Jazz is a costume jewelry manufacturing company based in the United States. The company decides to sell its products abroad, but it faces the major problem of price escalation. What is price escalation? How can Jazz overcome this problem?

Question

What will be an ideal response?

Answer 1

Companies face many considerations in setting their international prices. Regardless of how Jazz goes about pricing its products, its foreign prices probably will be higher than its domestic prices for comparable products. Jazz must add the cost of transportation, tariffs, importer margin, wholesaler margin, and retailer margin to its factory price. Depending on these added costs, the product may have to sell two to five times as much in another country to make the same profit. This is called price escalation. To overcome this problem when selling to less-affluent consumers in developing countries, Jazz can make simpler or smaller versions of its products that can be sold at lower prices. Jazz can also introduce new, more affordable brands in emerging markets.