Export planning and pricing by GEORGE DIAMANDIS

EXPORT PLANNI NG & INTERNATIONALPRICING

CONTENTS EXPORT PLANNING AND INTERNATIONAL PRICING ........................................................... 2 ABSTRACT AND LEARNING OUTCOMES ................................................................................. 2 EXPORT PLANNING ........................................................................................................... 2 1. INTRODUCTION TO EXPORT PLANNING ............................................................................ 2 1.1 Why Plan? ..................................................................................................................... 2 1.2 What is an Export Business Plan? ................................................................................. 3 1.3 What is Export Business Plan for?................................................................................. 3 1.4 Structure of Export Business Plan ................................................................................. 4 2. MEASURING EXPORT READINESS ...................................................................................... 4 3. ANALYSIS OF INTERNAL ENVIRONMENT ........................................................................... 6 3.1 The Company ................................................................................................................ 6 3.2 SWOT Analysis............................................................................................................... 7 4. ANALYSIS OF EXTERNAL ENVIRONMENT ......................................................................... 10 4.1 Analysis of Micro Environment ................................................................................... 10 4.2 Market Characteristics ................................................................................................ 11 4.3 Competition ................................................................................................................ 11 4.4 Analysis of Macro Environment .................................................................................. 13 INTERNATIONAL PRICING ................................................................................................ 15 1. FACTORS AFFECTING THE PRICE ....................................................................................... 15 2. SHORT-TERM AND LONG-TERM GOALS ........................................................................... 16 3. SELECTING PRICING MODEL ............................................................................................. 17 GLOSSARY OF TERMS............................................................................................................ 18 SUPPORTING MATERIALS AND LINKS ................................................................................... 19 APPENDIX: OUTLINE OF EXPORT BUSINESS PLAN ................................................................ 20

EXPORT PLANNING AND INTERNATIONAL PRICING ABSTRACT AND LEARNING OUTCOMES The purpose of this training module on Export Planning and Pricing is to help companies, which do not have enough experience in international trade activities, to understand the basic elements of export planning and pricing By the end of this module the trainees are expected to learn about: o o o o

What an export business plan is and why it is important to planning exports How to assess whether their businesses are ready for exporting How to analyse internal and external environment before exporting How to set a proper pricing strategy for export

The training module proceeds as follows. The first chapter explains why it is important to plan exports, what an export plan is and its purpose of use. The second chapter defines the principle questions to ask while assessing export readiness. Third and fourth chapters present relevant tools for analysing company internal and external environment while setting export strategy. Last chapter is about international pricing and its principles.

EXPORT PLANNING 1. INTRODUCTION TO EXPORT PLANNING 1.1 Why Plan? Planning defined as a basic management function involving formulation of one or more detailed plans to achieve optimum balance of needs or demands with the available resources. By containing optimisation and resource allocation together, planning is a key for the future success in business life. Planning as a process; identifies the goals or objectives to be achieved; formulates strategies to achieve them; arranges required resources; and implements, directs, and monitors all steps in their proper sequence.1 When planning comes to trading in the global arena, there should be some other issues to consider in this process. These issues can be regarded as unpredictability or riskiness of global market. Planning and determining an export path should therefore include these elements in order to achieve the optimum level of success in international trade. 1

(http://www.businessdictionary.com/definition/planning.html)

Starting an export business without an appropriate planning would undermine the prospects of success and this failure in international trade would eventually affect the course of domestic trade. That is why enterprises which intend start an export business should carefully screen the available markets, options for entry to those markets and etc. in order not to overlook any of exporting opportunities. In the case of lack of success in early exporting efforts, the company may be led to abandoning all exporting activities. Formulation of an export business plan, which is based on proper information and assessment, increases the possibility of choosing the best options, efficient allocation of available resources and the success of all efforts as an ultimate goal. 1.2 What is an Export Business Plan? Export business plan is a business plan that focuses on international markets and a guideline for the development on a global scale. It identifies the target market(s), export goals, necessary resources and anticipated results in a quite comprehensive manner. 1.3 What is Export Business Plan for? The main purpose of export business plan is to show everything devised for commercial operations abroad. Its purpose, function and content make it one of the most important strategic and tactical documents in the business. Individual purposes of export business plan are; • •

To bring all relevant exporting instruments together in a productive “mix”. To give direction to all planned activities for optimal effect. This direction is outlined in the objectives; - Estimation of which activity should take place and when. This timing will clarify the logical sequence, - Estimation of how much the activities are going to cost, in order to make the financial resources available whenever necessary, - Estimation of feasibility by deducting all costs from the profit to establish if the results are worth those costs.

