Deck 11: Pricing Decisions

Question 1

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 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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.

Question 5

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."

Question 6

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

Question 7

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

Question 8

Several Incoterms are known as "C-Terms" or "main-carriage" terms.

Question 9

Within the eurozone, "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.

Question 10

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

Question 11

When Apple introduced iPhone in the United States in the summer of 2007 with a sale price of $599, it used skimming pricing strategy.

Question 12

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.

Question 13

Kraft recently signed an accord with the Rainforest Alliance to buy coffee beans that are certified as being produced with sustainable agricultural practices and then blend them into their mass-market brands.

Question 14

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

Question 15

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

Question 16

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

Question 17

The market skimming pricing strategy is a part of a deliberate attempt to reach a market segment that is willing to pay premium price for a particular brand or for a specialized or unique product.

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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.

Question 23

Price is a strategic variable, and hence pricing strategy should be developed using a rational, analytical approach, or an intuitive one.

Question 24

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.

Question 25

The Internet and globalization have forced policymakers in Germany to repeal some of the archaic laws.

Question 26

The United States and Germany recently completed an open-skies agreement that will allow Lufthansa to fly more routes within the United States.

Question 27

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

Question 28

In "geocentric pricing" approach, a company fixes a single price worldwide and allows subsidiaries or local distributors to make independent pricing decisions.

Question 29

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

Question 30

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

Question 31

In Brazil, where the inflation rate was high during the late 1980s, individual unit pricing rather than shelf pricing became the norm.

Question 32

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.

Question 33

In the United States, Levi Strauss & Company is under price pressure due to stiff competition from Wrangler and Lee brands marketed by VF Corporation.

Question 34

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%.

Question 35

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

Question 36

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

Question 37

Spiraling commodities and raw material costs can put upward or downward pressure on prices for a variety of goods.

Question 38

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

Question 39

Procter & Gamble encountered strict price controls in Venezuela in the late 1980s.This showed that when selective controls are imposed, foreign companies are more vulnerable to control than local ones.

Question 40

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

Question 41

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

Question 42

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.

Question 43

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

Question 44

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

Question 45

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

Question 46

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.

Question 47

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.

Question 48

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

Question 49

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

Question 50

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

Question 51

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

Question 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.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.

Question 53

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

Question 54

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

Question 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.

Question 56

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

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

Question 57

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.

Question 58

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

Question 59

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.

Question 60

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 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.

Question 61

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.

Question 62

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.

Question 63

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.

Question 64

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

Question 65

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

Question 66

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.

Question 67

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 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.

Question 68

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

Question 69

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

Question 70

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.

Question 71

"Cost-based," "market-based," and "negotiated" are three approaches to:

A)dumping.
B)gray marketing.
C)transfer pricing.
D)price skimming.
E)counter trade.

Question 72

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.

Question 73

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.

Question 74

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.

Question 75

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

Question 76

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% 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.

Question 77

________ 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

Question 78

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."

Question 79

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

Question 80

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.