Global Marketing, 6e (Keegan/Green)

Chapter 11 Pricing Decisions

1) Price floor and price ceiling are two basic factors which determine the boundaries within
which prices should be set.
Answer: TRUE
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#) Price can be used as a strategic $ariable to achie$e specific goals% including R&'% profit% and
rapid reco$er( of product de$elopment costs.
Answer: TRUE
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) The mar,et s,imming pricing strateg( is a part of a deliberate attempt to reach a mar,et
segment that is willing to pa( a premium price for a particular brand or for a speciali-ed or
uni.ue product.
Answer: TRUE
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/) 01ar,et s,imming0 is a strateg( that uses low prices as a competiti$e weapon to gain mar,et
position.
Answer: 2A3*E
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4) The s,imming pricing strateg( is appropriate in the mature phase of the product life c(cle.
Answer: 2A3*E
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5) 6hen Apple introduced iPhone in the United *tates in the summer of #!!7 with a sale price of
8 499 it used s,imming pricing strateg(.
Answer: TRUE
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7) Price can be used as a competiti$e weapon to gain or maintain mar,et position.
Answer: TRUE
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;) A mar,et penetration pricing strateg( calls for setting price le$els that are high enough to
.uic,l( build mar,et share.
Answer: 2A3*E
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9) Penetration prices often mean that the product ma( be sold at a loss for a certain period of
time.
Answer: TRUE
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1!) *on( used penetration pricing when it launched the 6al,man personal stereo in 1979.
Answer: TRUE
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11) <ewlett"Pac,ard is the world=s leading mar,eter of in,>et printers. <"P=s printers are priced
$er( low and margins are slim? b( contrast% the compan( en>o(s health( margins on sales of
replacement in, cartridges. This approach is sometimes ,nown as 0ra-ors and blades0 pricing.
Answer: TRUE
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1#) To(ota% *on(% &l(mpus% and @omatsu are some of the well",nown Aapanese companies that
use target costing% a process which is also ,nown as 0design to cost.0
Answer: TRUE
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1) Bodaphone% ATCT and other cellular ser$ice pro$iders bu( handsets at prices set b(
1otorola% Do,ia% and other manufacturers% and then subsidi-e the cost b( offering significant
discounts.
Answer: TRUE
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1/) 'f the terms of trade for an eEport transaction specif( 0eE"wor,s%0 the eEporterFseller pa(s all
eEpenses incurred until the product is deli$ered to the importerFbu(er=s warehouse.
Answer: 2A3*E
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14) To protect against possible losses from currenc( eEchange rates% eEporters add a charge
,nown as 0)'20 to the eE"wor,s price of most eEport shipments.
Answer: 2A3*E
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15) 6ith a free on board G2&+) named port% the responsibilit( and liabilit( of the seller ends at
the doc,ing point at the port.
Answer: 2A3*E
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17) )urrenc( fluctuations mean that companies doing business in global mar,ets should
regularl( re$iew prices and ma,e ad>ustments when conditions dictate.
Answer: 2A3*E
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1;) *uppose the Aapanese (en is wea, in relation to the U.*. dollar. Aapanese firms should be
able to stress price benefits for products eEported to the U.*.
Answer: TRUE
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19) *uppose the Aapanese (en is wea, in relation to the U.*. dollar. Rather than stressing price
benefits% Aapanese companies eEporting to the U.*. should emphasi-e .ualit( impro$ements and
after"sales ser$ice.
Answer: 2A3*E
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#!) 6ithin the Euro -one price transparenc( means that bu(ers will be able to comparison shop
easil( because goods are priced in euros as opposed to mar,s% francs% or lira.
Answer: TRUE
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#1) 6hen domestic currenc( is wea,% it is ad$isable to speed repatriation of foreign"earned
income and collections.
Answer: TRUE
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##) 6hen domestic currenc( is strong% eEpenditures in the local Ghost countr() should be
minimi-ed.
Answer: 2A3*E
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#) 6hen domestic currenc( is wea,% it is ad$isable to bill foreign customers in the domestic
currenc(.
Answer: 2A3*E
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#/) 'mpro$ed price transparenc( in the Euro -one leads to greater price disparities.
Answer: 2A3*E
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#4) 'n countries where high inflation is the rule% companies should ma,e price ad>ustments to
maintain operating margins.
Answer: TRUE
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#5) 3ouis Buitton eEecuti$es raised prices in #!!; and sales continued to increase.
Answer: TRUE
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#7) Herman( has traditionall( se$erel( restricted competition in a number of industries.
