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Chapter 11 Managing Marketing Channels and the Supply Chain True/False Questions 1. The value chain portrays a mixture of primary and support activities utilized by an organization to design, produce, market, deliver, and support its products. Answer: True Rationale: The value chain consists of various primary and secondary activities utilized by an organization to design, produce, market, deliver, and support its products. 2. Many organizations are beginning to consider their customers—both end-users and within a channel—as less important members of a value network. Answer: False Rationale: The aim of the value network is value co-creation by the participating suppliers, customers, and other stakeholders. So customers—both end-users and within a channel—are important members of a value network. 3. A channel is a system of interdependent relationships among a set of organizations that facilitates the exchange process. Answer: True Rationale: A channel of distribution consists of interdependent entities that are aligned for the purpose of transferring possession of a product from producer to consumer or business user. 4. Cutting out intermediaries is always a guarantee of saving consumers' money. Answer: False Rationale: Cutting out intermediaries is not a guarantee of saving consumers' money. Channel members add their value by bridging gaps in form, time, place, and ownership that naturally exist between producers and consumers. 5. Channel intermediaries enhance utilities by providing a wide array of specific functions. Answer: True Rationale: Channel intermediaries enhance utilities by providing a wide array of specific functions. Their contributions can be classified into physical distribution functions, transaction and communication functions, and facilitating functions. 6. Manufacturers' costs would skyrocket if they held the responsibility for interfacing with and delivering products to every one of their end users. Answer: True Rationale: It is prohibitively expensive for a manufacturer to provide interfaces and delivery to every end user. 7. Collecting market and competitive information helps only one member of the channel in offering the right product mix at the right prices. Answer: False Rationale: Intermediaries, being closer to the end users, can easily gather information regarding customers' changing attitudes, tastes, and behaviors. This information would be helpful to all members of the channel. 8. Most post-mortems on the cause of the dot-com bust point to poor channel and supply chain practices as the No. 1 reason why so many of those initial e-marketers failed. Answer: True Rationale: The major cause of the dot-com bust was poor channel and supply chain practices because customer expectations were peaked by the novelty and convenience of buying online only to be dashed by delays and errors in product fulfillment after the sale. 9. Unresolved channel conflict will never result in an uncooperative and inefficient channel, but it may impact end-user consumers through inferior products, spotty inventory, and higher prices. Answer: False Rationale: Unresolved channel conflict can result in an uncooperative and inefficient channel and it would also ultimately impact end-user consumers through inferior products, spotty inventory, and higher prices. 10. Often, channel members adopt an approach of utilizing their unique competencies to influence others in the channel. Answer: True Rationale: Channel members may adopt an approach of utilizing their unique competencies to influence others in the channel. This kind of power which originates from unique competencies is known as expert power. 11. In case of marketing planning, a good channel decision can be one of the most important decisions within the entire planning process because it leads to market advantage over competitors. Answer: True Rationale: Marketing managers have plethora of choices of channel intermediaries and channel structures. So selection of a good channel is very important to gain advantage over competitors. 12. Exclusive distribution often arises because a significant personal selling effort is required with the consumer before product purchase. Answer: True Rationale: Products that possess complex or unique properties that only a one-to-one in-person interaction with a customer can explain are often best served by intermediaries with specialized sales capabilities. In such situations, exclusive distribution would be required. 13. A push strategy doesn't mean a manufacturer wouldn't engage in any channel incentives, but rather that the incentives would likely be greatly reduced versus a pull strategy. Answer: False Rationale: A push strategy means that much of the intensive promotional activities take place from the manufacturer downward through the channel of distribution. So channel incentives in a push strategy would be higher than that in the pull strategy. 14. Intensive distribution is typically associated with shopping goods. Answer: False Rationale: Intensive distribution is typically associated with low-cost convenience goods and impulse goods (and not shopping goods). 15. Physical distribution, or logistics, is the integrated process of moving input materials to the producer, in-process inventory through the firm, and finished goods out of the firm through the channel of distribution. Answer: True Rationale: Logistic deals with movement of materials and finished goods through the supply chain. Physical distribution, or logistics, is the integrated process of moving input materials to the producer, in-process inventory through the firm, and finished goods out of the firm through the channel of distribution. 16. Outbound logistics deals with how to get goods back to a manufacturer or intermediary after purchase. Answer: False Rationale: Reverse (and not outbound) logistics deals with how to get goods back to a manufacturer or intermediary after purchase. 17. An agent is a business entity that negotiates purchases, sales, or both and takes title to the goods involved. Answer: False Rationale: An agent is a business entity that negotiates purchases, sales, or both but does not take title to the goods involved. 18. Effective transportation management is one way that many firms can keep a lid on costs while also optimizing delivery options for customers. Answer: True Rationale: With the cost of fuel today, it is not unusual for transportation costs to run as much as 10 percent of cost of goods sold. Effective transportation management is one way that many firms keep a lid on costs while also optimizing delivery options for customers. 19. Exclusive dealing may be legal if the parties show exclusivity is essential for strategic reasons, such as to maintain product image. Answer: True Rationale: When a supplier creates a restrictive agreement that prohibits intermediaries that handle its product from selling competing firms' products, exclusive dealing has occurred. It may be legal if the parties show exclusivity is essential for strategic reasons, such as to maintain product image. 