One of the most crucial decisions to be made when setting up an export channel is, of course, the price of your products. Setting the right price – and getting it – is not a simple task as there are many variables that can turn the opportunity to make a profit into an unmitigated disaster.
Considering the basic costs incurred in supplying the product is a starting point, but how many first-time exporters will have remembered to factor in the cost of actually collecting the money from customers? It can be expensive to transfer money from an international market; for example the equivalent of BACS incurs hefty charges in some countries.
What about the suitability of the product packaging for different markets? It’s not just the name that could cause offence in a foreign tongue, but colours can have different associations – for example in China, white is linked with death. This may mean a “hidden” cost of repackaging goods for different countries.
Have you really thought through how you will get your product to the customer, anywhere in that country? Consider the broadband infrastructure as well as the actual transportation system, because a lack of access could jeopardise the administration of orders as well as impacting on physical deliveries.
Prompt delivery and continuity of supply are vital to maintain an acceptable price level. A logistically challenging delivery route could prove costly and wipe out any margin on the sale – not to mention the potential damage to your reputation and loss of future custom. Processing a refund costs far more than just the loss of the sale.
Establishing and sustaining the right balance of quality versus price is crucial as customers historically pay more for a recognised and respected brand. Don’t forget that, whilst we may be very proud of our country’s manufacturing prowess and reputation for quality goods, a “made in Britain” tag will attract greater esteem in some countries than others.
Beyond these factors, there are the obvious elements such as duties, local taxes, the impact of currency fluctuations and payment methods to consider.
Here's a quick round up of a few things that need to be taken into consideration when pricing your offering:
What is your unit cost price?
This is the key to any pricing and once this is understood you can use it as your starting point for any additional costs you may incur when exporting as part of your international pricing strategy.
So, to explain, a very basic unit cost = (total fixed costs + total variable costs) divided by your total units produced.
This will find the starting point for your pricing internationally.
The variables however, will be slightly extended by adding new cost lines such as international product liability insurance, freight costs and any product modifications for new markets.
Be careful to think through all the aspects of the price to be sure of making a profit.
Do you need to modify your existing product before starting to sell internationally?
You would be well advised to research any modifications you may need to make to your products first to be successful in an overseas market.
It is also important to note that modifications can lead to awkward lead times so, in most cases, the closer your existing product is (or can get) to a standard product that is acceptable overseas, the easier it will be and the less impact it will have on your stock holding and labour costs.
In an ideal world, you will try and standardise your products and your style of promotion to ensure that you are not left odd levels of stock or managing additional shifts at double time to create the right product for each market you export to.
Do you require translation or localisation?
You may well have to translate your web site or materials such as promotional literature or instruction manuals which may impact on your pricing strategy. Allow for these costs when pricing your offering.
What about taxes and VAT?
There may be costs of sales tax / local VAT and duties that are part of the world trade agreements that your product might attract before it gets into the country to the buyer.
Do I need insurance?
You may need specific insurances – it’s not just covering the physical product while it’s in transit but your ideas and the financial risk that is contained in the transaction may be something that you chose to cover. You may also require insurance for protecting your intellectual property abroad.
New product development costs
New product development must be considered as part of the price to enable a company to move ahead and research the next product or variations on this product.
Costs of delivery and documentation
The costs of delivery and documentation will impact on your final quotation especially if dealing with markets that demand certificates of origin or legalisation of documents.
You may also need additional packaging in terms of both protection and also culturally appropriate packs for your chosen market.
It is also important to be sure that the goods are delivered and received in perfect condition. In some cases, this may mean using an Inspection service such as SGS or Bureau Veritas to monitor the process from start to finish. This is most likely in countries where corruption is a problem.
Finally, a word about Incoterms®
Incoterms® 2010 are the latest set of rules which define the responsibilities of sellers and buyers for the delivery of goods under sales contracts.
Designed to minimise disputes and to reflect modern day transportation practices, they set out the transportation costs and responsibilities associated with the delivery of goods between buyers (importers) and sellers (exporters). Effectively, they are concerned with establishing where the risk in the goods transfers.
It is wise to use these terms when quoting and to make your customer aware of the impact these may have on your contract and pricing.
It’s no wonder that our experts at the Institute of Export & International Trade are in demand to give exporters advice on pricing and the many other issues that must be taken into account. Our members get free access to the Technical Help for Exporters Helpline service to help you with any export issues you may come across.
Our training courses are a great place to start if you need a helping hand. Alternatively check out our extensive choice of professional qualifications which will provide the perfect grounding to trading successfully in international markets.
Need help with an exporting issue?
IOE&IT members get FREE access to our Technical Helpline for help with any export issues you come across.