Answer: TRUE
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#;) The $ideo pirac( problem is not confined to emerging mar,ets. 'n the United *tates% losses
from pirac( eEceed 81 billion each (ear for the mo$ie industr( as a whole.
Answer: TRUE
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#9) 'n some instances% deregulation represents a quid pro quo that will allow Herman companies
wider access to other countr( mar,ets.
Answer: TRUE
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!) The open"s,ies agreement between the United *tates and Herman( would allow 3ufthansa to
fl( more routes within the United *tates.
Answer: TRUE
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1) 'n the United *tates% 3e$i *trauss C )ompan( has to face competiti$e beha$ior since
A)Penn( and *ears are both aggressi$el( mar,eting their own brands.
Answer: TRUE
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#) 1ar,eters of domesticall( manufactured finished products ma( be forced to switch to
offshore sourcing of certain components to ,eep costs and prices competiti$e.
Answer: TRUE
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) Dieter Iietsche% sales chief at Herman(=s 1ercedes"+en-% once said that% in setting prices%
06e ,now what the customer wants% and he will ha$e to pa( for it.0 This is an eEample of an
ethnocentric pricing polic(.
Answer: TRUE
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/) 6hen subsidiar( countr( managers are gi$en broad discretion to set prices in their mar,ets% a
polycentric pricing strateg( is in e$idence.
Answer: TRUE
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4) 'n global mar,eting% there is no such thing as a 0normal0 margin for pricing.
Answer: TRUE
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5) The terms 0parallel importing0 and 0gra( mar,eting0 mean the same thing.
Answer: TRUE
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7) A global compan( that uses mar,et s,imming as a pricing strateg( is li,el( to in$ite charges
of 0dumping0 b( competitors in host"countr( mar,ets.
Answer: 2A3*E
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;) According to current HATT standards% go$ernments cannot penali-e foreign companies for
dumping if the eEport price of a gi$en product differs from the domestic price b( less than #
percent.
Answer: TRUE
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9) Transfer pricing is a term that applies to transactions between different di$isions or units of
the same compan(.
Answer: TRUE
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/!) 3oc,heed and other militar( aircraft mar,eters are li,el( to face re.uests for offsets before
closing a sale in the 1iddle East.
Answer: TRUE
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/1) 6hich pricing strateg( would be most appropriate for a mar,eter of luEur( designer brandsJ
A) gra( mar,et
+) s,imming
)) penetration
D) mar,et holding
E) cost based
Answer: +
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/#) 'f the manufacturer of a sophisticated new consumer electronics product determines that
man( target consumers .ualif( as 0inno$ators0 and 0earl( adopters0 with relati$el( inelastic
demand cur$es% the compan( should use the KKKKKKKK pricing strateg(:
A) gra( mar,et
+) s,imming
)) penetration
D) mar,et holding
E) cost based
Answer: +
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/) 6hich pricing strateg( did *on( use when launching the 6al,man personal stereoJ
A) gra( mar,eting
+) s,imming
)) penetration
D) mar,et holding
E) cost based
Answer: )
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//) 'n 'ndia% consumers do not li,e to be loc,ed in to long"term contracts and Apple distributes
its iPhone eEclusi$el( through stores operated b( Airtel% an 'ndia carrier% and Bodaphone. This is
an eEample of:
A) gra( mar,et.
+) price bundling.
)) mar,et s,imming.
D) ra-ors and blades.
E) cost"based.
Answer: D
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/4) EEcelsior )orp. launches a new hand"held personal digital assistant GPDA) for bus(
corporate eEecuti$es. The initial retail price is set at 8599. &ne (ear later% in an effort to reach a
broader mar,et% the price is lowered to 8#99. 6hich of the following describes the pricing
strategies used b( EEcelsior )orpJ
A) s,imming strateg( followed b( penetration strateg(
+) penetration strateg( followed b( cost based strateg(
)) penetration strateg( followed b( s,imming strateg(
D) penetration strateg( onl(
E) s,imming strateg( onl(
Answer: A
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/5) A firm without much eEport eEperience uses the rigid cost"based pricing method. 6hich of
the following considerations is the eEporter ignoringJ
A) 's the price competiti$e in $iew of local mar,et conditionsJ
+) Does the price reflect the product=s .ualit(J
)) 6ill authorities in eEport mar,ets $iew the price as reasonable or eEploitati$eJ
D) Does the price ta,e antidumping laws into considerationJ
E) all of the abo$e
Answer: E
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/7) 6hich pricing strateg( has the ad$antage of being simple to calculate but the disad$antage of
ignoring demand and competiti$e conditionsJ
A) gra( mar,eting
+) s,imming
)) penetration
D) mar,et holding
E) cost based
Answer: E
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/;) 6hich of the following incoterms appl( to all modes of transportationJ
A) eE"wor,s
+) 2A*
)) deli$ered dut( paid
D) 2&+
E) both A and )
Answer: E
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/9) A manufacturer attempting to set prices for its products in eEport mar,ets must reali-e that
)'2% BAT% and distributor mar,up all lead to:
A) currenc( de$aluations.
