04/03/1446

Import and Export

Management

Ch.6 Export Pricing

Prof. Dr. Ahmed Ezzat

Introduction
 Price means the expression of value of utility of a commodity in terms of
money. Price is the technique of determining such acceptable price at which
the seller is willing to sell and the buyer is willing to buy the product.
 In any export market, pricing and profitability are closely related as profit
margin depends on the specified price. Specified price should be most
reasonable.
 Some people consider price as value for money while others associate it
with quality. An exporter must take all such perceptions into consideration
while deciding the price.
 Export pricing is also closely related to export promotion, since high prices
go against export promotion, profit margin will be low if price is low but
the demand will be more.

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Price floor and price ceiling

Value to the customer

Acceptable range
of price

Variable unit cost

 There are upper and lower limits of the prices.

 The price can not exceed the value to customers.
 It can not be lower than the unit variable cost,

Why Export pricing is so important

Export pricing is crucial for several reasons:
 Profitability: Correct pricing ensures that a company generates sufficient
revenue to cover its costs and achieve desired profit margins.
 Market Penetration: Competitive pricing can help a company gain market
share and increase sales volume.
 Competitive Advantage: Pricing can be used to differentiate a product or
service from competitors, emphasizing unique features or benefits.
 Customer Acquisition and Retention: Attractive pricing can attract new
customers and foster loyalty.
 Market Entry and Expansion: Low pricing can be used as a strategy to
enter new markets and gain a foothold.
 Risk Management: Effective pricing strategies can help mitigate the risks
associated with currency fluctuations and economic conditions.

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Effect of price on profit

Profits Ideal price

Breakeven
price
Breakeven Price
price
• As price increases (moving to right), profitability goes up—to a
point.
• After that point, raising the price leads to a reduction in quantity
sold.
• Accordingly, raising price by too much that profitability goes down.

Factors Determining Export Prices

INTERNAL FACTORS EXTERNAL FACTORS

Channel of distribution
Product characteristics

Promotional Activities

Market Opportunities
Objectives of the firm

Economic conditions

Government Policies
Image of the firm

Product life cycle

Competition

Consumers
Demand
Costs

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Internal Factors Determining Export Prices

1) Costs
 Cost is the most important factor to be considered in the process of

price determination. The export price should include direct cost

like raw material cost and indirect cost like distribution cost.

2) Objectives of the firm

 Internationally, pricing must be consistent with the firm’s

worldwide objectives, such as profit maximization, market share,.

 For example, if the objectives of a firm is to increase return on

investment, then it may charge a higher price, and if the objective

is to capture a large market share, then it may charge a lower price.

Internal Factors Determining Export Prices

3) Product characteristics
 The product plays an important role in determining price. If a
product is of high quality, then a firm may either adopt premium
strategy or high value strategy. In premium pricing, the firm would
charge high price for high quality.

4) Image of the firm

 The firms enjoying a good image in the market may charge a

higher price, as compared to those firms which do not enjoy

reputation in the market. This is because; consumers have trust and
confidence in the firms enjoying name and reputation in the
market.

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Internal Factors Determining Export Prices

5) Promotional Activities
 If a firm undertakes heavy advertising and sales promotion, then
price planning must ensure that these promotional costs will be
recovered, at least in the long term. It is often observed that highly
advertised or promoted brands command high price as compared to
lowly promoted brands.
6) Product life cycle
 When a firm introduces a product in a competitive market, then it
may charge a lower price to attract the customers. During growth
stage, price may increase t.
 The marketer may also consider the probable length of the product’s
life cycle. If the expected length of the product’s life is expected to
be long, then lower price may be charged.

External Factors Determining Export Prices

1) Competition
 It is difficult to have monopolistic conditions in the international
market. In competitive market the exporters have no control over
pricing decisions. Price of a product is influenced by the
competitive forces of the market.
2) Demand
 The prices in every market are directly related to the demand for
products. The demand may be elastic or inelastic. Pricing depends
on the degree of elasticity of demand. Highly elastic demand for a
product tends to keep its price low, because a slight change in the
price may cause considerable change in demand for such a product.

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External Factors Determining Export Prices

3) Consumers
 The types of consumers for whom marketing efforts are made play an

important role in export pricing. The composition of the consumers in

terms of their income and paying capacity play an important role in export
pricing.

4) Economic conditions
 The economic conditions prevailing in the market must be considered

while setting prices. During the times of recession when consumers have
less money to spend, the marketers may reduce the price to influence
buying decision of the consumers. However, during economic expansion,
the marketers may change a higher price.

Pro Tips For Export Pricing Strategy

• Streamline Supply Chain:

Export pricing should be used as a chance to identify and

eliminate duplicate or unnecessary expenses within supply chain.
This can help streamline distribution channels and improve
efficiency.

• Consider Slab-Based Pricing:

For certain products, implementing a slab-based pricing strategy,

where prices vary based on volume-based slabs of purchase orders,
can be effective. This approach accommodates different buyer needs
and encourages larger orders.

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Pro Tips For Export Pricing Strategy

• Discounts for Bulk Orders:

Offering discounts for bulk orders is a smart strategy, as long as

safeguards are in place to prevent abuse by importers. This can
incentivize larger purchases and foster long-term relationships with
customers.

