This document discusses various methods for determining export pricing. It outlines cost-oriented methods like cost-plus pricing, mark-up pricing, break-even pricing, target return pricing, and marginal cost pricing. It also discusses market-oriented methods such as going rate pricing, differentiated pricing, perceived value pricing, sealed-bid pricing, two-part pricing, and demand backward pricing. Finally, it covers export pricing quotations and important quotation terms like FOB, C&F, and CIF which determine costs and obligations of buyers and sellers.
This document discusses various methods for determining export pricing. It outlines cost-oriented methods like cost-plus pricing, mark-up pricing, break-even pricing, target return pricing, and marginal cost pricing. It also discusses market-oriented methods such as going rate pricing, differentiated pricing, perceived value pricing, sealed-bid pricing, two-part pricing, and demand backward pricing. Finally, it covers export pricing quotations and important quotation terms like FOB, C&F, and CIF which determine costs and obligations of buyers and sellers.
This document discusses various methods for determining export pricing. It outlines cost-oriented methods like cost-plus pricing, mark-up pricing, break-even pricing, target return pricing, and marginal cost pricing. It also discusses market-oriented methods such as going rate pricing, differentiated pricing, perceived value pricing, sealed-bid pricing, two-part pricing, and demand backward pricing. Finally, it covers export pricing quotations and important quotation terms like FOB, C&F, and CIF which determine costs and obligations of buyers and sellers.
This document discusses various methods for determining export pricing. It outlines cost-oriented methods like cost-plus pricing, mark-up pricing, break-even pricing, target return pricing, and marginal cost pricing. It also discusses market-oriented methods such as going rate pricing, differentiated pricing, perceived value pricing, sealed-bid pricing, two-part pricing, and demand backward pricing. Finally, it covers export pricing quotations and important quotation terms like FOB, C&F, and CIF which determine costs and obligations of buyers and sellers.
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Product and
Pricing Decisions
Methods of Export Pricing
I. COST ORIENTED METHODS 1. Cost Plus pricing:
Company considers cost of product.
Profit margin is calculated on cost of the product. Formula: SP = CP + Profit margin Easy to compute. 2. Mark-Up Pricing: - Mark-up is calculated on selling price. - Generally high on seasonal items, specialty items and items with high storage and handling costs. - Formula: Average Unit Cost 1 - Desired return
3. Break-even pricing:
- BEP is level of sales needed to cover all fixed
and variable costs. - Point of No Profit, No Loss. - Formula: BEP = Fixed costs (total cost) SP VC (per unit) - Helps a firm to determine the minimum sales required to cover costs. 4. Target return pricing: - Firm sets prices in order to achieve a particular level of ROI. - Formula: TRP = Total costs + (Desired %ROI x Inv) Total sales in units - Ensures prices cover all costs and bring profit.
5. Marginal cost pricing:
- Price is fixed on the basis of additional
variable expenses incurred with each additional unit of output. - Distinguishes between fixed and variable costs. - Fixed costs are recovered from existing markets while only additional variable expenses are recovered from export or new markets. 6. Early cash recovery pricing: - Price is fixed to recover investment early. - Done when market life is forecasted to be short.
II. MARKET ORIENTED METHODS
1. Going rate pricing:
- Pricing based on competitors.
- 3 types: Competitors parity, Premium pricing, Discount pricing. - Reduces chances of price wars. 2. Differentiated pricing: - Different prices for the same product. - 3 types: Customer segment pricing Time pricing Area pricing
3. Perceived value pricing:
- Based on customers perceived value.
- Customers perception is influenced by advertising, sales promotion techniques, after-sales service, etc. - Market research is required to understand customers perception of value. 4. Sealed-bid pricing: - Adopted in case of large orders or contracts, especially in industrial buying and government departments. - Buyer expects lowest possible price while seller is expected to provide best possible quotation through tender. - Firm has to anticipate the competitors pricing policy and decide its price offer.
5. Two part pricing:
- Services firms charge prices that consist of
fixed fee and variable usage fee. - Eg: Recreational parks, telephone companies - Fixed fee is kept minimum to encourage purchase and profits are made on usage fee. 6. Demand backward pricing: - Firm sets estimated price that consumers will pay and then works backwards to calculate the retail and wholesale margins to get to the manufacturers price. - Helps in understanding what should be the production cost is the product has to be accepted in the market.
Export Pricing Quotations & INCO Terms
Quotation is an offer made by an exporter in
reply to an inquiry from an importer.
Should clearly state the price and other terms and conditions. Price quotations determine the amount to be paid by the buyer to the seller and also who will bear cost of insurance, transport, damage to goods in transit.
Information required for quoatation:
Currency of quotation Breakdown on costs FOB, CIF, C&F Discounts if any Methods of payment Commission of intermediary if any Bearer of freight Arranger of shipping space Arranger of insurance cover Shipment delivered in one or more lots Delivery schedule Penalties if any Any other details.
Important quotations I.
Free On Board (FOB)
- The seller quotes a price which includes all expenses until goods are delivered on board the ship at the port of shipment. - It includes: ex-factory price packing charges customs and port charges documentation charges export duty inland transportation cost profit margin
FOB price= Cost of goods + Expenses upto
board the ship + Profit Export incentives Obligations of seller: 1. Costs and expenses: till goods are loaded on the ship 2. Intimation to buyer: about goods being boarded on the ship 3. Documentation: submit necessary documents to buyer to take possession of goods 4. Suitable packing: must properly pack the goods 5. Supply of goods: as per terms of contract
1. 2. 3. 4. 5.
Obligations of buyer: Booking of shipping space: on board the ship Costs and risks: after goods are loaded on the ship Insurance premium Freight payment Payment to exporter: as per terms of contract
II.
Cost and Freight (C&F)
- Includes FOB price plus cost of transportation of goods to the port of destination. C&F price = FOB Price + Freight
7.
Obligations of seller: All under FOB (1-6), plus Freight charges: to shipping company
Obligations of buyer: 8. Arrange and pay for insurance. 9. Pay clearing charges and import duties. 10. Payment to exporter: as per commercial invoice.
III. Cost Insurance & Freight (CIF)
- Includes FOB price plus freight plus marine
insurance upto the port of destination. - Preferred by importer as there are fewer responsibilities for him as exporter takes all risks. CIF price = FOB price + Freight + Marine Insurance
7.
Obligations of seller: All under FOB (1-6), plus Freight charges & insurance premium
Obligations of buyer: 1. Pay clearing charges and import duties. 2. Payment to exporter: as per commercial invoice.
