US / Canada Fixed Pricing vs the rest of the world

[Frank Pellow]

Jonny, I think that your theories about USA pricing are probably correct.

 

[Ned]

Well put, JRB.  I too believe that Festool has decided that they must invest in becoming a global brand, that they must be successful in the North American (particularly US) market, and that they will if necessary make a loss in the short term to achieve that goal.

I do dispute the use of the term "subsidised" in your statement "...the US market is effectively being subsidised by other markets."  Festool's relationship with buyers in various older markets was established long before they entered North America, and those relationships included pricing, service, and inventory levels.  If Festool had never entered North America, those prices would not have gone down, and the prices in those markets were not increased to support the North American project.

Festool was satisfied with the profits they were making in, say, the UK, and enough UK buyers were satisfied with the price/performance Festool offered them.  Seller and buyer have determined a fair price--and of course the buyer would like to pay less or get more, and the seller would prefer a higher price for his product.

Festool's owners chose to reinvest their profits--their own money--in the North American project, whether foregoing that new S-Class Mercedes or reorienting their R&D.  It's their money and their risk.

Ned

 

[mhch]

Can argue that European prices might not have increased the same way if
Festool did not decide to invest in the US market. Who knows ? But  it's
definitely true that low US prices are a business decision with investor
support (Festool might have borrowed money to establish the US operations).

Note: not idea of the European increase rate along past years, I bought all my
Festool equipment in 2007 and 2008 ...

 

[Ned]

Can argue that European prices might not have increased the same way if
Festool did not decide to invest in the US market.

That is a possibility, but a price is not a tax.  Euro buyers could have refused to buy the tools if they felt the price was unacceptable.  Since buyers have that freedom, the seller is constrained from simply demanding whatever he wants.

Ned

 

[jonny round boy]

I do dispute the use of the term "subsidised" in your statement "...the US market is effectively being subsidised by other markets."

Ned,

I didn't mean it was literally subsidised (i.e. "let's put European prices up by 10% so we can sell at lower margin in the US") - hence the word 'effectively'. I also didn't mean to imply that it was necessarily a bad thing, just standard global business practice.

True, if Festool had not gone for the US market, European prices would probably not have dropped - but on the flipside, if Festool didn't have an income from other markets, they wouldn't be able to afford to support the US market at this time...

 

[Ned]

JRB--

Didn't think you did mean literally subsidized, but I'm not sure all readers would notice the "effectively".  "Subsidy" is a word not easily qualified.

If Festool really succeeds in North America, they will have effectively ( ) doubled their market.  This could lead to a reduction in their costs--even if they continue to build the product in exactly the same way, R&D and other overhead will be spread over a much higher volume.

They probably won't build the product the same way (wait, wait, no wailing yet!).  As their engineers certainly understand, building 500,000 of a product allows the use of processes and materials that wouldn't make sense for a production run of 500 or 5,000.  Those products engineered for high volume production could even be better built than today's models, assuming that Festool customers and management continue to insist on quality and durability.

Everyone, in all markets, benefits from Festool's continued success.

Ned

 

[Toller]

Actually, the prices in Canada are different than those in the USA.  The prices that Hafele (who have a Festool monopoly in Canada) charges are hard to find.  When I have managed to find the prices, they seem to be about 10% higher than the USA prices -but still a whole lot less than the rest of the world appears to be paying. 

When you say 10% higher, is that 10% more dollars, or the same price and more expensive because of the exchange rate?

I used to buy all my climbing gear in Canada because the price was the same, but the exchange rate gave me a 20% discount.  That wouldn't work too well now...  (also did all my climbing in Canada, so I was there anyhow.)

 

[Frank Pellow]

Toller, since the Canadain and USA currencies are now at about par, I left exchange rate out of the calculation.

 

[dirtydeeds]

in another topic it sounds like the new of2200 is 600 us dollars

wow, thats really really cheap

just to give you an idea on price difference in tools between the uk and america

the of2000 (they arnt releasing the of2200 here yet) costs the equivilent of 900 us before vat (sales tax)

the total retail price is nearly 1058 us dollars. remember this is the current price for the old model

 

[Frank Pellow]

in another topic it sounds like the new of2200 is 600 us dollars

wow, thats really really cheap

just to give you an idea on price difference in tools between the uk and america

the of2000 (they arnt releasing the of2200 here yet) costs the equivilent of 900 us before vat (sales tax)

the total retail price is nearly 1058 us dollars. remember this is the current price for the old model

For comparison, the Canadian price is $490 per tax.  In Ontario, we pay 8% provincial tax and 5% federal tax, so my price would be $553.  Right now the US and Canadian dollars are practically at par.

The USA price right now is $430.  If you order on the internet in the USA there is no tax.  (by the way, this is not true in Canada)