Pricing can be the most challenging due to different market forces and pricing structures around the world. What determines a successful export pricing strategy? The key elements include assessing your company’s foreign market objectives, product-related costs, market demand, and competition. Other factors to consider are transportation, taxes and duties, sales
commissions, insurance, and financing. As in the domestic market, the price at which a product or service is sold directly determines your company’s revenues. Your firm’s market research should include an evaluation of all variables that may affect the price range for your product or
service. If your company’s price is too high, the product or service will not sell. If the price is too low, export activities may not be sufficiently profitable or may actually create a net loss.
Pricing ConsiderationsAs you develop your export pricing strategy, these considerations will help determine the best price for your product overseas:
Key Elements of Pricing AnalysisForeign Market ObjectivesAn important aspect of your company’s pricing analysis is the determination of market objectives. For example, is your company attempting to penetrate a new market, seeking long-term market growth, or looking for an outlet for surplus production or outmoded products? Marketing and pricing objectives may be generalized or tailored to particular foreign markets. For example, marketing objectives for sales to a developing nation, where per capita income may be one-tenth of that in the United States, necessarily differ from marketing objectives for sales to Europe or Japan. CostsThe actual cost of producing a product and bringing it to market is key to determining if exporting is financially viable.
After the actual cost of the export product has been calculated, you should formulate an approximate consumer price for the foreign market. Market DemandFor most consumer goods, per capita income is a good gauge of a market’s ability to pay. Some products (for example, popular U.S. fashion labels) create such a strong demand that even low per capita income will not affect their selling price. Simplifying the product to reduce its selling price may be an answer for your company in markets with low per capita income. Your company must also keep in mind that currency fluctuations may alter the affordability of its goods. CompetitionIn the domestic market, U.S. companies carefully evaluate their competitors’ pricing policies. You will also need to evaluate competitor’s prices in each potential export market. If there are many competitors within the foreign market, you may have to match the market price or even underprice the product or service for the sake of establishing a market share. If the product or service is new to a particular foreign market, however, it may actually be possible to set a higher price than is feasible in the domestic market. Pricing SummaryIt’s important to remember several key points when determining your product’s price:
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What role does profitability play in the target costing system?Target costing is primarily a technique to strategically manage a company's future profits. It achieves this objective by determining the life-cycle cost at which a company must produce a proposed product with specified functionality and quality if the product is to be profitable at its anticipated selling price.
What do you call the total amount of money used to provide a product or service?the cost of your product or service is the amount you spend to produce it. the price is your financial reward for providing the product or service.
Who controls pricing in a company?In most cases, prices are set by the marketing department. This is because the price of a product affects how potential customers view a product or service. Therefore, marketing often takes the lead in setting, or at least strongly suggesting, the prices for products and services.
What is profit driven pricing?Profit-driven pricing is a systematic procedure for maximizing profitability by making tradeoffs between price changes and changes in sales volume. The focus on overall profitability avoids the distortions that result from tactical pricing to achieve functional objectives.
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