Houston Electronics was delighted with their newest product, HE Versatile CVD a portable device that can be attached to a computer or television. Their marketing plan was to utilize a market-skimming strategy, initial price of product would be high and later with time the price would be set at a lower price; this strategy is often used with electronics since there is a constant upgrade in the market. Houston Electronics set their product at a selling price at $525 and after two years they would drop the price by $50. After receiving bad news from the company’s major investor, the president was shocked to hear a foreign competitor will be selling a similar product at a more affordable price, $350, meanwhile it cost them $375 for a complete
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How could the foreign competitor profitably sell a similar product for less than the manufacturing costs to Houston Electronics?
There are many reasons why foreign competitors profit on selling a similar product for less than the manufacturing costs compared to Houston Electronics. First, let’s examine raw materials, it is possible raw materials are purchased at a cheaper rate in foreign countries compared to what Houston Electronics buys their materials at. Geographically each country has their own set of elements that are used to produce various things, causing cheaper rates for raw materials for different countries. For example, India produces more cotton than Brazil, possibly the cotton price will be cheaper in India compared to Brazil. In addition, electronic parts are possibly cheaper in other parts of the country, giving foreign competitors the advantage of purchasing them at a better …show more content…
If another competitor wanted to use their technology, the competitor would have to pay a royalty fee to HE and benefit in limiting the competition. By licensing your patented product to other companies or businesses HE will earn higher profits and a great advantage to negotiate, since legal costs and risks will be reduced giving you leverage on possible higher royalty payments. A patent is one of the few assets that can increase in value over time and a great asset by banks and any potential buyer of your business. In addition, by patenting your product you will have a lead in improving your product with those who might “knock off” your product once your patent has expired.
3. What advice would you have to help the company avoid similar problems in the future?
Advice to benefit HE in avoiding similar problems in the future, expand your scope in research and development. Really find out what features the consumer wants in that product, you will satisfy your customer and if the competition rolls out a similar product, your customer will stay loyal to your product since its equipped with everything they want. Unfortunately, another competitor was able to make a similar product as the one HE created, with research and development it aids in investigating to either create
How could the foreign competitor profitably sell a similar product for less than the manufacturing costs to Houston Electronics?
There are many reasons why foreign competitors profit on selling a similar product for less than the manufacturing costs compared to Houston Electronics. First, let’s examine raw materials, it is possible raw materials are purchased at a cheaper rate in foreign countries compared to what Houston Electronics buys their materials at. Geographically each country has their own set of elements that are used to produce various things, causing cheaper rates for raw materials for different countries. For example, India produces more cotton than Brazil, possibly the cotton price will be cheaper in India compared to Brazil. In addition, electronic parts are possibly cheaper in other parts of the country, giving foreign competitors the advantage of purchasing them at a better …show more content…
If another competitor wanted to use their technology, the competitor would have to pay a royalty fee to HE and benefit in limiting the competition. By licensing your patented product to other companies or businesses HE will earn higher profits and a great advantage to negotiate, since legal costs and risks will be reduced giving you leverage on possible higher royalty payments. A patent is one of the few assets that can increase in value over time and a great asset by banks and any potential buyer of your business. In addition, by patenting your product you will have a lead in improving your product with those who might “knock off” your product once your patent has expired.
3. What advice would you have to help the company avoid similar problems in the future?
Advice to benefit HE in avoiding similar problems in the future, expand your scope in research and development. Really find out what features the consumer wants in that product, you will satisfy your customer and if the competition rolls out a similar product, your customer will stay loyal to your product since its equipped with everything they want. Unfortunately, another competitor was able to make a similar product as the one HE created, with research and development it aids in investigating to either create