Export business plan functions as to; • • •

Inform all people involved in the accomplishment of objectives defined for export activities, Give them specific instructions as to what their contributions to these activities will be, Provide a certain justification for the financial resources that will be spent in the export process.

The plan should be prepared as short, precise and complete. The answers to the following questions should be contained therein; • • • • • • • • • • •

Which products are selected to be exported? Are there modifications needed in the product(s) to go beyond the domestic market? What are the target market(s) for the export business? What is the basic customer profile? Which marketing and distribution channels will be used to reach customers? Are there special challenges to be faced in target market(s)? How will be the pricing strategy? What are the human and/or company resources to be used in exporting activities? What are the operational actions? What about timing? What is the amount of necessary budget? What are the feedback actions?

An export plan should include specific and clear set of instructions and to identify every step of the process. The initial plan may need to be modified as the process goes on and results obtained. 1.4 Structure of Export Business Plan Export business plan has similar content with a regular business plan. Much like business plan, export plan focuses on key factors such as strengths, weaknesses, opportunities and threats in the global arena. The main differences between business and export plans lie in their purposes of use. While business plan is generally used for having an overall picture of future of company, export plan focuses mainly on international markets and used for the development in a global scale. Both give the company more credibility with investors, who will ask the company to prove the capacity for exporting. Export plan should cover a period of at least 3 to 5 years – although long-term plans can cover a period of up to 10 years. An outline for export business plan is provided in Appendix.

2. MEASURING EXPORT READINESS Before developing export business plan relevant to the outline provided, a comprehensive measure of export readiness would help to identify export objectives and also to insert the relevant answers to the export plan. Export activities require a considerable level of use of relevant administrative, financial and productive resources. That is why there is a need of preliminary evaluation before deciding on taking start in export activities by answering some specific questions. Even if the context of this evaluation may take different forms, the questions given below are the ones that generally asked.

Domestic Performance • •

Why is the firm performing well in the domestic market? What is the present market share of the product that will be exported?

Commitment and desire of the company for exporting • • • • • • •

What is the export purpose of the company? What is the level of export department in the hierarchical structure of the company? In which level of staff will be assigned for export activities? Is there a need for new recruitments? What are the experiences of the company or its staff regarding foreign markets and exports? Is the company willing to take start in exports? Is the company willing to take risks?

Competitiveness • • •

What will make the products or services of the company competitive in a foreign market? What are the unique aspects of the products or services? What are the general competitive advantages of the company? (technology, patents, skills, and etc.)

Target Markets • • • • • • •

Which groups in the market are targeted? How are the foreign competitors performing in the target market? Will the product be restricted by tariffs, quotas and other obstacles? Is the product appropriate for the foreign customers’ culture, traditions and beliefs? Is there a need for protection of product by patent/trademark rights? What are the requirements of labelling? Are there environmental restrictions? Is there a need for adaptation to environmental rules?

Product Marketing • • • •

How will the product advertised? Who will represent the company in the target market? Will the company assign an intermediate agency for the operations in export market? Is there a prototype of the product that can be presented to the target customers? 5

•

Will the product be sold with the same name?

Pricing and Trading Conditions • • • • •

How will the price be calculated? What are the service conditions? What are the payment and credit conditions? How long is the warranty period of the product? What are discount conditions?

3. ANALYSIS OF INTERNAL ENVIRONMENT In addition to the export readiness, the company should comprehensively analyse its internal and external environment while planning exports. Environmental analysis of a business enterprise includes both internal and external forces that affect the operations of the business. The internal factors are generally regarded as controllable, while the external factors are by and large beyond the control of the business. So, the success in the external environment mostly depends on a large extent on the adaptability to the environment. Expansion to international markets requires a testing of all organisational factors affecting current operations of the business. The way that the company operates in the domestic market does not always fit to international markets and that is why the company has to reevaluate its business functions and strategic actions in detail. Planning of export operations requires a clear vision of the present situation and future expectations. An internal analysis then leads to a realistic company profile, which is the determination of the firm’s strategic competencies and weaknesses.

