After unprecedented growth in the United States over the past ten years, Alex an
ID: 1166771 • Letter: A
Question
After unprecedented growth in the United States over the past ten years, Alex and Ani, a US jewelry manufacturer, has begun to expand its global retail sales efforts. Alex and Ani has opened retail stores in Japan, the EU and in several Caribbean islands. Sales have been strong in these countries, and they may be considering further expansion efforts into Africa, with Morocco being a key target market for their charm bracelets. Most of Alex and Ani’s jewelry is created using recycled metal material, and the costs of production are quite low as a result. The charm bracelets are sold in the US and Europe for $28-$38 each while the cost to manufacture the bracelets is closer to $5.00 each. While this is considered a reasonable price in the US and Europe, the market in Morocco may not sustain this pricing structure and may lead Alex and Ani to consider lowering the final price of their bracelets in markets such as Morocco. Why should Alex and Ani be concerned about lowering prices to accommodate markets in Morocco? Explain your answer completely, providing any recommendations you may have and any insight you have regarding the effects upon Alex and Ani and the global and local economy.
Explanation / Answer
To expand their markets, Alex and Ani need to rethink on their pricing strategy in the markets of Morocco because the average income levels in Morocco is low as compared to the average income level in countries such as US and Europe. Also price elasticity of demand of jewellery in Morocco is high and thus decline in price will lead to large increase in the total revenue earned from Morocco markets.
For Alex and Ani, it will be profitable to decrease the prices of jewellery in Morocco as this will increases their total sales volume and expand their markets. But both should continue charging high prices in US and Europe as average income level is high in the US and Europe and thus people are willing to pay more in these countries.