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by: Briana Brooks

sample ECON 4351

Briana Brooks
University of Memphis

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International Monetary Theory & Policy
William T. Smith
Class Notes
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This 2 page Class Notes was uploaded by Briana Brooks on Tuesday August 30, 2016. The Class Notes belongs to ECON 4351 at University of Memphis taught by William T. Smith in Fall 2016. Since its upload, it has received 3 views. For similar materials see International Monetary Theory & Policy in Economics at University of Memphis.


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Date Created: 08/30/16
2. PRICING STRATEGY a. WHAT WOULD BE THE PRICE (IN DOLLARS) IN THE US OF THIS PRODUCT OR SERVICE/BRAND? WOULD THAT BE PREMIUM PRICED, AVERAGE PRICED, OR LOW PRICED? Amazon has dominated the e-commerce market in the United States for so long mainly because of its relatively low prices. In 2010, Amazon released an app which would allow users to compare prices side-by-side with the same items from Target, Wal-Mart, and other large stores. But some studies have been conducted and show that on average, prices are cheaper by 15-20% at Wal-Mart. Of course, this depends on the product or products that a customer is trying to purchase. Typically for products like kitchen gadgets or items like vacuum cleaners or other household items, Wal-Mart is cheaper than Amazon. But for smaller everyday items like cleaners, wipes, paper towels, toothpaste, basically anything smaller, the prices are comparable, but usually in favor of Amazon. So what, to many people, makes Amazon more desirable? Convenience and variety. While a customer may have to wait for his or her order to arrive, many are willing to do so in order to avoid the inconvenience of waiting in lines or even wasting time making the trip out to Wal-Mart only to find that the product they were seeking is not in stock. Also, by having fulfillment centers within the borders of Malaysia, items can pass through customs and be waiting to be bought and shipped immediately while the competition’s products are bought, are shipped to Malaysia, and then go through customs making the whole experience delayed by 2-3 days at least. So, to customers, Amazon is selling a service, and that service is convenience and selection. But there is another perspective: third party retailers. These sellers pay Amazon a fee to sell their products. The fee, which Amazon calls a referral fee, varies greatly depending on the items, but for reference, baby products have a referral fee of 15%, cell phones have a referral fee of 8%, jewelry has a referral fee of 20%, video games have a referral fee of 15%. The list can be found on the website. The point is, Amazon is providing the platform and the microphone for individuals to sell their stuff, but it isn’t free. So again, Amazon provides a service: convenience. Users don’t have to create their own website to advertise the item that they want to sell. Amazon does that. b. WHAT PRICE STRATEGY WILL YOU USE FOR THE NEW PRODUCT/SERVICE LAUNCH IN YOUR ADOPTED COUNTRY? WILL YOU BE AVERAGE-STATUS QUO, OR WILL YOU USE A PRICE SKIMMING OR A PRICE PENETRATION STRATEGY? YES? NO? WHY?(PG 336) Our strategy involves a price penetration strategy. The cost of living is relatively low in Malaysia, especially compared to China which is the home of Amazon’s greatest competition. I believe that by eliminating costs of exporting, our prices can beat the prices of the competition. Furthermore, gas is cheaper in Malaysia than it is in China, so by eliminating China as a shipping destination, Amazon would inevitably be able to reduce shipping costs because of less shipping that needs to be done as well as cheaper fuel costs overall. Amazon, therefore, can offer cheaper products by buying the goods locally which are relatively cheaper and would avoid minimal tariffs while saving money on shipping costs and passing those savings to consumers. c. SET THE PRICE FOR YOUR PRODUCT AND PROVIDE IN US DOLLAR AND LOCAL CURRENCY. SHOW THE LOCAL PRICING FOR YOUR PRODUCT VERSUS LOCAL COMPETITOR PRICING Currently Malaysians basically have one option when it comes to ordering from a company similar to Amazon: Taobao. In order to make purchases from Taobao, customers have to enlist the assistance of agencies like Eazyla. Eazyla provides a chart to help customers calculate the price of their services: Total price = [(Goods price + China Local Shipping) + service fees] + International Shipping (1 kg intl shipping fee prepayment) International shipping fees can cost anywhere from $4.06 to $8.89 for the first 2.2 pounds (items weighing more cost more depending on desired shipping speed) depending on where the items are to be shipped. International shipping fees in some cases are inevitable, but hopefully Amazon can avoid passing those fees onto consumers as much as the competition by ordering in bulk and ordering items based on analytics gathered from marketing and keeping them stocked in the fulfillment centers. Also, Amazon could completely avoid the Chinese local shipping saving customers money. Again, since Amazon provides a service rather than a uniform product, it’s difficult to put an exact price on the savings for consumers. d. WHAT ISSUES COULD YOU FACE SUCH AS TARIFFS THAT COULD INFLATE COSTS? Tariffs for the most part shouldn’t affect costs. Since Amazon would be building fulfillment centers within Malaysian borders, products which are available could be bought within the country; tariffs could be almost completely avoided. I think that the highest cost, other than the money to build the physical fulfillment centers and hire workers, would come from marketing. Since Taobao dominates the e-commerce market, it might take heavy advertising to have Amazon introduced to the public. Also, gathering data on consumer activity would have to be a central investment, but I can’t imagine having to pass these costs onto the consumers.


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