Product Planning and Pricing Decisions

Introduction

Business isn't that easy you think. It all starts with ground research to understand problem following with developing feasible ideas to provide to the society without exploiting nor your profits. Business can happen when there is provision of product or service to another person obviously for a consideration. When it comes to international trade, a lot more has to be seen. Other than the product, there are several other factors to be embraced s as to have smooth business overseas. 

Let's study market!

Kellogg's from Michigan, United States of America entered Indian market in 1994 with an aim to change the breakfast culture of Indians. Perhaps, they didn't know that India is a multi-cuisined country and even breakfast varies every day. India is the home to people serving ghee wale parathes, idli, poha, wada and dozen more, obviously with a cup of tea or coffee or milk or lassi. It was a tough time for Kellogg's to spread wings in the Indian breakfast market and there, it terribly failed. Kellogg's experienced good purchases after its launch, but they all turned out to be either a trial or a novelty purchase. And surprisingly, very few customers purchased regularly. It was just for a taste. This one-time purchase was because of the bland taste of Kellogg's Corn Flakes which is to be eaten with cold milk for semi crunchy effect. Apparently, there's no sweet, no spice, no butter and no masala. Who would prefer switching from a tasty breakfast to a bland one! But with time, Kellogg's researched and introduced a new product called Frosties, which come ready-sweetened with dissolvable sugars which sweeten the milk when it is added to the bowl. Besides this, the company improved its marketing strategy by adding the touch of motherhood in managing kids and family. Kellogg's started proving its product healthy through various advertising campaigns. They also incorporated display of healthy fruits in their product packaging and started using Indian words like Iron Shakti (power of Iron) in their labeling, which of course attracted a lot of consumers. Kellogg's concentrated on its pricing and came up with a wide range of quantitative packaging. Kellogg's also launched Chocos which became a hit in the Indian market especially among the kids. The most favored snack. 

By now, you would have understood some important factors to be researched and considered before heading global. Let's understand those factors in detail:

International Product Planning

Planning is a blueprint of what you are, how are you doing and what are you going to do! Hence, planning about the product is pretty essential when it comes to stepping into foreign markets. For product to fit in the foreign basket, it should be appropriately designed, should have effective packaging, should have sufficient labeling, should have a reasonable price, should be positioned and promoted in the most marketable way, should offer benefits to the customers. A product should have an answer when a consumer asks, "Why should we buy this?" Let's understand some key points related to product planning.

1. Product Design: Product design is actually a process of visualizing, drafting, testing and developing products as per user needs. Understand needs of the consumer is very important in order to have the most appropriate product design. This is possible only through meticulous research and extensive testing. A good example can be a medicinal pill filled with chemicals which can cure diseases. Chemicals cannot be eaten roughly with rice or chapati nor it can inject always (due to the pain). So, it has a way of consumption. The most safe, effective and the soluble way, which most of the consumers would prefer.  

2. Alteration / Removal of Products: Before stepping into markets, consumer's preferences should be well known. According to this, alterations should be made to the existing product. Similarly, products which do not fit in the line should be removed or stopped manufacturing. A good example can be Tata Trucks which are sold in India as well as many Gulf countries like Qatar, Kuwait, Oman, etc. India has left hand traffic (where steering is on the right side of the vehicle) whereas Gulf countries have right hand traffic (where steering is on the left side of the vehicle). Hence, Tata Motors export vehicles with these alterations and upgrades to these nations on demand.

3. Product Mix: Product mix refers to having variety of product under one corporate identity. Product mix is a classic outcome of diversification. When an organization grows, it tends to imbibe more products within its umbrella and that creates a product mix. An organization should seriously plan whether such product mix is really required or not. A good example can be Lays, Uncle Chips and Kurkure, Tropicana, Mountain Dew owed by Pepsi Co. Such product mixes give a range of products for the consumer to choose. And with effective brand loyalty, the consumer will surely go with an alternate product of the same brand. Like in absence of Kurkure, one may buy lays. 

