Product and

Pricing
Decisions

Methods of Export Pricing

I. COST ORIENTED METHODS
1. Cost Plus pricing:

Company considers cost of product.

Profit margin is calculated on cost of the product.
Formula: SP = CP + Profit margin
Easy to compute.
2. Mark-Up Pricing:
- Mark-up is calculated on selling price.
- Generally high on seasonal items, specialty items
and items with high storage and handling costs.
- Formula: Average Unit Cost
1 - Desired return

3. Break-even pricing:

- BEP is level of sales needed to cover all fixed

and variable costs.
- Point of No Profit, No Loss.
- Formula: BEP = Fixed costs (total cost)
SP VC (per unit)
- Helps a firm to determine the minimum sales
required to cover costs.
4. Target return pricing:
- Firm sets prices in order to achieve a particular
level of ROI.
- Formula: TRP = Total costs + (Desired %ROI x
Inv)
Total sales in units
- Ensures prices cover all costs and bring profit.

5. Marginal cost pricing:

- Price is fixed on the basis of additional

variable expenses incurred with each
additional unit of output.
- Distinguishes between fixed and variable
costs.
- Fixed costs are recovered from existing
markets while only additional variable
expenses are recovered from export or new
markets.
6. Early cash recovery pricing:
- Price is fixed to recover investment early.
- Done when market life is forecasted to be
short.

II. MARKET ORIENTED METHODS

1. Going rate pricing:

- Pricing based on competitors.

- 3 types: Competitors parity, Premium
pricing, Discount pricing.
- Reduces chances of price wars.
2. Differentiated pricing:
- Different prices for the same product.
- 3 types:
Customer segment pricing
Time pricing
Area pricing

3. Perceived value pricing:

- Based on customers perceived value.

- Customers perception is influenced by
advertising, sales promotion techniques, after-sales
service, etc.
- Market research is required to understand
customers perception of value.
4. Sealed-bid pricing:
- Adopted in case of large orders or contracts,
especially in industrial buying and government
departments.
- Buyer expects lowest possible price while seller is
expected to provide best possible quotation
through tender.
- Firm has to anticipate the competitors pricing
policy and decide its price offer.

5. Two part pricing:

- Services firms charge prices that consist of

fixed fee and variable usage fee.
- Eg: Recreational parks, telephone
companies
- Fixed fee is kept minimum to encourage
purchase and profits are made on usage fee.
6. Demand backward pricing:
- Firm sets estimated price that consumers
will pay and then works backwards to
calculate the retail and wholesale margins to
get to the manufacturers price.
- Helps in understanding what should be the
production cost is the product has to be
accepted in the market.

Export Pricing Quotations & INCO Terms

Quotation is an offer made by an exporter in

reply to an inquiry from an importer.

Should clearly state the price and other terms
and conditions.
Price quotations determine the amount to be
paid by the buyer to the seller and also who
will bear cost of insurance, transport, damage
to goods in transit.

Information required for quoatation:

Currency of quotation
Breakdown on costs FOB, CIF, C&F
Discounts if any
Methods of payment
Commission of intermediary if any
Bearer of freight
Arranger of shipping space
Arranger of insurance cover
Shipment delivered in one or more lots
Delivery schedule
Penalties if any
Any other details.

Important quotations
I.

Free On Board (FOB)

- The seller quotes a price which includes all
expenses until goods are delivered on board
the ship at the port of shipment.
- It includes:
ex-factory price
packing charges
customs and port charges
documentation charges
export duty
inland transportation cost
profit margin

FOB price= Cost of goods + Expenses upto

board the
ship + Profit Export
incentives
Obligations of seller:
1. Costs and expenses: till goods are loaded on
the ship
2. Intimation to buyer: about goods being
boarded on the ship
3. Documentation: submit necessary
documents to buyer to take possession of
goods
4. Suitable packing: must properly pack the
goods
5. Supply of goods: as per terms of contract

1.
2.
3.
4.
5.

Obligations of buyer:
Booking of shipping space: on board the ship
Costs and risks: after goods are loaded on
the ship
Insurance premium
Freight payment
Payment to exporter: as per terms of
contract

II.

Cost and Freight (C&F)

- Includes FOB price plus cost of
transportation of goods to the port of
destination.
C&F price = FOB Price + Freight

7.

Obligations of seller:
All under FOB (1-6), plus
Freight charges: to shipping company

Obligations of buyer:
8. Arrange and pay for insurance.
9. Pay clearing charges and import duties.
10. Payment to exporter: as per commercial
invoice.

III. Cost Insurance & Freight (CIF)

- Includes FOB price plus freight plus marine

insurance upto the port of destination.
- Preferred by importer as there are fewer
responsibilities for him as exporter takes all
risks.
CIF price = FOB price + Freight + Marine
Insurance

7.

Obligations of seller:
All under FOB (1-6), plus
Freight charges & insurance premium

Obligations of buyer:
1. Pay clearing charges and import duties.
2. Payment to exporter: as per commercial
invoice.