20. A producer can always grant an intermediary an exclusive territory for sales purposes. Answer: False Rationale: A producer cannot always grant an intermediary an exclusive territory for sales purposes. For this practice to be legal, it would have to be demonstrated that the exclusivity doesn't violate any statutes on restriction of competition. Multiple Choice Questions 21. The _______________ is thought of as an overarching system of formal and informal relationships, within which the firm participates to procure, transform and enhance, and ultimately supply its offerings in final form within a market space. A. Value network B. Virtual organization C. Network organization D. Value chain E. Intermediaries Answer: A. Value network Rationale: Value network is composed of potentially numerous firms with which a company interacts vertically within its channel of distribution and horizontally across other firms whose contributions are essential to getting the right offering to the right customers. 22. A value network perspective is a macro-level strategic approach that is being adopted by many firms in part because of the intense competition to cut _______________ and maximize _______________ every step of the way to market. A. Costs, process efficiencies B. Process efficiencies, costs C. Costs, profits D. Time inefficiencies, profits E. None of the above Answer: A. Costs, process efficiencies Rationale: Cutting costs and maximizing process efficiencies are essential for creation of value in the value network. 23. A(n) _______________ has no intermediaries and operates strictly from producer to end-user consumer or business user. A. Direct channel B. Indirect channel C. Corporate VMS D. Contractual VMS E. Administered VMS Answer: A. Direct channel Rationale: A direct channel has no intermediaries and operates strictly from producer to end-user consumer or business user. 24. Braum's Ice Cream and Dairy Store chain started in the 1930s as a family dairy farm in Kansas. Over time the Braum family acquired almost every aspect of its distribution channel—milk processing, other product manufacturing, transportation, warehousing, and the Braum's stores. This is an example of _______________. A. Diversification B. Horizontal integration C. Corporate VMS D. Contractual VMS E. Administered VMS Answer: C. Corporate VMS Rationale: In corporate VMS, a channel member has invested in backward or forward vertical integration by buying a controlling interest in other intermediaries. Hence, this is an example of corporate VMS. 25. A _______________ eliminates many in-house business functions and activities in favor of focusing only on those aspects for which it is best equipped to add value. A. Horizontal organization B. Vertical organization C. Network organization D. Matrix organization E. Value organization Answer: C. Network organization Rationale: Based on the concept of value networks, a whole new breed of organization is arising called a network organization. It eliminates many in-house business functions and activities in favor of focusing only on those aspects for which it is best equipped to add value. 26. Subway, the world's largest franchise system, is an example of _______________. A. Diversification B. Horizontal integration C. Corporate VMS D. Contractual VMS E. Administered VMS Answer: D. Contractual VMS Rationale: A contractual VMS consists of otherwise independent entities that are bound together legally through contractual agreement. The most famous example of this arrangement is a franchise organization. Thus, Subway is an example of contractual VMS. 27. Jenn has recently decided to take a value network approach to create a competitive advantage over her competitors. She is trying this because _______________. A. She frees up internal resources B. Her firm can be more nimble in addressing external uncontrollable opportunities and threats C. She has an advantage over firms that have high costs associated with performing many of the value chain functions D. A & C E. A, B & C Answer: E. A, B & C Rationale: The value network approach eliminates many in-house business functions and activities in favor of focusing only on those aspects for which it is best equipped to add value. This frees up internal resources of the organization and makes it more nimble. 28. A channel of distribution consists of interdependent entities that are _______________. A. Aligned for the purpose of transferring possession of a product from producer to consumer or business user B. Aligned for the purpose of evaluating the quality of the product at each stage in a supply chain C. Interconnected to perform manufacturing before a transporter takes the finished product D. Working together to develop new products E. None of the above Answer: A. Aligned for the purpose of transferring possession of a product from producer to consumer or business user Rationale: A channel of distribution consists of interdependent entities that are aligned for the purpose of transferring possession of a product from producer to consumer or business user. Thus, it facilitates the exchange process. 29. Retailer cooperative is an example of _______________. A. Diversification B. Horizontal integration C. Corporate VMS D. Contractual VMS E. Administered VMS Answer: D. Contractual VMS Rationale: Independent retailers across a variety of product categories have banded together to gain cost and operating economies of scale in the channel. This is known as retailer cooperative and it is an example of a contractual VMS. 30. _______________ take title to the product. A. Auction houses B. Merchant intermediaries C. Agent intermediaries D. Clearing houses E. Stock exchanges Answer: B. Merchant intermediaries Rationale: Merchant intermediaries are the intermediaries who take title to the products. 31. P&G and Walmart have developed a strategic alliance that includes connectivity of inventory, billing systems, and market research. Approaches such as this are often referred to as _______________. A. Diversification B. Partner relationship management (PRM) strategies C. Vertical integration D. Horizontal integration E. Market penetration strategies Answer: B. Partner relationship management (PRM) strategies Rationale: A strategic alliance between P&G and Walmart results in improved inventory management, more efficient invoice processing, and product development that better serves the consumer marketplace. Approaches such as this are often referred to as partner relationship management (PRM) strategies. 32. When McDonald's requires franchisees that want to participate in the latest scratch-off game to sign an agreement as to how the game will be promoted and administered in the store, it is exercising _______________ to control misuse of the promotional activity. A. Coercive power B. Reward power C. Expert power D. Referent power E. Legitimate power Answer: E. Legitimate power Rationale: Legitimate power results from contracts such as franchise agreements or other formal agreements. Thus, the power exercised by McDonald's is the legitimate power. 33. Channel members add their value by bridging gaps in form, time, place, and ownership that naturally exist between _______________. A. Consumers and transporters B. Producers and transporters C. Producers and consumers D. Producers and retailers E. None of the above Answer: C. Producers and consumers Rationale: Intermediaries play a role in the exchange process between producer and consumer. Channel members add their value by bridging gaps in form, time, place, and ownership that naturally exist between producers and consumers. 