4. Product Packaging: Packaging is one of the most important elements concerned with handling, protecting and promoting (HPP). Consumers prefer products which are handy and comfortable to hold. Consumers also prefer packaging to be stable enough to protect the product from external environment. Other than this, packaging also acts as prominent tool in promoting the product due to its catchy appearance. A unique example can be the packaging strategy adopted by global food chain giant McDonalds and an Indian start up iD Fresh Food India Pvt Ltd. selling fresh medu wada batter in a squeeze pouch. Check out the below images. 

5. Product Labeling: Labeling is the content which appears on a product package. This is very essential for a brand as many consumers would like to read and know about the product. So, labeling is that part where all such vital information like name of the product, packaging material, guidelines for usage, instructions, chemicals involved, name and place of manufacturer, name and place of marketer, certifications, logos, etc. are displayed. Labeling should not be too much so as to create a clutter for the audience.  

6. Product Pricing: One of the most important decisions for every exporter is to decide upon the right pricing. It should be kept in mind that price of the product should be reasonable so as to attract more customers. In case of luxury or premium products, high price can be justifiably quoted. It should be kept in mind that the price overcomes cost, profit, duties and taxes. In export transaction, goods are sold in bulk to dealers. The pricing is fixed as per international commercial terms which covers cost of the goods, profits, transit insurance, freight and duties. The dealers sell these products at a slightly higher price to overcome their cost of purchase, and the chain goes on till the goods reach the final consumer.

7. Product Positioning: Product positioning is the process which enables a brand to fit in the minds of the people due to its uniqueness. Points like safety, usage, performance, efficiency, reliability, quality, healthy, price, brand image, etc. can be considered as crucial points during brand positioning. 

8. Product Promotion: Product promotion refers to initiating a campaign in a particular market to the right audience with an intention to create sales and developing brand image and loyalty. Promotion is the phase where the marketer makes extensive decisions with respect to convincing the consumers to become a customer. This is very essential for every marketer while stepping into new markets. Promotion includes heavy advertising, guerilla advertising, free samples, promotional offers and discounts, cash backs, etc.

9. After Sales: A company should be well prepared with a fantastic after sales service team which is well trained to equip and deal with customers. After Sales services is that powerful tool which helps a company to hold good and stable relations with customers.

International Product Branding

Branding is the process of giving identity to a product. Branding should be done in such a way that it sounds most appropriate for the product. In general business practice, determining brand names undergo extensive brainstorming process involving pilot study and analysis. A brand name should utmost relate to the product. In short, it should give a sense of feeling of the product which it represents. Let's check a few brands and try to associate it with the product.

Let's check out a few strategies adopted by companies while fixing brand names:

I. General Approach

Brands can be classified based on what they are and how they present. Brands can be widely classified based on various factors like business operandi, business style, business theme, business type and nature and many more. Let's understand types of brands from a general perspective.

1. Individual Brand: A branding strategy where products are given brand names that are newly created which are not connected to names of existing brands sold by the company. Eg. The Coca Cola Company has Coca Cola, Diet Coke, Fanta, Minute Maid, Sprite, Powerade, etc. 

2. Umbrella Brand: A branding strategy where products are given recognition with the use of corporate brand name mainly as a prefix. Eg. Cadbury Dairy Milk, Cadbury Eclair, Cadbury Cocoa Powder, Cadbury Bournvita, Cadbury Shots, Cadbury Five Star, etc.  

3. Service Brands: Brands rendering intangible services assuring solutions for emerging problems are service brands. Eg. Zomato, Ola, OYO, L&T, etc.

4. Corporate Brands: These are products offered by popular organizations under one corporate name without any particular name for the product. Eg. Tata Motors, Tata Salt, Tata Tea, etc.

5. United Brands: A strategic brand name when organizations unite with a common business objective. This can be more of a corporate name and the same name is prefixed for its products and services. Eg. Future Generali, Vodafone Idea, ICICI Lombard, etc.

