International Computer Systems
...ropean counterparts. ICS made the decision to make the product available in the U.S. to meet this new demand. ICS tried to use the same pricing strategy in the U.S. as it did in Europe, but due to the highly competitive market in the U.S, the price was set at $3000. Due to this price disparity, customers who would normally buy their product from the European subsidiary began purchasing directly from the U.S., bypassing the normal distribution channels the company had established. This outraged the Europeans as sales began to shift to the U.S. and they began to lose customers and accounts they had worked hard to obtain and maintain. The lower price offered in the U.S. was pressuring the Europeans to lower their price which would cause them to miss their PBT goals. The problems that Peter Mark is facing today are due to the companies products being sold in disparate markets. The companies pricing strategy has failed to create equality for all of its’ subsidiaries around the world. This inequality has lead to the development of a “gray market” and “parallel imports” in which ICS’s European subsidiaries are taking advantage of the lower price for the Model 2000 in the US. By bypassing the normal means of distribution the Europeans are able to purchase these products from the U.S. at a discount. Parallel imports can impact ICS in several ways. The fist being an increase in sales and thus revenue due to the ability of the European market to have access to the product at a cheaper price because of price discrimination may lead to increase in revenue and profits because those who once did not find the product attractive at the European price now find the product appealing at the U.S. price. Parallel imports may also create a segment of the market that stays loyal to the normal distribution channels because they highly value the country specific warranty and support. The third result of these parallel imports is a market segment which switches from the authorized distribution channels to the new unauthorized channels to take advantage of the cost savings. III. Alternatives Peter Mark and ICS have several decisions to make. Some of their alternatives are: • Do Nothing - The emergence of this gray market and parallel imports may actually increase overall sales and profitability of the company. This would be caused by creating a new market of customers that are attracted to the product only at the U.S price level. • Price Cutting - This would be a joint action that would align the prices of the U.S. offices with those in Europe thus giving customers no incentive to bypass normal distribution channels. • Product Differentiation - ICS can differentiate its’ product in different markets so that features and benefits are only available in the home country. As an example, ICS could only offer warranties and support to those products sold in the home country. A product bought from the US office would not be supported in Europe and vice versa. • Decentralize - Build new manufacturing plants in each country of operation which would do away with the need for each subsidiary to buy from the U.S. This would also eliminate the need to base prices on the master U.S. price list. ICS could take this further and cease to sell out of each home market. Management could enforce a policy of only selling to customers within its own country. This would mean that the US could only sell to US customers and the same for the European market. • Lower Target PBT - To assist its European sales force management could lower its 15% PBT expectation to a more reasonable figure that would allow the Europeans to be more competitive process offered by the US. • Centralize sales and distribution - Eliminate the need for subsidiary sales offices by making the U.S. the central sales office for all of its operation around the world. This would clearly remove any price ambiguity. IV. Key decision criteria used to evaluate each alternati...