Global Marketing Management 8th Edition Test Bank Warren J. Keegan

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Global Marketing Management 8th Edition Test Bank Warren J. Keegan

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Global Marketing Management, 8e (Keegan)
Chapter 11 Pricing Decisions

1) Changing pricing policies will lead to direct cost implications immediately.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Easy

2) Pricing below cost can be profitable in the long term.
Answer: TRUE
AACSB: Analytical thinking
Difficulty: Easy

3) Domestic competition typically puts pressure on the prices of international companies.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Moderate

4) The price of a product or service should ideally be higher than the demand for that product or service.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Easy

5) In practice, companies always fix the price of products in country target markets to avoid the impact of currency fluctuations.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Easy

6) Companies in strong, competitive market positions pass on price increases to consumers leading to a significant decrease in sales volume.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Easy

7) The task of determining prices is simplified by exchange rate fluctuations.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Easy

8) An exchange-rate clause allows the buyer and seller to agree to supply and purchase at fixed prices in each companys national currency.
Answer: TRUE
AACSB: Analytical thinking
Difficulty: Easy

9) Exchange-rate clauses protect both buyers and sellers from unforeseen large swings in currencies.
Answer: TRUE
AACSB: Analytical thinking
Difficulty: Easy
10) In many parts of the world, external market information regarding demand is distorted.
Answer: TRUE
AACSB: Analytical thinking
Difficulty: Easy

11) Companies typically avoid periodic price adjustments during inflation.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Easy

12) Companies need not maintain gross and operating profit margins under inflammatory conditions.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Easy

13) A local government can require a prior cash deposit from importers before allowing goods into the country.
Answer: TRUE
AACSB: Analytical thinking
Difficulty: Easy

14) The United States does not subsidize any of its agricultural sectors.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Easy

15) The traditional method of cost-plus pricing estimates costs based on future forecasts.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Easy

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.
Answer: TRUE
AACSB: Analytical thinking
Difficulty: Moderate

17) Compared to other pricing strategies, its relatively hard to arrive at a selling price using the cost-plus pricing method, even if the accounting costs are readily available.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Easy

18) Price escalation is the increase in a products price as transportation, duty, and distributor margins are added to the factory price.
Answer: TRUE
AACSB: Analytical thinking
Difficulty: Easy
19) Sourcing is a tool that can be used to fight price escalation.
Answer: TRUE
AACSB: Analytical thinking
Difficulty: Easy

20) Gray market goods are trademarked products that are exported from one country to another, where they are sold by authorized persons or organizations.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Easy

21) Gray markets are beneficial to buyers as they gain from lower prices and increased choices.
Answer: TRUE
AACSB: Analytical thinking
Difficulty: Easy

22) In the United States, gray market goods are subject to a 80-year-old law, the Tariff Act of 1930.
Answer: TRUE
AACSB: Analytical thinking
Difficulty: Easy

23) Dumping in international trade is a market skimming strategy.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Easy

24) For a positive proof of dumping to occur in the United States, both price discrimination and injury must be demonstrated.
Answer: TRUE
AACSB: Analytical thinking
Difficulty: Easy

25) Transfer pricing concerns transactions between buyers and sellers that have separate individual corporate parents.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Easy

26) Cost-plus pricing is a variation to a market-based transfer pricing approach.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Easy

27) Transfer prices cannot be determined by allowing an organizations affiliates to negotiate among themselves.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Moderate
28) A polycentric pricing policy permits subsidiary managers to establish prices.
Answer: TRUE
AACSB: Analytical thinking
Difficulty: Easy

29) Using a geocentric approach to international pricing, a company fixes a single price worldwide.
Answer: FALSE
AACSB: Analytical thinking
Difficulty: Moderate

30) Local income levels are critical for the pricing of consumer products.
Answer: TRUE
AACSB: Analytical thinking
Difficulty: Easy

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
Answer: B
AACSB: Analytical thinking
Difficulty: Easy

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 organizations overall costs.
C) Valued-added costs increase each time cumulative volume doubles.
D) Performing a task more often reduces the costs of doing it.
Answer: D
AACSB: Analytical thinking
Difficulty: Moderate

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
Answer: C
AACSB: Analytical thinking
Difficulty: Easy
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
Answer: A
AACSB: Analytical thinking
Difficulty: Easy

35) Under which of the following circumstances does an exchange-rate policy accept the foreign exchange markets 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
Answer: B
AACSB: Analytical thinking
Difficulty: Moderate

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
Answer: C
Difficulty: Easy

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
Answer: A
Difficulty: Easy

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
Answer: A
Difficulty: Easy
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
Answer: D
AACSB: Analytical thinking
Difficulty: Hard

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 products 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.
Answer: B
AACSB: Analytical thinking
Difficulty: Moderate

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
Answer: B
AACSB: Analytical thinking
Difficulty: Easy

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
Answer: C
Difficulty: Easy

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
Answer: B
Difficulty: Easy
44) Which of the following is an alternative approach to transfer pricing?
A) negotiated prices
B) sourcing
C) dumping
D) competitive pricing
Answer: A
AACSB: Analytical thinking
Difficulty: Easy

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
Answer: D
AACSB: Analytical thinking
Difficulty: Easy

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
Answer: D
Difficulty: Easy

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) Arms-length formula
Answer: D
Difficulty: Easy

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
Answer: A
Difficulty: Easy
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
Answer: B
Difficulty: Easy

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
Answer: D
AACSB: Analytical thinking
Difficulty: Moderate

51) What are the three basic factors that determine the market price of a product?
Answer: In any country, three basic factors determine the boundaries within which market prices should be set: cost, competition, and demand. The first is product cost, which establishes a long-run price floor, or minimum price. The second is competition, which of course is defined by customers: your competitors are those companies whose products compete with your products from the consumers point of view. The third consideration is demand and value: price is a cue for value and, in the case of luxury products, is part of value. A cheap luxury watch is an oxymoron: there is no luxury without a luxury price.
AACSB: Analytical thinking
Difficulty: Easy

52) Explain transfer pricing. What are the three alternative approaches to determine a transfer price?
Answer: Transfer pricing refers to the pricing of goods and services bought and sold by operating units or divisions of a single company. In other words, transfer pricing concerns intracorporate exchangestransactions between buyers and sellers that have the same corporate parent. As companies expand and create decentralized operations, profit centers become an increasingly important component in the overall corporate financial picture. Appropriate intracorporate transfer pricing systems and policies are required to ensure profitability at each level. When a company extends its operations across national boundaries, transfer pricing takes on new dimensions and complications. In determining transfer prices to subsidiaries, global companies must address a number of issues, including taxes, duties and tariffs, country profit transfer rules, conflicting objectives of joint venture partners, and government regulations.
There are three major alternative approaches to transfer pricing. The approach used will vary with the nature of the firm, products, markets, and the historical circumstances of each case. The alternatives are (1) cost-based transfer pricing, (2) market-based transfer pricing, and (3) negotiated prices.
AACSB: Analytical thinking
Difficulty: Moderate
53) Explain briefly about the ethnocentric global pricing policy.
Answer: The ethnocentric global pricing policy requires that the price of an item be the same around the world and that the importer absorb freight and import duties. This approach has the advantage of extreme simplicity because no information on competitive or market conditions is required for implementation. The disadvantage of this approach is directly tied to its simplicity. Extension pricing does not respond to the competitive and market conditions of each national market and, therefore, neither maximizes the companys profits in each national market nor globally.
AACSB: Analytical thinking
Difficulty: Moderate

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