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Why can price escalation mislead an international marketer

Get Full Essay Get access to this section to get all help you need with your essay and educational issues. Get Access The Challenges of Price Escalation Essay Sample One of the biggest challenges of the marketing mix of an international firm is pricing a product.

  • Price escalation is the added cost of exporting and importing with regards to margins, distribution, fluctuations, etc;
  • Dumping is an illegal marketing behavior that occurs when firms sell their products at an inequitable price;
  • Tariff on the other hand is known to account for a large part of price escalation Cateora, Gilly, and Graham, p;
  • Considering political and legal agreements, economic issues and many other issues can vary from country to country so will the prices escalation, therefore a product price scales around the world.

Why can price escalation mislead an international marketer the contraire to the other elements of the marketing mix: Thus pricing is the key element to succeed or fail expansion efforts Global Market Today.

At the time of selecting the correct pricing strategy, diverse departments such as finance, accounting, and manufacturing, must unify criteria and take in consideration tax and legal conditions before making a decision. Hence this task potentiates once operating abroad. Explain the concept of price escalation and why it can mislead an international marketer. Marketers observe price variations between similar products and their prices abroad. Considering political and legal agreements, economic issues and many other issues can vary from country to country so will the prices escalation, therefore a product price scales around the world.

Elevated prices may mislead international marketers in assuming that they can perceive bigger profits by distributing their products abroad, at a higher price than the ones marked domestically.

Hence they are taking for granted the costs of place a product in foreign markets. What are the causes of price escalation? Do they differ for exports and goods produced and sold in a foreign country? The price escalation is envisioned to hoard the products displacement costs such as: Al of these factors may contribute to a high pricing of a product, causing the product to be unable to compete with local substitutable products abroad. For instance if lays chips would have to pay for these array of costs its prices would be too high for its continue, therefore being price-incompetent from the beginning in foreign markets.

To evade this problem, companies ponder whether exporting the product or creating a subsidiary. In many occasions a subsidiary convenient considering it reduces the price escalating and it counts with a wider team concentrated in a specific region; furthermore optimizing regionalization profits. Price escalation is a major pricing problem for the international marketer. How can this problem be counteracted? Price escalation may be reduced through three different methods: Lowering the cost of goods may be done by through shifting the manufacturing plant to a less expensive area.

Companies such as Samsung, reduce their manufacturing costs by producing their goods in Korea, to benefit from low waged human resources Cateora, Gilly, and Graham, p. On the other hand, reducing the quality of a product minimizes significantly cost of a good. Even tough some firms would not opt to sacrifice their image by reducing the quality of a product, hence eliminating some feature and simplifying the product can be a smart option to reduce costs with out jeopardizing the brand.

Tariff on the other hand is known to account for a large part of price escalation Cateora, Gilly, and Graham, p. Unfortunately this is problematic is entail to arbitrary and personal assumption of classifying a product. Hence a company may be paying an erroneous percentage on tariff, e.

Therefore firms must ensure their products are being placed under the correct category. However in this evaluative process, descriptions of the product can aid the producer redevelop its product in order to lower a category.

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For instance a product with certain specification may pay a high tariff whereas coincidently modifying a similar product reducing the dimensions or evading the specifications of the other can significantly reduce the tariff. Such is the case of athletic footwear. Furthermore another option to reduce tariff is to assemble part of the product in the country where it is desired to be soled.

Thus significantly less cheaper if the product is assembles with a local content. Lowering Distribution costs is rather important.

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The firm must analyze the distributing procedures of and intent to reduce as much as possible all intermediaries; mostly considering that in most countries taxes are paid every time they change of dealer. Subsequently a company can benefit from all of the above by opting for a Foreign Trade Zone. Some countries mostly undeveloped create foreign or free trade zone or free ports to aid international trade Cateora, Gilly, and Graham, p.

FTZ allows to control price escalation by: Hence allowing the company to form part of the product, pervading and creating a sense of identification, usually adding value from a local FTZ country point of view. Outline some basic legal and ethical issues associated with pricing. Pricing a product in places wherein inflation is severe and uncontrolled can present a greater risk to the company.

Unfortunately political and economic conditions cause exchange rate fluctuations. This fluctuation difficult the creation of a price setting strategy.

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Thus managers should consider two main issues: This problematic is enabled with the methodology used sales transactions amongst related parts of the same firm. Dumping is an illegal marketing behavior that occurs when firms sell their products at an inequitable price. This law is monitored by the WTO as a protectionist measure safeguarding local industries from aggressive multinational firms. Anti-dumping rules are rigorous and penalties can harm the integrity of a firm.

  • Internal criteria that influence pricing is integrated in the product design process whereas external issues comprise escalations in costs when good are shipped long distance across national boundaries Mehdi, 2008;
  • Journal of International Marketing, 9 4 , 1-29;
  • This problematic is enabled with the methodology used sales transactions amongst related parts of the same firm.

An excessive price discrepancy between regions creates gray market. This consists in a trade mostly between the government and an international firm wherein goods are exchanged for other goods instead of currency. These trade can present beneficial offers for a company.

  1. Countertrades are classified as. FTZ allows to control price escalation by.
  2. This law is monitored by the WTO as a protectionist measure safeguarding local industries from aggressive multinational firms.
  3. Consequently managers must avoid all problematic entailed to global pricing, thus elaborate efficient strategy that can meet with such ideal equilibrium. Price escalation may be reduced through three different methods.
  4. At the time of selecting the correct pricing strategy, diverse departments such as finance, accounting, and manufacturing, must unify criteria and take in consideration tax and legal conditions before making a decision. Outline some basic legal and ethical issues associated with pricing.
  5. An excessive price discrepancy between regions creates gray market.

This barter gave Pepsi an enormous competitive advantage since they prohibited the entry of CocaCola during the Soviet Period. Countertrades are classified as: Conclusion Global pricing can be a complex operation involving both external and internal criteria.

Internal criteria that influence pricing is integrated in the product design process whereas external issues comprise escalations in costs when good are shipped long distance across national boundaries Mehdi, 2008. Even though a product is not adhered to a maximum absolute price for its products, every product should have a fixed and fair price according to the attitude of its costumers Mehdi, 2008.

The Challenges of Price Escalation Essay Sample

Nonetheless price escalation can be a burden that can drain a company. Consequently managers must avoid all problematic entailed to global pricing, thus elaborate efficient strategy that can meet with such ideal equilibrium. References Cateora, Philip R. Pricing Challenges in Global Marketing: Islamic Azad University of Iran, More essays like this: