Incoterms 2010 and International Business - 101
Incoterms 2010 and International Business - Wild - Chapter 14 - QUIZ
Incoterms 2010 and International Business - 101
International Business: The Challenges of Globalization, 8th Edition, Wild & Wild
Incoterms 2010 and International Business - Wild - Chapter 14 - QUIZ
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International Business, 8e (Wild/Wild)
Chapter 14 Developing and Marketing Products
1) Governments in developing countries impose fewer consumer protection laws in order to ________.
- A) hold down production costs and consumer prices
- B) enable companies to focus on profit-making exclusively
- C) decrease the flow of foreign direct investment into the country
- D) decrease the complexity of the legal procedures for foreign direct investment
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.1: Describe the factors to consider in developing international product strategies.
2) All company and product brand names are made up of semantic elements or language building blocks called ________.
- A) aesthetics
- B) morphemes
- C) hybrid words
- D) propositions
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.1: Describe the factors to consider in developing international product strategies.
3) ________ are imitation products passed off as legitimate trademarks, patents, or copyrighted works.
- A) Giffen goods
- B) Counterfeit goods
- C) Inferior goods
- D) Intangible goods
Answer: B
AACSB: Ethical understanding and reasoning
Skill: Concept
Difficulty: Easy
LO: 14.1: Describe the factors to consider in developing international product strategies.
4) Which of the following is true of counterfeit goods?
- A) Developed nations normally have the most active counterfeiting markets.
- B) Counterfeiting is more common among less visible local brands than global brands.
- C) Most counterfeit products are imitations of products that normally enjoy legal protection.
- D) Engineered industrial components and medicines are among the few categories of products that cannot be counterfeited.
Answer: C
AACSB: Ethical understanding and reasoning
Skill: Concept
Difficulty: Moderate
LO: 14.1: Describe the factors to consider in developing international product strategies.
5) Which of the following is a marketplace of underground transactions that typically appear because a product is either illegal or tightly regulated?
- A) black market
- B) niche market
- C) two-sided market
- D) vertical market
Answer: A
AACSB: Ethical understanding and reasoning
Skill: Concept
Difficulty: Easy
LO: 14.1: Describe the factors to consider in developing international product strategies.
6) Which of the following is among the most commonly counterfeited products?
- A) aircraft parts
- B) watches
- C) surgical equipment
- D) medicines
Answer: B
Skill: Concept
Difficulty: Easy
LO: 14.1: Describe the factors to consider in developing international product strategies.
7) Which of the following statements is true about international promotions?
- A) Most companies standardize all aspects of their international promotions to cut costs.
- B) Firms that standardize advertising often control campaigns from the home office.
- C) Companies that adapt their advertising to different markets project a consistent brand image.
- D) Companies discourage blending product and promotional strategies in a communication process.
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.1: Describe the factors to consider in developing international product strategies.
8) ________ refers to anything that disrupts the audience's ability to receive and interpret a promotional message.
- A) Noise
- B) Interpolation
- C) Feedback
- D) Resonance
Answer: A
AACSB: Written and oral communication
Skill: Concept
Difficulty: Easy
LO: 14.1: Describe the factors to consider in developing international product strategies.
9) The physical path a product follows on its way to customers is called a(n) ________.
- A) distribution channel
- B) demand chain
- C) critical path
- D) external value network
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.1: Describe the factors to consider in developing international product strategies.
10) Companies along a distribution channel that work together in delivering products to customers are called ________.
- A) subsidiaries
- B) intermediaries
- C) value chains
- D) value networks
Answer: B
Skill: Concept
Difficulty: Easy
LO: 14.1: Describe the factors to consider in developing international product strategies.
11) Product differentiation is more likely when nations share the same level of economic development.
Answer: FALSE
Skill: Concept
Difficulty: Moderate
LO: 14.1: Describe the factors to consider in developing international product strategies.
12) A brand name can function as a legal property.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.1: Describe the factors to consider in developing international product strategies.
13) The value customers obtain from a product is heavily influenced by the image of the country in which the product is manufactured.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.1: Describe the factors to consider in developing international product strategies.
14) All company and product brand names are made up of morphemes.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.1: Describe the factors to consider in developing international product strategies.
15) Counterfeiting is common among highly visible brand-name consumer goods.
Answer: TRUE
AACSB: Ethical understanding and reasoning
Skill: Concept
Difficulty: Easy
LO: 14.1: Describe the factors to consider in developing international product strategies.
16) Developed nations normally have the most active counterfeiting markets.
Answer: FALSE
Skill: Concept
Difficulty: Easy
LO: 14.1: Describe the factors to consider in developing international product strategies.
17) Product life cycles are becoming shorter because companies are undertaking new product development at an increasingly rapid pace.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.1: Describe the factors to consider in developing international product strategies.
18) The rapid pace of technological innovation today extends the life cycles of products.
Answer: FALSE
Skill: Concept
Difficulty: Easy
LO: 14.1: Describe the factors to consider in developing international product strategies.
19) Explain the effect of counterfeit goods and black markets on international product strategies.
Answer: Companies try to protect their intellectual property and trademarks from counterfeit goods. Counterfeit goods are imitation products passed off as legitimate trademarks, patents, or copyrighted works–products that normally enjoy legal protection. Because developing nations often are weakest in enforcing such legal protections, they normally have the most active counterfeiting markets. Countries that top the list for the portion of their markets comprised of counterfeits include China, India, Russia, Thailand, and Turkey.
