Chapter 16 1. ________ includes all the activities in selling goods or services directly to final consumers for personal, nonbusiness use. A) Wholesaling B) Retailing C) Procurement D) Promoting E) Warehousing Answer: B Rationale: Retailing involves the direct sale of goods or services to end consumers for personal use. This includes activities such as operating stores, online platforms, or other channels where consumers can purchase products directly. 2. Which of the following is true for retailing? A) Manufacturers are not considered to be retailers as they are engaged in producing the product. B) Vending machines are considered to be retailing only if they are located within stores. C) Retailing deals only with goods; it does not include services. D) Selling from a consumer's home is direct selling, but not retailing. E) Wholesalers are only considered to be retailers if they are selling to final consumers. Answer: E Rationale: Wholesalers become retailers when they sell products directly to final consumers. Retailing can involve various channels, including online platforms, vending machines, and direct selling from a consumer's home. 3. Which of the following is an example of retailing? A) Dylan's sends catalogs to retail, industrial, and institutional customers. B) SEZ U Inc. sells a limited line of fast-moving goods to small retailers for cash. C) BEL Inc. sells FMCG goods to merchant wholesalers and distributors. D) Praxis International sells products to consumers directly through the Internet. E) Hub Styles procures its raw materials directly from farmers in the region. Answer: D Rationale: Praxis International selling products directly to consumers through the Internet represents an example of retailing. Retailing involves the direct sale of goods or services to end consumers. 4. Discount stores that try to keep prices as low as possible are more likely to function using ________ operations. A) limited service B) self-selection C) full-service D) self-service E) limited-selection Answer: D Rationale: Discount stores typically operate on a self-service basis, where customers find and select their own products without much assistance from store staff. This helps keep operational costs low, allowing for lower prices. 5. Reynold's is a grocery chain that has always catered to mid-market customers. However, the owner, Mal, has noticed that an influx of new residents are buying mostly the lower-cost products and products on discount. To attract customers, Mal decides to make a gradual switch to the discount store format, but to do this, he will have to cut costs wherever possible. Which of the following types of service should Mal avoid in order to lower costs? A) limited service B) self-selection C) full-service D) self-service E) limited-selection Answer: C Rationale: Mal should avoid full-service operations to lower costs. Full-service operations involve a larger staff and more personalized assistance to customers, which can increase operational expenses. 6. A large staff, along with a higher proportion of specialty goods and slower-moving items and many services, are usually features of ________ retailing. A) self-service B) self-selection C) limited service D) full-service E) limited-selection Answer: D Rationale: Full-service retailing typically involves a larger staff, offering a wide range of specialty goods and services to cater to specific customer needs. This can include personalized assistance, extensive product knowledge, and additional services. 7. In ________ retailing, salespeople are ready to assist in every phase of the "locate-compare-select" process. A) self-service B) self-selection C) full-service D) limited service E) limited-selection Answer: C Rationale: Full-service retailing involves salespeople providing assistance to customers throughout the entire shopping process, from locating items to comparing products and making selections. This high level of service aims to enhance the customer experience. 8. In the ________ type of retailing, customers usually find their own goods, although they can ask salespeople for assistance. A) self-service B) self-selection C) full-service D) limited service E) limited-selection Answer: B Rationale: In self-selection retailing, customers primarily locate and select their own goods but have the option to seek assistance from salespeople if needed. This model allows for a degree of independence while still providing support when required. 9. Which of the following is true for self-service retailing? A) These retailers carry more shopping goods and services such as credit and merchandise-return privileges. B) This service model is favored by discount stores and customers who want to save money. C) It results in high staffing costs compared to other forms of retailing. D) Salespeople are ready to assist in every phase of the "locate-compare-select" process. E) Customers need more information and assistance than in other forms of retailing. Answer: B Rationale: Self-service retailing, favored by discount stores, allows customers to find and select products themselves, which typically results in lower operational costs. This model appeals to customers seeking cost-effective shopping experiences. 10. Which of the following types of retailing generally entails the highest costs? A) full-service B) self-service C) limited-selection D) limited service E) self-selection Answer: A Rationale: Full-service retailing usually involves higher costs due to the need for a larger staff to provide personalized assistance, extensive product knowledge, and additional services throughout the shopping process. 11. Which of the following is an example of a limited-service retailer? A) Customers at TAB pick out the products they want and pay at the checkout counter. B) Salespeople at Eli are always on hand to offer shoppers advice and assistance in choosing products. C) Mina's allows customers to checkout their own purchases in order to reduce the staff count. D) As CLO's offers a number of merchandise-return privileges, customers need information and assistance while shopping. E) Alison's stocks a number of specialty products and the store's salespeople generally help shoppers with all their needs. Answer: D Rationale: Limited-service retailers typically offer fewer services to customers compared to full-service retailers. As CLO's offering merchandise-return privileges suggests, customers might need assistance, but the level of service is limited compared to stores where salespeople are always available to assist. 12. Bill and Josh are considering opening a retail store. They have identified their target market and location and are finalizing the details of the merchandise they will carry. Since the neighborhood is rundown and the customers in the area are very price-conscious, Bill and Josh want to offer goods from well-known brands, but at lower rates than the full retail prices of the products. They choose to stock excess production from manufacturers or goods that have remained unsold at other retailers. This is a description of a(n) ________ retailer. A) off-price B) specialty C) discount D) department E) catalog Answer: A Rationale: Off-price retailers offer goods at lower prices than traditional retail stores by selling excess production, discontinued items, or goods that have remained unsold at other retailers. This strategy caters to price-conscious customers. 13. H&A is a retail chain that specializes in selling goods at very low prices. To achieve this, it stocks a very narrow assortment of basic necessities and offers customers a "no-frills" shopping experience. H&A is an example of a(n) ________ store. A) off-price B) specialty C) hard-discount D) superstore E) convenience Answer: C Rationale: Hard-discount stores like H&A focus on offering a limited assortment of basic products at very low prices, often providing a no-frills shopping experience. This model targets price-sensitive customers. 14. E&OE produces and markets its own brand of skincare products using herbal remedies and natural ingredients through standalone stores as well as an online portal. E&OE is a(n) ________ retailer. A) off-price B) specialty C) discount D) department E) extreme value Answer: B Rationale: Specialty retailers like E&OE focus on offering a specific range of products within a niche market, often with unique features or attributes. They cater to customers seeking specialized products or experiences. 15. A factory outlet is an example of a(n) ________ retailer. A) off-price B) specialty C) discount D) department E) catalog Answer: A Rationale: Factory outlets typically offer branded goods at discounted prices by selling directly from the manufacturer, making them an example of off-price retailing. 16. Companies who sell products door-to-door or at home sales parties are engaging in ________. A) franchising B) network marketing C) direct-response marketing D) corporate selling E) direct marketing Answer: B Rationale: Network marketing involves selling products directly to consumers through methods such as door-to-door sales or home sales parties, often by recruiting independent distributors who earn commissions on their sales and the sales of their recruited team members. 17. Which of the following is an example of direct selling? A) E&OE sells its herbal skincare products exclusively through its stand-alone stores. B) TCJ is a telemarketing firm that sells products from a number of different suppliers. C) Jayne's sells most of its products to customers through home sales parties. D) J3 is an online shopping portal where customers can buy directly from manufacturers. E) Reynold's tries to minimize its staff costs by installing vending machines in its stores. Answer: C Rationale: Direct selling involves selling products directly to consumers outside of a fixed retail location, such as through home sales parties, making Jayne's the example of direct selling in this context. 