34. Channel intermediaries enhance utilities by providing a wide array of specific functions including _______________. A. Physical distribution functions B. Transaction and communication functions C. Facilitating functions D. A & B E. A, B & C Answer: E. A, B & C Rationale: Channel intermediaries enhance utilities by providing a wide array of specific functions including physical distribution functions, transaction and communication functions, and facilitating functions. 35. _______________ functions are among the most commonly provided channel intermediary activities. A. Market research B. Quality evaluation C. New product development D. Product advertising E. Transportation and storage Answer: E. Transportation and storage Rationale: Relatively few producers operate their own transportation networks or provide warehousing facilities. So transportation and storage functions are among the most commonly provided channel intermediary activities. 36. A _______________ represents all organizations involved in supplying a firm, the members of its channels of distribution, and its end-user consumers and business users. A. Warehouse system B. Supply chain C. Market information system D. Value chain E. Quality circle Answer: B. Supply chain Rationale: The supply chain represents all components in the channel from producer to the consumer. 37. All of the following are the sources of power that are relevant in a channel setting EXCEPT: A. Coercive power B. Administered power C. Reward power D. Expert power E. Referent power Answer: B. Administered power Rationale: The five sources of power that are relevant in a channel setting are coercive power, reward power, expert power, referent power, and legitimate power (and not administered power). 38. _______________ occurs within a channel to better match quantities needed to space constraints and inventory turnover requirements. A. Reverse logistics B. Disintermediation C. Assortment creation D. Breaking bulk E. Accumulating bulk Answer: D. Breaking bulk Rationale: The function of breaking bulk occurs within a channel to better match quantities needed to space constraints and inventory turnover requirements. Breaking bulk could be performed by different types of intermediaries. 39. Some industries take in product from multiple sources and transform it, often through sorting it into different classifications for sales through the channel. This is an example of _______________. A. Reverse logistics B. Disintermediation C. Assortment creation D. Breaking bulk E. Accumulating bulk Answer: E. Accumulating bulk Rationale: Industries which take in product from multiple sources and sort it into different classifications for sales through the channel, perform the function of accumulating bulk. 40. Intermediaries engage in _______________ when they accumulate products from several sources and then make those products available down the channel as a convenient assortment for consumers. A. Creating assortments B. Reducing transactions C. Reverse logistics D. Facilitating functions E. Disintermediation Answer: A. Creating assortments Rationale: Some intermediaries accumulate products from several sources and then create convenient assortments of these products so that customers can easily understand the different product features offered across product lines. 41. Introducing even one intermediary into a channel can contribute to greatly _______________ that are necessary to complete an exchange. A. Increasing the costs B. Reducing the transactions C. Lowering the quality of the processes D. Enhancing the quality of the processes E. Increasing the duration of the transactions Answer: B. Reducing the transactions Rationale: Even one intermediary can reduce the number of transactions that are necessary to complete an exchange. 42. A processing house gathers eggs from individual farm operators for sorting by grade and size, then to be packaged and sent on their way to retailers. The processing house is performing the function of _______________. A. Reverse logistics B. Disintermediation C. Assortment creation D. Breaking bulk E. Accumulating bulk Answer: E. Accumulating bulk Rationale: In some industries, intermediaries take in product from multiple sources and transform it, often through sorting it into different classifications for sales through the channel. This is known as accumulating bulk. 43. Financing, market research, risk-taking, and other services are considered to be _______________. A. Inventory management functions B. Transaction and communication functions, C. Transportation and storage functions D. Facilitating functions E. Disintermediation functions Answer: D. Facilitating functions Rationale: Facilitating functions help fulfill completed transactions and also maintain the viability of the channel relationships. Financing, market research, risk-taking, and other services are considered to be facilitating functions. 44. Facilitating functions performed by intermediaries include a variety of activities that help fulfill completed transactions and also maintain the viability of the channel relationships. These include _______________. A. Financing B. Market research C. Buying D. A & B E. A & C Answer: D. A & B Rationale: Financing, market research, risk-taking, and other services are considered to be facilitating functions. 45. _______________ is the shortening or collapsing of marketing channels due to the elimination of one or more intermediaries, and is common in the electronic channel. A. Creating assortments B. Reducing transactions C. Accumulating bulk D. Breaking bulk E. Disintermediation Answer: E. Disintermediation Rationale: Disintermediation is the reduction of marketing channels due to some changes in the market or technology. 46. Nadia works for a major soda distributor. Recently the company has begun to discuss buying a transportation company to move their product from their own manufacturing facility to the consumer. This is an example of _______________. A. Insourcing B. Vertical Marketing System (VMS) C. Corporate VMS D. Contractual VMS E. Administered VMS Answer: C. Corporate VMS Rationale: In corporate VMS, a company moves forward or backward in the channel and buys a controlling interest in other intermediaries. Since the soda distributor is planning to buy a transportation company, this becomes an example of corporate VMS. 47. _______________ is the approach that is attractive for many firms whose core competencies do not include elements of supply chain management. A. Insourcing B. Vertical Marketing System (VMS) C. Outbound logistics D. Inbound logistics E. Reverse logistics Answer: A. Insourcing Rationale: Insourcing or third-party logistics is attractive for many firms whose core competencies do not include elements of supply chain management. These firms can handover supply chain functions to other companies that are experts in those areas so that they can concentrate on their core business. 48. A _______________ consists of vertically aligned networks behaving and performing as a unified system. A. Matrix system B. Vertical Marketing System (VMS) C. Value chain D. Management information system E. Marketing information system Answer: B. Vertical Marketing System (VMS) Rationale: A vertical marketing system (VMS) consists of vertically aligned networks behaving and performing as a unified system. A VMS can be set up in three different ways: corporate systems, contractual systems, and administered systems. 