Business
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IBM-416-Chapter111.pptxCalculating Export Pricing Chapter 11
1
Int’l. Pricing vs. Domestic Pricing
2
Things to consider when calculating your international price:
Foreign Exchange Pressures – Changes in foreign currency affects how much your foreign buyer will have to pay.
Tariffs – Import tariffs increase the price to the buyer.
Freight & Logistics – Costs for shipping int’l. are higher than domestic.
Foreign Gov’t. Legal Considerations – Non-tariff barriers
Local Market Conditions – Competition, per capita income, cultural behavior
Pricing
Price
Cost
Profit
5.00
3.00
2.00
3
Cost Study Sheet - Ex Works Factory
4
Incoterms
International commercial terms used in shipping documentation which are recognized as the international standard.
Developed and issued by the International Chamber of Commerce (ICC) to explain how responsibilities for the goods and their carriage (transportation) are allocated.
For example, FOB (Free on Board) is the point at which once the goods are on board the ship, the seller is released from all obligation and risk. The exporter will be responsible for all costs necessary to put the shipment onboard the vessel in the named port.
5
Incoterms 2010 - Defined
EXW= Ex Works + Named Place of Departure
FCA= Free Carrier + Named Place of Departure
FAS= Free Alongside Ship + Named Place of Departure***
FOB= Free on Board + Named Port of Shipment***
CFR= Cost & Freight + Named Port of Destination***
CPT= Carriage Paid To + Named Port of Destination
CIF = Cost, Insurance & Freight + Named Port of Destination***
CIP= Carriage & Insurance Paid To + Named Port of Destination
DAT= Delivered at Terminal + Named Terminal at Port of Destination
DAP = Delivered at Place + Named Place of Destination***
DDP= Delivered Duty Paid + Named Place of Destination
Note: Each Place or Port should be identified with the City, State, & Country
*** : - These incoterms are used for Ocean shipments ONLY
- All other incoterms can be used for air, land, rail, ocean or multimodal shipments
6
Incoterms 2010
EXW
FCA
FAS
FOB
CFR
CPT
CIF
CIP
DES
DAP
DDP
>
>
>
>
Product Cost &
Export Packing
Air or
Ocean
Freight
Loading on
Vessel
Pier
Delivery
Inland Freight
& Loading
Consular Fees//
Export License/
Export Clearance
Forwarder’s
Fees
Insurance
Unloading
Vessel or
Aircraft
Import Duty/
VAT
Inland
Freight
Customs
Clearance/
Import License
Total
Product
Cost
Exporter
Importer
Port of Export
Port of Import
7
Price-Cost ------------- = Profit Price Margin
$4.00 - $1.00 -------------- = 75% $4.00
Calculating – Profit Margin
What is the Profit Margin ?
8
Cost Study Sheet - Destination Charges
9
Pricing Policies
Based on corporate objectives for:
Product Positioning
Market Share
Profit
Pricing Options
Profit Skimming
A high price is charged to maximize returns on a new product before competition arrives (i.e. new technology)
Marketing Penetration
Designed to capture market share by initially offering customers a low price.
10
Pricing Policies (cont.)
Cost Based – cost + profit
Market Structure – channels of distribution, in-market costs, etc.
Demand – as demand increases prices can increase as well
Competition – based on goals set to compete with currently available products
Environmental Constraint – price controls, taxes, in-market requirements affecting cost.
11
Cost ------------- = Price 1 – Desired Profit Margin
$6.00 -------------- = $10.90 1 - .45
Calculating – Price from Cost
If the cost is $6 & I want a profit margin of 45% - What is the Price?
