Winning bids and expansion

How to handle price negotiations when exporting

What you’ll learn

  • how set a minimum price for your product before negotiating
  • the key factors which may influence your price negotiations
  • how to avoid common pitfalls

When you need to negotiate on price

You may need to negotiate on price when pitching for new business – especially if you’re selling your product through distribution partners, or as part of a tender process.

How long this takes depends on many factors, such as the complexity of your market, who you’re selling to, volume of sales, and how negotiations are handled culturally in your target market.

For example, if you’re negotiating the price of a single product through a distribution partner it might be easy to agree. Whereas tendering for a large government contract may be a much longer and formalised process.

Factors which may influence your price negotiations

While negotiating on price, it’s important to:

  1. Set a minimum price for your product

    Before entering into negotiations, set the absolute minimum price you can sell to your distributors, and still make a profit.

    To do this, spend time within your business doing cost-price analysis. This involves assessing the unit or list price of your product against any costs which can affect this.

    For example, this may include your cost of freight, import duties, insurance, inland transport, and warehouse storage.

  2. Agree the time frame (price validity)

    When you agree a price for your product make sure you’re aware of the time frames you’re committing to – and assess whether this is a risk or not to your long term interests.

    For example, if you sell manufacturing goods and your distributor ties you into a fixed price for 3 years you’ll have to pay for any increase in the cost of your raw material during that time.

  3. Warranty clauses

    Be aware of warranty clauses in any price negotiation. These require you to cover the cost of any repairs or replacement of your product over a given time frame. This is particularly important if your product depreciates over time and is made of parts which are expensive to repair or transport. The costs incurred for an extra 2 years of parts and repair in the Middle East market, for example, may be considerably higher than that for the domestic market.

  4. Competition

    In any negotiation, you should be aware of who you’re in competition with. If you’re up against a similar-sized company, you may be able to reduce your prices to gain a distribution deal. But this could be very different if you’re competing against a larger corporation or state provider.

    For example, you may not want reduce your margins if you’re competing with a large Chinese corporation with far greater funds than you. It would be better to focus on other areas, such as the quality of your product or any additional warranty period you can offer when agreeing the price.

  5. Technical requirements

    It’s a common requirement to provide a range of technical documentation and specifications about your product before entering into negotiations. So, you should be prepared to speak with technical teams before you discuss price.

    For example, if you sell computers to an EU country you will need to demonstrate your product meets their IEC standard for information technology equipment.

  6. Cultural differences

    The accepted process for negotiating may differ between markets. For example, it’s now common for price negotiations to be conducted on conference calls or even over email. But you may find in some cultures you are expected to meet face-to-face, where possible. 

    To understand how negotiations take place in your new market, work with local partners or advisers who have experience of doing business in the region.

Before you enter negotiations over price make sure you’ve done your homework. That means understanding your business, what motivates your pricing strategy – and what your absolute bottom line is.

International trade adviser

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