• Monitor Currency Fluctuations:

Factor currency fluctuations into pricing strategy, especially when

selling to high-risk markets is critical. This helps mitigate risks
associated with sharp falls in trading currency values and protects
against potential losses.

Pro Tips For Export Pricing Strategy

• Review Expenses:

Export pricing should be used as an opportunity to review and

reassess all expenses associated with export operations. Looking for
areas where costs can be reduced or optimized to improve overall
profitability is critical.

• Stay Flexible:

Remain flexible in pricing approach to adapt to changing market

conditions and customer demands is necessary. Being open to
adjusting prices as needed can help staying competitive and
responsive to evolving trends.

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Pro Tips For Export Pricing Strategy

• Focus on Profitability:

Ultimately, prioritize profitability when setting export prices.

While it’s important to remain competitive, pricing strategy supports
sustainable growth and profitability for business in the long term.

EXPORT PRICING STRATEGIES

A. Skimming pricing strategies (Set a high price and lower it as
the market evolves.)

B. Penetration pricing strategy (Set a low price to enter to a

competitive market and raise it later.)

C. Transfer pricing

D. Marginal cost pricing

E. Market oriented pricing

F. Competitors pricing (Set a price based on what the competition

charges.)

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Skimming pricing strategies

 Companies use price skimming when they are introducing innovative
new products that have no competition. They charge a high price at first,
then lower it over time.
 Think of new generations of cell phones. A manufacturer can set a high
price to tap into a market of tech enthusiasts (early adopters). The high
price helps the business cover some of its development costs.
 Then, as the product becomes regular in the market and sales dip, the
manufacturer lowers the price to reach a more price-sensitive segment of
the market.
 In this pricing strategy the manufacturer needs to demonstrate the value
of the high-priced “hot new thing” to early adopters.

Penetration pricing strategies

 Penetration pricing makes sense when trying to quickly gain a higher

market share in a competitive market.

 With increasing market share in the market, that increase in sales volume

may bring economies of scale and reduce your unit cost.

 Telecommunication companies (e.g., Vodafone, Orange, We and Etisalat)

sell sim cards for a very low prices because most of the money they made
was not from the sim cards sell, but from the charging.

 The risks of penetration pricing includes the expectation of customers to

keep constant low prices, price-sensitive customers can be disloyal and a

price war with competitors may arise.

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Transfer pricing strategies

 The system of transfer pricing is between related enterprises.

Hence, it is not beneficial to sell below or above the market price

of either entities or the group as a whole. If the goods are sold
above or below the market price, it will lead to an uneven
distribution of profits between different entities within a group.

 Transfer pricing deals with determining mark up based on the

costs. It is relevant to know the costs of a business enterprise, such

as transportation, packing, freight, insurance, and tax or customs
charges where applicable.

Marginal cost pricing strategies

 Marginal cost is the cost of producing one extra unit of a product.

 Under this approach , an exporter simply considers variable cost or

direct costs while arriving at the price to be charged in the

international market

 According to this approach, fixed costs are fully recovered in the

domestic market.

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Market oriented pricing strategies

 With this strategy, businesses consider setting prices according to

the changing market scenario.

 This means, the prices could be higher when the demand for the

product in that market is high, and vice versa.

 This is a very flexible method of arriving at a prices it takes into

consideration the changing market conditions .

Competitors pricing strategies

 If the product sold is similar to others, like mineral water

or shampoo, so part of pricing strategy is to make sure of

knowing what the competitors are doing, price-wise, and
making any necessary adjustments.

 One of three approaches with competitive pricing strategy

should be followed:
 Co-operative pricing: In co-operative pricing, pricing should match

what competitors are doing. A competitor’s one-dollar increase leads to

increasing the price of the product by a dollar.

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Competitors pricing strategies

 Aggressive pricing: “In an aggressive situation,

 If competitors raise prices, we’ll keep ours the same and

 If competitors lower their prices, I’m going to lower mine by more. You’re

trying to increase the distance between you and your competitor.

 Dismissive pricing: If the producer lead the market and is

selling a premium product or service, a dismissive pricing

approach may be an option. In such an approach, producer price
as he wish and does not react to what competitors are doing. In
fact, ignoring them can increase the size of the protective margin
around your market leadership.

Pros and cons of different pricing strategies

Pros Cons
*Its early high
prices help * Copycat products
Price
recover can reduce later-
skimming
development stage sales potential.
costs.
*Its significantly
lower price can * Price wars and too-
Penetration
motivate low prices can
pricing
customers to become the norm.
switch brands

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Pros and cons of different pricing strategies

Pros Cons
*Equal
*Does not
Transfer distribution of
incorporate the value
pricing profits between
to the customer
different entities
*Time- *Does not
Marginal
saving way to incorporate the value
cost pricing
price to the customer
Market *Suitable for *Can not guarantee
oriented fluctuated stable returns on
pricing markets invested capital

Pros and cons of different pricing strategies

Pros Cons
*Simple: adjusts to
*Focuses too much on
competitors’ prices
what others are doing.
*Aggressive
*Lower prices can
pricing: good for
Compet bring financial trouble
companies with
itors if sales volume dips.
healthy margins
pricing *Ignoring competitors
*Dismissive
may leave you
pricing: offers
vulnerable to surprises
market leadership
in the market.
protection

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