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 the 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 margin, 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” (EXW) price;
4. See if you can find that price
5. If not, recalculate your own cost price by finding ways to lower costs if 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:E=C-D
• Wholesale Margin: F=E*margin
• Wholesale Price:G=E-F
• Importer Margin: H=G*margin
• Cost price at destination: I=G-H
• Import duties: J=I*import duties tax
• Other cost(storage, banking): K
• CIF( port of destinations):L=I-J-K
• Transport cost: M
• Insurance: N
• FOB:(Port of shipment ):O=L-M-N
• Transport Cost:factory to port: P

Example

1. Prices:

• Price: € 1,41/30ml
• Incoterms: EXW Katowice, Poland
• RRP Africa for 30ml: € 4,49/30ml depending on local cost structure
• • Transport 20%: € 1,69
  • Local importer 25%: € 2,25
  • Local retail 40%: € 3,75 + tax = RRP 4,49
• RRP for Europe for 30ml: € 4,99/30ml
• • Transport 5%: € 1,48
  • Distributor: 25%: € 1,99
  • Retail: 50%: € 3,99 + VAT = RRP 4,99

2. Transport

• For sea freight we use DB Schenker global forwarder via Hamburg ( https://www.dbschenker.com/global ) or you can pick goods by your courier from Poland
• For Europe we sent with Raben https://www.raben-group.com/
• DG/ADR handling: Perfumes are classified as Dangerous Goods and require special preparing for oversea transport – cost € 100 per pallet
• Packing: 1 pallet = 90 cartons x 12 mini-displays x 5 pcs + 1 tester
• A mini-display is our default packing way.

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