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Role of Cost ² The higher the cost , higher is the price is not
always true it also depends on the demand ( if demand is
higher you can price the product higher )
So cost is not the only factor but the indicator of what the
price should be ( if costs reduce at the same price we have
better quality and vice- versa)
Cost act as a resistance in lowering the price
At any given point in time Demand, Competition and cost are
applicable to pricing
 

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price is not the only factor determined by the foreign


buyers there are other factors as well and they are
1) product differentiation
2) Brand image
3) Frequency of purchase
4) presumed relationship between quality and price
5) After sales service in engineering products
è) Continuity of supply and prompt deliveries
7) Before sales service in consumer goods
8) prompt acceptance of settlement of claims
9) Ability to supply complete range of products in large
quantities
10) Aggressive marketing and sales promotion

Importers from the developed world might not have that


much confidence on the quality of Indian or developing
countries products so sometimes lowering the price may
become necessary

The price a purchaser is willing to pay often depends in the
frequency of purchase . people are willing to pay a higher
price if the particular goods catch their fancy ( Applying
basically to handicrafts being manufactured in the developing
country)

Generally higher priced goods are associated with a higher


quality ( easier to sell in developed countries)
Even a very low priced item will not sell much ( lower quality
association)

Industrial Goods ² price is not the indicator of quality . A buyer is
more interested in knowing what he gets for the prize he pays. For a
technically sound product steady availability at a reasonable prize
and comprehensive after sales service are more important factors

In case of engineering products goods include


a) Advising the purchaser about the relative suitability of competing
products for his requirements
b) Demonstrating the use of his products
c) Rectification of genuine technical failure
d) Educating the user in the use of the products and providing training
for its maintenance
e) Free services during the warrantee
f) Ensuring the supply of the spare parts and components after the
warranty period

For consumer goods services before sales are more
important

prompt delivery are regular supplies are important that is


where most developing countries fail
While foreign importers are willing to have their delivery in 3
months the Indian exporters delivery them in è months ( in
fact vendors are evaluated according to their performance)
GSp system also confirms that the product quality and delivery
dates appears to be more important factor then the price

Îery often the ability to supply complete range of products and
in large quantities are also an important factor these is again an
area where developing countries are unable come up to
expectations

price also does not matter much if goods are promoted under
aggressive marketing and sales promotion .
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Traditional ² here we can realize fair prices from our foreign


counterpart but they compete among themselves so prizes
are lower . Efforts are being made at UNCTAD level to do
something in this respect under the integrated programmed
on Commodities

Non traditional ² can be further classified into 2 a)


Intermediate products . b) consumer products

For Intermediate products generally specialist buy from the


cheapest source

For consumer products there is keen competition so


developing countries are at a sever disadvantage
 
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ürdinarily Total costs can be divided into 2 broad categories they


are Fixed costs and the Îariable costs . Up to a certain level the
fixed cost remains the same variable costs on the other hand
varies . Thus under Marginal pricing the relevant costs are
Îariable costs
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Export Sales are additional sales and so these need not be


burdened with overhead costs which are ordinarily recovered
from the domestic market

Initially to get known in the foreign market price may be use as


a technique to secure the domestic market

If our market is countries with low income price would be the


deciding factor rather than quality

Competition in foreign market may require quoting a lower


price

Some domestic costs do not apply to export like domestic


marketing

  



Fixed costs can be recovered from the domestic market

Extra loading can be done on the commodities that can bear


high costs
  
  

   


The Firm has reached a breakeven point on the basis of domestic
costs

Where overheads are substantial

Domestic market is not large enough for full capacity utilization

When export incentives are available
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If the importers become used to low pricing it might be


difficult to increase the price later on

This policy is of limited use to that industry where


a) the industry is mainly dependent on exports
b) where overheads are insignificant
Note ² It is not necessary to price at Marginal cost but this
also acts as an indicator as to how much can we lower the
price without effecting the profitability of the company

   

Developing countries may be charges with dumping their


products in the foreign markets

Inter se competition among exporters from the developing


countries may lead to undercutting each other resulting in loss of
valuable foreign exchange

