Mktg 445 - exam 2 - price

Law of One Price

All customers get the best product for the best price (e.g., global commodities: oil, diamonds, aircraft)

Price Parameters

Price floor, price ceiling, optimum pricing

Price floor

Minimum acceptable price

Price ceiling

Maximum price customers will pay

Optimum Pricing

Function of demand and market conditions

Influences on price

Costs, competition, and regulations; price transparency

Market Skimming

Charge a high initial price to maximize profit from early adopters

Penetration Pricing

Low initial price to quickly gain market share and deter competition

Cost-Plus Pricing

Add markup to cost — simple but ignores market conditions

Companion Products

Profit from dependent goods, not main product

Target Costing (Design to Cost)

Start with ideal final price, design product around it

FOB (Free on Board)

Seller delivers goods on ship

CIF (Cost, Insurance, Freight)

Seller covers shipping & insurance until destination port

Cost-based transfer pricing

Internal production cost

Market-based transfer pricing 

Prevailing market prices

Negotiated transfer pricing

Between divisions

Gray Market Goods

Unauthoriezed resale of branded products across borders

Dumping

Selling in a foreign market below cost or home-market price

Countertrade

Exchange where payment in non-monetary (goods for goods)

What is the “Law of One Price”?

All customers receive the best product at the best price globally.

What is Target Costing?

Designing a product based on a predetermined price point to control costs.

What is Export Price Escalation?

Increase in final price due to tariffs, shipping, and fees.

What is Geocentric Pricing?

Pricing that balances global consistency and local market conditions.

What is the risk of Polycentric Pricing?

Can cause gray market goods.

When a company introduces a luxury watch at a high price to signal exclusivity, it’s using:

Market skimming

Which pricing method is most likely used by Japanese companies like Toyota to ensure competitiveness?

Target costing

A smartphone maker sells identical phones globally at the same price, ignoring local differences. This is:

Ethnocentric pricing

Which of the following best describes “gray market goods”?

Genuine goods sold through unauthorized channels

Which of these would decrease export competitiveness?

Strong home currency

If a company profits more from selling refills than from the initial product, it uses:

Companion pricing

In a highly inflationary environment, what is most critical for pricing strategy?

Maintaining operating margins

When a global firm allows local subsidiaries to set prices independently, it risks:

Gray markets

A barter deal between two countries exchanging machinery for coffee beans is an example of:

Countertrade

A Japanese electronics company designs a new camera starting with a target retail price of $400 and works backward to control costs.
What pricing method is this?

Target costing

An American clothing brand charges $80 for a shirt worldwide, even in markets where local income is low.
Pricing strategy used?

Extension (Ethnocentric)

A phone provider gives phones away for free but locks users into 2-year data plans.
Pricing model?

Companion pricing

A strong U.S. dollar makes American goods more expensive abroad.
What should firms do to maintain profit margins?

Increase local prices or move production offshore

Two competing airlines agree to keep ticket prices high on transatlantic routes.
What illegal act is this?

Horizontal price fixing

A Swiss watch company launches in India, where average income levels are lower. To appeal to local buyers, it introduces a smaller, more affordable line while keeping luxury marketing consistent worldwide.
Which pricing strategy does this represent?

Geocentric pricing

A European electronics firm sells its televisions at home for €400 but exports them to the U.S. for $350 — below its domestic price and cost of production.
What does this situation illustrate?

Dumping

A company wants to quickly establish its energy drink brand in a crowded market before competitors release similar products.
Which pricing objective aligns best with this goal?

Penetration pricing

A U.S. car manufacturer faces a strong dollar, making exports expensive. To maintain profits, it raises foreign retail prices slightly and sources more parts from Vietnam.
Which two global pricing issues is this company managing?

Exchange rates and sourcing

A video game console sells for $300, but each game costs $70. The company’s profits mainly come from the sale of games.
This is an example of which pricing model?

Companion pricing

A French luxury fashion house opens stores in South Korea and keeps prices high to maintain its elite image and exclusivity.
What pricing approach are they using?

Market skimming

Two smartphone brands secretly agree to set a minimum price for their latest models to avoid undercutting each other.
This is an example of:

Horizontal price fixing

A company bases the internal price charged to its foreign subsidiary on the market rate for similar goods.
Which transfer pricing method is this?

Market-based

Due to inflation in Argentina, a multinational consumer goods company increases prices slightly each quarter to maintain its profit margins.
This pricing decision is mainly influenced by:

Inflationary environment

An online retailer sells a product in France and Germany for the same price because the Euro makes price comparisons easy.
What global pricing concept does this reflect?

Price transparency

A camera brand charges $900 in the U.S. and $700 in Asia. Tourists buy the cameras abroad and resell them at home for a profit.
What problem is this company experiencing?

Gray market

A European Union country doesn’t charge VAT on exported products but adds VAT to imported goods.
What effect does this have?

Exports become cheaper, imports more expensive

A firm calculates product price by adding a fixed 25% margin over its production cost.
What pricing method is this?

Cost-plus pricing

A beverage company sells bottled tea in Japan for ¥150 and in the U.S. for $2.00. Local managers decide these prices based on market conditions and competitors.
What pricing strategy is this?

Polycentric

A tech firm accepts raw materials as payment for exporting machinery to an African country due to limited foreign currency availability.
This arrangement is best described as:

Countertrade