Why Aren't American Goods Now Cheaper

[Jingthing]

....for the same reason that gas isn't cheaper.

Thai rules:

when business is slow, don't drop prices to attract new customers. Raise them to recover the losses from your existing customers.

Yeah they learned that in Thai schools

probably from some foreign teacher earning 30k a month and spending most of it at NEP.

I am curious..... when business is slow, perhaps some genius can justify to me WHY you should necessarily drop the price. It is Monday, I could do with a good laugh from the next Modigliani :-)

I am not a businessman but I did take Economics 101. Pretty much the first day, we were taught the elementary principle that lowering prices increases sales volume. Obviously, you can't lower the prices so much that there is no profit in it, but there you have it. Look at the comeback of the devasted Khao Lak region. The main reason it recovered so quickly was the use of SALES PROMOTIONS to get people en masse to start traveling there again. Lowering prices works!

Also, why do you think the government here wants a weaker baht? To INCREASE export business, of course.

Edited February 12, 2007 by Jingthing

[solo siam]

"I am not a businessman but I did take Economics 101. Pretty much the first day, we were taught the elementary principle that lowering prices increases sales volume."

Everything else remaining totally equal, the product not having a finite demand, and measured solely against its competitors (who don't lower price) that would make sense.

But it isn't that simple, the demand for lets say American made Ice Cream here in Thailand, isn't particularly elastic, lets say its 7 times the price of Thai made Ice Cream here, bringing it down to 6 times the price of Thai Ice Cream isn't very likely to see sales go up by the 40% or so it would need to see the same profit.

[Kaojai]

In a free market they should come down. The main advantage of a cheaper currency is that it is more affordable for people in other countries to buy your exports. I am mainly talking about imported food items that I have noticed aren't coming down. For example, a pint of Ben and Jerry's ice cream is 299 baht last time I looked. How long does ice cream stock last, come on ... I don't buy the stuff (too fat already) but the lack of price elasticity smells fishy to me.

In a free market prices are set by what the market will bear, among other things. Additionally, while the dollar has weakened, fuel and other shipping costs have risen.

What you are advocating is a controlled market where someone dictates what the price will be. Visit Cuba and report back on how that's working out.

[Jingthing]

KaoJai, get a grip. Where did you get from anything I said that I favor a controlled market?

[thaigene2]

Everything else remaining totally equal, the product not having a finite demand, and measured solely against its competitors (who don't lower price) that would make sense.

But it isn't that simple, the demand for lets say American made Ice Cream here in Thailand, isn't particularly elastic, lets say its 7 times the price of Thai made Ice Cream here, bringing it down to 6 times the price of Thai Ice Cream isn't very likely to see sales go up by the 40% or so it would need to see the same profit.

The ONLY time I buy the American ice cream here is when it's on sale - otherwise I'll stick to Walls.

The ONLY time I shop at Villa over, say Tesco Lotus, is when the former has someting the latter doesn't

It is indeed Economics 101...and elasticity was in that course too!

[meom]

I am curious..... when business is slow, perhaps some genius can justify to me WHY you should necessarily drop the price. It is Monday, I could do with a good laugh from the next Modigliani :-)

I'm no genius either but we do sometimes drop the price when business is slow. We mostly do jobs on lumpsum basis and during low season we start to quote lower just to generate turnover that at least will cover personnel (can't lay them off) and equipment costs.

[solo siam]

"The ONLY time I buy the American ice cream here is when it's on sale - otherwise I'll stick to Walls. "

Walls, and not the cheapest Ice Cream?, Proves my point really, obviously Walls elasticity of demand for yourself is NOT determined by its price, but its USA competitors (lack of) price (cut) irregardless of the lower Thai competitors price. You are probably in the minority, I won't buy for example cheap Thai Bread over proper Baked Bread regardless of whether the Baked Bread is on sale or not.

"The ONLY time I shop at Villa over, say Tesco Lotus, is when the former has someting the latter doesn't"

Totally different point, I don't buy my baked beans from a clothes shop for much the same reason.

