International Marketing Practices

of its products, hoping to enter a new or existing market and generate large sales volumes to compensate for the low unit profit margins [94].

For commodity items (e.g., dimension lumber), market-based pricing is the main determinant of price. In some instances, companies can differentiate their products, either through service or quality, and create a greater perceived value for their product. With market-based pricing, a price le ader is a firm, usually with significant market share, that tends to lead the industry in terms of pricing. Competitors will usually watch the price leader and change their prices accordingly. Some price leaders can be so dominant that they have the ability to “force” competitors out through their pricing practices. Common Pricing Strategies Used by Wood Products Companies • Wood products firms often use some form of mark-up method that is logical, applicable, and relatively simple to implement. However, using mark-up as a pricing strategy often leads to over- or underpricing. Ideally, consumers’ willingness to pay should be incorporated into the pricing strategy. • The most successful wholesalers appear to achieve some differentiation from competition through non-price issues. Many wholesalers attempt and achieve little or no differential advantage and, consequently, compete solely on the basis of price. Many of these firms have not survived and others struggle. • In the case of small wholesalers and manufacturers, pricing is frequently more of an art than a science. Manufacturing, purchasing, overhead, general, administrative, and selling costs are considered, alongside allowances for profit, but often in more of an intuitive fashion than as part of a formalized pricing methodology. • A practical pricing approach is to establish prices using a well thought out, frequently updated methodology and then to use intuition in formalizing the prices that are quantitatively determined. Obviously, if you don’t manage prices, they will manage you through low margins or lost sales. • Many commodity producers use the prices in the Weekly Hardwood Review or Random Lengths publications as starting points and try not to lower their prices. Break-Even Analysis A break e en analysis determines the number of units that need to be sold to balance sales revenue with the total cost of producing and selling an item. The break-even point, in units sold, is expressed as follows: Break– even point = Fixed costs Unit selling price − Unit variable cost Although performing a break- even analysis in this fashion is oversimplified, it is a useful tool that can indicate whether or not a competitive price is attainable on a proposed new product. Break-even analysis can also be used to determine how

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