49. In _______________ a channel member has invested in backward or forward vertical integration by buying a controlling interest in other intermediaries. A. Third-party logistics B. Reverse logistics C. Corporate VMS D. Contractual VMS E. Administered VMS Answer: C. Corporate VMS Rationale: In corporate VMS, a channel member has invested in backward or forward vertical integration by buying a controlling interest in other intermediaries. This leads to cost and process efficiencies. 50. A(n) _______________ creates a powerful competitive advantage in the marketplace due to cost and process efficiencies realized when a channel is strictly controlled by one entity. A. Insourcing arrangement B. Marketing information system C. Corporate VMS D. Contractual VMS E. Administered VMS Answer: C. Corporate VMS Rationale: In corporate VMS, a channel member has invested in backward or forward vertical integration by buying a controlling interest in other intermediaries. Corporate VMS can create a powerful competitive advantage in the marketplace due to cost and process efficiencies realized when a channel is strictly controlled by one entity. 51. A(n) _______________ consists of otherwise independent entities that are bound together legally through contractual agreement. A. Value chain B. Matrix organization C. Corporate VMS D. Contractual VMS E. Administered VMS Answer: D. Contractual VMS Rationale: Contractual VMS consists of otherwise independent entities that are bound together legally through contractual agreement. The most famous example of this arrangement is a franchise organization. 52. In a(n) _______________, the sheer size and power of one of the channel members places it in a position of channel control. A. Value chain B. Matrix organization C. Corporate VMS D. Contractual VMS E. Administered VMS Answer: E. Administered VMS Rationale: In an administered VMS, the sheer size and power of one of the channel members places it in a position of channel control. The lead player in such situations may be referred to as the channel leader, signifying its ability to control many aspects of that channel's operations. 53. For years, P&G was the channel captain in every channel in which it was a member based on the clout of its extensive stable of No. 1 brands. This is an example of _______________. A. Diversification B. Horizontal integration C. Corporate VMS D. Contractual VMS E. Administered VMS Answer: E. Administered VMS Rationale: In an administered VMS, the sheer size and power of one of the channel members places it in a position of channel control. Since P&G was a channel leader due to its No.1 brands, this becomes an example of an administered VMS. 54. Entrepreneur magazine reports that _______________ remain the highest-potential startup and growth mechanism for small-business owners, and it is an effective way to expand a distribution channel quickly and efficiently. A. Franchise organizations B. Retailer cooperatives C. Wholesaler cooperatives D. Channel captains E. Partner relationship management (PRM) strategies Answer: A. Franchise organizations Rationale: Franchising is one of the best ways to grow quickly and efficiently. 55. By combining efforts, _______________ gain advantages through enhanced buying and distribution power that allow them to better compete with supermarket chains than if the stores were buying separately. A. Horizontal organizations B. Retailer cooperatives C. Matrix organizations D. Channel captains E. Vertical organizations Answer: B. Retailer cooperatives Rationale: Independent retailers across a variety of product categories have banded together to gain cost and operating economies of scale in the channel. This is known as a retailer cooperative and it is an example of a contractual VMS. 56. Through a _______________, retailers contract for varying degrees of exclusive dealings with a particular wholesaler. A. Franchise organization B. Retailer cooperative C. Wholesaler cooperative D. Channel captains E. Partner relationship management (PRM) strategies Answer: C. Wholesaler cooperative Rationale: Retailers contract for varying degrees of exclusive dealings with a particular wholesaler through a wholesaler cooperative. 57. In an administered VMS, the sheer size and power of one of the channel members places it in a position of channel control. The lead player in such situations may be referred to as the _______________, signifying its ability to control many aspects of that channel's operations. A. Channel member B. Retailer cooperative C. Wholesaler cooperative D. Channel captain E. Channel partner Answer: D. Channel captain Rationale: In case of an administered VMS, the channel captain can control many aspects of the channel's operations. 58. The goal of the _______________ is to share resources, especially knowledge-based resources, to affect optimally profitable relationships between two channel members. A. Market development strategies B. Diversification strategies C. Third-party logistics D. Vertical integration strategies E. Partner relationship management (PRM) strategies Answer: E. Partner relationship management (PRM) strategies Rationale: Two members of a channel may exchange knowledge and share resources to the betterment of both the channel members. This approach is known as partner relationship management (PRM) strategies. 59. _______________ is the degree to which any member of a marketing channel can exercise influence over the other members of the channel. A. Channel power B. Channel conflict C. Expert power D. Reward power E. Coercive power Answer: A. Channel power Rationale: Channel power is the degree to which any member of a marketing channel can exercise influence over the other members of the channel. Power can directly influence the relationships within the channel. 60. When frozen-food sections of supermarkets are reset to accommodate new-product entries and remove discontinued items, Stouffer reps are often trusted to help store clerks reset the shelves and in many instances Stouffer's is given prime display space in the freezer case. This indicates that Stouffer's enjoys _______________ within the channel. A. Coercive power B. Reward power C. Expert power D. Referent power E. Legitimate power Answer: D. Referent power Rationale: When a channel member is respected, admired, or revered based on one or more attributes, that member enjoys referent power within the channel. In frozen foods, Stouffer's commands a level of respect well above the competition and thus enjoys referent power. 61. _______________ involves an explicit or implicit threat that a channel captain will invoke negative consequences on a channel member if it does not comply with the leader's request or expectations. A. Coercive power B. Reward power C. Expert power D. Referent power E. Legitimate power Answer: A. Coercive power Rationale: Coercive power involves an explicit or implicit threat that a channel captain will invoke negative consequences on a channel member if it does not comply with the leader's request or expectations. 62. Unresolved channel conflict can result not only in an uncooperative and inefficient channel, but it can also ultimately impact end-user consumers through _______________. A. Inferior products B. Spotty inventory C. Higher prices D. A & B E. A, B & C Answer: E. A, B & C Rationale: Channel conflict occurs when channel members experience disagreements and their relationships become strained or fall apart. Unresolved channel conflict can impact end-user consumers through inferior products, spotty inventory, and higher prices. 