Counterfeiting is common among highly visible brand-name consumer goods, including watches, perfumes, clothing, movies, music, and computer software. Counterfeit products are typically sold to consumers on what is called the black market–a marketplace of underground transactions that typically appears because a product is either illegal (such as counterfeits) or tightly regulated. Tabletop vendors working the back streets of the world's largest cities represent the retail side of the black market. Increasingly, engineered industrial components such as aircraft parts, medicines, and other pharmaceutical products are also becoming targets of counterfeiters.
Counterfeit goods can damage buyers' image of a brand when the counterfeits are of inferior quality–which is nearly always the case. Buyers who purchase an item bearing a company's brand name expect a certain level of craftsmanship and, therefore, satisfaction. But when the product fails to deliver on the expectations, the buyer is dissatisfied, and the company's reputation is tarnished.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.1: Describe the factors to consider in developing international product strategies.
20) Using examples, explain the circular process of marketing communication.
Answer: The process of sending promotional messages about products to target markets is called marketing communication. Communicating the benefits of a product can be more difficult in international business than in domestic business for several reasons. Marketing internationally usually means translating promotional messages from one language into another. Marketers must be knowledgeable of the many cultural nuances that can affect how buyers interpret a promotional message. A nation's laws that govern the promotion of products in another country can also force changes in marketing communication.
Marketing communication is typically considered a circular process. The company that has an idea it wishes to communicate is the source of the communication. The idea is encoded (translated into images, words, and symbols) into a promotional message that the company is trying to get across. The promotional message is then sent to the audience (potential buyers) through various media. Media commonly used by companies to communicate their promotional messages include radio, television, newspapers, magazines, billboards, and direct mailings. After the audience receives the message, they decode the message and interpret its meaning. Information in the form of feedback (purchase or nonpurchase) then flows back to the source of the message. The decoding process by the audience can be disrupted by the presence of noise–anything that disrupts the audience's ability to receive and interpret the promotional message. By ignoring important cultural nuances, companies can inadvertently increase the potential for noise that can cloud the audience's understanding of their promotional message. For example, language barriers between the company and potential buyers can create noise if a company's promotional message is translated incorrectly into the local language.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.1: Describe the factors to consider in developing international product strategies.
21) Describe the five communication strategies that companies commonly use and cite situations where the strategies are used.
Answer: Product/Communications Extension (Dual Extension)-This method extends the same home-market product and marketing promotion into target markets. Under certain conditions, it can be the simplest and most profitable strategy. For example, because of a common language and other cultural similarities, companies based in English-speaking Canadian provinces can sell the same product with packaging and advertising identical to that in the U.S. market–provided the product is not required by the U.S. government to carry any special statements or warnings. The Canadian companies contain costs by developing a single product and one promotional campaign for both markets. Yet it is important for Canadian companies not to ignore any subtle cultural differences that could cause confusion in interpreting the promotional message.
Product Extension/Communications Adaptation-Under this method, a company extends the same product into target markets but alters its promotion. Communications require adaptation because the product satisfies a different need, serves a different function, or appeals to a different type of buyer. Companies can adjust their marketing communication to inform potential buyers that the product either satisfies their needs or serves a distinct function. This approach helps companies contain costs because the good itself requires no alteration. Altering communications can be expensive, however, especially when cultural differences among target markets are significant. Filming altered ads with local actors and on location can add significantly to promotional costs.
Product Adaptation/Communications Extension-Using this method, a company adapts its product to the requirements of the international market while retaining the product's original marketing communication. There are many reasons why companies need to adapt their products. One might be to meet legal requirements in the local market. Moreover, governments can require that firms use a certain amount of local materials, labor, or some other resource in their local production process. If the exact same materials or components are not available locally, the result can be a modified product.
This method can be costly because appropriately modifying a product to suit the needs of local buyers often means the company must invest in production facilities in the local market. If each national market requires its own production facility, cost savings provided by economies of scale in production can be elusive. Still, a company can implement this strategy successfully if it sells a differentiated product for which it can charge a higher price to offset the greater production costs.
Product/Communications Adaptation (Dual Adaptation)-This method adapts both the product and its marketing communication to suit the target market. The product itself is adapted to match the needs or preferences of local buyers. The promotional message is adapted to explain how the product meets those needs and preferences. Because both production and marketing efforts must be altered, this strategy can be expensive; therefore, it is not very common. It can be implemented successfully, however, if a sufficiently large and profitable market segment exists.
Product Invention-This method requires that an entirely new product be developed for the target market. Product invention is often necessary when many important differences exist between the home and target markets. One reason for product invention is that local buyers cannot afford a company's current product because of low purchasing power.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.1: Describe the factors to consider in developing international product strategies.
22) Briefly discuss the effects of globalization on international marketing activities and explain how a dual adaption method works as a promotional strategy.
Answer: Globalization is transforming the way in which some products are marketed internationally, but not all. Some companies implement a global strategy that uses similar promotional messages and themes to market the same product around the world. Others find that their products require physical changes to suit the tastes of consumers in markets abroad. Other firms' products need different marketing campaigns to reflect the unique circumstances of local markets.
