Question

Suppose you plan to bring Total Repair 5 shampoo (750 ml) from the European market to Peru. The price information is summarized in the table below.

	The price of total repair 5	The average price of shampoos
Europe	10 euro	8 euro
Peru	?	20 peruvian sols
Exchange	1 euro = 3.7 peruvian sols

1. If you adopt an absolute pricing approach, what price will you set for Total Repair 5 shampoo (750 ml) in Peru? Provide the calculation process and result. (2 points)
2. If you adopt a relative pricing approach, what price will you set for Total Repair 5 shampoo (750 ml) in Peru? Provide the calculation process and result. (2 points)
3. Would you adopt absolute pricing or relative pricing for Total Repair 5 in Peru (1 point)? Explain the rationale for your decision. (2 points)

Answer 1

Absolute price is the number of peruvian sols that can be exchanged for a Total Repair 5 shampoo (750 ml)

Given the exchange rate of 3.7 ps per euro,   10 euros= 3.7*10= 37 peruvian sols

so, absolute price of Total Repair 5 shampoo (750 ml) in Peru =37 peruvian sols

Relative price is the above absolute price expressed in terms of the average price of shampoos in Peruian markets.

ie. 37 ps /20 ps =

1.85 times

It would be better to adopt relative pricing for Total Repair 5 in Peru .

as we can be up-to-date in the market , with other sellers, withou prices being too low or way-off.

In the former we may lose income & in the latter, we may lose the market itself.