+) dumping charges.
)) mar,et s,imming.
D) price escalation.
E) mar,et penetration.
Answer: D
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4!) 'f a distributor=s margins are based on the 0landed0 price of an import shipment% the( will be
based on:
A) eE"wor,s price.
+) transportation costs.
)) insurance costs.
D) BAT.
E) all of the abo$e
Answer: E
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41) 6hich of the following does not contribute to price escalation in global mar,etingJ
A) shipping and insurance charges
+) $alue added taEes GBAT)
)) different 'ncotherms as incenti$es
D) duties and tariffs
E) fluctuating eEchange rates
Answer: )
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4#) 'n Aul( #!!1% the euro=s $alue relati$e to the dollar was about L1.!! M 8!.;4. +( Do$ember
#!!9 the euro had strengthened to L1.!! M 81./;. All other things being e.ual% if a European"
based global compan( wants to preser$e margins for goods eEported to the U.*. mar,et% the
compan( should:
A) raise prices in dollars.
+) switch to cost"based pricing.
)) adopt a polic( of mar,et penetration pricing.
D) reduce prices in dollars.
E) use s,imming pricing.
Answer: A
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4) 6hich of the following would not be used b( an eEporter with a wea, home countr(
currenc(J
A) EEpand product line and add more costl( features.
+) *peed repatriation of foreign"earned income.
)) +u( ad$ertising% insurance% and other ser$ices in home countr( mar,et.
D) *hift sourcing outside home countr( mar,et.
E) EEploit mar,eting opportunities in all mar,ets..
Answer: D
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4/) *uppose a compan( selling in $arious countr( mar,ets ma,es statements such as 0we ,now
what the customer wants% and he or she will ha$e to pa( for it.0 This is an indication of aGn)
KKKKKKKK approach to setting prices.
A) ethnocentric
+) pol(centric
)) regiocentric
D) geocentric
E) adaptation
Answer: A
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44) According to a recent stud( of European industrial eEporters% companies that utili-ed
independent distributors would be most li,el( to utili-e:
A) ethnocentric pricing.
+) pol(centric pricing.
)) regiocentric pricing.
D) geocentric pricing.
E) eEtension pricing.
Answer: +
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45) 6hich automa,er was described as using an ethnocentric approach to setting prices in the
United *tatesJ
A) To(ota
+) Dissan
)) Bol,swagen
D) 1ercedes
E) 3eEus
Answer: D
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47) 6hich of the following pricing strategies recogni-es both local mar,et differences and the
importance of head.uarters input into pricing decisionsJ
A) ethnocentric pricing
+) pol(centric pricing
)) geocentric pricing
D) rigid cost"based pricing
E) eEtension pricing
Answer: A
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4;) 6hich of the following would D&T be ta,en into account b( a compan( using an
ethnocentric approach to pricing decisionsJ
A) the possibilit( of implementing a penetration strateg(
+) profitable price points that could be tied to local sourcing as opposed to home"countr(
sourcing
)) integration of price with other mar,eting miE elements
D) factors uni.ue to indi$idual countr( mar,ets
E) none of the abo$e would be ta,en into account b( a compan( using ethnocentric pricing
Answer: E
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49) 'f compan( managers decide to set the eEport price for a particular product at an amount
e.ui$alent to the home countr( price% the( would be using which approach to pricingJ
A) ethnocentric
+) pol(centric
)) regiocentric
D) geocentric
E) eEtension pricing
Answer: A
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1!
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5!) The unauthori-ed distribution of trademar,ed goods to eEploit price differentials in world
mar,ets is ,nown as:
A) mar,et s,imming.
+) blac, mar,eting.
)) gra( mar,eting.
D) dumping.
E) licensing.
Answer: )
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51) 6hen Tag <euer% a mar,eter of luEur( watches% ta,es out newspaper ads urging consumers
to purchase Tag <euer products from authori-ed dealers onl(% the compan( is most li,el(
attempting to combat the KKKKKKKK problem.
