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Global Marketing, 10e (Green/Keegan)

Chapter 11 Pricing Decisions

1) Generally speaking, international trade results in:

A) lower prices for goods.
B) higher prices for goods.
C) stabilizing prices.
D) high inflation rate.
E) low inflation rate.
Answer: A
Difficulty: 2: Moderate
Chapter LO: 11.10: Define countertrade and explain the various forms it can take.
AACSB: Application of knowledge

2) The price of a six-pack of Heineken varies in price by as much as 50 percent depending on

where it is sold due to all of the factors except:
A) purchasing power parity.
B) transportation costs.
C) transaction costs.
D) promotion.
E) competition.
Answer: D
Difficulty: 2: Moderate
Chapter LO: 11.10: Define countertrade and explain the various forms it can take.
AACSB: Application of knowledge

3) India's Tata Motors launched the Nano, a radical new design with a rock-bottom sticker price
of $2,500.
Answer: TRUE
Difficulty: 1: Easy
Chapter LO: 11.1: Review the basic pricing concepts that underlie a successful global marketing
pricing strategy.
AACSB: Application of knowledge

4) Nano's instrument panel is clustered in the middle of the dashboard so that Tata can offer both
right- and left-hand drive versions.
Answer: TRUE
Difficulty: 1: Easy
Chapter LO: 11.1: Review the basic pricing concepts that underlie a successful global marketing
pricing strategy.
AACSB: Application of knowledge

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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.
Answer: TRUE
Difficulty: 2: Moderate
Chapter LO: 11.1: Review the basic pricing concepts that underlie a successful global marketing
pricing strategy.
AACSB: Application of knowledge

6) Many companies that are active in the 19 nations of the euro zone are adjusting to the new
cross-border transparency of prices.
Answer: TRUE
Difficulty: 2: Moderate
Chapter LO: 11.1: Review the basic pricing concepts that underlie a successful global marketing
pricing strategy.
AACSB: Application of knowledge

7) Pricing objectives in export market may vary depending all of the following factors except:
A) a product's life-cycle stage.
B) the country-specific competitive situation.
C) the added cost associated with shipping goods.
D) the product design process.
E) the stability of prices globally
Answer: E
Difficulty: 3: Challenging
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

8) 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
Difficulty: 3: Challenging
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

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9) 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.
Answer: C
Difficulty: 1: Easy
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

10) 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.
Answer: A
Difficulty: 2: Moderate
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

11) 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
Answer: B
Difficulty: 3: Challenging
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

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12) 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
Answer: C
Difficulty: 2: Moderate
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

13) 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.
Answer: D
Difficulty: 3: Challenging
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

14) 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
Difficulty: 3: Challenging
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

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15) 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
Answer: B
Difficulty: 3: Challenging
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

16) 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.
Answer: E
Difficulty: 3: Challenging
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

17) 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
Answer: E
Difficulty: 2: Moderate
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

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18) 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.
Answer: C
Difficulty: 2: Moderate
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

19) 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?
Answer: C
Difficulty: 2: Moderate
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

20) 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
Difficulty: 3: Challenging
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

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21) The basic considerations for setting prices on goods that are traded across borders does not
include:
A) Does the price reflect the product's quality?
B) Is the price competitive given the local market conditions?
C) Which type of discount does the firm offer its international customers?
D) Do the foreign country's dumping laws pose a problem?
E) Is it feasible to use home country pricing?
Answer: E
Difficulty: 3: Challenging
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

22) 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.
Answer: E
Difficulty: 1: Easy
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

23) "Market skimming" is a strategy that uses low prices as a competitive weapon to gain market
position.
Answer: FALSE
Difficulty: 2: Moderate
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

24) The skimming pricing strategy is appropriate in the mature phase of the product life cycle.
Answer: FALSE
Difficulty: 2: Moderate
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

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25) A market penetration pricing strategy calls for setting price levels that are high enough to
quickly build market share.
Answer: FALSE
Difficulty: 2: Moderate
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

26) Penetration prices often mean that the product may be sold at a loss for a certain period of
time.
Answer: TRUE
Difficulty: 2: Moderate
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

