Chapter 14: Pricing Strategies and Tactics
TRUE/FALSE
1. Price is the only element of the marketing mix that is revenue generating.
2. Price should be determined in isolation from the other marketing mix elements.
3. Skimming is selling goods overseas for less than in the exporter’s home market or at a price below the
cost of production, or both.
4. As more segments of the market are targeted and more of a product is made available, the price is
gradually increased.
5. If similar products already exist in the target market, market pricing is used.
6. When penetration pricing is used, the product is offered at a low price intended to generate volume
sales and achieve high market share, which would compensate for a lower per-unit return.
7. As in all marketing decisions, the marketing intermediaries establish the basic premise for pricing.
8. The cost-plus strategy is the true cost, fully allocating domestic and foreign costs to the product.
9. The costs of modifying the product for foreign markets are considered export-related costs.
10. Reorganizing the channel of distribution can help overcome price escalation.
11. Incoterms are the terms agreed upon by nation states that allow for the incorporation of companies as
recognized globally.
12. The most favorable term to the exporter is cash in advance.
13. The most favorable term to the importer is consignment selling, which allows the importer to defer
payment until the goods are actually sold.
14. Political risk is a controllable variable, which the exporter controls through paying extra taxes or
import duties.
15. An option gives the holder the right to buy or sell foreign currency at a prespecified price on or up to a
prespecified date.
16. As the share of international sales and reach of companies increases, banking relationships become
less important.
17. Factoring houses are places where customs affords reliable accounting of the dollar increment of actual
purchasing power.
18. Product line pricing occurs typically in conjunction with positioning decisions.
19. Once under price controls, the global marketer has to operate as it would in a regulated industry.
20. Cost-plus pricing is favored by many constituents, such as governments, to ensure proper
intracompany pricing.
MULTIPLE CHOICE
1. Which of the following statements about pricing is true?
a.
It cannot determine the long-term viability of an enterprise.
b.
It should be determined in isolation from the other marketing mix elements.
c.
It is a major competitive tool in meeting and beating close rivals and substitutes.
d.
It is the only element in the marketing mix that produces fixed costs.
2. In first-time pricing, the objective of _____ is to achieve the highest possible contribution in a short
time period.
a.
market pricing
b.
skimming
c.
penetration pricing
d.
predatory pricing
3. For an exporter to use the _____ approach, the product has to be unique, and some segments of the
market must be willing to pay the high price.
a.
extinction pricing
b.
skimming
c.
penetration pricing
d.
market pricing
4. Which of the following is a reactive approach that may lead to problems if sales volumes never rise to
sufficient levels to produce a satisfactory return?
a.
Market pricing
b.
Penetration pricing
c.
Multiple-product pricing
d.
Isolation pricing
5. When _____ is used, the product is offered at a low price intended to generate volume sales and
achieve high market share, which would compensate for a lower per-unit return.
a.
market pricing
b.
skimming
c.
penetration pricing
d.
isolation pricing
6. Which of the following can marketers use to discourage other marketers from entering the market?
a.
Cost-plus pricing
b.
Changing pricing
c.
Multiple-product pricing
d.
Penetration pricing
7. Price changes are called for when:
a.
the value of the billing currency is stable.
b.
there is a change in the internal situation.
c.
a change occurs in a particular market segment.
d.
the costs of production are relatively constant.
8. In setting export prices, which of the following is an attribute of pricing policy determination?
a.
Flexibility
b.
Decision control
c.
Competitive posture
d.
Market-based differentiation
9. Which of the following is considered as an internal factor in setting the export price?
a.
Nature of demand
b.
Exchange rate stability
c.
Distribution system
d.
Company’s customers
10. Which of the following is considered as an external factor in setting the export price?
a.
Promotion needs
b.
Overall price position of firm
c.
Distribution system
d.
Exchange rate stability
11. _____ pricing is set regardless of the buyer or may be based on average unit costs of fixed, variable, or
export-related costs.
a.
Dual
b.
Export variable
c.
Standard worldwide
d.
Market-differentiated
12. Cost-driven and market-driven approaches to pricing products for export are associated with:
a.
standard worldwide pricing.
b.
dual pricing.
c.
market-differentiated pricing.
d.
single pricing.
13. _____ system differentiates between domestic and export prices.
a.
Dual pricing
b.
Bilateral pricing
c.
Semi-pricing
d.
Isolation pricing
14. Which of the following is a drawback of the cost-plus method?
a.
The final price may be so high that the firm’s competitiveness is compromised.
b.
It is so variable that the actual price cannot be substantiated.
c.
There is a high turnover of product resulting in cost fluctuations.
d.
It is a time-consuming method.
15. The marginal cost method of pricing considers the direct costs of producing and selling products for
export as the floor beneath which prices cannot be set. What costs need to be excluded in these direct
costs?
a.
Variable costs and product costs
b.
Shipment costs and manufacturing costs
c.
Fixed costs, R&D, and domestic overhead
d.
Inventory costs and production costs
16. _____ pricing calls for pricing exports according to the dynamic conditions of the marketplace.
a.
Marginal
b.
Market-differentiated
c.
Isolation
d.