The product/communications adaption (dual adaption) promotional strategy adapts both the product and its marketing communication to suit the target market. The product itself is adapted to match the needs or preferences of local buyers. The promotional message is adapted to explain how the product meets those needs and preferences. Because both production and marketing efforts must be altered, this strategy can be expensive; therefore, it is not very common. It can be implemented successfully, however, if a sufficiently large and profitable market segment exists.
AACSB: Application of knowledge
Skill: Synthesis
Difficulty: Hard
LO: 14.1: Describe the factors to consider in developing international product strategies.
23) The term ________ refers to a company's efforts to reach distribution channels and target customers through communications such as personal selling, advertising, public relations, and direct marketing.
- A) social marketing
- B) viral marketing
- C) promotion mix
- D) positioning
Answer: C
AACSB: Written and oral communication; Diverse and multicultural work environments
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
24) ________ is a major component of a promotion mix.
- A) Distribution
- B) Market segmentation
- C) Pricing
- D) Public relations
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
25) Which of the following promotional strategies is being used by a company that hires a fleet of trucks to drive through village squares and hand out free trial packages to potential end users?
- A) push strategy
- B) pull strategy
- C) retrenchment strategy
- D) differentiation strategy
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
26) A promotional strategy designed to create buyer demand that will encourage channel members to stock a company's product is called a ________.
- A) pull strategy
- B) push strategy
- C) retrenchment strategy
- D) stability strategy
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
27) Which of the following is a push strategy that companies use to promote their products?
- A) mass media advertising
- B) direct marketing techniques
- C) free trial packages
- D) retail product stocking
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
28) Which of the following is a promotional strategy designed to pressure channel members to carry a product and promote it to final users?
- A) differentiation strategy
- B) retrenchment strategy
- C) push strategy
- D) pull strategy
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
29) As a promotional strategy, manufacturers of products that are commonly sold through department and grocery stores often use ________.
- A) a push strategy
- B) a pull strategy
- C) retrenchment strategy
- D) stability strategy
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
30) A ________ is used for a product's promotion when there are many levels of intermediaries in its distribution channel.
- A) push strategy
- B) pull strategy
- C) retrenchment strategy
- D) stability strategy
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
31) Which of the following circumstances would best require a push strategy to be implemented for product promotion?
- A) channel members wield a great deal of power relative to that of producers
- B) distribution channels are lengthy
- C) buyers display a great deal of brand loyalty to particular product
- D) products in question are industrial goods
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.2: Outline the international promotional strategies and methods available to firms.
32) Which of the following circumstances would best require a pull strategy to be implemented for product promotion?
- A) channel members wield relatively lesser power compared to that of producers
- B) buyers display a great deal of brand loyalty to a particular product
- C) distribution channels are short
- D) buyers need to be informed about the features of a product before purchase
Answer: B
Skill: Concept
Difficulty: Moderate
LO: 14.2: Outline the international promotional strategies and methods available to firms.
33) A ________ strategy is best suited for the promotion of industrial products because potential buyers usually need to be informed about a product's special features before purchase.
- A) push
- B) pull
- C) stability
- D) differentiation
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
34) A company that makes its marketing program elements uniform, targeting an entire region with similar products, is demonstrating ________.
- A) customization
- B) segmentation
- C) standardization
- D) differentiation
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
35) The process of sending messages about products to target markets is called ________.
- A) customer relations
- B) customer service
- C) market segmentation
- D) marketing communication
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
36) Which of the following occurs when an idea to be communicated is translated into images, words, and symbols?
- A) compiling
- B) encoding
- C) parsing
- D) processing
Answer: B
AACSB: Written and oral communication
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
37) Once an audience receives a message, they interpret the meaning of the message by ________ it.
- A) preprocessing
- B) decoding
- C) parsing
- D) compiling
Answer: B
AACSB: Written and oral communication
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
38) Which of the following reflects the correct sequence of the marketing communication process?
- A) promotional message; encoding; decoding; feedback
- B) encoding; promotional message; decoding; feedback
- C) promotional message; decoding; feedback; encoding
- D) encoding; decoding; promotional message; feedback
Answer: B
AACSB: Written and oral communication
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
39) Which of the following communication strategies uses the same home-market product and marketing promotion in target markets?
- A) product/communications extension
- B) product extension/communications adaptation
- C) product adaptation/communications extension
- D) product/communications adaptation
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
40) Which of the following communication strategies expands the same product into new target markets but alters its marketing promotion?
- A) product/communications extension
- B) product extension/communications adaptation
- C) product adaptation/communications extension
- D) product/communications adaptation
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
41) Which of the following communication strategies adapts a product to the requirements of the international market while retaining its original marketing communication?
- A) product/communications extension
- B) product extension/communications adaptation
- C) product adaptation/communications extension
- D) product/communications adaptation
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
42) Which of the following communication strategies adapts both the product and its marketing communication to suit the target market?
- A) product/communications extension
- B) product extension/communications adaptation
- C) product adaptation/communications extension
- D) product/communications adaptation
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
43) A ________ strategy can be implemented successfully for communicating promotional messages only if a sufficiently large and profitable market segment exists.
- A) dual extension method
- B) product extension/communications adaptation method
- C) product adaptation/communications extension method
- D) dual adaptation method
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
44) ________ is often necessary as a communication strategy when many important differences exist between the home and target markets.