18. Which of the following is an example of direct marketing? A) E&OE sells its herbal skincare products exclusively through its stand-alone stores. B) TCJ is a telemarketing firm that sells products from a number of different suppliers. C) Jayne's sells most of its products to customers through home sales parties. D) J3 is a storeless retailer that organizes the retail activity of the employees of four firms. E) Reynold's tries to minimize its staff costs by installing vending machines in its stores. Answer: B Rationale: Direct marketing involves promoting and selling products directly to consumers without intermediaries, often through methods like telemarketing, making TCJ the example of direct marketing in this context. 19. The ________ marketing sales system works by recruiting independent businesspeople who act as distributors. A) catalog B) multilevel C) direct-response D) corporate E) direct Answer: B Rationale: Multilevel marketing involves recruiting independent distributors who not only sell products but also recruit others to do the same, creating a hierarchical structure where distributors earn commissions on their sales as well as the sales of their recruited downline. 20. In ________, a salesperson goes to the home of a host who has invited friends, demonstrates the products and takes orders. A) catalog marketing B) franchising C) direct-response selling D) network marketing E) direct marketing Answer: D Rationale: In network marketing, also known as direct selling or multilevel marketing, salespersons often conduct product demonstrations in home settings, allowing hosts to invite friends and family to view the products and place orders directly. 21. Telemarketing is a type of ________. A) direct selling B) network marketing C) multilevel selling D) close-range marketing E) direct marketing Answer: E Rationale: Telemarketing involves promoting and selling products or services directly to consumers over the phone, making it a form of direct marketing. 22. Electronic shopping is a type of ________. A) direct selling B) network marketing C) multilevel selling D) corporate selling E) direct marketing Answer: E Rationale: Electronic shopping, which involves purchasing goods or services online or through other electronic means, is a form of direct marketing as it allows consumers to buy directly from sellers without intermediaries. 23. Which of the following is true of store retailers? A) A hard-discount store offers a wider merchandise mix than discount stores at higher prices. B) A discount store offers leftover goods, overruns, and irregular merchandise sold at less than retail. C) A specialty store generally stocks a very narrow product line. D) An extreme value store generally has a broad selection of high-markup, brand-name goods. E) A catalog showroom is a large, low-cost, low-margin, high-volume, self-service store. Answer: C Rationale: Specialty stores typically focus on a narrow product line within a specific industry or niche, catering to customers seeking specialized products or experiences. 24. A ________ is a storeless retailer serving a specific clientele—usually employees of large organizations—who are authorized to buy from a list of retailers that have agreed to give discounts in return for inclusion on the list. A) direct-selling vendor B) direct marketing vendor C) buying service D) automatic vendor E) corporate retailer Answer: C Rationale: A buying service is a storeless retailer that facilitates purchases for a specific clientele, such as employees of large organizations, by negotiating discounts with retailers on their behalf. 25. An independent retailer using a central buying organization and joint promotion efforts with other retailers is part of a ________. A) corporate chain store B) voluntary chain C) retailer cooperative D) merchandising conglomerate E) franchise organization Answer: C Rationale: A retailer cooperative consists of independent retailers who join together to form a central buying organization and collaborate on promotional efforts to benefit all members. 26. A ________ is a retail firm owned by its customers. Members contribute money to open their own store, vote on its policies, elect a group to manage it, and receive dividends. A) retailer cooperative B) voluntary chain C) consumer cooperative D) merchandising conglomerate E) franchise organization Answer: C Rationale: A consumer cooperative is a retail business owned and operated by its customers, who contribute to its capital, participate in decision-making, and share in the profits. 27. A ________ is wholesaler-sponsored group of independent retailers engaged in bulk buying and common merchandising. A) retailer cooperative B) voluntary chain C) consumer cooperative D) merchandising conglomerate E) franchise organization Answer: B Rationale: A voluntary chain is a group of independent retailers that is centrally coordinated by a wholesaler or supplier, allowing them to engage in bulk buying and joint merchandising efforts for mutual benefit. 28. Which of the following is true for franchisors? A) The franchisor has to pay the franchisee to be part of the franchise system. B) The franchisor licenses the trade mark from the franchisee. C) The franchisor must change its operations to suit those of the franchisee's. D) The franchisor collects royalty payments from the franchisee. E) The franchisor pays start-up costs for the franchisee. Answer: D Rationale: Franchisors typically collect royalty payments from franchisees in exchange for providing them with the right to operate under their brand name, systems, and support. 29. Which of the following is true for franchisees? A) The franchisee is paid by the franchisor to be part of the franchise system. B) The franchisee licenses a trade mark to the franchisor. C) The franchisee must change its operations to suit those of the franchisor's. D) The franchisee collects royalty payments from the franchisor. E) The franchisee owns the trade or service mark. Answer: C Rationale: Franchisees are required to adhere to the operational standards and guidelines set by the franchisor, which may include adapting their operations to suit those of the franchisor's. 30. Which of the following is a benefit of franchising for franchisees? A) The franchisee finds it easier to borrow money from financial institutions. B) The franchisee receives ownership of the franchisor's trade mark. C) The franchisee must change its operations to suit those of the franchisor's. D) The franchisee collects royalty payments from the franchisor. E) The franchisee is paid by the franchisor for being part of the system. Answer: A Rationale: Franchisees often find it easier to secure financing from banks or other financial institutions due to the established brand recognition and proven business model provided by the franchisor. 31. Jake wants to open a Subway franchise in his small town. To do this, he must pay the company a ________ fee. A) slotting B) title C) royalty D) merchandising E) residual Answer: C Rationale: Franchisees typically pay a royalty fee to the franchisor for the right to operate under their brand name and benefit from their systems and support. 32. Which of the following is true for the retail industry? A) Discount stores and catalog showrooms are competing for the same customers. B) Upscale retailers see a decline in sales as middle-market retailers thrive. C) Small, specialized retailers are crowding out larger, more diverse retailers. D) Store retailing sees no competition from non-store retailing. E) Discount stores are not doing as well as middle-market retailers. Answer: A Rationale: Discount stores and catalog showrooms often compete for similar customer segments by offering lower-priced goods and convenience, which can overlap in terms of customer base. 33. Electronic shelf labeling allows retailers to ________. A) check inventory levels instantaneously B) order electronically from suppliers C) run continual promotional messages D) advertise sales and special offers E) change price levels instantaneously Answer: E Rationale: Electronic shelf labeling systems enable retailers to change the price levels of products instantaneously, improving efficiency and allowing for dynamic pricing strategies. 34. Staples is a giant retailer that concentrates on selling office supplies. Staples is an example of a(n) ________. A) ambush marketer B) supercenter C) megamarketer D) category killer E) guerilla marketer Answer: D Rationale: Staples is considered a category killer, as it dominates its product category (office supplies) by offering a wide selection at competitive prices, thereby outcompeting smaller retailers in the same market segment. 35. In the corporate headquarters of a supermarket chain, ________ are responsible for developing brand assortments and listening to salespersons' presentations. A) central buyers B) brokers C) specialist buyers D) agents E) specialized wholesalers Answer: C Rationale: Specialist buyers at the corporate headquarters of a supermarket chain are responsible for developing brand assortments and evaluating sales presentations from suppliers. 36. In supermarkets and other retail outlets, RFID is used to ________. A) change prices instantaneously B) check for spoilage or damage to goods C) advertise special offers and discounts D) run continual promotional messages E) monitor inventory and track goods Answer: E Rationale: RFID (Radio Frequency Identification) technology is used in retail to monitor inventory levels, track goods throughout the supply chain, and reduce theft or loss by providing real-time visibility into the movement of products. 37. Which of the following is true for direct product profitability analysis? A) It is highly correlated with the gross margin on a product. B) It is negligible compared to the gross margin on a product. C) It bears little relation to the gross margin on a product. D) It is significantly lower than the gross margin on a product. E) It is exactly the same as the gross margin on a product. Answer: C Rationale: Direct product profitability analysis evaluates the profitability of individual products by considering all associated costs, not just gross margin, providing a more comprehensive view of product performance. 38. Mass merchandisers and discount stores typically fall into the ________ group with respect to margins and volume. A) mixed markup, high-volume B) low-volume, mixed markup C) low-volume, low-markup D) high-volume, low-markup E) high-markup, lower-volume Answer: D Rationale: Mass merchandisers and discount stores typically operate on high volumes with low markups, aiming to generate profit through selling large quantities of goods at lower prices. 