6. Event Brands: Events can become brands when they strive to deliver a consistent experience that attracts consumer loyalty. Examples include conferences the TED series, sporting events like the IPL, IIFA Awards, etc. The strength of these brands depends on the experience of people attending the event.

7. Geographic Indicator Brands: Place of origin can also be used as a branding strategy. This becomes effective when the mentioned place is a hub for manufacture / cultivation of  such products. Eg. Kanchipuram Sarees, Chennai Silks, Kolhapuri Chappal, Kashmiri Apples, Himalayan Water, Air India, etc.  

8. Media Brands: Brands involved in providing media services so that other brands get limelight. Eg. Zee Media Network, CNN, Indian Express Ltd, Republic Media Network, etc.

9. E-brands: Brands providing services through web can be called e-brands. These organizations can be an e-commerce company. Eg. amazon.com, Behrouz Biriyani (Cloud Kitchen), bookmyshow, bigbasket, etc. 

II. Based on Characteristics

1. Disruptive Brand: Challenges the current ways of doing things and introduces new concepts that substantively change the market.

2. Conscious Brand: Is on a mission to make a positive social or environmental impact or enhance people’s quality of life.

3. Service Brand: Consistently delivers high-quality customer care and service.

4. Innovative Brand: Consistently introduces advanced and breakthrough products and technologies.

5. Value Brand: Offers lower prices for basic quality.

6. Performance Brand: Offers products that deliver superior performance and dependability.

7. Luxury Brand: Offers higher quality at higher price.

8. Style Brand: Is differentiated through the way its products or services look and feel, as much as or more than what they do

9. Experience Brand: Is differentiated through the experience it provides, as much as or more than the product or service. 

Factors Influencing Branding

There are number of factors playing a key role in influencing an organization to adopt the most favorable branding strategy. As it is about giving identity, a lot of factors have to be considered in advanced. Customer's preference and acceptance is very big element while deciding upon brands. A company also considers materials / ingredients as a major factor for deciding upon brand name. Other factors like corporate name, competitor's brand strategy, market, public sentiments, cultures, government obligations and budget play a very major role in making branding decisions.

International Packaging 

Material used to wrap or protect a product is the most basic meaning of packaging. It can also be called as primary packaging. Packaging gives protection, identity and handling facility to an individual product. Many a times, people get confused between the terms packaging and packing. Just make it clear, packing refers to materials used to pack a packaged product or bunch of products exclusively for trade purpose. Let's understand the same through the below images:

Features of Packaging

The below featuring points of packaging can also be considered as it's importance. Read the below points to understand why packaging is important.

1. Packaging provides protection to the goods from external environment. Be it a consumable food, drink, equipment, accessory, it requires packaging so as to remain protected and safe from any sort of damage.

2. Because of protection given to goods, it sustains and thus, enhances the quality of goods being delivered to consumers. 

3. A good packaging acts as an effective tool for it's own promotion. When packaged products are displayed to the audience through shops, showrooms and malls, there is automatic promotion of the goods.

4. Packaging makes it possible for the manufacturer to disclose various important details pertaining to the product, thereby adhering to national and international product and packaging standards.

5. Packaging helps a brand to differentiate itself from others. This is because packaging gives a distinct appearance to the product and this can be easily captured by numerous eyes.

6. Packaging facilitates convenient handling as packaged goods are easy to hold and carry. 

7. At times, packaging can be so hard and strong that illegal practices like replacing, adulteration cannot be done.

8. Product packaging is made up certain permissible materials which carry a reuse value. This on a overall basis, promotes safety to the environment.

9. Packaging facilitates labeling on it which acts as a major source of information to the buyers.

10. Packaging helps to understand goods as per weight / quantity and also facilitates comparative analysis with other products. 

