Pricing for export

User Rating: 0 / 5

Star InactiveStar InactiveStar InactiveStar InactiveStar Inactive
 

Initial pricing analysis

A critical part of researching a market is gaining a thorough understanding of pricing. Your aim should be to charge the price the market will bear. This will often be set by the market for similar products or services. It may be hard to go above certain levels, which are often referred to as 'price points'. Recognising a price point in your market may be your first clue to your ability to enter the market. Your price should reflect your quality levels, delivery and promotion. It is not easy to increase prices in a market or under a particular contract once you have agreed to deliver at a certain price.

Pricing policy

Your pricing policy for the market should be based on current competitor prices for your type of product or service. The final price should reflect your manufacturing and any other costs at home, plus the estimated costs involved in delivering, promoting and supporting your activities in the market. Flexibility is needed to allow for variation in shipping and stocking costs, as well as in-market and after-sales servicing costs as your market grows. If you are also selling from a web site, make sure you do not undercut your stockists or licensed suppliers in their markets. If you are involved in serious price negotiations, you should anticipate as much as possible what you may be asked to do and allow for this in your price. You also need to consider the effects on your costs and returns of any discounts or charges that might be expected in some markets to get the business.

Pricing a product often means calculating two scenarios, based on both the Kenyan perspective and the in-market perspective. The first of the following two costing sheets allows you to calculate the costs of getting your product to market by using your production and distribution costs. The second starts at the retail price for similar products in the market and allows you to work backwards to estimate a possible price at each level. Using both or either costing sheets requires a series of mark-ups or margins at different levels. You may not know these until you have researched the market and observed different prices. We have used the term 'mark-up' in the cost sheets, but in some markets it may be called a 'margin'. How these are calculated, as add-ons or percentages, will change depending on the market and local ways of doing business. You need to find out how they work in your target market.

The negotiated price is dependent on the INCOTERM (terms of trade e.g. FOB, CIF), the means of payment, credit terms and currency risk and negotiated agreed quantities (full container load, less than full container load), and the mode of the transport – shipping versus air.

What currency should you quote in?

  • Quoting in Kenya shillings involves least risk but is often not possible.
  • For markets with weak currencies, choose a stable alternative currency, e.g. US$.
  • Obtain forward exchange cover from your bank.


Costing sheet 1 – prices based on real costs

Once a policy decision on pricing has been made, the next step is to establish individual prices. This must be done before quoting prices to buyers. The most important tool at this stage is the price structure, which gives a detailed picture of all cost elements from the factory gate to the consumer.

An understanding of the price structure enables the producer/exporter to:

  • build up the final price step by step;
  • compare his or her pricing at all stages with that of competitors; and
  • analyse prices to find out whether cost savings can be achieved in one or more elements.

Step

Item

Unit or Rate

Actual

1

Ex-factory – wholesale price(includes your profit)

   

2

Export packaging (inner and outer)

   

3

Documentation (customs’ agency/freight forwarder)

   

4

Bank charges (forward exchange/payment arrangements etc. Letters of Credit, Bank Drafts, Hedging, Credit Insurance)

   

5

Freight to ship or aircraft

   

6

Handling charges and contingencies

   

7

SUB TOTAL FOB KES

 

 

7.1

FOB Foreign US$

 

 

8

Marine insurance (sea or air)

   

9

Freight costs

   

10

SUB TOTAL CIF KES

 

 

10.1

CIF FOREIGN US$

 

 

11

Landing charges

   

12

Customs’ duties and taxes

   

13

Clearance charges (customs agency/freight forwarding)

   

14

Inland handling and delivery charges

   

15

Contingency (fumigation etc.)

   

16

SUB TOTAL DDP KES

 

 

16.1

DDP FOREIGN US$

 

 

17

Delivered to buyer TOTAL

 

 

Costing sheet 2 – export pricing workback

This all-purpose costing table is particularly useful for comparing prices in the market. You may not need all the steps and you may need to estimate many of the values used for your calculations. The process can be refined as you learn more about the market and distribution of delivery costs.

#

Item

Notes to sample calculation

Examples (unit cost)

Estimated mark-ups or unit rate

Your costing

1

Retail price

 

60.00

 

 

 

Retail mark-up

40%

     

2a

Wholesale price

 

42.86

 

 

 

Wholesale mark-up

25%

     

2b

&/or Distributor price

 

34.29

 

 

 

Distributor’s mark-up

15%

     

2c

&/or Agent’s price

 

29.82

 

 

 

Agent’s commission

8%

     

3

Landed price

 

27.62

 

 

 

Landing charges

Est. 1.5%*

0.85

   
 

Tariffs/duties

(Real rate)

2.65

   
 

Customs clearing charges

Estimated

0.30

   
 

Handling and delivery charges (actual or estimated)

Estimated

0.15

   

4

Cost, Insurance & Freight (CIF) Market currency

 

23.62

 

 

 

Foreign currency @ Exchange rate

Day’s rate

     

5

Cost, Insurance & Freight KES

 

33.74

 

 

 

Insurance costs based on value

Estimated

0.35

   

6

Cost & Freight (C&F)

 

33.39

 

 

 

Freight costs

Unit rate

5.75

   
 

Contingencies

Estimated

0.50

   

7

Free on Board (FOB) KES

 

27.14

 

 

 

Export expense allocation (as per budget)

Allowance

1.00

   
 

Export packaging

Estimated

1.50

   
 

Documentation

 

0.65

   
 

Bank charges including Collection charges

Estimated

0.20

   
 

Other finance costs (Foreign exchange charges)

Estimated

0.15

   
 

Freight handling (factory to ship or aircraft)

 

2.20

   
 

Trade indemnity insurance, Export credit insurance

 

0.10

   

8

Ex factory cost

 

21.34

 

 

 

Profit margin or mark-up

 

8.00

   

9

Total factory cost

 

13.34

 

 

 

Materials

 

2.80

   
 

Direct labour

 

7.25

   
 

Fixed costs

 

1.35

   
 

Variable overhead costs

 

0.84

   
 

Consumables

 

1.10

   


Note:

* These mark-ups are examples. Always research any mark-ups that apply.

About BrandKE

The Kenya Export Promotion and Branding Agency (BRANDKE) is a new State Corporation established under the State Corporations Act Cap 446 through Legal Notice No.110 of August 9th, 2019
Read More

Subscribe To Our Newsletter

Contact Us

Head Office

1st and 16th Floor Anniversary Towers, University Way

P.O. Box 40247 00100 GPO

Nairobi, Kenya.

Tel. +254 20 222 85 34-8; 

Cell: +254 722 205 875, +254 734 228 534

Fax:+ 254 20 222 85 39 or 221 80 13

Email: chiefexe@brand.ke

©2020 Kenya Export Promotion & Branding Agency. All Rights Reserved.

Search