Assignment task:
TOPICS: International Business, Pricing, Pricing Strategy
SUMMARY: Samsung adopted a strategy to cut the prices of its phones in order to compete with local and global companies in emerging markets. Samsung was able to sell more phones, but the pricing strategy cannot be a long term solutions because it cuts into profit margins. Operating profit fell by 60% during the fourth quarter of last year. The pricing strategy helped the company regain market share.
CLASSROOM APPLICATION: This article illustrates the tradeoffs between pricing competitively to gain market share and profitability. Slashing prices helps Samsung sell phones in developing countries. The company is selling more phones, but profits are modestly higher from a year ago and 22% down from the first three months of 2014. The risk is that the pricing strategy could affect the brand image as a premium brand. If that happens, the company will need to keep discounting. Pricing is often discussed in the context of market share, but it is also important to realize the risks of the strategy of dropping prices.
QUESTIONS:
Q1. Review the countries where Samsung faces competition and decided to reduce prices. Include the types of competition that Samsung is facing in these countries in your answer.
Q2. What do you think explains the increasing competition?
Q3. Why are emerging markets so important to companies like Samsung?
Q4. Why might it be difficult to increase prices once a company dropped them to increase market share?
Q5. It can be a challenge to maintain premium pricing when there are new entrants with lower prices. Can you think of two things that companies could do to successfully maintain their higher prices?