ABSTRACT
Pricing products to be competitive in international markets
can be a challenge; pricing that works in one market may be
totally uncompetitive in another. Although there is no one
formula for establishing prices for exported products, there are
a number of strategic and technical considerations that you can
make in order to determine an appropriate pricing structure.

A pricing strategy is a key component of your export
marketing plan. The selected pricing structure should be an
integral part of your market penetration objectives. Your goals
will vary depending on the target overseas market. Are you
entering the market with a new or unique product? Are you
selling excess or obsolete products? Can your product demand a
higher price because of brand recognition or superior quality?
Maybe you are willing to reduce profits to gain market share for
long-term growth. Your pricing decisions will be affected by
your company's goals.

It is important to obtain as much information as possible on
local market prices as part of your market research. Pricing
information can be collected in several ways. One source is
overseas distributors and agents of similar products of
equivalent quality. When feasible, traveling to the country
where your products will be sold provides an excellent
opportunity to gather pricing information. U.S. Department of
Commerce (DOC) can also assist in determining appropriate prices
through its Customized Sales Survey.

Joseph S. Brown III, President of Bruce Foods Corp.,
obtained pricing information for food products sold in overseas
markets using the Commerce Department's Customized Sales Survey.
Although exporting since 1946, Brown is constantly on the
look-out for new markets for his products: "We now export to 75
countries," the Louisiana business owner says.

To compile the Customized Sales Survey, DOC's US&FCS
research specialists in the target country interview importers,
distributors, retailers, wholesalers, end-users and local
producers of comparable products. They also inspect similar
products on the market. Your customized report, available for a
fee, is usually completed within 45 days.


Marketing Your Product

To successfully market a product in a domestic market, the
manufacturer must take into consideration consumer preference,
industry standards, correct labelling and other consumer-driven
considerations.

When entering a foreign market, the manufacturer should
consider the tastes and preferences in each market as part of
marketing strategy. Frequently, only a small change may be
required to successfully market the product. The color of the
product, the design of the package, the size of the product all
may need adjustment.

Consideration should be given to the product name (it may
inadvertently have a negative connotation in the local language),
cultural and/or religious connotations, appearance of container,
compliance to standards (different electrical power, metric
dimensions and local product regulations).

Another consideration when planning market strategy is
understanding ISO 9000. The International Organization of
Standardization (ISO) was founded in 1946 by 25 national
standardization organizations including the American National
Standards Institute (ANSI). Ninety countries now hold membership
in ISO.

In 1987, the ISO issued ISO 9000, a series of five documents
(ISO 9000, 9001, 9002, 9003 and 9004) that provide guidance on
the selection and implementation of an appropriate quality
management program (system) for a supplier's operations. The
purpose of the ISO 9000 series is to document, implement and
demonstrate the quality assurance systems used by companies that
supply goods and services internationally. ISO standards are
required to be reviewed every five years. Revised versions are
expected to be published in early 1994. Information on the
status of these revisions can be obtained from:

The American Society for Quality Control (ASQC)
611 East Wisconsin Avenue
Milwaukee, WI 53202
Phone: 414/272-8575 or 800/248-1946
FAX: 414/272-1734

The supplier's quality system is registered, not an
individual product. Consequently, quality system registration
does not imply product conformity to any given set of
requirements. The demand for ISO 9000 registration in Europe and
elsewhere seems to be coming primarily from the marketplace as a
contractual rather than a regulatory requirement. As conformity
to the ISO 9000 standards becomes recognized and required by
foreign and domestic buyers and used by manufacturers as a
competitive marketing tool, the demand for ISO 9000 compliance is
expected to increase in non-regulated areas. It is therefore
critical for manufacturers to determine what are their buyers'
requirements regarding ISO 9000 compliance. Additional
information on U.S., foreign and international voluntary
standards, government regulations and rules of certification for
nonagricultural products is available from:

National Center for Standards and Certification
Information(NCSCI)

National Institute of Standards and Technology (NIST)
TRF Building, Room A163
Gaithersburg, MD 20899
Phone: 301/975-4040
FAX: 301/926-1559

For information on the EC 1992 Single Market program, copies
of Single Market regulations, background information on the EC or
assistance regarding specific EC trade opportunities or potential
problems, contact:

The Office of EC Affairs
International Trade Administration, Room 3036
14th and Constitution Avenue, N.W.
Washington, D.C. 20230
Phone: 202/482-5823
FAX: 202/482-2155

Methods of International Pricing

The cost-plus method of international pricing is based on
your domestic price plus exporting costs (documentation expenses,
freight charges, customs duties and international sales and
promotional costs). Any costs not applicable, such as domestic
marketing costs, are subtracted. The cost-plus method allows you
to maintain your domestic profit margin percentage, and thus to
set a suitable price. This method does not, however, take into
account local market conditions. Your price may be too high to
compete in a foreign market.