A) countertrade
+) mar,et holding
)) price escalation
D) gra( mar,et
E) mar,et s,imming
Answer: D
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5#) 'n the earl( 199!s% the U.*. 'nternational Trade )ommission ruled that se$eral Aapanese
manufacturers were selling acti$e"matriE flat panel displa( screens in the U.*. at less than fair
$alue and thereb( in>uring the sole U.*. producer of similar screens. The 'T)=s ruling concerned:
A) blac, mar,eting.
+) mar,et s,imming.
)) gra( mar,eting.
D) dumping.
E) licensing.
Answer: D
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5) 2ollowing the 1997 currenc( crisis in Asia% which American industr( appealed to President
)linton for protection from foreign producers that were allegedl( 0dumping0 products in the
United *tates:
A) auto industr(.
+) computer industr(.
)) steel industr(.
D) photo products industr(.
E) restaurant industr(.
Answer: )
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5/) 'f a compan( sells products in eEport mar,ets at prices that are below fair mar,et $alue and
that can harm producers in the eEport mar,et% that compan( ma( be accused of:
A) mar,et s,imming.
+) using offsets.
)) pursuing artificiall( high margins.
D) dumping.
E) gra( mar,eting.
Answer: D
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54) Herman(=s +a(er Hroup was fined millions of dollars to settle a lawsuit alleging it had
conspired with ArcherDaniels1idland and other global companies to set prices for an en-(me
used in animal feeds. 6hat was the issue in this lawsuitJ
A) price s,imming
+) mar,et penetration
)) price bundling
D) price fiEing
E) dumping
Answer: D
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55) Dintendo was fined nearl( 8 14! million after it was determined that the $ideo game
compan( had colluded with European distributors. The distributors in countries with lower retail
prices had agreed not to sell to retailers in countries with high prices. This is a classic eEample
of:
A) price s,imming.
+) mar,et penetration.
)) price bundling.
D) price fiEing.
E) transfer pricing.
Answer: D
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57) 0)ost"based%0 0mar,et"based%0 and 0negotiated0 are three approaches to:
A) dumping.
+) gra( mar,eting.
)) transfer pricing.
D) price s,imming.
E) counter trade.
Answer: )
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1#
)op(right : #!11 Pearson Education% 'nc.
5;) Aoseph Nuinlan% chief mar,eting strategist at +an, of America% estimated that about #4
percent of U.*. merchandise eEports represent shipments b( American companies to their foreign
affiliates and subsidiaries. This situation underscores the importance of KKKKKKKK in global
mar,eting.
A) dumping
+) gra( mar,eting
)) transfer pricing
D) price s,imming
E) price fiEing
Answer: )
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59) 6hich of the following is true about proper use of the term 0countertradeJ0
A) The term 0countertrade0 is interchangeable with 0offsets.0
+) The term 0countertrade0 is interchangeable with 0barter.0
)) The term 0countertrade0 is interchangeable with 0counterpurchase.0
D) 0)ountertrade0 is a blan,et term that refers to se$eral different t(pes of business transactions.
E) The term 0countertrade0 is interchangeable with 0dumping.0
Answer: D
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7!) The most general term for the global phenomenon in$ol$ing reciprocal business interactions
between parties in $arious countries is ,nown as:
A) switch trading.
+) barter.
)) offset.
D) compensation trading.
E) countertrade.
Answer: E
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71) 'n the 197!s and 19;!s% the arrangement b( which Pepsi)o recei$ed pa(ment for soft drin,
products sold to the *o$iet Union was:
A) switch trading.
+) barter.
)) offset.
D) compensation trading.
E) counterpurchase.
Answer: +
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1
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7#) The direct eEchange of goods or ser$ices between parties in lieu of monetar( pa(ment is
,nown as:
A) barter.
+) switch trading.
)) offset.
D) compensation trading.
E) counterpurchase.
Answer: A
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7) 6hich of the following forms of countertrade does not re.uire use of mone( or credit
between partiesJ
A) barter
+) switch trading
)) offset
D) compensation trading
E) none of the abo$e
Answer: A
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7/) 6hich t(pe of countertrade arrangement is re.uired b( go$ernments see,ing to reduce the
budgetar( impact of eEpenditures for defense or telecommunicationsJ
A) barter
+) switch trading
)) offset
D) compensation trading
E) none of the abo$e
Answer: )
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74) To win a contract to suppl( the United @ingdom with A6A)* militar( aircraft% +oeing
agreed to purchase products from the U@ whose $alue was e.ui$alent to 1! percent of the
contract. This t(pe of pricing arrangement% which is common when the customer is a foreign
go$ernment and the product has militar( applications% is ,nown as:
A) barter.