- A) Product invention
- B) Product adaptation
- C) Dual adaptation
- D) Dual extension
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
45) Which of the following refers to planning, implementing, and controlling the physical flow of a product from its point of origin to its point of consumption?
- A) customization
- B) distribution
- C) communication
- D) promotion
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
Scenario: Silk Industries LLC
Silk Industries LLC comprises two major divisions: consumer products and industrial products. The consumer product line of the company is well-recognized and consists of loyal customers worldwide. The management is considering different types of promotional strategies for the two product divisions.
46) If Silk Industries is interested in creating buyer demand that will encourage channel members to stock its products, it should employ ________.
- A) a pull strategy
- B) a push strategy
- C) horizontal integration
- D) vertical integration
Answer: A
AACSB: Analytical thinking
Skill: Application
Difficulty: Hard
LO: 14.2: Outline the international promotional strategies and methods available to firms.
47) Which of the following would be most appropriate for its consumer product line?
- A) horizontal integration
- B) vertical integration
- C) push strategy
- D) pull strategy
Answer: D
AACSB: Analytical thinking
Skill: Application
Difficulty: Hard
LO: 14.2: Outline the international promotional strategies and methods available to firms.
48) Which of the following would be most appropriate for its products sold through grocery stores?
- A) horizontal integration
- B) vertical integration
- C) push strategy
- D) pull strategy
Answer: C
AACSB: Analytical thinking
Skill: Application
Difficulty: Hard
LO: 14.2: Outline the international promotional strategies and methods available to firms.
49) If Silk Industries pressures channel members to carry a product and promote it to final users, it is using ________.
- A) pull strategy
- B) push strategy
- C) vertical integration
- D) horizontal integration
Answer: B
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
50) A push strategy is a promotional strategy designed to pressure channel members to promote a product to final users.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
51) A common example of a push strategy is the creation of consumer demand through direct marketing techniques.
Answer: FALSE
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
52) A push strategy is the most efficient promotional strategy when distribution channels are lengthy.
Answer: FALSE
Skill: Concept
Difficulty: Moderate
LO: 14.2: Outline the international promotional strategies and methods available to firms.
53) Emerging markets typically have fewer forms of mass media for use in implementing a pull strategy.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.2: Outline the international promotional strategies and methods available to firms.
54) A pull strategy is most appropriate when buyers display a great deal of brand loyalty toward one particular brand name.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.2: Outline the international promotional strategies and methods available to firms.
55) Firms that standardize their advertising usually control campaigns from the home office.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.2: Outline the international promotional strategies and methods available to firms.
56) In marketing, distribution is the process of sending promotional messages about products to target markets.
Answer: FALSE
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
57) The marketing communication process involves encoding and decoding of the promotional message.
Answer: TRUE
AACSB: Written and oral communication
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
58) Noise refers to anything that disrupts the audience's ability to receive and interpret a promotional message.
Answer: TRUE
AACSB: Written and oral communication
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
59) By ignoring important cultural nuances, companies can inadvertently decrease the potential for noise that can cloud the audience's understanding of their promotional message.
Answer: FALSE
AACSB: Written and oral communication; Diverse and multicultural work environments
Skill: Concept
Difficulty: Moderate
LO: 14.2: Outline the international promotional strategies and methods available to firms.
60) Dual extension method extends the same home-market product and marketing promotion into target markets.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
61) The product adaptation/communications extension method adapts both the product and its marketing communication to suit the target market.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
62) Under the dual adaptation method, a company adapts its product to local requirements while retaining the product's original marketing communication.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.2: Outline the international promotional strategies and methods available to firms.
63) Discuss how a national business environment can influence a firm's decision to standardize or differentiate its product. How do cultural differences impact product strategies?
Answer: Consumers in different national markets often demand products that reflect their unique tastes and preferences. Cultural, political, legal, and economic environments have a great deal to do with the preferences of both consumers and industrial buyers worldwide. A culture's aesthetics involves, among other things, preferences for certain colors. Ohio-based Rubbermaid discovered the role of aesthetics as it attempted to increase its international sales. Consumers in the United States prefer household products in neutral blues or almond; in southern Europe, red is the preferred color. The Dutch want white. In addition, many European cultures perceive plastic products as inferior and want tight lids on metal wastebaskets as opposed to U.S.-style plastic versions with open tops.
But certain products do appeal to practically all cultures. Although it is not a traditional Asian drink, red wine is sweeping Asian markets such as Hong Kong, Singapore, Taiwan, and Thailand.
Product standardization is more likely when nations share the same level of economic development. In years past, consumers in India faced limited options when it came to purchasing automobiles. Most were made in India, were expensive, and were not fuel-efficient. Thanks to steady economic progress over the past two decades, Indian consumers have a better standard of living and more discretionary income. Being able to afford an imported brand-name automobile with a global reputation, such as Suzuki or Ford is more commonplace in Indian cities than it was years ago.
Cultural differences do have an impact on product strategies. Companies adapt their products to suit local buyers' product preferences that are rooted in culture. Häagen-Dazs is an international company that prides itself on its capability to identify the taste preferences of consumers in target markets. It then modifies its base product with just the right flavor to make a product that satisfies consumers' needs. Following years of trial and error developing secret formulas and conducting taste tests, Häagen-Dazs finally launched its green-tea flavor ice cream throughout Japan. The taste is that of macha tea–an elite strain of green tea that's been used in elaborate Japanese ceremonies for centuries. Green-tea ice cream was an instant hit and one day may even surpass Häagen-Dazs' perennial flavor champion in Japan–vanilla.