39. A store selling expensive artwork and luxury goods typically falls into the ________ group with respect to margins and volume. A) mixed markup, high-volume B) low-volume, mixed markup C) low-volume, low-markup D) high-volume, low-markup E) high-markup, low-volume Answer: E Rationale: Stores selling expensive artwork and luxury goods often operate with low volume but high markups, relying on the exclusivity and perceived value of their products to generate profit. 40. Most retailers will put low prices on some items in order to increase traffic to the store. These low-priced products are known as ________. A) loss leaders B) price ceilings C) price skimmers D) price floors E) cold calls Answer: A Rationale: Low-priced products used to attract customers to a store with the hope that they will also purchase higher-margin items are known as loss leaders. 41. American businessman King Gillette pioneered the sales model in which razor handles were given away for free or sold at a loss, but sales of disposable razor blades were very profitable. This is known as the _______ model. A) two-tiered pricing B) predatory pricing C) cross selling D) loss leading E) product churning Answer: D Rationale: This sales model, popularized by King Gillette, is commonly referred to as "loss leading," where a product is sold at a loss or given away for free to stimulate sales of complementary, more profitable products. 42. Which of the following is a prepurchase service offered by retailers? A) accepting orders over the telephone B) shipping the product C) delivery to the customer's doorstep D) general information E) interior decoration of the retail outlet Answer: A Rationale: Accepting orders over the telephone is a prepurchase service as it assists customers in initiating the purchase process by providing a convenient way to place orders remotely. 43. Which of the following is a postpurchase service offered by retailers? A) accepting orders over the telephone B) advertising and window displays C) delivery to the customer's doorstep D) general information E) interior decoration of the retail outlet Answer: C Rationale: Delivery to the customer's doorstep is a postpurchase service as it occurs after the purchase transaction is completed and assists customers in receiving their purchased items. 44. Which of the following is an ancillary service offered by retailers? A) accepting orders over the telephone B) advertising and window displays C) delivery to the customer's doorstep D) general information E) alterations and tailoring Answer: D Rationale: General information, such as product details, store policies, or assistance with decision-making, is considered an ancillary service provided by retailers to enhance the overall shopping experience. 45. In your neighborhood there is a small men's store that has a limited selection of clothing, but the selection that is carried is of very high quality and price. Services include free alterations and tailoring, personalized record keeping, and free dry cleaning. The inside of the store has deep leather chairs and couches and thick pile carpet. Upon entering the store, a customer feels "special and rich." In terms of differentiation, what is this retailer trying to communicate by its decorations and service level? A) differentiation based on services mix and atmosphere B) differentiation based on prepurchase services C) differentiation based on postpurchase services and atmosphere D) differentiation based on ancillary services and atmosphere E) differentiation based on prepurchase and postpurchase services Answer: A Rationale: The retailer is aiming to differentiate itself based on its services mix and the atmosphere it creates in the store, such as providing high-quality products, personalized services, and a luxurious ambiance to make customers feel special and valued. 46. Which of the following is the strongest differentiator for brick-and-mortar stores who want to emphasize their superiority over online retailers? A) product quality B) the shopping experience C) product range D) pricing E) the retailer's reputation Answer: B Rationale: The shopping experience, including personalized service, physical interaction with products, and ambiance, is often the strongest differentiator for brick-and-mortar stores compared to online retailers. 47. A brand developed by a retailer and/or wholesaler that is available only in selected retail outlets is called a ________ brand. A) generic B) franchisee C) marque D) national E) private-label Answer: E Rationale: A private-label brand, also known as a store brand or own brand, is developed by a retailer or wholesaler and is available exclusively in selected retail outlets operated by that retailer. 48. Though it is sold only in Wal-Mart stores, Wal-Mart's Ol'Roy dog food has surpassed Nestlé's Purina brand as the top-selling dog food. Ol'Roy is an example of a ________. A) generic product B) national brand C) franchise D) copy-cat brand E) private label Answer: E Rationale: Wal-Mart's Ol'Roy dog food, sold exclusively in Wal-Mart stores, is an example of a private-label brand, as it is developed and marketed by the retailer itself rather than a national manufacturer. 49. Which of the following is true for distributor brands? A) They sell at higher volumes than national brands and are also known as generics. B) They are usually sold at higher prices than national brands because production costs are higher. C) They are always of better quality than national brands as production is strictly monitored. D) Distributor brands can be sold at lower prices yet generate a higher profit margin because of their lower cost structure. E) Advertising and sales promotion costs for distributor brands are much higher than those for national brands. Answer: D Rationale: Distributor brands, also known as private-label brands, can be sold at lower prices than national brands while still generating a higher profit margin for retailers due to their lower cost structure and reduced marketing expenses. 50. ________ are unbranded, plainly packaged, less expensive versions of common products such as spaghetti, paper towels, and canned peaches. A) Common carriers B) Shills C) Generics D) Private labels E) Marques Answer: C Rationale: Generics are unbranded, plainly packaged products that offer a lower-cost alternative to branded items, typically sold at a lower price point. 51. In addition to its store brands and nationally well-known brands of detergents, Reynold's also carries much cheaper varieties of detergents that are not advertised and have little-known names. They are often manufactured from lower-quality ingredients and save on packaging and advertising costs. These are known as ________. A) common carriers B) shills C) generics D) private labels E) marques Answer: C Rationale: These cheaper varieties of detergents are known as generics, which are unbranded products that offer a lower-cost alternative to branded items, typically sold at a lower price point. 52. Because shelf space is scarce, many supermarkets now charge a ________ for accepting a new brand, to cover the cost of listing and stocking it. A) retainer B) slotting fee C) residual fee D) contingent fee E) royalty Answer: B Rationale: Supermarkets charge slotting fees for accepting a new brand onto their shelves to cover the costs associated with listing and stocking the product in their stores, especially considering the limited space available. 53. ________ includes all the activities in selling goods or services to those who buy for resale or business use. A) Retailing B) Wholesaling C) Procurement D) Promoting E) Warehousing Answer: B Rationale: Wholesaling encompasses all activities involved in selling goods or services to those who buy for resale or business use, serving as intermediaries between producers and retailers or other businesses. 54. Which of the following is considered a wholesaler? A) retailers B) brokers C) producers D) manufacturers E) farmers Answer: B Rationale: Brokers are considered wholesalers as they facilitate transactions between buyers and sellers without taking ownership of the products, earning a commission for their services. 55. ________ are independently owned businesses that take title to the merchandise they handle. They are full-service and limited-service jobbers, distributors, and mill supply houses. A) Brokers B) Agents C) Merchant wholesalers D) Specialized wholesalers E) Retailers' branches Answer: C Rationale: Merchant wholesalers are independently owned businesses that take title to the merchandise they handle, distinguishing them from brokers who do not take ownership of the products they facilitate sales for. 56. ________ serve bulk industries such as coal, lumber, and heavy equipment, assuming title and risk from the time an order is accepted to its delivery. A) Producers' cooperatives B) Cash and carry wholesalers C) Truck wholesalers D) Drop shippers E) Rack jobbers Answer: D Rationale: Drop shippers serve bulk industries and assume title and risk from the time an order is accepted to its delivery, often specializing in particular product categories or industries. 57. ________ sell and deliver a limited line of semiperishable goods to supermarkets, grocery stores, hospitals, restaurants, and hotels. A) Producers' cooperatives B) Cash and carry wholesalers C) Truck wholesalers D) Drop shippers E) Rack jobbers Answer: C Rationale: Truck wholesalers sell and deliver a limited line of semiperishable goods directly to various retail establishments, catering to supermarkets, grocery stores, hospitals, restaurants, and hotels, among others. 58. The owner of supermarket chain Reynold's has realized that customers want a wider variety of goods than is currently available. However, Reynold's cannot afford the costs of storing excess inventory. Additionally, the owner is not willing to take the risk that the new products will remain unsold. Which of the following types of wholesalers can help Reynold's meet customer demand while minimizing costs? A) Producers' cooperatives B) Cash and carry wholesalers C) Truck wholesalers D) Drop shippers E) Rack jobbers Answer: E Rationale: Rack jobbers can help Reynold's meet customer demand while minimizing costs as they deliver goods directly to retail establishments and are responsible for stocking and maintaining product displays, reducing the need for Reynold's to store excess inventory. 59. Agricultural assemblers, petroleum bulk plants and terminals, and auction companies are examples of ________. A) full-service wholesalers B) specialized wholesalers C) limited-service wholesalers D) merchant wholesalers E) brokers Answer: B Rationale: These entities are examples of specialized wholesalers as they focus on specific industries or product categories, providing specialized services tailored to the needs of those industries. 60. Which of the following is true of brokers? A) Brokers represent buyers or sellers on a semipermanent basis. B) Most brokers are small businesses with a few skilled salespeople. C) Brokers bring buyers and sellers together and assist in negotiation. D) Selling brokers have contractual authority to sell a manufacturer's entire output. E) Purchasing brokers make purchases for buyers and often receive, inspect, warehouse, and ship merchandise. Answer: C Rationale: Brokers act as intermediaries who bring buyers and sellers together and assist in negotiation, facilitating transactions without taking ownership of the products. 61. ________ refers to buying large carload lots and dividing them into smaller units before shipping them out to consumers. A) Bulk breaking B) Containerization C) Wholesaling D) Warehousing E) Broking Answer: A Rationale: Bulk breaking involves purchasing goods in large quantities and then breaking them down into smaller units for distribution to consumers, making it more convenient for retailers to purchase smaller quantities according to their needs. 62. ________ encompass sales forecasting, production planning, and inbound materials transportation. A) Market logistics B) Containerization C) Transportation D) Nonstore retailing E) Wholesaling Answer: A Rationale: Market logistics involve various activities such as sales forecasting, production planning, and inbound materials transportation, all aimed at efficiently getting products to the market. 63. The elapsed time between an order's receipt, delivery, and payment is called the ________. A) variable-costs-to-payment cycle B) product-to-payment cycle C) inventory-to-sale cycle D) order-to-inventory cycle E) order-to-payment cycle Answer: E Rationale: The order-to-payment cycle refers to the time it takes from when an order is received until the payment is received, including the processes of delivery and invoicing. 64. ________ costs for a manufacturer consist of setup costs and running costs. A) Inventory-carrying B) Containerization C) Wholesaling D) Order-processing E) Transportation Answer: D Rationale: Order-processing costs for a manufacturer include both setup costs (related to preparing equipment or processes for production) and running costs (associated with the actual production process). 65. As inventory draws down, management must know at what stock level to request additional stock. This stock level is called the ________. A) reorder point B) least fixed point C) point of divergence D) inflection point E) critical point Answer: A Rationale: The reorder point is the stock level at which a new order should be placed to replenish inventory before it runs out, ensuring uninterrupted supply. 66. A stock order point of 10 means ordering the product ________. A) every 10 days B) when stock falls to 10 units C) every 10 units D) when stock falls to 9 units E) in batches of 10 items Answer: B Rationale: A stock order point of 10 indicates that the product should be reordered when the stock falls to 10 units, ensuring that there is enough inventory to meet demand. 67. Optimal order quantities exist when the curves for the order-processing cost per unit and inventory-carrying cost per unit ________. A) are collinear B) are diagonal to each other C) intersect D) are parallel to each other E) equal zero Answer: C Rationale: Optimal order quantities occur at the point where the curves for order-processing cost per unit and inventory-carrying cost per unit intersect, minimizing total inventory costs. 68. E&OE is trying to minimize its inventory costs, which are extremely high. The company has realized that it can achieve this by maintaining a near-zero inventory and producing more only once a product is ordered. Which of the following is true for E&OE? A) Inventory costs are lower than order-processing costs. B) Running costs are higher than inventory-carrying costs. C) Setup costs for the products are low. D) Order-processing costs are high. E) Order-processing costs are lower than setup costs. Answer: C Rationale: E&OE can minimize inventory costs by maintaining a near-zero inventory and producing only once a product is ordered, indicating that setup costs for the products are low. 69. E&OE is trying to minimize its inventory costs, which are extremely high. The company has realized that it can achieve this by maintaining a near-zero inventory and producing only once a product is ordered. Which of the following will be true for E&OE? A) Short production runs will be more expensive than longer ones. B) Setup and order-processing costs will be high. C) The order point will be high. D) Order-processing costs will be lower than the inventory-carrying costs. E) E&OE can reduce the average cost per unit by producing a long run. Answer: D Rationale: With a near-zero inventory approach, order-processing costs will be lower than inventory-carrying costs since products are produced only in response to customer orders, minimizing the need for inventory storage and associated costs. 70. Beyond the optimal order quantity, total cost per unit increases because ________. A) inventory-carrying cost per unit increases B) inventory-carrying cost per unit decreases C) order-processing cost per unit increases D) order-processing cost per unit increases though inventory cost decreases E) inventory-processing cost per unit falls slowly Answer: A Rationale: Beyond the optimal order quantity, total cost per unit increases because inventory-carrying costs per unit rise as additional inventory is held, leading to increased storage expenses and potential obsolescence costs. 71. Companies are reducing their inventory costs by treating inventory items differently, positioning them according to risk and opportunity. High-risk, low-opportunity items are known as ________. A) nuisance items B) bottleneck items C) variable items D) critical items E) commodities Answer: B Rationale: Bottleneck items are those with high risk and low opportunity, meaning they pose a significant risk to the company while offering limited potential for profit or growth. 72. HCN recently introduced a product that the distributor considers a "bottleneck" item. What is the risk/opportunity relationship for bottleneck items? A) low risk, mediocre opportunity B) low risk, high opportunity C) low risk, low opportunity D) high risk, mediocre opportunity E) high risk, low opportunity Answer: E Rationale: Bottleneck items are characterized by high risk and low opportunity, indicating significant potential for loss or failure with limited potential for profit or growth. 73. An item described as low-risk and low-opportunity is a ________. A) nuisance item B) bottleneck item C) variable item D) critical item E) commodity Answer: A Rationale: Nuisance items are those with low risk and low opportunity, offering little potential for profit or growth and posing minimal risk to the company. 74. ________ consists of putting goods in boxes or trailers that are easy to transfer between two transportation modes. A) Containerization B) Haulage C) Inventory carrying D) Order processing E) Warehousing Answer: A Rationale: Containerization involves packaging goods in containers or trailers that facilitate easy transfer between different modes of transportation, such as ships, trains, and trucks. 75. Which of the following is an example of a private carrier? A) MET is a transporter that operates only in the Chicago area and charges fixed prices. B) BCL is a family firm that owns only three trucks, but takes small orders for transport. C) VTV owns a fleet of trucks and transports goods for any client for a fee. D) COM is a shipping firm that transports goods by road and rail across the U.S. E) BEL Inc. manufactures parts for automobiles and transports its products to customers itself. Answer: E Rationale: BEL Inc., as a manufacturer that transports its own products to customers, qualifies as a private carrier, utilizing its own transportation assets for shipping. 76. The trucking firm hired by your transportation manager provides a trucking service between the city of Sacramento and the surrounding towns on a regular schedule and at fixed prices. The trucking firm saves transportation costs by transporting the goods using trains as well as trucks, instead of trucks alone. Your transportation manager has hired a(n) ________. A) airship carrier B) airtruck carrier C) trainship carrier D) fishyback carrier E) piggyback carrier Answer: E Rationale: A piggyback carrier is a transportation service that combines trucking with rail transport, offering cost-effective shipping options by utilizing both modes of transportation. 77. If the shipper owns its own truck or air fleet, it becomes a ________. A) containerized carrier B) private carrier C) contract carrier D) common carrier E) diversified carrier Answer: B Rationale: A shipper that owns its own transportation assets, such as trucks or aircraft, functions as a private carrier, utilizing its own fleet for transporting goods. 78. Retailing includes all the activities involved in selling goods or services directly to final consumers. Answer: True Rationale: Retailing indeed encompasses all the processes and activities involved in selling goods or services directly to end consumers. This includes aspects like merchandising, advertising, sales, customer service, and more. 79. Full-service retailers generally have the lowest costs of all retail types. Answer: False Rationale: Full-service retailers typically incur higher costs due to providing additional services to customers, such as personalized assistance, extensive product displays, and convenient store locations. These additional services often lead to higher operating costs compared to other retail formats like discount stores. 