Page 185 - International Marketing

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BRILLIANT'S Overseas Market 187

Market price:
Less: Retail margin on selling price.
Cost to the retailer
Less: Wholesaler's markup on his cost.
Cost of the wholesaler
Less: Importer's markup on his cost.
Cost of importer
Less: Import duty
C.I.F. Price
Less: Freight and insurance charges.
F.O.B. Realization of the exporter.
Having determined the upper and the lower limits of what a firm can
charge, it has to exercise discretion and judgment on the actual price. As
the firm gains experience, it would be able to set prices to provide higher
and higher profitability. Much could also depend upon the relative bargaining
position of the buyer and the seller. Before quoting a price, the seller
should try to determine the real interest of the buyer, he should also try to
get as much information about the market as possible. The more that is
known about the target market and the buyers for the product concerned,
the better placed the exporter is to conduct negotiations and match the
offer to the buyer's needs. While negotiating with the buyer, the exporter
would find it useful to emphasize the total package of the offer. Market
approach is widely used in Japan.
Both the cost and market approaches essentially consider common
factors in determining the final price. The difference between the two
approaches involves the core concern in setting prices. The market
approach focuses on pricing from the view point of the customers. In theory,
pricing may be based on either of the two pricing approaches but in practice
the cost approach is usually followed because of the difficulty in gaining
adequate knowledge of the foreign market and the need to ensure a
satisfactory profit on export transaction.
3. Break-Even Pricing: Break-even pricing involves study of revenues
and costs of a firm in relation to its volume of sales and specifically the
determination of that volume at which the firm's costs and revenues will be
equal. Breakeven point may be defined as that level of sales at which total
revenues equal total costs and the net income is equal to zero. This is
also known as no profit no loss point. The main objective of break even
pricing is to develop relationships of cost, price and volume within a
company's practical range of operations where there is neither profit nor