A&F Company’s Differentiated Pricing in the US and Europe
Entry into a new market calls for an analysis of the likely risks that prevail in specific markets of interest. New markets often present challenges in terms of aligning organizations’ culture with the local tastes and preferences, attitudes, and beliefs. Pricing policy difference also constitutes an important risk that is worth considering for success in positing A&F’s products in the European markets. A&F charges premium prices for its products by targeting high-end consumers in prestigious and big cities within Europe. However, different policy frameworks are followed in nations that influence pricing. This situation poses risks to A&F’s success in the European markets.
In the European markets, environmental policies require organizations to engage in ethical behaviors while disposing of wastes from the products. This claim means that apart from incurring costs in manufacturing and distribution of the products, A&F also needs to incur additional costs in terms of ensuring environmental responsibility. Therefore, in nations that have no flexible environmental policies being imposed on the disposal of wastes from a given product, prices are lower for the same product. While operating in the European markets, A&F must comply with the regulation on the disposal of wastes. Hence, pricing is much higher.
In the European markets, A&F’s product prices are more than in the US markets. While such differences in price are justified akin to the additional costs that are incurred in the logistics processes, an important risk entails setting prices that meet the expectations of consumers in comparison with the locally produced competing products. In the European markets, many nations permit organizations to set prices that they want to charge on their products. However, they cannot price in an anti-competitive manner.
If A&F decides to review its distribution policies from an exclusive to intensive distribution mode, it cannot set a recommended price. For example, in the UK, it is illegal to control prices that are charged by shops or store owners. The attempt is inconsistent with the competition law. The risk here is that some outlets for A&F products may underprice their commodities in the quest to make more sales so that the products seem inferior when compared with locally produced brands. On the upper scale, they may overcharge the supplies such that the lower sales volume.