Step 3: Approaches to pricing

Three broad approaches will guide your pricing strategies

You have completed the formal costing exercise and you now know what your costs are.
The next step is to decide on an export price. This decision is divided into to parts; the
first is to decide on the broad pricing approach you intend to follow (which we discuss
below) and the second is to decide on a specific pricing strategy. As far as the broad
approaches to price setting are concerned, there are essentially three ways in which you
can approach your pricing in foreign markets. These are discussed below:

1. Competitor-oriented pricing

In terms of this approach, your pricing decisions would depend on what the competition
does. Competitor-oriented pricing is the approach to follow when you are dealing with a
market where prices are openly set through the process of supply and demand as in the
case of most commodity markets such as coal, coffee, wheat and gold. It is also common
in markets where there are one or two powerful competitors that set the price levels, for
smaller suppliers to follow.

2. Cost-oriented pricing

In the case of cost-orientated pricing, you would calculating your total unit cost and add
on a profit margin to arrive at an export price. Consumer demand or competitor actions
thus have little bearing on your decision-making. This approach is commonly used in the
case of industrial goods where it is often difficult to differentiate between products in
terms of their perceived value to the customer.

3. Demand-oriented pricing

Also referred to as market-orientated pricing, the demand-oriented company sets prices

according to the intensity of demand for the product. Where demand is strong high prices
are normally set, and where demand is weak lower prices are the norm. The unit cost is
not a major determinant of pricing in this case, although it is obviously taken into
consideration when the lower limit on a price is considered. Demand-oriented prices are
usually applied to branded consumer goods but they may also be appropriate in respect of
many industrial products.

From pricing approaches to pricing strategies

In formulating an optimal pricing strategy for your export markets, it is important to

recognise and accept the approach to pricing that you intend to follow (these have been
discussed above), as your approach will to a large extent determine the export pricing
strategy that you will ultimately implement. In the next section we will discuss the
various export pricing strategies at your disposal. The strategy that you will eventually
adopt might any one or more of the following objectives in mind:

 Aiming to reach a particular profit level

 Striving to become a low-cost competitor
 Attempting to carve out a specific market share for your firm
 Establishing an acceptable market image (as a bargain or premium supplier)
 Reinforcing a product differentiation strategy that you may have decided to
follow in a particular market, i.e. based on a unique feature which differentiates
your product from its competitors
 Combating competition
 Attempting to stabilise prices
 Creating a competitive advantage for your firm based on your price
 Securing wider distribution by offering your intermediaries a great share of the
income