Export Pricing

Strategic Export Pricing

What’s your product worth?

 

Photo by Steve Johnson on Unsplash

It’s a question that baffles lots of us, and the answer can make the difference between success and failure. The answer (and it doesn’t matter what you’re selling) is that it’s worth what the buyer thinks it’s worth to him.

Surprisingly few of the things we buy have a price that was determined by the cost of the product itself. A pair of shoes? Chances are they were produced in a low wage economy and the producer’s cost is a startlingly low percentage of the price you paid. A cup of coffee? If you bought it to go, the disposable cup almost certainly cost more than the contents. And if you have a dispute with someone and ask you solicitor to send a letter, the cost of the paper, the ink and the stamp definitely won’t be considered when agreeing the price.

And yet, almost everything I read about export pricing starts by talking about costs. Cost and price are very rarely related! We DO need to think about costs of course. If we don’t, how do we know if the job’s worth doing? But as with everything in marketing our first concern should be the customer.

What is my customer prepared to pay? It’s not an easy question to answer, particularly when we’re focusing on a new export market, and may not even be sure who our customers are.

The Economist magazine publishes a regular survey called the Big Mac Index. It started as a joke, but the feature was so well received, that it’s been regularly updated for 32 years and is still going. It shows the typical price of this almost universal delicacy in almost 50 countries, and is assumed to give a very general idea of retail price levels. In the most recent edition, the price for a Big Mac varied from as little as US$1.75 in Egypt to US$6.54 in Switzerland. It seems hard to understand why the price of such a basic widely recognised product should vary so widely. Remember the McDonald’s is a global brand, and the business has got where it is by understanding its customers. We need a similar customer focused approach.

Something as simple as the Big Mac Index can at least give a general indication of spending power in a given market. But does that apply to all products? Most importantly, does it apply to what we have to sell? We can try to find out, for example by looking at what our competitors charge. In the internet age, it’s getting easier to find information. If our product is a consumer product, we might find the information on a local retailer’s site. If it’s a B2B product, the information might be found on a commercial supplier’s site, but there’s a chance we’d need to register to get the information.

If that’s not helping us, we can try finding prices for comparable products. This could be crucial if we are hoping to introduce a new product to the market. Imagine trying to introduce e-book readers in a country where people only used traditional printed books? Naturally, you’d have to look at whether the technological infrastructure was in place for them to actually be usable, and if it was, then you would probably consider the prices people paid for books when setting your prices, both for the reader itself, and for content.

We might seek to calculate the value in terms of savings that the purchase might make. This could be particularly appropriate in B2B markets, where our product might give a business a competitive edge.

This information is not even half of the story, however. Even in an established market, we will ned to think about how our product should be positioned compared to competitors. Price speaks to the buyer, and it says something about the product’s value. The price decision should be part of our marketing strategy. If we want to gain market share fast, we might set our prices lower. Or if we are more concerned about building brand reputation, we might settle for slower growth and set prices higher. In any case, we really need to have gathered this information and reached a decision about how we want to approach this market before we take the next steps.

Only when we have a clear idea of how the product should be priced for the end user can we start thinking about cost. We now need to work backwards through the intended supply chain and see if the business looks worthwhile. How will the product reach the market? If we are supplying through distributors and/or wholesalers, then everyone in the supply chain will naturally want to make a return. Try to find out what expectations are likely to be.

Remember to think about costs directly linked to exporting, which will be different to domestic costs. As well as shipping, there will be costs related to export documentation and compliance. The buyer will face import tariffs, handling fees and local taxes. Do you know how much these will be?

If you’re confused by pricing, why not sign up to our brand new export marketing course? We have dates in Manchester and London starting in December and running through 2019? See our website or contact us for more details.

Article written by Tim Hiscock - Export Development & International Trade Advisor at Strong & Herd LLP

 

Contact Strong & Herd
to discuss your requirements
Telephone
0161 499 7000
Fax
0161 499 7100
Strong & Herd LLP, Manchester International Office Centre
Styal Road, Manchester, M22 5WB