This is the fourth article in a 5-part series on how the West can change its game to win in the new global economy. It is based on the 5Ps of Global Marketing Strategy, first introduced in The China Factor: Leveraging Emerging Business Strategies to Compete, Grow and Win in the New Global Economy.
The fourth ‘P’, ‘price’ is an especially key decision factor for customers in emerging markets and is almost always a consideration for developed market customers. Price is also a primary strategic tool for emerging competitors as they expand globally. It is ‘market penetration strategy 101’ – gain credibility and new customers by giving them an offer they can’t refuse and undercutting incumbent vendors in price.
Emerging competitors like those from China have traditionally been able to do this based on their exceptionally low production costs – not only because labor costs have been so comparatively low (although this is evolving), but they have exceptional supply chain efficiencies and other cost savings due to low R&D/ innovation investments. While lower quality goods have often been the trade off for cost-conscious consumers, the benefits – such as increased buying power, excessive consumption habits, or improved margin gains – outweighed the risks. While these competitive advantages and dynamics are shifting given the economic development and growth of China (see article ‘Meet the Chinese Billionaire Who’s Moving Manufacturing to the U.S. to Cut Costs’), the cost advantage elements still exist and with other emerging entrants as well.
This low pricing strategy has benefited Western consumers as well as companies that have taken advantage of low China production costs – purportedly at the cost of American jobs. But this begs the question – if America brings jobs back home per the new administration’s goals, are Americans ready for what this might mean in terms of buying power and consumption indulgence?
Further, are Americans ready to adjust competitively as they sell their higher priced goods abroad, while competing with the tenacious Chinese companies that have expanded worldwide?
The global economic growth of Chinese companies (as well as other emerging entrants) has posed an amplified challenge for Western-based companies selling premium products that come with a premium price, particularly as they expand into emerging markets but also in selling in developed markets.
How to Beat Competitive Pricing
1. Don’t Fall into the Discounting Game – know your threshold and defend your value-add. This is a losing battle particularly against an emerging entrant desperate to penetrate a new market and make a mark. Train your sales teams to position your premium brand for all of its value, including company advantages and value-add in addition to the product quality and reliability. How about your years of expertise, company-wide support, longevity, social contributions? Also, be clear on your customers’ propensity to pay. Can they afford it or can they find a way to afford it if they really want it?
2. Get creative – think holistically in the negotiation. Is it really a price discount they want or do they maybe really need help paying for your product (e.g. financing)? Consider new business models or partnership proposals that enable your customer to say ‘yes’ to your value-added, premium product and forgo the deep price discounting that hey originally asked for.
3. Know your segment, know your customer and know what they want. ‘Everyone’ is not your addressable market. Market segmentation and analysis is essential, especially when expanding into new and less known countries. In the case of expansion into emerging markets, it is ideal to have customized products for local needs. Having said that, Apple did that with the iPhone5c – a less-feature rich phone at a lower price point for emerging markets. It turned out that the customers who wanted to acquire an iPhone for is premium brand notoriety, didn’t want a lesser version than what it was globally known for and preferred to pay the higher price for the full deal. While this is a narrower slice of the overall market, this was Apple’s true target customer segment. Sometimes accurately identifying your customer segment means a smaller market but it also means a sharper, optimized and more successful sales and marketing strategy.
This is just a flavor of what Western-based companies can do to better compete globally on price with the deep discounting tactics of Chinese and other emerging entrants. For more tactics and strategies on changing your game to win in the new global economy, get The China Factor, a Wiley published book, to help your company navigate these new waters. http://www.TheChinaFactorbook.com.
Amy Karam is a speaker, global expansion consultant, corporate instructor and the author of The China Factor. http://www.karamconsulting.com.