Chapter 11: Pricing Decisions

Free alongside ship (FAS) named port is the Incoterm for a transaction in which the seller places the shipment alongside the vessel upon which the goods will be transported out of the country.

True

Gray markets impose consequences which may result in authorized dealers being no longer the sole distributors.

True

Hand carried wine bottles crossing the border from Hong Kong to China are not taxed. Entrepreneurial individuals hire "mules" to transport wine into the mainland.

True

All of the listed advantages are for "Extension or Ethnocentric" pricing strategy except: A) it does not respond to the competitive and market conditions of each national market. B) it calls for the per-unit price of an item to be the same all over the world. C) it is extremely simple since it does not require information on market condition. D) it does not require competitive conditions for implementation. E) the importer must absorb freight and import duties.

A) it does not respond to the competitive and market conditions of each national market.

In July 2001, the euro's value relative to the dollar was about €1.00 = $0.85. By November 2009, the euro had strengthened to €1.00 = $1.48. In February 2012, one euro was equal to $1.33. 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) raise prices in dollars. B) switch to cost-based pricing. C) adopt a policy of market penetration pricing. D) reduce prices in dollars. E) use skimming pricing.

A) raise prices in dollars.

If a company's home currency strengthens, it is: A) a favorable turn of events for the typical exporter. B) an unfavorable turn of events for the typical exporter. C) a favorable turn of events since the revenues increase in home currency. D) an unfavorable turn of events for exporter's home country. E) neither favorable nor unfavorable turn of events for the typical exporter

B) an unfavorable turn of events for the typical exporter.

For years, Mercedes-Benz utilized a ________ pricing strategy; however, this created an opportunity for Toyota to introduce its luxury Lexus line and undercut Mercedes. A) gray market B) skimming C) penetration D) market holding E) cost-based

B) skimming

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) gray market B) skimming C) penetration D) market holding E) cost-based

B) skimming

Which of the following does not contribute to price escalation in global marketing? A) shipping and insurance charges B) value added taxes (VAT) C) different Incoterms as incentives D) duties and tariffs E) fluctuating exchange rates

C) different Incoterms as incentives

One of the reasons why the initial enthusiasm for OLPC [one laptop per child] did not translate into firm commitments for orders was: A) the computer XO was not rugged enough to handle heavy use and abuse. B) the computer XO was not dust and water proof, dust being a major problem in many countries. C) the higher price of computer XO. D) the images were bright even in sunlight. E) the computer XO did not have Wi-Fi community

C) the higher price of computer XO.

In India, consumers do not like to be locked in to long-term contracts, and Apple distributes its iPhone exclusively through stores operated by Airtel, an Indian carrier, and Vodaphone. This pricing is an example of: A) gray market. B) price bundling. C) market skimming. D) razors and blades. E) cost-based.

D) razors and blades.

The direct exchange of goods or services between parties in lieu of monetary payment is known as: A) barter. B) switch trading. C) offset. D) compensation trading. E) counterpurchase.

a) barter

Which of the following forms of countertrade does not require use of money or credit between parties? A) barter B) switch trading C) offset D) compensation trading E) none of the above

a) barter

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) ethnocentric B) polycentric C) regiocentric D) geocentric E) extension pricing

a) ethnocentric

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, then that company may be accused of: A) market skimming. B) using offsets. C) pursuing artificially high margins. D) dumping. E) gray marketing.

d) dumping

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) countertrade B) market holding C) price escalation D) gray market E) market skimming

d) gray market

Which automaker was described as using an ethnocentric approach to setting prices in the United States? A) Toyota B) Nissan C) Volkswagen D) Mercedes E) Lexus

d) mercedes

To win a contract to supply the United Kingdom with AWACS military aircraft, Boeing agreed to purchase products from the United Kingdom whose value was equivalent to 130% 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) barter. B) switch trading. C) compensation trading. D) offset. E) dumping.

d) offset

A manufacturer attempting to set prices for its products in export markets must realize that CIF, VAT, and distributor markup all lead to: A) currency devaluations. B) dumping charges. C) market skimming. D) price escalation. E) market penetration.

d) price escalation

Germany's Bayer Group was fined millions of dollars to settle a lawsuit alleging it had conspired with Archer Daniels Midland and other global companies to set prices for an enzyme used in animal feeds. What was the issue in this lawsuit? A) price skimming B) market penetration C) price bundling D) price fixing E) dumping

d) price fixing

When Sony introduced the first consumer VCRs in the 1970s, the retail price exceeded $1,000. Within a few years the price dropped well below $500. This is an example of: A) skimming strategy. B) penetration strategy. C) cost-based strategy. D) price ceiling strategy. E) transfer pricing strategy

A) skimming strategy.

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) switch trader. B) Foreign Trade Organization. C) Foreign Sales Corporation. D) Mittelstand owner. E) broker.

A) switch trader.

Which of the following companies would be most likely to use some form of countertrade when selling its products in developing countries? A) Procter & Gamble B) Bell Helicopter Textron C) Nokia D) Mercedes-Benz E) Coca-Cola

B) Bell Helicopter Textron

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% of LVMH's operating profit. On the other hand, Louis Vuitton spends $10 million annually battling: A) EU regulations. B) counterfeiters in countries such as Turkey, South Korea, & Italy. C) competitors in European countries. D) suppliers of needed materials. E) export freight and taxes.

B) counterfeiters in countries such as Turkey, South Korea, & Italy.

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 without 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 Walmart will no longer be able to sell Givenchy. C) Costco and Walmart will be able to sell Givenchy with authorization. D) gray marketers will be able to market with authorization. E) discount drugstores cannot market a product resembling Givenchy's perfumes

C) Costco and Walmart will be able to sell Givenchy with authorization.

All of the following activities must be performed when goods cross international boundaries except: A) obtaining currency permit, if required. B) packaging the goods for export. C) using cost-based pricing method. D) arranging for ocean freight and preparation. E) obtaining marine insurance and certificate of the policy

C) using cost-based pricing method.

The skimming pricing strategy is appropriate in the mature phase of the product life cycle.

False

Which of the following is true about proper use of the term "countertrade"? A) The term "countertrade" is interchangeable with "offsets." B) The term "countertrade" is interchangeable with "barter." C) The term "countertrade" is interchangeable with "counterpurchase." D) "Countertrade" is a blanket term that refers to several different types of business transactions. E) The term "countertrade" is interchangeable with "dumping."

D) "Countertrade" is a blanket term that refers to several different types of business transactions.

The country which has the highest rates of value-added tax (VAT) in the European Union is: A) Germany. B) Italy. C) France. D) Denmark. E) Switzerland

D) Denmark

Which of the following would not be used by an exporter with a weak home-country currency? A) Expand product line and add more costly features. B) Speed repatriation of foreign-earned income. C) Buy advertising, insurance, and other services in home-country market. D) Shift sourcing outside home-country market. E) Exploit marketing opportunities in all markets.

D) Shift sourcing outside home-country market.

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) barter. B) switch trading. C) offset. D) compensation trading. E) a hybrid countertrade arrangement

D) compensation trading.

"Export price escalation" is the increase in the initial selling price of goods traded across borders.

False

A global company that uses market skimming as a pricing strategy is likely to invite charges of "dumping" by competitors in host-country markets.

False

A market penetration pricing strategy calls for setting price levels that are high enough to quickly build market share.

False

Gray market goods are trademarked products that are exported from one country to another and sold by authorized persons or organizations

False

It is illegal for representatives of two or more companies to secretly set similar prices for their products. This practice is known as transfer pricing.

False

Market skimming" is a strategy that uses low prices as a competitive weapon to gain market position.

False

The ethnocentric pricing responds to the competitive and market conditions of national market.

False

When a manufacturer conspires with wholesalers or retailers to ensure certain retail prices are maintained it is known as horizontal price fixing.

False

A company using geocentric pricing neither fixes a single price worldwide, nor allows subsidiaries or local distributors to make independent pricing decisions.

True

Companies using "rigid cost-plus pricing" set prices with adjustments to reflect market conditions outside the home country.

True

In some instances, deregulation represents a quid pro quo that will allow German companies wider access to other country markets.

True

In the United States, Levi Strauss & Company has to face competitive behavior since J.C.Penney and Sears are both aggressively marketing their own brands.

True

India's Tata Motors launched the Nano, a radical new design with a rock-bottom sticker price of $2,500.

True

Levi's non-U.S. sales represent about one-third of revenues but more than 50% of profits.

True

Marketers of domestically manufactured finished products may be forced to switch to offshore sourcing of certain components to keep costs and prices competitive.

True

Overall, IKEA's prices are lowest in the United States, where the company competes with large retailers.

True

Penetration prices often mean that the product may be sold at a loss for a certain period of time.

True

Price can be used as a strategic variable to achieve specific goals, including ROI, profit, and rapid recovery of product development costs.

True

Since the Uruguay Round of GATT negotiations, Japan has lowered or eliminated duties on thousands of categories of imports.

True

To win sales in important markets such as China, global companies can face demands for offsets even when transactions do not involve military procurement.

True

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."

True

Toys "R" Us successfully targets the Japanese toy market by bypassing layers of distribution and adopting a warehouse style of selling similar to its U.S. approach.

True

Transfer pricing is a term that applies to transactions between different divisions or units of the same company.

True

When Walmart came to Brazil in the mid-1990s, it discovered that local competitors had the technological infrastructure that allowed them to match its aggressive pricing policies.

