Costing and pricing for jewellery

In many cases, you will not be able to dictate your own prices. Your market research should give you insight into the prevailing retail and wholesale prices, appropriate margins and competitor prices. Here are some considerations to make in determining a pricing strategy.
Price setting
Pricing is a mix of knowing your domestic costs and calculating costs you will incur in delivering and supporting your activities in the market. However, there are various strategies you can adopt in setting your prices, depending on your market position, the uniqueness of your jewellery and the number of similar jewellery pieces available from competitors. For more information on different pricing strategies, see the CBI publication Export Marketing Planner and Your guide to market research - Your Research Practice (Part 2) http://www.cbi.eu/marketinfo search CBI publications export manuals. If you are new to exporting, or if you are exporting a new collection, the most common form of price setting is to benchmark your price against established prices in the jewellery sector that your competitors charge, or, against the closest retail equivalent. Therefore, try to find out the approximate price of jewellery pieces similar to your own, then work back through the distribution chain to calculate the price you need to be charging to cover your own costs. Also, consider a small margin for unsold jewellery pieces. Key considerations include: Which currency? Most exporters quote in Euros () to European clients, although the $US is still sometimes used. Position in distribution chain? Prices and margins are influenced by a number of factors, depending on where you are selling in the distribution chain. Wholesalers and other importers base their costing on a CIF (Cost Insurance Freight) basis and apply their margins. The landed cost for the importer is the FOB (free on board) cost plus the cost of delivery, insurance and duty, if applicable. Affordability. If you find your profit margins are too low, try to reduce costs or adjust margins. If this is not possible, you may consider to cancel exporting the jewellery piece or to focus on other markets. Margins vary greatly, depending on the type of jewellery and retail channel. You might be shocked by the level of mark ups charged by some retailers in EU countries. Although production costs have come down, other costs (sample shipments, packaging etc.) in the chain have gone up. These costs might account for a larger part of the selling price than the bought-in production cost. Charge the price the market will bear. Do not go above price points, the price set by the market for similar products. It should be in line with competitor prices. The price should reflect the companys quality levels, delivery and promotion; Keep in mind that it is not easy to increase prices once you have agreed to deliver at a certain price.

Source: CBI Market Information Database www.cbi.eu Contact marketinfo@cbi.eu Publication date 30.11.2011

Costing and pricing for jewellery

Try to work always with a fixed price list. Also, try to do negotiate a price for a fixed period, for example one year. In addition, most buyers will try to bargain. You could offer quantity discounts as larger volumes reduce the cost price; unless you make a limited range of high value silver jewellery pieces. When negotiating you could consider a discount on the value of the order e.g. 5% on 5,000 or 10% on 10,000. Be sure here to add this amount first to your prices!

Example
You are a manufacturer of sterling silver rings with colourful semi-precious stones from Colombia. You have a new range that you think will compete in the 'pop-art category of mid-market retailers. You have chosen to target the middle end of the market as you consider this product can be positioned as a value-for-money product. You decide to target online jewellery specialists as a channel for your jewellery collection. Your research may tell you that the average retail selling price of similar products is approximately 40. You have also recognised that to charge above this price would probably be unacceptable to both customers and retailers, particularly as you are currently an untested new supplier. In order to find out your own price, you will have to calculate back from the retail selling prices and apply profit margins of the different intermediaries: To start with, remove VAT from the price (approximately 20%, depending on country). by dividing 40 by 1.2. This gives you 33.33. Note here that you have to calculate back see also the example given at the end of the modules Trade structure and channels under Price structure for Silver jewellery. Next, you deduct the retail margin of say 90% of 33.33. You do this by dividing 33.33 by 1.9. This will bring you to a figure of 17.54, which is the retailers bought-in price. Then, take the wholesalers margin into consideration of say 30%, as well as other handling costs and insurance charges of say 7%. So, divide 17.54 by 1.37 which gives you 13.09 Do not forget the import duty of 2.5% that is levied on silver neck chains with stones entering the European Union. From this, you will also have to subtract overhead costs, as well as shipping costs from your homeport, transportation of goods to the port. This depends on the conditions you have made with your buyer. You will most likely arrive at a figure of around 7.50, which is the ex-works price, from which you will have to find the cost of the material, machinery, labour and other overheads, as well as a profit margin. The profit figure will be small, but at least try to leave some room for risk or unforeseen changes or currency fluctuations. Some tips in order to maximize your own profit margin: NEGOTIATE prices for raw materials, embroideries, prints etc.. VERIFY the coherence of wholesalers and retailers price in relation to the prices from your research (e.g. on websites). RESPECT the price points of different jewellery pieces within your collection. BALANCE the ratio between retail selling price and quality desired by the target group. VALIDATE profit margins being used by wholesalers in different countries. This is a theoretical calculation. There are many factors that will influence these margins, and ultimately your price calculation. These include the degree of risk (is it a new product, is the product type unproven); the likely volumes and order sizes, as well as the rate of sales throughput; the level of marketing and other support that may also be required in the EU country; the general economic climate, including extent of competition and spending power of consumers.

