Appendices to CBI Export Planner - crecer

CBI Export PlannerThe Cost-Plus method is not suited as an instrument for export-marketing, because youcan not influence the customer to buy your product and you depend too much uponothers (e.g. the importer). It is better to find out yourself what the customer is willing topay for your product. It is an important buying motive as it represents the sacrifice(paying money) he/she is willing to make in order to obtain satisfaction (the function ofthe product).All customers constantly make buying decisions, comparing the sacrifice with theexpected satisfaction. He/she compares prices of competitive products (e.g. differentkinds of bread), but also their different qualities (which product brand gives best value).Thirdly, the customer compares products that can substitute each other (e.g. rice andbread). The main criterion used is price.Setting the priceExporters from developing countries will usually be price-followers, not price-setters.Their products will rarely be so unique in the target markets, that they can actuallydictate the price-level in that market.When supplying to other manufacturers - as two-thirds of all SME exporters do - thebuyers usually dictate the price at which they are allowed to sell. ‘Produce this at theprice of $ 2.- a piece, or else I will go to the competition’. In such cases you better dowhat the buyer asks and try to find your USP in another instrument of the marketing mix.In delivery reliability, for instance, since that asset weighs heavily on the buyer’sconscience.For price-followers the pricing decisions to be taken by management are:1 establish the current market pricing for comparative and/or substitutive products inthe target market,2 establish all the elements of the market price, like VAT, margins for the trade and theimporter, import duties, freight and insurance costs etc.,3 make a top-down calculation, deducting all the elements of the expected market priceof your product(s) in order to arrive at the price “Ex Works” (traditionally called “ExFactory”) or ex warehouse,4 see if you can meet this price;5 if not, re-calculate your own cost price by finding ways to decrease costs in your ownfactory or organisation. Or decrease your marketing budget, which also burdens yourexport-market price.6 Estimate total sales over a three-years period, add total planned expenses, includingthose of your export department, travelling and canvassing efforts;7 make a bottom-up calculation per product item, dividing the supporting budgets overthe total number of items to be sold,8 set the final market prices;9 test the price (through market research).Nine steps to set your final price in the market. It will prove a lengthy and difficultprocess, but it is an essential one. Therefore, this book will give you three examples, allusing the same hypothetical cost data:1. a “top-down” calculation, enabling you to establish if you can meet your competitors’market-prices at cost-price level,2. a “bottom-up” calculation to help you setting your final price in the target market.38 III - The export marketing mix