I think you are trying to simplify supply and demand, just because a supplier can purchase a product cheaper, does NOT mean he is willing to supply it at a cheaper price, especially if there is no competition, no-one else can supply that product and the potential purchasers money situation is unchanged.

[steveromagnino]

I am not a businessman but I did take Economics 101. Pretty much the first day, we were taught the elementary principle that lowering prices increases sales volume. Obviously, you can't lower the prices so much that there is no profit in it, but there you have it. Look at the comeback of the devasted Khao Lak region. The main reason it recovered so quickly was the use of SALES PROMOTIONS to get people en masse to start traveling there again. Lowering prices works!

Also, why do you think the government here wants a weaker baht? To INCREASE export business, of course.

A few concepts in eco 102; backwards bending demand curve; completely inelastic demand. They both are important to understand the constraints of why lowering price may not necessarily increase sale volume.

Then moving from economics to accounting, we may discover that increasing sale volume has many detrimental effects on our supply chain management; perhaps we had already planned for a drop in sales due to consumer confidence; perhaps we have an optimal pricing piont, below which the contribution margin is too low to support our target EBIT - who knows.

My first question was perhaps a little rhetorical, but suffice to say...just because cost of goods drop, it doesn't follow that anyone should automatically lower the price. In fact any pricing manager that thinks like this should probably not be a pricing manager. Furthermore....just because the sales volume is decreasing, it certainly doesn't follow that you should drop the price.

- brand equity

- built in expectation of sales drop within the business

- perceived value of the product/service

- backwards bending demand curve

- inelastic demand

- supply chain issues (e.g. revenue sharing breakpoints)

- oligopoly business situation with few competitors

and a host more; there are plenty of companies that would not just blindly drop the price to respond to a sales decrease in all circumstances worldwide.

Your case of Khao Lak is the flip side; a perfect example of when a price decrease is ideal; with a perishable product and price elasticity. Dropping the price of American ice cream is an example more questionable; there are a very finite number of Americans here who eat it, and whether they care or will consume more with a lower price is also questionable. For all we know, they may not even make money on it using ABC and may simply offer it as a service to their American customers.

Too many question marks for me to make blanket statements about the wisdom of pricing policies in Thailand; up to others to show their own colours with their own remarks; I agree with Ben :-)

[samran]

economics 102-4, spends time knocking down everything you learnt in 101, and the effects of other things - with increasing maths added in. Economics 105 looks at everything in 101, but with fancy equations that for the life of me I couldn't work out.

What you would have learnt in 101 was:

Demand was a function of: Price, tastes, preference.....and a multitude of other things that steve has touched upon.

As a frustrated economist, I highly recommend people read a guy named Ross Gittins who is the economics writer in the Sydney Morning Herald. Probably one of the most common sense economists around who can help mere plebs like you and me apply economics to everyday life.

[steveromagnino]

economics 102-4, spends time knocking down everything you learnt in 101, and the effects of other things - with increasing maths added in. Economics 105 looks at everything in 101, but with fancy equations that for the life of me I couldn't work out.

What you would have learnt in 101 was:

Demand was a function of: Price, tastes, preference.....and a multitude of other things that steve has touched upon.

As a frustrated economist, I highly recommend people read a guy named Ross Gittins who is the economics writer in the Sydney Morning Herald. Probably one of the most common sense economists around who can help mere plebs like you and me apply economics to everyday life.

I like to think of it like this.

Anything too difficult to understand:

online = stupid Thai people, they are dumb TIT

at work = let's put that into our brainstorming session and include it in phase 2

at home = kissy kissy koo darling, you are so smart

The fabled phase 2 surfaces 'yed' again. I still remembed learning in Econ 101 the fallacy of saving for a country, and promptly told my parents the country was dying because of their insistance of not spending their savings on my snowboarding trips.

Of course, the subsequent year, I told them that in fact they were right to keep saving, so in that case could I have a trip to USA as a reward?

Knocked back on both counts, I guess they put my trip into their own 'phase 2 implementation'

But then again....I am no economist.

