INTERNATIONAL PRICE

Accelerate your business with these expert tips on "International pricing". Analyse and discover this TIP!

If it is complicated and complex to set prices for your products and/or services in the domestic market, even more so when it comes to selling abroad in any form.

The majority of companies start from the price they have in their country, to which they add the different costs that affect their foreign sales, such as taxes, tariffs, obstacles, bites, transport, suppliers, etc.

The result is the price at which they will try to sell, and that is a mistake!!!

All that glitters is not gold

This erroneous strategy is based on the belief that you can sell in another country what you can sell in your own country, but not all products are exportable and not all exportable products can be sold under the same conditions as here.

In your country, you may have an established track record, but where you go, your market position may be that of starting from scratch. Here you know the culture, the type of clients..., and in the other country, all these conditions do not necessarily have to be the same.

Many companies have gone out to export thinking that all their problems will be solved and that is not the solution, because the chances of failure will be greater and also the chances of losing many more resources along the way.

If you add the costs of other markets to what you have here, you will have a lot of problems selling, because you are making the target country pay all your extra costs. You will increase the price and it will be difficult to reach relevant positions.

Know the market you are going to

Just as when you set your prices nationally, you need to have some knowledge of the market you will be targeting. Generally, companies do not do this analysis. The information is out there, with all the online media.

It is no longer as difficult as it was years ago to search for prices of similar products, substitutes or competitors to find out what your product is worth. That is determined by what is on offer.

Once you have this information, cross-reference it with your positioning (high-end, niche, high-volume product, etc.), the positioning you have in your country and the positioning you want to have in that country. And based on these parameters, define price ranges for your main products.

From there, you have to generate the cost structure that you will be able to have to see if it is a profitable-target product or not. That should be the way forward. Remember that the initial prices are usually given by the market itself, comparing with your own competitors. In many markets, your competitors will be the same ones you operate with in Spain.

And it will be that same foreign customer who will tell you how your offer will be positioned when compared to other competitors. If you can confirm this information with several sources, all the better. In markets where there may be Chinese competition, it is important to know where the minimums are.

AND THESE MINIMUMS ARE KNOWN TO YOU:

For example: on Alibaba.com.

This way you will know if your product is exportable to the Asian market.

If prices are rock-bottom, your implementation will be difficult.

VALIDATES EACH MARKET

• The first phase is to do an analysis, in which, in addition to doing customer surveys, you have to have individual interviews with different distributors, with the department stores, with each of the major partners in the different markets.
• It is also important to know how the distribution network works in that particular market, to find out whether your customers buy that type of product in small or large shops.
• Bear in mind how quickly markets change. There are many websites to compare prices: eBay, Amazon, the brands' own shops, etc.
• A typical failure is to think only in euros and switch to dollars at the end of the pricing process.
• Many companies take their tariffs and add increases (taxes, logistics, etc.), then switch to dollars and add a margin in case the exchange rate moves a lot over the next few months.
• The result in dollars is exorbitant and then they are surprised because they don't sell.
• If you want to sell, for example, in the USA, the normal thing to do is to analyse your positioning, competition, price range and see how much you can sell for to find out if you can be competitive. And, from there, what costs you will have, what your logistics will be like, if you will use platforms, which distributors, possible factories, etc., in other words, calculate different price scenarios and strategies.
• You have to do this whole process in dollars and then see how much profitability is left for you.

BEWARE OF COST OVERRUNS

• It is clear that there are some cost overruns that must be taken into account when making the calculations, but also that this should not mark the final selling price of your product.
• In addition to the usual additional costs (fees, etc.), there are other imponderables that you have to pay to certain intermediaries. 
• But in all of this, don't forget that the important thing is to know what your target return is going to be for each country. For example: If you earn 50% gross margin in your country (minus the discount of certain costs), does China's, Russia's or Germany's gross margin have to be 50, 80, 15...?
• There are companies that are not satisfied with the same margin, but increase it by several points. This complicates matters.
• Depending on the internationalisation strategy you have defined and the type of country, you may have to consider a 40% in exchange for demanding more volume, because you cannot make that 60% (or the one you set as a margin) give you a price with which you are not competitive. Therefore, the price differences cannot be so abysmal.

MORE THAN YOU MIGHT EXPECT

• You should also take into account transport and financial costs. For example, if you use a letter of credit, a cost of between 2% and 3% is usually included. If you offer a cash discount in your export tariff, you should also include 2-3%.
• In addition, when you go to difficult markets, such as the US, you need liability insurance. There are markets where such insurance is as much as 8% of the cost of the product.
• There are countries such as Algeria that require quality inspection at origin.
• Not forgetting the commercial costs, because having a shop or a warehouse for distribution involves very significant expenses. And if you have displaced or expatriate staff, the costs are often twice as high as in your own country.

FACTORS INFLUENCING PRICING

• As we said before, not every product is exportable and not every exportable product can be sold in and under the same conditions as in Spain.