12
Next Steps
Establish an Export Price List
Could be based on US Pricing
Should never offer more than FOB Port of Export (closest US port)
Should always be in U.S. Dollars
Pricing should be set to allow for discounts
13
Export Pricing Comparison Example
| Cost Items | U.S. Product | Local Brazilian Product | Import from Argentina |
| CIF Calculation: | |||
| Ex-Works Price (Los Angeles) | $10,000 | $10,000 | $10,000 |
| Freight (Sao Paulo) | $1,200 | None | 1,200 |
| Insurance | $200 | None | 200 |
| CIF Price (Cost, Insurance, Freight) | $11,400 | $10,000 | $11,400 |
| Landing Charges: | |||
| Import Duty (20% of CIF) | $2,280 | None | Duty free |
| Fees/charges: Terminal handling, warehousing, custom brokerage, etc. | $2,000 | None | $2,000 |
| Total landing charges: | $4,280 | None | $2,000 |
| Landed Sao Paulo cost (internal taxes not included) | $15,680 | $10,000 | $13,400 |
14
Distributor and Retail Price Comparison
| Cost Items | U.S. Product | Local Brazilian Product | Import from Argentina |
| Cost to Brazilian Customer (agent/distributor) | $15,680 | $10,000 | $13,400 |
| Markup by distributor (33%) | $5,174 | $3,300 | $4,422 |
| Selling price to retailer | $20,854 | $13,300 | $17,822 |
| Markup by retailer (40%) | $8,342 | $5,320 | $7,129 |
| List price for Brazilian consumer before local taxes | $29,196 | $18,620 | $24,951 |
15
Long-Term Price Problems
Options to help combat long-term price problems:
Partial Manufacturing – Export a partially finished product = lower freight & tariffs
Local Assembly – Ship components that can be assembled in local market = lower freight & tariffs
Foreign Manufacturing – Manufacture in the local market or nearby market
Licensing – License your proprietary technology to a company in the market manufacture the product
16
Short-Term Price Problems
Possible solutions:
Product Differentiation – Shift focus from pricing to benefits & features
Challenge the distribution rules – Shorten your distribution channel – sell direct to retailers or key accounts
Choose representation based on pricing structure – Work with a distributor that uses a smaller markup
Lower your pricing
Pricing structure, discounts, promotions
17
PROJECT NAME:Nail Kit
PRODUCT NAME: Classic Nail Kit - ActiveOval
$
Componentry:
Nails - 0010.060
Tester Nail0.005
Glue0.180
Buffer0.050
Card0.070
Shrink Wrap0.005
Mastercarton0.001
Total Components:
0.3710
Production:
Labor/Overhead0.1000
Total Production:0.1000
TOTAL PRODUCT COST:$0.4710
EXPORT LIST PRICE:$1.99
GROSS PROFIT$1.5276.3%
Product
| DATE: | 9/5/02 | PREPARER: | M. Grant | ||||
| REVISION: | 001 | SHIP DATE: | 1/15/00 | ||||
| PROJECT NAME: | Nail Kit | ||||||
| PRODUCT NAME: | Classic Nail Kit - ActiveOval | ||||||
| $ | |||||||
| Componentry: | |||||||
| Nails - 001 | 0.060 | ||||||
| Tester Nail | 0.005 | ||||||
| Glue | 0.180 | ||||||
| Buffer | 0.050 | ||||||
| Card | 0.070 | ||||||
| Shrink Wrap | 0.005 | ||||||
| Mastercarton | 0.001 | ||||||
| Total Components: | 0.3710 | ||||||
| Production: | |||||||
| Labor/Overhead | 0.1000 | ||||||
| Total Production: | 0.1000 | ||||||
| TOTAL PRODUCT COST: | $0.4710 | ||||||
| EXPORT LIST PRICE: | $1.99 | ||||||
| GROSS PROFIT | $1.52 | 76.3% |
PROJECT NAME:Destination Charges - Air Freight to U.K.
PRODUCT NAME: Classic Nail Kit - ActiveOval
$Total
Charge
Product - Ex Works Factory0.471
Destination Charges
Units being shipped
10,000
Inland Freight to Port0.025250.00
Documentation Fees0.00875.00
Freight
Air or Ocean
0.2502,500.00
Insurance0.00550.00
Customs Clearance0.00550.00
Duty/Taxes0.140
7%
1,400.00
Inland Freight to Destination0.050500.00
Destination Costs
CIF Destination
0.288
Landed Cost
PRODUCT + DESTINATION
$0.7585
EXPORT LIST PRICE:
$1.99
GROSS PROFIT
$1.2361.9%
Product
| DATE: | 9/17/02 | PREPARER: | M. Grant | ||||
| REVISION: | 001 | SHIP DATE: | 1/15/00 | ||||
| PROJECT NAME: | Destination Charges - Air Freight to U.K. | ||||||
| PRODUCT NAME: | Classic Nail Kit - ActiveOval | ||||||
| $ | Total | ||||||
| Charge | |||||||
| Product - Ex Works Factory | 0.471 | ||||||
| Destination Charges | |||||||
| Units being shipped | 10,000 | ||||||
| Inland Freight to Port | 0.025 | 250.00 | |||||
| Documentation Fees | 0.008 | 75.00 | |||||
| Freight | Air or Ocean | 0.250 | 2,500.00 | ||||
| Insurance | 0.005 | 50.00 | |||||
| Customs Clearance | 0.005 | 50.00 | |||||
| Duty/Taxes | 0.140 | 7% | 1,400.00 | ||||
| Inland Freight to Destination | 0.050 | 500.00 | |||||
| Destination Costs | |||||||
| CIF Destination | 0.288 | ||||||
| Landed Cost | |||||||
| PRODUCT + DESTINATION | $0.7585 | ||||||
| EXPORT LIST PRICE: | $1.99 | ||||||
| GROSS PROFIT | $1.23 | 61.9% |