Not all companies need to modify their product to the culture; instead, they may need to identify a different cultural need that it satisfies. Altoids, for example, is a British product that has been used for 200 years to soothe upset stomachs. But the company identified a different use for its product in the United States. Because of its strong flavor, Altoids is sold in the U.S. market as a breath mint and has pushed aside weaker-flavored candies.
AACSB: Application of knowledge
Skill: Synthesis
Difficulty: Hard
LO: 14.2: Outline the international promotional strategies and methods available to firms.
64) Differentiate between the push and pull promotional strategies. Explain the factors that determine whether the push or the pull strategy is appropriate in a given marketing environment.
Answer: There are two general promotional strategies that companies can use to get their marketing message across to buyers. They can rely completely on just one of these or use them in combination. A promotional strategy designed to create buyer demand that will encourage channel members to stock a company's product is called a pull strategy. In other words, buyer demand is generated in order to "pull" products through distribution channels to end users. Creating consumer demand through direct marketing techniques is a common example of a pull strategy.
By contrast, a push strategy is a promotional strategy designed to pressure channel members to carry a product and promote it to final users. Manufacturers of products commonly sold through department and grocery stores often use a push strategy.
Whether the push or pull strategy is most appropriate in a given marketing environment depends on several factors:
Distribution System-Implementing a push strategy can be difficult when channel members (such as distributors) wield a great deal of power relative to that of producers. It can also be ineffective when distribution channels are lengthy: the more levels of intermediaries there are, the more channel members there are who must be convinced to carry a product. In such cases, it might be easier to create buyer demand using a pull strategy than to persuade distributors to stock a particular product.
Access to Mass Media-Developing and emerging markets typically have fewer available forms of mass media for use in implementing a pull strategy. Accordingly, it is difficult to increase consumer awareness of a product and generate product demand. Many consumers in these markets cannot afford cable or satellite television, or perhaps even glossy magazines. In such cases, advertisers might turn to billboards and radio. At other times, gaining wide exposure can be difficult because existing media have only local, as opposed to national, reach.
Type of Product-A pull strategy is most appropriate when buyers display a great deal of brand loyalty toward one particular brand name. In other words, brand-loyal buyers know what brand of a product they want before they go shopping. On the other hand, push strategies tend to be appropriate for inexpensive consumer goods characterized by buyers who are not brand loyal. Low brand loyalty means that a buyer will go shopping for a product, not knowing which brand is best, and simply will buy one of those carried by the retailer or wholesaler. A push strategy is also suited to industrial products because potential buyers usually need to be informed about a product's special features and benefits.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.2: Outline the international promotional strategies and methods available to firms.
65) A distribution channel in which a manufacturer grants the right to sell its products to only one or a limited number of resellers is called a(n) ________.
- A) intensive channel
- B) exclusive channel
- C) zero-level channel
- D) two-level channel
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
66) A(n) ________ channel creates a barrier that makes it difficult or impossible for outsiders to penetrate.
- A) exclusive
- B) intensive
- C) selective
- D) two-level
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
67) A(n) ________ channel gives producers a good deal of control over the sale of their product by channel members such as wholesalers and retailers.
- A) exclusive
- B) intensive
- C) two-level
- D) selective
Answer: A
Skill: Concept
Difficulty: Easy
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
68) A distribution channel in which a producer grants the right to sell its product to many resellers is referred to as a(n) ________.
- A) one-level channel
- B) zero-level channel
- C) exclusive channel
- D) intensive channel
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
69) A(n) ________ channel does not create strong barriers to channel entry for other producers, nor does it provide much control over reseller decisions such as what competing brands to sell.
- A) one-level
- B) zero-level
- C) exclusive
- D) intensive
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
70) A(n) ________ channel provides buyers with location convenience because of the large number of outlets through which a product is sold.
- A) intensive
- B) exclusive
- C) one-level
- D) zero-level
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
71) ________ refers to the number of intermediaries between producer and buyer.
- A) Critical path
- B) Channel length
- C) Frequency
- D) Value density
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
72) Which of the following is also known as direct marketing?
- A) an intensive channel
- B) an exclusive channel
- C) a zero-level channel
- D) a two-level channel
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
73) A(n) ________ channel places a single intermediary between the producer and the buyer.
- A) intensive
- B) exclusive
- C) one-level
- D) two-level
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
Scenario: Old World Ltd.
Old World Ltd., a London-based furniture manufacturer, is establishing its global distribution, pricing, and promotion strategies. Being new to global business, the firm is seeking your help in making its decisions.
74) If Old World wants to grant the right to sell its furniture to only a limited number of resellers, it should consider a(n) ________ channel.
- A) intensive
- B) exclusive
- C) two-level
- D) selective
Answer: B
Skill: Concept
Difficulty: Easy
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
75) If Old World wants to have its furniture sold through as many distribution outlets as possible, it should consider a(n) ________ channel.
- A) exclusive
- B) intensive
- C) one-level
- D) zero-level
Answer: B
Skill: Concept
Difficulty: Easy
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
76) Old World should pursue a(n) ________ channel if it decides to greatly intensify its direct marketing efforts.
- A) intensive
- B) one-level
- C) zero-level
- D) selective
Answer: C
Skill: Concept
Difficulty: Easy
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
77) The physical path a product follows on its way to customers is called a promotional channel.