27) 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.
Answer: TRUE
Difficulty: 2: Moderate
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

28) A first-time exporter is likely to use skimming pricing, so that the product may be sold at a
profit for a certain length of time.
Answer: FALSE
Difficulty: 3: Challenging
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

29) 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
Difficulty: 2: Moderate
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

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30) "Export price escalation" is the increase in the initial selling price of goods traded across
borders.
Answer: FALSE
Difficulty: 2: Moderate
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

31) Companies using "rigid cost-plus pricing" set prices with adjustments to reflect market
conditions outside the home country.
Answer: FALSE
Difficulty: 2: Moderate
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Application of knowledge

32) Give an example as to how razors and blades type of pricing will be profitable in global
markets.
Answer: Here is an example that illustrate the concept of companion products: A video game
console has no value without video game software, and a DVD player has no value without
movies available on DVD. Likewise, a razor handle has no value without blades. Thus, Gillette
can sell a single Mach3 razor for less than $5—or even give the razor away for free—because it
knows that over a period of years, the company will make significant profits from selling
packages of replacement blades. As the saying goes, "If you make money on the blades, you can
give away the razors."
Difficulty: 2: Moderate
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Analytical thinking

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33) 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?
Answer: Price can be used as a strategic variable based on the financial goals such as return on
investment, profit, and rapid recovery of research and product development costs. When
financial criteria such as profit and maintenance of margins are the goals, the product quality and
price become important aspects of the strategy. The market skimming pricing strategy is 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. The skimming price strategy is also
appropriate in the introductory phase of the product life cycle when both production capacity and
competition are limited. By deliberately setting a high price, demand is limited to innovators and
early adopters, who are willing and able to pay the price. When Apple introduced iPhone, the
price used was a skimming price. When the product enters the growth stage of the life cycle and
competition increases, manufacturers start to cut prices. This strategy has been used widely in the
consumer electronics industry. On the other hand, some companies are pursuing non-financial
objectives with their pricing strategy. Price can, therefore, be used as a competitive weapon to
gain or maintain market position. A market penetration pricing strategy calls for setting price
levels that are low enough to quickly build market share. The first-time exporter seldom uses
penetration pricing since it often means that the products may be sold at a loss for a certain
length of time. Many companies, when they are not qualified for patent protection, use
penetration pricing as a means of achieving market saturation before competitors copy their
product.
Difficulty: 2: Moderate
Chapter LO: 11.2: Identify the different pricing strategies and objectives that influence decisions
about pricing products in global markets.
AACSB: Analytical thinking

34) 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
Difficulty: 2: Moderate
Chapter LO: 11.3: Summarize the various Incoterms that affect the final price of a product.
AACSB: Application of knowledge

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35) 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.
Answer: E
Difficulty: 2: Moderate
Chapter LO: 11.3: Summarize the various Incoterms that affect the final price of a product.
AACSB: Application of knowledge

36) When a seller has agreed to deliver goods to a buyer at a place the buyer names in the
country of import, with all costs, including duties paid, it is referred to as:
A) DDP.
B) FCA.
C) FAS.
D) FOB.
E) CIF.
Answer: A
Difficulty: 1: Easy
Chapter LO: 11.3: Summarize the various Incoterms that affect the final price of a product.
AACSB: Application of knowledge

37) 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
Answer: C
Difficulty: 2: Moderate
Chapter LO: 11.3: Summarize the various Incoterms that affect the final price of a product.
AACSB: Application of knowledge

38) 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
Answer: D
Difficulty: 2: Moderate
Chapter LO: 11.3: Summarize the various Incoterms that affect the final price of a product.
AACSB: Application of knowledge

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39) 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.
Answer: TRUE
Difficulty: 3: Challenging
Chapter LO: 11.3: Summarize the various Incoterms that affect the final price of a product.
AACSB: Application of knowledge

40) 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.
Answer: TRUE
Difficulty: 2: Moderate
Chapter LO: 11.3: Summarize the various Incoterms that affect the final price of a product.
AACSB: Application of knowledge

