Pricing Your Product for the Overseas Market
Some basic questions to ask yourself before getting started:
What are your projected raw material costs?
Is your product truly innovative, or does it fall into the category of a commodity?
Are you exporting your product or producing it in your target market?
How competitive is your target market? Are there other local suppliers of the product?
What are the economic conditions in your target market?
How will you handle foreign currency volatility?
Although there is no one “right” method to setting export prices, most companies do start with a “base price” (typically a lowest possible retail and/or wholesale price) and then factor in other considerations. A company may look at various methods of “cost-plus” pricing, or think about “penetration” pricing if they are interested in building market share quickly (it is important to be aware of any antidumping regulations in your target market).
As you put together your pricing, remember to include all the factors which add cost. In addition to product cost, think about special export packaging requirements (such as plastic pallets, for example), transportation costs (if you are including that in your quotation), any tariffs, duties or taxes which will be levied on your product, your collection and financial costs (which will depend on payment terms), exchange rate fluctuations, and any commissions which may be due to your overseas sales force.
Spend some time familiarizing yourself with different export payment terms. If you’re working with new customers or clients you most likely will not start with open account, but choose a more secure payment method such as cash in advance, letter of credit, or documentary collections such as sight drafts. And before you issue your first export quotation, be sure you fully understand Incoterms ranging from EXW to DDP (standard trade definitions commonly used in international sales contracts) – for more information, visit the International Chamber of Commerce website (http://www.iccwbo.org/incoterms/id3045/index.html).