Answer: 

a. Price is the amount a person, company, or government charges for a good or service.

b. Cost-based pricing – pricing based on a careful assessment of all costs associated with producing and selling an item.

c. Markup pricing – a pricing method that simply adds a standard mark-up to the costs assigned to a product.

d. Target ROI pricing – a cost-based pricing technique that utilizes a desired return on investment  for a particular product.

e. Penetration pricing – setting the product's initial price as low of a price as a company can afford to discourage entry by competition.

f. Profit-based pricing – examining pricing from the perspective of what consumers are willing to pay rather than the cost of the item.

g. predatory pricing – the direct attempt by a major competitor to drive other companies out of business by setting prices unrealistically low.

h. deceptive pricing – a pricing system in which the marketer promotes one price, yet charges more using hidden charges, add-ons, or higher prices for products with more than the bare minimum of features.

i. Dumping – the practice of selling goods below costs in another country in order to capture a market.

j. Loss leader – pricing certain items at or below cost in order to build store traffic remains a common marketing tactic in retail stores.

k. Collusion – a pricing system in oligopolistic markets in which a set of major competitors sets prices at uniform levels either, overtly or covertly.

Answer: 

a. Value considerations

b. Emotional factors

c. Situational factors

Answer: 

a. Profitability

b. Market Share

c. Gaining new customers

d. Retaining customers

e. Counter competitors actions

f. Attract competitors customers

Answer: 

a. Cost-based pricing

b. Demand/supply-based pricing

c. Competition-based pricing

d. Profit-based pricing

Answer: This can be used to understand the relationship between price and cost. A company can figure out how many units they would need to sell in an international market to break even. If they think this is a reasonable number, they can enter into the international market.

Answer: 

a. Price elasticity of demand is a measure of the impact of price differences on demand and sales.

b. Highly elastic demand occurs when consumers are extremely price sensitive. A small price increase drives consumers away; a small price decrease attracts them.

c. When inelastic demand exists, consumers are not strongly affected by price. They make purchases within a price range in which smaller price differences do not affect the willingness to buy. These goods are often staple items.

Answer: 

a. below the industry average

b. at the industry average, or

c. above the industry average

Answer: 

a. Skimming represents the attempt to recapture start-up costs as quickly as possible. Setting the price as high as the market will bear allows the manufacturer or exporter to generate the most revenue possible in a short period of time. Skimming works when a product is unique and not easily duplicated.

b. The other extreme new-product-price approach, penetration pricing, occurs when the entrant charges as low of a price as it can afford. The method discourages entry by competition, because larger margins do not appear possible. Also, penetration pricing helps a company quickly build sales figures and establish a larger market share and provides time to engender brand, product, and company loyalty. The company then can allow the price to drift up, especially if price elasticity remains low.

c. One more purely international ethical pricing issue involves dumping, or the practice of selling goods below costs in another country or pricing a product in one country lower than the price of the product in another country. Dumping is trying to get all of the competitors customers by selling your product at a loss. This is different than the legal act of penetration pricing, which is just selling at a very low margin to gain trial in a market.

Answer: 

a. Monopolistic competitive environment

b.  In the second circumstance, a company may have incurred high start-up costs and wishes to recover them quickly. This might happen when managers believe competitors will quickly enter the marketplace or when the start-up costs have pushed the company to the brink of financial problems.

c. Markets in which prices are set to achieve a balance between demand and supply while generating optimal profits.

Answer: 

a. As has been noted, pricing becomes more complicated when products are sold across international boundaries. Variable costs rise due to additional shipping, more expensive sales calls, tariffs and taxes, and other items.

b. Companies must balance long and short term goals.

c. Consideration of emotional and situational factors.

d. Relationships can be very important in different countries.

e. Prices will be different in different countries.

Answer: Capacity to consume refers to the power to use goods and services in the satisfaction of human wants. It consists of (1) wants, (2) goods and services available, (3) time and energy, and (4) purchasing power. In the past, the method used to create the capacity to consume among the poor has been to provide the product or service free of charge. While charity may feel good, it may not be the best marketing tactic. Instead, when marketing to consumers with meager incomes, increasing the capacity to consume has been suggested as the best approach. Consumption and choice at the bottom-of-the-pyramid can be encouraged by making unit packages that are small with affordable prices, because these consumers typically experience unpredictable income streams. Single-serve packages match the needs of this population.

Answer: 

a. Loss leaders

b. Seasonal discounts

c. Quantity discounts

d. Early payment discounts

e. Other channel discounts

Answer: Loss leader pricing relies on regular prices for other items in the store in order to generate profits. They are often used to gain new customers. Here they are not pricing differently in different countries to eliminate the competition.

Answer: 

a. Actions or reactions of competitors

• domestic

• foreign

b. Company status as industry leader or industry follower

• domestic

• foreign

c. Impact on the brand’s image

• Domestic

• Foreign

d. Impact on revenues and gross margin

• Domestic

• Foreign

e. reactions of customers

• domestic

• foreign

Answer: Weber studied the link between a physical stimulus and a desired response. Weber's Law has been transferred to pricing. It suggests that for a price change (a stimulus) to be noticed, it must be greater than 10% to elicit a response. For those who believe such a relationship is true, the implication would be to try to hold price increases to less than 10% and to make price decreases larger than 10%. The latter often will have a negative impact on the bottom line.

Answer: 

a. This wasn’t really covered in the chapter

b.  Negotiation and countertrade arrangements can reduce risk by one or both of the parties and can create relationships. Negotiation systems can reduce prices paid and increase savings.

