Export Pricing and Costing

People assume them same but export pricing and costing are totally different terms. Export pricing is defined as the fixed price of products and services to be sold in overseas markets i.e. what exporter offers to the customers. Whereas costing is what the exporter pays for the production/ manufacturing of the same product and services. Export pricing is an approach to fix the prices for goods which are intended for exports. It is somehow more difficult than domestic pricing as the exporter has to take into account not only the cost of production but also the influence and impact of certain conditions which will be prevailing in the global market. The firm’s success largely depends upon its pricing policy. Some of the objectives of pricing are Survival in the global market in the presence of competition, maximum sales growth, maximum current profit and establishing leadership. Export - Connect2india Blog Posts There are many risks and challenges involved in the exporting business. Different types of risks involved are:

Importance of export pricing

  • The Success of firms in the global market depends upon the successful pricing. If not set properly makes the success doubtful.
  • What will be the volume of sales and what will be the market demand of the product, both depends upon the pricing policy.
  • What will be your competition depends upon the price fixed.
  • Whole success or failure depends upon the pricing of the product.
  • It helps to build goodwill about your product in the market.
  • It provides product differentiation from other products and develops an image of your product.
  • It is used to penetrate within the market i.e. initially keep it low and gradually keep it raising.
  • Helps in capturing the foreign market.
There is no fixed formula for successful export pricing but export pricing methods can be chosen. It may vary from one exporter to other. Moreover, it also depends upon the kind of exporter i.e. merchant exporter or manufacturing exporter. It is one of the most important factors that make you face international competition. Let’s go through these in much detail to understand what these risks actually are and how they occur. Following factors helps you to determine Export pricing:
  • Range of products offered
  • The Actual cost of the product
  • Prompt delivery and continuity in supply
  • International market research
  • International communications
  • Frequency of purchase
  • Product differentiation along with product image
  • Product modifications
  • Packaging and labelling of products
  • Relation within the quality and price
  • Marketing and sales promotion
  • Acceptance and settlement of claims
  • Product liability insurance and other insurances
  • Credit checking
  • Export financing charges
  • After sale services
  • Currency exchange rates
  • Economic conditions
  • Risk management expenses

Export Costing

Export pricing includes exporter’s profit margin whereas costing gives the expenses incurred by the exporter. Costing can be termed as cost Accountant’s privilege. Export Costing is a Cost Accountant's job. It is the combination of fixed cost and variable cost comprising various elements.

Export Pricing Procedure

Following steps can be followed for export pricing:
    • Selecting the Pricing Objectives
The firm should decide where it wants to position its offering. Clearer the objectives easier will be to set price. Major five objectives involve Survival, maximum current profit, maximum market share, maximum market skimming and product-quality leadership.
    • Determining Demand
Each price will lead to different levels of demand and will impact the company’s objective. Generally, the inverse relationship between price and demand is observed in the demand curve. Higher the price, lower the demand. Demand curves can be measured using various methods such as surveys, price experiments and statistical analysis.
    • Estimating Cost
For determining the price, first estimate the cost of the product. This includes few things such as variable and fixed cost, the differential cost in the differential market and target costing. Variable and fixed cost: Both the cost must be covered because with an increase in production, the cost may decrease. Along with the time firm gains experience and can get raw materials at a lower price and such things keep changing. So costs should be estimated at different production levels. Target costing: In this, the firm estimates the product’s desired functions & determines the price on which product can be sold. Desired profit margin can be calculated from this price. As per this, the company knows how much it can spend on production. The goal is to get the costs into the target range.
    • Analyzing competitors cost, price and offers.
One should benchmark their own price against competitors. Must know about the quality that competitors are offering and try to know regarding the competitor’s costs.
    • Selecting a pricing method
Any of the available methods can be chosen depending upon various factors and your firm’s needs. Various export pricing methods are Mark-up Pricing, Target Return Pricing, Perceived-Value Pricing, Value Pricing, Going Rate Pricing and Auction-Type Pricing.
    • Selecting the Final Price
For fixing the final price one can consider the cost of production and additional factors that have to be paid by the firm. The above-mentioned factors to determine the final cost must be considered because they have an impact over price. The overall conclusion is that pricing and costing are important in exports for determining the effective price that one must charge over the product so that he doesn't have to pay from his pocket and other tasks within the firm go on smoothly. Above mentioned factors will help you to determine effective pricing that will help your product to compete in the global market in terms of price and quality. Adding on it will help to increase your product demand and profit in the export business. Further you can visit: How to export from India How to get export order from overseas buyer How to start export business in India [social_warfare]

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