11. Some good examples of effective packaging are displayed below:

Types of Packaging

• Primary Packaging: For businesses that produce perishable items, primary packaging is crucial. Industries or factories that produce medicines, food items, beverages, and other perishable items, need compact packaging to preserve or protect the item. Some of the types of primary packaging are listed below:

International Product Labeling

Labeling is a communication element on the packaging, either in written or graphic form. It includes things like brand name, contents, marketer’s name, manufacturer’s name, place of production, batch details, expiry date, etc. It also contains certain instructions in certain languages and special logos to describe a feature. Labeling highly depends on packaging and it boosts consumers to see, read and understand the product.

Why is labeling required?

1. Brand Awareness and Identification: Labeling is required for brand identification. Name of the brand, logo, design are all a part of labeling. Labeling facilitates consumers to know the product.

2. Brand Marketing and Promotion: As labeling involves display of images, logo and brand name with specialized color, it automatically promotes the product. 

3. Induce Buying Decision: Labeling provides essential information to the consumers making them to incline towards the brand. With more information, a consumer may develop a positive attitude towards the product. This facilitates buying decisions.

4. Display of Statutory Requirements: Through labeling, the manufacturer can disclose various certifications and other national / international norms adhered by the product. This builds nationwide trust.

5. Product Knowledge: Labeling is also intended to provide utmost details about the product. Product knowledge is always required before acquiring it. 

6. Usage and Handling Information: Labeling provides transportation, usage and handling instructions to the consumers. Such information proves as a base for consumers to decide upon buying.

Marking in International Trade

Marking refers to marks put on carton boxes or containers for identification of goods. It is very essential when goods are dispatched from nation to another. It includes details of the importer, exporter, place of loading and unloading, weight of the goods, special carriage instructions (if any), date of shipping, etc.

Marking plays a very important role while loading and unloading the goods. It contains such mark which makes it easy for the ship's crew members to identify and assess goods. It's also vital for clearance process. Generally, the outer box contains the following important details:

• Exporter's and Importer's details like name, place of business, etc.

• Contents inside the box like electronic, consumables, flammable, glassware, books, etc.

• Country of Origin

• Use of Common Language (preferably English)

• Symbols and phrases for the crew members t understand and appropriately handle the goods

• Carton No. so as to arrange and assemble in the right area or right container

• Weight and Measurement

International Pricing

Pricing is the process of assigning the right price for the right product using the most favorable mechanism with an aim of earning profits. Pricing is that one thing which requires extensive research and market understanding as consumers in the market can be price sensitive. High price may trigger negative thoughts in the minds of the consumers unless they are convinced with some USP of the product. In reality, there are many internal as well external factors which are considered at the time of determining appropriate pricing. 

Let's understand some of them!

Internal Factors

1. Overall Cost: Events like manufacturing, packaging, loading, freight, insurance, duties attract a cost. The exporter has to make sure that all these costs are recovered in the price which he quotes to the importer. Above all, the exporter should also consider his profit margin above this cost and should quote appropriately.

2. Product and Brand Image: Exporters having advanced products along with a good brand image can apply premium pricing for the product quality and the image they own. Such companies also provide end to end solutions to the customers with a dedicated team. This is also a factor for rise in price. Eg. Apple Centre located in various countries to take care of customer issues and marketing.

3. Exporter's Objectives: Pricing also depends on exporter's objectives and visions. An exporter might want to penetrate market and hence reduce shall prices. On the other hand, an exporter might want to make quick gains and hence, charge heavy. An exporter may also opt for staying stable and establishing his business steadily and hence, can adopt reasonable pricing strategy.

4. Product Mix and Alternatives: An exporter may have a huge line of products which can be segmented in various markets at different prices. Companies can export old products to under developed nations at cheaper rates whereas sell upgraded products to developing and developed nations at a higher price. 

5. Product Life Cycle: The phase of a product also play a essential in determining it's price. A product at an initial stage may be very new in the market and can be expensive. Whereas, when a products gets old, it' price can be brought down. This reduction is needed as the product will be no longer upgraded and new, plus the consumers may prefer other competitive brands. This can be a retentive strategy. 

6. Corporate Marketing Strategy: Every company has a team headed by top class experienced marketing officers who manage international trade and marketing. It also depends on the philosophy of the company as to charging reasonable price. 