3.1 The Company Development of company profile can be done in a four-step process: • • •

•

Examination of key aspects of the business’s operation and target areas for further assessment, Comparison of these aspects with past abilities of the firm, Establishment of a comparative basis in relation to key market or product conditions in order to more accurately determine whether the company’s condition on a particular factor represents a potential strength or weakness, Provision of results from previous steps as an input into the strategic management process and decisions made for the entrance the foreign arena.

The objective of company analysis is to determine how export will affect the current business and to identify the main capabilities and needs. This process should be done as objectively and honestly as possible. The aim is to determine if the benefits of exporting exceed the anticipated costs. 3.1.1 The Product Review of the products and services is necessary in order to determine whether they have export potential. Other important aspects about the products or services to be exported are; their prices and costs, channels that they perform best, their suitability for overseas markets in their current form and the necessary modifications, requirement of licence or permit for export, additional marketing materials or support. 3.1.2 Resources and Business Processes -

Management and Human Resources â&#x20AC;&#x201C; The evaluation of current in-house expertise in export and identification of whether additional facilities/manpower needed is very crucial to grow the export capability of the company. The company management should also develop the operational structure and lines for authority for the export department. Legal and Intellectual Property (IP) â&#x20AC;&#x201C; Evaluation of trademark and other IP; the need to seek additional IP protection in potential overseas markets.

3.1.3 Operations and Production Capacity Evaluation of production capacity consists of; identification of the current production/service capacity and the capacity levels available for export markets, expandability of product/service capabilities to meet market demand and the cost, the existence of seasonal fluctuations in demand for the product/service, the minimum viable order quantity for orders placed to ensure corporate profitability, changes required to design packaging for products specifically for export. 3.1.4 Financial Capacity Evaluation of the availability of current financial situation for export consists of; determination of whether additional capital commitment required by the company to enter export markets, other company financial initiatives that may affect the export plans, approximate time that export effort become self-sustaining financially.

3.2 SWOT Analysis As an acronym for the (internal) Strengths and Weaknesses, (external) Opportunities and Threats of an organization, SWOT Analysis is a well known and commonly used method for assessing a business, its resources and environment. Businesses are not the only type of 7

organizations that can be analysed with this method; for products, places and persons, a SWOT Analysis can be carried out as well. The method has been created by Albert S. Humphrey in the 1960s and since then it kept its importance and usefulness as the same it was then. SWOT Analysis is generally used in the form of a 2x2 matrix, strengths, weaknesses, opportunities and threats are listed singly in each of the matrix boxes. This method is used to make easier the matching strengths to opportunities and converting weaknesses or threats into strengths and opportunities. 3.2.1 Why and When SWOT Analysis? The main idea of SWOT Analysis is; making the most of existing strengths and opportunities and, setting plans and strategies to lower the adverse affects of weaknesses and threats to minimum, all by identifying the internal and external factors of the organization. By analysing the activities being performed well and the areas which need to be improved, one can easily set objectives; generate an effective and comprehensive strategy towards. SWOT Analysis will be a good pathfinder, when there is a need for; a strategic plan to be developed to achieve a specific outcome, clarification of a problem and fast response to it. SWOT Analysis is a good way to list down the facts in an easy manner and then picking the ones to be turned into opportunities. This feature of the method is useful also when the quantitative information is not enough and the facts are tacitly embedded in the people. 3.2.2 How to make a SWOT Analysis? First of all, there are some prerequisites to be kept in mind before starting the analysis: -

SWOT Analysis needs to be made by the collective work of people from various departments of the organization in order discuss the facts in detail with different points of view. Having a realistic and objective stance would yield better results and thus correct strategies. Looking from a wide angle and not focusing on just a few perfect or problematic areas are important to clarify the missing pieces.

