Expert's Panel

A collection of timely and important topics posed to our panel of experts.

Concerning global price vs. market price, how do we convince a customer, who has facilities in Europe and Asia, to buy when we offer two different prices depending upon where the products are built?

 (ep1030)
1. This can get you into severe trouble. An example is a Korean company and European company that merged. The supplier was selling his product at half price to the Korean company and you can imagine what happened after the merger. You have to look toward global pricing on new products which means higher than normal pricing in some markets and lower in others, for an acceptable global average. Obviously competition in the local markets will be a factor to consider. On existing products, find a way to reconfigure them so different configurations can hit different market segments. A good example might be where you go to buy a TV set and some chain stores advertise we guarantee the lowest prices or you get the lower price plus 10%. What you don’t know is that model number does not exist in any other store chain; it was created for this chain. In our industry you can’t just change the model number, but you can repackage with minor functionality changes, bundling, or addition of some services, all of which has to have value in a particular segment.
2. Customers are foolish to ask for it, but we probably should go to global pricing. We follow the same pattern that the automobile dealers do. What you will pay for a car in Silicon Valley versus Chicago might be substantial. Yet the MSRP is the same in both places. You set a global price and someone needs the business in Korea so he lowers the price 15% and you are dead in the water. We should go to global pricing, but how? The prior answer is theoretically correct and some companies such as Applied and LAM are trying very hard to do it, but I don’t know with what success.
3. I would disagree with that answer. Yes, you can get into difficulty with global pricing, but you also get into serious trouble with regional pricing and the problems with the former tend to be less. You can still offer discounts with volume and other issues.
4. Everything is negotiable. The problem stems from the early days with global pricing in the U.S. What we gave away was spare parts or something miniscule. Korea was emerging and demanding 30-40% lower prices and suppliers were giving in. I suggested a global price at that time and my peers were horrified, saying that would ruin everything in the U.S. But look where we are today. I say set a global price as high as you can and then negotiate, because you are going to anyway. Create configurable options that are unique to a country or customer, and have pictures that look a little bit different and have different model numbers. Start with a global price and customize your offerings.