Îery often low price can be quoted in the absence of adequate


information about the price prevailing in foreign countries
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Reduce costs , higher production due to exports may itself reduce


costs

Modify or simplify the product to make it cheaper or more


competitive

Reduce the distribution channel

Consider foreign manufacturer or assembly


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1 )Direct Cost ²
a) Îariable Cost
Direct Material
Direct Labor
Îariable production overheads ( Special Dies and Jigs)
Îariable administration overheads ( Salary of export clerk)
b) üther costs directly relating to exports
Selling costs ² advertising support to importers abroad
Special packing
Commission to overseas agent
export credit insurance
Bank Charges
Inland freight
Forwarding charges
Inland insurance
port charges
Export duties , if any
Warehouse at port ,
Documentation and incidentals
Interests on funds involved / cost of deferred credits
Cost of after sales services including free part supply
Consular Fee
pre Shipment Inspection and loss on rejects

Total Direct Cost - Less : Duty drawbacks and benefits from
sales of import licenses , if any
Direct Cost net = F.ü.B price at marginal costs
2) Freight ( volume or weight whichever s higher)
3) Insurance
C.I.F price ( Based on marginal Costs)
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1) Direct Cost as Above
2) Fixed Costs/ Common costs
production
Administration
publicity and advertisement ( general)
is F.ü.B based on full costs
3) Freight ( volume or weight whichever is higher)
4) Insurance
is C.I.F price ( based on full cost)
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A precise description of the merchandise , packaging , quality and


technical specifications

price including any rebates and discounts and terms of payments

Terms of delivery .

Minimum and maximum quantity to be supplied

The mode of shipment and Date of delivery

The period for which the quotation is valid.


It is always desirable to make a cost sheet on the above format
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It is always useful to look at the market to determine the prices


to be charges . Having found out what the market can afford to
pay the firm has to determine if it can sell at that price by
working back from the market price
 
 
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Market price
Less Retail Margin on the selling price
Less Wholesaler·s mark-up on his cost
Less importers mark up on his cost
Less import duty
C.I.F price
Less Freight and insurance charges
F.ü.B realization of the exporter
    

   

 


Export quotations can be made with the reference to


different points of delivery . However the common bases of
export pricing are F.ü.B , C&F and C.I.F this obviously has
different payment terms in each of the given quotations

Exchange Rate Îariation ² so either quote in Indian rupees
or even if in foreign currency insert the clause of present
rate or take a forward exchange cover

packing of Export consignments ² this is very important as


if in transit the goods are damaged due to insufficient
packing then the owner is not liable for marine insurance (
so cost incurred for packing should be taken in account for
export pricing

Guarantee ² when the importer insists on having stricter


guarantee/ warrantee provisions thereby imposing
additional anticipatory costs on exporters this also have to
be accounted for

Spare parts ² in contract for export and machinery the
supply of spare parts needs careful consideration ( it is
common practice in many countries to undercharge on
main equipment and overload on the supply of spare parts
) so when a long term supply of spare parts is needed 2
points should be taken into consideration
a) With respect to price to be charged for spare parts some
basis have to be set
b) Anticipated costs of manufacturing and keeping an
inventory of spare parts of custom built type should be
carefully estimated before making the quotation
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For long term supply contracts or projects exports the total time
involved between when the offer is made and the final execution of
the contract is fairly long so it is advisable to insist on price variation
formula .
If both parties agree to incorporate the price variation formula then 3
points should be defined
1) The cost element which will be covered under this formula
2) Magnitude of increase in cost above which the formula will be
applicable
3) The Documentary requirements to be submitted for providing the
claim regarding the change in costs
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Almost all the contracts have this clause . This is when terms
of contract are not fulfilled

In any case seller should make sure that the maximum


penalty is fixed and the penalty is in full satisfaction of
suppliers liability ( if due to some reason a supplier knows
he can not fulfill all contract requirements then he should do
the pricing accordingly)
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1) production Cost
a) primary Cost
b) Factory overheads
c) General administration overheads
2) Cost of Distribution
a) Cost of packing
b) Cost of Selling
c) Cost of transportation including insurance
d) Distribution cost at the importing end
3) Cost of marketing support ² advertisement , sales promotion ,
technical literature

Nature of the product
a) whether consumer or industrial
b) If consumer whether it is necessity , comfort, or luxury
c) Whether it is seasonal product
d) Range of products available for consumption
e) Can demand be pushed by promotion
f) Elasticity of supply of the product
g) Elasticity of demand
h) Strength of demand
I) International levies taxes
j) Export incentives
i) Floor price and ceiling price regulations if any

Specification

product design

Time required for effective delivery

For Turnkey ² local labor rates, labor regulations and availability


of construction material

product guarantee

Installation and after sales service requirements