External factors that affect the pricing decision making can be divided into environmental factors and market factors, which include factors such as government constraints, inflation, customer’s perceptions, nature of competition, and competitors’
objectives. In this section, the external factors that are most relevant to Halton Marine will be discussed.
6.5.1 Environmental factors
Since Halton operates in international markets, it must take a large variety of environmental factors into account in its operations. Many of the factors, however, do not have a direct impact on the company’s pricing, which is mostly influenced by internal factors. A good example of this are the different government influences and constraints.
“[Government influences and constraints] do not affect our pricing, but they may have an effect on where we can and where we cannot sell our products. For example, selling to Iran was prohibited for years.” … “But it does not affect our pricing, we just need to make a decision [based on the influences and constraints] on whether we sell to a certain market or not.”
(Rantanen 2016)
“Some of the products we sell require certificates … for example to prove that our products will not be used to build nuclear weapons.” (Piirainen 2016)
Inflation is one of the few environmental factors that Halton Marine takes into account in pricing. The aim is to raise the prices every year by at least the same amount as the inflation rate. Another environmental factor that influences Halton Marine’s pricing is the business cycle stage, which can affect the whole market.
“In the Oil & Gas sector, the falling oil price has had a negative impact on customers’ willingness to make investments, which in turn affects the number of sales the company makes” (Piispanen 2016)
The current situation in the Oil & Gas segment has intensified competition, as companies battle to win bids for the few projects that are still available. Companies are basically forced to lower their prices and participate in the price competition if they want to sell products in that particular segment.
6.5.2 Market factors
Understanding of customers’ needs and tastes is essential for every company’s success. Price is not the only factor that Halton Marine needs to consider, as different stakeholders value different things, and all these things need to be taken into consideration when selling the products.
“Each customer group values different things. For example, owners appreciate a product that requires a very small amount of maintenance … shipyards, in turn, might only be interested in the weight of the product, and turnkey suppliers in the price.” … “Turnkey supplier, who buys the product, is only interested in the price. But if we do not take the other factors into account, and influence the owner and the shipyard, we would not be relevant in this business.” (Rantanen 2016)
the pricing decision making, and it also varies between different segments.
“Some customers are very price sensitive, and basically buy whatever is the cheapest … while for others it is easier to justify a higher price based on the added value.” (Piirainen 2016)
“Customers in the Cruise & Ferry segment used to be more price sensitive than customers in the Oil & Gas segment. But right now, because there are not many projects in the Oil & Gas segment, and there is a boom in the Cruise & Ferry segment, there is no big difference in the price sensitivity between the two segments.” (Rantanen 2016)
Switching costs, which refers to costs of changing a supplier or a product, is a factor that Halton Marine must sometimes take into account in the pricing decision making.
Some products have higher switching costs than others, and the switching costs also vary between different segments and projects. In the Cruise & Ferry segment’s projects, for example, the switching costs can be high, which in turn can be utilized in pricing. In addition, there are situations when switching to competitors’ products is relatively inexpensive, which may force Halton Marine to lower their prices in order to keep the customer.
Based on the interviews, it is evident that Halton Marine concentrates on its own strengths and on delivering high-quality solutions to its customers, and does not place much emphasis on competitors’ actions.
“We do not really care about what our competitors do. We are aware of their strengths and weaknesses … but we do not really analyze competitor related things, such as their goals or strategies. We try to concentrate on our own business.” (Piirainen 2016)
Despite the fact that Halton Marine does not conduct any systematic competitor analysis, the interviewees stated that the competitors’ objectives, strategies, and relative strengths and weaknesses cannot be ignored completely, even if they do not
have a direct impact on the company’s pricing decisions. It also needs to be acknowledged that the competitive situation is different in each segment and in each market, and that the main competitors also differ between different segments.
“We have different competitors in different segments and in different product categories. We do not have any competitor that operates in all the same segments that we do, or that has the same scope as we have.”
(Rantanen 2016)
Barriers to entry, which refers to obstacles that prevent new competitors from entering the market, is a factor that exist in certain segments and in certain markets. For example, certain countries have requirements for the country of origin, such as the US and Brazil. In addition, customers in some segments, such as in the Energy segment, require the products to have certificates and other documents, which may prevent new competitors from entering the market. These factors, however, do not have a big role in the pricing decision making of Halton Marine according to the interviewees.