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PRICING CONSIDERATIONS
Proper pricing, complete and accurate quotations, and choice of terms of sale and payment are four critical elements in selling a product or service internationally. Of the
four, pricing is the most problematic, even for the experienced exporter.
- At what price should the firm sell its product in the foreign market?
- Does the foreign price reflect the product's quality?
- Is the price competitive?
- Should the firm pursue market penetration or market-skimming
pricing objectives abroad?
- What type of discount (trade, cash, quantity) and allowances
(advertising, trade-off) should the firm offer its foreign customers?
- Should prices differ with market segment?
- What should the firm do about product line pricing?
- What pricing options are available if the firm's costs increase
or decrease? Is the demand in the foreign market elastic
or inelastic?
- Are the prices going to be viewed by the foreign government
as reasonable or exploitative?
- Do the foreign country's dumping laws pose a problem?
As in the domestic market, the price at which a product or service is sold directly determines a firm's revenues. It is essential that a firm's market research include an
evaluation of all of the variables that may affect the price range for the product or service. If a firm's price is too high, the product or service will not sell. If the price is too low, export activities may not be sufficiently profitable or may create a net loss.
QUOTATIONS AND PRO FORMA INVOICES
Many export transactions, particularly first-time export transactions, begin with the receipt of an inquiry from abroad, followed by a request for a
quotation or a pro forma invoice.
A quotation describes the product, states a price for it, sets the time of shipment, and specifies the terms of sale and terms of payment. Since the foreign buyer may not be
familiar with the product, the description of it in an overseas quotation usually must be more detailed than in a domestic quotation. The description should include the following 15 points:
- Buyer's name and address.
- Buyer's reference number and date of inquiry.
- Listing of requested products and brief description.
- Price of each item.
- Gross and net shipping weight (in metric units where appropriate).
- Total cubic volume and dimensions (in metric units where
appropriate) packed for export.
- Trade discount, if applicable.
- Delivery point.
- Terms of sale.
- Terms of payment.
- Insurance and shipping costs.
- Validity period for quotation.
- Total charges to be paid by customer.
- Estimated shipping date to factory or port.
- Estimated date of shipment arrival.
Sellers are often requested to submit a pro forma invoice
with or instead of a quotation. Pro forma invoices are not for payment purposes but are essentially quotations in an invoice format. In addition to the foregoing list of items, a pro forma invoice
should include a statement certifying that the pro forma invoice is true and correct and a statement describing the country of origin of the goods. Also, the invoice should be conspicuously marked "pro forma invoice." These invoices are only models that the buyer uses when applying for an import license or arranging for funds. In fact, it is good business practice to include a pro forma invoice with any international quotation, regardless of whether it has been requested.
When final collection invoices are being
prepared at the time of shipment, it is advisable to check with reliable source for special invoicing requirements that may prevail in the country of destination.It is very important that price quotations state explicitly that they are subject to change without notice. If a specific price is agreed upon or guaranteed by the exporter, the precise period during which the offer remains valid should be specified.
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