Chapter 6 . export pricing


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Chapter 6 . export pricing

  1. 1. EXPORT PRICING Price is an imp element of marketing mix. Developing a right pricing strategy is critical to an organization’s success. Price is a significant variable, as in many cases; It is the main factor affecting consumer choice. Its significance is further emphasized as it is only element of marketing mix that generates revenues.
  2. 2. FACTORS DETERMININGINTERNAL FACTORS EXTERNAL FACTORS• Costs • Competition• Objectives of the Firm • Demand• Product • Consumers• Image of the Firm • Economic Conditions• Promotional Firm • Channel Intermediaries• Product Life Cycle • Market Opportunities
  3. 3. BASIC DATA REQUIREDI. Product Information III. Other Relevant Information Cost of production  Company’s policy Cost of distribution  Political Restrictions on trade Nature of the Product  Bilateral / multilateral Nature of Demand AgreementsII. Market information Market structure  Sales in units and rupees Terms of payment offered by  Availability of shipping or air competitors services Terms of payment required by  Warehousing facilities and importers costs Price of substitutes Tariffs & Quotas Trade preferences and Trade Agreements, etc
  4. 4. MARGINAL COST PRICING The marginal costing is more preferred to total cost – plus approach, since it takes into account only those costs which are directly attributable to export production. Fixed Costs Variable Costs Marginal cost pricing is justified or advisable
  5. 5. PRICING STRATEGIES• Skimming Pricing Strategy• Penetration Pricing Strategy• Probe Pricing Strategy• Follow the Leader Pricing Strategy• Differential Trade Margin Pricing Strategy• Standard Export Pricing Strategy• Differential pricing or different market Pricing Strategy• Transfer Pricing Strategy• Trial Pricing Strategy• Flexible Pricing Strategy
  6. 6. SKIMMING PRICING STRATEGYADVANTAGES DISADVANTAGES• Higher Profits • High price may prevent quick sales • High price may create the problem• Development Expenses of brand loyalty among customers,• Sensing of demand as they may not repeat their purchases because of high price• Suitability • This strategy is not feasible in long• No Blocking of funds run• Feasible for short term • More competitor may be induced to enter the market because of high• Prestige Status profit margins • There may be blocking of funds, if there are no good sales, etc
  7. 7. PENETRATION PRICING STRATEGYADVANTAGES DISADVANTAGES• Quick Sales • Low profit may cover up the development expenses within a• Brand Loyalty short period of time• Economies of Large Scale • Funds may be block if there are• Less Competition no quick sales in spite of low prices• Brand Leadership • Buying may doubt the quality of• Long term strategy goods as customer equate low• Suitability price to low quality • It may be difficult to raise price in• No Blocking of funds later stages, etc.
  8. 8. EXPORT PRICING QUOTATIONS• Free On Board• Obligations• Cost & Freight C & F = FOB price + Freight• Cost Insurance & Freight CIF = FOB price + freight + marine Insurance
  9. 9. BREAK EVEN ANALYSIS• BEP = FC / SP – VC Or FC / C• Where, SP = selling price , FC = Fixed Cost , VC = variable cost , C = contribution (i.e., profit)• It is the technique commonly used in costing to analyse the cost – volume – profit relationship.• Break even technique is concerned with finding out that level or point at which the sales will break even (no profit no loss)• The point or the level at which sales break even is called “ Break Even Point “