+) switch trading.
)) compensation trading.
D) offset.
E) dumping.
Answer: D
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75) 6hen one of the parties to a barter transaction is not willing to accept the goods included in
the transaction% that part( is li,el( to utili-e the ser$ices of a:
A) switch trader.
+) 2oreign Trade &rgani-ation.
)) 2oreign *ales )orporation.
D) Mittelstand owner.
E) bro,er.
Answer: A
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77) *uppose that 6orld )orp. signs a contract to build a lumber processing plant in *iberia. 'f
6orld )orp. signs a second contract agreeing to ta,e partial pa(ment for the plant in the form of
lumber products produced at the plant% it is engaging in:
A) barter.
+) switch trading.
)) offset.
D) compensation trading.
E) a h(brid countertrade arrangement.
Answer: D
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7;) 6hich of the following companies would be most li,el( to use some form of countertrade
when selling its products in de$eloping countriesJ
A) Procter C Hamble
+) +ell <elicopter TeEtron
)) Do,ia
D) 1ercedes"+en-
E) )oca")ola
Answer: +
Diff: Page Ref: 47
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79) Despite the high eEpenses associated with operating elegant stores and purchasing
ad$ertising space in upscale maga-ines% the premium retail prices that luEur( goods li,e 3ouis
Buitton command translate into handsome profits. The 3ouis Buitton brand alone accounts for
5! percent of 3B1<=s operating profit. &n the other hand% 3ouis Buitton spends 8 1! million
annuall( battling:
A) EU regulations.
+) counterfeiters in countries such as Tur,e(% *outh @orea% C 'tal(.
)) competitors in European countries.
D) suppliers of needed materials.
E) eEport freight and taEes.
Answer: D
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;!) 3uEur( good mar,eters found a new wa( to combat gra( mar,et imports into the United
*tates. 'n 1arch 1994% the U.*. *upreme )ourt let stand an appeals court ruling prohibiting a
discount drugstore chain from selling Hi$ench( perfume with permission. The distincti$e
pac,aging of the perfume is also protected b( the U.*. )op(right law. The ruling implies that:
A) Hi$ench( can onl( be sold in cop(righted pac,ages.
+) )ostco and 6al"1art will no longer be able to sell Hi$ench(.
)) )ostco and 6al"1art will be able to sell Hi$ench( with authori-ation.
D) gra( mar,eters will be able to mar,et with authori-ation.
E) discount drugstores cannot mar,et a product resembling Hi$ench(=s perfumes.
Answer: )
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;1) <ow can price be used as a strategic $ariable to achie$e specific financial goalsJ Under what
conditions should s,imming or penetration pricing be adapted as strategiesJ
Answer: Price can be used as a strategic $ariable based on the financial goals such as return on
in$estment% profit% and rapid reco$er( of research and product de$elopment costs. 6hen
financial criteria such as profit and maintenance of margins are the goals% the product .ualit( and
price becomes important aspects of the strateg(. The mar,et s,imming pricing strategies is part
of a deliberate attempt to reach a mar,et segment that is willing to pa( a premium price for a
particular brand or for a speciali-ed or uni.ue product. The s,imming price strateg( is also
appropriate in the introductor( phase of the product life c(cle when both production capacit( and
competition are limited. +( deliberatel( setting a high price% demand is limited to inno$ators and
earl( adopters% who are willing and able to pa( the price. 6hen Apple introduced iPhone the
price used was s,imming price. 6hen the product enters the growth stage of the life c(cle and
competition increases% manufacturers start to cut prices. This strateg( has been used widel( in the
consumer electronics industr(. &n the other hand% some companies are pursuing non"financial
ob>ecti$es with their pricing strateg(. Price can% therefore% be used as a competiti$e weapon to
gain or maintain mar,et position. A mar,et penetration pricing strateg( calls for setting price
le$els that are low enough to .uic,l( build mar,et share. The first"time eEporter seldom uses
penetration pricing since it often means that the products ma( be sold at a loss for a certain
length of time. 1an( companies% when the( are not .ualified for patent protection% use
penetration pricing as a means of achie$ing mar,et saturation before competitors cop( their
product.