7. Corporate Policy: A company can have it's own credit and recovery policies which can impact international pricing to a good extent. A company having long credit terms can charge high whereas a company dealing in instant payment can price low.

External Factors

1. International Demand: Product pricing highly depends on it's demand. High demand leads to higher sales and higher profits with an increase in the cost (manufacturing, transit, procuring, duties, etc.) as well. This allows the manufacturer to quote a higher price in the market in a well justified manner. In case of stable demand, the exporter may quote reasonable and stable price so as to not disrupt the demand curve.

2. Competition: An exporter should always get a good idea about global competitors and their pricing strategy before stepping into any external market. Various global organizations may have various pricing strategies depending on their scale of operations, reach, funding, subsidies, etc. 

3. Attitude towards the exporter's country: Consumers across the globe have a dynamic attitude towards various other countries based on several factors. Eg. most of the Indians feel that US is a nation with high quality commitment and virtues and they expect the same in US products. This enables US companies to charge high for the image they hold in Indian minds.

4. FOREX Rates: An exporter may fix high price for his products if he feels a turbulence in his country's currency rate. Eg. If an Indian exporter is expecting a fall in Indian Rupee, he may quote a higher price to face off the potential exchange loss that he might have borne.

5. International Trade Policies: Various countries have various foreign trade policies. Some are strict, some are liberal. This has a reflection on international prices. For eg. certain countries may require special certification or marking which may inflate the cost of the the goods. Hence, the exporter may have to charge high.

6. Government Interference: At times, the governing bodies in certain countries tend to offer incentives and subsidies to he exporters. Various schemes such as waiver of input duties (tax on import of exportable goods), value added taxes, customs, entry tax, etc. can be initiated by the Government which play an essential role in controlling prices. Exporters from such countries may quote comparatively less price for their products.

7. Logistics and Supply Chain: Logistics and supply chain comes at a cost. These costs are usually arranged by the exporter, which is recovered from the importer. If these costs increase, then product cost is sure to go up. Logistical expense may include expenditure for dealer order processing, packaging of goods, warehousing, transporting, etc.

Export Pricing Strategies

Let's understand strategic examples for some export pricing strategies that are applied in real-world business.

1. Cost-Plus Pricing (Markup Pricing)

• Example: A company in the Taiwan produces high-quality kitchen appliances. The total cost of manufacturing a blender (including production, labor and overhead) is $50. The company then adds a 30% markup, setting the price for export at $65.

• Strategic Reasoning: This is a straightforward pricing strategy, ensuring the company covers its costs and earns a profit. However, it doesn't consider local market conditions in the destination country.

• Scenario: The company exports to countries where premium kitchen products are in demand, and they feel confident that their high-quality product can justify the price.

2. Competitive Pricing (Market-Oriented Pricing)

• Example: A fashion brand in Italy wants to enter the Japanese market. They research the prices of similar premium brands in Japan and find that their competitors are pricing their jackets at ¥30,000 to ¥40,000. The Italian brand sets its price at ¥35,000 to be competitive.

• Strategic Reasoning: By aligning their pricing with competitors, the company can enter the market without pricing themselves out of competition. However, this strategy requires continuous monitoring of competitor pricing to stay relevant.

• Scenario: The company aims to establish a competitive presence in the market, positioning themselves as a comparable or slightly better option than established local brands.

3. Penetration Pricing

• Example: A tech company from India wants to enter the African market with a budget smartphone. The manufacturing cost is $50, and the company decides to price it at $70 to undercut established brands that sell for around $100.

• Strategic Reasoning: The company is focusing on rapidly gaining market share by offering a lower price to attract customers in a price-sensitive market.

• Scenario: After building a customer base and awareness, the company plans to raise the price gradually over time once they've established a strong market presence.

4. Skimming Pricing

• Example: A startup from the U.S. develops a new, innovative smartwatch with unique features that no other product on the market offers. They price it at $500 when it launches in Europe.

