Factors Determining Export Price
Pricing of goods to be exported depends on several factors. The demand for exported goods in the international market, competitive environment and regulations of the government should also be evaluated by the exporters besides manufacturing costs.
There are still some other factors that an exporter should consider when fixing the export pricing for International market. The various factors that affect pricing decisions can be briefly summarized as follows:
One of the most important factor in fixing export price for goods is the cost. It constitute a large part of the price. The direct cost involved in export pricing such as raw materials should be taken into account. Indirect cost like distribution overheads should also be considered.
Price of goods to a great extent depends upon the shape of the demand curve for the product. If there is a lot of demand for the goods it will result in profit maximization, even if there is no rise in costs and a rise in cost may justify an increase in price. However, in all cases, it may not be possible to do so because of the reaction of the market conditions.
The competition in the foreign market is much more severe than in the domestic market, as the exporters have to compete with foreign producers who manufacture under different environment and conditions, as well as their country’s regulations.
Competition from developed countries would be tough because of the certain established advantages; and developing countries may have to mark the price to compete in the foreign market.
4. Attitude towards Countries’ Products
Buyers in the International market normally develop prejudice against goods imported from the developing countries. Exporters should take this factor into account while fixing price, as goods from developed countries command higher prices as compared to the goods from the developing countries.
5. Product differentiation and Brand Image
If products are well differentiated and if they have built a brand image for themselves, manufacturers would be in a comfortable position to charge competitively higher prices. Brand names like Dunlop, Bata, Colgate, etc., command higher prices due to their brand image.
6. Nature of Purchase
Price, at times, depends upon the frequency of purchase. In case of gift items, people will be willing to pay a high price, if the particular goods catch their fancy.
7. Quality and Price Relationship
Consumers tend to rely on price as an indicator of product’s quality, especially in the case of prestige products. The general consideration is that, when the price is low, it results in higher sales which may not be true is all cases.
It should also be noted that customers in developed countries may wish to pay higher price for the product when compared to those from developing ones.
8. Delivery Schedule
If the goods are supplied punctually according to the delivery schedule, the seller can quote a higher price than otherwise.
9. Marketing Policies
10. Period of Export Strategy
The shorter the period, higher could be the price so as to skim the cream from the market and longer the period, lower be the price in the initial stages to penetrate the market.
11. Exchange and Inflation Rate
Differential pricing strategy can be adopted while fixing price of goods to be exported. While doing so, the stability of exchange and inflation rates prevailing in the country should also be taken into account.
Higher prices can be charged on exports for a particular country which is subject to continuous fluctuations in exchange and inflation rates.
12. Objectives of the firm
Internationally, pricing must consider costs, nature of markets and at the same time, it must be consistent with the firm’s world wide objectives such as profit maximization, market share, etc.
13. Government Factors
The Government policies in respect of imports and exports must be taken into account while fixing prices. The importing as well as exporting countries’ governments play an important role in export pricing.
In what way Government influence the export pricing?
The Government may influence the price by:
1. Controlling the prices directly on certain items by fixing minimum floor price or fixing maximum ceiling price, beyond which the exporter cannot quote the prices.
2. Assistance and incentive: Government of exporting country may may provide a number of financial assistance such as Duty Drawback Scheme, Exemption of Sales tax, exemption of Excise Duty, Exemption of income-tax, Marketing development Assistance (MDA.) etc.
3. Custom duties and taxes: The governments of the importing countries impose duties and taxes. The exporter should take such expenses while fixing the export price.
4. International Agreements: Export prices, at times are bound by international agreements which may be bilateral or multilateral. The exporter has to abide by this price fixed by agreement and he cannot fix more price.