Answer: FALSE
Skill: Concept
Difficulty: Easy
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
78) Service providers do not need distribution channels because they market intangible goods.
Answer: FALSE
Skill: Concept
Difficulty: Moderate
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
79) Describe any four factors that affect international product strategies.
Answer: Laws and Regulations-Companies must often adapt their products to satisfy laws and regulations in a target market. The fact that many developing countries have fewer consumer protection laws creates an ethical issue for some companies. Ironically, lower levels of education and less buying experience mean that consumers in developing countries are more likely to need protection. However, many governments impose fewer regulations in order to hold down production costs and consumer prices. Unfortunately, this can be an invitation for international distributors to withhold full information about products and their potential dangers.
Cultural Differences-Companies also adapt their products to suit local buyers' product preferences that are rooted in culture. Not all companies need to modify their product to the culture; instead, they may need to identify a different cultural need that it satisfies.
Brand and Product Names-Several issues related to a company's brand name are important concerns for the day-to-day activities of international managers. A brand name is the name of one or more items in a product line that identifies the source or character of the items. When an individual sees a product labeled with a particular brand name, he/she assigns to that product a certain value based on his/her past experiences with that brand. That is why a brand name is central to a product's personality and the image that it presents to buyers. It informs buyers about a product's source and protects both customer and producer from copycat products. Brand names help consumers to select, recommend, or reject products. They also function as legal property that owners can protect from trespass by competitors.
Indeed, a strong brand can become a company's most valuable asset and primary source of competitive advantage. A consistent worldwide brand image is increasingly important as more consumers and business people travel internationally than ever before. An inconsistent brand name can confuse existing and potential customers. Although companies normally keep their brand names consistent across markets, they can create new product names or modify existing ones to suit local preferences. Companies also need to review the image of their brand from time to time and update it if it seems old-fashioned.
National Image-The value customers obtain from a product is heavily influenced by the image of the country in which it is designed, manufactured, or assembled. Individuals consider the influence of a country's name when they think of Italian shoes, German luxury cars, and Japanese electronics. This image can be positive for some products but negative for others.
Because it affects buyers' perceptions of quality and reliability, national image is an important element of product policy. Yet national image can and does change slowly over long periods of time.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
80) Explain the primary concerns of managers when establishing distribution policies.
Answer: Managers consider two overriding concerns when establishing channels of distribution: (1) the amount of market exposure a product needs and (2) the cost of distributing a product.
Degree of Exposure-In promoting its product to the greatest number of potential customers, a marketer must determine the amount of exposure needed. An exclusive channel is one in which a manufacturer grants the right to sell its product to only one or a limited number of resellers. An exclusive channel gives producers a great deal of control over the sale of their product by wholesalers and retailers. It also helps a producer to constrain distributors from selling competing brands. In this way, an exclusive channel creates a barrier that makes it difficult or impossible for outsiders to penetrate the channel.
When a producer wants its product to be made available through as many distribution outlets as possible, it prefers to use an intensive channel–one in which a producer grants the right to sell its product to many resellers. An intensive channel provides buyers with location convenience because of the large number of outlets through which a product is sold. It does not create strong barriers to channel entry for other producers, however. Nor does it provide much control over reseller decisions, such as what competing brands to sell.
Large companies whose products are sold through grocery stores and department stores typically take an intensive channel approach to distribution. The obstacle for small companies that choose an intensive channel approach is gaining shelf space–especially companies with lesser-known brands. The increasing global trend toward retailers developing their own private-label brands (brands created by retailers themselves) exacerbates this problem. In such cases, retailers tend to give their own brands prime shelf space and give lesser-known brands poorer shelf locations that are up high or near the floor.
Channel Length and Cost-Channel length refers to the number of intermediaries between the producer and the buyer. In a zero-level channel–which is also called direct marketing –producers sell directly to final buyers. A one-level channel places only one intermediary between the producer and the buyer. Two intermediaries make up a two-level channel, and so forth. In general, the greater the number of intermediaries in a channel, the more costly it becomes. This happens because each additional member adds a charge for its services onto the product's total cost. This is an important consideration for companies that sell price-sensitive consumer products, such as candy, food, and small household items, that usually compete on the basis of price. Companies that sell highly differentiated products can charge higher prices because of their products' distinctiveness; therefore, they have fewer problems using a channel of several levels.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
81) What is value density and what is its impact on an organization's distribution policy?
Answer: The value of a product relative to its weight and volume is called its value density. Value density is an important variable in formulating distribution strategies. As a rule, the lower a product's value density, the more localized the distribution system. Most commodities, including cement, iron ore, and crude oil, have low value-density ratios–they're heavy but not particularly "valuable" if gauged in, say, shipping weight per cubic meter. Relative to their values, the cost of transporting these goods is high. Consequently, such products are processed or integrated into the manufacturing process at points close to their original locations. Products with high value density ratios include emeralds, semiconductors, and premium perfumes. Because the cost of transporting these products is small relative to their value, they can be processed or manufactured in the optimal location and then shipped to market. Because Johnson & Johnson's Vistakon contact lenses have high value density, the company produces and inventories its products in one U.S. location and serves the world market from there. When products need to be modified for local markets, companies can design their distribution systems accordingly.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
82) How can a lack of market understanding, theft, and corruption affect distribution?
