Pilot’s Reply Regarding Pricing in the UK

25 January 2016 By ian

Below is the reply I received from Pilot. Unfortunately, and embarrassingly, the reply was sent before the original article but went straight to my Spam folder so I didn’t see it. I’m responsible for this, and I apologise to Pilot and to those of you who drew conclusions about Pilot as a consequence.

I haven’t had time to fully digest the reply yet but thought it only fair to Pilot to get it out as soon as I became aware of it. I would like to state, though, that the reason I singled out Pilot was because their prices are disproportionately high. Platinum don’t have the same markup and many big tech companies, likewise, manage to have more comparable pricing.

Anyway, here is the reply and I welcome your thoughts in the comments.

My thoughts about this reply are here

Dear Mr Hedley,

Pilot Pricing and product availability in the UK.

With regard to your recent email titled as above. Please find feedback below.

Why are some popular products unavailable in the UK.

By popular, we need to understand what that means. What may appear popular to a single or few resellers as a niche opportunity does not necessarily make commercial sense for Pilot UK to launch generally across the market place. As a business we review market potential for product launches. If we deem there to be a commercially viable market for that product we look to launch. This then becomes subject to a number of criterion. Has Japan authorised the product for launch in our market. This usually boils down to whether they have the production capacity in the factories to support a broad based launch to satisfy the likely market demand for that product and or that by introducing that product, it may negatively impact volumes of existing products within the market that would then make the volumes on the existing product unviable or cause excess production capacity in the factories. At the end of the day it has to be commercially viable for the corporation across a broad business analysis. I think it is fair to say that global businesses do sell different ranges in different markets and that no market across any category ever sells every model / design format of product that the corporation produces. In the UK we have a pretty extensive range that we have to manage through our distribution network. Range extensions have to meet agreed and rational business criterion.

Regarding the products that you specifically mention. (Juice / Coleto and Kakuno) I can confirm that these as of today have never been officially launched in the UK market. The only way that they have found their way into the UK market is through direct importation from Japan by a few individual companies. (This is in essence an infringement on Pilot Corporation of Europe’s exclusive trademark license that is supported by European law. ) This is why we have requested that the individual resellers who are “Illegally importing” these products in UK refrain from doing so. This is not necessarily to their liking. You might ask why we are being so pedantic about this issue. The Juice product is actually an excellent example.

While Pilot sells and distributes the Juice product in Japan, the name “Juice” in Europe has been registered by another manufacturer and as such it is illegal for the product to be sold in the EU by Pilot as it infringes on the registration of another manufacturer. By allowing this product to be imported into the UK by an independent reseller, Pilot is liable for legal challenge and damages from the owner of the registration. The importing reseller would probably not be aware of the registration issue and is a clear reason why Pilot has to control the importation of non-authorised product as the company is best placed to understand these types of issues and challenges. We are in fact currently reviewing the possibility of introducing this product sometime this year; albeit it will be marketed under a different name should the criterion above be met.

Regarding your question on satisfying the required regulations. These products have not been submitted for testing against UK regulations as we have not looked to launch them in the UK. The process is reasonably expensive and time consuming having to be done via an independent and officially registered laboratory. We only put the product forward for these tests as part of our pre-launch process once we crossed a number of other hurdles, some of which have been detailed above. We have no reason to anticipate that they would not pass the British Standard as all our products are manufactured to high level of safety. (although from time to time we do have to modify certain products in order to pass the strict UK legislation, this usually means an additional process in the manufacturing process such as pinning the end cap.)

Every market across the world has different legislation in terms of how they deem a product to be legally salable in that market. In the Uk the regulation is more stringent than for most other markets and indeed more so than European legislation. (The UK legislation is: BS-7272/REACH/CE ) This means that for every product we sell in the Uk we have to submit product for testing. Commercially this is not viable for us to do for every product that Pilot manufacturers around the world unless we plan to launch in the UK. Therefore we cannot allow a 3rd party to import as we are not sure that the product would pass the UK standard. That’s not to say it is unsafe, but just not meeting the UK standard. I am sure you can appreciate that if an accident occurs with a Pilot product, irrespective of whether we brought it officially into the UK or not, the potential PR damage for our brand equity would be considerable. Potentially we would have a legal case against the “illegal importer” for loss of earning due to defamation of brand image. This could run into Millions. It is unlikely that any 3rd party importer would be in a position to support these damages payments, but Pilot would still be stuck with the brand damage. It is critical therefor that we actively police the importation of “parallel items” we have not submitted for testing against and passing of the relevant legislation.

