Black Diamond Climbing Inc., a leading US manufacturer of outdoor gear, wants to begin exporting climbing gear to Brazil and needs to determine how to price the product in that market. The company has three (3) options:

1. Cost-plus approach;
2. Penetration strategy; or a
3. Skimming strategy

The company plans to export its Kilimanjaro harness, which is a climbing harness that falls into the premium segments in the United States market and retails for $100. Initial research reveals that additional costs of shipping, insurance, and a 10 percent (10%) Brazilian tariff will add a total of $15.00 to the cost of each harness. If the company merely used the U.S cost plus the additional $15.00, it would potentially result in the price of $115.00 USD on Brazil.

Black Diamond Climbing Inc. has the option of using its relationship with a distributor in Brazil, DBI-Sala Corporation, which will add an additional 10 percent (10%) margin to the cost of each harness ($11.50 in this case). That would bring the price of each harness to around $126.50, assuming the company used a cost-plus strategy. This would be the floor price if the company’s management did not want the Brazilian margin per unit to drop below that in the United States.

However, the cost-plus strategy may not be the best way to go. Market research on income and competitor prices in the market reveals that Brazilian climbers are willing to pay 40 percent (40%) above typical U.S. prices for high-quality harnesses. Given this information, Black Diamond Climbing Inc. management believed Brazil could sustain a skimming strategy; the company could sell the Kilimanjaro harness for about $140.00 attracting the upper end of the market.

Finally research also suggest that the market for climbing gear in Brazil is likely to grow quickly in the next 24 months, as several international competitions are scheduled to be held in the country and the publicity is likely to drive more interest. Because of this growth, Black Diamond Climbing Inc. leadership is also considering using a penetration strategy and offering the harness for $90.00 in the market. This would provide low margins but would not be below the firm’s costs to the company could be accused by local firms of dumping products into the Brazilian market. Some in the company offered strong arguments for this approach because Brazil is an important market, as it tends to be the springboard for global retail firms into other South American markets.

After considering all three (3) potential pricing strategies, Black Diamond Climbing Inc. management remained unsure which strategy would provide the most value to the firm. They have turned to your consulting firm for guidance in choosing their pricing strategy.

Problem Statements

1. What are the advantages (pros) and the disadvantages (cons) of each strategy?
   Please do not list points from your textbook; they need to relevant to the case study.
2. What pricing strategy would you advise Black Diamond Climbing Inc.to use as they enter the Brazilian market? Please ensure you explain the rationale of your decision.
3. What implications does the pricing strategy you advise take in Brazil have for Black Diamond Climbing Inc. domestic market? Again, please be specific.
4. What promotional activities would you advise Black Diamond Climbing Inc. to use in the early stages of launching their new Kilimanjaro harness? Please be specific.

Answer rating: 100% (QA)

1 The advantage of the cost plus approach is that it is relatively simple to calculate the price of the product The disadvantage is that it does not t... View the full answer