[mcgriffith]

major point is also that Americans don't make that many things from scratch; the packaging is from CHina, the customer service line is in India, the fuel is from Saudi

As for Villa market and whatever, well they are on possibly the flip side of the forward contract, or alternatively, they now see that they can make a little more. Why anyone would want to but American brand food out here is beyond me and my guess is there is not a massive group that do. Lousy cheese, lousy ice cream, lousy cereals, lousy meats - all the great stuff from the states like bagels and so on isn't available that I have seen, but.........also more expensive for the most part than Aussie equivalents. Bring on the vegemite :-)

hmmm......... bagels. Yeah, I would be up for some of that.

Bagels + vegemite. gigity gigity gigity allllllllllllllright.

Love the macroeconomic analysis! Naw, we don't actually produce anything in America. We're just hunkered down in our bunkers, importing widgets from China. Hey, it's a tough job- somebody's got to do it!

Do love Aussie products available here. Tasmanian True Blue cheese, great wines, marinated olives, etc.

Maybe you should visit my homeland, California. We have some passable decent food available there, too.

And you can find Vegemite in most every supermarket, at a most reasonable price....

[topfield]

I have watched the Thai baht move from 42 to the dollar to 35 to the dollar. Logic would tell us that American goods would now be cheaper for Thai merchants to import, and of course, this being a free market, they would pass on these savings to the consumers in Thailand. I don't see this happening. Other than pure greed (my theory) is there any other reason why the prices for American imports aren't going down?

Not directly to the point but why aren't US goods sold at all in UK supermarkets ?

I am always amazed and astonished by the hundreds of US made products available in Thailand from soap to mashed potatoes at places such as Foodland and Villa .

Most IF NOT ALL of these products are quite impossible to buy in London..totally unavailable.

[With the exception of course of the PX at the US Embassy and at air bases around the UK.]

[pampal]

It all comes down to "ability to pay"

Expats are judged to be able to pay a certain price for a certain item,

if that item is cheaper to produce and/or import for any reason, it just means more profit.

[somtaamgaiyang]

I am not a businessman but I did take Economics 101. Pretty much the first day, we were taught the elementary principle that lowering prices increases sales volume. Obviously, you can't lower the prices so much that there is no profit in it, but there you have it. Look at the comeback of the devasted Khao Lak region. The main reason it recovered so quickly was the use of SALES PROMOTIONS to get people en masse to start traveling there again. Lowering prices works!

Also, why do you think the government here wants a weaker baht? To INCREASE export business, of course.

A few concepts in eco 102; backwards bending demand curve; completely inelastic demand. They both are important to understand the constraints of why lowering price may not necessarily increase sale volume.

Then moving from economics to accounting, we may discover that increasing sale volume has many detrimental effects on our supply chain management; perhaps we had already planned for a drop in sales due to consumer confidence; perhaps we have an optimal pricing piont, below which the contribution margin is too low to support our target EBIT - who knows.

My first question was perhaps a little rhetorical, but suffice to say...just because cost of goods drop, it doesn't follow that anyone should automatically lower the price. In fact any pricing manager that thinks like this should probably not be a pricing manager. Furthermore....just because the sales volume is decreasing, it certainly doesn't follow that you should drop the price.

- brand equity

- built in expectation of sales drop within the business

- perceived value of the product/service

- backwards bending demand curve

- inelastic demand

- supply chain issues (e.g. revenue sharing breakpoints)

- oligopoly business situation with few competitors

and a host more; there are plenty of companies that would not just blindly drop the price to respond to a sales decrease in all circumstances worldwide.

Your case of Khao Lak is the flip side; a perfect example of when a price decrease is ideal; with a perishable product and price elasticity. Dropping the price of American ice cream is an example more questionable; there are a very finite number of Americans here who eat it, and whether they care or will consume more with a lower price is also questionable. For all we know, they may not even make money on it using ABC and may simply offer it as a service to their American customers.