True

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) ethnocentric B) polycentric C) regiocentric D) geocentric E) adaptation

a) ethnocentric

One of the highest profile companies, PepsiCo, which has done business in the Soviet and post-Soviet market for decades, has used this form of countertrade: A) switch trading. B) barter. C) offset. D) compensation trading. E) counterpurchase.

b) barter

According to a recent study of European industrial exporters, companies that utilized independent distributors would be most likely to utilize: A) ethnocentric pricing. B) polycentric pricing. C) regiocentric pricing. D) geocentric pricing. E) extension pricing.

b) polycentric

Parallel importing occurs when companies employ a(n) ________ multinational pricing policy that calls for setting different prices in different country markets. A) ethnocentric B) polycentric C) regiocentric D) geocentric E) extension

b) polycentric

Mexican customers generally carry small coins. To keep prices of shampoo and detergent below 11 or 12 pesos, Procter & Gamble is using which method of pricing? A) price bundling B) target costing C) cost-plus approach D) export price costing E) cost-based pricing

b) target costing

Two automakers that have joined the race to bring low-cost cars to the emerging market are: A) Mercedes and Lexus. B) Toyota and Ford. C) Tata and Nissan. D) Tata and Toyota. E) Nissan and Toyota.

c) Tata and nissan

Givenchy and Christian Dior's Dune fragrance are two of the luxury perfume brands that are sometimes diverted from authorized channels for sale at mass-retail outlets. This practice is referred to as: A) barter. B) switch trading. C) gray market. D) offset. E) dumping.

c) gray market

The unauthorized distribution of trademarked goods to exploit price differentials in world markets is known as: A) market skimming. B) black marketing. C) gray marketing. D) dumping. E) licensing.

c) gray marketing

Which type of countertrade arrangement is required by governments seeking to reduce the budgetary impact of expenditures for defense or telecommunications? A) barter B) switch trading C) offset D) compensation trading E) none of the above

c) offset

A market ________ pricing strategy calls for setting price levels that are low enough to quickly build market share. A) gray B) skimming C) penetration D) holding E) cost-based

c) penetration

"Cost-based," "market-based," and "negotiated" are three approaches to: A) dumping. B) gray marketing. C) transfer pricing. D) price skimming. E) counter trade.

c) transer pricing

Joseph Quinlan, chief marketing strategist at Bank of America, estimated that about 25% 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) dumping B) gray marketing C) transfer pricing D) price skimming E) price fixing

c) transfer pricing

________ occurs when a manufacturer conspires with wholesalers or retailers to ensure certain retail prices are maintained. A) Horizontal price fixing B) Dumping C) Vertical price fixing D) Gray marketing E) Black marketing

c) vertical price fixing

In the Uruguay round of GATT negotiations, many countries took issue with the U.S. system of laws, in part because historically the U.S. Commerce Department almost always ruled in favor of the U.S. company that filed the complaint. This was related to the laws pertaining to: A) black marketing. B) market skimming. C) gray marketing. D) dumping. E) licensing.

d) dumping

Nintendo was fined nearly $150 million after it was determined that the video game company had colluded with European distributors. The distributors in countries with lower retail prices had agreed not to sell to retailers in countries with high prices. This is a classic example of: A) price skimming. B) market penetration. C) price bundling. D) price fixing. E) transfer pricing

d) price fixing

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

e) all

If a distributor's margins are based on the "landed" price of an import shipment, they will be based on: A) ex-works price. B) transportation costs. C) insurance costs. D) VAT. E) all of the above

e) all

Which pricing strategy has the advantage of being simple to calculate but has the disadvantage of ignoring demand and competitive conditions? A) gray marketing B) skimming C) penetration D) market holding E) cost-based

e) cost-based

The most general term for the global phenomenon involving reciprocal business interactions between parties in various countries is known as: A) switch trading. B) barter. C) offset. D) compensation trading. E) countertrade.

e) countertrade

As a starting point, firms that comply with Western cost-accounting principles typically use the pricing method known as: A) price bundling. B) target costing. C) cost-plus pricing. D) export price costing. E) full absorption cost.

e) full absorption cost

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 strategy B) profitable price points that could be tied to local sourcing as opposed to home-country sourcing C) integration of price with other marketing mix elements D) factors unique to individual country markets E) None of the above would be taken into account by a company using ethnocentric pricing

e) none

Coffee bearing the Fairtrade label signifies that the coffee is: A) sponsored by an organization that supports price decisions. B) pure and free of contamination and grown organically. C) purchased with no taxes and duties paid to exporters. D) donated by a Catholic organization to its members. E) purchased with farmers getting a fair share based on the quality

e) purchased with farmers getting a fair share based on the quality

The following activities must be performed when goods cross international boundaries except: A) obtaining currency permit. B) packing goods for export. C) transporting the goods. D) preparing a land bill of lading. E) receiving payments.

e) receiving payments

Every commercial transaction is based on a contract of sale, and the trade terms in that contract specify the exact point at which the ownership of merchandise is transferred from the seller to the buyer and which party in the transactions pays which cost.

true

Hewlett-Packard is the world's leading marketer of inkjet printers. H-P'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

true