Question

Please read the case and answer the following question:

1. Why are big companies such as Siemens, GE, Nestle, and P&G targeting the "bottom of the pyramid"?

Please review the concept of price escalation to answer the following question:

2. In international marketing, price escalation can make a company’s product less competitive. In particular, exporters need to find ways to cope with price escalation. Suppose the U.S. motorbike manufacturer Harley-Davidson plans to export its products to the European market. Please discuss what Harley-Davidson can do to dampen price escalation.

Answer 1

.1 In marketing, the term “bottom of the pyramid” is used to distinguish the largest, but poorest socio-economic groups. According to Global Issues , this is the 3 billion people who live on less than $2.50 per day. today most organizations realize that targeting low-income markets can be profitable. Global companies, such as Siemens, GE, Nestle, and Procter & Gamble continue to pursue profits at the bottom of the pyramid. The Bottom of the pyramid referred to Maslow’s Hierarchy of Needs. The bottom of the pyramid explains the fact that the most basic needs of human being are food, water, medicines, sleep etc and how to prefer to fulfill these needs than others..The consumers at this level generally fall under low income group. When companies target this level of pyramid, they generally produce low cost products that are generally food, and other basic items to survive. In this way, they target the lower income customers and how their products can fulfill their basic needs..

Answer 2. Price escalation is price increases due to added costs produced by such things as tariffs, taxes, longerlines of distribution, etc. It can mislead many international marketers into thinking that exorbitantprices that are charged in foreign countries for goods that are relatively reasonable in the domesticmarket can increase profits in the foreign market. This is just the opposite of the real case in manysituations where the effects for price escalation, not added profit, account for the high prices..

The key to counteracting the problem of price escalation centers on any method that will reduce theprice of the product, tariffs, or any other cost in marketing the product. Some of the more frequentlyused methods are:

(1) offsetting tariffs and transportation charges by the net price for goods sold inforeign markets. A problem which may arise here however is the possibility that the importingcountry will consider this move as dumping.

(2) Modify the product in a way that tariffs are reduced.For example, assemble in the foreign country which may lower the tariff and transportation costs. Theforeign trade zone is especially useful in this process.

(3) Manufacture within the country therebyeliminating tariffs and perhaps also benefiting from lower labor costs.

(4) Shorten the channels ofdistribution especially in those countries that have value added taxes or turnover taxes