International Marketing Chapter 11

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

Answer: TRUE

3) The market skimming pricing strategy is a part of a 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.

Answer: TRUE

30) The open-skies agreement between the United States and Germany would allow Lufthansa to fly more routes within the United States.

Answer: TRUE

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

Answer: TRUE

43) Which pricing strategy did Sony use when launching the Walkman personal stereo? A) gray marketing B) skimming C) penetration D) market holding E) cost based.

Answer: C

52) 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. 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.

Answer: A

72) 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.

Answer: A

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

Answer: A

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) skimming strategy followed by penetration strategy B) penetration strategy followed by cost based strategy C) penetration strategy followed by skimming strategy D) penetration strategy only E) skimming strategy only

Answer: A

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

Answer: A

57) Which of the following pricing strategies recognizes both local market differences and the importance of headquarters input into pricing decisions? A) ethnocentric pricing B) polycentric pricing C) geocentric pricing D) rigid cost-based pricing E) extension pricing

Answer: A

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

Answer: A

73) 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

Answer: A

41) Which pricing strategy would be most appropriate for a marketer of luxury designer brands? A) gray market B) skimming C) penetration D) market holding E) cost based.

Answer: B

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

Answer: B

55) 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.

Answer: B

71) In the 1970s and 1980s, the arrangement by which PepsiCo received payment for soft drink products sold to the Soviet Union was: A) switch trading. B) barter. C) offset. D) compensation trading. E) counterpurchase.

Answer: B

78) 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

Answer: B

60) 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.

Answer: C

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

Answer: C

51) 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 Incotherms as incentives D) duties and tariffs E) fluctuating exchange rates

Answer: C

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) auto industry. B) computer industry. C) steel industry. D) photo products industry. E) restaurant industry.

Answer: C

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

Answer: C

74) 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

Answer: C

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 drugstores cannot market a product resembling Givenchy's perfumes.

Answer: C

44) 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 India carrier, and Vodaphone This is an example of: A) gray market. B) price bundling. C) market skimming. D) razors and blades. E) cost-based.

Answer: D

56) 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

Answer: D

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) market skimming. B) using offsets. C) pursuing artificially high margins. D) dumping. E) gray marketing.

Answer: D

49) 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.

Answer: D

53) 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..

Answer: D

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

Answer: D

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) black marketing. B) market skimming. C) gray marketing. D) dumping. E) licensing.

Answer: D

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) price skimming B) market penetration C) price bundling D) price fixing E) dumping

Answer: D

66) 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.

Answer: D

69) 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."

Answer: D

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) barter. B) switch trading. C) compensation trading. D) offset. E) dumping.

Answer: D

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

Answer: D

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) 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.

Answer: D

48) Which of the following incoterms apply to all modes of transportation? A) ex-works B) FAS C) delivered duty paid D) FOB E) both A and C

Answer: E

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

Answer: E

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

Answer: E

50) 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

Answer: E

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 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

Answer: E

70) 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.

Answer: E

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

Answer: FALSE

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.

Answer: FALSE

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.

Answer: FALSE

16) With a free on board (FOB) named port, the responsibility and liability of the seller ends at the docking point at the port.

Answer: FALSE

17) Currency fluctuations mean that companies doing business in global markets should regularly review prices and make adjustments when conditions dictate.

Answer: FALSE

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.

Answer: FALSE

22) When domestic currency is strong, expenditures in the local (host country) should be minimized.

Answer: FALSE

23) When domestic currency is weak, it is advisable to bill foreign customers in the domestic currency.

Answer: FALSE

24) Improved price transparency in the Euro zone leads to greater price disparities.

Answer: FALSE

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.

Answer: FALSE

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

Answer: FALSE

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

Answer: FALSE

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

Answer: TRUE

1) Price floor and price ceiling are two basic factors which determine the boundaries within which prices should be set.

Answer: TRUE

10) Sony used penetration pricing when it launched the Walkman personal stereo in 1979.

Answer: TRUE

11) 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.

Answer: TRUE

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."

Answer: TRUE

13) Vodaphone, AT&T and other cellular service providers buy handsets at prices set by Motorola, Nokia, and other manufacturers, and then subsidize the cost by offering significant discounts.

Answer: TRUE

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.

Answer: TRUE

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

Answer: TRUE

20) Within the Euro zone price transparency means that buyers will be able to comparison shop easily because goods are priced in euros as opposed to marks, francs, or lira.

Answer: TRUE

21) When domestic currency is weak, it is advisable to speed repatriation of foreign-earned income and collections.

Answer: TRUE

25) In countries where high inflation is the rule, companies should make price adjustments to maintain operating margins.

Answer: TRUE

26) Louis Vuitton executives raised prices in 2008 and sales continued to increase.

Answer: TRUE

27) Germany has traditionally severely restricted competition in a number of industries.

Answer: TRUE

28) The video piracy problem is not confined to emerging markets. In the United States, losses from piracy exceed $1 billion each year for the movie industry as a whole.

Answer: TRUE

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.

Answer: TRUE

34) When subsidiary country managers are given broad discretion to set prices in their markets, a polycentric pricing strategy is in evidence.

Answer: TRUE

35) In global marketing, there is no such thing as a "normal" margin for pricing.

Answer: TRUE

36) The terms "parallel importing" and "gray marketing" mean the same thing.

Answer: TRUE

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.

Answer: TRUE

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

Answer: TRUE

40) Lockheed and other military aircraft marketers are likely to face requests for offsets before closing a sale in the Middle East.

Answer: TRUE

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.

Answer: TRUE

7) Price can be used as a competitive weapon to gain or maintain market position.

Answer: TRUE

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

Answer: TRUE