Type of information required:
To explore the extent to which a producer/exporter can be competitive in selling its products, information is required on:
To enable comparative calculations to be made for each country of sale showing the extent to which the exporter can be competitive in each of the markets selected.
These include prime costs, factory overheads. These include direct materials, direct labor, other direct cost or expenses, indirect materials, in direct labor, factory supplies and other indirect costs or expenses.
Selling and Distribution Costs and Margins:
1. The manufacturers or exporterâ€™s cost of selling his products, including salaries for all sales staff, traveling expenses, etc. Some selling and distribution costs are direct, such as sales commission and freight charges. Most, however, are indirect, such as salesmenâ€™s salaries, advertising, vehicle costs and salaries of distribution personnel.
2. The cost of transporting the product to the market, including freight (sea, rail, air), insurance, port and landing fees, cost of documents etc. These costs are related directly to the weight and/or value of the products exported and can therefore be considered as variable, or fixed on a unit basis.
3. The cost plus profit charged by the importers and others in the chain of distribution for the performance of their specialized functions (selling, transport, storage, financing, invoicing etc).These costs are normally expressed as percentage on the landed cost or on intermediate selling. The margins or markups added by importers and other distributors are usually firmly established. They vary from one product group to another, but variations within a product group tend to be slight. In effect, margins and mark ups may be considered as variable costs or fixed on a unit basis.
Cost of marketing support and development:
This includes expenditure for advertising, sales promotion and similar activities. The total marketing support costs will depend on the exporterâ€™s advertising policy and may be fixed or variable accordingly.
These include salaries, office expenses, audit and legal fees, stationery printing etc.
The size and nature of demand and the nature and extent of competition must be assessed.
The sources of information are the Ministry of Trade or the Export Promotion Organizations (in the exporting country), trade associations and chambers of commerce, commercial attaches, international organization such as ITC, trade directories, technical journals, shipping agents and freight forwarders.
Constant review of prices is necessary, as pricing is by no means a simple affair. Modern marketing practice now generally accepts that products should be priced at what the market will bear. It is no longer wise to work on straightforward cost plus basis. Opportunities for profit can be lost if figures arrived at in this way are too low; sales opportunities can be lost if they are too high, relative to market levels as a whole.
Comparative price patterns may seem chaotic if considered by themselves. Published price lists may be misleading when they do not show special discounts, volume rebates etc.
A manufacturer should use own sales staff or department and internal and external market research facilities, to build up a detailed body of knowledge of competitive activity in the home and overseas markets. He should also study competitorsâ€™ reactions to his own price changes, which may give a clue to their pricing policies.
Check list of information required:
In the development of pricing information, the firm must:
* Examine the market in which it distributes its product.
* Examine its industry and other industries competing with it;
* Consider government activities both from the legal view and the market to be serviced.
Information on the Total Market:
* What are the markets in which the product is sold?
* Who are the significant competitors?
* What is the size of the market?
* What are the growth prospects?
* How do different market segments interact?
Information on competition:
* What are the competing products?
* What do buyers require?
* How much room is there for price changes?
* What share of the market is held by competitors?
* Are market shares changing?
* What is the financial position of competitors?
* What are the expected reactions to changes in the market?
Information on Prices:
* What are the prices for competing products?
* Is there a price leader?
* What is the relationship between price and volume?
* What are the expected reactions to changes in themarket?
Information on Government Policies:
* How is the market influenced by government?
* How are individual firms influenced by government?
* Which firms are important suppliers to government?
Information on Production and Costs:
* What is the firmâ€™s present level of production, inventory?
* What are the costs associated with these levels?
* What effects would production and inventory level changes have on these costs?
* What costs are relevant for the pricing decision?
If methods of cost allocation are not appropriate for pricing, is it possible to obtain different cost information which is relevant?
Information on Revenue and Profits:
What are the revenue, profit, cost relationships for the product and the effect on other products?
What is the effect of volume on revenue and profit?
What are the firmâ€™s profit margins? Are they different from competitorâ€™s margins?
The list should be examined and gaps in information available filled in. Sources of information are not always specialist marketing research services may be needed. Information must be reliable. The degree of uncertainty should be minimized as much as possible.