63. _______________ is not a source of channel power. A. Reward power B. Referent power C. Legitimate power D. Consumer power E. Expert power Answer: D. Consumer power Rationale: Five important sources of power that are relevant in a channel setting are reward power, referent power, legitimate power, expert power, and coercive power. Consumer power is not a source of channel power. 64. The motivating force for suppliers to work with large chain stores is that the stores have huge _______________ because they can write big orders. A. Coercive power B. Reward power C. Expert power D. Referent power E. Legitimate power Answer: B. Reward power Rationale: When customers have huge buying capability they have reward power. 65. _______________ may take the form of sharing important product knowledge. A. Coercive power B. Reward power C. Expert power D. Referent power E. Legitimate power Answer: C. Expert power Rationale: Sometimes members of the channel can offer information that they possess but others don't. This leads to expert power. 66. When a channel member is respected, admired, or revered based on one or more attributes, that member enjoys _______________ within the channel. A. Coercive power B. Reward power C. Expert power D. Referent power E. Legitimate power Answer: D. Referent power Rationale: A channel member acquires referent power due to its reputation in the channel. Only the best of the best brands can rely on this power source. 67. _______________ results from contracts such as franchise agreements or other formal agreements. A. Coercive power B. Reward power C. Expert power D. Referent power E. Legitimate power Answer: E. Legitimate power Rationale: Contractual agreements among channel members may lead to legitimate power. 68. When the objective is to obtain maximum product exposure throughout the channel, a(n) _______________ strategy is designed to saturate every possible intermediary and especially retailers. A. Market development B. Intensive distribution C. Selective distribution D. Exclusive distribution E. Product development Answer: B. Intensive distribution Rationale: An intensive distribution strategy is designed to saturate every possible intermediary and especially retailers and it is typically associated with convenience goods and impulse goods. 69. Intensive distribution is typically associated with _______________. A. High technology goods B. Very expensive goods C. Convenience goods D. Scarce goods E. Shopping goods Answer: C. Convenience goods Rationale: The very nature of low cost convenience goods makes intensive distribution necessary so that consumers can see it, feel an immediate want, and purchase it. 70. Impulse goods are appropriate for _______________, as their sales rely on the consumer seeing the product, feeling an immediate want, and being able to purchase now. A. Market development B. Intensive distribution C. Selective distribution D. Exclusive distribution E. Product development Answer: B. Intensive distribution Rationale: Intensive distribution is necessary for impulse goods so that consumers can see it, feel an immediate want, and purchase it. 71. _______________, goods for which a consumer may engage in a limited search, are candidates for selective distribution. A. High technology goods B. Durable goods C. Convenience goods D. Impulse goods E. Shopping goods Answer: E. Shopping goods Rationale: Shopping goods are the goods for which consumer may engage in a limited search. These goods are appropriate for selective distribution. 72. _______________ is often part of an overall positioning strategy built on prestige, scarcity, and premium pricing. A. Selective distribution B. Exclusive distribution C. Widespread distribution D. Convenience distribution E. Intensive distribution Answer: B. Exclusive distribution Rationale: When a manufacturer opts for exclusive distribution in a channel, it is often part of an overall positioning strategy built on prestige, scarcity, and premium pricing. 73. Distribution strategies can be _______________. A. Intensive B. Selective C. Exclusive D. A & C E. A, B & C Answer: E. A, B & C Rationale: The three categories of distribution strategies are intensive, selective, and exclusive. 74. In deciding on the right balance between control and flexibility in a channel, marketing managers must consider all of the following EXCEPT _______________. A. The type of products involved B. Cost issues among the various options C. Strength of belief in the accuracy of the sales forecast D. Likelihood that major changes will occur in the customer or competitive marketplace that would necessitate restructuring the channel E. None of the above Answer: E. None of the above Rationale: In deciding on the right balance between control and flexibility in a channel, marketing managers must consider the type of products involved, cost issues among the various options, strength of belief in the accuracy of the sales forecast, and likelihood that major changes will occur in the customer or competitive marketplace that would necessitate restructuring the channel. 75. _______________ also often arises because a significant personal selling effort is required with the consumer before product purchase. A. Selective distribution B. Exclusive distribution C. Push strategies D. Pull strategies E. Intensive distribution Answer: B. Exclusive distribution Rationale: Exclusive distribution often arises because a significant personal selling effort is required with the consumer before product purchase. 76. A(n) _______________ implies that many of the promotional activities take place from the manufacturer downward through the channel of distribution. A. Selective distribution strategy B. Exclusive distribution strategy C. Push strategy D. Pull strategy E. Intensive distribution strategy Answer: C. Push strategy Rationale: In a push strategy, much of the intensive promotional activities take place from the manufacturer downward through the channel of distribution. Push strategies usually are supported by heavy allowance payments to intermediaries for helping accomplish the manufacturer's goals. 77. One example of a push strategy is _______________. A. Couponing B. Consumer rebates C. Funding an extra incentive to a wholesale drug salesperson for pushing a particular medication to an independent pharmacy D. Heavy advertising in mass media E. Direct marketing Answer: C. Funding an extra incentive to a wholesale drug salesperson for pushing a particular medication to an independent pharmacy Rationale: Push strategies usually are supported by heavy allowance payments to intermediaries for helping accomplish the manufacturer's goals. 78. A manufacturer employing a(n) _______________ focuses much of its promotional investment on the end-user consumer. A. Selective distribution B. Exclusive distribution C. Push strategy D. Pull strategy E. Intensive distribution Answer: D. Pull strategy Rationale: A manufacturer employing a pull strategy focuses much of its promotional investment on the end-user consumer. For example, heavy advertising in mass media, direct marketing, couponing, and other direct-to-consumer promotion are expected to create demand from intermediaries from the bottom of the channel upward. 