Answer: 

a. Collusion

b. Predatory pricing

c. Deceptive pricing

d. Dumping

Answer: 

• Accidental death insurance policy
  • In international marketing this could be a very difficult product to sell in some countries. Some consumers may not feel comfortable discussing paying towards death – this would relate to emotional factors. Situational factors could come into play following another death of a family member. Finally value perceptions will play a role, especially if the person is purchasing the insurance for themselves – they will never know if the policy is paid out. The company must be trustworthy.
• Sun tan lotion at the beach priced far higher than in local retail stores
  • Here, the value consideration will be very important. If the consumer knows the regular retail price they may think this is a very bad value. However, if they really need the product and find the location to be convenient this may make up for the price increase. The impact of emotional factors may come into play if a mom is purchasing this product for her children, enabling her to ‘protect’ them, thus making her want to buy the product. Finally, situational factors affecting the purchase would be the amount of sun on a given day. If it is extremely sunny the consumers may be very willing to pay this price, but if it is cold or rainy, they may not be motivated to buy.
• Tickets to a rock concert featuring a hot band
  • Value consideration will be how much the consumer likes the band, how often the band comes to play in their town and how expensive the tickets are. If they find this band to be of high value they will want to see them. Emotional factors will play a part in how much the consumers love the band. Situational factors will be what day the band is playing and whether they will be able to go see them.
• Designer undergarments
  • Will include an emotional component when purchased. This provides an extra benefit. Value consideration will be how exclusive the consumer finds the designer and how much this brand name adds to the purchase. Finally, situational factors will play a role – for example, consumers may be more willing to purchase these products before Valentine’s Day.

Answer: 

• One night stay in a hotel in Uruguay
  • Location of the hotel, cleanliness, amount of space, friendliness of the staff, room service availability, internet access, and transportation provided.
• Fishing tour guide in Cambodia
  • Knowledge of the area, knowing the good fishing spots, ensuring the customers catch the fish, size of the boat, friendliness and overall enjoyment of the fishing trip.
• Fish and chips for a British citizen visiting Slovenia
  • How much they taste like home, freshness of the fish, whether vinegar is provided, cleanliness of the kitchen and restaurant and friendliness of the wait staff or cashier.
• Candy for a child in Sudan
  • Taste, whether it is a treat, the ingredients used to make the candy and possibly how long the candy lasts.

Answer: 

Table 11.2: Pricing Objectives

• Just entering the market with an unknown brand
  • Enticing new customers, the company needs to get new customers or they won’t last.
• Just entering the market with a well-known brand
  • Market share, the brand name is known, now they need to capture market share in this market.
• Established company facing new domestic competitors
  • Retain current customers – they are already established, they need to keep their current customers and not lose them to local competitors.
• Established company facing new international competitors
  • Counter competitor actions – they need to defend their market share and keep their customers.
• Product in the take-off stage of the product life cycle in a foreign market
  • Enticing new customers – they are in the take-off stage in a foreign market and need to obtain new customers to become established in the marketplace.
• Product in the maturity stage of the product life cycle in a foreign market
  • Retain current customers – they already have a large customer base they need to keep these consumers so they don’t go into the decline stage.
• Product in the decline state of the product life cycle in a foreign market
  • Attract competitors customers – they need to become the best in the market – they need to attract all of the buyers in the category to remain relevant.

Answer: 

• Tennis balls by a manufacturer in the Philippines
  • Competition based pricing – determine what your competitors are charging and either price below them (to signal a good value) or above them to signal a quality tennis ball.
• Retail store to open with 20,000 sku (stock-keeping units) in Luxembourg
  • Competition based pricing – this is a big box store and they can attract customers by offering low prices on necessities.
• Cell phone services in Chile
  • Cost-based pricing – the company would want to be able to break even and this would be a good strategy – maybe only the wealthy will be able to afford these services and cost based pricing would be a good strategy.
• Solar panels in Canada
  • Profit-based pricing – the start-up costs could have been very high – this company may need to recover these start-up costs quickly and would be able to do this with profit-based pricing.

Answer: 

• Hilton International Hotels
  • Seasonal discounts – attract customers in the off-season when the rooms are not full. This will bring in additional customers.
• AFLAC in Japan
  • Quantity discounts – when selling insurance to companies they can offer quantity discounts to attract larger companies with lots of employees.
• Perrier bottled water sold in South Africa
  • Channel discounts – keep your retailers happy – this will keep your product on the shelves.
• Bulldozers sold by Caterpillar
  • Quantity discounts – many times larger companies will need more bulldozers, by offering quantity discounts the company may be able to sell more.

Answer: 

• Dumping is trying to get all of the competitors customers by selling your product at a loss and at a lower price in a different country. This is different than the legal act of penetration pricing, which is just selling at a very low margin to gain trial in a market. Predatory pricing involves the direct attempt by a major competitor to drive other companies out of business by setting prices unrealistically low.  They are all similar because they are all selling goods at a discount. Penetration pricing and predatory pricing are both used to try to drive out competitors and businesses using these practices will often raise the prices after the competition is eliminated.

• Weber studied the link between a physical stimulus and a desired response. Weber's Law has been transferred to pricing. It suggests that for a price change (a stimulus) to be noticed, it must be greater than 10% to elicit a response. For those who believe such a relationship is true, the implication would be to try to hold price increases to less than 10% and to make price decreases larger than 10%. The latter often will have a negative impact on the bottom line. If these discounts are bigger than 10% consumers in the countries will notice the price discounts and purchase the products, but the companies may take a loss.