Export Pricing

PRESENTATION BY

SHREYA BARANWAL MIBA(09-11) ROLL NO.37

What is Price???
Price - The only element of the marketing mix that is revenue generating. - Price is what an exporter offers to a customer on particular products while cost is what an exporter pays for manufacturing the same product Export pricing is the most important factor for promoting export and facing international trade competition. It is important for the exporter to keep the prices down keeping in mind all export benefits and expenses.

International Pricing Situations

First-time pricing

Changing pricing
Multiple-product pricing

1. First Time Pricing

The alternatives available are: a) Skimming, b) Following the market price, and c) Penetration Pricing.

(a) Skimming
Makes sense under following conditions:

- sufficient no. of buyers with high current demand - not very high unit cost of production - does not attract competitors - image of a superior product

Contd
Done to achieve the highest possible

contribution in a short time-period

The product should be unique
Customers willing to pay high price for the

product should be there in the market

The price is gradually lowered

Example
When Sony introduced the world's first high

definition television to the Japanese market in 1990, the high-tech sets cost $43,000 By 1993, a 28-inch HDTV cost a Japanese buyer just over $6,000

In 2001, a Japanese consumer could buy a 40-inch

HDTV for about $2000

(b) Market Pricing

Followed if similar products already exist in

the target market

The final customer price is determined on the

basis of competitive prices

A reactive approach

(c) Penetration Pricing

The product is offered at a low price to

generate volume sales and acquire a high market share

Basic assumption

 Conditions favouring setting a low price:

- price-sensitive market - decreasing production and distribution costs as sales volume increase - low price discourages competitors

2. Changing Pricing
Practised when a new product is launched

When there is a change in overall market

conditions

When there is a change in the exporters

internal situation, say, costs of production

3. Multiple Product Pricing

The different items in the product line may be

differentiated by pricing them appropriately, such as, Economy version, Standard version, and Top-of- the-line version

The product may also be priced differently to

protect against competitors or to gain market share from existing competitors

Setting of Export Prices

Influenced by i) Internal factors

ii) External factors

Stages in Setting of Export Prices

One Two Three Four

Target market analysis Marketing Mix Composition Pricing Policy Selection Pricing Strategy Determination

Five

Specific Price

Export Pricing Strategy

Standard worldwide Price

Dual Pricing
Market-differentiated Pricing

(a) Standard Worldwide Price

Same

price irrespective of the buyer or may be based on average unit costs of fixed, variable and exportrelated costs

(b) Dual Pricing

The two approaches available for pricing exports are:

i) Cost- plus method ii) Marginal cost method

(i) Cost Plus Method

Fully allocating domestic and foreign costs to the

product

The final price may be so high that that the firms

competitiveness may be compromised

(ii) Marginal Cost Method

Considers the direct costs of producing and selling

products for export as the floor beneath which prices cannot be set

Fixed costs for plants, R&D, domestic overhead, as

well as, domestic marketing costs, are disregarded

Production Costs

Standard Worldwide price

Cost Plus Pricing

Marginal cost Pricing

Materials

2.00

2.00

2.00

Fixed costs
Additional Foreign Product costs Production Overhead
Total Production costs

1.00
0.00 0.50 3.50 1.50

1.00
0.10 0.50 3.60 0.00

0.00
0.10 0.00 2.10 0.00

Domestic Marketing costs

General & Admin.

Foreign marketing Other foreign costs Subtotal Profit margin(25%) Selling Price

0.75
0.00 0.00 5.75 1.44 7.19

0.75
1.00 1.25 6.60 1.65 8.25

0.00
1.00 1.25 4.35 1.09 5.44

(c) Market Differentiated Pricing

Export pricing according to the dynamic conditions

of the marketplace

The marginal cost strategy provides a basis, and

prices may change frequently due to changes in competition, exchange rate changes, or other environmental changes

Thank You !!!