As you begin pitching your product overseas, lots of people will want to know your price, so it’s important to have your pricing worked out before you approach international prospects.
While many businesses put a lot of effort into understanding how to price correctly in their home market, most don’t put in the same amount of effort when it comes to international markets. Without it, your competitiveness and the profitability of your international business are likely to suffer. Charge too much and you won’t be able to compete effectively against brands which are already established in-market. Charge too little and you won’t make enough to cover the costs of an international operation.
While some companies do just charge their domestic price, those that are internationally successful in the long term invest time and energy into getting their international pricing right. So, how do you decide what the right price is?
International pricing and domestic pricing are quite different, because different overseas market conditions, different costs, different quoting formats and different currencies all affect what you charge your customers for your products or services.
The starting point to getting your export price right is to understand the relative costs, demand and competition in your target market.
Before you can work out how much to charge for your goods or services in international markets, you need to know how much it costs your business in total to export that product or service.
Developing international markets can involve various costs that don’t apply at home. These include expenses like:
These are the ‘fixed costs’ of selling internationally — general costs that aren’t specific to an individual contract or shipment. It’s up to you to decide how much you recover of these costs per unit or per order, but you should factor international overheads into your price before you start adding shipping costs and duties.
You also can’t afford to assume that you will sell your product for the same price in each overseas market. That’s because the price that customers are willing to pay for your products or services will vary from country to country.
How your competitors price their products or services can also differ from market to market. This matters because it’s wise to take competitor pricing into account when setting your prices.
For products, distributor, wholesale and retail mark-ups are often different in each market and industry, which will affect the final price of your products.
Know your profit margins and break even points. If you don’t have this information available, you won’t be able to make an informed decision if a customer asks you for a discount.
Set a price that reflects your brand and promotion, but remember that an unknown foreign brand may not be able to charge the same prices as well-known competitors, especially if the competition is local.
Remember to factor in the promotional costs associated with supporting your services in-market, before you start quoting prices to your customers.
If you quote a low price initially in order to get business, and assume that your prices will naturally increase over time, you could create big problems for yourself because customers tend to expect the exact opposite. In other words, clients often expect to get a price reduction to reward them for ongoing business, particularly if the amount of business they give you increases over time.
Discounts are a cost; before you offer a discount to a customer, reflect on the effect it will have on your bottom line.
Learn about Incoterms so that you can quote using the correct international trade language. Both you and your customers should know who pays for what, and be absolutely clear at what precise point in the transaction ownership of the goods transfers from you to your customer.
If you have a website and successfully sell on-line you need to be careful that you don’t undercut either your in-market suppliers or in-market retailers.
And a final tip? Shipping costs can change quickly and exchange rates can fluctuate alarmingly. Both of these will affect your end costs, so be sure to regularly review your prices.
Cynthia Dearin is the managing director of Dearin & Associates, an international business consultancy that helps clients to access opportunities in fast-growing international markets, and the International Business Accelerator. She is the author of Business Beyond Borders: Take Your Company Global and Camels, Sheikhs Billionaires: Your Guide to Business Culture in the Middle East and North Africa.
