CPM Global Pricing & Cross-Border Strategy Flashcards

Which currency hedging approach locks in a fixed exchange rate for future transactions?

Answer: Forward contract

A forward contract commits both parties to a specific exchange rate for a future transaction, eliminating foreign exchange risk for that deal.

In global pricing, 'price escalation' refers to:

Answer: The increase in end-user price caused by cumulative tariffs, logistics costs, and channel margins in export markets

Export price escalation occurs because import duties, freight, insurance, and local channel margins stack on top of the factory price, often doubling the end-user cost.

A 'country-of-origin' pricing consideration is most relevant when:

Answer: Consumers associate quality or prestige with the manufacturing country, affecting willingness to pay

Country-of-origin effects influence perceived quality and brand equity — products from prestige origins can command premiums even when functionally identical.

In international B2B pricing, 'Incoterms' affect pricing strategy because they:

Answer: Define who bears shipping cost and risk, directly impacting the net price received by the seller

Incoterms (e.g., FOB, CIF, DDP) determine at which point cost and risk transfer from seller to buyer, materially affecting the seller's effective net revenue.

Hyperinflation in an export market typically requires which pricing adjustment strategy?

Answer: Dollarization of contracts or frequent price escalation clauses tied to inflation indices

Invoicing in a stable hard currency or tying prices to inflation indices protects against rapid purchasing power erosion in hyperinflationary markets.

Which of the following best characterizes a 'polycentric' international pricing strategy?

Answer: Each local subsidiary sets prices independently based on local market conditions

Polycentric pricing gives each market full local autonomy, maximizing local optimization but risking cross-market inconsistency and arbitrage.