Different marketing costs and/or modifications to the
product could change the cost basis dramatically, making the
product either more or less costly for export. As a result,
using the "marginal-cost" method provides a more realistic means
of determining true cost of producing your product for export.

To use the marginal-cost method, first determine the fixed
costs of producing an additional unit for export. Fixed costs
include production cost, overhead, administration and research
and development. A cost saving may be realized if additional
units of the product can be produced without increasing the fixed
costs. There may also be instances where certain fixed costs are
covered by domestic production and do not need to be added to
export expenses.

Product modification expenses, dictated by the target
market, are then added to the production costs to establish a
"floor price." The floor price serves as a threshold for the
firm to know when it would incur a loss. Using the floor price
as a base, variable export costs for the product can be added.
Some of the variable costs will be one-time or start-up expenses
that should be discounted appropriately. Variable expenses
include:


Packaging

Local regulations and customs may require special labelling,
translated instructions or different packaging to appeal to local
tastes. The selected mode of distribution may also require a
particular kind of packaging.


Foreign Market Research

There may be fees for specialized services and publications
used to gather market information.


Advertising and Marketing

Firms selling directly into new markets will most likely be
responsible for the entire promotional effort. The firm can
incur high initial outlays to establish product recognition in
the new market. If an agent, distributor or trading company is
employed, they can handle advertising and marketing as part of
their contract.


Translation, Consulting and Legal Fees

Product instructions, sales agreements and other
documentation typically will need to be translated into the local
language. Expert translation of product labeling and
instructions will enhance local marketing. Although many sales
agreements are standard, it is advisable to have legal counsel
review binding documents.


Foreign Agent/Distributor Product Information and Training
Agents
and distributors may require special training in order to
effectively market and service your products. This is true even
if the agent sells products similar to your firm's products.
Training will not only enable the agent to better represent your
company's interests but gain a better understanding of your
particular product.

After-Sales Service Costs

Product warranties and service contracts will enhance your
product's image as a quality item. An appropriate after sales
service guarantee can support your sales efforts in the new
market. Do not, however, promise service or warranties based on
U.S. standards that you cannot deliver.

After taking these expenses into account, insurance,
freight, duties and a profit margin can be added to arrive at a
customer price. Depending on the market, currency fluctuations
can affect significantly your locally based profit margin and the
final price offered to the customer. For new-to-export
companies, price products in U.S. dollars and request payment in
dollars. This is not an unusual request.


High-Price Option

This approach may be appropriate if your company is selling
a new product or if you are trying to position your product or
service at the upper-end of the market. Selecting this option
may attract competition and limit the market for your product
while, at the same time, produce big profit margins.


Moderate-Price Option

This is a lower risk approach as contrasted to the high- or
low-price option. Here you should be able to match competitors,
build a market position and produce reasonable profit margins.


Low-Price Option

This approach may be relevant if you are trying to reduce
inventory and do not have a long term commitment to the market.
You will, no doubt, impede competition but also produce low
profit margins.


There may be no single strategy that is ideal for every
company. Often companies draw upon a mix of options for each
market or product.

Setting Terms of Sale

SHIPPER:                                Reference No. RB20693
Smith and Jones Co.                     Date: July 18, 1993
5555 Railroad Ave. 
New York, N.Y. 10001                    Customer P.O. No.
212-555-1234
                                        Terms of Payment:
                                        Estimated Date of Shipment

SOLD TO:                                SHIP TO:

Grupo Estevez, S.A. de C.V.             Juarez Industriale
Tamales No. 1 Piso 2                    454 Blvd. Cortez
12345 Cd. Polanco Mexico                11115 Mexico D.F. Mexico 

ITEM   QUANTITY    DESCRIPTION          UNIT PRICE   TOTAL PRICE  

        100        Computer             US $50.00   US $5,000.00  
                   motherboards 
                                         FOB factory    5,000.00  
                                           Inland 
                                          Freight 
                                          Forwarder 
                                           fees           100.00  
                                          Air freight   1,200.00
                   Five (5) 
                  sealed cartons          Insurance        20.00  
                   Gross weight:  
                      10 lbs.            C.I.F. Mexico  6,320.00  

Published: January 2007
Region: USA
Format: Editorial
SKU: infpu0001753