79. Traditionally, logistics was thought of as _______________. A. Outbound logistics B. Inbound logistics C. Reverse logistics D. Stock out E. Third-party logistics Answer: A. Outbound logistics Rationale: Traditionally, logistics was thought of as outbound logistics. That is, it was thought that logistics started with production and ended with receipt of finished good by the end-user consumer or business user. 80. _______________ refers to sourcing materials and knowledge inputs from external suppliers to the point at which production begins. A. Outbound logistics B. Inbound logistics C. Reverse logistics D. Disintermediation E. Third-party logistics Answer: B. Inbound logistics Rationale: Inbound logistics refers to getting the material and knowledge inputs to the point where it would be used in the production. 81. _______________ deals with how to get goods back to a manufacturer or intermediary after purchase. A. Outbound logistics B. Inbound logistics C. Reverse logistics D. Outsourcing E. Third-party logistics Answer: C. Reverse logistics Rationale: Reverse logistics deals with how to get goods back to a manufacturer or intermediary after purchase. Product returns result for many reasons like spoilage and breakage, excess inventory, and customer dissatisfaction. 82. A manufacturer employing a pull strategy would engage in _______________. A. Consumer contests B. Advertising in mass media C. Sales force contests D. Store displays E. A & B Answer: E. A & B Rationale: Consumer contests and advertising in mass media are two of the ways in which a pull strategy can be implemented. 83. Mistakes easily occur at the _______________ step of moving through the supply chain. A. Reverse logistics B. Transportation C. Order processing D. Warehousing and materials handling E. Inventory management Answer: C. Order processing Rationale: Receiving and properly processing customer orders is a critical step in getting a product moving through the supply chain. It is also a point at which mistakes can easily occur, and when a mistake occurs in the order it usually carries through the whole fulfillment system. 84. If the item is not in stock, referred to as a(n) _______________, then inbound replenishment processes are triggered. A. Slotting allowance B. Empty shelf C. Disintermediation D. Stock out E. Supply chain disruption Answer: D. Stock out Rationale: If the item ordered is in stock, outbound processing from inventory occurs. If the item is not in stock, referred to as a stock-out, then inbound replenishment processes are triggered. 85. _______________ is a software application designed to integrate information related to logistics processes throughout the organization. A. Outbound logistics systems B. Marketing information system C. AIMS D. Value Chain Supply System (VCSS) E. Enterprise Resource Planning Systems (ERP Systems) Answer: E. Enterprise Resource Planning Systems (ERP Systems) Rationale: A system that links the parts of the supply chain together in order to get logistics smoothly done throughout the organization is called an ERP system. 86. To ensure that inventories of both raw materials and finished goods are sufficient to meet customer demand without undue delay, firms utilize _______________. A. Just-in-time inventory control systems B. Materials requirement planning (MRP) C. Marketing information system D. Intensive distribution E. Vertical integration Answer: A. Just-in-time inventory control systems Rationale: A just-in-time inventory control system's goal is to balance the double-edge sword of potentially having too many goods on hand and creating unnecessary warehousing costs, with the chance of having so little inventory in stock that stock-outs occur requiring expensive rush production and express delivery situations. 87. When a supplier creates a restrictive agreement that prohibits intermediaries that handle its product from selling competing firms' products, _______________ has occurred. A. Just-in-time inventory control B. Disintermediation C. Exclusive dealing D. Intensive distribution E. Selective distribution Answer: C. Exclusive dealing Rationale: Exclusive dealing occurs when a supplier creates a restrictive agreement that prohibits intermediaries that handle its product from selling competing firms' products. Exclusive dealing may be legal if the parties show exclusivity is essential for strategic reasons, such as to maintain product image. 88. A(n) _______________ protects an intermediary from having to compete with others selling a producer's goods. A. Management contract B. Exclusive contract C. Exclusive dealing D. Exclusive territory E. Tying contract Answer: D. Exclusive territory Rationale: An exclusive territory protects an intermediary from having to compete with others selling a producer's goods. For this practice to be legal, it would have to be demonstrated that the exclusivity doesn't violate any statutes on restriction of competition. 89. If a seller requires an intermediary to purchase a supplementary product to qualify to purchase the primary product the intermediary wishes to buy, a(n) _______________ is in place. A. Exclusive contract B. Management contract C. Exclusive dealing D. Exclusive territory E. Tying contract Answer: E. Tying contract Rationale: A tying contract is said to be in place if a seller requires an intermediary to purchase a supplementary product to qualify to purchase the primary product the intermediary wishes to buy. 90. Janice has a supplier that will sell her printers, but only if she agrees to buy the replacement ink cartridges from that supplier. This is demonstrating a(n) _______________. A. Tying contract B. Exclusive territory C. Exclusive dealing D. Intermediary contract E. None of the above Answer: A. Tying contract Rationale: A tying contract is said to be in place if a seller requires an intermediary to purchase a supplementary product to qualify to purchase the primary product the intermediary wishes to buy. Thus, this is an example of a tying contract. Short Answer Questions 91. Carrie is the marketing manager at University Sporting, where she works with many intermediaries to get University Sports teams their uniforms and equipment. She is trying to explain to her boss that they should be operating in a value network. Explain elements of a value network. Answer: • The over-arching process focus is on value co-creation. • A shared vision exists within the network with a common aim of fostering value co-creation. • Value co-creation is viewed as emanating from the expertise and competencies of all parties within the network. • Network and team relationships are key elements in the co-creation of the value. • This value is viewed as network value. • Relationship conflicts are viewed as potential barriers to the creation of network value and a process for conflict co-management is essential. 92. George overheard two men at a business conference talking about the need for companies to be nimble these days. George does not quite understand what they meant by nimble. How would you explain it to him? Answer: That is, to be in a position to be maximally flexible, adaptable, and speedy in response to the many key change drivers affecting business today such as rapidly shifting technology, discontinuous innovation, fickle consumer markets, and relentless market globalization. 