• Strategic Reasoning: The company sets a high price to "skim" the maximum amount of revenue from early adopters who are willing to pay a premium for cutting-edge technology. Over time, they plan to reduce the price to make the product more accessible to a broader audience.

• Scenario: This strategy works well when the product is innovative and has little to no competition. The company can capitalize on the product's uniqueness before competitors catch up.

5. Value-Based Pricing

• Example: A company from France produces a luxury line of organic skincare products. In markets like the U.S. and Japan, they know that consumers place a high value on organic ingredients and eco-friendly packaging. Based on consumer willingness to pay, they price their products at $150 per set, even though their production cost is only $60.

• Strategic Reasoning: By pricing according to the perceived value of the product rather than just cost or competition, the company maximizes its profit margins, targeting consumers who prioritize high-quality, eco-conscious products.

• Scenario: The company uses this strategy to target affluent consumers who value sustainability, allowing them to charge a premium price.

6. Free on Board (FOB) Pricing

• Example: A furniture manufacturer in China sells outdoor furniture to the U.K. Under an FOB pricing, the price is quoted as $200 per unit, but this only includes the cost of the furniture up to the port in China. The buyer (in the U.K.) will pay for shipping, insurance and handling beyond that point.

• Strategic Reasoning: The manufacturer wants to keep the price low and give the buyer flexibility in choosing the shipping company or methods. This allows the buyer to control logistics costs while maintaining competitive pricing.

• Scenario: This strategy is ideal when buyers have their own preferred logistics providers and want to take control of shipping and insurance costs.

7. Cost, Insurance, and Freight (CIF) Pricing

• Example: A steel company in Brazil is exporting large shipments of steel to Australia. They quote a CIF price of $1,000 per ton, which includes the cost of production, shipping and insurance to the Australian port.

• Strategic Reasoning: By including shipping and insurance in the price, the company makes the transaction easier for the buyer, potentially making their offer more attractive. The seller takes on more risk but ensures the buyer doesn’t have to deal with additional costs.

• Scenario: This pricing strategy works well when the seller wants to control the logistics and ensure a smooth experience for the buyer, especially when dealing with large shipments and heavy goods.

8. Differential Pricing (Price Discrimination)

• Example: A software company in the U.S. sells the same software package in different countries with varied pricing. In countries with a high purchasing power (e.g., the U.S., Germany), the price is $500, but in emerging markets (e.g., India, Nigeria), the price is set at $150.

• Strategic Reasoning: The company uses differential pricing to maximize revenue from wealthier markets while still making the product accessible to price-sensitive consumers in emerging markets.

• Scenario: The strategy allows the company to reach a wide range of customers globally, adjusting to local economic conditions and consumer behavior.

9. Transfer Pricing

• Example: A multinational corporation with subsidiaries in the U.S., Germany, and Japan produces a high-tech medical device in its U.S. factory and sells it to its German subsidiary for $10,000. The German subsidiary then sells the device in Europe at $15,000.

• Strategic Reasoning: The U.S. subsidiary may sell at a lower internal price to reduce taxes or increase profits in certain regions. This practice helps optimize costs across the organization.

• Scenario: Transfer pricing is particularly useful for large multinational companies that want to manage profits across different markets and minimize tax burdens.

International Commercial (INCO) Terms

International Commercial Terms are types of trade quotations which are globally used. They are are a set of 11 individual rules issued by the International Chamber of Commerce (ICC) in 1936 which defines the responsibilities of sellers and buyers for the sale of goods in international transactions. These INCO terms are universally used among traders, producers, buyers, sellers, government and banks. It Covers shipping tasks, responsibilities to parties, delivery of goods, insurance of goods ad duties and taxes. The INCO terms rules are updated and grouped into two categories reflecting modes of transport. Out of the 11 rules, there are seven for ANY mode of transport and four for 'sea' or 'land' or 'inland waterway' transport. 

Types of INCO Terms 

1. Ex - Works (EXW): This is a quotation where the exporter makes the goods available to the importer at his own warehouse and takes up only manufacturing and packing responsibility. Hence, the importer bears all the cost and responsibilities for insuring and moving the goods from the exporter's country to his country.