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;#) A wor,ing ,nowledge of incoterms can be a source of competiti$e ad$antage to an(one
see,ing an entr("le$el >ob in global mar,eting. 6hat are 0incoterms0 and how are the(
classifiedJ <ow are incoterms applied in global mar,etingJ
Answer: The internationall( accepted terms of trade are ,nown as 0ncoterms.0 The( are
classified into four different categories. EE"wor,s GEO6) refers to a transaction in which the
bu(er ta,es deli$er( at the premises of the seller? the bu(er bears all ris,s and eEpenses from that
point on. Another categor( of incoterms is ,nown as 2"Terms in which there are different sets of
terminologies. 2ree carrier G2)A) is a widel( used term in global sales since it is suited for all
modes of transport. Under 2)A% transfer from seller to bu(er is affected when the goods are
deli$ered to a specified carrier at a specified destination. 2A* Gfree alongside ship) is the
incoterm for a transaction in which the seller places the shipment alongside% or a$ailable to% the
$essel upon which the goods will be transported out of the countr(. The seller pa(s all charges up
to that point. 6ith free on board G2&+) the responsibilit( and liabilit( of the seller do not end
until the goods ha$e cleared the ship=s rail. *e$eral other incoterms are ,nown as 0)"Terms0 such
as when goods are shipped G)'2) cost% insurance freight represents the ris, of loss or damage to
goods is transferred to the bu(er once the goods ha$e passed the ship=s rail. 'n this sense% )'2 is
similar to 2&+. 'f the terms of the sale are cost and freight G)2R)% the seller is not responsible
for ris, or loss at an( point outside the factor(. A currenc( ad>ustment factor G)A2) is assessed
to protect the seller from possible losses from disad$antageous shift in the currenc( eEchange
rates. All import charges are assessed against the landed price of the shipment G)'2 $alue). Thus%
these terminologies help in identif(ing who is responsible for what prices and at what point of
eEchange. 'n fact different incoterms for larger orders are used as incenti$es.
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;) The currenc( fluctuations in global mar,ets ha$e a big impact on international transactions.
6hat actions can be adapted if the domestic currenc( is strongJ
Answer: )urrenc( fluctuations complicate the tas, of setting prices. A wea,ening of the home
countr( currenc( swings eEchange rates in a fa$orable direction if the currenc( in the countr( of
business is strong. An e.uall( opposite effect can happen when the currenc( is strong. 'n
responding to currenc( fluctuations% global mar,eters can utili-e other elements of the mar,eting
miE besides price. &ther actions that can be ta,en if the domestic currenc( is strong are: Ga)
engaging in non"price competition b( impro$ing the .ualit( of the products% deli$er( methods% or
after"sale ser$ices? Gb) impro$ing producti$it( b( ta,ing actions that ma( result in cost reduction?
Gc) if possible% sourcing can be shifted outside the home countr(? Gd) gi$ing priorit( to eEports to
countries% either temporaril( or permanentl(% with stronger currencies? Ge) trimming profit
margins and using marginal"cost pricing? Gf) ,eeping the foreign"earned income in host countr(
as well as slowing down collections? Gg) maEimi-ing eEpenditures in local currenc( of the host"
countr(? Gh) bu(ing needed ser$ices aboard and pa(ing them in local currencies? and Gi) billing
foreign customers in the domestic currenc(.
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;/) 'f a 3eEus car is priced in U.*. dollars and sold at the dollar con$erted price in 'ndian rupees%
what sorts of problems can be eEpectedJ 6hat is the difference between ethnocentric%
pol(centric and geocentric pricingJ
Answer: 't will not be possible to sell too man( cars in 'ndia if the price in U.*. dollars is
directl( con$erted into local currenc(. This is the reason wh( there is price differential and
different methods of pricing is used. Ethnocentric pricing calls for the per"unit price of an item to
be the same no matter where in the world the bu(er is located. 'n such instances% the importer
must absorb freight and import duties. The ad$antage of this pricing is that it is eEtremel( simple
and does not re.uire information on competiti$e or mar,et conditions for implementation. The
disad$antage is that it does not respond to the competiti$e and mar,et conditions of each national
mar,et. Pol(centric pricing permits subsidiar( or affiliate managers or independent distributors
to establish whate$er price the( feel is most appropriate in their mar,et en$ironment. There is no
re.uirement that prices be coordinated from one countr( to another. '@EA ta,es a pol(centric
approach to pricing. 'n geocentric pricing% the compan( neither fiEes a single price worldwide
nor allows subsidiaries or local distributors to ma,e independent pricing decisions. 'nstead% the
geocentric approach represents an intermediate course of action. 't is based on the reali-ation that
uni.ue local mar,et factors should be recogni-ed in arri$ing at pricing decisions. These factors
include local costs% income le$el% competition% and the local mar,eting strategies. The important
point to note in all pricing s(stems is that in global mar,eting there is no such thing as a normal
margin.