By considering the issues above, the elements of strengths, weaknesses, opportunities and threats can be listed down. Strengths The very basic question of revealing the internal strengths of a company is; what do you do better than anyone else? The question is narrowed down with the competitors around the company. Because a good performance is not a strength anymore if others also has the same level of it. However, for example, if you serve your customers by differentiating just a little

part of your process and if this increases the customer loyalty more than the others, this can be classified as a strength. Strengths can be seen in terms of the staff, product or service quality, process, technology and etc. and also customers’ opinion about your company. Listing down all the characteristics would help to pick the ones fall under the strengths. Exaggeration of basic characteristics would not create realistic results. Weaknesses The answers to the question of “What are the areas to be improved for not to fall behind the competitors? ” would serve as weaknesses of the company. This can be considered again from both internal and external basis; paying attention to the opinions of the people outside the company would keep objectivity. Thinking about the competitors with realistic comparison of the main characteristics and being ready for unpleasant results would again yield in realistic results and thus better decisions. Opportunities What are the recent developments involving the company and how would they benefit it? Opportunities in the external environment can be listed as; changes in technology and market both in local and global, changes in the government policies in relation to the company’s field of activity, changes in the socio-cultural environment and local events. One could look at internal strengths and consider ways to convert them into opportunities. Alternatively, another good idea would be considering the internal weaknesses, ways for addressing them and making use of them by generating new opportunities. Threats What are the external obstacles that the company faces? The above listed conditions in the external environment can also be threats as well, for instance; changing technology could be threatening the company while some of the competitors have enough capacity to easily adapt the changes. There could be danger of new competitors moving to the field or political environment is acting against company’s field of activity and etc. Thinking about the worst case is important in order to create contingency plans to deal with the possible threats, before they already start to affect the business.

4. ANALYSIS OF EXTERNAL ENVIRONMENT Before entering into a new market, the business should look around carefully and decide whether it will bring success to start operations in that market. Analysis of this new environment should be done in both micro and macro level. While micro environment consists of actors in the immediate one that affect the performance of the firm, such as suppliers, competitors, marketing intermediaries, customers etc.; macro environment consists of larger societal forces that affect the actors in the company’s micro environment, such as demographic, economic, natural, legal, technical, political and cultural forces.

4.1 Analysis of Micro Environment Analysis of micro environment consists of identification of current internal status of the business in relation to the external environment. This process also represents the export potential of the company. In this step, company’s possible competitive advantages abroad should be analysed and a decision made whether the available resources support export activities. As a summary of micro environment analysis, main dimensions are given below: 1) Analysis of pros and cons of market expansion: •

•

Identification of success factors within the domestic market and determination of whether the same factors, such as price and brand image, can be replicated in foreign markets. Exploration of expansion possibilities in the domestic market, whether or not to expand at all, or innovating new products for the domestic market.

2) Research of business’s competitive advantages abroad: •

Comparison of the product or service advantages and disadvantages with those of likely competitors. Some questions to be asked while determining these advantages and disadvantages would include: Can we sell the product abroad without changing its form or the manner in which it is marketed? Can we sell the same product but for a different use? Will we have to change the product to make it export worthy? Should we develop a new product for targeted foreign markets?

3) Determination of financial resources: •

Once the competitive advantages, pros and cons of market expansion are determined, necessary financial resources to support exporting and whether there is a need for additional capital should be specified.

4.2 Market Characteristics The ability to make successful export plans depends on the ability to collect appropriate and valid information about international markets (Morgan et al., 2003). Without a deep understanding of the foreign market, companies will not be able to develop efficient and effective export marketing programmes. Therefore they should establish a clear system for collection, dissemination and utilisation of information necessary for export activities. The necessary information that the company should seek for consist of; the magnitude of the target market, its growth rate, demographics, targeted segments or niches, consumption capacity of each segment, total expenditure on similar products, the possibility of the product to be popular and competitive in sophisticated markets or in developing countries, new trends, general future outlook of the market and other opportunities, requirements for after-sales services.

4.3 Competition Research and analysis of competitive conditions in the target market, starts with identifying the main competitors in that markets. A SWOT analysis should be conducted for these competitors as well. An outline of their strengths and weaknesses and which strategic moves they likely to make in response to the opportunities and threats presented by the market would be helpful. Because these opportunities and threats are not only drivers for the companyâ&#x20AC;&#x2122;s own performance, but will also direct the other players and possible new market entrants. To make a specified identification for competitors, the information that will be collected should include following dimensions; major and minor competitor details, their number, market share and level of sales, which competitor dominates in which product segment/distribution channel; assessment of the competitors in terms of quality, price, packaging/presentation, advertising and promotion, delivery, performance, level of customer loyalty, credit terms and customer service; need for emulating them for the purpose of penetration to the market; potential threats from substitute products and new competitors and etc. To have a more general picture or the competitive conditions in the target market, a useful tool, Porterâ&#x20AC;&#x2122;s Five Forces Model, can be developed. 4.3.1 Porterâ&#x20AC;&#x2122;s Five Forces Model of Competition