80. Discount stores usually stock leftover goods, overruns, and irregular merchandise, sold at less than retail. Answer: False Rationale: Discount stores typically offer a wide range of products at lower prices compared to traditional retail stores by employing strategies like bulk purchasing, streamlined operations, and minimal frills. While they may offer discounts on certain items, they usually sell regular merchandise, not just leftovers or irregular goods. 81. The network marketing sales system works by recruiting independent businesspeople who act as distributors. Answer: True Rationale: Network marketing, also known as multi-level marketing (MLM), relies on recruiting independent distributors who sell products or services directly to consumers while also recruiting others to join the distribution network. Distributors earn commissions not only from their own sales but also from the sales of their recruits, forming a hierarchical network. 82. Electronic shopping is a form of direct marketing. Answer: True Rationale: Electronic shopping, commonly known as e-commerce, involves the direct sale of goods or services to consumers over the internet. It bypasses traditional brick-and-mortar retail channels, making it a form of direct marketing where businesses interact directly with consumers through online platforms. 83. A superstore is a storeless retailer serving a specific clientele who are entitled to buy from a list of retailers that have agreed to give discounts in return for membership. Answer: False Rationale: A superstore is a large retail establishment that offers a wide variety of products, often including groceries, clothing, electronics, and household goods, under one roof. It operates as a physical store and is not storeless. Additionally, the description provided aligns more with a buying club or membership-based discount program, not a superstore. 84. A retailer cooperative is a retail firm that is owned by its customers. Answer: False Rationale: A retailer cooperative is a type of retail organization owned and operated by a group of independent retailers who pool their resources to improve their competitiveness. While customers may be members of the cooperative and may benefit from membership, they do not own the cooperative; ownership lies with the participating retailers. 85. A franchise organization is a corporate retail organization. Answer: True Rationale: A franchise organization involves a contractual relationship between a franchisor (the entity that owns the brand and business model) and franchisees (individuals or entities granted the right to operate under the franchisor's brand). Franchisees pay fees and royalties to the franchisor in exchange for using its trademarks, systems, and support. While the franchisor may be a corporation, franchisees operate as independent businesses. 86. The franchisor owns a trade or service mark and licenses it to franchisees in return for royalty payments. Answer: True Rationale: In a franchise system, the franchisor typically owns the trademarks, trade names, and business systems associated with the franchise concept. Franchisees pay fees, including royalties, to the franchisor for the right to use these intellectual property assets and operate their businesses under the franchisor's brand and guidelines. 87. "Pop-up" stores let retailers promote brands to seasonal shoppers for a limited time. Answer: True Rationale: Pop-up stores are temporary retail establishments that are set up for a short period, often to capitalize on specific events, seasons, or trends. They provide retailers with an opportunity to generate buzz, test new markets, or promote products to a targeted audience for a limited time before closing down. 88. Department stores only face competition from other department stores as other retailing forms are not a threat to their sales and profitability. Answer: False Rationale: Department stores face competition from various retailing forms, including specialty stores, discount stores, e-commerce platforms, and more. Consumers have a wide range of options for purchasing goods, and department stores must compete with these alternatives to attract customers and maintain profitability. 89. Consumers now receive sales offers through direct-mail letters and catalogs, television, cell phones, and the Internet. The nonstore-based retailers are taking business away from store-based retailers. Answer: True Rationale: With advancements in technology and changes in consumer behavior, nonstore-based retailers, such as online retailers, have gained prominence. They utilize various channels like direct mail, television advertisements, cell phone promotions, and internet marketing to reach consumers, posing significant competition to traditional store-based retailers. 90. Supercenters retail grocery items as well as a huge selection of nonfood merchandise. Answer: True Rationale: Supercenters are large retail establishments that combine a supermarket with a department store, offering a wide range of products including groceries and nonfood merchandise like clothing, electronics, household goods, and more, all under one roof. 91. Growth in the retail market is centered firmly in the middle market, leaving luxury retailers and discounting specialists struggling. Answer: False Rationale: The retail market is diverse, with growth opportunities existing across various segments. While the middle market may see growth, luxury retailers and discount specialists often cater to distinct consumer segments and can thrive depending on economic conditions, consumer preferences, and market trends. 92. As discount retailers improve their quality and image, consumers have been willing to trade down. Answer: True Rationale: Some discount retailers have enhanced their quality and image over time, offering products that rival those found in traditional stores at lower prices. This improvement has led consumers to opt for discounted options over higher-priced alternatives, resulting in a willingness to "trade down" in pursuit of value. 93. Electronic shelf labeling allows retailers to check inventory levels instantaneously. Answer: False Rationale: Electronic shelf labeling primarily facilitates price updates and promotions in real-time but may not directly enable instantaneous inventory checks. Inventory management systems, RFID technology, or barcode scanning are typically used to monitor inventory levels more effectively. 94. Firms are increasingly recognizing the importance of influencing consumers at the point of purchase. Answer: True Rationale: The point of purchase, where consumers make their buying decisions, is critical for retailers. Firms recognize the significance of influencing consumer behavior through various strategies such as product placement, signage, promotions, and experiential marketing, all aimed at increasing sales and enhancing the shopping experience. 95. Retailers can target their customers more effectively by using only a single channel to reach them. Answer: False Rationale: Consumer behavior is complex, and individuals often engage with multiple channels before making a purchase decision. Retailers can achieve more effective targeting by employing omnichannel strategies that integrate various channels, including online, offline, mobile, social media, and in-store experiences, to reach customers wherever they are in their purchasing journey. 96. Featuring exclusive national brands that are not available at competing retailers is a way of generating consumer interest in a retailer. Answer: True Rationale: Offering exclusive national brands that are not available elsewhere can create a unique selling proposition for a retailer, attracting consumers who seek novelty and exclusivity in their purchases. This strategy can help retailers differentiate themselves from competitors and generate consumer interest and loyalty. 97. In order to clearly differentiate themselves from competitors, retailers must keep merchandise and prices always consistent. Answer: False Rationale: While consistency in merchandise quality and pricing is important for building trust and loyalty, differentiation in retail often comes from offering unique products, personalized services, innovative experiences, and effective branding strategies. Retailers can differentiate themselves by adapting to changing consumer preferences, providing exceptional customer service, and creating memorable shopping experiences, among other factors. 98. The gross margin on a product bears a direct relation to the direct product profit. Answer: False Rationale: Gross margin represents the difference between the selling price of a product and the cost of goods sold (COGS), while direct product profit takes into account additional direct costs associated with the product, such as marketing expenses, shipping costs, and handling fees. While gross margin is a key indicator of profitability, direct product profit provides a more comprehensive view of the product's financial performance. 99. Some high-volume products may have such high handling costs that they are less profitable and deserve less shelf space than low-volume products. Answer: True Rationale: Profitability in retail is not solely determined by sales volume but also by factors such as margins and associated costs. High-volume products may incur significant handling, storage, and logistics costs, reducing their overall profitability despite their sales volume. Retailers must consider the profitability of each product when allocating shelf space and inventory management to optimize their assortments and maximize overall profitability. 