PRICE strategies for (SMEs) in the export market

For small and medium enterprises (SMEs) in Papua New Guinea looking to export their products, establishing an appropriate pricing strategy is a critical aspect of business planning. Appropriate pricing is essential for competitiveness, profitability, and sustainability in international markets.

Understanding Export CostsThe foundation of a solid pricing strategy begins with understanding your export cost per unit product. This includes not just the manufacturing cost, but also overhead costs, administrative costs, and any other costs incurred specifically for the export process. This comprehensive view of costs helps in establishing a baseline for pricing.

Establishing Sales and Profit ObjectivesNext, SMEs must consider their objectives for sales and profit. What return do you anticipate on your investment? What are your financial goals? This will allow you to add a profit margin to your cost price.

Considering Transportation CostsTransportation costs from the factory to the port are another significant factor in the pricing calculation. These may include costs for local transportation and packaging for safe transit.

Long-haul Shipping CostsThe costs of long-haul shipping to your target market can significantly impact your pricing. These costs vary depending on the distance, method of transport, weight, and volume of the goods being shipped.

Additional Costs: Insurance, Documentation, Credit/Payment TermsThe costs of insurance, documentation, and credit/payment terms are other crucial factors. Insurance protects against transit risks, while documentation costs cover paperwork necessary for international shipping. Additionally, offering favourable credit/payment terms to buyers might increase costs but can make your business more attractive to international customers.

Distributive Trade Mark-upsAnother critical consideration is the mark-ups of the distributive trade in your target market. These include mark-ups by wholesalers, retailers, or agents who will be distributing your product in the foreign market.

TaxesFinally, consider the VAT or sales tax rate in your target market. These tax rates differ between countries and could affect your product's final price.

Pricing CalculationThe simplest way to calculate the appropriate pricing is as follows:FOB Price: Unit cost + (profit %) + transport costFOB or Free on Board price represents the cost of goods, profit, and the transportation cost to the port of origin.

CIF Price: FOB + Freight and insuranceCIF or Cost, Insurance, and Freight price adds the costs of long-haul freight and insurance to the FOB price.

Market Price: CIF + duties + handling cost + marketing costsThe market price takes the CIF price and adds in any duties or tariffs imposed by the importing country, handling costs, and the costs associated with marketing the product in the new market.

By adopting this approach, SMEs in Papua New Guinea can set a robust pricing strategy that covers all their costs, targets their desired profit, and ensures their products are competitive in international markets. The effort spent in accurately pricing your products can pay off in sustained success in the world of global trade

Des Yaninen is President of the PNG MSME Council and has been an outstpoken advocate for SME development in PNG for over a decade. He is CEO of Pacifund, a financial services firm that helps SMEs secure bank loans or investment funding. Contact him on email [email protected].