41) The U.S. Labor Department filed a complaint against Swatch Group alleging that the Swiss
watchmaker improperly used transfer pricing to evade millions of dollars in customs duties and
taxes.
Answer: TRUE
Difficulty: 2: Moderate
Chapter LO: 11.3: Summarize the various Incoterms that affect the final price of a product.
AACSB: Application of knowledge

42) If the terms of a sale are CFR (cost and freight), the seller is responsible for risk or loss at
any point outside the factory.
Answer: FALSE
Difficulty: 2: Moderate
Chapter LO: 11.3: Summarize the various Incoterms that affect the final price of a product.
AACSB: Application of knowledge

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45) What is the impact of increased tariffs on exports and imports? Give an example in support
of your answer.
Answer: Sometimes inflationary forces arise out of changes in the political environment. For
example, in early 2018, U.S. President Donald Trump announced tariffs of 10 percent on
aluminum imports from China and several other nations. That was bad news for the beer
industry; the U.S. beer market represents about $100 billion in annual sales of aluminum, much
of it in the form of aluminum cans. A trade group called the Beer Institute estimated that the
tariffs amount to a $347 million tax on the beverage industry by raising its variable costs. An
aluminum beer can costs about 10 cents to manufacture, so a 10 percent tariff on aluminum
would boost the cost of each can by about a penny, or roughly 6 cents per six-pack. Marketing
managers at AB InBev, the company that brews Bud Light, face a decision about whether they
can pass on the increased cost to consumers without any decrease in demand for Bud Light and
other brands. The question is, if tariffs lead to price increases, will Americans drink less beer?
Will Bud Light fans exhibit elastic demand curves or inelastic demand curves?
Difficulty: 2: Moderate
Chapter LO: 11.4: List some of the environmental influences that impact prices.
AACSB: Application of knowledge

46) 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, in August 2015 €1.00 = $0.99 and in September 09, 2018 €1.00 = $0.87. 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
Difficulty: 2: Moderate
Chapter LO: 11.4: List some of the environmental influences that impact prices.
AACSB: Application of knowledge

47) 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.
Answer: B
Difficulty: 2: Moderate
Chapter LO: 11.4: List some of the environmental influences that impact prices.
AACSB: Application of knowledge

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48) 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.
Answer: D
Difficulty: 1: Easy
Chapter LO: 11.4: List some of the environmental influences that impact prices.
AACSB: Application of knowledge

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

Answer: FALSE
Difficulty: 2: Moderate
Chapter LO: 11.4: List some of the environmental influences that impact prices.
AACSB: Application of knowledge

50) 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.
Answer: FALSE
Difficulty: 2: Moderate
Chapter LO: 11.4: List some of the environmental influences that impact prices.
AACSB: Application of knowledge

51) Denmark and Sweden have a VAT of 25 percent, the highest rate in the European Union.
Moreover, Sweden taxes luxury goods heavily.
Answer: FALSE
Difficulty: 2: Moderate
Chapter LO: 11.4: List some of the environmental influences that impact prices.
AACSB: Application of knowledge

52) In some instances, deregulation represents a quid pro quo that will allow French companies
wider access to other country markets.
Answer: FALSE
Difficulty: 2: Moderate
Chapter LO: 11.4: List some of the environmental influences that impact prices.
AACSB: Application of knowledge

53) In the United States, Levi Strauss & Company has to face competitive behavior since
Wrangler and Lee brands are being marketed by VF Corporation.
Answer: TRUE
Difficulty: 2: Moderate
Chapter LO: 11.4: List some of the environmental influences that impact prices.
AACSB: Application of knowledge

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54) Levi's non-U.S. sales represent about one-third of revenues but more than 50 percent of
profits.
Answer: TRUE
Difficulty: 2: Moderate
Chapter LO: 11.4: List some of the environmental influences that impact prices.
AACSB: Application of knowledge

55) 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
Difficulty: 2: Moderate
Chapter LO: 11.4: List some of the environmental influences that impact prices.
AACSB: Application of knowledge

