Channel and Pricing Strategies 1

Channel and Pricing Strategies for Bosch Product Launch

Allen Dean, Syed Anwery, Noor Khawaja, Chris Munger, and Derrick Walters

University of Phoenix

MKT 571 – Marketing

Debbie Marchok

April 28, 2010

 Channel and Pricing Strategies 2

Channel and Pricing Strategies for Bosch Product Launch

In this paper, we detail channel and pricing strategies for the launch of a new Bosch

product into the U.S. and U.K. markets. The goal of the product launch is to introduce the Bosch

brand to a wider consumer base by developing and marketing a value-priced distance-measuring

device for a broader market than the traditional market of construction professionals. First, we

explain our rationale for selecting the U.K. as our first international market and discuss the

impact of the following factors: sustainability, trends, market size, growth rate, and profitability.

Second, we describe the channel and pricing strategies to be executed with regard to both our

domestic and international markets. Third, we evaluate the implications of several environmental

factors on organizational choices for the U.S. and U.K. markets: political-legal-governmental,

economic, technology, social-cultural, and demographic.

Selection of First International Market

Kotler and Keller (2006) list five reasons why companies expand into international

markets. Although Bosch is already a global company, two of reasons cited by Kotler and Keller

pertain to the decision to launch our proposed product into foreign markets: “to achieve

economies of scale [and]…to counterattack…competitors” (Kotler and Keller, 2006, p. 669).

Our rationale for selecting the U.K. as our first international market is explained below and is

followed by a discussion of the impact of the following factors on our decision: sustainability,

trends, market size, growth rate, and profitability.

One of the risks inherent in launching a product into a foreign market is that a “company

might not understand the foreign country’s business culture or know how to deal effectively with

foreign nationals” (Kotler & Keller, 2006, p. 669). Our proposed product is unlikely to generate

high-volume sales, especially with initial versions of the device. Over time, as feedback from
 Channel and Pricing Strategies 3

customers is incorporated into improved versions, the goal is to achieve profitable sales levels by

selling the product globally. Until the ideal mix of features and target markets are identified, the

expansion strategy needs to minimize missteps as alluded to by Kotler and Keller (2006). The

U.K. market, although not identical to the U.S. market, poses the lowest risk in terms of

language, cultural, political and regulatory differences. The U.K. market is also the most logical

starting point for our next phase of expansion, which will target the European Union (E.U.) as a

whole. Logistically, establishing a beachhead of marketing and distribution expertise within the

U.K. will be an ideal point from which to expand into the other E.U. countries while posing the

least risk for our initial launch into foreign markets. Despite the caution against overlooking

possible better markets, Kotler and Keller (2006) point out that our rationale is not uncommon

with regard to psychic proximity impacts, given that “many U.S. firms prefer to sell in Canada,

England, and Australia—rather than in larger markets such as Germany and France—because

they feel more comfortable with the language, laws, and culture” (p. 674).

Sustainability

The concept of sustainability is used in two different contexts by Kotler and Keller (2006,

2009a, and 2009b). In most contexts the term refers to environmental impacts and “the

importance of meeting humanity’s needs without harming future generations” (Kotler and

Keller). Other authors use the term only in connection with environmentally-friendly marketing

initiatives (Perreault, Cannon & McCarthy, 2009). For example, Armstrong and Kotler (2009)

discuss the concept of environmental sustainability, which they define as “a management

approach that involves developing strategies that both sustain the environment and produce

profits for the company” (p. 489). However, although Bosch, like most companies, positions

itself as a manufacturer of environmentally friendly products, from the perspective of launching

 Channel and Pricing Strategies 4

a product within a foreign market, the alternate use of the term is more applicable. Specifically,

Kotler and Keller (2009b) introduce the concept of sustainability as the requirement that a “firm

must be sufficiently committed and willing to devote enough resources to create an enduring

positioning” (p. 275).