Seller's Obligations:

• Goods, commercial invoice and documentation

• Place goods at buyer’s disposal at the named place on the agreed upon date

• Notice to the buyer to enable delivery

• Export packaging and marking

Buyer's Obligations:

• Pay the price of the goods as stated in sales contract

• Provide seller with evidence of having taken delivery

• Loading at seller’s location (unless otherwise agreed upon)

• Export licenses and customs formalities

• Pre-carriage to terminal

• Loading charges

• Main carriage

• Discharge and onward carriage

• Import formalities and duties

• Cost of pre-shipment inspection

2. Free Carrier (FCA): Under FCA quotation, the exporter delivers the goods to the carrier (shipping company) or a buyer's agent in the exporter's country premises or any other place. The parties should clearly specify the place of delivery, as the risk passes to the buyer at that point.

Seller's Obligations:

• Goods, commercial invoice and documentation

• Export packaging and marking

• Export licenses and customs formalities

• Pre-carriage to terminal

• Delivery to named place of delivery

• Cost of pre-shipment inspection

• Proof of delivery

Buyer's Obligations:

• Payment for goods at price agreed upon in sales contract

• Unloading from arriving means of transportation

• Loading charges

• Main carriage

• Discharge and onward carriage

• Import formalities and duties

• Cost of pre-shipment inspection (for import clearance)

3. Carriage Paid to (CPT): In this quotation, the exporter delivers the goods to the carrier or the importer's agent at an agreed place (if any such site is agreed between parties). The exporter must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

Seller's Obligation:

• Goods, commercial invoice and documentation

• Export packaging and marking

• Export licenses and customs formalities

• Pre-carriage and delivery

• Loading charges

• Cost of delivery at named place of destination

• Proof of delivery

• Cost of pre-shipment inspection

Buyer's Obligation:

• Payment for goods as specified in sales contract

• Import formalities and duties

• Cost of import clearance pre-shipment inspection

4. Carriage and Insurance Paid to (CIP): Here, the exporter bears the costs up to delivery at an agreed place which includes the manufacturing and packing cost, export clearance, freight and also insurance which is mandatory. Whereas, the importer is responsible for import clearance and delivery at his destination and takes on the risk when the goods are loaded onto the first means of transport.

Seller's Obligation:

• Goods, commercial invoice and documentation

• Export packaging and marking

• Export licenses and customs formalities

• Pre-carriage and delivery

• Loading charges

• Cost of delivery at named place of destination

• Proof of delivery

• Cost of pre-shipment inspection

• All-risk insurance coverage

Buyer's Obligation:

• Payment for goods as specified in sales contract

• Import formalities and duties

• Cost of import clearance pre-shipment inspection

5. Delivery at Place Unloaded (DPU): This was earlier called Delivery at Terminal (DAT). Under this quotation, the seller delivers by making goods available to the importer by unloading them at a specific place. Other than import duties, every other cost and responsibility like manufacturing, packing, loading, transportation, freight and unloading has to be arranged by the exporter.

Seller's Obligation:

• Goods, commercial invoice and documentation

• Export packaging and marking

• Export licenses and customs formalities

• Pre-carriage and delivery

• Loading charges

• Main carriage

• Delivery at named place of destination

• Unloading charges

• Proof of delivery

• Cost of pre-shipment inspection

Buyer's Obligation:

• Payment for goods as specified in sales contract

• Import formalities and duties

• Cost of import clearance pre-shipment inspection

• Onward carriage and delivery to buyer (depending upon named place)

6. Delivery at Place (DAP): This quotation is much similar to that of DPU and the only difference is that the importer has to arrange for import duties and unloading the goods at the specified place. Rest other cost and responsibilities like manufacturing, packing, loading, transportation and freight is arranged by the exporter.

