Export Pricing Competitiveness
The cost-plus method of export pricing helps to ensure that the exporter will be selling at a profit. However, it does not take into account the prices of competing products in the foreign market. Therefore, the next step in export pricing is for the exporter to check the competitiveness of his price in the target foreign market.
When the exporter finds that his price is too high, he must decide whether other features of the product quality, design, uniqueness, promotion, etc. will offset this. If the exporter still considers his price to be too high, he may consider reducing it, perhaps temporarily, to get established in that foreign market, by:
1. Accepting a lower profit margin than normally desirable.
2. Recalculate his costs to reduce the contribution expected for fixed costs, or factory overhead -This technique, sometimes called marginal pricing, is possible only if the exporter has a substantial domestic market to pay for all the fixed costs.
If the exporter finds that he cannot afford to lower his price, he must see whether he can improve the attractiveness of the non-price features of his product e.g. use of a brand name, better packaging, better promotion, faster installation and other initial and after-sales services.
Or when the exporter finds that his product is priced lower than that of competitive products, he may decide to raise the price above that indicated by the cost-plus method.
Clarification ahead of time whether the exporter will be required to provide agents or distributors with discounts, rebates, and promotional allowances is also important. Clarification ahead of time whether the exporter will be required to provide agents or distributors with discounts, rebates, and promotional allowances is also important.
Because, the cost of these items must be included in the calculation of the export price.
The exporter should also keep in mind that he might want to have the flexibility to offer a lower price, better credit, on more favorable delivery terms to attract special customers. So the cost of these concessions must be built into the overall export price.