With regard to the latter concept of sustainability, our product launch within the U.K. is

risky in that a number of competitors, especially from Asian manufacturers, already sell value-

priced distance-measuring devices. However, ceding the market for value-priced construction-

related tools poses the risk of future encroachment by competitors into the professional segment

of the market. Furthermore, allowing competitors to begin building uncontested brand loyalty at

the early stages of tool buyers’ consumption lifetimes risks future sales of Bosch’s wide-ranging

line of professional tools. Thus, from a threat perspective, leaving the value-priced market to

competitors is not a sustainable approach.

One factor related to sustainability cited by Kotler and Keller (2009b), reinforcing and

strengthening brand association favorability, does argue for the introduction of our proposed

Bosch product into the U.K. market. The E.U. represents a significant market for Bosch tools and

establishing and reinforcing awareness of the Bosch brand is critical if Bosch is to maintain and

grow its share of both the European and global markets. The Bosch brand is already positioned

within a broad and growing product mix. Addressing a wider spectrum of potential buyers by

offering products that span from value- to professionally-priced offerings enables positioning of

the Bosch brand within a much larger range of prospective buyers.

Trends

Kotler and Keller (2009b) define a trend as “a direction or sequence of events that has

some momentum and durability” (p. 72). The move to increasing reliance and comfort with
 Channel and Pricing Strategies 5

electronic gadgets that inject convenience and features into previously less automated tasks is a

trend that has been well established for decades. Consumers are acclimated to the use and

reliance upon handheld electronic devices at younger ages and this is another trend that has been

demonstrated with devices such as laptop computers, portable music players, and smartphones.

Such trends are equally well established in both the U.S. and U.K. markets and are in fact

becoming a global phenomenon in developed and developing countries. The effect of these

trends within the U.K. market should reinforce the potential attractiveness and market acceptance

of a handheld distance-measuring device that incorporates convenience and ease-of-use features

desired by prospective customers.

Market Size

According to the U.S. Department of Commerce, the U.K. economy ranks sixth in the

world and third in the E.U. in terms of size (U.S. & Foreign Commercial Service and U.S.

Department of State, 2010). Statistics related to the size of the U.K. market compared to the U.S.

market are summarized in Figure 1. The smaller size of the U.K. market can be seen as a

desirable attribute as it will allow the expenditures associated with the product launch to be

approximately 25% of those associated with the U.S. launch. With the more manageable size of

the U.K. market, communication and positioning will be capable of being fine-tuned to a greater

degree as the market is developed prior to follow-on launches across the E.U.

An unsophisticated look at the population density per square mile for the U.S. (84 people

per square mile) and the U.K. (650 people per square mile) serves to illustrate the fact that

product distribution within the U.K. will be less costly in terms of the distances involved in

putting the product in the hands of customers (Infoplease, 2010). The U.K. population is also

more urbanized than in the U.S., with 90% of the U.K. population living in urban centers versus
 Channel and Pricing Strategies 6

82% of the U.S. population (CIA, 2010). Other comparisons between the U.S. and U.K.

populations are shown in Figure 2.

Figure 1

Comparison of U.K. and U.S. Markets

Note. The figures cited above were drawn from the United Kingdom Country Memo (globalEDGE,

2010a) and United States Country Memo (globalEDGE, 2010b).

Figure 2

Comparison of U.K. and U.S. Population Statistics

Note. The figures cited above are 2009 estimates and were drawn from the CIA World Factbook (CIA, 2010).

Growth Rate

The growth rate of the population in the U.K. is 0.279% and in the U.S. it is 0.977% (CIA,

2010). From a market perspective, the U.K. economy contracted by 4.8% in 2009 (U.S. &

Foreign Commercial Service and U.S. Department of State, 2010). However, the tight economies

in both countries are contributing to greater cost consciousness on the part of consumers, which

might potentially lead to increased demand for a value-priced distance-measuring device versus

models priced for the professional market.

