In my last job at a large company (before starting as a freelancer), I took on three additional tasks that expanded my view of pricing.
The first task was to control the company’s export financial operations, the second was to define transfer prices between its business units, and the third was to implement a new system for controlling product cost, price, and profitability margin, as the existing one was outdated.
There, a conclusion was that the prices of goods and services are classified, according to the nature of the operation and the type of customer, into five categories:
- For the private sector in the domestic market.
- For government agencies.
- For exports.
- For domestic transfers.
- For transfers to the foreign market.
Each category is subject to a different pricing criterion—which we will discuss in the next post—imposed by some legal provision, required by a control body, or negotiated by the parties involved, as shown in the figure below.
Pricing for the private sector in the internal market
The prices of an offerer to the private sector in the domestic market are those established to individuals (consumers) and private legal entities, including sales through e-commerce business to customer (B2C) and business to business (B2B).
Prices for government entities
The prices for government entities are those used for acquisitions from public administration bodies or agencies.
According to the Federal Acquisition Regulation, in the United States of America, acquisition modalities are sealed bidding, contracting by negotiation, simplified acquisition, consolidated purchasing programs, and micro-purchases.
Prices for export
The export prices are those used for sales abroad, subject to international competition and with a minimum incidence of taxes since a market imperative in international transactions is that taxes are not exportable.
Prices for domestic transfers
Domestic transfer prices are the prices used to transfer products and services between production or commercial subunits (factories, divisions, departments, stores, etc) of the same company or among companies of the same economic group (related entities) operating in the domestic market.
Prices for international transfers
The prices for international transfers are those charged for products and services to companies outside the country that are members of the same economic group or are linked to it.
C. L. Eckhard, author of Pricing in Agribusiness: setting and managing prices for better sales margins.