Conceptual Understanding: Product Pricing in a Foreign Market C2. Torner, Inc.,

Question

Conceptual Understanding: Product Pricing in a Foreign Market C2. Torner, Inc., is an international corporation that manufactur products. Today a meeting is being held at corporate O3,4 sells home headquarters in e purpose of the meeting is to discuss changing the price of the l th und a con ry e company manufactures and sells in Brazil. During the meetin between Karl Mickleson, the corporate sales manager, and José Tapral, tih price of the laundry detergent Division's sales manager Mickleson insists that the selling should b increased to the equivalent of U.S. $3. This increase is necessary b zilian Division's costs are higher than those of other internation Brazilian Division is paying high interest rates on notes payable for the ao of a new manufacturing plant. In addition, a stronger, more expensi has been introduced into the laundry detergent, which has caused the prod to increase by $0.20 because the Br al divi cq ve ingr edicn Tapral believes that the laundry detergent's selling price should remain several reasons. He argues that the market for laundry detergent in Brazil is highs petitive. Labor costs are low, and the costs of distribution are small because th market is limited to the Rio de Janeiro metropolitan area. Inflation is extremely highis Brazil, and the Brazilian government continues to impose policies to control inflaion Because of these controls, Tapral insists, buyers will resist any price hikes. n at $2.50 1. What selling price do you believe Torner, Inc., should set for the laundry detergene Explain your answer. Do you believe Torner should let the Brazilian Division set the selling price for laundry detergent in the future? When should corporate headqua ters set prices? 2. Based on the information given, should cost-based pricing or target costing be usd o set the selline price for laundry detergent in Brazil? Explain your answer

Explanation / Answer

1.

Since laundry detergent market in Brazil is highly competitive, the price to be set is the most important thing the company should follow. Effective pricing can make or break a business. Companies must know of the prices their competitors charge and also know how discerning their customers are on price alone. Once price is established, sales must be checked to see if the strategy is working. Competitive pricing will play a major role in defining the position of the business in Brazil. Since the company is not a market leader, it will have to follow the market price and will take the place of a price taker. However if it tries to exceed the prices prevailing in the market he may loose upon its customers. If aggressive selling strategy is to be followed then the prices may be kept low than the market to tap majority of the customers and then in future may raise the prices after getting a large customer base and may eliminate many of its competitors. This is generally followed during entry time. The prices have to be kept at par with the prices of the competitors and cannot be set higher than them, otherwise the business may have to face loss of customers. Costs are rising but this should be case for all the competitors and not only Torner. It should also focus on lowering the costs and not just altering the prices.

Torner should not let the Brazilian Division to set the prices in future because the price setting in not only done by one division but by the company and experts itself.

Corporate headquarters should set prices when the other departments are not able to perform the function efficiently and there is a conflict between other departments.

2.

Target costing should be followed. It is a system in which a company plans in advance for the price points, product costs, and margins that it wants to achieve for a product. If it cannot manufacture a product at these planned levels, then it cancels the design project entirely. The management has a power for continually monitoring products from the moment they enter the design phase and onward throughout their product life cycles. It is considered one of the most important tools for achieving consistent profitability in a manufacturing environment.

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