Businesses in Kuwait

Introduction As the GM Case Study indicates, competition between the local brand and the foreign brand can give the local brand an edge especially when the foreign brand has more cost attached to it. GM, for example, was obliged to cut the costs of its cars in China because the national brands were gaining market share “by offering cheaper sport utility vehicles” (Bloomberg, 2015). In Kuwait, there is a lot of potential for local businesses to grow and edge out foreign competitors.

In various fields, Kuwait is showing potential and innovation. It is behind only Saudi Arabia and Turkey in the number of scientific and technological patents produced (USPTO, 2015). Kuwait has emerged as a leader in Gulf Cooperation Council (GCC) countries in terms of innovation (“Kuwait sees fastest growth of GCC countries obtaining patents,” 2016).

And as the Kuwait Times (2018) reports, “Kuwait has witnessed an extraordinary rise in entrepreneurship and small business start-ups.” Many Kuwaitis are using Instagram, for instance, as online store fronts to showcase products and boost sales, which is an innovative approach to business that correlates well with the local culture (Greenfield, 2013). However, one of the biggest factors in business growth is price.

The GM Case Study shows that no matter what the brand is or how great the engineering may be, consumers are always going to be attracted to low prices. For businesses in Kuwait the lesson to be learned here is that why innovative practices can enhance visibility, the main goal of a growing business should be to attract customers by applying the right price at the right time to the right products.

This paper will evaluate the GM Case Study, discuss the role of demand theory in GM’s decision to lower prices, and examine how the Case Study applies to Kuwaiti businesses and what lessons can be learned. The GM Case Study The GM Case Study is important to understand because it shows how a major foreign brand can run into hard times when it applies the wrong pricing to its products.

For a company like GM, there is a need to protect its margins, which is one reason why it generally has higher prices in the first place (Bloomberg, 2015). However, for local competitors in the auto industry in China, this same need was not as evident and they could afford to undercut the GM brand by offering similar automobiles at a lower price to local consumers.

This forced GM to have to make a decision: would it suffer a loss of market share as local, national brands took over the market with their low-cost, low-price products? Or would it try to maintain market share by slashing prices and trying to be competitive with the national automakers? Following in the footsteps of Volkswagen AG, GM announced that it would indeed cut prices on its 40 models made under the Buick, Chevrolet and Cadillac brands by more than 50000 yuan per product (Bloomberg, 2015).

Because sales were dropping month over month at a rapid pace (nearly 10% in some instances), GM felt that there was no real alternative (Bloomberg, 2015). It had to start looking at the big difference between itself and its competitors—price. To make up for the price gap GM also tried to offer various incentives to lure customers its way.

It tried to introduce “subsidized insurance, zero down payment, interest-free financing, exemption of purchase tax and trade-in subsidies”—however, at the end of the day, what the consumer wants is a low price (Bloomberg, 2015). Subsidies and other incentives might sound nice but the price tag is the immediate eye-catcher: it is the factor that jumps out at the consumer more than anything else. That is why GM learned the importance of price elasticity.

By making prices elastic to consumer demand, GM could maximize profits while demand was strong and lower prices when demand fell in order to try to increase demand once more. The important point to learn from this strategy is that markets fluctuate and price must continually rebalance with demand. What the GM Case Study Reveals What the GM Case Study reveals is that when it comes to business, price is one of the most important factors.

Brand might help to boost sales in the early stages of entering into a market. A brand offers a novelty to consumers. After a while, however, the novelty can wear off. The consumer will begin to think more and more about his finances. The economic aspect of making the right purchase begins to override the novelty of sporting a new brand. From a business point of view, products must therefore offer consumers an economic incentive—and that comes by way of price.

The low price product will always have appeal, even if the quality is not equal to major brands.

Why is this? The low price product speaks to the consumer in simple, economic terms: it says, “If you would like this product at an affordable cost to you, I am the one to buy.” Economics is crucial to the consumer: money, pricing, affordability, cost, income, expense—all of this matters to the buyer in the long run because there is only so much that the purchaser can afford, and there are a lot of purchases to be made.

The buyer must, therefore, be scrupulous and thoughtful when making purchases over time; one big purchase can mean that many other purchase will have to be abandoned. If a consumer is price-conscious, a business must also be price-conscious. Demand theory holds that “setting the price for a product is crucial for the product’s and a company’s success” and in the light of that theory the business must ask: “what is the best price for a particular product?” (Textbook, n.d., p. 31).

The factors that go into determining the best price for a product will vary. For example, a company like GM has to take into consideration the cost of materials used to manufacture the car, the cost of labor, the cost of supplies, and so on. But this is just one set of factors. There is also another set of factors that comes from the market.

