How to: set pricing in export markets
Setting your prices correctly when selling overseas is critical to building a sustainable export business. Being price-competitive is important, but SMEs are strongly advised not to compete on this factor alone. Experienced exporters say that it’s best to avoid lowering your prices in the hope of winning market share; it’s better to enhance your product or service in order to move the discussion from one of cost to one about value.
Calculating the cost
As an exporting company, you automatically incur more costs when doing business internationally. These include travel, research, developing marketing material, certification if required. You may also need to adapt your product or service to suit market conditions. All of these issues should be factored in to your decision making process when setting prices. If you plan to do business in multiple markets, it is good practice to calculate separate pricing for individual countries to allow for different costs and mark-ups.
Culture and pricing
Providers from this island usually don’t compete on price, and this can work in their favour when exporting. In many markets, uniqueness, innovation and service levels are more important to buyers. This can be a point of differentiation for exporters in markets that can be price-sensitive, and it can lead to higher prices. Good intelligence gained from time spent on the ground will allow you to establish what features your target customers value most.
Pricing doesn’t have to be your only point of differentiation. You can offer other incentives to your customer, such as better credit terms, faster delivery, tailored warranty, enhanced levels of after-sales service and so on. For more advice on developing a pricing strategy, visit www.nibusinessinfo.co.uk/pricingstrategy.
Checking the competition
In setting your prices, you will need to consider your competitors’ prices, the level of existing competition in the market, your customers’ perception of the price/quality relationship, production and distribution costs and overheads and the extent to which your customers can afford the price.
Export checklist: tips for export success
- Understand your costs really well, in order to be able to set your pricing properly
- Set different prices for different markets, because mark-ups and routes to market will vary
- When negotiating, consider other incentives such as product samples or marketing material instead of lowering prices
- Many customers are prepared to pay extra for a quality product; if that is part of your USP, don’t compromise on it by reducing your prices.
- Find out the tax implications of selling your product in a particular market, as this could affect your final price.
Case study: Blackthorn Foods
Blackthorn Foods (www.blackthornfoods.co.uk) is a family business specialising in award-winning gourmet handmade fudge produced in the artisan way, in a range of natural flavours. Established in 2004 by three sisters, the company now employs a further six people. Having started exporting in 2013, Blackthorn already sells to the Netherlands, Denmark, Sweden, Germany, the United Arab Emirates and Spain. Exports are now 25 per cent of all sales for the company. Dorothy Bittles, co-founder and partner, shares her experience of how to set pricing in new markets.
What’s the key to successfully pricing selling products into new markets?
I think every country appreciates good food, and we provide a premium product and it’s priced at that. People are always prepared to pay for quality: we always keep the quality. Our product was always handmade, and now we have moved to being flow wrapped. We invested a lot in that system. Apart from improving our production capacity, another reason was to improve the product’s shelf life properties.
“Remember price isn’t your only point of negotiation”
How you do decide on a pricing model for your export business?
People always try to force your prices down, on account of transport costs. Our export business is all about volume orders, because the fudge is being shipped out per pallet. When we initially started exporting, we tried to build our transport costs into our price, but it varies so much by country to country, so we now just quote prices ex works. Some large companies might have good carriage infrastructures in their countries and it’s cheaper for them to collect the product themselves.
It also means that if you’re at a trade show and someone from Spain, for example, asks about your pricing, it’s much easier to quote an ex works price. Some countries do have a sugar goods tax so there are other things to consider, too. They might pay an extra heavy VAT on it.
If your production costs are fixed, what ways can you be flexible to ensure your exports are sufficiently profitable?
As opposed to offering a discount on the price, if shopkeepers in a particular country say they don’t really know fudge very well, we would offer more point of sale material and support of the brand, as opposed to lowering our price. In a case of 32 bars, we would offer three or four wrapped differently, so that the shopkeepers can sample it, and we include information about the product’s unique selling points. We have a shelf-ready case and we would get a sticker made in the appropriate language, telling the customer about the product.
What advice do you have about pricing a product correctly in a new market?
Ours is such an artisan product that we can’t sell it cheaply even if we wanted to: we would just be busy fools. We have a cost and we’re not going to make it for less than that, so we’re quite rigid on our pricing. We don’t discount.
As an exporting company, you do need to support the brand, and there is a cost involved – but it doesn’t have to be on the product. There are advertising costs, but it’s so the product can continue to sell at the price you’ve set. What we have done in some countries, where they weren’t familiar with fudge, if a retailer doesn’t want to commit to a full pallet, for the initial order, we contributed to the transport costs and reduced the amount on a full pallet, and that was a good enticement.