Pricing Decision

Price is an amount of money which is used for exchanging for a product or service. For this new product, our pricing objective is to build market share which the purposes are keeps a small margin but gives the most value to the customers. Therefore, we would like to use penetration pricing to enter the India market. The reason we chooses penetration pricing strategy is because we are introducing a cost-saving electric bicycle with entirely new design and technology with no initial competition since we are the first launching in India market to use the idea of electric bicycle with the combination of motorbike plus bicycle. Thus, our main objective is to compete against our competitors which are bicycle and motorbike and grab market share from them. In addition, we can also capture large number of customers in the short period of time and boost up our sales volume as well.

Nowadays, majority of the India consumers are more education and knowledgeable. Due to the advance technology, consumers can easily compare the prices by using website. As the result, most of the consumers will focus on the perceived value of the product they received. Therefore, electric bicycle can fulfill their needs and wants. For example, teenagers which are age 15 – 20. They are more likely to have outdoor activities and focus on their own behavior lifestyle. Parents will buy for them because of this product is worth to it. It has features of light, mirror, comfortable saddle, and so forth. Besides, we use cost-plus pricing methods to add standard markup to the cost of our product in order to obtain our new product’s price. Price x Units Sold = Total Revenue. The price of our product will be set at a price which everyone could purchase it which is $450 equal to approximately 20061.0 Indian Rupee (INR). We use market penetration to set a low initial price in order for our product to enter the market so that we can attract a large number of buyers. On the other hand, the price of electrical bicycle is reasonable for those customers which having a high purchasing power to buy it.

We decided to give discount to the retailers to ensure our product could penetrate into the market in a short period of time. The discount rate is based on the demand of the product that retailers need to supply to the customers. This is because cost-plus pricing often works well for our business that keeps its cost low, allowing us to set our prices which is lower than our competitors and still make profit. No doubt, we have large economies of scale that produce a large volume of production with a lower production cost. In general, we will choose two ways to increase the demand of our product. Firstly, use advertisement to enhance the product’s image. Secondly, give some promotion such as rebate or coupon to attract them aware about our new launching product. Thus, we would like to implement uniform-delivered pricing policy in handling transportation costs. This special services is just for those customer who are nearby with the shop which around 5-10km only.

India is a lower middle income country. The GNI per capital of India is around $ 1180 only. So, US Dollar is called USD and Indian Rupee is called INR. Based on the following table1 it show the currency exchange of three different counties which is United State, India and Malaysia.

Table 1: Currency Exchange of US, India and Malaysia (as of 15th November 2010)

Currency Rate

US

India

Malaysia

(1.0USD = to the particular country)

1.0 USD

44.58 INR

RM3.109

$ 1180

1180 USD

52604.4 INR

RM3668.62

Product Price is $450

450 USD

20061.0

RM1399.05

As usual, currency rate in the world is changing every second and it is unpredictable. Therefore, our production cost will have a great impact toward the environmental influences such as currency fluctuations, inflationary environment, government policies and regulations, competitive behavior and sourcing. For instance, if India facing a weakening of a home-country currency swings exchange rates it reflects a good direction. In addition, if India (producer) in a weak-currency country we can choose to cut export prices to increase our market share or maintain our prices. Due to deal with this problem, MNCs will use the flexible cost-plus method to reduce prices in response to unfavorable currency swings. This is an example of a market holding strategy, it means that MNCs need to adopt in this strategy in order to not lose the market share.

There are three different types of global pricing alternatives which is extension or ethnocentric pricing, adaptation or polycentric pricing, and geocentric pricing. In MNCs, we are choosing extension or ethnocentric pricing policy. It means the cost per-unit price of electric bicycle is to be the same around the world. This is easily for us to standardize the price and deal with the currency fluctuation as well. Refer back to the table 1 which is our product selling price is same in these three countries.

In short, penetration pricing is giving a direct influence toward the product demand and also generate the customers purchasing rate. Thus, MNCs need to understand the frequent changes of currency and competitors’ reaction that will affect our sales volume and demand.