Ginger beer would be a new distinct product in Saudi Arabia and the environment is different from the one in the US or Europe where the customer value and expect new products from leading producers. Also when it comes to food (inclusive of drinks and beverages) then people in the developing and less developed nations seem to be conservative. Following the success of ginger beer in Australia and other international markets then we are optimistic of the entrance into Saudi Arabia.
Factors Affecting Pricing Decision
The factors to be considered when pricing the ginger beer can be divided into two broad groups just like any other product that is introduced in a new environment. So we have external and internal factors.
Internal factors External factors
Corporate and marketing Market environment
Positioning Government policies
Cost of developing and producing the beer Import duty
Product place in the line of the product Insurance, transport
Currency fluctuations and inflation.
Internal factors include corporate and marketing objectives which may be to capture a market share as a new entrant, positioning whereby we recognize our target group; to understand our potential customers. In pricing we shall also consider the cost of developing the product which will include the value to the innovators and the cost of producing the beer where we consider the raw materials/inputs. One product factor that may be considered is the product place in the line of products if the company has several products in the same market or prepares to introduce several others in the same market. (Hollensen 2003) In this case the products are two; diet ginger beer and ginger beer.
External factors mainly consider the environment in which the market is situated. In this case the Saudi government would rate import duties on materials into the country, other costs like insurance and transport costs as in this case will be incurred too. Currency fluctuations and inflation are common in every nation today, only the percentage distinguishes its real effects. Our corporation has to factor in their effects as our plans are long term.
Pricing involves choosing a technique or combinations that are used to determine price. The price could adhere to skimming if the costs of invention or innovation are high. Bundagerg could also consider other related products that could act as substitutes in what we can call market pricing based on competitive prices. Since the above two strategies apply but do not fit in the ginger case fully we consider penetration pricing where the main objective of the company is to capture a market share by allowing customer experience encouraged by low initial prices.
It is an entry into new market; ginger beer has received good international success but it is being introduced in an Islamic culture where religious believes are core the brand has to induce consumption so as to capture a market share which thereafter can grow gradually and the prices are reviewed once the market is established and consumer loyalty has been achieved. Bundaberg has chosen exportation of finished products as an entrance strategy to reduce the cost of entry in capital for factory set up while also reducing the risks of testing the market. This pricing policy will only be effective if it considers the proportion of the price to the average consumer’s expenditure since it has already met the other two conditions of distinctiveness and perceived quality.
The exact price will include the cost of making 17 cents, transport and insurance $1.27, 5% import tax, warehousing and the retailer price. According to the prospect, the penetration pricing is supposed to sell a container that holds 10000 bottles in the first three months, after a year period Saudi would demand 5 containers annually while the point of stability is expected to be 40 containers annually.
Price per unit Total
warehouse@ 281.25 SAR (ReportsnReports 2011) 281.25 SAR
firstname.lastname@example.org (EBay Inc 2011) 29810
Terms of Payment
It is advisable to quote the price of the shipment in the currency of the buyer, exporter, Euro and a third country so as comparison may be made (Hollensen 2003). Customers prefer when the commodity prices are translated into their local currency. In this case the company will do the shipment and then use a distributor to make the products reach the outlets. The company can use cash in advance or letters of credit which will secure the payment.
EBay Inc, 2011, Philosof -empty Beer bottle, micro brewery 330ml Israel, , viewed on May 17, 2011 from http://cgi.ebay.com/Philosof-empty-Beer-bottle-micro-brewery-330ml-Israel-/230602487834
Hollensen S, 2003 Global marketing 3rd edition Pearson Education
Hollensen S, 2011 Global marketing- a decision oriented approach, Pearson Education.
ReportsnReports, 2011, Cash & Carries & Warehouse Clubs in Saudi Arabia: Market Snapshot to 2015, viewed on May 17, 2011 from http://www.reportsnreports.com/reports/67772-cash-carries-warehouse-clubs-in-saudi-arabia-market-snapshot.html