Answer: Lack of Market Understanding-Companies can experience a great deal of frustration and financial loss simply by not fully understanding the local market in which they operate. In one now-classic case, Amway Asia Pacific Ltd., the Asian arm of U.S.-based Amway, learned the hard way the pitfalls of overestimating the knowledge of distributors in emerging markets. The company has a worldwide policy of giving distributors a full refund on its soaps and cosmetics if the distributor's customers are dissatisfied–even if the returned containers are empty. But the policy had some bizarre results shortly after Amway entered China. Word of the guarantee spread quickly. Some distributors repackaged the products in other containers, sold them, and took the original containers back to Amway for a refund. Others scoured garbage bins, gathering bags full of discarded bottles. In Shanghai, returns were beginning to total $100,000 a day. Amway soon changed its refund policy to allow a refund only for bottles at least half full.
Theft and Corruption-A high incidence of theft and corruption can present obstacles to distribution. The distribution system in Russia reflects its roughly 75-year experiment with communism. When Acer Computers decided to sell its computers in Russia, it built production facilities in Russia's stable neighbor, Finland, because the company was leery of investing directly in Russia. Acer also considered it too risky to navigate Russia's archaic distribution system on its own. In three years' time, a highway that serves as a main route to get goods overland from Finland to Russia saw 50 Finnish truckers hijacked, two drivers killed, and another two missing. Acer solved its distribution problem by selling its computers to Russian distributors outside its factory in Finland. The Russian distributors, who understood how to negotiate their way through Russia's distribution system, were to deal with distribution problems in Russia.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.3: Explain the factors to consider when designing international distribution strategies.
83) The value of a product relative to its weight and volume is called its ________.
- A) face value
- B) value investing
- C) real value
- D) value density
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.4: Describe the elements that influence international pricing strategies.
84) Which of the following is implied by a product with a low value density?
- A) the distribution system is more localized
- B) the product is more valuable
- C) the cost of shipping the product is negligible
- D) the product is processed in areas away from their original locations
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.4: Describe the elements that influence international pricing strategies.
85) Which of the following products has a low value-density ratio?
- A) semiconductors
- B) emerald
- C) crude oil
- D) premium perfumes
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.4: Describe the elements that influence international pricing strategies.
86) Which of the following is true of the value densities of products?
- A) The cost of transporting goods with high value-density ratios is high relative to their value.
- B) Products with high value-density ratios are integrated into the manufacturing process at points close to their original locations.
- C) Most commodities, including cement, iron ore, and crude oil, have high value-density ratios.
- D) The lower a product's value density, the more localized the distribution system.
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.4: Describe the elements that influence international pricing strategies.
87) A pricing policy in which one selling price is established for all international markets is called ________.
- A) dual pricing
- B) value-based pricing
- C) worldwide pricing
- D) target pricing
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.4: Describe the elements that influence international pricing strategies.
88) A pricing policy in which a product has a different selling price in export markets than it has in the home market is called ________.
- A) dual pricing
- B) cost-plus pricing
- C) penetration pricing
- D) premium pricing
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.4: Describe the elements that influence international pricing strategies.
89) When a product has a higher selling price in the target market than it does in the home market or the country where production takes place, it is called ________.
- A) price skimming
- B) price escalation
- C) price dispersion
- D) price fixing
Answer: B
Skill: Concept
Difficulty: Easy
LO: 14.4: Describe the elements that influence international pricing strategies.
90) Which of the following refers to the price charged for products sold between a company's divisions or subsidiaries?
- A) dual pricing
- B) transfer price
- C) price skimming
- D) arm's length price
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.4: Describe the elements that influence international pricing strategies.
91) The free-market price that unrelated parties charge one another for a specific product is called a(n) ________.
- A) worldwide price
- B) transfer price
- C) dual price
- D) arm's length price
Answer: D
Skill: Concept
Difficulty: Easy
LO: 14.4: Describe the elements that influence international pricing strategies.
92) Upper or lower limits placed on the prices of products sold within a country are known as ________.
- A) price controls
- B) transfer prices
- C) price escalators
- D) arm's length prices
Answer: A
Skill: Concept
Difficulty: Easy
LO: 14.4: Describe the elements that influence international pricing strategies.
93) Which of the following occurs when the price of a good is lower in export markets than it is in the domestic market?
- A) skimming
- B) dumping
- C) transfer pricing
- D) price escalation
Answer: B
Skill: Concept
Difficulty: Easy
LO: 14.4: Describe the elements that influence international pricing strategies.
Scenario: Old World Ltd.
Old World Ltd., a London-based furniture manufacturer, is establishing its global distribution, pricing, and promotion strategies. Being new to global business, the firm is seeking your help in making its decisions.
94) If Old World adopts different selling prices in export markets than it has in the British market, it would be following a ________ pricing strategy.
- A) dual
- B) transfer
- C) target
- D) worldwide
Answer: A
Skill: Concept
Difficulty: Easy
LO: 14.4: Describe the elements that influence international pricing strategies.
Scenario: Scooters Inc.
Scooters Inc. is a producer of pricey scooters. The company's profits come mostly from the sales of its luxury line that caters to the esteem needs of the rich population. Ben Driven, vice president of marketing for Scooters Inc., has been asked to review the company's pricing strategy.
