Global Marketing Management, 8e (Keegan)
Chapter 11 Pricing Decisions
1) Changing pricing policies will lead to direct cost implications immediately.
2) Pricing below cost can be profitable in the long term.
3) Domestic competition typically puts pressure on the prices of international companies.
4) The price of a product or service should ideally be higher than the demand for that product or
service.
5) In practice, companies always fix the price of products in country target markets to avoid the
impact of currency fluctuations.
6) Companies in strong, competitive market positions pass on price increases to consumers
leading to a significant decrease in sales volume.
7) The task of determining prices is simplified by exchange rate fluctuations.
8) An exchange-rate clause allows the buyer and seller to agree to supply and purchase at fixed
prices in each company’s national currency.
9) Exchange-rate clauses protect both buyers and sellers from unforeseen large swings in
currencies.
10) In many parts of the world, external market information regarding demand is distorted.
11) Companies typically avoid periodic price adjustments during inflation.
12) Companies need not maintain gross and operating profit margins under inflammatory
conditions.
13) A local government can require a prior cash deposit from importers before allowing goods
into the country.
14) The United States does not subsidize any of its agricultural sectors.
15) The traditional method of cost-plus pricing estimates costs based on future forecasts.
16) Cost-plus pricing requires adding up all the costs required to get the product to where it must
go, plus shipping and ancillary charges, and a profit percentage.
17) Compared to other pricing strategies, it’s relatively hard to arrive at a selling price using the
cost-plus pricing method, even if the accounting costs are readily available.
18) Price escalation is the increase in a product’s price as transportation, duty, and distributor
margins are added to the factory price.
19) Sourcing is a tool that can be used to fight price escalation.
20) Gray market goods are trademarked products that are exported from one country to another,
where they are sold by authorized persons or organizations.
21) Gray markets are beneficial to buyers as they gain from lower prices and increased choices.
22) In the United States, gray market goods are subject to a 80-year-old law, the Tariff Act of
1930.
23) Dumping in international trade is a market skimming strategy.
24) For a positive proof of dumping to occur in the United States, both price discrimination and
injury must be demonstrated.
25) Transfer pricing concerns transactions between buyers and sellers that have separate
individual corporate parents.
26) Cost-plus pricing is a variation to a market-based transfer pricing approach.
27) Transfer prices cannot be determined by allowing an organization’s affiliates to negotiate
among themselves.
28) A polycentric pricing policy permits subsidiary managers to establish prices.
29) Using a geocentric approach to international pricing, a company fixes a single price
worldwide.
30) Local income levels are critical for the pricing of consumer products.
31) Which of the following is a basic factor that determines the boundaries within which market
prices should be set?
A) market access
B) competition
C) service
D) export duties
32) Which of the following is perceived from an experience curve?
A) Prices increase as total production volume is doubled.
B) Labor time does not impact an organization’s overall costs.
C) Valued-added costs increase each time cumulative volume doubles.
D) Performing a task more often reduces the costs of doing it.
33) Which of the following is a global pricing strategy used by organizations when the domestic
currency is weak?
A) maximizing expenditures in host-country currency
B) billing foreign customers in the domestic currency
C) shifting sourcing to domestic market
D) improving productivity and engaging in cost reduction
34) ________ is a global pricing strategy used by organizations when the domestic currency is
strong.
A) Billing foreign customers in the domestic currency
B) Minimizing expenditures in local or host country currency
C) Shifting sourcing to domestic market
D) Stressing price benefits
35) Under which of the following circumstances does an exchange-rate policy accept the foreign
exchange market’s effect on currency value?
A) if the exchange rate is greater than the maximum rate limit
B) if the exchange rate is within the agreed range of fluctuation
C) if the exchange rate fluctuation is lesser than a minimum rate
D) if the exchange rate fluctuation remains unpredictable
36) A marketing strategy used to set deliberate high prices for new products is referred to as
________.
A) market holding
B) penetration pricing
C) market skimming
D) cost-plus pricing
37) Pricing products at a loss for certain amount of time is characteristic of a ________ strategy.
A) penetration pricing
B) market holding
C) cost-plus pricing
D) market skimming
38) Companies that want to maintain their share in the market frequently adopt a ________
strategy.
A) market holding
B) market penetration
C) skimming
D) price escalation
39) Bailey, a luxury car brand, has manufacturing units located across the United States, from
where it exports to several Asian countries. The rising costs and a strong home currency have
forced the organization to rethink its strategic plans. Based on the market holding strategy, which
of the following actions is the organization most likely to take to maintain its competitive
advantage in the Asian countries?
A) sell the product at a loss for a certain amount of time
B) increase the price of its exported products
C) accept lower margins to maintain competitive advantage
D) shift manufacturing units to the target countries
40) Which of the following is a disadvantage of using the historical cost-plus approach to arrive
at a selling price?
A) It does not include the shipping and ancillary charges as part of a product’s cost.
B) It ignores demand and competitive conditions in the target markets.
C) It fails to address the indirect manufacturing costs that a company is likely to incur.
D) It cannot be used by companies that are new to exporting products.
41) Which of the following statements best defines parallel importing?
A) selling products at an undercut price than other legitimate importers
B) selling goods in the gray market at higher prices than the market rate
C) competing with authorized importers in the gray market
D) competing in a market by selling legitimately imported goods
42) ________ is referred as the exporting of products at a price that is lower than that charged in
its home market.
A) Price escalation
B) Transfer pricing
C) Dumping
D) Competitive pricing
43) ________ refers to the pricing of goods and services bought and sold by operating units or
divisions of a single company.
A) Price escalation
B) Transfer pricing
C) Dumping
D) Competitive pricing
44) Which of the following is an alternative approach to transfer pricing?
A) negotiated prices
B) sourcing
C) dumping
D) competitive pricing
45) The main purpose of Section 482 of the United States Internal Revenue Code is to ________.
A) control corporate monopoly
B) lower prices in global markets
C) discourage dumping
D) regulate transfer pricing
46) The specific regulation of the U.S. government that governs the fair distribution of income is
________.
A) the Robinson-Pitman Act
B) the Sherman Antitrust Act
C) GATT
D) Section 482 of the tax code
47) ________ is defined as the prices that would have been charged in independent transactions
between unrelated parties.
A) Predatory formula
B) Relative price
C) Nominal price
D) Arm’s-length formula
48) Which of the following global pricing policies allows subsidiary or affiliate managers to
establish whatever price they feel is most desirable in their circumstances?
A) adaptation
B) invention
C) extension
D) depreciation
49) When a company neither fixes a single price worldwide nor remains aloof from subsidiary
pricing, the strategy is referred to as ________.
A) adaptation
B) invention
C) extension
D) depreciation
50) A company using a geocentric international pricing strategy typically fixes the long term
price floor based on ________.
A) transfer prices within corporate systems
B) profits from local sourcing
C) market penetration pricing
D) return on invested capital
51) What are the three basic factors that determine the market price of a product?
52) Explain transfer pricing. What are the three alternative approaches to determine a transfer
price?
53) Explain briefly about the ethnocentric global pricing policy.