100. Mass merchandisers are usually high-markup, lower-volume stores. Answer: False Rationale: Mass merchandisers typically operate on lower markups but high volume. They offer a wide range of products at relatively low prices to attract a large number of customers, relying on high sales volume to generate profits rather than high markup per item. 101. Low prices on some items serve as traffic builders or loss leaders for retailers. Answer: True Rationale: Retailers often use low prices on certain items as traffic builders or loss leaders to attract customers to their stores. While these items may be sold at a loss or with minimal profit margin, they serve to draw consumers into the store, where they are likely to purchase other, higher-margin products as well. 102. EDLP can lead to lower advertising costs and higher retail profits. Answer: True Rationale: Everyday Low Pricing (EDLP) is a pricing strategy where retailers offer consistently low prices on their products rather than relying on frequent sales or promotions. This can result in lower advertising costs as retailers don't need to invest as heavily in promotional efforts. Additionally, EDLP can lead to higher profits by increasing customer loyalty and reducing price-sensitive behavior. 103. Accepting telephone and mail orders is an example of the ancillary services that a retailer offers. Answer: False Rationale: Accepting telephone and mail orders is not considered an ancillary service but rather a primary method of conducting business for some retailers, especially those with catalog or online sales channels. Ancillary services typically refer to additional services provided by retailers beyond the core transaction, such as gift wrapping, alterations, or delivery services. 104. Postpurchase services include shipping and delivery, gift wrapping, adjustments and returns. Answer: True Rationale: Postpurchase services encompass activities that occur after a customer has made a purchase, including shipping and delivery, gift wrapping, product adjustments, and handling returns or exchanges. These services are aimed at enhancing customer satisfaction and ensuring a positive shopping experience. 105. Private label or store brands are also known as generics. Answer: False Rationale: Private label or store brands are products developed and sold under the retailer's own brand name. Generics typically refer to unbranded or off-brand products that lack any specific branding or labeling, often sold at lower prices than branded alternatives. 106. The lower price of generics is made possible by lower-cost labeling and packaging and minimal advertising, and sometimes lower-quality ingredients. Answer: True Rationale: Generics often feature lower prices compared to branded products due to cost-saving measures such as simpler labeling and packaging, reduced advertising expenses, and the use of lower-cost ingredients or materials. While they may offer comparable quality to branded products in some cases, generics may also feature lower-quality ingredients or formulations in order to maintain lower prices. 107. Wholesaling includes all the activities in selling goods or services to those who buy for resale or business use. Answer: True Rationale: Wholesaling encompasses the distribution process whereby goods or services are sold to retailers, industrial, commercial, institutional, or other professional business users who purchase for resale or business use. Wholesalers play a vital role in the supply chain by facilitating the movement of goods from manufacturers to end-users. 108. Wholesalers exclude manufacturers and farmers because they are engaged primarily in production, but include retailers, as they are selling to the end consumer. Answer: False Rationale: Wholesalers typically include manufacturers and farmers in their definition, as they are involved in selling goods or services for resale or business use. Retailers, on the other hand, are not considered wholesalers, as they sell directly to end consumers rather than for resale or business use. 109. Merchant wholesalers are independently owned businesses that take title to the merchandise they handle. Answer: True Rationale: Merchant wholesalers are intermediaries in the distribution channel who purchase goods from manufacturers or producers and take ownership (title) of the merchandise. They then resell these goods to retailers, other wholesalers, or industrial, commercial, institutional, or professional business users. Merchant wholesalers operate independently and assume the financial risks associated with owning the inventory they handle. 110. Most companies today are trying to increase the order-to-payment cycle. Answer: False Rationale: In reality, most companies aim to decrease the order-to-payment cycle, as shorter cycles can lead to improved cash flow, reduced working capital requirements, and increased efficiency in the supply chain. 111. More stocking locations mean goods can be delivered to customers more quickly, and warehousing and inventory costs are lower. Answer: False Rationale: While more stocking locations may indeed enable faster delivery to customers, they can also lead to higher warehousing and inventory costs. Maintaining multiple stocking locations requires additional investment in facilities, transportation, and inventory management, potentially offsetting any benefits gained from improved delivery times. 112. Inventory cost increases at an accelerating rate as the customer-service level approaches 100 percent. Answer: True Rationale: As the customer-service level approaches 100 percent, inventory costs tend to increase at an accelerating rate. Achieving a near-perfect service level typically necessitates higher safety stock levels, which in turn increase inventory carrying costs, leading to a disproportionate rise in total inventory costs. 113. If setup costs are high, the manufacturer can produce the item often, and the average cost per item is stable and equal to the running costs. Answer: False Rationale: High setup costs can discourage frequent production runs, as they increase the cost per unit produced. In such cases, manufacturers may opt for larger production runs to spread out setup costs over more units, but this can lead to higher average costs per item due to increased inventory carrying costs and potentially obsolescence. 114. Order-processing costs must be compared with inventory-carrying costs because the larger the average stock carried, the higher the inventory-carrying costs. Answer: True Rationale: Order-processing costs and inventory-carrying costs are both significant components of total inventory management costs. As the average stock carried increases, inventory-carrying costs rise due to higher levels of investment tied up in inventory. Consequently, it's essential to compare order-processing costs with inventory-carrying costs to optimize inventory management strategies. 115. As inventory draws down, management must know at what stock level to place a new order. This stock level is called the order point. Answer: True Rationale: The order point, also known as the reorder point, represents the inventory level at which a new order should be placed to replenish stock before it runs out. It is calculated based on factors such as lead time, demand variability, and desired service level to ensure that sufficient inventory is available to meet customer demand without excessive stockouts. 116. The order-processing cost per unit increases with the number of units ordered because the order costs are spread over more units. Answer: False Rationale: The order-processing cost per unit typically decreases as the number of units ordered increases because order costs, such as setup costs or processing fees, are spread out over a larger quantity of items. This results in a lower per-unit cost for order processing as economies of scale are realized. 117. Companies who want to carry near-zero inventory should build for order, not for stock. Answer: True Rationale: Companies aiming to minimize inventory holding costs and maintain lean inventory levels often adopt a build-to-order strategy rather than building up stock in anticipation of future demand. By manufacturing or assembling products only in response to specific customer orders, companies can reduce inventory carrying costs, minimize the risk of obsolescence, and improve overall efficiency in the supply chain. 118. List and explain the four service levels offered by retailers. Answer: Retailers meet widely different consumer preferences for service levels and specific services. The four levels of service usually offered by retailers are: (1) self-service, (2) self-selection, (3) limited service, and (4) full service. Self-service: Self-service is the cornerstone of all discount operations. Many customers are willing to carry out their own "locate-compare-select" process to save money. Self-selection: Customers find their own goods, although they can ask for assistance. Limited service: These retailers carry more shopping goods and services such as credit and merchandise-return privileges. Customers need more information and assistance. Full-service: Salespeople are ready to assist in every phase of the "locate-compare-select" process. Customers who like to be waited on prefer this type of store. The high staffing cost, along with the higher proportion of specialty goods and slower-moving items and the many services, result in high-cost retailing. 119. List the four categories of non-store retailing and briefly explain each. Answer: Although the overwhelming bulk of goods and services are sold through stores, nonstore retailing has been growing much faster than store retailing. Nonstore retailing falls into four major categories: Direct selling, also called multilevel selling and network marketing, is a multibillion-dollar industry, with hundreds of companies selling door-to-door or at home sales parties. A salesperson goes to the home of a host who has invited friends; the salesperson demonstrates the products and takes orders. Pioneered by Amway, the multilevel (network) marketing sales system works by recruiting independent businesspeople who act as distributors. The distributor's compensation includes a percentage of sales made by those he or she recruits, as well as earnings on direct sales to customers. These direct-selling firms, now finding fewer consumers at home, are developing multidistribution strategies. Direct marketing has roots in direct-mail and catalog marketing. It includes telemarketing, television direct-response marketing, and electronic shopping. As people become more accustomed to shopping on the Internet, they are ordering a greater variety of goods and services from a wider range of web sites. Automatic vending offers a variety of merchandise, including impulse goods such as soft drinks, coffee, candy, newspapers, magazines, and other products such as hosiery, cosmetics, hot food, and paperbacks. Vending machines are found in factories, offices, large retail stores, gasoline stations, hotels, restaurants, and many other places. They offer 24-hour selling, self-service, and merchandise that is stocked to be fresh. Buying service is a storeless retailer serving a specific clientele, usually employees of large organizations, who are entitled to buy from a list of retailers that have agreed to give discounts in return for membership. 120. In what ways does franchising benefit the franchisor? In what ways does it benefit the franchisee? Answer: Franchising benefits both the franchisor and the franchisee. Franchisors gain the motivation and hard work of employees who are entrepreneurs rather than "hired hands," the franchisees' familiarity with local communities and conditions, and the enormous purchasing power of being a franchisor. Franchisees benefit from buying into a business with a well-known and accepted brand name. They find it easier to borrow money for their business from financial institutions, and they receive support in areas ranging from marketing and advertising to site selection and staffing. 121. List some recent trends in retailing. Answer: • The recent trends in retail include the following: • New retail forms and combinations • Growth of intertype competition • Competition between store-based and nonstore-based retailing • Growth of giant retailers • Decline of middle-market retailers • Growing investment in technology • Global profile of major retailers • Growth of shopper marketing 122. List some differentiation strategies retailers can use to compete successfully in the market. Answer: To better differentiate themselves and generate consumer interest, retailers can use the following strategies: (1) Feature exclusive national brands that are not available at competing retailers; (2) feature mostly private-label merchandise; (3) feature blockbuster distinctive merchandise events; (4) feature surprise or ever-changing merchandise; (5) feature the latest or newest merchandise first; (6) offer merchandise-customizing services; and (7) offer a highly targeted assortment. 123. The growth of "house brands" has skyrocketed in recent years. What benefits do intermediaries receive from sponsoring their own brands? Answer: A private label brand (also called a reseller, store, house, or distributor brand) is a brand that retailers and wholesalers develop. These brands can be more profitable. Intermediaries search for manufacturers with excess capacity that will produce private label goods at low cost. Other costs, such as research and development, advertising, sales promotion, and physical distribution, are also much lower, so private labels can generate a higher profit margin. Retailers also develop exclusive store brands to differentiate themselves from competitors. Many price-sensitive consumers prefer store brands in certain categories. These preferences give retailers increased bargaining power with marketers of national brands. 124. List the major types of limited-service wholesalers and explain how each type functions. Answer: Cash and carry wholesalers sell a limited line of fast-moving goods to small retailers for cash. Truck wholesalers sell and deliver a limited line of semiperishable goods to supermarkets, grocery stores, hospitals, restaurants, and hotels. Drop shippers serve bulk industries such as coal, lumber, and heavy equipment. They assume title and risk from the time an order is accepted to its delivery. Rack jobbers serve grocery retailers in nonfood items. Delivery people set up displays, price goods, and keep inventory records; they retain title to goods and bill retailers only for goods sold to the end of the year. Producers' cooperatives assemble farm produce to sell in local markets. Mail-order wholesalers send catalogs to retail, industrial, and institutional customers; orders are filled and sent by mail, rail, plane, or truck. 125. Why do retailers prefer to deal with wholesalers rather than directly with manufacturers? Answer: In general, retailers prefer to deal with wholesalers rather than directly with manufacturers (and vice versa) as wholesalers are better at performing the following functions: Selling and promoting: Wholesalers' sales forces help manufacturers reach many small business customers at a relatively low cost. They have more contacts, and buyers often trust them more than they trust a distant manufacturer. Buying and assortment building: Wholesalers are able to select items and build the assortments their customers need, saving them considerable work. Bulk breaking: Wholesalers achieve savings for their customers by buying large carload lots and breaking the bulk into smaller units. Warehousing: Wholesalers hold inventories, thereby reducing inventory costs and risks to suppliers and customers. Transportation: Wholesalers can often provide quicker delivery to buyers because they are closer to the buyers. Financing: Wholesalers finance customers by granting credit, and finance suppliers by ordering early and paying bills on time. Risk bearing: Wholesalers absorb some risk by taking title and bearing the cost of theft, damage, spoilage, and obsolescence. Market information: Wholesalers supply information to suppliers and customers regarding competitors' activities, new products, price developments, and so on. Management services and counseling: Wholesalers often help retailers improve their operations by training sales clerks, helping with store layouts and displays, and setting up accounting and inventory-control systems. They may help industrial customers by offering training and technical services. 126. Describe the four steps in market logistics planning. Answer: Market logistics includes planning the infrastructure to meet demand, then implementing and controlling the physical flows of materials and final goods from points of origin to points of use, to meet customer requirements at a profit. Market logistics planning has four steps: Deciding on the company's value proposition to its customers. (What on-time delivery standard should we offer? What levels should we attain in ordering and billing accuracy?. Selecting the best channel design and network strategy for reaching the customers. (Should the company serve customers directly or through intermediaries? What products should we source from which manufacturing facilities? How many warehouses should we maintain and where should we locate them?. Developing operational excellence in sales forecasting, warehouse management, transportation management, and materials management. Implementing the solution with the best information systems, equipment, policies, and procedures. 127. Differentiate between brokers and agents. Answer: Brokers and agents both perform wholesaling functions. They facilitate buying and selling, on commission of 2 percent to 6 percent of the selling price and generally specialize by product line or customer type. Brokers bring buyers and sellers together and assist in negotiation; they are paid by the party hiring them—food brokers, real estate brokers, insurance brokers. Agents represent buyers or sellers on a more permanent basis. Most manufacturers' agents are small businesses with a few skilled salespeople: Selling agents have contractual authority to sell a manufacturer's entire output; purchasing agents make purchases for buyers and often receive, inspect, warehouse, and ship merchandise; commission merchants take physical possession of products and negotiate sales. 128. Sandy's Stores is a small chain of grocery stores located in a few neighboring towns. The stores have always been largely self-service, but the company is considering making a switch to full-service stores. Offer reasons why Sandy's should stick with its current system. Answer: As Sandy's is primarily a grocery chain, it is unlikely that customers will need much help in locating products. The high staffing cost of full-service retailing will only increase operational costs for Sandy's, without conferring any benefit. 129. Sandy's Stores is a small chain of grocery stores located in a few neighboring towns. The stores have always been largely self-service, but the company is considering making a switch to full-service stores. What can Sandy's do to justify this move? Answer: To justify the increased staff costs of full-service retailing, Sandy's can add higher-value products to its line-up. The company can begin carrying a higher proportion of specialty goods. 130. Sandy's Stores is a small chain of grocery stores located in a few neighboring towns. The stores have always been largely self-service, but the company is considering making a switch to full-service stores. Offer one possible reason why this move is justified. Answer: Full-service retailing is preferred by customers who like to be waited upon. If most of Sandy's customers show a preference for being waited upon, this can justify the costs of full-service retailing. If Sandy's has a number of products or services for which customers need information or guidance, or stocks high-value or specialized product, full-service retailing will be justified. 131. Skincare company E&OE has realized that its customers are very loyal to the brand and play a large part in popularizing it by word of mouth. E&OE wants to leverage this customer loyalty by using it to generate sales outside its store format. How can E&OE achieve this? Answer: E&OE can opt for the direct selling method, using multilevel or network marketing. A salesperson can go to the home of a loyal customer who has invited friends; the salesperson demonstrates the products and takes orders. The company can also recruit independent customers who act as distributors. The distributor's compensation includes a percentage of sales made by those he or she recruits, as well as earnings on direct sales to customers. 132. Mal's father and grandfather ran Reynold's, a general store in the town of Bayswater. When Mal inherited the store, the town was expanding rapidly and a number of multinational franchisors showed interest in entering the town. Mal wants to turn Reynold's into a franchise of Blue Sun, a fast-food chain. What benefits can Mal gain from this move? Answer: As the franchisor's brand is usually well-known, Mal obtains the benefit of a brand name that has already been accepted by customers. He could find it easier to get loans and financial help from banks on the basis of the well-known brand name. As the franchisor will provide everything from operational processes to marketing assistance, Mal need not spend time and effort beginning the process from scratch. 133. Mal's father and grandfather ran Reynold's, a general store in the town of Bayswater. When Mal inherited the store, the town was expanding rapidly and a number of multinational franchisors showed interest in entering the town. Mal wants to turn Reynold's into a franchise of Blue Sun, a fast-food chain. Why shouldn't Mal go the franchise route? Answer: Most franchises offer franchisees limits or negligible independence in the questions of staffing, pricing, store decor, sourcing and processes. Mal may have to make changes that he does not agree with. He may not have the freedom to run the business as he thinks best. 134. Skincare company E&OE retails its products through standalone stores or through its own stores within malls. The management uses this method so that customers are sure of finding only E&OE products at the stores and the brand image remains strong. In this scenario, what can E&OE do to generate consumer interest while retaining its exclusivity? Answer: E&OE can do any or all of the following: Feature blockbuster distinctive merchandise events. Feature surprise or ever-changing merchandise. Feature the latest or newest merchandise first. Offer merchandise-customizing services. Offer a highly targeted assortment. 135. Over the past three years, skincare products retailer E&OE has realized that it is losing sales to competitors who sell products online. E&OE has always cultivated an exclusive upscale image, and the management feels that shifting to the online route will only harm the brand image and sales in the long run. How can E&OE encourage customers to frequent its stores? Answer: E&OE can offer more in-store services for its customers. It can offer information about the products, consultation and advice about the kinds of products to choose and allow customers to test or experience the products themselves. The retailer can also revamp the store atmosphere to be more inviting to customers, using music and fragrances and store design to create a pleasurable experience. E&OE can also increase the number of activities and experiences that customers can participate in. 136. Imagine that you are in charge of creating a distinctive store atmosphere at a clothing retailer. What can you do to make your store stand out in the customer experience? Answer: Answers can include the use of fragrances, music, store design and layout, and activities. 137. Give one example of a retailer that uses stand-alone stores as opposed to stores located in malls. Why do you think retailers opt for this channel? Answer: Retailers may opt for standalone stores so that they are not associated with other retailers. It can avoid competition from conflicting attractions in a mall. Customers will be less motivated to check other options available at other retailers. Stand-alone stores may give a retailer an upscale image and prevent dilution of the brand identity. 138. Supermarket chain Reynold's is considering making a switch to stocking almost exclusively private-label products in order to offer customers the lowest prices. Offer reasons why Reynold's should think twice before opting to stock exclusively private-label products. Answer: Reynold's should think twice about opting for private-label products because consumers prefer certain national brands, and many product categories are not feasible or attractive on a private-label basis. 139. Supermarket chain Reynold's is considering stocking a number of private-label products in order to offer customers the lowest possible prices. Explain how this strategy could benefit the company. Answer: Private brands can be more profitable for Reynold's if it searches for manufacturers with excess capacity that will produce private label goods at low cost. Other costs, such as research and development, advertising, sales promotion, and physical distribution, are also much lower, so private labels can generate a higher profit margin. Exclusive store brands can also help Reynold's differentiate itself from competitors. Many price-sensitive consumers prefer store brands in certain categories. These preferences could give Reynold's increased bargaining power with marketers of national brands. 140. JGB manufactures the K-Nine brand of dog food that is carried in supermarkets across the country. The company has always used wholesalers instead of selling directly to the retailers. However, recently, the sales team at JGB has noticed that wholesalers don't aggressively promote JGB's product line. They often don't carry enough inventory and therefore don't fill customers' orders fast enough. However, the marketing team insists that the wholesaling route is the best. What reasons can the marketing team offer to justify this? Answer: Wholesalers' sales forces help JGB reach many small business customers at a relatively low cost. They have more contacts, and the buyers often trust them more than they trust JGB. Wholesalers can often provide quicker delivery to buyers because they are closer to the buyers. Wholesalers absorb some risk by taking title and bearing the cost of theft, damage, spoilage, and obsolescence. Wholesalers supply information regarding competitors' activities, new products, price developments, and so on. 141. Reynold's, a supermarket chain, carries the K-Nine range of dog food manufactured by JGB. However, the chain does not interact directly with JGB, but obtains stocks from wholesalers. It has been suggested that Reynold's save costs by sourcing products directly from JGB. However, Mal, the CEO of the Reynold's, insists that wholesalers are the most hassle-free option for Reynold's. What can Mal say to justify this? Answer: Mal can justify this using any or all of the following reasons: Wholesalers are able to select items and build the assortments Reynold's needs, saving Reynold's considerable work. Wholesalers achieve savings for Reynold's by buying large carload lots and breaking the bulk into smaller units. Wholesalers hold inventories, thereby reducing inventory costs and risks for Reynold's, who needn't hold the inventory for itself. Wholesalers finance Reynold's by granting credit. Wholesalers supply information regarding competitors' activities, new products, price developments, and so on. 142. How would merchant wholesaler HCN operate? Answer: Merchant wholesalers are independently owned businesses that take title to the merchandise they handle. They are full-service and limited-service jobbers, distributors, and mill supply houses. 143. Jayne runs a small grocery store in a small town. As there are only few customers, the store does not require to stock goods in large quantities. Explain why sourcing products from a wholesaler will be beneficial for Jayne. Answer: Wholesalers are able to select items and build the assortments Jayne needs, saving considerable work. Wholesalers achieve savings for Jayne by buying large carload lots and breaking the bulk into smaller units. Thus, Jayne can benefit from lower bulk prices while buying only as much as the store can sell. Wholesalers also hold inventories, thereby reducing inventory costs and risks for Jayne. 144. HCN is a wholesaler that supplies consumer goods products to a number of retailers. HCN has witnessed the worrying trend of its competitors losing out on suppliers, who approach retailers directly. How can HCN strengthen its relationship with manufacturers and prevent this? Answer: HCN can work to reach a clear agreement with their manufacturers about their expected functions in the marketing channel. It can gain insight into the manufacturers' requirements by visiting their plants and attending manufacturer association conventions and trade shows. HCN must also fulfill its commitments to the manufacturer by meeting the volume targets, paying bills promptly, and feeding back customer information to the manufacturers. It can also identify and offer value-added services, such as financing, on-site inventory management, parts-tracking software, and chip programming, to help its suppliers. 145. ShoeZone is a shoe retailer with outlets across the country. The company is trying to reduce its inventory and warehousing costs, but needs to keep delivery speeds as short as possible. What can ShoeZone do to achieve this? Answer: More stocking locations mean goods can be delivered to customers more quickly, but warehousing and inventory costs are higher. To reduce these costs, ShoeZone might centralize its inventory in one place and use fast transportation to fill orders. 146. E&OE is looking to reduce its inventory costs for all its products. The company realizes that its inventory depends on the setup costs of its various products. How do setup costs affect E&OE's inventory costs? Answer: As inventory draws down, management must know at what stock level to place a new order. The company needs to balance order-processing costs and inventory-carrying costs. Order-processing costs for E&OE consist of setup costs and running costs (operating costs when production is running) for the item. If setup costs are low, E&OE can produce the item often, and the average cost per item is stable and equal to the running costs. If setup costs are high, E&OE can reduce the average cost per unit by producing a long run and carrying more inventory. The larger the average stock carried, the higher the inventory-carrying costs. 147. E&OE wants to minimize inventory costs as far as possible. Explain one way by which it can achieve a near-zero inventory. Answer: Manufacturers can achieve a near-zero inventory by building for order, not for stock, i.e., manufacturing a product only when it receives an order. However, this system will work only when the customers do not need a product immediately. Test Bank for Marketing Management Philip T Kotler, Kevin Lane Keller 9780132102926, 9780273753360, 9781292092621, 9780133856460, 9789332587403, 9780136009986
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