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Profitability

Bosch established its presence in the laser-based distance-measuring market with the 2008

acquisition of CST/berger, a company based in West Lafayette, Indiana (Bosch, 2009). For the

foreseeable future, manufacturing will remain located in the U.S., which means transportation

costs to the U.K. market, especially for a value-priced device being positioned against already

available competitive products, will drive down profitability in the short term. However, given

the breadth of Bosch technological expertise, well-established supply chain, and strength of the

Bosch brand name compared to the other competitors in the market, we anticipate being able to

earn greater margins as production experience, economies of scale, and stronger brand awareness

help us unseat competitive products using less desirable ultrasonic technology.

Channel and Pricing Strategies

Although the U.S. and U.K. markets are extremely similar culturally and with regard to

levels of disposable income available for consumer electronics, the differences in product

distribution costs and retailing environments will require adjustments in the channel and pricing

strategies to be followed in our two initial markets. The guiding principle for our channel

strategy is to ensure our products “are available in the right quantities and locations—when

customers want them” (Perreault, Cannon, & McCarthy, 2009, p. 292). In the paragraphs that

follow, we describe the channel and pricing strategies to be executed with regard to both our

domestic and international markets.

Channel Strategy

An important perspective regarding the Bosch Measurement Assistant is that in many ways

it represents a new unsought product. Perreault, Cannon, and McCarthy (2009) define new

unsought products as “products offering really new ideas that potential customers don’t know
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about yet” (p. 249). Although our new distance-measuring device is not unknown in the

construction industry, for the larger value-conscious consumer market, such devices are

relatively unknown. In general, many consumers are not aware of the benefits a distance-

measuring device may deliver. Therefore, selective distribution makes the most sense while we

strive to inform prospective buyers about the utility and convenience of a distance-measuring

device and we will focus on making the product “available in places where similar (or related)

products are sought [combined with]…attention-getting promotion” (Perreault, Cannon, &

McCarthy, 2009, p. 248).

For both the U.S. and U.K. markets, the Bosch Measurement Assistant will initially be

distributed through a select group of retailers in the top 25 U.S. and top 5 U.K. markets. This

limited physical availability of our product will be complemented by web-based availability

provided by a select number of retailers with national market coverage. Some of the brick and

mortar channel partners being approached in the U.S. are Ace Hardware, Lowe’s, and Home

Depot. We will negotiate with all three to carry the Bosch Measurement Assistant in their stores

within the targeted U.S. and U.K. markets. Within these targeted markets we will offer

advertising assistance and in-store promotional displays to spur initial interest in the product.

Within the U.K. we will approach Homebase, Wilkinson, and Mica. In support of our channel

partners, we will provide demonstration products, detailed product information leaflets, and full-

color displays featuring the Bosch Measurement Assistant.

Each of the retailers mentioned above also sell products from their branded Internet

shopping sites. The Bosch Power Tools Division web site will provide information about the

Measurement Assistant but we will not attempt to sell directly to the consumer given the desire

to avoid channel conflict with our retail partners. Not only are we not equipped at this stage to
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engage in direct sales relationships with low-volume purchasers, we also seek to avoid the

example of “many firms that thought they could quickly establish effective websites for direct

online sales [but]…found that it took several years and millions of dollars to work out the kinks”

(Perreault, Cannon, & McCarthy, 2009, p. 293).

The primary web-only channel partner with whom we will co-market the Bosch

Measurement Assistant in both the U.S. and U.K. is Amazon.com. Amazon’s presence is so

strong and growing in both the U.S. and U.K. markets that it is likely to be the one of the top two

or three web sites prospective customers will visit to read about and possibly order our new

product. Amazon is an especially attractive partner with regard to our product launch within the

U.K. as their logistical expertise and experience in shipping U.S.-manufactured products to U.K.

customers will allow us to keep U.K. prices for the Bosch Measurement Assistant reasonably

close to the U.S. prices. Leveraging the pre-existing channel relationship between Amazon and

Bosch, we are therefore able to cost-effectively tap into Amazon’s product distribution

capabilities within the U.K. with much lower costs than we might experience with new

international wholesalers.

