The primary goal of a business is to make money. Trimming the profit margin in order to win a deal is not uncommon in exporting. However, sacrificing the profit margin at the expense of quality must be avoided.
Business practices and standards of living vary from country to country. In some countries a markup of 25% on imported goods is considered excellent, while others may require at least 60% in order to survive.
It is very important to know who your competitors are and their selling price and sales strategy. Quite often, the price competitiveness overrides all other considerations in the initial contact with the buyer. How a product is priced is crucial in getting the buyer's attention, before the buyer becomes familiar with the quality of the product, delivery and service. When dealing with a large importer like chain store, quoting a high price may cause the buyer to lose interest, unless a business relationship already exists between exporter and buyer, or unless the exporter has a new product where there is no competition.
Rarely is an exporter able to offer a product to all customers at the same price. Price bargaining is not uncommon in exporting. However, a few large importers are willing to provide a counter-offer, unless the product is unique or new and there is little or no competition. If the importer has a buying agent in the exporter's country, it would be better to contact the agent.
Pricing, Exchange Rates and Price Validity
In some countries, the domestic selling price of imported goods changes a few times a year. However, in Western countries the selling price usually remains constant throughout the year. The strategy of selling at a low price for the first order and then increasing the price for the next order may backfire. The buyer may insist on paying the same, if not a lower, price for the repeat order. Once a price is lowered, it can be difficult to increase unless competitors are forced out.
Most international transactions are conducted in U.S. currency. The exchange rate fluctuates and the costs of export goods change. The exporter will lose money in the event of currency appreciation in the exporting country. For example, three months ago US$1 that was worth 125 Yen is only worth 90 Yen today, which means the exporter will lose 35 Yen for every dollar converted now. On the contrary, the exporter will receive extra money in the case of currency devaluation in the exporting country.
In times of exchange rate instability, the exporter can negotiate with the buyer to deal in the exporter's currency, instead of U.S. funds. The exporter must indicate in the quotation its price validity, for example, "prices valid for 30 days from date" or "prices subject to our final confirmation (or acceptance)."
Order Quantity, Production Cost and Freight
The economies of scale in the production and shipping must be considered in export pricing. Normally, a minimum production run is required in order to stay competitive. The unit cost of goods generally is lower in a larger order quantity.
In ocean shipments, there is a minimum charge or minimum CBM (cubic meter) requirement in the LCL (less than container load) delivery. Any shipment having a smaller CBM than the minimum requirement would be subject to the full amount. For example, if the minimum requirement is 2 CBM at US$60 per CBM or a minimum charge of US$120, if the consignment is only 1 CBM, that means the freight charge is still US$120.
It would be more economical to price the goods based on the FCL (full container load) rather than the LCL, if the order quantity is large enough to fill a container. The exporter can indicate in the quotation the minimum quantity required for the quoted price.
A trick the importer may use in order to get a lower price is to inflate the quantity requirement. For example, the actual quantity of product Z the importer requires is 1,000 dozens at US$2/dozen, the quantity could be inflated to 3,000 dozens, which cost US$1.80/dozen. The exporter would then bargain hard to buy 1,000 dozens at US$1.80/dozen. Sometimes, it is necessary to be flexible in the quantity requirement, depending on the customer and circumstance, for example in the first order---initial order or trial order.
Allowance for Defective Products
Damages incurred to the insured goods in transit may be claimed from the insurance company. At times, goods are damaged due to mishandling at the buyer's warehouse. Some buyers may claim such damages in the form of a discount. The exporter should reserve in the pricing 1% or 2%, depending on the customer and product history, as an allowance for defective products. A higher percentage may be required for fragile goods such as glassware
Hidden Commission
The hidden commission, usually 2% or 3% of the export price, is not uncommon in some exporting countries. It is given by the exporter to the buying agent for each successful deal, as a compensation for supplying inside information on the competitive selling price, and for the opportunity of having the exporter's product introduced to their overseas principal.
source: export 911
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment