Chapter 10 – Pricing Decisions
True/False
1.
International trade results in lower prices for goods and lower prices
help keep a country’s
rate of inflation in check.
2.
Price can be used as a strategic variable to achieve specific goals,
including ROI, profit,
and rapid recovery of product development costs.
3.
The market skimming pricing strategy is a part of deliberate attempt to
reach a market
segment that is
willing to pay a premium price for a
particular brand or for a specialized or unique product.
4.
"Market skimming" is a strategy that uses low prices as a competitive
weapon to gain
market position.
5.
The skimming pricing strategy is appropriate in the mature phase of the
product life cycle.
6.
When Apple introduced iPhone in the United States in the summer of 2007
with a sale price of $ 599 it used skimming pricing strategy.
7.
Price can be used as a competitive weapon to gain or maintain market
position.
8.
A market penetration pricing strategy calls for setting price levels that
are high enough to quickly build market share.
9.
Penetration prices often mean that the product may be sold at a loss for
a certain period of time.
10.
Sony used penetration pricing when it launched the Walkman personal
stereo in 1979.
194
11.
Hewlett-Packard is the world’s leading marketer of inkjet printers. HP’s printers are priced very low and margins are slim; by contrast, the
company enjoys healthy margins on sales of replacement ink cartridges. This
approach is sometimes known as “razors and blades” pricing.
12.
Toyota, Sony, Olympus, and Komatsu are some of the well-known Japanese
companies that use target costing, a process which is also known as “design to
cost.”
13.
Export price escalation is the increase in the final selling price of
goods traded across borders that reflects the costs incurred for reaching
ultimate market destination.
14.
If the terms of trade for an export transaction specify "ex-works," the
exporter/seller pays all expenses incurred until the product is delivered to
the importer/buyer's warehouse.
15.
To protect against possible losses from currency exchange rates,
exporters add a charge known as "CIF" to the ex-works price of most export
shipments.
16.
To protect against possible losses from currency exchange rates,
exporters add a charge known as "CAF" to the ex-works price of most export
shipments.
17.
Currency fluctuations mean that companies doing business in global
markets should regularly review prices and make adjustments when conditions
dictate.
18.
Suppose the Japanese yen is weak in relation to the U.S. dollar. Japanese
firms should be able to stress price benefits for products exported to the U.S.
19.
Suppose the Japanese yen is weak in relation to the U.S. dollar. Rather
than stressing price benefits, Japanese companies exporting to the U.S. should
emphasize quality improvements and after sales service.
195
20.
In the mid-1990s, the U.S. dollar/British pound exchange rate was $1.60
to £1. By 2004, the pound had strengthened to $1.86 to £1. All other things
being equal, this means that Jaguar dealers in the United States will be forced
to raise prices.
21.
When domestic currency is weak it is advisable to speed repatriation of
foreign-earned income and collections.
22.
When domestic currency is strong, expenditures in the local (host
country) should be minimized.
23.
When domestic currency is weak it is advisable to bill foreign customers
in the domestic currency.
24.
Improved price transparency in the Euro zone is expected to lead to
greater price disparities.
25.
In countries where high inflation is the rule, companies should make
price adjustments to maintain operating margins.
26.
When Reebok began marketing athletic shoes in India, it offered them at
low prices that would be affordable for the mass market.
27.
Germany has traditionally severely restricted competition in a number of
industries.
28.
“There are some countries where we set higher prices, and some countries
where we set lower prices.” This remark could be interpreted as evidence of an
ethnocentric approach to pricing.
29.
In some instances, deregulation represents a quid pro quo that will allow
German companies wider access to other country markets.
196
30.
The open-skies agreement between the United States and Germany would
allow Lufthansa to fly more routes within the United States.
31.
In the United States, Levi Strauss & Company has to face with competitive
behavior since JCPenny and Sears are both aggressively marketing their own
brands.
32.
Marketers of domestically manufactured finished products may be forced to
switch to offshore sourcing of certain components to keep costs and prices
competitive.
33.
Dieter Zietsche, sales chief at Germany's Mercedes-Benz, once said that,
in setting prices, "We know what the customer wants, and he will have to pay
for it." This is an example of an ethnocentric pricing policy.
34.
When subsidiary country managers are given broad discretion to set prices
in their markets, a polycentric pricing strategy is in evidence.
35.
In global marketing there is no such thing as a “normal” margin for
pricing.
36.
The terms "parallel importing" and "gray marketing" mean the same thing.
37.
A global company that uses market skimming as a pricing strategy is
likely to invite charges of "dumping" by competitors in host-country markets.
38.
According to current GATT standards, governments cannot penalize foreign
companies for dumping if the export price of a given product differs from the
domestic price by less than 2 percent.
39.
Transfer pricing is a term that applies to transactions between different
divisions or units of the same company.
40.
Lockheed and other military aircraft marketers are likely to face
requests for offsets before closing a sale in the Middle East.
197
Multiple Choice
41.
Which pricing strategy would be most appropriate for a marketer of luxury
designer brands:
a.
b.
c.
d.
e.
gray market
skimming
penetration
market holding
cost based
42.
If the manufacturer of a sophisticated new consumer electronics product
determines that many target consumers qualify as "innovators" and "early
adopters" with relatively inelastic demand curves, the company should use the
______________ pricing strategy:
a.
b.
c.
d.
e.
gray market
skimming
penetration
market holding
cost based
43.
Which pricing strategy did Sony use when launching the Walkman personal
stereo:
a.
b.
c.
d.
e.
gray marketing
skimming
penetration
market holding
cost based
44.
Hewlett-Packard is the world’s leading marketer of inkjet printers. HP’s printers are priced very low and margins are slim; by contrast, the
company enjoys significant margins on sales of replacement ink cartridges. This
approach is sometimes known as ____________ pricing.
a.
b.
c.
d.
e.
gray market
price bundling
market skimming
razors and blades
cost-based
198
45.
Excelsior Corp. launches a new hand-held personal digital assistant (PDA)
for busy corporate executives. The initial retail price is set at $699. One
year later, in an effort to reach a broader market, the price is lowered to
$299. Which of the following describes the pricing strategies used by Excelsior
Corp:
a.
b.
c.
d.
e.
skimming strategy followed by penetration strategy
penetration strategy followed by cost based strategy
penetration strategy followed by skimming strategy
penetration strategy only
skimming strategy only
46.
A firm without much export experience uses the rigid cost-based pricing
method. Which of the following considerations is the exporter ignoring:
a.
Is the price competitive in view of local market conditions?
b.
Does the price reflect the product’s quality?
c.
Will authorities in export markets view the price as reasonable or
exploitative?
d.
Does the price take antidumping laws into consideration?
e.
all of the above
47.
Which pricing strategy has the advantage of being simple to calculate but
the disadvantage of ignoring demand and competitive conditions:
a.
b.
c.
d.
e.
gray marketing
skimming
penetration
market holding
cost based
48.
Which of the following Incoterms apply to all modes of transportation:
a.
b.
c.
d.
e.
ex-works
FAS
delivered duty paid
FOB
both a and c
199
49.
A manufacturer attempting to set prices for its products in export
markets must realize that CAF, VAT, duties, and distributor margins all lead
to:
a.
b.
c.
d.
e.
currency devaluations
dumping charges
market skimming
price escalation
market penetration
50.
If a distributor's margins are based on the "landed" price of an import
shipment, they will be based on:
a.
b.
c.
d.
e.
ex-works price
transportation costs
insurance costs
VAT
all of the above
51.
Which of the following does not contribute to price escalation in global
marketing:
a.
b.
c.
d.
e.
shipping and insurance charges
value added taxes (VAT)
product differentiation
duties and tariffs
fluctuating exchange rates
52.
In July 2001, the euro's value relative to the dollar was about €1.00 =
$0.85. By November 2007 the euro had strengthened to €1.00 = $1.47. All other
things being equal, if a European-based global company wants to preserve
margins for goods exported to the U.S. market, the company should:
a.
b.
c.
d.
e.
raise prices in dollars
switch to cost-based pricing
adopt a policy of market penetration pricing
reduce prices in dollars
use skimming pricing
53.
Which of the following would not be used by an exporter with a weak home
country currency:
200
a.
b.
c.
d.
e.
expand product line and add more costly features.
speed repatriation of foreign-earned income.
buy advertising, insurance, and other services in home country market.
shift sourcing outside home country market.
exploit marketing opportunities in all markets.
54.
Suppose a company selling in various country markets makes statements
such as "we know what the customer wants, and he or she will have to pay for
it." This is an indication of a(n) ______________ approach to setting prices.
a.
b.
c.
d.
e.
ethnocentric
polycentric
regiocentric
geocentric
adaptation
55.
According to a recent study of European industrial exporters, companies
that utilized independent distributors would be most likely to utilize:
a.
b.
c.
d.
e.
ethnocentric pricing
polycentric pricing
regiocentric pricing
geocentric pricing
extension pricing
56.
Which automaker was described as using an ethnocentric approach to
setting prices in the United States:
a.
b.
c.
d.
e.
Toyota
Nissan
Volkswagen
Mercedes
Lexus
57.
Which of the following pricing strategies recognizes both local market
differences and the importance of headquarters input into pricing decisions:
a.
b.
c.
ethnocentric pricing
polycentric pricing
geocentric pricing
201
d.
e.
rigid cost-based pricing
extension pricing
58.
Which of the following would NOT be taken into account by a company using
an ethnocentric approach to pricing decisions:
a.
the possibility of implementing a penetration
b.
profitable price points that could be tied to
to home-country sourcing
c.
integration of price with other marketing mix
d.
factors unique to individual country markets
e.
none of the above would be taken into account
ethnocentric pricing
strategy
local sourcing as opposed
elements
by a company using
59.
If company managers decide to set the export price for a particular
product at an amount equivalent to the home country price, they would be using
which approach to pricing:
a.
b.
c.
d.
e.
ethnocentric
polycentric
regiocentric
geocentric
extension pricing
60.
The unauthorized distribution of trademarked goods to exploit price
differentials in world markets is known as:
a.
b.
c.
d.
e.
market skimming
black marketing
gray marketing
dumping
licensing
61.
When Tag Heuer, a marketer of luxury watches, takes out newspaper ads
urging consumers to purchase Tag Heuer products from authorized dealers only,
the company is most likely attempting to combat the ____________ problem.
a.
b.
c.
d.
countertrade
market holding
price escalation
gray market
202
e.
market skimming
62.
In the early 1990s, the U.S. International Trade Commission ruled that
several Japanese manufacturers were selling active-matrix flat panel display
screens in the U.S. at less than fair value and thereby injuring the sole U.S.
producer of similar screens. The ITC's ruling concerned:
a.
b.
c.
d.
e.
black marketing
market skimming
gray marketing
dumping
licensing
63.
Following the 1997 currency crisis in Asia, which American industry
appealed to President Clinton for protection from foreign producers that were
allegedly "dumping" products in the United States:
a.
b.
c.
d.
e.
auto industry
computer industry
steel industry
photo products industry
restaurant industry
64.
If a company sells products in export markets at prices that are below
fair market value and that can harm producers in the export market, that
company may be accused of:
a.
b.
c.
d.
e.
market skimming
using offsets
pursuing artificially high margins
dumping
gray marketing
65.
Germany’s Bayer Group was fined millions of dollars to settle a lawsuit
alleging it had conspired with ArcherDanielsMidland and other global companies
to set prices for an enzyme used in animal feeds. What was the issue in this
lawsuit:
a.
b.
c.
price skimming
market penetration
price bundling
203
d.
e.
price fixing
dumping
66.
In the late 1990s, the U.S. Justice Department fined two European
pharmaceutical companies hundreds of millions of dollars for conspiring to
suppress competition and set high prices for vitamin supplements marketed in
the United States. What was the issue in this lawsuit:
a.
b.
c.
d.
e.
price skimming
market penetration
price bundling
price fixing
transfer pricing
67.
"Cost-based," "market-based," and "negotiated" are three approaches to:
a.
b.
c.
d.
e.
dumping
gray marketing
transfer pricing
price skimming
counter trade
68.
