CHAPTER XXIX EXPORT PRICING t Export Cost Factors

CHAPTER XXIX EXPORT PRICING t Export Cost Factors t Export Pricing Strategy t Export Pricing Methods of Manufacturers t Pro Forma Invoice 1

Export Cost Factors 1) Product modification cost 2) Promotion cost 3) Packaging cost 4) After-sales service cost 2

Export Pricing Strategy (1) High pricing strategy § § § Unique or new products Brand name products: Gucci bags High profit margin Limits market to well-to-do customers Attracts competition Higher price at the beginning and lower price later 3

Export Pricing Strategy (2) Low pricing strategy § § § To penetrate foreign markets To increase market share To dispose of excess or obsolete inventory To discourage new competition Cannot be a long-term strategy 4

Export Pricing Strategy (3) Moderate pricing strategy § Adequate profit margin § Can meet competition and maintain market shares § Should be long-term strategy 5

Export Pricing Methods of Manufacturer (1) Marginal Cost Pricing Method § Assumes that indirect fixed costs are fully § § recovered from domestic sales Cost for manufacturing additional unit for export and exporting cost Includes direct cost of material and labor only General & Administrative (G & A) expenses not included Floor price 6

Export Pricing Methods of Manufacturer (2) Cost-plus pricing method § Adding exporting costs to domestic production cost § Include G & A expenses § Too high to compete in international market § U. S. manufacturers should convert cost-plus pricing to marginal cost pricing method in determining an export price 7

Pro Forma Invoice t When requested by an importer for an import license or an application for a letter of credit t Not an invoice but a quotation for an export product consisting of product name, quantity, unit price, and total price t Must have a validity, a period for quoted price to remain effective 8