International Marketing Incident - Latin America Oil Prices

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International Marketing Incident

Latin America Oil prices

After the Second World War oil industry determines world market conditions. The relationship between oil supply and demand serve as “the barometer of worldwide economy” (Lingyu, 2012). In order to stay profitable, international companies need to be proactive and adjust their strategies depending on the oil industry fluctuations.

A landed cost means the total price of a product, when the buyer received the product ^[1]. Shipping cost, being one of the landed cost components has a direct impact on landed cost total value. As the shipping costs are expected to double next period, the total landed cost will increase accordingly. Currently, shipping cost account for $0.020 per unit. Next period it will equal $0.040. With that change, the total landed cost will be $1.3044 (see: Appendix).

As AllStar produces their goods in Venezuela, when deciding on the SKU price in Argentina, total landed cost should be considered thoroughly. As it was mentioned above, the total landed cost will increase. The company can either maintain their prices and, consequently, sacrifice some revenue per unit (price to market strategy) or raise the price to compensate increased landed cost and sacrifice some of the market share (pass through strategy).

With the assumption that each percentage increase in price correlates to an equal percentage decrease in volume of products sold, Figure 1 and Figure 2 (see: Appendix) show that it is better for AllStar to maintain the local price for the product. The increase of total landed cost will equal 1,87217%. With a pass through strategy, company would lose sales of -18721.7 units but retain the revenue per unit being 8,25 ARS, making a profit of 8 095 545,98 ARS in total. When choosing price to market strategy, AllStar sells 1 000 000 units of product at the same price, therefore sacrificing 0.1030068 ARS of revenue per unit, making profit of 8 146 993,2 ARS in total. In conclusion, it will be more efficient for AllStar to set the price to market in order to have maximize the total revenue.

        Landed cost, as a total price for the product in the final stage – delivery to the customer – is influenced by its components. These consist of mainly: “manufacturing and sourcing costs, transportation, inventory, trade costs, and risk of disruptions”, but in a wider (more precise) view taken into account along with: “costs associated with quality, insurance, duties and taxes, expedites, deconsolidation, and rework or returns.” (Martin, 2009) Therefore, factors influencing landed cost make a change in the mentioned components. They could be of political nature (e.g. change in taxation laws or international trade agreements), economy fluctuations (e.g. foreign exchange market), general macroeconomic indicators change (e.g. inflation), natural conditions (e.g. work supply) and many others. Such wide variety of factors influencing the landed cost and, due to this fact, its volatile nature make it a priority to precisely calculate the cost and consider possible changes. Responsible approach to total landed cost helps decision-making processes in global trade companies.