Chapter -4

Export Pricing
• Price fixed for the export products or services which the exporter
intends to sell in the overseas market is called export pricing.
• Pricing and costing are two different things and an exporter should not
confuse between the two. Price is what an exporter offer to a customer
on particular products while cost is what an exporter pay for
manufacturing the same product.
• Export pricing is the most important factor in for promoting export
and facing international trade competition. It is important for the
exporter to keep the prices down keeping in mind all export benefits
and expenses. However, there is no fixed formula for successful export
pricing and is differ from exporter to exporter depending upon
whether the exporter is a merchant exporter or a manufacturer exporter
or exporting through a agency.
The various factors that affect pricing
decisions:
1. Cost
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.
2. Demand
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.
3. Competition
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. 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.
7. Delivery Schedule
If the goods are supplied punctually according to the delivery schedule,
the seller can quote a higher price than otherwise.
8. Marketing Policies
The price is also affected by channels of distribution, 
sales promotion policies, after-sale-service etc. For instance, longer the
chain of distribution, higher could be the price.
9. 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.
10. 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.
11. 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.
12. 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.
Terms of trade
• Terms of trade (TOT) represent the ratio between a country's export
 prices and its import prices.
• How many units of exports are required to purchase a single unit of
imports? The ratio is calculated by dividing the price of the exports by
the price of the imports and multiplying the result by 100.
• When more capital is leaving the country then is entering into the
country then the country’s TOT is less than 100%. When the TOT is
greater than 100%, the country is accumulating more capital from
exports than it is spending on imports.