The Euro crises could be causing Europeans to look beyond expensive iPhones, and opt for cheaper alternatives powered by Google’s Android. A study by the Kantar Group, a research firm based in London, revealed that Apple’s smartphone market share declined in France, Germany, Italy, and Spain to name a few due to the recent European economic crisis. Apple’s smartphone market share declined from 29 percent to 20 percent while it declined from 27 percent to 22 percent in Germany. The iPhone 4S helped Apple gain market share in the U.S. and Britain, but significant market share loss in Europe. Android, on the other hand, continues to flourish and enjoyed a dominant market share of 61 percent in Germany with the Samsung Galaxy II, its flagship product. Apple has traditionally maintained higher prices for the iPhone by leveraging its brand value and gaining maximum profits during the process. Analysts believe that Apple could gain by showing some price flexibility on the iPhone 4S, especially for weaker economies such as Europe. Another initiative that Apple could take is to come up with a cheaper iPhone with lower specifications than the current iPhone 4S.
The Kodak story illustrates an important aspect of multipoint pricing: Aggressive pricing in one market may elicit a response from rivals in another market. The firm needs to consider how its global rivals will respond to changes in its pricing strategy before making those changes. A second aspect of multipoint pricing arises when two or more global companies focus on particular national markets and launch vigorous price wars in those markets in an attempt to gain market dominance. In the Brazil market for disposable diapers, two U.S. companies, Kimberly-Clark Corp. and Procter & Gamble, entered a price war as each struggled to establish dominance in the market.24 As a result, over three years the cost of disposable diapers fell from $1 per diaper to 33 cents per diaper, while several other competitors, including indigenous Brazilian firms, were driven out of the market. Kimberly-Clark and Procter & Gamble are engaged in a global struggle for market share and dominance, and Brazil is one of their battlegrounds. Both companies can afford to engage in this behavior, even though it reduces their profits in Brazil, because they have profitable operations elsewhere in the world that can subsidize these losses.
Pricing decisions around the world need to be centrally monitored. It is tempting to delegate full responsibility for pricing decisions to the managers of various national subsidiaries, thereby reaping the benefits of decentralization. However, because pricing strategy in one part of the world can elicit a competitive response in another, central management needs to at least monitor and approve pricing decisions in a given national market, and local managers need to recognize that their actions can affect competitive conditions in other countries.
Experience Curve Pricing
We first encountered the experience curve in Chapter 13. As a firm builds its accumulated production volume over time, unit costs fall due to experience effects. Learning effects and economies of scale underlie the experience curve. Price comes into the picture because aggressive pricing (along with aggressive promotion and advertising) can build accumulated sales volume rapidly and thus move production down the experience curve. Firms further down the experience curve have a cost advantage vis-à-vis those further up the curve.
Many firms pursuing an experience curve pricing strategy on an international scale will price low worldwide in attempting to build global sales volume as rapidly as possible, even if this means taking large losses initially. Such a firm believes that in several years, when it has moved down the experience curve, it will be making substantial profits and have a cost advantage over its less-aggressive competitors.