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;4) *uppose that a boo, publisher sells a teEtboo, for 8 14! each to its domestic distributor. The
same publisher sells the same edition of the teEtboo, to a distributor in Thailand for 8 ;4 since
the affordable prices b( Thai students ma( be much less than in the domestic mar,et. The teEt
boo, finds its wa( bac, into the domestic mar,et since the Thai distributor sold it bac, to
another mar,eter who sells in the domestic mar,et for 8 ;4. 6hat is this t(pe of pricing ,nown
as and what are the conse.uences of such transactions to global mar,eters% if an(J
Answer: This practice is ,nown as parallel importing and the goods are referred to as gra(
mar,et goods. Hra( mar,et goods are trademar,ed products that are eEported from one countr(
to another where the( are sold b( unauthori-ed persons or organi-ations. This practice occurs
when companies emplo( a pol(centric% multinational pricing polic( that calls for setting different
prices in different countr( mar,ets. Hra( mar,ets can flourish when a product is in short suppl(%
when producers emplo( s,imming strategies in certain mar,ets% or when the goods are sub>ect to
substantial mar,ups. Hra( mar,ets impose se$eral costs of conse.uences on global mar,eters.
These include G1) dilution of eEclusi$it(% where authori-ed dealers are no longer their sole
distributors? G#) free riding% where channel members can ta,e actions to offset downward
pressure? G) damage to channel relationship resulting in conflicts and other relationship
problems? G/) undermining segmented pricing schemes because of price differentials? G4)
reputation can be compromised? and G5) legal liabilit(. Thus% gra( mar,ets can cause a $ariet( of
problems for the manufacturers as well as distributors. Although it can benefit some customers% it
can ha$e an ad$erse affect on customer lo(alt(.
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;5) HATT and the U.*. )ongress ha$e both defined =dumpingJ= 6hat is the difference in their
definitionsJ 6h( is dumping a ma>or issue in global mar,etingJ
Answer: HATT=s defined dumping as the sale of an imported product at a price lower than that
normall( charged in a domestic mar,et or countr( of origin. The U.*. )ongress has defined
dumping as an unfair trade practice that results in 0in>ur(% destruction% or pre$ention of the
establishment of American industr(.0 This definition is $er( broad and can be interpreted in
different wa(s. Dumping is an important global pricing strateg( issue. Dumping occurs when
imports sold in the U.*. mar,et are priced either at le$els that represent less than the cost of
production plus an ; percent profit margin or at le$els below those pre$ailing in the producing
countr(. The U.*. )ommerce Department is responsible for determining whether products are
being dumped in the United *tates. The 'nternational Trade )ommission G'T)) then determines
whether the dumping has resulted in in>ur( to U.*. firms. 1an( of the dumping cases in the
United *tates in$ol$e manufactured goods from Asia and fre.uentl( target a single or $er(
narrowl( defined group of products. U.*. companies that claim to be materiall( damaged b( the
low"priced imports often initiate such cases. The +(rd Amendment calls for antidumping
re$enues to be paid to U.*. companies harmed b( imported goods sold at below"mar,et prices.
2or positi$e proof that dumping has occurred in the United *tates% both price discrimination and
in>ur( must be demonstrated.
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;7) The European )ommission recentl( fined Dintendo nearl( 8 14! million after it was
determined that the $ideo game compan( had colluded with European distributors to fiE prices.
6h( is price fiEing not considered a good practiceJ 6hat are different ,inds of price fiEingsJ
Answer: The reason wh( Dintendo had to pa( a fine was due to price fiEing which% in most
instances% is considered illegal. 't is illegal for representati$es of two or more companies to
secretl( set similar prices for their products. This practice is ,nown as 0price fiEing.0 't is
considered an undesirable practice since it is an anticompetiti$e act. )ompanies that collude in
this manner are generall( tr(ing to ensure higher prices for their products than would generall(
be a$ailable if mar,ets were functioning freel(. There are two ma>or t(pes of price fiEings. &ne
of them is described as hori-ontal price fiEing in which competitors within an industr( that ma,e
and mar,et the same product conspire to ,eep prices high. 2or eEample% if airlines collude and
decide to ha$e higher prices that would be referred to as <ori-ontal Price 2iEing. The neEt t(pe
is called the Bertical Price 2iEing which occurs when a manufacturer conspires with wholesalers
or retailers to ensure certain higher retail prices are maintained. 'n the case of Dintendo it was
$ertical price fiEing since the $ideo game compan( had colluded with European distributors to
fiE prices.