56) What kind of price pressures are faced by Levi Strauss & Company in the United States?
How does this pressure compare with sales outside of the United States?
Answer: In the United States, Levi Strauss & Company is under price pressure from several
directions. First, Levi's face stiff competition from the Wrangler and Lee brands marketed by VF
Corporation. A pair of Wrangler jeans retails for about $20 at JCPenney and other department
stores, compared with about $30 for a pair of Levi's 501 jeans. Second, the two primary retail
customers for Levi's, JCPenney and Sears, are aggressively marketing their own private-label
brands. Finally, designer jeans from Calvin Klein, Polo, and Diesel are enjoying renewed
popularity. Exclusive fashion brands such as 7 for All Mankind and Lucky, retail for more than
$100 per pair.

Outside the United States, thanks to the heritage of the Levi's brand and less competition, Levi's
jeans command premium prices—$80 or more for one pair of 501 jeans. To support their
prestige image, Levi's are sold in boutiques. Levi's non-U.S. sales represent about one-third of
revenues but more than 50 percent of profits. In an attempt to apply its global experience and
enhance the brand in the United States, Levi has opened a number of Original Levi's Stores in
selected American cities. Despite such efforts, Levi rang up only $4.5 billion in sales in 2016,
compared with $7.1 billion in 1996. More than a decade ago, the company closed six plants and
moved most of its North American production offshore in an effort to cut costs.
Difficulty: 2: Moderate
Chapter LO: 11.4: List some of the environmental influences that impact prices.
AACSB: Analytical thinking

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57) The currency fluctuations in global markets have a big impact on international transactions.
What actions can be adapted if the domestic currency is strong?
Answer: Currency fluctuations complicate the task of setting prices. A weakening of the home-
country currency swings exchange rates in a favorable direction if the currency in the country of
business is strong. An equally opposite effect can happen when the currency is strong. In
responding to currency fluctuations, global marketers can utilize other elements of the marketing
mix besides price. Other actions that can be taken if the domestic currency is strong are: (1)
engaging in non-price competition by improving the quality of the products, delivery methods, or
after-sale services; (2) improving productivity by taking actions that may result in cost reduction;
(3) if possible, sourcing can be shifted outside the home country; (4) giving priority to exports to
countries, either temporarily or permanently, with stronger currencies; (5) trimming profit
margins and using marginal-cost pricing; (6) keeping the foreign-earned income in host country
as well as slowing down collections; (7) maximizing expenditures in the local currency of the
host-country; (8) buying needed services aboard and paying them in local currencies; and (9)
billing foreign customers in the domestic currency.
Difficulty: 2: Moderate
Chapter LO: 11.4: List some of the environmental influences that impact prices.
AACSB: Analytical thinking

58) 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
Difficulty: 2: Moderate
Chapter LO: 11.5: Apply the ethnocentric/polycentric/geocentric framework to decisions
regarding price.
AACSB: Application of knowledge

59) 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.
Answer: A
Difficulty: 3: Challenging
Chapter LO: 11.5: Apply the ethnocentric/polycentric/geocentric framework to decisions
regarding price.
AACSB: Application of knowledge

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60) 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
Difficulty: 2: Moderate
Chapter LO: 11.5: Apply the ethnocentric/polycentric/geocentric framework to decisions
regarding price.
AACSB: Application of knowledge

61) 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
Difficulty: 3: Challenging
Chapter LO: 11.5: Apply the ethnocentric/polycentric/geocentric framework to decisions
regarding price.
AACSB: Application of knowledge

62) 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
Difficulty: 2: Moderate
Chapter LO: 11.5: Apply the ethnocentric/polycentric/geocentric framework to decisions
regarding price.
AACSB: Application of knowledge

