Guide to pricing for export - cdn0.blocksassets.com

1 Guide to pricing for export3 This is one of three practical guides to the more important and technical aspects of the export process. Familiarising yourself with the issues covered in this Guide will help you plan your international market strategy, and ensure that the first export sale you make develops into long-term, self-sustaining is export pricing different? pricing for any market requires an understanding of relative costs, demand and competition in that market. In offshore markets these factors vary greatly from those in Australia. Careful analysis 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 write profitable for calculating export priceThe traditional method of price calculation is the cost-plus approach. The price calculation will include the components of domestic price, but the addition of costs that are specific to export transactions can render a price constructed on this basis uncompetitive.

2 Marginal (or differential ) costing is a technique commonly employed in export and produces a more competitive price to assist market entry. This method establishes the base price of a product or service using the direct costs of production and sales, with fixed costs apportioned to the volume of the must be taken to ensure that your existing business continues to run at stable volumes and that your marginal price is applied to new business. A marginal costing example has been provided within this pricing techniques are more emotive and can involve predatory pricing at a loss to gain market access. Operating in this manner requires an agile on the ground presence to capture new business and combat your competitors response. Unfortunately, being a price taker provides the buyer with a negotiating advantage, as your opening price is often perceived as a base level from which future discounting is anticipated.

3 The top down methodAn 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 to work back to compute your ex-works price to be competitive in the export are the export components I need to consider? export market development can involve a range of costs that do not apply to domestic sales. Your knowledge 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 of the costs specific to export transactions include market research, travel, international communications, production of export literature (including translation), freight forwarding and other logistics charges. These also include export packing, product modifications, packaging, labeling and compliance with foreign standards, insurance, credit checking, export documentation, export financing charges and training of an overseas distributor s staff.

4 Austrade s EMDG program provides a level of rebate for these costs. Full details are available on the Austrade Exporting will place different demands on your finances. Cost plus is the traditional approach to pricing in any market. Marginal costing is a standard export pricing technique but it assumes you have stable revenues in your domestic business. Beware of aggressive pricing to gain market entry. It can set your base prices in the buyers mind. Matching market price is essential to gain market share. Calculate your ex-works price on a top down basis to determine how you can be competitive and be profitable. Plan for surprises. Entering new markets always poses higher risks due to unforeseen When dealing in new markets check with advisers and other Australian exporters to identify the areas where things can go wrong and costs escalate. export documentation may be complex.

5 Use an expert. Getting an order is exciting. But take extreme care about your costs. Having your product rejected at a port of entry can result in heavy losses. pricing behaviour varies widely. Take time to understand pricing behaviours. The 13 Incoterms are the basic language governing international transactions. Take time to understand are the traps?Without adequate research into the build up of an export price and an under-allowance for unforeseen cost components and contingencies, export transactions that initially appear attractive may prove unprofitable and/or unexpectedly that the understanding with your buyer is clear and well documented. A handshake on the deal sometimes works well but is the exception. Typical cost elements that can frequently be overlooked or under-estimated include:> Additional freight and handling costs due to a misunderstanding of trading terms and conventions (Incoterms see next section).

6 > Last-minute product modifications to meet an export standard.> Packaging and labeling requirements (language, ingredients, use-by dates).> Documentation requirements such as certificates of origin and expensive legalisation of invoices by embassies.> Insurance (including credit insurance), finance and banking charges.> Delays in customs clearance at port of discharge if documentation, packaging and labeling is not in order.> For service exports, vaguely worded contracts or agreements where the buyer can enforce clauses which require after sales service or implied export pricing watch points> The temptation to accept an order, often under time pressure, can result in losses unless you are closely monitoring your finances. Costs of production can change, as well as fixed costs. These factors can have a critical impact on your pricing , notably for marginal costing, where it is imperative to maintain close control and monitoring of fixed costs.

