Question

Ayota Car Company produces a car that sells in Japan for ¥1.8 million. On September 1, the beginning of the model year, the exchange rate is ¥150:$1. Consequently, Ayota sets the U.S. sticker price at $22,000.

Ayota attempted to raise prices in the U.S. market to improve its situation. What are the pros and cons of this strategy?

Answer 1

Price in Japan = Yen 1,800,000

Price in dollar as per the exchange rate = 1800000/150 = $12000

Sticker price of $22000 already has a markup over $10000 over the price in Japan

1. The biggest con of this strategy is that the product is already overpriced. By raising prices further, the customers will not see enough value proposition in the product. At a higher price, they might buy a product with much lesser markup

2. Another con is the decline in demand for the product. As prices increase, the demand falls

3. Pro is that the P&L of the company in US will be price driven than volume driven. The loss from drop in sales volume might not be as much as the benefit from inncrease in price