The model is one of the various vital frameworks of Michael Porter (Management Researcher in Harvard Business School) for developing an organization’s strategy. The model is useful because it helps companies identify both strength of their current position, and strength of a position that is desired to be moved into. According to Porter, the nature of competition in any industry is personified in the following five forces: 2

Threat of New Entry

Bargaining Power of Suppliers

Threat of Subsitution

Competitive Rivalry

Bargaining Power of Buyers

Bargaining Power of Suppliers: Suppliers refer to the firms that provide inputs to the industry. Bargaining power of the suppliers refer to the potential of the suppliers to increase the prices of inputs (labour, raw materials, services, etc) or the costs of industry in other ways. Strong suppliers can extract profits out of an industry by increasing costs of firms in the industry. Supplier’s products have a few substitutes. Strong suppliers’ products are unique. They have high switching cost. Their product is an important input to buyer’s product. They pose credible threat of forward integration. Buyers are not significant to strong suppliers. In this way, they are regarded as a threat. Bargaining Power of Buyers: Buyers refer to the customers who finally consume the product or the firms who distribute the industry’s product to the final consumers. Bargaining power of buyers refer to the potential of buyers to bargain down the prices charged by the firms in the industry or to increase the firms cost in the industry by demanding better quality and service of product. Strong buyers can extract profits out of an industry by lowering the prices and increasing the costs. They purchase in large quantities. They have full information about the product and the market. They emphasize upon quality products. They pose credible threat of backward integration. In this way, they are regarded as a threat. Threat of Substitute Products: Substitute products refer to the products having ability of satisfying customers’ needs effectively. Substitutes pose a ceiling (upper limit) on the 2

http://www.managementstudyguide.com/porters-model-of-competetion.htm (accessed on 27.02.2013)

potential returns of an industry by putting a setting a limit on the price that firms can charge for their product in an industry. Lesser the number of close substitutes a product has, greater is the opportunity for the firms in industry to raise their product prices and earn greater profits (other things being equal). Threat of New Entrants: Potential competitors refer to the firms which are not currently competing in the industry but have the potential to do so if given a choice. Entry of new players increases the industry capacity, begins a competition for market share and lowers the current costs. The threat of entry by potential competitors is partially a function of extent of barriers to entry. The various barriers to entry are: •

Economies of scale

•

Brand loyalty

•

Government Regulation

•

Customer Switching Costs

•

Absolute Cost Advantage

•

Ease in distribution

•

Strong Capital base

Rivalry among Current Competitors: Rivalry refers to the competitive struggle for market share between firms in an industry. Extreme rivalry among established firms poses a strong threat to profitability. The strength of rivalry among established firms within an industry is a function of following factors: •

Extent of exit barriers

•

Amount of fixed cost

•

Competitive structure of industry

•

Presence of global customers

•

Absence of switching costs

•

Growth Rate of industry

•

Demand conditions

4.4 Analysis of Macro Environment Macro Environment analysis is a review of all the factors that a company unable to control. The market dictates the rules of the global play that the company is about to enter. The key questions here: Can you deal with the market trends? Do the trends offer you chances or challenges for export success? Together with the competitor analysis (Porters Five Forces), it will determine the decision making for final market selection and market entry strategy. 4.4.1 PEST Analysis

An ideal tool for assessing macro-environment of business is PEST analysis which stands for “Political, Economic, Social and Technological” analysis. There are several extended or varied versions of this tool, in which some factors are dissociated from their families in PEST method and included separately as Ecological, Ethical, Ethical or Legal. It is a matter of personal choice, but for most situations original PEST analysis model arguably covers all of the ‘additional’ factors within the original four main sections. The main items that should be included in the analysis are given in the table below 3. The items can be described as whether they represent an opportunity or threat for the company to operate in the target market. Another method to conduct the analysis would be scoring the items in each of the sections. Scoring is particularly beneficial if more than one market is being analysed, for the purpose of comparing which market or opportunity holds most potential and/or obstacles. Political Economic • Ecological/environmental issues • Home economy situation • Current legislation home market • Home economy trends • Future legislation • Overseas economies and trends • International legislation • General taxation issues • Regulatory bodies and processes • Taxation specific to product/services • Government policies • Seasonality/weather issues • Government term and change • Market and trade cycles • Trading policies • Specific industry factors • Funding, grants and initiatives • Market routes and distribution trends • Home market lobbying/pressure • Customer/end-user drivers groups • Interest and exchange rates • International pressure groups • International trade/monetary issues • Wars and conflicts Social Technological • Lifestyle trends • Competing technology development • Demographics • Research funding • Consumer attitudes and opinions • Associated/dependent technologies • Media views • Replacement technology/solutions • Law changes affecting social factors • Maturity of technology • Brand, company, technology image • Manufacturing maturity and capacity • Consumer buying patterns • Information and communications • Fashion and role models • Consumer buying mechanisms/technology • Major events and influences • Technology legislation • Buying access and trends 3