7 > Delays in customs clearance are common in many markets. Ensure that your liabilities for delivery are worded explicitly to avoid unanticipated demurrage and other logistics charges.> Take care with packaging, documentation and labeling requirements as rejection of your product at the port of entry can result in high expenses in remediation or product return. Avoid promises from agents or buyers that all will be OK unless you are confident that you have fully complied with local regulations.> Get good advice on your foreign currency exposure. All Australian banks offer foreign exchange risk management products.> When dealing with documentary credits (such as a letter of credit), remember that the wording on all documents must be precise and matching contractual requirements. Simple mistakes in clauses in documentary credits can cause extensive delays in receiving payment.> Get a good feel for price behaviour in the markets of interest.

8 In some countries, bargaining is expected as a matter of course. Get good local advice and experience of the market environment first-hand. Stress product or service benefits wherever possible, before accepting demands for a lower price.> Services exporters are often faced with different issues. Terminology in many countries can be different and result in misunderstandings in areas such as warranties, performance bonds and the handling of contract are Incoterms? Incoterms (International Commercial Terms) were introduced in 1936 to avoid confusion over the interpretation of shipping terms and define the roles of the buyer and seller. The International Chamber of Commerce, based in France, is responsible for the administration of Incoterms. The latest version (Incoterms 2000) covers 13 terms and defines the responsibility between the buyer and seller for each component of an export chart provides a clear assignment of responsibility for both buyers and sellers in international transactions.

9 For precise definitions of the 13 Incoterms, consult the ICC website ( ) and study carefully the liabilities of both buyer and seller. Mistakes and misunderstandings can be costly. Incoterms 2000 Chart of ResponsibilityEXWFCAFASFOBCFRCIFCPTCIPDA FDESDEQDDUDDPSERVICESEx WorksFree CarrierFree Alongside ShipFree Onboard VesselCost & FreightCost Insurance & FreightCarriage Paid ToCarriage Insurance Paid ToDelivered At FrontierDelivered Ex ShipDelivered Ex Quay Duty UnpaidDelivered Duty UnpaidDelivered Duty PaidWarehouse StorageSellerSellerSellerSellerSellerSel lerSellerSellerSellerSellerSellerSellerS ellerWarehouse LaborSellerSellerSellerSellerSellerSelle rSellerSellerSellerSellerSellerSellerSel lerExport PackingSellerSellerSellerSellerSellerSel lerSellerSellerSellerSellerSellerSellerS ellerLoading ChargesBuyerSellerSellerSellerSellerSell erSellerSellerSellerSellerSellerSellerSe llerInland FreightBuyerBuyer/ Seller*SellerSellerSellerSellerSellerSel lerSellerSellerSellerSellerSellerTermina l

10 ChargesBuyerBuyerSellerSellerSellerSelle rSellerSellerSellerSellerSellerSellerSel lerForwarder s FeesBuyerBuyerBuyerBuyerSellerSellerSell erSellerSellerSellerSellerSellerSellerLo ading On VesselBuyerBuyerBuyerSellerSellerSellerS ellerSellerSellerSellerSellerSellerSelle rOcean/Air FreightBuyerBuyerBuyerBuyerSellerSellerS ellerSellerSellerSellerSellerSellerSelle rCharges On Arrival At DestinationBuyerBuyerBuyerBuyerBuyerBuye rSellerSellerBuyerBuyerSellerSellerSelle rDuty, Taxes & Customs ClearanceBuyerBuyerBuyerBuyerBuyerBuyerB uyerBuyerBuyerBuyerBuyerBuyerSellerDeliv ery To DestinationBuyerBuyerBuyerBuyerBuyerBuye rBuyerBuyerBuyerBuyerBuyerSellerSeller* There are actually two FCA terms: FCA Seller s Premises where the seller is responsible only for loading the goods and not responsible for Inland Freight; and FCA Named Place (International Carrier) where the seller is responsible for Inland Freight.