Between the two extremes, the exporter is often hesitant to charge high prices to wealthy customers or to accept low prices in order to penetrate markets. While he is right to consider prices of the utmost importance, he must deal with this as he does with all other tools: as a marketing tool to achieve export success.

setting the price Developing country exporters will generally be price followers rather than price creators. Their products will rarely be so unique in their target markets that they can actually dictate the price level in that market.

For price followers, the market price decisions to be made by management are: 1. establish the current market price for comparative and/or substitute products in the target market; 2. establish all elements of the market price, such as VAT, trade and import margins, import duties, transport and insurance costs, etc.; 3. make a top-down calculation, deducting all elements from the expected market price of your product(s) to arrive at the “ex-works” (Ex Works – EXW) price; 4. see if you can find that price; 5. If not, recalculate your own cost price by finding ways to lower costs in your own factory or organization. Or lower your marketing budget, which also strains your export market price; 6. Estimate total sales over a three-year period, add up the total planned expenses, including your export department's expenses, travel, and prospecting efforts; 7. do a bottom-up calculation by product item, dividing support budgets over the total number of items to be sold; 8. define the final market prices; 9. test the price (through market research).

Top-Down Calculation

Consumer Price:A

VAT -B

Market price minus VAT: C=A-B

Retail Margin:D = C * margin

Retail Price:

Wholesale Margin:F = E * margin

Wholesale Price:

Importer Margin:H = G * margin

Cost price at destination:

Import duties:J = I * import duites: tax

Other costs (storage, banking) K

CIF (port of destination)L = I – J - K

Transportation costs:M

Insurance costs:

FOB (port of shipment):

Transport costs factory to port:P

Ex Works export price (EXW):Q = O - P

Factory cost price:

R

Export Profit (per unit):S = Q - R

Consumer Price:A

Bottom-Up Calculation

Total units sold: A

sales x price:B

sales in value:C = A*B

Target profit:D = C * % profit

Transport to port + costs: E

T/O at FOB level:F

long-haul transport:G

T/O at CIF destination:H = F+ G

Import fees + costs: 

handling costs:J

T / O at LCP: K = H + I + J

T/O on LCP unit: L = K / A

The importer sells at:M = L * (1+ importer margin)

The stockist sells at:N = M * (1+ Wholesaler margin)

Retailer net selling price:O = N * (1+ Retailer margin)

Consumer purchases (incl. VAT) at:P = O + VAT

Vincent Oluoch Odhiambo
Managing Partner
SCA-Partner
Phone: (+254)728268568
Email: info/
exscapartners
www.scapartner.com
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