95) Ben knows that a pricing policy in which one selling price is established for all international markets is called ________.
- A) worldwide pricing
- B) value-based pricing
- C) dual pricing
- D) arm's length pricing
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.4: Describe the elements that influence international pricing strategies.
96) Because Scooters Inc. caters to a very narrow niche of wealthy individuals, the CEO is interested in implementing a worldwide pricing scheme. Which of the following is most likely a reason for the establishment of such a scheme?
- A) Their production costs differ from market to market.
- B) The currency values fluctuate fairly predictably.
- C) Their distribution channels are lengthy in each market.
- D) Their customers have similar levels of purchasing power.
Answer: D
AACSB: Analytical thinking
Skill: Concept
Difficulty: Moderate
LO: 14.4: Describe the elements that influence international pricing strategies.
97) Scooters Inc. has traditionally sold its products at one price in the domestic market and at another price in export markets, which is called a(n) ________ pricing strategy.
- A) target
- B) value
- C) dual
- D) arm's length
Answer: C
AACSB: Analytical thinking
Skill: Application
Difficulty: Easy
LO: 14.4: Describe the elements that influence international pricing strategies.
98) The more intermediaries there are in a distribution channel, the less costly the channel becomes.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.4: Describe the elements that influence international pricing strategies.
99) The lower a product's value density, the more localized is the distribution system for that product.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.4: Describe the elements that influence international pricing strategies.
100) An arm's length price is the price that is charged for products sold among a company's divisions or subsidiaries.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 14.4: Describe the elements that influence international pricing strategies.
101) Antidumping tariffs punish producers in the offending nation by increasing the price of their products to a fairer level.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.4: Describe the elements that influence international pricing strategies.
102) How does the dual extension method work as a promotional strategy?
Answer: A product/communications extension (dual extension) promotional strategy extends the same home-market product and marketing promotion into target markets. Under certain conditions, it can be the simplest and most profitable strategy. For example, because of a common language and other cultural similarities, companies based in English-speaking Canadian provinces can sell the same product with packaging and advertising identical to that in the U.S. market– provided the product is not required by the U.S. government to carry any special statements or warnings. The Canadian companies contain costs by developing a single product and one promotional campaign for both markets. Yet it is important for Canadian companies not to ignore any subtle cultural differences that could cause confusion in interpreting the promotional message.
As the information age continues to knit the world more tightly together, this method will probably grow more popular. Today, consumers in seemingly remote parts of the world are rapidly becoming aware of the latest worldwide fads and fashions. But this strategy appears to be better suited for certain groups of buyers, including brand-conscious teenagers, business executives, and wealthy individuals. The strategy also tends to be better suited for companies that use a global strategy with their products, such as upscale personal items with global brand names– examples include Rolex watches, Hermes scarves and ties, and Coco Chanel (www.chanel.com) perfumes. It can also be appropriate for global brands that have mass appeal and cut across all age groups and social classes–such as Canon, Mars, and Nokia. The strategy also is useful to companies that are the low-cost leaders in their industries: one product and one promotional message keep costs down.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.4: Describe the elements that influence international pricing strategies.
103) Differentiate between worldwide and dual pricing. Which one of these is more difficult to achieve and why?
Answer: A pricing policy in which one selling price is established for all international markets is called worldwide pricing. In practice, a worldwide pricing policy is very difficult to achieve. First, production costs differ from one nation to another. Keeping production costs the same is not possible for a company that has production bases within each market it serves. As a result, selling prices often reflect these different costs of production.
Second, a company that produces in just one location (to maintain an equivalent cost of production for every product) cannot guarantee that selling prices will be the same in every target market. The cost of exporting to certain markets will likely be higher than the cost of exporting to other markets. In addition, distribution costs differ across markets. Where distribution is efficient, selling prices might well be lower than in locations where distribution systems are archaic and inefficient.
Third, the purchasing power of local buyers must be taken into account. Managers might decide to lower the sales price in a market so that buyers can afford the product and the company can gain market share.
Finally, fluctuating currency values also must be taken into account. When the value of the currency in a country where production takes place rises against a target market's currency, the product will become more expensive in the target market.
Because of the problems associated with worldwide pricing, another pricing policy is often used in international markets. A pricing policy in which a product has a different selling price in export markets than it has in the home market is called dual pricing. When a product has a higher selling price in the target market than it does in the home market (or the country where production takes place), it is called price escalation. It is commonly the result of exporting costs and currency fluctuations.
But sometimes a product's export price is lower than the price in the home market. Some companies determine that domestic market sales are to cover all product costs (such as expenses related to R&D, administration, and overhead). They then require exports to cover only the additional costs associated with exporting and selling in a target market (such as tariffs). In this sense, exports are considered a sort of "bonus."
To successfully apply dual pricing in international marketing, a company must be able to keep its domestic buyers and international buyers separate. Buyers in one market might cancel orders if they discover that they are paying a higher price than are buyers in another market. If a company cannot keep its buyers separate when using dual pricing, buyers could potentially undermine the policy through arbitrage–buying products where they are sold at lower prices and reselling them where they command higher prices. As is often the case, however, the higher selling price of a product in an export market often reflects the additional costs of transportation to the local market and any trade barriers of the target market, such as tariffs. For arbitrageurs to be successful, the profits they earn must be enough to outweigh these additional costs.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 14.4: Describe the elements that influence international pricing strategies.
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