Cost-plus
17. Market-differentiated pricing calls for export pricing according to the dynamic conditions of the
marketplace. What are the three changes which might affect this type of pricing?
a.
Pre-, present, or post-fluctuations
b.
Competition, exchange rates, or environment
c.
Space, time, or utility
d.
Operations, media, or markets
18. The combined effect of both clear-cut and hidden costs results in export prices that far exceed
domestic prices. This cause is known as:
a.
cost overrun.
b.
seamless integration.
c.
relationship pricing.
d.
price escalation.
19. Which of the following is a strategy to compensate for price escalation?
a.
Weeding out government controls and avoiding them by entering markets through third
parties
b.
Reorganizing the channel of distribution
c.
Reassessing customer needs by conducting market research
d.
Assembling products made with domestic components
20. Which of the following allows an exporter to be refunded up to 99 percent of duties paid on imported
goods when they are incorporated in articles that are subsequently exported within five years of the
importation?
a.
Foreign sourcing
b.
Skimming
c.
Duty drawbacks
d.
Forfaiting
21. Which of the following is true of carriage and insurance paid to (CIP)?
a.
The buyer is responsible to provide insurance.
b.
The maximum burden is on the seller.
c.
The seller is obligated to provide minimum insurance only.
d.
The buyer must bear all transportation costs.
22. Which of the following statements is true of delivered at place (DAP)?
a.
The seller delivers the goods with import duties paid.
b.
The seller typically handles the cost of unloading and wharfage.
c.
The seller and buyer should agree which party will be responsible for unloading.
d.
The seller’s risk and responsibility for the condition of the cargo end when the goods are
delivered to the first carrier.
23. Free on board (FOB):
a.
means that the buyer usually quotes a price for the goods.
b.
applies only to vessel shipments.
c.
means that the price is decided only upon delivery.
d.
applies only at a designated inland shipping point.
24. Under _____ to a named overseas port of import, the seller quotes a price for the goods including the
cost of transportation to the named port of debarkation. The cost of insurance and the choice of insurer
are left to the buyer.
a.
delivered duty paid
b.
cost and freight
c.
free on board
d.
free alongside ship
25. What is a letter of credit?
a.
It is an instrument issued by a bank at the request of a buyer in which the bank promises to
pay a specified amount of money on presentation of documents stipulated in the letter.
b.
It is a letter which states that after the seller ships the goods, the shipping documents and
the draft demanding payment should be presented to the importer through banks acting as
the seller’s agent.
c.
It is a set of instructions given to shipping companies who have a line of vessels.
d.
It is an instrument of currency issued by a foreign government to the exporter.
26. According to the new rules drawn by the ICC, all letters of credit are considered _____ unless
otherwise stated.
a.
irrevocable
b.
inconclusive
c.
reversible
d.
transitional
27. What are the two forms of risk which might affect an export transaction?
a.
Inward and outbound
b.
Unilateral and bilateral
c.
Commercial and political
d.
Contact and expatriate
28. Which of the following is a weak exporter strategy used under varying currency conditions?
a.
Speed repatriation
b.
Export prioritization
c.
Using nonprice competition
d.
Buying needed services abroad
29. Destination-specific adjustment of markups in response to exchange-rate changes are referred to as:
a.
pass-through.
b.
markup via commercialization.
c.
prime manipulation.
d.
pricing-to-market.
30. Which of the following provides the exporter with a complete financial package that combines credit
protection, accounts-receivable bookkeeping, and collection services to take away many of the
challenges that come with doing business overseas?
a.
Forfaiting
b.
Factoring
c.
Invoice discounting
d.
Leasing
31. _____ are frequently used as a basis for price determination largely because they are easily measured
and provide a floor under which prices cannot go in the long term.
a.
Costs
b.
Corporate objectives
c.
Demand factors
d.
Competitive factors
32. Arm’s-length pricing:
a.
becomes difficult when sales to outside parties occur in a product category.
b.
is the price that unrelated parties would have reached on the same transaction.
c.
does not ensure proper intracompany pricing.
d.
is the discounted “dealer” price derived from end–market prices.
33. Which of the following is true about the transfer pricing methods of determining an arm’s-length
price?
a.
The arm’s-length standard is only applicable for commodities businesses.
b.
The resale method is most applicable for transfers of components or unfinished goods to
overseas subsidiaries.
c.
The cost-plus approach usually applies best to transfers to sales subsidiaries for ultimate
distribution.
d.
The starting point for testing the appropriateness of transfer prices is a comparison with
comparable uncontrolled transactions involving unrelated parties.
34. _____ is a compensation arrangement where one party agrees to supply technology or equipment that
enables the other party to produce goods with which the price of the supplied products or technology is
repaid.
a.
Clearing arrangements
b.
Buyback
c.
Switch trading
d.
Offset
35. _____ is a form of barter aimed at reducing the effect of the immediacy of the transaction.
a.
Offset
b.
Parallel barter
c.
Buyback
d.
Clearing arrangements
ESSAY
1. Why has price become such a dynamic element of the marketing mix?
2. What is a skimming price strategy?
3. What is the process of setting an export price?