THE DECISION IS INFLUENCED BY ALL THESE FACTORS:

PRODUCT OR SERVICE

• Selling a product is not the same as selling a service. The added costs of manufacturing, development, sales, transport, storage, etc., vary greatly.
• In the case of products, size or weight affects the viability for export.
• Ask yourself what value you will bring to the target country, because if you do not add anything to what is already there, it is better to forget about that market.

COUNTRY STRATEGY

• Not every country is of interest to you and not every country you go to should follow the same strategy.
• When defining your country map, argue why you want to go to this or that market and what your positioning will be in each one.
• One may be strategic, in another you can dispose of your obsolete products, in another you can sell a certain valuable product or service...
• Analyse your local and foreign competition and their price ranges.

EXPORT, MANUFACTURING...

• The way in which you internationalise also has an influence, because it is not the same to manufacture here and export it as it is to manufacture in the country of destination.
• It is also different to sell from here than to sell in the country of destination by opening shops. Nor is having export agents the same as selling with a local partner. Nor is selling through distributors the same as selling to end customers.
• In all cases, costs and commercial conditions are very different.

TARIFFS

• This tax, depending on the country, can make export unviable.

For example: Tariffs are brutal in countries like Brazil, where a product can be increased by as much as 120% for that reason.

EXCISE DUTIES

• Please note that certain products such as foodstuffs, pharmaceuticals, beverages or chemicals, among others, are taxed.

CORPORATE FORMALITIES

• There are countries where you can operate through a local partner, but in others, you need to create a company there, and that means administrative costs, taxes...
• Incorporating a company in a given protectionist country can vary, depending on the area, from 3,000 to 7,000 euros at the exchange rate.

INDUSTRIAL AND LOGISTICS COSTS

• One of the biggest investments, without a doubt, is to manufacture in the country of destination. It is a decision that has to be seen in its proper perspective.
• The 'cost savings' argument that was used a few years ago to justify offshoring now carries less weight, because the cost differences are no longer so abysmal.
• You should also assess and calculate storage costs.

LABOUR COSTS

• If you decide to manufacture in the country of destination, if you open shops there or if you set up a commercial network and have to hire local staff, you need to calculate labour and social security costs.

BUSINESS COSTS

• Don't forget to take into account the percentage that sales agents, distributors, etc., depending on your sales channel, could take.
• Not to mention that in some countries 'kickbacks' to certain social and political strata also work.

MARGINS

• Don't try to charge high margins to your customers, in order to recover the heavy investments you have to make, because many of your products will be unviable.

TRANSPORT COSTS

• These vary from one area to another, depending on size, type of product, shipping conditions, etc.
• Not forgetting goods insurance.

COMMERCIAL RISK INSURANCE

• It is highly recommended to have commercial risk insurance against defaulters and geopolitical contingencies in the area.
• The cost of such insurance is a percentage of the value of the transaction.

FOREIGN EXCHANGE INSURANCE

• It is also advisable to have foreign exchange insurance, when your customers use currencies other than the euro, such as the dollar, for example.

A critical aspect of international marketing is pricing in each market.

AND TO DO SO, YOU SHOULD MAKE THE FOLLOWING REFLECTION, PREFERABLY IN THIS SAME ORDER:

WHAT ADDITIONAL COSTS WILL I HAVE TO PUT MY PRODUCT ON THIS NEW MARKET?

A budget for doing business in foreign markets is not very different from an offer within your country.

Normally, you will need to take this into account:

•  The cost of raw materials.
• Manufacturing costs.
• Overheads.
• Profit margins.

In addition to this, you will have to consider the following additional costs:

•  The cost of transport.
• All customs duties and taxes.
• Insurance.

And here you will have to assess the possible production costs if you are going to manufacture there:

• Are they higher or lower than in my home country?

Marketing costs:

• Am I going to sell directly or do I sell through a third party?

Communication costs:

• Can I communicate globally or do I have to communicate specifically?

If I don't manufacture:

• What logistical costs will I incur?

At this point, it is also necessary to take into account the Foreign Exchange Management if you move to a country with a different currency.

And we are not only talking about the exchange rate, we are talking about possible fluctuations, about the possibility of making economic exchanges in a third currency, about having to pay exchange rate insurance when there is a lot of volatility (skyrocketing inflation in countries such as Argentina or Brazil).

And we haven't thought about the strategy yet....

WITH THE OUTPUTS OF THE REFLECTION OF THE PREVIOUS POINT WE WILL HAVE A TOTAL COST PRICE AT DESTINATION.

BUT YOU STILL HAVEN'T ASKED YOURSELF THE IMPORTANT QUESTION:

• Which one? I want it to be my pricing strategy?

Certainly the nature of the product and the market may condition the answer, but in this case the question will be:

• Can I maintain this pricing strategy with this cost structure?

If your pricing strategy is "premium", i.e. in the country of destination your product is high-end and therefore you do not have significant price restrictions.

