Expert's Panel

A collection of timely and important topics posed to our panel of experts.

What are leading equipment companies doing in regard to global customers'strategy, pricing, and support?

 (ep1035)
1. One of the major companies I know of has one global price that is quite high and they apply discounts accordingly. The list price may be $3-million, but you could buy it for $2.7-million, $2.5-million, or $2.2-million and they keep the knowledge of the discounts close to their chest. They are public in their pricing and negotiate discounts locally.
2. I believe the issue is, however, that we are dealing with a global customer and when you sell it to them in Austin at price X, that same customer is going to want it in China at the same price. It appears best to start with a global price that takes in to consideration all of the costs in different regions. It may be higher than it should be in the country of manufacture, but lower in than it should be in some of the outlying regions. However, there are many things to take in to consideration here. From a competitive standpoint you need to be able to withstand the competitive pricing pressure in the region of manufacture. You have to have some play for negotiation—in Korea if you are not at least 30% higher than the ultimate negotiated price you will get killed.
3. More and more contracts with global customers are being negotiated on a world-wide basis with representatives from the different regions. They are seeking out the lowest price.
4. There are two strategies to pricing for our industry. Path one is "copy exact" or "copy exactly." There is one major company that does that and two other major semiconductor companies that are headed that way. Your global strategy to them is purely centralized. You can make the people in Albuquerque and in Ireland very mad at you and you can still get the business if you take care of the people at the central decision-making point. The pricing and agreements as to service, etc. should only be discussed centrally. The other path is "random factories." Good examples are Texas Instruments and IBM. You can talk to them all day long in Dallas or in Fishkill about globalization and it doesn't mean anything—you better think locally. You have to please each local customer separately.
5. There are two separate issues here. One is making a sale which may well be on a local basis, the other is your price. I think we can see from the responses so far that we really don't have an absolute answer, but I can tell you that our training audiences find this issue to be significant. The most viable solutions I have seen—and it won't always work—is, with new products, to package them differently in different regions. They should be designed to meet regional needs and issues and look significantly different from the outside. That way exact direct pricing comparisons cannot be made. I want to emphasize, however, that the differences need to be important to that region; otherwise they will be seen as a ploy. The differences can be in terms of hardware, software or intangibles such as service.