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Export-related costs based on the target market need careful consideration while planning an export pricing strategy.

Pricing Considerations for Import-Export TradeARTICLE

By Elena Malykhina

When selling overseas, critical success factors include correctly pricing products, providing complete and accurate quotations, choosing the terms of the sale, and picking the payment method1. Of these, pricing can be the most challenging even for experienced import-export businesses, according to Export.gov, a U.S. Department of Commerce website.2

Pricing considerations often vary from country to country, and experts say that it’s important to develop an export pricing strategy that takes into account factors such as the target market, competitor pricing, and the various costs associated with exporting products.3,4

Pricing Strategy for Import-Export Trade

According to Money Matters, pricing in import-export trade is much more complex than domestic pricing since the exporter must consider not only the cost of production, but also the conditions influencing international markets.5 According to the Wisconsin Economic Development Corporation, factors influencing the price can include the nature of the product, the type of buyer, the initial and long-term value, the destination and the distribution channel.6

Determining a company’s market objectives is an important aspect of pricing analysis for international trade, according to Export.gov. For example, a business might be attempting to penetrate a new market, seeking long-term market growth, or looking for a channel for surplus or outdated products.7

Market factors that influence pricing include demand and competition. High demand can often allow profit maximization; however, market conditions such as cost sensitivity may mean that it’s not always possible to increase prices even if demand is high, according to Money Matters.8

It’s also important to analyze the prices that competitors charge for similar products, experts say; prices must be high enough to make a profit, yet low enough to compete. According to Export.gov, U.S. products often compete better on quality, reputation, and service than they do on price. However, buyers often evaluate the whole package when making purchasing decisions.9

Cost Considerations for Exporting Products

Pricing analysis for import-export trade requires consideration of export-related costs as well as production costs and fixed overhead, experts say.10

According to the Australian Trade Commission, export-related costs may include export certification and documentation; shipping and insurance; product liability insurance; customs duties; customs broker fees; exchange rate fluctuations; importer or distributor mark-ups; costs for labelling and UPC bar codes; transportation from the port of entry to the distributor’s warehouse; handling warranties or returns; and retail sales tax, which varies in various markets.11

Additional costs may arise if a product requires modifications for the export market. For instance, electronics may need to be adapted to work with another country’s electrical system; products may have to be relabeled for cultural reasons; and packaging may need to be translated to the local language.12

Regulations and Other Considerations

Many regulations, standards, and guidelines may affect the sale of products in different countries.13 In the U.S., for example, multiple federal agencies may have requirements that apply to imports, and there are also regulations that may hamper the entry of some products in certain states. The Customs and Border Protection (CBP), Food and Drug Administration (FDA), Department of Agriculture (USDA), Consumer Products Safety Commission (CPSC), Federal Trade Commission (FTC), Environmental Protection Agency (EPA), and Patent and Trademark Office are among the federal agencies that have specific requirements related to import-export trade.14

After determining overall pricing strategy, it is good practice when exporting to include a pro forma invoice with each international quotation, regardless of whether this document has been requested, according to Export.gov.15 The pro forma invoice is a quotation prepared in the format of an invoice. It includes the product description, price, currency of sale, and terms of sale including the precise period for which the offer remains valid. The description may be more detailed than in a domestic price quotation since foreign buyers may not be familiar with the products being exported.

The Takeaway

Setting prices correctly in international trade is a complex process. Careful pricing analysis, including gaining an understanding of the target market and export-related costs, may help businesses determine a successful pricing strategy for import-export trade.

Elena Malykhina - The Author

The Author

Elena Malykhina

Elena Malykhina is professional writer who has covered science, technology and business for more than 10 years. Her work has appeared in InformationWeek, Scientific American, Newsday, The Wall Street Journal and Adweek, as well as through the Associated Press.

Sources

1.“Pricing Considerations,” Export.gov; https://www.export.gov/article?id=Pricing-Considerations
2.Ibid.
3.“A guide to pricing your products overseas,” The Guardian; https://www.theguardian.com/small-business-network/2012/nov/28/pricing-products-services-overseas-exports
4.“Pricing Considerations,” Export.gov; https://www.export.gov/article?id=Pricing-Considerations
5.“Export Pricing: Meaning, Objectives, Importance,” Money Matters; http://accountlearning.com/export-pricing-meaning-objectives-importance
6.Pricing Products for Export Markets, Wisconsin Economic Development Corporation; http://inwisconsin.com/wp-content/uploads/2014/04/WEDC-Export-Fast-Fact-Export-Pricing.pdf
7.“Pricing Considerations,” Export.gov; https://www.export.gov/article?id=Pricing-Considerations
8.“Factors Determining Export Price,” Money Matters; http://accountlearning.com/factors-determining-export-pricing-in-international-market
9.“Pricing Considerations,” Export.gov; https://www.export.gov/article?id=Pricing-Considerations
10.“Pricing considerations based on your type of business,” Canada Business Network; https://canadabusiness.ca/managing-your-business/marketing-and-sales/marketing-basics/pricing/pricing-considerations-based-on-your-type-of-business
11.“Doing Business in the United States,” Australian Trade Commission; https://www.austrade.gov.au/ArticleDocuments/1353/US_Doing-Business-United-States.pdf.aspx
12.“Pricing Considerations,” Export.gov; https://www.export.gov/article?id=Pricing-Considerations
13.“Doing Business in the United States,” Australian Trade Commission; https://www.austrade.gov.au/ArticleDocuments/1353/US_Doing-Business-United-States.pdf.aspx
14.Ibid.
15.“Quotations and Pro Forma Invoices,” Export.gov; https://www.export.gov/article?id=Quotations-and-Pro-Forma-Invoices

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