http://www.businessballs.com/pestanalysisfreetemplate.htm

• • •

• • • •

Ethnic/religious factors Advertising and publicity Ethical issues

Innovation potential Technology access, licensing, patents Intellectual property issues Global communications

INTERNATIONAL PRICING If a product of a company is successful in domestic market, the company can be identified as it is good at setting an effective pricing strategy. However, an international pricing strategy should be completely independent from domestic pricing. In order for the product to be successful in foreign markets too, it may need to be rearranged according the target market conditions and this will eventually change the cost structure, thus the prices. The following steps would help to set a proper pricing strategy: 1. Identifying the factors that will affect the price 2. Determining short and long term goals 3. Selecting appropriate pricing model

1. FACTORS AFFECTING THE PRICE The following costs and expenses, for the product(s) to be exported, should be taken into account while calculating the export price: • • •

Direct materials and labour costs Factory overhead costs All operating expenses from product catalogues to taxes

It is important to allow a realistic price margin for unforeseen production costs, operating expenses, unavoidable risks and simple mistakes. Other factors affecting price are elaborated below: o Revenue Target Companies should have a revenue target for how much of a profit they want to make. That revenue target plus the costs for producing, marketing and selling make the final price per product. What a company should do is to estimate the number of units of a product which they expect to sell over the next year. Then divide the revenue target by the number of units expected to be sold and the company have the price at which they need to sell their product in order to achieve the revenue and profit targets. o Competition It is always helpful to know whether company’s competitors offer comparable products and be aware of their pricing. However, if a company puts an additional

value to their products compared to the competitors, then they could come up with higher pricing. The following is essential in this regard: • Offer additional service • Provide higher quality • Consider regional differences • Consider the costs o Market Trends Any company should continuously update their knowledge of outside factors that will impact the demand for the product in the future. These factors can vary from environmental and climate conditions through legislation to economic and financial crisis. Companies need to be flexible and adaptable in order to respond to the market developments and new trends. They need to keep on testing new offers, new prices, new combinations of benefits, etc. It is a fact of fat of the business life that if a company do not raise their prices from time to time as part of the successful management, they will not remain in the market too long. However, prices and costs should be constantly monitored, so that the company stay both competitive on the market and make the profit against their targets. The best way for a company to be sure that the products are priced correctly is by the sales volumes after making a certain change. For example, this can involve keeping a sharp eye on the cash collections for several weeks after the change. If a price increase is too high, customers will react immediately. On the other hand, it always help to watch the reaction of the competitors, i.e. if the change in prices proofs to be positive, then the competitors are most likely to do the same.

2. SHORT-TERM AND LONG-TERM GOALS Before selecting a proper model for pricing, the company should determine the short and long term goals of the business. Choosing a model that does not align with the course of the company may lead to failure in export voyage. For instance, if the company needs to acquire as much of the market as possible to be successful in the long run, it would be a poor decision to price the product as a luxury good. Likewise, a company aiming to compete with a leading luxury brand may ruin its chances by pricing its products at a discount. Some possible objectives to be considered: • • • •

Be viewed as a luxury brand Be viewed as value or high-quality brand Maximize short-term profits to attract investors Maximise short-term revenue to please new investors

â&#x20AC;˘

Profit maximisation

3. SELECTING PRICING MODEL After taking into account all possible factors that affect the price and short and long term objectives for pricing, it is time for selecting a proper pricing model. There are many ways to price a product. The following ones are some of them but quite inclusive to fit various situations while setting pricing strategy: o Premium Pricing The principle is using a high price where there is uniqueness about the product. This approach is used where a substantial competitive advantage exists and the product can be classified as luxury. o Penetration Pricing The principle is to set prices artificially low in order to gain market share. One this is achieved, the price is increased. o Economy Pricing The principle is simple pricing while keeping cost of marketing and manufacturing at a minimum. The products which are priced through economy pricing is usually found in supermarkets.

