Global prices are affected mostly by labor, taxes, currency exchange, competition costs of goods sold and many other factors. But it differs from industry to another and from country to another. Starbucks, McDonalds, automobile companies, cell phones… for example charge various amounts for the same product in different countries. But I always wondered why don’t they figure out a strategy that ensures consumers the same price for the same product anywhere. Why is it difficult to come up with such a strategy? Aren’t companies shifting to outsourcing these days, then the cost of production should be the same. But why do we still see this difference in prices in different countries? The answer is simple even if they outsource, they still have to deal with many factors other than production cost. In the previous blog we explained how taxes were the main affect on iPhone prices globally, but this is not always the case.
From the video we can see many explanations on the different prices Starbucks charges. In India for example they managed to have prices low because they source there coffee beans locally. The reason companies do that is because some country wages are not high as others so they manage to lower there production cost in order to enter this market and grab a market share.
Another factor that drew my attention and many of us sometimes don’t bare it much attention is competition. Companies often struggle with when dealing with global pricing. Starbucks for example charges a very cheap amount for a cup of coffee in Thailand “42% less than the same cup in the US”; this is due to the high competition on lowering there prices in this industry. On the other hand, Starbucks charges a high amount for the same cup of coffee in Ireland “9% higher than the US”; this is because the company deals with an oligopolistic market. Meaning that the market has small players that set the prices they wish. From all the cases we discussed and seen in the video Starbucks and any global company cannot charge a premium amount globally. This is because if they go higher or lower they might loose their market share and net profit in this market. Although competition is only one factor and is not related to the financials, but from the previous examples we can see how it largely affected Starbucks prices.