Too many question marks for me to make blanket statements about the wisdom of pricing policies in Thailand; up to others to show their own colours with their own remarks; I agree with Ben :-)

There are thousands of products imported into Thailand on a licensee situation. There is only one supplier of a given product, so they have absolutely no reason to reduce price. I give you for example Gibson guitars or harley davidsons. The thai way of business is famous for creating the non-competitive oligopoly to make sure those who get the licenses don't tread on each others toes.

Probably the most famous in thailand was AIS. They monoplised the phones and the network for about 10 years. A phone was 500 USD for a long time. Only with DTAC and Orange did it change. I knew a lot of guys working for Orange, and you don't know how pissed off AIS was when they brought in their network without blocking the IMIE for the phones.

Overnight (3 months later) the price of a phone halved and Thaksin started looking for someone to buy AIS. ANyone who says Thaksin was a businessman is a fool. A three year old could have probably made MORE money than he did.

[steveromagnino]

There are thousands of products imported into Thailand on a licensee situation. There is only one supplier of a given product, so they have absolutely no reason to reduce price. I give you for example Gibson guitars or harley davidsons. The thai way of business is famous for creating the non-competitive oligopoly to make sure those who get the licenses don't tread on each others toes.

Probably the most famous in thailand was AIS. They monoplised the phones and the network for about 10 years. A phone was 500 USD for a long time. Only with DTAC and Orange did it change. I knew a lot of guys working for Orange, and you don't know how pissed off AIS was when they brought in their network without blocking the IMIE for the phones.

Overnight (3 months later) the price of a phone halved and Thaksin started looking for someone to buy AIS. ANyone who says Thaksin was a businessman is a fool. A three year old could have probably made MORE money than he did.

THe only problem with your theory is:

- there is a rampant grey market in guitars, Harleys and various other items, which makes life harder to control via a licensing situation

- licensee situation is one dictated by the brand for the most part, not the govt, so your idea that this is somehow a 'Thai way' is not the case; let's take say Burberry; they license their products to pretty much just one distributor for each country they don't deal in directly; ditto for windsurfing brands, clothing, beverages; you are suggesting these are all Thai?

- the phones were not 'monopolised' by AIS; prior to DTAC being given the cash injection by Telenor as fasr as I can recall they simply had no money to do anything; and the phones were not all locked; there were multiple ways to 'uncrack' them; additionally this was not a Thai only phenomena; this happened worldwide pretty much for pre pay phones; take a look at the balance sheet of AIS and if you can convince me that handset margin is what drives EBITDA of that business, well, you are a braver man than I am. Smarter too. Orange didn't start the cheap handsets war. MBK already was doing it grey market style, and DTAC did it next. Orange were like the nerd with the thick glasses who arrives at the party just as the cool people are leaving. Orange annoyed everyone with their ridiculously cheap rates, just like Hutchinson.

- $500 USD? That is 20,000b. This must have been prior to 1999, as the standard Nokia back then, the brick one without the aerial was about 15,000b; and phones like Phillips etc were cheaper again.

There are a trillion and one reasons why the telephone network in Thailand is screwed up, and Mr T's hands have touched most of those bits. however, to say he is less able than a 3 year old overestimates the 3 year old. It takes a huge amount of skill to negotiate with the civil sector; bear in mind that there were plenty of other would be magnates who weren't able to negotiate or grow as he did; and they were doing all the exact same things behind the scene. That was the business environment back then. And it took a huge amount of vision to drive the value of his assets up in a semi competitive marketplace while keeping many of the public unaware.

To suggest that isn't smart, well when you show me your 1 billion USD, then I may pay attention. If you want to talk ethics or morality or 'playing fair', well I totally agree with what i think you'll say <deleted> crook that he was, nice daughter though

[DrFisher]

I think that most of the American product prices are in line with what I paid in the USA (Philadelphia) in many cases they are cheaper (not by much but they are). Keeping in mind the products are imported and taxed accordingly. Depending on where you buy a product in the USA it may be as much a $1 less than other places, for example buy a coke at 7-11 in New York city and be ready to pay $1.50 but the same coke in Philadelphia it costs .75 while in Allentown it costs .45 all in all it's what the consumer is willing to pay.