One final consideration with regard to our selected channel partners is the need to have an

efficient and professional reverse channel in place. All of the retail partners mentioned above

have established mechanisms in place for customer returns. Given the nature of the still-evolving

product niche that the Bosch Measurement Assistant will be seeking to carve out for itself and

subsequent generations of the product, product kinks and rejection by a non-insignificant

percentage of early adopters has to be expected. Ensuring that such initial missteps do not

alienate the portion of early customers unhappy with our first generation product offering will be

the responsibility of a prompt, courteous, and no-hassle reverse channel.

 Channel and Pricing Strategies 10

Pricing Strategy

Until a second manufacturing facility is established in a E.U. country, the additional

shipping, legal, and administrative overhead of selling a product in the U.K. that is manufactured

in the U.S. will cut into the profit margins of U.K. sales. However, we have established a pricing

strategy based on the guidance set forth by Armstrong and Kotler (2009), who remarked that

“price is only one element of the…broader marketing strategy [and]…before setting price, the

company must decide on its overall marketing strategy for the product or service” (p. 264). Thus,

we have selected a target costing pricing strategy whereby we began “with an ideal selling price

based on customer-value considerations and then target[ed] costs [to]…ensure that the price is

met” (Armstrong & Kotler, 2009, p. 265). In combination with are target costing approach to

setting a price for the Bosch Measurement Assistant, we are following a market-penetration

pricing approach. Armstrong and Kotler (2009) indicate that “companies bringing out a new

product… can choose between two broad strategies: market-skimming pricing and market-

penetration pricing” (p. 270). A market-penetration pricing strategy matches our ulterior goals of

displacing low-cost, low-tech, and low-brand-recognition competitors using less precise

ultrasonic technology and establishing a foundation for a lifelong purchasing relationship with

both early and value-focused tool buyers.

The Bosch Measuring Assistant will be introduced at $29.95 wholesale, with a $39.95

estimated retail price per unit. U.K. prices will be set in Euros at the corresponding exchange rate

and marked up 5% to recoup some of the additional costs of transportation to and distribution

within a foreign market. These prices reflect our strategy of (1) attracting desirable channel

partners and (2) taking share from other established competitors. Furthermore, these prices

reflect the fact that the Bosch Measurement Assistant represents our initial foray into a nascent
 Channel and Pricing Strategies 11

product category that will combine the most important features from smartphones, calculators,

precision laser distance-measurement technology, laptops, digital voice recorders, and easy-to-

use intelligent software interfaces. By offering superior value at a price competitive with lesser-

featured offerings from primarily Asian suppliers, we plan to achieve economies of scale and

customer feedback that will propel Bosch to the front of the handheld digital tool market of the

21st century.

Impact of Environmental Factors

There are five environmental factors that firms must monitor and respond to appropriately

in order to succeed in a global marketplace: political-legal-governmental, economic, technology,

social-cultural, and demographic (Kotler & Keller, 2009b). We evaluate the implications of these

factors on marketing decisions to be made by Bosch as it releases its value-priced distance-

measuring device into the U.S. and U.K. markets. Despite the similarities between the U.S. and

U.K. markets, some subtle differences dictate adjustments to the marketing approach to be taken

within the two markets.

