Why international price strategy is so important?

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A good price strategy not only could let company earn a huge market share, but also could increase the entry barriers in a certain industry.

Here is a good example:

Hewlett-Packard (HP) have found a new print technology, this technology could increase the ability of its printer, and get a better print effect. HP faced a problem, which is how much it would charge? Charge a higher price based on the new technology or keep the same price as other HP printer?

The top managers analysis the situation as following:

“So far, HP’s competitors sell the same mode of printer at $150. If HP charge a higher price based on the new technology, for example, if charge $250, the profit is $100, and the gross profit rate is two times as charge $150. However, the potential entrants will see the opportunity and try to enter the same market. The competitors may input more to get an even higher print effect. Then later, there may have a price war, which could lead a mess market and hurt HP’s advantages.

Since considered this situation, HP decided to charge $185. HP only could earn $25 profit each unit, but this price could avoid the potential entrants to enter this market. If new entrants spend more to compete in this market, HP plans to lower its price to $160-$175, and make its competitors cannot get the return on investment, and even loss in this market.”

HP’s pricing strategy made itself loss some profits, but it earned the most market share, and avoids its potential competitors to get into this market.

 

Another price strategy is called psychological pricing strategy, which needs to understand customers’ felling on the price.

Here is an example:

Ms. Liu opened a store to sell clothes, and there are several clothes still cannot be sold for a long time. Then she increased the price from $20 to $60, and put them into a high level clothing store. 3 days later, her clothes were sold out. If one product looks like it is in a very high level, people may willing to buy it with a high price since they may think this product (this price) could represent their Identity.

Sometime we should understand what our customers need, and make a right pricing strategy. Sometimes, even a higher price could earn more customers.

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http://www.doc88.com/p-491278568221.html

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How can Starbucks charges a higher price in China than any other countries?

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In October 2013, China’s main media (CCTV) exploded that Starbucks charged the highest price in China than any other counties. The same coffee that sold in London, the price is $3.81; but in Beijing, China, it charged $4.81, which is 26% higher. The funny thing is that the average annual wages in Beijing is much lower than that in London. From the Starbucks’s fiscal 2013 report, it is proved that the operation profit ratio was much higher than South America, even 16.8 times higher than many areas in Europe.

China’s main media also exploded that the cost of a cup of latte is only 5 Yuan ($0.83 dollar), but the selling price is 27 Yuan ($4.5 dollars). The report from CCTV compared the prices in different cities, and concluded that the price in Beijing is the highest one ($4.5 dollars); the price in Bombay is the lowest one ($2.3 dollars). Wang Zhendong, the president of the Professional Committee of Shanghai coffee, said the process of making a cup of coffee is not that complex. Usually, the process include 2 ounce dark coffee, 20 g coffee bean, milk, one- use cup, one heat protector, one cover, plus sugar, napkin, Stirring rod. The total cost is around $0.83 dollar.

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As the high price was the most popular topic in China people are talking, Starbucks replied the reasons why they charge the higher price.

First, the price is based on the composite costs. Its includes the original sources, equipment, input on infrastructure, logistic, employee’s wages, rental fee, and the operation cost.

Second, compared to US, China is a developing country; Starbucks should input more when it first entered Chinese market. Also the number of stores is smaller than that in US, so the average cost is large.

Third, different from US, many Chinese customers will stay several hours once they enter the stores.

In my perspective, there are many other reasons for Starbucks to charge a higher price.

First, Chinese customers is not buying coffee, they are buying culture from Starbucks. Chinese customers like to stay in Starbucks stores since they feel they are in a foreign country.

Second, the price is not related to the cost. Thinking about LV, the cost is very low, the price is extremely high. Like LV, Starbucks are not only selling its product, but also selling its brand. Buying Starbucks could show the class level in China’s society. This is the magic part of international price strategy.

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Source: http://www.winshang.com/zt/2013/2013xingbake/

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Market Share first or Profits first? —-Using pricing strategy

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While answering market share or profits, which is more important, I’d like to say using pricing strategy is the good way to leverage market share and profits. A good marketing pricing strategy could let companies earn more market share and occupy the leadership position.

Around 1970s, Kodak announced that it would lower its color film product, which attracted a lot of customers in this world and occupied the 90% market share.  We could see lowering price is a good strategy in a price sensitive market. And at the same time, Kodak earned more profit by the 90% market share.

Around 1980s, to entry Japanese market, Kodak spend more on Research & Development, they found that Japanese customers prefer the high quality product rather than the low price one. Kodak started to use a high pricing strategy to emphasize its brand and quality products and had a strong competition to rival with Fujifilm. They found the partner to do the joint venture trade and offered the ½ higher price than Fujifilm. During the 5 years’ effort and competition, Kodak finally be accept by Japanese customers and be the strongest competitor to Fuji-film.

