calculate yourex-works price on a ‘topdown’ basis to determinehow you can be competitive– and be protable.Plan for ‘surprises.’Entering new marketsalways poses higher risksdue to unforeseen factors.