93. You have always wanted to start a company selling golf clubs. You start to look at putting a business plan together and determining the best companies to use as manufacturers, transporters, retailers, etc. How could a channel of distribution help you? Answer: A channel of distribution consists of interdependent entities that are aligned for the purpose of transferring possession of a product from producer to consumer or business user. Put another way, a channel is a system of interdependent relationships among a set of organizations that facilitates the exchange process. Most channels are not direct from producer to consumer. Instead, they contain a variety of intermediaries, formerly called middlemen, which play a role in the exchange process between producer and consumer. 94. What are the differences between a direct and an indirect channel? Answer: A direct channel has no intermediaries and operates strictly from producer to end-user consumer or business user. An indirect channel contains one or more intermediary levels. 95. Explain why breaking bulk is an important function within the channel for retailers. Answer: In many industries when finished goods come off a firm's production line, the manufacturer packages the individual pieces into large cartons for shipping into the channel of distribution. This is a convenient way for manufacturers to ship out the product. However, consumers shopping in a drugstore, whether a national chain such or an independent pharmacy in your hometown, don't need to see 144 units of a shampoo or deodorant on a store shelf. The function of breaking bulk occurs within a channel to better match quantities needed to space constraints and inventory turnover requirements. 96. Jimmy is going to be taking over the family's manufacturing company. His father Riley is explaining why the family company does not have its own transportation and warehousing facilities. Why do you think Riley has made this decision? Answer: Relatively few producers operate their own transportation networks or provide warehousing facilities. Producers make money by pushing finished goods out the door and into the channel of distribution. As such, transportation and storage functions are among the most commonly provided channel intermediary activities. 97. Light-Tech creates highly technological lighting systems for theaters and entertainment venues. They have just hired a company to handle most of their supply-chain functions. Light-Tech is demonstrating which approach? Answer: This approach, which is referred to as insourcing or third-party logistics, is attractive for many firms whose core competencies do not include elements of supply chain management. The trend has opened up opportunities for firms such as UPS and FedEx, as well as a host of other smaller firms, to change their business focus from mere shippers into broad-based logistics consultancies that handle all aspects of clients' supply chain functions. 98. Sylvia runs a successful sunglasses manufacturing company. Last year she started to purchase the companies that she bought her raw materials from, and this year she is looking to purchase both a transportation and warehousing company so that she can control her product from start to finish. What is Sylvia demonstrating? Answer: Sylvia is demonstrating corporate VMS, where a channel member has invested in backward or forward vertical integration by buying a controlling interest in other intermediaries. 99. A franchise organization is an excellent example of which VMS? How do franchise organizations fall into this category? Answer: A contractual VMS consists of otherwise independent entities that are bound together legally through contractual agreement. The most famous example of this arrangement is a franchise organization, which is designed to create a contractual relationship between a franchisor that grants the franchise and the franchisee, or the independent entity entering into an agreement to perform at the standards required by the franchisor. 100. In New York City it is common for independent retailers to band together to form retailer cooperatives (co-ops). Why are co-ops beneficial to the retailers? Answer: This is an example of a retailer cooperative, or co-op. In this era of chain stores, independent retailers across a variety of product categories have banded together to gain cost and operating economies of scale in the channel. 101. In an administered VMS, who is the lead player, and what does it do? Answer: In an administered VMS, the sheer size and power of one of the channel members places it in a position of channel control. The lead player in such situations may be referred to as the channel captain or channel leader, signifying its ability to control many aspects of that channel's operations. 102. What are the goals of partner relationship management strategies (PRM)? Answer: The goal of PRM is to share resources, especially knowledge-based resources, to affect optimally profitable relationships between two channel members. 103. What are the five important sources of channel power that French and Raven have identified? Answer: Sources of power in channels: Coercive power, legitimate power, expert power, referent power and reward power. 104. Damien is looking to gain maximum product exposure through the channel. What strategy would be best for him to use? Answer: When the objective is to obtain maximum product exposure throughout the channel, an intensive distribution strategy is designed to saturate every possible intermediary and especially retailers. Intensive distribution is typically associated with low-cost convenience goods. 105. You have many shopping goods in your warehouse. You would like to move them out of your warehouse and are researching the various distribution strategies. What strategy would you use? Answer: A selective distribution strategy may require that intermediaries provide a modicum of customer service during the sale and, depending on the type of good, follow-up service after the sale. Intermediary reputation, especially of the retailers, can be an asset in selective distribution. 106. Harold and Jerome have been working together to create new blends of teas that they are hoping to distribute to grocery stores. In regards to a push strategy, what obstacle may Harold and Jerome run into? Answer: They will be running into retailer that are used to having suppliers pay a slotting allowance or shelf fee to secure distribution in an intermediary's inventory listing and warehouse or onto a retail shelf. 107. Margot understands how inbound and outbound logistics affect her jewelry company. She is having a problem linking reverse logistics to her company. Explain reverse logistics to Margot. Answer: Reverse logistics deals with how to get goods back to a manufacturer or intermediary after purchase. Product returns result for many reasons including spoilage and breakage, excess inventory, customer dissatisfaction, and overstocks. 108. Bailey has been running a personalized embroidery business and has been having significant problems recently. She has been sending out more of an item than the customer asked for, or sending out the wrong colors, names, etc. Which point in the supply chain is Bailey having problems with? Answer: Receiving and properly processing customer orders is a critical step in getting product moving through the supply chain. It is also a point at which mistakes can easily occur, and when a mistake occurs in the order it usually carries through the whole fulfillment system. 109. What is the goal of a just in time (JIT) inventory control system? Answer: A JIT system's goal is to balance the double-edge sword of potentially having too many goods on hand and creating unnecessary warehousing costs, with the chance of having so little inventory in stock that stock-outs occur requiring expensive rush production and express delivery situations. 