Finally on this point I think that it is worth pointing out though that the BS7272 is one of if not the most stringent standards in terms of safety anywhere in the world.

Perhaps if you have contact with a reseller who has been selling the products you have specifically mentioned above you could ask them if they have provided the product to independent laboratory’s for testing to see if they pass the relevant BS7272 and or if they have checked that Pilot has the registration of the particular brand name in European and or the UK market. I suspect that this is not something that they have considered, but that it integral part of doing business for a global business such as ours.

Pilot Pricing.

In your mail you have asked for the rational as to why UK pricing is more expensive than that for the same product in the USA. Your question in reality is questioning why European pricing is more expensive than that in the USA. This is a broad and complex issue that I will endeavour to explain below.

At the outset I would like to point out that both markets are vastly different in nature.

1] The USA benefits in the main from a common single language. In Europe as a business we have to cope with numerous languages. A case in point is in terms of website. We currently have to mirror out company website in circa 20 different languages, in addition, we have to manage all our social media activity on the same sorts of numbers. This means that we have to staff our organisation across Europe with significantly more marketing teams, not to mention local administration staff. The sad truth is that the cost of running a business in UK / Europe is a significantly higher as a % of sales than for the USA where they benefit from economies of scale.

Aligned to this is reseller expectations in terms of margin earned at resale. There is a significantly higher margin requirement / expectation from resellers in the UK than the USA. This is born out when we have discussions on this topic with our colleagues in the USA. (Fundamentally then a not insignificant % of the consumer price is reseller margin as opposed to that being earned by Pilot in UK) It is not for me to say what that is, but it is a significant %. (Your readers would be surprised at what our selling price is to reseller versus what they ultimately are charged at point of purchase.) They would argue that they have a high fixed cost themselves that they have to cover. Where internet players operate, this is arguably much lower and why they tend to be much more competitive on price than traditional bricks and mortar resellers. The bench mark is however from the traditional bricks and mortar resellers.)

2] a] Europe is a very fragmented market on a number of fronts, while the USA is a much more consolidated market. In Europe we have multiple distributions centres serviced from a Central distribution centre. These regional distribution centres are necessary to cope with complexities around different customer requirements and expectations in different markets. The USA is able to benefit from significantly lower logistical / distribution costs.

b] The USA by and large has far smaller number of customers that tend to be much bigger. In the Uk we have hundreds of smaller customers and hence orders and multiple delivery costs that are much less economical than delivering large orders to fewer customers. This is from both freight as well as from an administrative perspective.

3] Freight and logistical cost. We ship the majority of our good from our factories in the Japan. USA also ships from USA, but a significantly smaller percentage of their inventory versus Europe. There is a cost differential in shipping from Japan to Europe (2/3rds of the way across the globe) versus Japan to USA (Across the Pacific which is roughly half the distance)
4] Exchange rate considerations. As a business we have to consider fluctuations in the global rates of exchange. In the past number of years, even what you would traditionally have considered stable currencies have fluctuated wildly. Case in point being the £ to $ where even in the past month we have seen the $ appreciate significantly against the £ and this is anticipated to continue. Your analysis in respect of the differential pricing will have closed somewhat in the past two weeks. The £ to $ is currently £1= $1.45, a month ago circa £1=$1.55. It is not feasible for us to flex our pricing on monthly basis. Indeed customers while happy to accept a reduction on the basis of exchange gain, you may be surprised to hear vigorously reject price increase when the reverse is true. We have to try to find a position that does not expose our business to significant losses as a result of exchange movements in the wrong direction.

With regard to the above, this is not unique to Pilot. I am sure that if you review our key global competitors you will see that there is a pricing differential along the same lines as Pilot. Indeed I believe that it is a common issue across multiples industries. I have read many articles and indeed from personal experience when traveling have seen significant price differentials USA versus UK. Key examples include Clothing brands where you can commonly find brands in $ below what you would pay in £ back in the UK. It also is very widely written about and visible when you look at technology products. ( I think there has been some fairly famous recent high profile examples with regard to launches of Play Station and Xbox where the USA prices were significantly below UK pricing. The same for CD’s and Computer games.)

In closing, I hope that I have managed to cover all the points that you have raise. I cannot help but wonder however, why you have singled out Pilot for this article, I think it would present a much more balanced article and avoid the risk of unfairly denigrating the trademark if you were to review in addition other major brands and ones that Pilot would see as traditional competitors as well as taking into consideration the similarity generally on USA / UK pricing across multiple industries.

Best regards

Mark Knibbs
Managing Director