1 CHAPTER XXIX EXPORT PRICING  Export Cost Factors  Export Pricing Strategy  Export Pricing Methods of Manufacturers  Pro Forma Invoice Copyright(c) 2012 Dr. Chase C. Rhee

2 Export Cost Factors 1)Product modification cost 2)Promotion cost 3)Packaging cost 4)After-sales service cost Copyright(c) 2012 Dr. Chase C. Rhee

3 Export Pricing Strategy (1) High pricing strategy  Unique or new products  Brand name products: Gucci bags  High profit margin  Limits market to well-to-do customers  Attracts competition  Higher price at the beginning and lower price later Copyright(c) 2012 Dr. Chase C. Rhee

4 Export Pricing Strategy (2) Low pricing strategy  To penetrate foreign markets  To increase market share  To dispose of excess or obsolete inventory  To discourage new competition  Cannot be a long-term strategy Copyright(c) 2012 Dr. Chase C. Rhee

5 Export Pricing Strategy Export Pricing Strategy (3) Moderate pricing strategy  Adequate profit margin  Can meet competition and maintain market shares  Should be long-term strategy Copyright(c) 2012 Dr. Chase C. Rhee

6 Export Pricing Methods of Manufacturer (1) Marginal Cost Pricing Method  Assumes that indirect fixed costs are fully recovered from domestic sales  Cost for manufacturing additional unit for export and exporting cost  Includes direct cost of material and labor only  General & Administrative (G & A) expenses not included  Floor price Copyright(c) 2012 Dr. Chase C. Rhee

7 Export Pricing Methods of Manufacturer (2) Cost-plus pricing method  Adding exporting costs to domestic production cost  Include G & A expenses  Too high to compete in international market  U.S. manufacturers should convert cost-plus pricing to marginal cost pricing method in determining an export price Copyright(c) 2012 Dr. Chase C. Rhee

8 Pro Forma Invoice Pro Forma Invoice  When requested by an importer for an import license or an application for a letter of credit  Not an invoice but a quotation for an export product consisting of product name, quantity, unit price, and total price  Must have a validity, a period for quoted price to remain effective Copyright(c) 2012 Dr. Chase C. Rhee