COST PRICE AND SELLING PRICE ON THE EXPORT MARKET

1. COST PRICE AND SELLING PRICE ON THE EXPORT MARKET

2. Introduction • Conditions of success on the export markets: - regulation and tariff barriers - demand - competition - price postitioning • Prices are often the key point in the buyer’s decision

3. To optimize its price policy, the export company has to: - determine its export cost price - identify the market price of the targeted country - identify the different margins of the channels of distribution of the targeted country - calculate an EXW export target price

4. calculation of the export costprice PART 1

5. Raw materials + Direct production costs + Special product or packaging modification costs (may be amortized or anticipated volume) = Production costs of the export product + Costs of export distribution: - export department costs (salaries, fixed costs of equipment…) - travel expenses / accommodations and direct export sales costs. - advertising, promotion, exhibition + Other costs of management and general administration expenses (relative to export turnover) + Financial and credit risk costs (civil liability, insurances…) = Export cost price + Profit margin = Export EXW price

6. Then to determine the EXW selling price, it is necessary to understand that the export DDP price will be the importer’s cost price. • The importer will take a margin considering this DDP price – the margin is always a percentage of its selling price – (and not of the DDP purchasing price).

7. examples showing the impact on a retail price of the export exw price PART 2

8. A French producer of cognac prospects the Japanese market. There are 15% duties on the CIF price of cognac at the entrance of Japan. The company prospects a major and national importer who could resell to regional wholesalers able to supply wine and spirit stores.

9. 1stexample PRIXINCOTERM Ex Factory Price (idem domestic market) 100 EXW Domestic transport (+2) 102 Handling and loading costs (+1) 103 FOB Le Havre International transport (+8) 111 CFR Tokyo Insurance (+1) 112 CIF Tokyo Post-transport (+1) 113 Duties: 15% based on CIF value (15% x 112) 130 DDP Tokyo Importer selling price ( margin 35%) 200 Inland freight (+2) 202 Wholesaler selling price (margin 30%) 288,50 Retail price (coef 2,2) 634,70

10. Comparison with domestic market: Ex Factory Price 100 + domestic transport (+2) 102 Wholesaler selling price (margin 30%) 145.70 Retail price (coef 2.2) 320.50

11. 2nd example PRICE INCOTERM Ex Factory Price (idem domestic market) 100 EXW - Domestic sales force + export department - 12 - Advertising / Promotion - 5 Net Ex Factory Price = 83 Domestic transport (+2) 85 Handling and loading costs (+1) 86 FOB Le Havre International transport (+8) 94 CFR Tokyo Insurance (+1) 95 CIF Tokyo Post-transport (+1) 96 Duties (15% based on CIF value) +14 110 DDP Tokyo Importer selling price (margin 35%) 169 Inland freight (+2) 171 Wholesaler selling price (margin 30% ) 244 Retail price (coef 2.2) 536

12. exercice PART 3

13. Export of duckliver to Spain • You have an internship in a French company manufacturing Foie gras (duck and goose liver) • You run a market survey of the Spanish market and get the following information after visiting some stores: - average retail price (market survey) = 60 € - VAT 6% - transport cost from France to Spain = 5% of the EXW price - retailer margin: 25% - wholesaler margin: 15% • Question : calculate the target EXW price (of the manufacturer) to meet the average retail price in Spain.

14. Correction Retail price 60 € • VAT 6% 56.60 € (60 : 1.06) • Retailer margin 42.45 € (56.60 x 0.75) • Wholesaler margin 36.08 € (42.45 x 0.85) • Transport costs 34.36 € (36.08 : 1.05) (5% of the EXW price) The target EXW price is 34.36 €. This price will permit to meet the market price in Spain.