[Pythonmac-SIG] the iBook's irresistible charms

[Alex Martelli]

On Wednesday 07 January 2004 01:01 pm, Dinu Gherman wrote:
   ...
> OTOH, it would be interesting to know if European companies have
> increased prices of EU-manufactured products sold overseas...
> Is there any U.S.-owner of a new Porsche/Mercedes/BMW/Ferrari on
> this list? ;-)

I don't know about car companies in specific (and Mercedes, being
manufactured by a roughly 50/50 US/EU company, Daimler-Chrysler,
is an especially peculiar situation anyway), but I do know that a EU
exporter to the US faced with growing EU/US exchange rate can
adopt a mix of two strategies: pass some of the increase on to prices,
hurting sales, vs swallow some of the increase, hurting profit margins.

The ability to do the former without hurting sales _too_ badly is also
known as "pricing power", and it depends on how sensitive the demand
for your goods (or services) is to price (which in good part, in turn,
depends on how directly affected you are by competition -- if you sell
perfectly replaceable products, known as "commodities", the effect of
competition is maximal, your pricing power is about zero -- that, for
example, is the typical situation of an exporter of steel, with possible
exception for niche "specialty" steels/workings).

SAP, for example, explained in their latest yearly report (at the end of
the summer, if I recall correctly) that their profitability was up, but sales
were hurting "due to the strong Euro".  This implies they had passed on
to their prices a strong portion of the Euro's increases, which, in turn,
means they judge their pricing power to be high; there is little direct
competition for their products/services -- customers faced with higher
prices may delay purchasing/upgrading/increasing their purchases of
SAP products and services, but aren't switching en masse to SAP's
competitors (or else, SAP would _have_ to accept decreased profits
to keep prices more stable and save their market share).  Vice versa,
Nokia and Ericsson appear to have steady sales and market shares
but declining profitability -- this implies they have low pricing power
(there's strong competition in the cellphone market, a high risk of
losing a sale to a competitor if you try raising prices) and have passed
little or nothing of the exchange-rate increase onto product prices.

I've never specifically studied the converse situation, that of an exporter
from a country whose currency is rapidly declining, but it seems to me
that the situation is exactly the reverse -- the choice being to pocket more
profits by keeing prices stable, or expand market share by lowering prices;
again, price-sensitivity of demand being key.

It gets more interesting if you think of an exporter who has a whole line
of products -- some squarely aimed at a captive market (high pricing
power, low price sensitivity of demand), others aggressively competing
in a crowded market (low pricing power, high price sensitivity), AND some
measure of "internal" competition between product lines (the aggressively
priced line may "steal" sales that might have gone to the high-profit line,
if the price/performance difference between the lines becomes too high).
Craftfully maintaining market segmentation and jostling between profits
and market share under such conditions will be truly an art.  It seems to
me that Apple is exactly in that position -- e.g. with iBook vs Powerbook
product lines -- and is handling the difficulties with great finesse.


> > [...] So, my advice to y'all is to get American fiancees...!-)
>
> That is certainly not an option for everybody! ;-)

True -- the population of the US is smaller than that of EU countries, and
with the EU's expansion coming this spring the ratio will further tilt; so, 
not _every_ EU citizen can get a US fiancee...:-).


Alex