Recent trade data indicate that about 25 percent of U.S. merchandise
exports represent shipments by American companies to their foreign affiliates
and subsidiaries. This situation underscores the importance of __________ in
global marketing.
a.
b.
c.
d.
e.
dumping
gray marketing
transfer pricing
price skimming
price fixing
69.
Which of the following is true about proper use of the term
"countertrade":
a.
The term "countertrade" is interchangeable with
b.
The term "countertrade" is interchangeable with
c.
The term "countertrade" is interchangeable with
d.
"Countertrade" is a blanket term that refers to
of business transactions.
204
"offsets."
"barter."
"counterpurchase."
several different types
e.
The term “countertrade” is interchangeable with “dumping.”
70.
The most general term for the global phenomenon involving reciprocal
business interactions between parties in various countries is known as:
a.
b.
c.
d.
e.
switch trading
barter
offset
compensation trading
countertrade
71.
In the 1970s and 1980s, the arrangement by which PepsiCo received payment
for soft drink products sold to the Soviet Union was:
a.
b.
c.
d.
e.
switch trading
barter
offset
compensation trading
counterpurchase
72.
The direct exchange of goods or services between parties in lieu of
monetary payment is known as:
a.
b.
c.
d.
e.
barter
switch trading
offset
compensation trading
counterpurchase
73.
Which of the following forms of countertrade does NOT require use of
money or credit between parties:
a.
b.
c.
d.
e.
barter
switch trading
offset
compensation trading
none of the above
205
74.
Which type of countertrade arrangement is required by governments seeking
to reduce the budgetary impact of expenditures for defense or
telecommunications:
a.
b.
c.
d.
e.
barter
switch trading
offset
compensation trading
none of the above
75.
To win a contract to supply the United Kingdom with AWACS military
aircraft, Boeing agreed to purchase products from the UK whose value was
equivalent to 130 percent of the contract. This type of pricing arrangement,
which is common when the customer is a foreign government and the product has
military applications, is known as:
a.
b.
c.
d.
e.
barter
switch trading
compensation trading
offset
dumping
76.
When one of the parties to a barter transaction is not willing to accept
the goods included in the transaction, that party is likely to utilize the
services of a:
a.
b.
c.
d.
e.
switch trader
Foreign Trade Organization
Foreign Sales Corporation
Mittelstand owner
broker
77.
Suppose that World Corp. signs a contract to build a lumber processing
plant in Siberia. If World Corp. signs a second contract agreeing to take
partial payment for the plant in the form of lumber products produced at the
plant, it is engaging in:
a.
b.
c.
d.
e.
barter
switch trading
offset
compensation trading
a hybrid countertrade arrangement
206
78.
Which of the following companies would be most likely to use some form of
countertrade when selling its products in developing countries:
a.
b.
c.
d.
e.
Procter & Gamble
Bell Helicopter Textron
Nokia
Mercedes-Benz
Coca-Cola
79.
Despite the high expenses associated with operating elegant stores and
purchasing advertising space in upscale magazines, the premium retail prices
that luxury goods like Louis Vuitton command translate into handsome profits.
The Louis Vuitton brand alone accounts for 60 percent of LVMH’s operating
profit. On the other hand Louis Vuitton spends $ 10 million annually battling:
a.
b.
c.
d.
e.
EU regulations
counterfeiters in countries such as Turkey, South Korea, & Italy
competitors in European countries
suppliers of needed materials
export freight and taxes
80.
Luxury good marketers found a new way to combat gray market imports into
the United States. In March 1995, the U.S. Supreme Court let stand an appeals
court ruling prohibiting a discount drugstore chain from selling Givenchy
perfume with permission. The distinctive packaging of the perfume is also
protected by the U.S. Copyright law. The ruling implies that:
a.
Givenchy can only be sold in copyrighted packages
b.
Costco and Wal-Mart will no longer be able to sell Givenchy
c.
Costco and Wal-Mart will be able to sell Givenchy with authorization
d.
Gray marketers will be able to market with authorization
e.
Discount drugstore cannot market a product resembling Givenchy’s
perfumes
207