Pricing Strategy for Haier Company in India - Case Study Example

Pricing Strategy for Haier Company in India Table of Contents Introduction 3 Haier’s Pricing Strategy in India 4 Pricing Strategy Recommendation 5 References 7 Introduction Haier Inc is a Chinese Company that produces appliances for retail. It has a market presence felt not only in China but has markets in Europe, Italy, the United Kingdom, Luxembourg, Belgium, France and in Asia as well. When Haier ventured into its overseas markets, they adopted a strategy where they would have a local goods production, set up a sales strategy and also produce products that would be able to cater to the needs of the local present. Over a quarter of a century has passed through which Haier has evolved from an unknown refrigerator factory into a leading appliance seller in the global market. Its entry into the global market had come amidst managerial, financial and associative challenges. The association of the country’s brands with low grade products had initially hurt their attempts at establishing themselves in the global market. To compound on their problems, the company had also been immersed in debts and had to grapple with discipline issues among their work force. A change in fortune presented itself during a blind test on their products dictated by stringent German standards. The resulting outcome marked the beginning of Haier’s introduction into the global market. India had a presence of market for white goods and this attracted lots of companies. There was quite a large market demand and most of the companies producing white goods indulged in increasing their output capacity. India however has strict trading policies with foreigners. In addition, there were heavy burdens that were imposed on manufacturing companies that were discouraging. Also, the companies present engaged in price wars in order to capture a market due to low prices. Finally infrastructure to ensure products reached the rural markets where most of the Indian population resides was lacking. Haier Company entered the Indian market in 2004. At that time the Indian white goods market was dominated by the Korean and the Indian brands. LG, which was a Korean Company was the market leader and had a big share of the market for different products. Samsung followed closely behind and Whirlpool was a common brand name as well. All these were then trailed by Indian and Japanese brands. Haier’s Pricing Strategy in India Each company had different directions in terms of pricing. Indian companies targeted the low price market. LG products were basic function and also took up the low prices market. This was the initial strategy and after they secured this market they later ventured into the medium end market. Samsung produced premium end products as well as products that were designed for the cheap price group which was where most of the consumers were. Haier did not however get itself into the pricing wars the excited in the market. It took up an upscale image as its and products were for the premium end. Haier did not sell its products based on the market price. It however chose to be innovative and creative in terms of product. Their prices were therefore based on the cost of production of the product they offered to the market. The innovations that were made by Haier did not realize profits in India as they had in China. 2 years later, Haier was recording a slow growth which ended up as stagnant over time. There was a change in management that improved on the sales and marketing and this made Haier record profits and a high revenue growth eventually. The new head of the India operations also decided to scale down the price margins to be just above the LG and Samsung but below the other competitors. This had them end up targeting the middle market. The already branded image of the upscale market was left intact for Haier. Pricing Strategy Recommendation Products differ in prices due to the capital that is invested in producing it. The capital costs will encompass be the labour and manufacturing costs. Therefore, the price of a product is directly related to the value of the product, (Webber, 2012, 1). When Haier ventured into the India market, there was a ready market demand which was an advantage. The mass market stayed in the rural areas. This implied that the mass market was composed on the low price range. This could be why there were price wars between LG and Samsung in the low price markets. The two companies opted to produce basic function products that were to serve the low price markets which they had captured a market already. Haier had branded itself as targeting an upscale market by having their goods to be valued as per the innovations and the offers they did benefit. Haier also produced goods which were of high quality and with much innovation put into the products based on the needs that the president identified meant that the prices of the products were high. This is what rendered them as targeting the upscale market. However, considering India, most of its population resided in the rural areas. In addition the mass markets were present in the low price range. They therefore composed the high market demand that was attractive when setting up business in India for producers. The recommended pricing strategy that would have adopted when launching into this marketing was a segmented pricing system. A segmented pricing system is defined as a pricing system which involves application of different price range for different customers depending in the customer’s needs, (Hogan & Nagle, 2009, 1). This segmenting would be done based on the buyer identification. This involves identifying the different characteristics of the buyers. This would then enable one to easily understand their needs that determine their price sensitivity tendencies. This will be determined by what a buyer practices for a living, employment and therefore this determines the capital the customer can afford to purchase a product. In addition it will be important to explore the needs that each customer has that lead the customer to prefer one product over another apart from price (Nagle, 2013, 17). Since Haier was known for its innovations and product design, this was what gave them a competitive edge in the market. It would therefore not be wise to abandon this line of strategy as it was the whole point behind the brand. Haier would therefore still produce innovative products and have a different price segment for these products. These would target the customer who have needs that has them purchasing products not only for their function but also for an added technology making the suitable for the use they were designed (Wråke et al, 2010, 36). These would be products set on the premium price range. There would be other products with their prices at the low pricing segment. This would be products designed for basic functions and targeting the ordinary consumer with no special needs and with a low income. Segmented pricing is suited to address a range of needs that exist within the target consumers. (Galeotti, 2007, 11), References Hogan, J. & Nagle, T. (2009). Segmented Pricing: Using Price Fences to Segment Markets and Capture Value. (Online). 10th Apr. 2014. http://pricing2b.com/web_documents/segmented_pricing.pdf Nagle, T. T., Hogan J.E. and Zale, J. The Strategy and Tactics of Pricing - a guide to growing more profitably, New International Edition. New Jersey, Pearson/ Prentice Hall. 2013 Galeotti† Andrea, Jos´e Luis Moraga-Gonz´alez (2007) Segmentation, Advertising and Prices. Web 9 April 2014. Retrieved from: http://www.tinbergen.nl/~moraga/sta.pdf Weber, A. T. (2012). Price Theory in Economics. The Oxford Handbook of Pricing Management. (Online). 10th Apr. 2014. http://oes.epfl.ch/files/content/sites/oes/files/pdf/Price-Theory-OUP-Preprint.pdf Wråke Markus, Erica Myers, Svante Mandell, Charles Holt, and Dallas Burtraw (2010) Pricing Strategies under Emissions Trading: An Experimental Analysis. Web 9 April 2014. Retrieved from: http://www.diva-portal.org/smash/get/diva2:669399/FULLTEXT01.pdf Read More