The Low Price Trap
Consumers buy based on perceived value. By underpricing their products or services, emerging market multinationals face the spectre of instantly lowering the perceived value
Our research suggests that starting in the low price tiers is a double-edged sword. While it allows EMNCs to leverage their strengths, the firms that started in the lowest price tier with their own brand, like Ned from Arcelik or Dopod from HTC, found it very difficult to generate margins or loyal customer bases. Such low prices and margins naturally do not create the resources to reinvest in the business (for R&D or brand building) and thus work against long-term viability: there is no takeoff to the “virtuous cycle” of higher prices, higher margins, higher quality, and stronger, sustainable brands. In fact, without such eventual building of a consumer franchise, even a “push,” channel-oriented strategy is vulnerable to failure. Unless there eventually is adequate consumer “pull” for the brand, the trade too will wither in its willingness to carry and promote it.