Competitors have prices too and a business must be aware of where competitors are pricing their products so that they can use this information to arrive at their own best price. In this sense, the market is what determines the best price of any one product at the end of the day. When companies that offer discount prices gain market share, the biggest reason is that they have paid attention to demand theory and given consumers that which they demand—the best possible price for the product.

When prices become too expensive, demand for the product disappears—and that is exactly what was happening with GM in China. How the GM Case Study Applies to Kuwait Kuwaiti customers are really no different from any other customers around the world. Whether it is China or the U.S. or the Middle East, consumers are always going to be price-conscious.

Thus, the GM Case Study can teach Kuwait businesses a few lessons about what it means to understand demand theory and how to apply it in their own business plans. In Kuwait, the finance industry is a booming business. It offers economic, investment advice for clients, arranges portfolios, and financiers collect fees for giving loans, making trades, and overseeing one’s portfolio. The fees that are collected have to be proportionate to the product and they also have to take into consideration the principles of demand theory.

For example, if fees were too high, demand for the services and products rendered by the finance industry would dry up and many financiers would go out of business. In order to stay in business, they have to be mindful of what clients will be willing to pay for their services and products—and to know what clients will be willing to pay, they have to know the prices for services and products that the broader market has set.

While the best price may be set by the commercial objectives of the business—i.e., by aiming to maximize the amount of profit that can be made by the organization, by maximizing the business’s market share for the product, and by maximizing revenues—the market will still have a say in how well that best price can actually be applied. If competitors undercut a business’s best price, the best price will ultimately have to be reduced to a lower price.

Aiming to achieve one of the business objectives determined by the business’s objectives can be a strategic way forward for a business. In Kuwait, businesses must be aware of the objectives for maximizing market share, revenue or profit. In all likelihood, the market will not allow all three objectives to be pursued simultaneously as competition essentially obliges businesses to make sacrifices in certain areas. For example, in the airline industry in Kuwait, Jazeera Airways entered the market in 2004 with a fleet size of 7 airplanes servicing 20 destinations.

Its slogan was “Fly More, Do More,” and the company’s main competitor was Kuwait Airlines. Jazeera Airways appealed to many consumers initially because, like GM in China, it offered a new brand with quality incentives like leather seats and first-class accommodations. However, as the airline market expanded, another national competitor arrived to challenge Jazeera Airways with lower prices—and this was FlyDubai.

FlyDubai was able to take market share away from Jazeera Airways because it pursued the business objective of maximizing market share—and the strategy it used to obtain market share was through the pricing of products. It priced tickets lower than Jazeera Airways could afford to do given its own business objective of maximizing profits. FlyDubai thus showed that in order to obtain market share, the best way forward was to use demand theory and give consumers what they wanted—cheap flights (Etheridge, 2010).

Recommendations The recommendations for businesses in Kuwait are: 1) be aware of how the market is pricing products and services. This will play a part in how a business chooses to pursue its own objectives. A business that wants to maximize profit will identify a best price in a way that is different from a business that wants to maximize market share. A business that wants to maximize revenue will also consider different factors when determining best price for a product or service.

At the end of the day, however, the market will have a considerable say as to whether the company’s best price is good enough to achieve the objective. 2) Be aware of how price elasticity can be used to increase profitability more quickly than demand for the product has time to weaken. Maximizing profit before demand drops off can be a key to business success. But once demand drops off, a business must respond with a demonstration of price elasticity.

Understanding demand theory is crucial to operating a successful business. In the airline industry in Kuwait, demand theory plays a considerable role in the setting of prices for airline tickets. 3) As the GM Case Study shows, a business must be aware that sooner or later the novelty wears off and price becomes the great equalizer. A company must be able to compete at the price level in markets where brand loyalty is not a compelling factor.

In Kuwait, this is especially true as brand loyalty will always compete with lower prices in various industries and markets. Conclusion As businesses in Kuwait seek to use innovative means to propel their businesses forward, the issue of how to price products and services is one that eventually must be addressed. The market exists for that reason: it determines which products and services get to stay based on how strongly consumer demand for the product or service truly is.

In the early days of a business’s penetration of a market, the novelty of a new business, a new brand, a new product or a new service can compel consumers to give it a true—especially if it is a market that has long had to endure the same old status quo for many long years. In the case of Kuwait’s airline industry, this was especially true.

When a new business enters into the market to compete against those companies already established, it can focus on one on of three main objectives in order to apply demand theory and realize its own best price for its product or service. It can focus on maximizing profits, maximizing market share, or maximizing revenue. To maximize profit, the company will balance its price against its own costs. To maximize market share, the company will balance its price against the competitors’ prices.

To maximize revenue, the company will balance its price against demand. For a business in Kuwait,.