Polyprinhas been consideringsetting up a wholly owned retail subsidiary in Australia,and/or distributeits productsthrough other retail stores. The cost of
establishing a wholly owned retail subsidiary is $30m. Under the tax agreement between the USA and Australia, the profits of the retail subsidiary are subject to a
10% tax rate. All profits may be repatriated back to the US.
Market research studies have indicated that the market for casual type wear in Australia is around $5bn per year. While there are several competitors in the country,
Australia has faced rising competition from apparel producers in Asia. Average retail prices for some importedproducts are estimated to be around $A30-35. In
neighbouring New Zealand and certain Southeast Asian nations, retail pricing for standard clothing is as high as $US45. Many of these dresses are distributed through
mid to large retail outlets in the major urban centres. PolyPrin believes its material and quality is superior, and that its in-house custom designs are unique.
PolyPrin is now considering the price it wishes to sell its product to the retailer, and to determine what the final retail price should be. It is believed that the
mark-up from manufacturer to the retaileris 10% (mark-up is after manufacturing and shipping costs), and the mark-up from the retailer to the customer is usually 20-
25%. The cost of shipping and insurance for delivery from Los Angeles to the port in Sydney is $5 per dress. Import duties of 5% are applied on the price to the
retailer on a CIF basis.
a) Using the domestic price PolyPrin receives and the normal mark-ups, distribution costs and duties, calculate a possible retail price in the Australian
marketfor one dress. (Price Escalation).
b) Determine the cost to produce one dress, and using this plus the normal mark-ups and distribution costs and duties, calculate the potential retail price in the
Australian market for one dress.
2) Which pricing scenario is better for the company? Explain your answer, considering key factors beyond costing that influences pricing decisions.
3) Given this information, what price would you ultimately charge, and why? How would you enter the Australian market and distribute the product? Explain fully!