Here is anther example. We know China’s export is very big. Most famous is Yiwu’s commodity in Zhejiang province. International markets businessmen love China’s products due to the low price. The strategy that Yiwu’s commodity business use is selling a large mount of units with fewer profits. And with the lowest price, Yiwu’s merchant still could earn lots of profits since they have the biggest market share all around the world. Usually per order’s amount is very big, so most of Yiwu’s company has the economic of scale, the cost of each unit is very low.

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Many supermarket may want to offer a promotion. But don’t do this ! No one will buy two together!!

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11.11 Festival in China

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On Nov. 11, 2013, China, Tmall set up a big sale activity, it’s called the 11.11 shopping festival. What started four years ago as a garden-variety marketing effort by Tmall.com (part of Alibaba Group), China’s largest B2C e-commerce platform, to help online merchants increase sales. On that day, and only for that day, Tmall offer discounts of at least 50% on a wide array of products.We see from the first minute, there are 10 million people get on the Tmall’s website starting to make deals. At the tenth minute from start, the deal was achieve 250 million, equals 40 million USD. At 0:37:39, the Tmall 1111 Shopping Carnival payment Po transactions exceeded 10 billion. In addition to the birth of three ten million shops, three camels, GXG, Jack Jones, merchant sales exceeded 10 million, respectively. At 0:00:00 in Nov. 12, the total transactions was 19 billion. Before the 11.11 festival, the demand is inelastic, on the 11.11, the demand is elastic. Customer thought that they get lots of benefit through this big shopping festival, but I think it is not that beautiful as it looks like.

First, due to the low price, people don’t want to lose this chance and want to buy more. But actually, people will buy more things that they don’t need. For example, one skirt looks okay, but not perfect, just because the price is much lower than before, girls will buy it. And the more people did like this, the more deals the sellers had.

Second, there is business cheat. Some stores raised the price before this shopping festival start and cut it in half when the festival start to pretend that the goods were really lower more. We can see that the price is 388.00 original, and people should pay 280.00. On 11.11, the price was raised to 678.00, and cut it in half is 399.00. (The sale price 429.85 in the second picture is the price after 11.11.) So the price during the shopping festival (339.00) is higher than this clothes’ usual price (280.00). So people thought they get benefit through this shopping festival, but in the fact, they paid more than before.

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Third, on this kind of shopping festival, sellers tend to show customers the old styles and want to sell more goods in the inventory. So the goods people bought may not be the newest styles.

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Abercrombie and Fitch…the Real Scandal!

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Abercrombie and Fitch…the Real Scandal!

In 2013, Abercrombie and Fitch became the target of a negative media blitz, plummeting US sales and diminishing perception of this once impressive brand.

CEO, Mike Jeffries, of the clothing chain has been on the receiving end of the media and customer backlash for refusing to offer larger sizes of clothing for their customers and for making incredibly controversial remarks.

Now, the company has been dealing with US sales falling 17% in the first quarter of 2013.  Parents, teenagers, social media bloggers and TV stars have been in an uproar over Abercrombie and Fitches bullying and exclusionary tactics.

“We are exclusionary.” Mike Jefferies stated in an interview.  “Not everyone can wear our clothes…We are for the popular, beautiful, customer.”

Never have I seen such a suicidal display for this significant of a company.  Ironically, the old saying of “any publicity is better than no publicity” doesn’t pan out here.

Since the media fallout, US parents and teenagers have chosen to boycott the infamous store.  Petitions have surfaced around the internet asking for clothing size changes and also for the firing of Mike Jeffries.

Recently, Jeffries has made modest apologies but they haven’t really sunk into the US consumer’s psyche. He said that he “Seriously regrets” that his “choice of words was interpreted in a manner that has caused offense.”  I am not sure if people really believe him.

However, in Poland, it is still one of the most valued clothing lines among teenagers.  The average shirt  Abercrombie and Fitch T-shirt costs almost $100 USD while here in the US, the same shirt goes for $19.50.

In Asia, they are planning on expending their market with additional Hollister stores of the  Abercrombie and Fitch Company.  According to Jeffries, same-store sales of the Hollister stores are positive and the 2 Hong Kong stores are the best-selling stores in the company.

So, while in the US we are struggling with the thought of being betrayed and emotionally slapped in the face by one of our most popular clothing brands, other countries haven’t even noticed what was happening here.  Or, they chose not to make it their battle.

This blip will be forgotten and Hollister and Abercrombie and Fitch will continue to hold high value in various markets for different reasons.  Teenagers are fickle and will return to the store and buy really tight and ragged looking clothes for overly inflated prices just so they will be viewed as the “popular one.”

I will be interested to see how CEO, Jeffries will be perceived in 2 years when all of this has been forgotten.  Did this scandal really just create an opportunity for the company to jump to another higher level of value for the teenager? Let’s just wait and see….

http://www.huffingtonpost.com/2013/05/24/abercrombie-sales-ceo-controversy_n_3332601.html

http://www.bizjournals.com/columbus/news/2013/02/22/abercrombie-fitch-expanding-to.html

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