PRICING & QUOTING
Learning Objectives• Learn how best to price your products
for export• You will learn what determines an
export price• You will learn how to present your
export price• How to respond to enquiries
IntroductionPrice is one the of the key variables in the
any international trade deal and should incorporate:
• The right quantity• At the right level of quality• At the right time• And at the right cost or price
What is the “right”, price?Many factors affect the
setting of the right price!
Some of these factors are controllable some not!
Export pricing must be FLEXIABLE!
Pricing Objectives• To keep, increase or defend market share• Compare prices with the competition• Eliminate the competition• Achieve target profits or maximise profits• To use excess production capacity• To project a high quality image• To survive
All of the above give rise to setting the right price for your company
Elements of Pricing• The relationship between price and quantity
= the price decreases as the quantities sold increases
• This is known as the law of demandHowever price in only one of several factors
influencing demand and therefore sales.Take into consideration: Quantity, quality,
time and cost
Price factors - Controllable & independent
Controllable factors Cost of product = the costs incurred to
manufacture and package the product (including: direct materials, labour, factory overheads, administrative & management costs)
Price factors - Controllable costs
Selling & distribution costs
In international trade especially transport and other distribution costs play a major role. The export must have a complete understanding of these costs
Controllable costs continued..Cost of marketing support. In developed
markets advertising & sales promotion is necessary to bring initial sales
Product quality. A unique product can demand a higher price
Product communication & image. Advertising & other communication can strengthen the appeal of the product
Independent price factorsPrevailing price levels in the target market.In some instances the price is set by the
existence of similar products in the target market
Market supply & demand. This is dependant on the intensity of demand for the product. Example: Seasonal variations imported vegetables vs. locally grown
Independent price factors…..
Competition. Intensive competition puts pressures on prices. In some instances you have to align your prices with those of your competitors.
Foreign Exchange. Prices often fluctuate because of exchange rates. It is wise to consult the foreign exchange division of your bank for assistance when quoting in a foreign currency.
PRICING METHODSThere are two main pricing policies:Cost-oriented pricing: is the simplest.
The cost is calculated for each unit of production. A percentage or mark-up is added to this base cost to determine price.
PRICING METHODSThe most common methods of
applying the cost plus approach:• Full cost pricing• Direct cost pricing• Marginal cost pricing• Break-even pricing
Full Cost PricingThis takes into account all the
variable costs & fixed overheads that are directly attributable to production, & a pre-determined profit margin.
Weaknesses: No account is taken of the demand side this could result in the firm producing products they cannot sell
Direct cost pricingDirect cost pricing is represented by a formula:Direct cost = raw materials + direct labour +
variable factory overheadA mark-up is added to the direct cost to cover
estimated overheads and leave a profit, so identifying the costs directly attributed to each specific output & using those costs to set prices.
Marginal cost pricingMarginal costing is an accounting technique
whereby a marginal cost is determined on the basis of additional variable costs only.
It is the amount by which the total cost is changed if the volume of output of a product is increased by one unit.
For example: If spare manufacturing capability is available, export prices at marginal costs may be quoted as the fixed costs are already being covered by domestic sales revenue.
Break-even pricing
Break- even pricingBreak-even pricing allows a firm to
compare the profit outcome of alternative sets of prices.
Firms can set prices to achieve maximum profit by concluding the price for given volumes.
Verifying the volume that will deliver the most profit.
Market-oriented pricing•Demand-oriented pricing•Competition-oriented pricing
Demand-oriented pricingThis implies that a high price is charge
where customer interest is high and a low price is charged where customer interest is low, despite that fact that the cost may be the same in both cases.
Based on the customer’s perceived value.
Competition-oriented pricingThis is based on the actual or anticipated
behaviour of competitors. Exporters would peg their price to that of their competitors. The main forms are: going rate pricing and sealed bid pricing.
Going rate pricing = The price is determined by market leaders who know what price the market will bear
Sealed bid pricing = Used when firms have to compete for contracts on the basis of tenders.
Determining Export PricesThe costs to consider are:• Factory costs (prime & overhead costs)• Selling & distribution costs (indirect & direct,
such as transportation costs)• Cost of marketing (advertising & similar activities• Administrative costs (salaries, office expenses,
audit & legal fees, stationary & printing)
Information on foreign markets
The size and nature of the marketKnowledge of competitive price patternsHow much room is their for price changesAre market shares changing?Is there a price leader?What is the relationship between price &
volume?Constant re-view of prices
Elements of the export price structure
Factory cost of product & profit = EXW/EX Works
Export packing & marking, loading, in-land transport, documentation =
FCA Free Carrier At….Transport charges & handling fee = CPT
Carriage paid to..Insurance = CIP Cost insurance paid.
Elements of the export price structure continued….
Transport to importer’s warehouse, duties, taxes & clearing agent’s fees =
DDP Delivered Duty PaidImporter’s mark-up, wholesaler’s mark-upand retailer’s mark-up = Price to consumer.
Average marginsExample: TOYSLanded duty = 100%Importer to wholesaler =
115%Wholesaler to retailer = 150%Retailer to consumer = 250%
INCOTERMS INCOTERMS, determine which prices are paid by the exporter and which prices are paid by the importer.
EXW = importer pays most of the costs
DDP = exporter pays most of the costs
IN C O T E R M S 20 00E x W o rk s (E X W )
N am ed p laceM u ltim od al In co term
S e lle r B u y e r
C o sts
R isk s R isk s
C o s ts
Export Costing SheetsUseful tool which services as a check list
to ensure that no cost has be omittedA substantial amount of information will
be supplied by your freight forwarder(transport rates, cost of
documentation, insurance, packing and labelling costs etc.)
