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7. A READER ASKS: Q&A
*Subscriber Exclusive*
Q: To Ask The Expert,
I am the V.P. of International Sales for an office supply manufacturer. Our products are not unique. Therefore, I have found it extremely difficult to export our products although I have done so in the past but on the basis of quoting a very low price with hardly any profit. I then attempt to make up for the per unit profit shortfall with volume orders.
I have always felt that if we price our products at “marginal costs” rather than at full cost, we would have a much better chance at continuing to increase our exports. Are you aware of studies on this issue? How can I intelligently address this point with the CEO of the company? I have approached him on this subject but I do feel if I had information to support my theory, I would have a better chance at changing his mind.
A: From Laurel,
Thank you for your question.
When you refer to “marginal costs,” I am assuming you mean “profit margin.” Also, it looks as if you believe that offering plastic alternatives overseas at a slightly lower price than your domestic selling price (full price) is the key to greater export success. For the record, exporters typically take a 10% to 15% markup over their manufacturing cost.
One of the first measures companies practice in order to remain competitive in the global marketplace is severe price-cutting tactics and oftentimes at the risk of operating at a loss. If you offer a price-reduction strategy merely as a knee-jerk reaction to a rough economic climate, over the long haul, it won’t work. You must develop an export action-plan that supports a process. You are already successful on your export initiatives. Now it is just a case of doing more of the same but with greater discipline and flair.
To build up your exports, start selling in new countries or territories; develop healthier relationships with your distributors and agents; create a more innovative and effective international sales and marketing strategy in general; request your staff takes on more responsibilities; sell more on open account with export credit insurance and work more closely with your credit manager.
The next step is to cut expenses. Here are eight ways to go about it:
1. Shift your production to a lower-labor-cost nation.
2. Cut production costs. Eliminate unnecessary employees and hire temps or contract out when you need to fill in.
3. Build your sales force according to the needs and demands of your overseas customers. For example, if your customers demand extra service, make sure they get it.
4. Reduce the U.S. content of your product to remain competitive overseas.
5. Use the best possible payment method. The one that works best is the one that gets the deal done.
6. Engineer financing from a variety of sources, including U.S. Export-Import Bank (www.exim.gov).
7. Work more closely with your transportation expert (consider going direct).
8. Use the Internet to increase efficiency.
If you put all of the above into play, you will be able to offer more favorable export pricing to your customers, increase your international sales and make your boss happy.
Good luck and let us know what happens.
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