Czech glass is a particularly attractive product in the chandelier industry. In northern Bohemia, glassworks have been in existence since the midfourteenth century and Czech crystal, which is colourless and ideal for engraving and cutting, has been particularly attractive to chandelier makers.

Thomas Klaus, president of Crystal Components, had established his firm as a major supplier of Czech glass components to chandelier makers in the Czech Republic. Now, he was thinking of moving into foreign markets. Preliminary research showed large numbers of chandelier makers in the EU, the US, and China. While they were quite capable of making chandeliers to equal the quality of those made in the Czech Republic, they would need the Czech glass to make these chandeliers world class in quality. As such, Mr Klaus is very interested in establishing relationships with chandelier manufacturers as quickly as possible. A key question in his mind is the proper pricing for these components. He has established costs for spheres and ovals in the crystal formations used in the chandeliers and also has determined the import duties into each of the target markets. These are seen in the table below:

 

He knows that final prices of chandeliers range from €500 up to many thousands and each chandelier uses anywhere from 10 to 100 spheres, ovals or a combination of both. Since Crystal Components is a small firm, he also knows that he will need distributors to import the product into each of these markets and may have to provide some type of technical expertise to the chandelier manufacturers in their own languages. A quick analysis of the marketplace shows existing suppliers providing alternative product (not from the Czech Republic). The product from these suppliers cannot match the quality of those offered by Crystal Components. Mr Klaus has

determined that competitors in general have the following prices for a 1 cm sphere - USD 4.25, €4.50, 30 Chinese Yuan - and, in most cases, these firms are located within the markets he is interested in.

Questions:

1. 1. Examine the following factors that Mr. Klaus should consider when developing the pricing strategy for his products:
2. a. Customer
   b. Competitors
   c. Distribution channels
    
3. 2. Examine the three basic pricing methods - rigid cost plus, flexible cost plus, and dynamic incremental (market differentiated) - in the context of pricing Crystal Components' products. Propose the most effective pricing method that Crystal Component should use.
    
4. 3. There are a number of factors that affect customer price sensitivity. Based on your understanding of the case study, discuss whether the prospective international chandelier makers are likely to be price sensitive or insensitive.

Costs (all labour and materials) Size 1 cm 2 cm 5 cm Import Duties EU US China Spheres: 3.00 euro 5.00 euro 7.00 euro 15% 10% 25% Ovals: 4.00 euro 6.00 euro 8.00 euro