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    How to develop effective pricing strategies for your export product

    Synopsis

    Pricing your export product can be difficult, but the right knowledge and guidance will help you get the right value for the product.

    iStock-938790212iStock
    It is important to think through the market condition and decide on the best pricing strategy.
    For a novice exporter, one of the most complicated steps is pricing the product. While it is easier to set the price when you are selling it in your own country, selling in another country is a whole different ball game. It requires a lot more mulling over multiple factors. Market prices overseas might not always help you get the right value for the product. At the same time, you have to also stand out in order to attract customers.

    There are many parameters that influence the final price of a product, such as manufacturing cost, compliance, packaging, competitor’s cost, importing country’s tariffs, supply chain and logistics involved. You will need to add up all these costs that you are going to bear till these can be passed on to the buyer.

    Pricing can vary for different exporters. For instance, if you are a merchant exporter, you will have to include the price you paid to buy the product and all other costs you have borne for the product to reach customers — including shipping, storage, transportation, duties, customs and tariffs. If you are a manufacturer exporter, the price will start with the production cost, which can be fixed or variable. If you include the fixed component into your product’s price, your final cost will rise significantly.

    It goes without saying that you need to study the market to understand the competition. However, to stand out, it is important to add something unique to your product, says Mahavir Pratap Sharma, Immediate Past Chairman, Carpet Export Promotion Council.
    “You must add something that you can bring in individuality or geographically, like through artisans or craftsmen. It could be a unique design, color, style or, perhaps, packaging to substantiate the fact that your product’s value is far better, even if it has the same price as the competition or even when the prices go down worldwide,” he says.

    Speaking on similar lines, Rakesh Kumar, Director General, Exports Promotion Council for Handicrafts India, says a niche product can get a good profit margin. “If you're doing some competitive products, then, certainly, the profit margins cannot be very high.”

    In case your product is affordable and in demand, it is important to gear up for repeat orders.

    “If the price is better, handling repeat orders could turn out to be a major concern if you are new and not prepared. At the same time, you can leverage this situation and bring variety by introducing a range of products. The important thing to keep in mind is quality retention for these products,” he says.

    Pricing strategies
    Exporters adopt various kinds of pricing strategies depending on profit expectations and factors influencing the product’s cost. Some of the most-used pricing strategies are as follows:
    • Market-driven pricing: One of the most common approaches to export pricing. Here, you have to keep a flexible product price that is responsive to market conditions like inflation, demand, supply and inflation. This is specifically useful for commodities in stable and well-established markets. However, one must be cautious enough to not allow too much exposure to market conditions as it can lead to instability in the product’s price.
    • Skimming pricing: You charge a higher price in order to reimburse preliminary expenses and earn high profits but then gradually lower it to widen the market share. This too works better with commodities in established markets. As for new markets, customers might not be too keen to pay high prices initially.
    • Penetration pricing: This is where you charge a low price in order to make a place for yourself in the market and clear out the competition. This policy works for often-used items of mass consumption. It is popularly known as dumping.
    • Marginal cost pricing: Here, the exporter only considers the variable or direct costs while setting the product price. The exporter has no plans of recovering the preliminary or fixed costs from the sales and is willing to undergo a slower journey to reach breakeven and profits.
    It is important to think through the market condition and decide on the best pricing strategy. Some of the things you should look out for is to be thorough with the terms and conditions and that you understand the cost components properly. Also, remember that you don’t have to religiously follow one particular pricing model and should always try to be flexible as the market is a dynamic being.

    Sharma says exporters should not depend on subsidies and drawbacks of the government. “Avail these subsidies wisely. You should not completely depend on them. The government has the power to revoke these subsidies anytime or change them. Therefore, it is not wise to be dependent on them,” he adds.

    (With inputs from Howtoexportimport.com, Drip Capital)
    ( Originally published on Feb 16, 2022 )
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