The moment you make a mistake in pricing, you’re eating into your reputation or your profits

Katharine payne

Learning Pricing from Burgers

The Big Mac index was invented by The Economist in 1986 as a light-hearted guide to whether currencies are at their “correct” level.

It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries.

Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible. Yet the Big Mac index has become a global standard, included in several economic textbooks and the subject of dozens of academic studies. For those who take their fast food more seriously, we also calculate a gourmet version of the index.

Source: The Economist

Many exporters, especially those who’re smaller, tend to follow a cost plus approach to their export pricing. They take the domestic product ex-factory cost and add on a margin. It’s simple and you can’t go wrong. Right? 

Well if you aim for export to become a significant share of your sales, you’ll need to take a much closer look at pricing. Let me show you how! 

In this lesson I also explain the 4 most common Incoterms used in export of consumer goods products.