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63) Apple learned an important lesson about the potential drawbacks of ethnocentric pricing in
China. All of the following statements relate to this lesson except:
A) in China, many smartphone apps give users the ability to "tip" each other by sending yuan as
an acknowledgment of user-created content.
B) Apple's policy is to take 30 percent of fees generated by apps, and it initially applied this
policy in China.
C) in China, "tipping" is considered to be an in-app purchase.
D) Tencent Holding's popular WeChat app in China charges for tipping.
E) in response to complaints about the pricing, Apple changed its policy.
Answer: D
Difficulty: 2: Moderate
Chapter LO: 11.5: Apply the ethnocentric/polycentric/geocentric framework to decisions
regarding price.
AACSB: Application of knowledge

64) Ethnocentric pricing responds to the competitive and market conditions of the national
market.
Answer: FALSE
Difficulty: 2: Moderate
Chapter LO: 11.5: Apply the ethnocentric/polycentric/geocentric framework to decisions
regarding price.
AACSB: Application of knowledge

65) 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.
Answer: TRUE
Difficulty: 3: Challenging
Chapter LO: 11.5: Apply the ethnocentric/polycentric/geocentric framework to decisions
regarding price.
AACSB: Application of knowledge

66) A company using geocentric pricing neither fixes a single price worldwide, nor allows
subsidiaries or local distributors to make independent pricing decisions.
Answer: TRUE
Difficulty: 2: Moderate
Chapter LO: 11.5: Apply the ethnocentric/polycentric/geocentric framework to decisions
regarding price.
AACSB: Application of knowledge

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67) 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?
Answer: It will not be possible to sell many cars in India if the price in U.S. dollars is directly
converted into local currency. This is the reason why there is price differential, and different
methods of pricing are used. Ethnocentric pricing calls for the per-unit price of an item to be the
same no matter where in the world the buyer is located. In such instances, the importer must
absorb freight and import duties. The advantage of this pricing is that it is extremely simple and
does not require information on competitive or market conditions for implementation. The
disadvantage is that it does not respond to the competitive and market conditions of each national
market. Polycentric pricing permits subsidiary or affiliate managers or independent distributors
to establish whatever price they feel is most appropriate in their market environment. There is no
requirement that prices be coordinated from one country to another. IKEA takes a polycentric
approach to pricing. In geocentric pricing, the company neither fixes a single price worldwide
nor allows subsidiaries or local distributors to make independent pricing decisions. Instead, the
geocentric approach represents an intermediate course of action. It is based on the realization that
unique local market factors should be recognized in arriving at pricing decisions. These factors
include local costs, income level, competition, and the local marketing strategies. The important
point to note in all pricing systems is that in global marketing there is no such thing as a normal
margin.
Difficulty: 3: Challenging
Chapter LO: 11.5: Apply the ethnocentric/polycentric/geocentric framework to decisions
regarding price.
AACSB: Analytical thinking

68) 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
Answer: B
Difficulty: 2: Moderate
Chapter LO: 11.6: Explain some of the tactics global companies can use to combat the problem
of gray market goods.
AACSB: Application of knowledge

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69) When disparities in prices between different country markets exceed the transportation and
duty costs separating the markets, enterprising individuals can purchase goods in the lower-price
country market and then transport them for sale in markets where higher prices prevail. Give
examples in support of this statement.
Answer: This is precisely what has happened in both the pharmaceutical and textbook
publishing industries. Discounted drugs intended for patients with acquired immunodeficiency
syndrome (AIDS) in Africa have been smuggled into the European Union and sold at a huge
profit. Similarly, Pearson (which publishes this text), McGraw-Hill, Thomson, and other
publishers typically set lower prices in Europe and Asia than in the United States. The reason is
that the publishers use polycentric pricing: They establish prices on a regional or country-by-
country basis using per capita income and economic conditions as a guide. By the way, authors
have no control over the prices that university bookstores and other retailers charge for
textbooks.
Difficulty: 3: Challenging
Chapter LO: 11.5: Apply the ethnocentric/polycentric/geocentric framework to decisions
regarding price.
AACSB: Analytical thinking

70) 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
Difficulty: 1: Easy
Chapter LO: 11.6: Explain some of the tactics global companies can use to combat the problem
of gray market goods.
AACSB: Application of knowledge

71) 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
Difficulty: 3: Challenging
Chapter LO: 11.6: Explain some of the tactics global companies can use to combat the problem
of gray market goods.
AACSB: Application of knowledge