In this case, you will certainly be able to absorb the costs and add whatever margin you deem appropriate to your business. However, if your pricing strategy is one of penetration or if you intend to go to a low cost segment.

• Can you afford it?

This is why it is important to think about it in the proposed order. Maybe in your home market, with your very tight costs and possible economies of scale, the segment will work. But in the new market, you may not be able to take advantage of all the synergies...

This is why it is very common that known brands are positioned differently in different markets.

For example: Inditex brands such as ZARA or Stradivarius, which in Spain are in the medium-low price segment, are positioned as premium in countries such as Argentina or Chile.

In short, international pricing is not about applying currency exchange, it is about calm reflection and relevant information. A correct pricing policy is essential for a successful approach to international markets. 

This requires a study of the target market in order to know the distribution systems and consumption habits, distinguish the price bands, position the product and establish its final price. 

The net price or ex-works price, for products destined for export, does not differ from that applied on the domestic market, except for any adaptations made to the product to suit the destination market. It is sufficient to add overheads and the commercial margin to the product cost.

The landed price is calculated by adding export and transport costs to the ex-factory price, for which it will be necessary to consult a customs agent and a freight forwarder.

It is necessary to know the import duties and taxes that will be levied on the price of the product in order to correctly calculate the final prices. The retail price is determined by the target market. A visit to the foreign country and observation of the prices at which competing products are sold will be necessary. 

In order to arrive at the price at which the distribution buys, it will be necessary to know the mark-ups applied by the retailer and distributor. If the difference between the distributor's purchase price and the landed price is negative, the company will have to change its target market segment by adding or eliminating added value, i.e. by changing its positioning strategy. 

If the difference is positive, it should be used to increase investments in promotional actions or, where appropriate, be listed as an atypical beneficiary. For industrial products that are sold directly to final customers, without going through the retailer-distributor chain, there is no possibility of knowing the final selling price as in the case of food products or consumer goods.

In this case, the most advisable thing to do would be to position yourself, in relation to competitors' prices, by the references you have from other foreign markets or even from the domestic market. When referring to a currency it is always preferable to use the international ISO (alphabetical) standard.

It is a 3-letter code; the first two letters correspond to the ISO of the country: USD for the US dollar, JPY for the Japanese yen, GBP for the pound sterling, EUR for the euro, CHF for the Swiss franc, etc....

HERE ARE SOME MORE EXAMPLES OF INTERNATIONAL PRICES:

1. Tiered prices: Tiered pricing is used when you want to differentiate prices according to the country of destination and the purchasing power of its consumers. This strategy is based on the belief that customers are willing to pay different prices for the same product, depending on the level of income in each country. An example of this strategy is the luxury goods company Louis Vuitton, which sets different prices depending on the destination country and currency.
2. Cost-based pricing: This strategy is based on the sum of the product cost plus a fixed profit margin. Costs may vary by destination country due to differences in taxes, tariffs and other export costs. An example of this strategy is the electronics company Apple, which sets prices based on production and distribution costs in each country.
3. Competition-based pricing: This strategy consists of setting the price based on what the competition is charging for similar products. It is important to bear in mind that competition may vary depending on the country of destination. An example of this strategy is the Coca-Cola beverage company, which sets prices based on what its local competitors are charging in each country.
4. Market penetration prices: This strategy is used when you want to enter a new market and gain market share quickly. A low price is set to attract customers and gain market share. An example of this strategy is the cleaning products company Procter & Gamble, which sets low prices for its products in developing countries to gain market share.
5. Value-added pricing: This strategy is used when you want to differentiate your product from the competition by including additional features or services. Prices are higher because of the additional costs, but the company can earn more profit. An example of this strategy is the beauty products company L'Oreal, which sets higher prices based on the quality and innovation of its products.

HERE ARE SOME PRACTICAL EXAMPLES OF INTERNATIONAL PRICING:

1. Coca-Cola: has different prices for its product in different countries. For example, in the United States, a 12-ounce bottle of Coca-Cola costs about $1, while in Mexico, a 16-ounce bottle of Coca-Cola costs about 50 cents. This is because Coca-Cola adjusts its prices according to the purchasing power of consumers in each country.
2. Nike: also has different prices for its products in different countries. For example, a pair of Nike Air Max trainers costs around $150 in the United States, while in India, the same pair of trainers can cost around $200 due to import duties and costs.
3. McDonald's: also adjusts its prices according to the country. For example, in the United States, a cheeseburger costs around $2.50, while in Sweden, the same burger costs around $5 due to higher ingredient costs and taxes.
4. Apple: also adjusts its prices depending on the country. For example, an iPhone 12 Pro Max costs around $1,099 in the US, while in India, the same iPhone costs around $1,600 due to taxes and import costs.

These examples show how companies adjust their prices according to production costs, taxes and the purchasing power of consumers in each country. International pricing can be a complex process, but it is essential to the success of companies seeking to expand into foreign markets.