Deck 11: Pricing Decisions

Question 1

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 1

D

Question 2

What is offset and why is it important in global marketing? How can it be distinguished from counterpurchase?

Answer 2

Offset is a reciprocal arrangement whereby the government in the importing country seeks to recover large sums of hard currency spent on expensive purchases such as military aircraft or telecommunications systems. Offset arrangements may also involve cooperation in manufacturing, some form of technology transfer, placing subcontracts locally, or arranging local assembly or manufacturing equal to a certain percentage of the contract value. Offset may be distinguished from counterpurchase since the latter is characterized by smaller deals over shorter periods of time. Another major distinction between offset and other forms of countertrade is that the agreement is not contractual but reflects it to memorandum of understanding that sets out the dollar value of products to be offset and the time period for completing the transaction. In addition, there is no penalty on the supplier for nonperformance. Some highly competitive sales have required offsets exceeding 100 percent of the valuation of the original sale.

Question 3

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.

Answer 3

B

Question 4

In recent years, in light of the technological developments, many exporters have been forced to finance international transactions by taking full or partial payment in some form other than money. A number of alternative forms of payments known as countertrade are widely used. How does a countertrade transaction work? How do barter transactions differ from offset?

Question 5

All other things being equal, a Boeing 787 costs the same worldwide. By contrast, beer, compact discs, and many other products that are available around the world are actually offered in markets that are national rather than global in nature.

Question 6

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 7

How does "Switch Trading" works in global marketing? What is the advantage of the "switching mechanism?" Comment on the logistics and fees involved in this type of arrangement.

Question 8

Many companies that are active in the 19 nations of the euro zone are adjusting to the new cross-border transparency of prices.

Question 9

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 10

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 11

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.

Question 12

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 13

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 14

Why is compensation trading also called a "buyback?" How does it differ from switch trading?

Question 15

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

Question 16

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 17

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 18

To win sales in important markets such as China, global companies can face demands for offsets even when transactions do involve military procurement.

Question 19

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 20

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 21

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 22

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

Question 23

All of the following basic consideration questions are important for those whose responsibility includes setting prices on goods that cross borders except:

A)Does the price reflect the product's quality?
B)Is the price competitive given local market conditions?
C)Does the local market use target costing?
D)Should prices differ with market segment?
E)Do the foreign country's dumping laws pose a problem?

Question 24

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

Question 25

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 26

All of the following activities must be performed when goods cross international boundaries except:

A)obtaining currency permit, if required.
B)packaging goods for export.
C)using the cost-based pricing method.
D)arranging for ocean freight and preparation.
E)obtaining marine insurance and certificate of the policy.

Question 27

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

Question 28

Hewlett-Packard (HP)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.

Question 29

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

Question 30

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.

Question 31

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

Question 32

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 33

Historically, many companies that used the ________ for pricing were located in the Pacific Rim.

A)skimming strategy
B)penetration strategy
C)cost-based strategy
D)price ceiling strategy
E)transfer pricing strategy

Question 34

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 35

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.

Question 36

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.

Question 37

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

Question 38

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.

Question 39

Canada's Imax Corporation is the world's premier provider of large-format motion picture
projection technology. The company has identified 900 potential markets for new Imax theaters;
two-thirds of those are global.

Question 40

Two automakers that have joined the race to bring low-cost cars to the emerging Indian market are:

A)Mercedes and Lexus.
B)Toyota and Ford.
C)Tata and Nissan.
D)Tata and Toyota.
E)Nissan and Toyota.

Question 41

How can price be used as a strategic variable to achieve specific financial goals? Under what conditions should skimming or penetration pricing be adapted as strategy?

Question 42

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.

Question 43

If the terms of the sale are CFR (cost and freight), the seller is responsible for risk or loss at any point outside the factory.

Question 44

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

Question 45

A working knowledge of Incoterms can be a source of competitive advantage to anyone seeking an entry-level job in global marketing. What are "Incoterms," and how are they classified? How are Incoterms applied in global marketing?

Question 46

All import charges are assessed against the

A)ex-works price.
B)rigid cost-plus price.
C)estimated future cost price
D)flexible cost-plus price
E)landed price

Question 47

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 feature.
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 48

A strengthening of the home-country currency swings exchange rates in a favorable direction.

Question 49

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 50

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.

Question 51

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 52

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

Question 53

Since hand carried wine bottles crossing the border from Hong Kong to China are taxed. Entrepreneurial individuals hire "mules" to transport wine into the mainland.

Question 54

When the seller has agreed to deliver the goods to the buyer at the place the buyer names in the country of import, with all costs, including duties paid is referred to as:

A)DDP.
B)FCA.
C)FAS.
D)FOB.
E)CIF.

Question 55

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.

Question 56

When Walmart came to Brazil in the mid-1990s, it discovered that local competitors did not have the technological infrastructure that allowed them to match its aggressive pricing policies.

Question 57

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 58

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 59

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 and in August 2015 €1.00 = $0.99 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 60

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

Question 61

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 62

Gray markets impose several costs or consequences on global marketers, which does not include:

A)damage to channel relationships.
B)dilution of exclusivity.
C)free riding
D)reputation and legal liability.
E)increase product demand

Question 63

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 64

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 65

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 66

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

Question 67

In the United States, Levi Strauss & Company has to face competitive behavior since Wrangler and Lee brands are being marketed by VF Corporation.

Question 68

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 69

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 70

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 71

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

Question 72

If a Lexus car is priced in U.S. dollars and sold at the dollar converted price in Indian rupees, what problems can be expected? What is the difference between ethnocentric, polycentric and geocentric pricing?

Question 73

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

Question 74

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

Question 75

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 76

The currency fluctuations in global markets have a big impact on international transactions. What actions can be adapted if the domestic currency is strong?

Question 77

Ethnocentric pricing responds to the competitive and market conditions of national market.

Question 78

IKEA takes a polycentric approach to pricing: While it is company policy to have the lowest price on comparable products in every market, managers in each country set their own prices.

Question 79

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.

Question 80

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