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72) 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) increased product demand.
Answer: E
Difficulty: 3: Challenging
Chapter LO: 11.6: Explain some of the tactics global companies can use to combat the problem
of gray market goods.
AACSB: Application of knowledge

73) 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
Difficulty: 2: Moderate
Chapter LO: 11.6: Explain some of the tactics global companies can use to combat the problem
of gray market goods.
AACSB: Application of knowledge

74) 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.
Answer: C
Difficulty: 1: Easy
Chapter LO: 11.6: Explain some of the tactics global companies can use to combat the problem
of gray market goods.
AACSB: Application of knowledge

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75) 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.
Answer: C
Difficulty: 2: Moderate
Chapter LO: 11.6: Explain some of the tactics global companies can use to combat the problem
of gray market goods.
AACSB: Application of knowledge

76) Gray market goods are trademarked products that are exported from one country to another
and sold by authorized persons or organizations.
Answer: FALSE
Difficulty: 2: Moderate
Chapter LO: 11.6: Explain some of the tactics global companies can use to combat the problem
of gray market goods.
AACSB: Application of knowledge

77) If a company manufactures a product in the home-country market as well as in foreign

markets it is considered black marketing.
Answer: FALSE
Difficulty: 2: Moderate
Chapter LO: 11.6: Explain some of the tactics global companies can use to combat the problem
of gray market goods.
AACSB: Application of knowledge

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78) Suppose that a book publisher sells a textbook for $150 each to its domestic distributor. The
same publisher sells the same edition of the textbook to a distributor in Thailand for $85 since
the affordable prices by Thai students may be much less than in the domestic market. The
textbook finds its way back into the domestic market since the Thai distributor sold it back to
another marketer who sells in the domestic market for $85. What is this type of pricing known
as, and what are the consequences of such transactions to global marketers, if any?
Answer: This practice is known as parallel importing, and the goods are referred to as gray
market goods. Gray market goods are trademarked products that are exported from one country
to another where they are sold by unauthorized persons or organizations. This practice occurs
when companies employ a polycentric, multinational pricing policy that calls for setting different
prices in different country markets. Gray markets can flourish when a product is in short supply,
when producers employ skimming strategies in certain markets, or when the goods are subject to
substantial markups. Gray markets impose several costs of consequences on global marketers.
These include (1) dilution of exclusivity, where authorized dealers are no longer their sole
distributors; (2) free riding, where channel members can take actions to offset downward
pressure; (3) damage to channel relationship resulting in conflicts and other relationship
problems; (4) undermining segmented pricing schemes because of price differentials; (5)
reputation can be compromised; and (6) legal liability. Thus, gray markets can cause a variety of
problems for the manufacturers as well as distributors. Although it can benefit some customers, it
can have an adverse effect on customer loyalty.
Difficulty: 2: Moderate
Chapter LO: 11.6: Explain some of the tactics global companies can use to combat the problem
of gray market goods.
AACSB: Analytical thinking

79) To provide positive proof that dumping has occurred in the United States, both ________
and injury must be demonstrated.
A) black marketing
B) market skimming
C) gray marketing
D) price discrimination
E) price fixing
Answer: D
Difficulty: 3: Challenging
Chapter LO: 11.7: Assess the impact of dumping on prices in global markets.
AACSB: Application of knowledge

80) 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
Difficulty: 2: Moderate
Chapter LO: 11.7: Assess the impact of dumping on prices in global markets.
AACSB: Application of knowledge

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84) ________ 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
Answer: C
Difficulty: 2: Moderate
Chapter LO: 11.8: Compare and contrast the different types of price fixing.
AACSB: Application of knowledge

85) 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
Difficulty: 2: Moderate
Chapter LO: 11.8: Compare and contrast the different types of price fixing.
AACSB: Application of knowledge

86) ________ is derived from the price required to be competitive in the global marketplace.
A) Market-based transfer price
B) Cost-based transfer price
C) Negotiated transfer price
D) Horizontal price
E) Vertical price
Answer: A
Difficulty: 2: Moderate
Chapter LO: 11.8: Compare and contrast the different types of price fixing.
AACSB: Application of knowledge

