Question

Price escalation is a major pricing problem for the international marketer. Explain the concept of price escalation, and discuss two factors that could contribute to making the price of a product much higher in an international market than in the domestic market. Suggest and explain one method an international marketer could use to counteract price escalation.

Answer 1

When the prices of products increase to manifold due to shipping charge, tariffs and distribution channels in the foreign market than the domestic one, it is called price escalation where a price disparity is seen. Export and import of goods with regards to margins, distribution, fluctuation etc add to the price escalation.

Two factors that could make the price of a product rise in the international markets are-

1) Transport cost:- Transporting products from its place of origin to foreign market is very tedious as the higher costs of fuel incurred during transportation are added in to the final selling price of the product in foreign market.

2) Tariffs:- Imported and exported items need to pay tariff in order to clear the road of these product to be sold in the foreign markets leading to the higher price of the selling product.Sometimes higher tariff rates are imposed on internation products in order to save the domestic market by the governemnt which leads to price escalation of the product in the foreign market.

Often international marketers face price escalation in foreign market which really impact on their overall profits of the company. One method that an international marketer could use to counteract price escalation is-

Reclasification of the product:- Reclassifying the product sold in the international market by the marketer officially under lower duty or tariff can save him from price escalation. Getting a lower duty for the product sold in the foreign market also saves the marketer from other administrative and paper works which in turn also would have required capital to get clearance to sell in the market.