Source: CBI Market Information Database www.cbi.eu Contact marketinfo@cbi.eu Publication date 30.11.2011

Costing and pricing for jewellery

Delivery terms
The most common delivery terms for jewellery are Free on Board (FOB) or Cost, Insurance, Freight (CIF). Free on Board is always used in conjunction with a port of loading. This means that you will be responsible for paying for transportation of goods to the port of shipment, plus loading costs. The buyer pays the shipping cost, insurance, unloading and transportation to the final destination. The other option is Cost Insurance Freight, where you are responsible for payment up to the importers port (a variation on this is Cost Freight where you are also responsible for landing charges). In international trade, Incoterms (developed and maintained by the International Chamber of Commerce) are universally accepted rules that define the responsibilities of buyers and sellers for the delivery of goods and determine how costs and risks will be allocated. Note that a new set of Incoterms rules have come into effect in January 2011 and the number of rules has now been reduced from 13 to 11. More information can be found at: http://www.iccwbo.org/policy/law/index.html?id=42201 Failure to deliver on time is likely to be subject to penalties. A failure in delivery can result in cancellation of the order. So, you should be absolutely sure you can meet delivery dates without delays, before entering into a contract. Trading relations between exporter and importer are based on trust, and they can only be built up by meeting the high expectations of the importer. Inform your customer immediately if a problem with delivery arises.

Methods of payment
In the jewellery trade, the payment method chosen will depend on negotiations between buyer and seller in which both will try to achieve the best conditions for themselves. This implies that exporters prefer to be paid before shipping the items, while buyers prefer to pay as late as possible, after arrival, inspection or even sale of the items. However, in general: The negotiated price depends on the Incoterm (e.g. FOB or CIF), the terms of payment, credit terms and currency risk, quantities and the means of transport. Exchange rates fluctuate. Most buyers cover themselves in advance. For first time shipments a letter of credit (L/C) could be negotiated, whereas trade partners in the EU usually pay on open account, i.e. bank transfer after receipt of the invoice. This method requires no documents, has low cost and can be done quickly. Letters of credit are usually used when the buyer and seller are not familiar with each other. It provides a guarantee that the payment has been made, but additional costs are involved. Many retailers insist on only paying after delivery has been made (usually 30 days), but terms can be negotiated in relation to the extent of up-front costs you may be involved with. Sometimes retailers try to negotiate a sale or return, where they can return unsold stock. You should negotiate to your best advantage, but in many cases standard industry procedure will determine the payment terms. See www.sitpro.org.uk/trade/paymentmethods.html for detailed information on the various methods of payment available for exporters and importers in international trade.

Drawing up an offer
There are two different kinds of offers. Make sure you do not confuse the distinction between a general quotation and a legally binding offer: General offer or company introduction The purpose of a general offer is to attract the interest of prospective buyers or trade partners who you do not know well. A general offer consists of sending a short profile of your own company and an overview of your product range with a price indication.

Source: CBI Market Information Database www.cbi.eu Contact marketinfo@cbi.eu Publication date 30.11.2011

Costing and pricing for jewellery

In a personal letter, briefly introduce your company and inform the buyer of the advantages of starting up a business relationship with your company, what are your Unique Selling Proposition (USPs) etc. See also the related module on Developing a promotion strategy for jewellery. Specific offer Once you know the business partner personally or after you have made the initial contact, you make a specific offer. This is legally binding for a certain period and is often based on a specific request from the business partner. It is always worth requesting confirmation of this from your client to avoid any possible misunderstandings. You must therefore be able to fulfil its terms of contract. It is advisable to fully spell out the detailed product specifications and other terms of engagement, including delivery and payment terms.

This survey was compiled by Searce in cooperation with Mart Krijger Disclaimer CBI market information tool: http://www.cbi.eu/disclaimer

Source: CBI Market Information Database www.cbi.eu Contact marketinfo@cbi.eu Publication date 30.11.2011