87) 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.
Answer: FALSE
Difficulty: 2: Moderate
Chapter LO: 11.8: Compare and contrast the different types of price fixing.
AACSB: Application of knowledge

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88) When a manufacturer conspires with wholesalers or retailers to ensure certain retail prices
are maintained it is known as horizontal price fixing.
Answer: FALSE
Difficulty: 2: Moderate
Chapter LO: 11.8: Compare and contrast the different types of price fixing.
AACSB: Application of knowledge

89) The European Commission recently fined Nintendo nearly $150 million after it was
determined that the video game company had colluded with European distributors to fix prices.
Why is price fixing not considered a good practice? What are different kinds of price fixings?
Answer: The reason why Nintendo had to pay a fine was due to price fixing which, in most
instances, is considered illegal. It is illegal for representatives of two or more companies to
secretly set similar prices for their products. This practice is known as "price fixing." It is
considered an undesirable practice since it is an anticompetitive act. Companies that collude in
this manner are generally trying to ensure higher prices for their products than would generally
be available if markets were functioning freely. There are two major types of price fixings. One
of them is described as horizontal price fixing in which competitors within an industry that make
and market the same product conspire to keep prices high. For example, if airlines collude and
decide to have higher prices that would be referred to as horizontal price fixing. The next type is
called the vertical price fixing, which occurs when a manufacturer conspires with wholesalers or
retailers to ensure certain higher retail prices are maintained. In the case of Nintendo, it was
vertical price fixing since the video game company had colluded with European distributors to
fix prices.
Difficulty: 2: Moderate
Chapter LO: 11.8: Compare and contrast the different types of price fixing.
AACSB: Reflective thinking

90) "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
Difficulty: 2: Moderate
Chapter LO: 11.9: Explain the concept of transfer pricing.
AACSB: Application of knowledge

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91) 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
Difficulty: 2: Moderate
Chapter LO: 11.9: Explain the concept of transfer pricing.
AACSB: Application of knowledge

92) Transfer pricing is a term that applies to transactions between different divisions or units of
the same company.
Answer: TRUE
Difficulty: 2: Moderate
Chapter LO: 11.9: Explain the concept of transfer pricing.
AACSB: Application of knowledge

93) 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 term that refers to several different types of business transactions.
E) The term "countertrade" is interchangeable with "dumping."
Answer: D
Difficulty: 2: Moderate
Chapter LO: 11.10: Define countertrade and explain the various forms it can take.
AACSB: Application of knowledge

94) 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: C
Difficulty: 2: Moderate
Chapter LO: 11.10: Define countertrade and explain the various forms it can take.
AACSB: Application of knowledge

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95) 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.
Answer: B
Difficulty: 2: Moderate
Chapter LO: 11.10: Define countertrade and explain the various forms it can take.
AACSB: Application of knowledge

96) 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
Difficulty: 1: Easy
Chapter LO: 11.10: Define countertrade and explain the various forms it can take.
AACSB: Application of knowledge

97) 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
Difficulty: 2: Moderate
Chapter LO: 11.10: Define countertrade and explain the various forms it can take.
AACSB: Application of knowledge

98) 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
Difficulty: 2: Moderate
Chapter LO: 11.10: Define countertrade and explain the various forms it can take.
AACSB: Application of knowledge
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99) 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
Difficulty: 2: Moderate
Chapter LO: 11.10: Define countertrade and explain the various forms it can take.
AACSB: Application of knowledge

100) 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 SA 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: B
Difficulty: 2: Moderate
Chapter LO: 11.10: Define countertrade and explain the various forms it can take.
AACSB: Application of knowledge

101) To win sales in important markets such as China, global companies can face demands for
offsets even when transactions involve military procurement.
Answer: FALSE
Difficulty: 2: Moderate
Chapter LO: 11.10: Define countertrade and explain the various forms it can take.
AACSB: Application of knowledge

30
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