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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. Introduction.

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Learning objectives
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


Introduction
Introduction

Price 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
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
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
Elements of Pricing

  • The relationship between price and quantity = the price decreases as the quantities sold increases

  • This is known as the law of demand

    However price in only one of several factors influencing demand and therefore sales.

    Take into consideration: Quantity, quality, time and cost


Price factors controllable independent
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
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
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 factors
Independent price factors

Prevailing 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 factors1
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 methods
PRICING METHODS

There 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 methods1
PRICING METHODS

The most common methods of applying the cost plus approach:

  • Full cost pricing

  • Direct cost pricing

  • Marginal cost pricing

  • Break-even pricing


Full cost pricing
Full Cost Pricing

This 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 pricing
Direct cost pricing

Direct cost pricing is represented by a formula:

Direct cost = raw materials + direct labour + variable factory overhead

A 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 pricing
Marginal cost pricing

Marginal 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 pricing1
Break- even pricing

Break-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

Market-oriented pricing

Demand-oriented pricing

Competition-oriented pricing


Demand oriented pricing
Demand-oriented pricing

This 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 pricing
Competition-oriented pricing

This 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 prices
Determining Export Prices

The 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
Information on foreign markets

The size and nature of the market

Knowledge of competitive price patterns

How much room is their for price changes

Are 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
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
Elements of the export price structure continued….

Transport to importer’s warehouse, duties, taxes & clearing agent’s fees =

DDP Delivered Duty Paid

Importer’s mark-up, wholesaler’s mark-up

and retailer’s mark-up =

Price to consumer.


Average margins
Average margins

Example: TOYS

Landed duty = 100%

Importer to wholesaler = 115%

Wholesaler to retailer = 150%

Retailer to consumer = 250%


Incoterms
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


Export costing sheets
Export Costing Sheets

Useful tool which services as a check list to ensure that no cost has be omitted

A 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
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 ton

Dimensions Length 2.5M X Width 1M X Height X 2 M = 5 cubic metresusing 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
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 rate
Factors effecting your freight rate metre)

Un-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 rates
Airfreight rates metre)

Airfreight 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
Air freight rates metre)Example of how to calculate the “chargeable weight”.

1 mt = 6 cubic metre

Step 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 = 167Kg

Step 2 compare to actual mass = 150Kg

Step 3 the volumetric mass of 167 Kg is greater than the actual mass of 150 Kg

The airline would calculate the freight on 167 Kg


Export costing sheet template full container load sea freight
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
Calculating to an EX Works price: freight

  • 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
Calculating from EX Works to an FCA price: freight

  • 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 FCA

    THESE ARE THE COSTS TO BRING A CONTAINER TO A PORT OF LOADING READY FOR SHIPMENT


Calculating from fca to cpt cip
Calculating from FCA to CPT & CIP freight

  • 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
PRESENTING AN EXPORT PRICE/QUOTATION freight

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 quotations
Export Quotations freight

The 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
Essential requirements when responding to an enquiry.. freight

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 themost noise gets the most attention


Good quotations should contain
Good quotations should contain freight:

  • 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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