Political-Legal-Governmental

Despite the differences that exist between the U.S. and U.K. political, legal, and

government milieu, the fact that the origins of the U.S. were so heavily influenced by its prior

existence as a colony of the British Empire makes it far easier for a company to expand business

operations from the U.S. into the U.K. than into most other countries. However, one issue that is

likely to cause different political-legal-governmental impacts within the U.S. and U.K. markets is

where our product is manufactured. In an increasingly global marketplace, one countries creation

of jobs is oftentimes viewed as being at the expense jobs for another country’s citizens. This is

probably less of an issue given the relatively small dollar volume of our proposed product’s
 Channel and Pricing Strategies 12

current market. However, it may become more of an issue if successive generations of the

product spur widespread adoption and if one target of our marketing efforts ends up being

government workers. From a political-legal-governmental standpoint, room for maneuver exists

with regard to both the U.S. and U.K. markets. To U.S. audiences, the fact that the core of the

product is designed and manufactured in Indiana would be stressed. To U.K. audiences, the fact

that the parent company and primary brand of the product originate in an E.U. country would be

emphasized instead.

Another aspect of the political-legal-governmental environment that would need to be

taken into account is the different regulatory environment of the two markets with regard to

“product standards, product liability, and commercial transactions” (Kotler & Keller, 2009b,

p. 86). There are some significant differences between the U.S. and E.U. political, legal, and

governmental institutions and their expectations of businesses. The issue of consumer privacy is

one well-known and publicized example of U.S. business practices that need to be significantly

modified to comply with European laws.

Economic

Two aspects of economic impacts on marketing decisions are (1) the distribution of income

within a market and (2) the levels and availability of savings, debt, and credit (Kotler & Keller,

2009b). As depicted in Figure 1, the GDP per capita in the U.K. is over 20% lower than in the

U.S. This fact is another reason why the U.K. is a logical first step in the international release of

a value-priced distance-measuring device. The relatively greater degree of affluence in the U.S.

market means the expected $50 to $60 price difference between the value-priced and

professional-class products will have less of an impact on buying preferences than in the U.K.

market. Therefore, even though the market size of the U.K. is only about 20% of that in the U.S.,
 Channel and Pricing Strategies 13

the greater price sensitivity in the U.K. market may end up making total sales volume

comparable between the two markets.

Lower price sensitivity in the U.S. market may also result from the fact that “U.S.

consumers have a high debt-to-income ratio [and]…credit is readily available in the United

States” (Kotler & Keller, 2009b, p. 80). This means that greater care will need to be taken with

positioning and channel selection in the U.S. to avoid cannibalization of Bosch’s professional-

class product, whereas in the U.K. product cannibalization may prove to be less of an issue.

Technology

Two technological trends mentioned by Kotler and Keller (2009b) are pertinent to the long-

term market strategy represented by the launch of our proposed distance-measuring product and

expansion into international markets. These trends are (1) the accelerating pace of change and

(2) unlimited opportunities for innovation. The accelerating pace of change has become such an

integral aspect of life in the 21st century that rapid advancement in product features and

capabilities has come to be expected by consumers and forced upon manufacturers creating

products for competitive markets. Technology advances so rapidly and technological products

typically have such universal appeal that manufacturers are constantly vying for a place in the

global market by trying to innovate and improve faster than their competitors. Consumers, in

response, typically place much less emphasis on brand loyalty and more emphasis on innovative

features and reasonable pricing, especially with regard to newer products that have not stabilized

with regard to features and consumer expectations.

Both of the aforementioned trends highlight the potential for a significant explosion in

innovation with regard to distance-measuring devices when combined with advances in

miniaturization and computational power in ever-decreasing form factors. Measuring distances is

 Channel and Pricing Strategies 14

an activity that is rarely performed in a vacuum. Instead calculations are then performed,

information documented, and reports transmitted. A “measurement assistant” that eventually

combines voice dictation, photographic illustration, powerful and easy-to-use computation, and

rapid transfer of information to computers for inclusion in reports and other documentation is not

only becoming technologically possible but capable of being delivered at lower costs than ever

before. If the Bosch brand is to become as synonymous with state-of-the-art tools that support

anyone engaged in construction-related work as Apple has become with portable music players

and high-tech communication assistants, aggressive competition with other manufacturers for

mindshare is required.