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;;) To(ota bu(s on a regular basis from its subsidiaries. <ow is the pricing of different products
handledJ 6hat is the significance of such transactions in global mar,etingJ
Answer: 1an( companies li,e To(ota bu( from their subsidiaries. The( use 0transfer pricing0
for all their transactions. Transfer pricing refers to the pricing of goods% ser$ices% and intangible
propert( bought and sold b( operating units or di$isions of the same compan(. 't concerns intra"
corporate eEchanges% which are transactions between bu(ers and sellers that ha$e the same
corporate parent. Transfer pricing is important because goods crossing national borders
represents a sale% therefore their pricing is a matter of interest both to the taEing agencies as well
as to the customs= ser$ices. There are three ma>or alternati$e approaches that can be applied to
transfer pricing decisions. A mar,et"based transfer price is deri$ed from the price re.uired to be
competiti$e in the global mar,etplace. )ost"based transfer pricing uses an internal cost as the
starting point in determining prices. A third alternati$e is to allow the organi-ation=s affiliates to
determine negotiated transfer prices among themsel$es. 1ar,et"based and cost"based transfer
pricing are the two preferred methods in the United *tates% )anada% Aapan% and the United *tates.
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;9) 6h( is compensation trading also called a 0bu(bac,J0 <ow does it differ from switch
tradingJ
Answer: )ompensation trading is a form of countertrade that in$ol$es two separate and parallel
contracts. 'n one contract% the supplier agrees to build a plant or pro$ide plant e.uipment% patents
or licenses% or technical% managerial% or distribution eEpertise. A hard currenc( down pa(ment is
paid at the time of deli$er(. 'n the other contract% the supplier compan( agrees to ta,e pa(ment in
the form of the plant=s output e.ual to its in$estment for a period of as man( as #! (ears. 'nterest
is subtracted from the in$estment. The success of compensation trading rests on the willingness
of each firm to be both a bu(er and a seller. <ence% this method is referred to as 0bu(bac,.0 &n
the other hand% *witch Trading is a mechanism that can be applied to barter or countertrade. 'n
this arrangement% a third part( steps into a simple barter or other countertrade arrangement.
6hen one of the two parties in barter s(stem is not willing to accept all the goods recei$ed in a
transaction% the third part( ma( be a professional switch trader% switch trading house% or a ban,.
The switching mechanism pro$ides a 0secondar( mar,et0 for countertraded or bartered goods
and reduces the infleEibilit( inherent in barter and countertrade. 2ees charged b( switch traders
range from 4 percent of mar,et $alue for commodities to ! percent for high"technolog( items.
*witch traders de$elop their own networ, of firms and personal contacts.
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9!) 'n recent (ears% in light of the technological de$elopments% man( eEporters ha$e been forced
to finance international transactions b( ta,ing full or partial pa(ment in some form other than
mone(. A number of alternati$e forms of pa(ments ,nown as countertrade are widel( usedJ
<ow does a countertrade transaction wor,J <ow do barter transactions differ from offsetJ
Answer: 'n a countertrade transaction% a sale results in product flowing in one direction to a
bu(er? with a separate stream of products and ser$ices often flowing in the opposite direction.
2or eEample% the countries in the former *o$iet bloc ha$e historicall( relied hea$il( on
countertrade. )ountertrade flourishes when hard currenc( is scarce. *ince eEchange controls ma(
pre$ent a compan( from eEpatriating earnings% the compan( ma( be forced to spend mone( in"
countr( following products that are then eEported and sold in third"countr( mar,ets. The reasons
importing nations ma( demand countertrade include the priorit( attached to the 6estern import.
The second condition ma( be the $alue of the transactions? the higher the $alue% the greater the
li,elihood that counter trade will be in$ol$ed. Also% the a$ailabilit( of products from other
suppliers can be a factor. +arter falls in one of the categories of countertrade. The miEed forms
of countertrade% including counterpurchase% offset% compensation trading% and switch trading
belong in a separate categor(. The( incorporate a real distinction from barter because the
transaction in$ol$es mone( or credit. The term barter describes the least compleE and oldest
form of bilateral% non"moneti-ed countertrade. 't is a direct eEchange of goods or ser$ices
between two parties. Although no mone( is in$ol$ed% both partners construct an approEimate
shadow price for products flowing in each direction. &ffset% on the other hand% is a reciprocal
arrangement whereb( the go$ernment in the importing countr( see,s to reco$er large sums of
hard currenc( spent on eEpensi$e purchases such as militar( aircraft or telecommunication
s(stems.
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