Seller's Obligation:

• Goods, commercial invoice and documentation

• Export packaging and marking

• Export licenses and customs formalities

• Pre-carriage and delivery

• Loading charges

• Cost of pre-shipment inspection

• Main carriage

• Delivery to named place of destination

• Proof of delivery

Buyer's Obligation:

• Payment for goods as specified in sales contract

• Unloading from arriving means of transportation

• Import formalities and duties

• Cost of import clearance pre-shipment inspection

• Onward carriage and delivery to buyer (depending on named place)

7. Delivery Duty Paid (DDP): This quotation makes the importer risk free till the goods are unloading at the named place. In short, the seller bears all responsibilities and costs for delivering the goods to the named place of destination. The seller must pay both export and import formalities, fees, duties and taxes. 

Seller's Obligation:

• Goods, commercial invoice and documentation

• Export packaging and marking

• Export licenses and customs formalities

• Pre-carriage and delivery

• Loading charges

• Main carriage

• Proof of delivery

• Import formalities and duties

• Cost of all inspections

• Delivery to named place of destination

Buyer's Obligation:

• Payment for goods as specified in sales contract

• Assist seller in obtaining any documents or information necessary for export or import clearance formalities

8. Free Alongside Ship (FAS): Under this contract, the exporter delivers the goods alongside the vessel at a specific port (but does not load into the vessel) and transfers all the responsibilities to the importer. In short, the importer is responsible for loading the goods into the vessel at the mentioned port along with handling local carriage, freight, insurance and import duties. 

Seller's Obligation:

• Goods, commercial invoice and documentation

• Export packaging and marking

• Export licenses and customs formalities

• Pre-carriage to terminal

• Delivery alongside vessel at port of shipment

• Proof of delivery

• Cost of pre-shipment inspection

Buyer's Obligation:

• Pay the price of the goods as provided in the sales contract

• Loading charges

• Main carriage

• Discharge and onward carriage

• Import formalities and duties

• Cost of pre-shipment inspection (for import clearance)

9. Free on Board (FOB): Under FOB contract, the exporter makes all arrangements till loading the goods into the vessel. Further risk is taken over by the importer like freight, insurance, import duties, clearance, etc.

Seller's Obligation:

• Goods, commercial invoice and documentation

• Export packaging and marking

• Export licenses and customs formalities

• Pre-carriage and delivery

• Loading charges

• Delivery onboard vessel at named port of shipment

• Proof of delivery

• Cost of pre-shipment inspection

Buyer's Obligation:

• Payment for goods as specified in sales contract

• Main carriage

• Discharge and onward carriage

• Import formalities and duties

• Cost of pre-shipment inspection (for import clearance)

10. Cost and Freight (CFR): Under CFR contract, the exporter has to make all arrangements up to loading the goods into the vessel and has to also bear the freight charges up to the place of destination. Whereas unloading, insurance and import formalities are managed by the importer. 

Seller's Obligation:

• Goods, commercial invoice and documentation

• Export packaging and marking

• Export licenses and customs formalities

• Pre-carriage and delivery

• Loading charges

• Delivery at named port of destination

• Proof of delivery

• Cost of pre-shipment inspection

Buyer's Obligation:

• Payment for goods as specified in sales contract

• Risk starting with onboard delivery

• Discharge and onward carriage

• Import formalities and duties

• Cost of pre-shipment inspection (for import clearance)

11. Cost, Insurance and Freight (CIF): Under CIR contract, the exporter has to make all arrangements up to loading the goods into the vessel along with freight charges and insurance up to the place of destination. Whereas unloading and import formalities are managed by the importer.

Seller's Obligation:

• Goods, commercial invoice and documentation

• Export packaging and marking

• Export licenses and customs formalities

• Pre-carriage and delivery

• Loading charges

• Delivery at named port of destination

• Proof of delivery

• Cost of pre-shipment inspection

• Minimum insurance coverage

Buyer's Obligation:

• Payment for goods as specified in sales contract

• Discharge and onward carriage

• Import formalities and duties

• Cost of import clearance pre-shipment inspection

See the below image to get a quick understanding!