Export Costing Sheets & freight rates
Most freight rates are based on weight or volume which ever is the greater of the two.
Example: a parcel weights 1 metric ton the dimensions are 2 cubic
metres, the freight rate would be based on the greater namely: 2 cubic metres
Example of a freight rate quoted by a shipping line for break bulk and or groupage cargo, quoted per freight ton.
Freight rate quoted by shipping line:USD 110.00 per weight or measure (freight ton)Weight of consignment = 2 metric tonDimensions Length 2.5M X Width 1M X Height
X 2 M = 5 cubic metres using the greater of the two amounts:
5 cubic metre X USD 110.00 = USD 550.00 freight rate payable
Sea freight containerisation quoted per container (6 or 12 metre)
Container/Sea Freight is quoted: per container (FAK) = freight all kinds regardless of contents
Example: USD 1000.00 for a 6 metre (20ft) container regardless of the weight, volume or contents.
Factors effecting your freight rateUn-foreseen increases in fuel,
exchange rate fluctuations, out break of war etc, effect the sea freight rate. These increases are called surcharges. They include:
Bunker Adjustment Factor (BAF) (fuel price increase)
Currency Adjustment Factor (CAF) (currency fluctuations)
War & port congest surcharges
Airfreight ratesAirfreight rates are expensive and only
include the cost of freight from the air port of loading to the air port of discharge.
Airfreight rates are based on a weight to volume ratio, which ever yields the greater amount of income for the airline.
Air freight rates Example of how to calculate the “chargeable weight”.1 mt = 6 cubic metreStep 1 - measure the parcel 100cm (L) X 100cm (W) x 100cm (H)= 100 000 cm3 now divide this by 6000 = 166,66Kg(you have converted cms to kgs) round up = 167KgStep 2 compare to actual mass = 150KgStep 3 the volumetric mass of 167 Kg is greater than the
actual mass of 150 KgThe airline would calculate the freight on 167 Kg
Export costing sheet template full container load sea freight
• EXPORT COSTING SHEET SEAFREIGHT• PRODUCT: • QUOTED FOR:• SHIPPED FROM :• SHIPPED TO:• QUANTITY: NUMBER OF UNITS:• UNIT WEIGHT: GROSS WEIGHT:• UNIT CUBE OF PARCEL: TOTAL CUBE OF SHIPMENT• FREIGHT RATE OBTAINED FROM• EXCHANGE RATE USED
It is important to record the details of the customer, weights, dimensions, exchange rates and freight rate quote.
Calculating to an EX Works price:• UNIT PRICE OF PRODUCT:• COST OF TOTAL SHIPMENT:• PROFIT :• OVERSEAS AGENT’S COMMISSION:• EXPORT, TURNOVER, OR OTHER TAX:• SPECIAL LABELS, LABELLING, CONTAINERS:• PACKING:• MARKET STRAPPING OR BUNDLING:• EX WORKS PRICE PER UNIT• TOTAL EX WORKS PRICE THESE ARE THE COSTS INCURRED AT YOUR FACTORY ADDED
TOGETHER WILL GIVE YOU THE TOTAL EX WORK PRICE FOR YOUR PRODUCTS
Calculating from EX Works to an FCA price:
• DELIVERY OF EMPTY CONTAINER (HAULIER COSTS):• COLLECTION OF FULL CONTAINER (HAULIER COSTS):• EXPORT DOCUMENTATION:• PACKING CONTAINER• RAILAGE/ROAD TO PORT OF LOADING:• CARGO DUES / WHARFAGE FEE:• TERMINAL HANDLING CHARGE:• FREIGHT FORWARDERS FEE• FINANCING CHARGE:• EXPORT CREDIT INSURANCE:• FCA PORT OF LOADING• UNIT FCATHESE ARE THE COSTS TO BRING A CONTAINER TO A PORT
OF LOADING READY FOR SHIPMENT
Calculating from FCA to CPT & CIP
• FREIGHT CHARGED PER CONTAINER:• BAF/BUNKER ADJUSTMENT FACTOR:• CAF/CURRENCY ADJUSTMENT FACTOR:• OTHER• CPT PORT OF DISCHARGE• INSURANCE• CIP PORT OF LOADING
ADDING THE ABOVE AMOUNTS TO YOUR FCA WOULD GIVE YOU A CIP PRICE. THE CONTAINER WOULD BE DELIVERED TO A PORT OF DISCHARGE (INCLUDING INSURANCE)
PRESENTING AN EXPORT PRICE/QUOTATION
Communication is one of the most important aspects of any international trade transaction. Most transmission of information/
communication is done through the issuance of documentation - Documents drive trade!
Export QuotationsThe key element that can
turn an enquiry into an order is the price quotation - setting out of the price and terms and conditions of sale under which the exporter agrees to supply the buyer.
Essential requirements when responding to an enquiry..
Speed: Respond quickly to show the you are keen and efficient.
Clarity: Be clear and include the relevant details requested by the customer
Quality: Back up all claims made, present a professional quotation
Follow-up: The wheel that makes the most noise gets the most attention
Good quotations should contain:
• Some expression of thanks for the enquiry• Clear and concise description of goods &
quantities• Statement of terms & delivery & packaging• Details of prices, discounts • Date of delivery• Period for which the quotation is valid• Preferred method of payment• Be upbeat and enthusiastic in all correspondence.
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