Price escalation 

  international marketing and pricing issue 

What is price escalation?  

Its the tendency of prices to creep upwards when marketing products overseas.  This is seen in companies such as Zara (fashion producer in Spain) that must sell its products at a higher price in Latin America than it does in Spain.  But, because of this price escalation effect, they are forced to re-position their brand overseas.  Where the brand is mid-market and common in Spain, it is forced to be a premium brand in Latin America, not only because the consumers are less wealthy, but also because it costs more in absolute terms due to factors such as:

Table of Contents

What leads to Price Escalation?

1.  trade barriers, import duties, tarriffs

2.  the need for the company to adapt the products to local tastes (which adds costs)

3.  extra transportation, logistics costs, warehousing, trucking, ocean freight, brokers, etc...

4.  extra insurance needed

5.  international lawyers needed to deal with varying government rules and regulation (from country to country)

6.  local content requirements (some countries may requre that certain products must have a certain % of local content in order to be sold or produced there).

How can companies overcome the price escalation battle?

1.  produce locally to avoid trade barriers, reduce transport time, and save on logistics costs...also reducing currency risks by operationally hedging and diversifying operations.

2.  using loal content

3.  produce in an FTZ

4.  try to get your product reclassified (as the Brazilian cachaca producers are trying to do with exports to Europe...reclassify away from "rum" and to a new category of "cachaca")