Pricing Method

Cost-Plus Approach

• Straight forward and easy to compute 
• Ensure that the exporter will be selling at a profit 
• Offer lower price if competitor’s price is competitive. 
• Formula:

Domestic Price + Export Cost + Bank Charges (New) = Export Price

Marginal or Differential Costing Approach

• The change in total cost that arises when the quantity produced changes by one unit
• Apply marginal pricing if has substantial domestic market that pay all the fixed cost.
• Formula:

Base Price of a Product or Service + Fixed Costs Apportioned to the Volume of the Sales + Export Cost = Export Price

Top Down Approach

• To work on competitor’s price of targeted market to make sure products are competitive
• This technique requires you to compute your ex-works price to be competitive in the export market.

Export-Related Expenditures

Additional export–related costs are:

• The cost of modifying the product for foreign markets:

» Operational costs of the export operation
» Personnel
» Market research
» Additional shipping and insurance costs
» Communication costs with foreign customers
» Overseas promotional costs.

• Costs incurred in entering the foreign markets:

» Tariff and taxes
» Risk associated with a buyer in a different market (mainlycommercial credit risks and political risks)
» Risks from dealing in other than the exporter’s domesticcurrency (foreign exchange risk).

INCOTERMS 2000

Concept

• A set of internationally recognised trading terms, defined by the International Chamber of Commerce
• Publication number 560 Incoterms 2000 
• Used for the purchase and shipping of goods across borders 
• Deal with the documents required for global trade that specifywhich parties (buyer or seller) are responsible for which documents and are normally specified in the contract of sale.This guide is designed to provide a simplified reference. We recommend that the full text of the document be consulted prior to entering into a contract to buy or sell goods.

Best known INCOTERMS are :

• Free on Board (FOB) 
• Cost and Freight (CFR) 
• Cost, Insurance and Freight (CIF).

FREE ON BOARD (FOB)(Named Port of Shipment)

• “Free on Board” means that the seller delivers when the goods pass the ship’s rail at the named port of shipment
• Buyer has to bear all costs and risks of loss of or damage to the goods from that point
• FOB term requires the seller to clear the goods for export and can be used only for sea or inland waterway transport
• If the parties do not intend to deliver the goods across the ship’s rail, the Free Carrier (FCA) term should be used
• Risk and cost transfer from seller to buyer when goods pass the ship’s rail
• Buyer to arrange for carriage and insurance • Mode of transport - Sea.

COST AND FREIGHT (CFR) (Named Port of Destination)

• “Cost and Freight” means that the seller delivers when the goods pass the ship’s rail in the port of shipment
• Seller pays the costs and freight charges necessary to bring the goods to the named port of destination
• Risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer
• Carriage arranged by seller • Insurance paid by buyer • Mode of transport - Sea.

COST, INSURANCE AND FREIGHT (CIF) (Named Port of Destination)

• “Cost, Insurance and Freight” means that the seller delivers when the goods pass the ship’s rail in the port of shipment
• Seller pays the costs, freight and insurance to bring the goods to the named port of destination
• Risk of loss of or damage to the goods, and additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer
• Mode of transport - Sea.