GLOSSARY OF TERMS TERM

Business Plan

Company Profile

Customer Profile

Economies of Scale

Export Plan

Innovation

DEFINITION A communication and guidance tool which aims at providing information on the firm’s operational and financial objectives for the near future (usually one to three years) and to show how they will be achieved. It serves as a blueprint to guide the firm’s policies and strategies and is continually modified as conditions change and new opportunities and/or threats emerge. Short description of items of information in the firm including; firm’s history; number and quality of its human, financial and physical resources; organizational and management structure; past, current and anticipated performance; its reputation and the standing of its goods and services. Review of company profile is an important activity, comes just after setting export objectives in order to determine whether the product/service appropriate and existing business functions are sufficient for getting into export activities. A description of a firm’s typical customers in terms of demography, geography, psychology, characteristics as well as buying patterns, creditworthiness and purchase history. Customer profile in the target market should be carefully screened in order to specify the differences between existing customer profile in domestic market and target customer profile in target market, and adapt the product for the target customer’s needs and preferences. Achievement of lower average cost per unit through a larger scale of production. Economies of scale can be accomplished because as production increases, the cost of producing each additional unit falls. Firms intending to enter overseas markets will have larger market base and save costs by producing on a scale that makes better use of resources. Export plan is actually a business plan that focuses on international markets and a guideline for the development on a global scale. It identifies the target market(s), export goals, necessary resources and anticipated results in a quite comprehensive manner. Implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations.

Intellectual Property (IP) Lobbying

Pressure Groups

Pricing

The minimum requirement for an innovation is that the product, process, marketing method or organizational method must be new (or significantly improved) to the firm. (Oslo Manual, 3rd Edition, 2005) Knowledge, creative ideas, or expressions of human mind that have commercial value and are protectable under copyright, patent, trademark and etc. from imitation. The act of trying to persuade authorities, usually an elected member of a government, to support laws or rules that give particular bodies an advantage. The way that a company decides for its products and services. It usually depends on the firm’s average costs and on the customer’s perceived value of the product in comparison to his or her perceived value of the competing products. Firms should decide a pricing method to be followed while exporting to foreign markets which varies based on degree of emphasis on selection, estimation and evaluation of costs, comparative analysis and market situation. The way that a company decides for its products and services. It usually depends on the firm’s average costs and on the customer’s perceived value of the product in comparison to his or her perceived value of the competing products. Firms should decide a pricing method to be followed while exporting to foreign markets which varies based on degree of emphasis on selection, estimation and evaluation of costs, comparative analysis and market situation.

SUPPORTING MATERIALS AND LINKS A sample export business plan: http://www.bplans.com/coffee_export_business_plan/executive_summary_fc.php A webinar on How to write an Export Plan: http://www.youtube.com/watch?v=pxJ13bdYQoY About pricing strategies: http://www.youtube.com/watch?v=XBmWEduod5k

APPENDIX OUTLINE OF EXPORT BUSINESS PLAN 4 Table of Contents Executive Summary (one or two pages maximum) Introduction: Why This Company Should Export Part I Export Policy Commitment Statement Part II Situation/Background Analysis • • • • •

Product or Service Operations Personnel and Export Organization Resources of the Firm Industry Structure, Competition, and Demand

Part III Marketing Component • • • • • •

Identifying, Evaluating, and Selecting Target Markets Product Selection and Pricing Distribution Methods Terms and Conditions Internal Organization and Procedures Sales Goals: Profit and Loss Forecasts

Part IV Tactics: Action Steps Primary Target Countries • Secondary Target Countries • Indirect Marketing Efforts •

Part V Export Budget • 4

Pro Forma Financial Statements

Adapted from Export.gov

Part VI Implementation Schedule Follow-up • Periodic Operational and Management Review (Measuring Results Against Plan) •

Addenda Background Data on Target Countries and Market Basic Market Statistics: Historical and Projected • Background Facts • Competitive Environment •

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