Social-Cultural

Social-cultural impacts on marketing efforts within the U.S. and U.K. are likely to be very

similar. Both societies are modern and technologically advanced. Self-reliance and individual

expression are pronounced aspects of both U.S. and U.K. cultures in general and represent

attributes that are likely to resonate well with our product’s release features and pricing. One

aspect of social-cultural factors mentioned by Kotler and Keller (2009b) that may be pertinent to

our product is that “each society contains subcultures, groups with shared values, beliefs,

preferences, and behaviors emerging from their special life experiences or circumstances”

(p. 81). The generation of buyers just entering their twenties as our product is released to the

market is characterized by almost unthinking acceptance of technology, electronic gadgets, and

almost a disdain for older, manual ways of accomplishing tasks. Although focus groups should

be used to confirm such a hypothesis, it is likely that the most youthful target market for our

value-priced distance measuring device would find it completely natural and preferable to
 Channel and Pricing Strategies 15

measure distances using an automated tool rather than relying on measuring tapes, rulers,

yardsticks, and manual data entry in support of area and volume calculations.

Demographic

In the U.S., the ethnic composition of the country is estimated to be almost 80% white,

13% black, and about 5% Asian. Of these groups, about 15% are classified as Hispanic (CIA,

2010). The most significant aspect of these figures is the adaptation of more services and

products to better appeal to and serve the Hispanic market, with one obvious example being the

inclusion of manuals, signs, and other instructional materials for products and services written in

both English and Spanish. The U.K. ethnic composition is markedly different, with 92% white,

2% black, 2% Indian, and 1.5% Pakistani.

One obvious impact of the ethnic composition differences between the U.S. and U.K.

markets is the unsuitability of including the same bilingual (English and Spanish) printed

materials in products shipped to the U.K. Given the unique aspects of the variants of English

spoken in the two markets, especially with regard to measurement terminology (metric in the

U.K. and paradoxically English in the U.S.), unique pre- and post-sales product literature tailored

to both markets is a logical step. Use of the appropriate vernacular within the product literature,

along with elimination of largely unnecessary language versions, serves two purposes. First, it

communicates to U.K. customers that their needs and expectations have been factored into the

product’s design and packaging. Second, such customization for the U.K. market should help

differentiate the Bosch product from low-cost Asian competitors who may seek to minimize their

costs by exercising less care with the documentation included with their products.

Within the U.S. market, Kotler and Keller (2009b) point out that “the increase in the

percentage of Hispanics in the total population represents a major shift in the nation’s center of
 Channel and Pricing Strategies 16

gravity” (p. 77). This dictates that Bosch invest in skilled translators to ensure that the Spanish

versions of product literature are accurate, easy to understand, and natural-sounding for Spanish-

speaking customers. This is especially important because of our product’s positioning as a value-

priced alternative to the professional line of Bosch distance-measuring devices, which makes the

Hispanic market a logical match given their family incomes, in general, still lag behind that of

the U.S. population as a whole (Kotler & Keller, 2009b). Another ramification of the size of the

Hispanic market in the U.S. is that it may make sense to produce radio and television advertising

materials in Spanish for airing on Hispanic-focused media, a consideration that is unlikely to be

necessary for the U.K. market.

Conclusion

In this paper, we detailed channel and pricing strategies for the launch of a new Bosch

product, a value-priced distance-measuring device, into the U.S. and U.K. markets. First, we

explained our rationale for selecting the U.K. as our first international market and discussed the

impact of the following factors: sustainability, trends, market size, growth rate, and profitability.

Second, we described the channel and pricing strategies to be executed with regard to both our

domestic and international markets. Third, we evaluated the implications of several factors on

marketing decisions to be made by Bosch as it releases its value-priced distance-measuring

device into the U.S. and U.K. markets.

 Channel and Pricing Strategies 17

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