110. Whitney is an investigative reporter in Tulsa, Oklahoma. He is looking into whether or not a company in his area is using illegal exclusive dealing. He asks you for help. How does exclusive dealing lessen competition? Answer: Whether a particular arrangement is legal depends on whether it interferes with the intermediary's right to act independently or the rights of competitors to succeed—that is, is competition lessened by the arrangement? Exclusive dealing lessens competition if it (1) accounts for substantial market share, (2) involves a substantial dollar amount, and (3) involves a big supplier and smaller intermediary, which sets up a case for coercion. Essay Questions 111. Rebecca and Chris are arguing about the use of intermediaries. Rebecca believes that intermediaries drive up the costs of goods for end-users, Chris disagrees. What do you think? Answer: On the surface, intermediaries seem unnecessary. Wouldn't it be much more efficient for all channels to be direct from producer to consumer like Dell or Avon? The answer goes back to what we learned in Chapter 2 about the different types of utilities—form, time, place, and ownership. Sometimes you might hear a phrase such as, "We save you money by cutting out the middleman!" But in reality, cutting out intermediaries is not a guarantee of saving consumers' money. In the long run, channel intermediaries tend to continue to participate in a channel only as long as their value added to the channel supports their inclusion. Thus, channel members add their value by bridging gaps in form, time, place, and ownership that naturally exist between producers and consumers. 112. Charlotte is trying to convince Trey to begin to use some intermediaries in relation to their home goods business. Trey is resistant, what should Charlotte say? Answer: Charlotte should explain that the introduction of even one intermediary into a channel can contribute to greatly reducing transactions necessary to complete an exchange. While it might seem counterintuitive to those who are not studying marketing management, channels with intermediaries actually tend to save end- user consumers money over what most direct producer to consumer distribution approaches would cost, given the same product. Manufacturers' costs would skyrocket if they held the responsibility for interfacing with and delivering product to every one of their end users. 113. Lily has realized that the popularity of e-commerce has led to disintermediation. Lily is the coordinator of an e-commerce tradeshow and she has contacted you to speak about disintermediation at the next tradeshow. Lily would like you to focus on the fall of the dot-com companies and was hoping you could give her a quick run down. How would you explain this to Lily? Answer: Driven largely by the advent of electronic commerce and online marketing, disintermediation, or the shortening or collapsing of marketing channels due to the elimination of one or more intermediaries, is common in the electronic channel. In the early days of e-commerce, many entrepreneurs rushed to market with a Website to sell their favorite products. This dot-com boom quickly turned to a bust, however, in part because many of these new-age marketers didn't understand the basics of distribution channels. Simply opening a Web site that features a product is one thing, but it's another thing entirely to invest in the infrastructure and capabilities needed to consistently fulfill orders in a timely and accurate manner. Most post-mortems on the cause of the dot-com bust point to poor channel and supply chain practices as the No. 1 reason so many of those initial e-marketers failed. That is, customer expectations were peaked by the novelty and convenience of buying online only to be dashed by delays and errors in product fulfillment after the sale. 114. How does channel power relate to channel conflict? What are the effects of channel power and conflict? Answer: Ultimately, channel conflict can occur in which channel members experience disagreements and their relationship can become strained or fall apart. Unresolved channel conflict can result not only in an uncooperative and inefficient channel, but it can also ultimately impact end-user consumers through inferior products, spotty inventory, and higher prices. 115. Maxwell has just finalized production of his updated, high end plates and glasses. He would like to position his products as prestigious and utilize premium pricing. What is the best way for Maxwell to get his product to the right retailers at the right price? Answer: When a manufacture opts for exclusive distribution in a channel, it is often part of an overall positioning strategy built on prestige, scarcity, and premium pricing. Exclusive distribution also often arises because a significant personal selling effort is required with the consumer before product purchase. Products that possess complex or unique properties that only a one-to-one in-person interaction with a customer can explain are often best served by intermediaries with specialized sales capabilities. 116. Ursella is a marketing manager for a bathroom tile company. She is trying to figure out if her firm needs to utilize a push or a pull strategy. What are the differences between a push and pull strategy? Answer: A push strategy means that much of the intensive promotional activities take place from the manufacturer downward through the channel of distribution. Think of this approach as an investment by the manufacturer in intermediaries so that they will have a maximal incentive to stock, promote, sell, and ship the firm's products. Push strategies usually are supported by heavy allowance payments to intermediaries for helping accomplish the manufacturer's goals. In contrast, a manufacturer employing a pull strategy focuses much of its promotional investment on the end-user consumer. In this case, heavy advertising in mass media, direct marketing, couponing, and other direct-to-consumer promotion are expected to create demand from intermediaries from the bottom of the channel upward. A pull strategy doesn't mean a manufacturer wouldn't engage in any channel incentives, but rather that the incentives would likely be greatly reduced versus a push strategy. 117. Richard's partner thinks of logistics in very limited terms. Richard has been trying to work out a better logistics plan for their luxury doghouse company. Help Richard explain how inbound and outbound logistics relates to his company. Answer: Traditionally, logistics was thought of as an internal flow going one direction—outbound logistics. That is, it was thought that logistics started with production and ended with receipt of finished good by the end-user consumer or business user. From a supply chain perspective, logistics professionals today tend to take a more holistic view of physical distribution. Thus, along with outbound logistics, it is important to consider inbound logistics—sourcing materials and knowledge inputs from external suppliers to the point at which production begins. 118. Room Reveal is a company that creates custom interior doors for residential and business properties. They currently take orders over the phone and mainly e-mail the orders to the appropriate people to have the orders fulfilled. What should Room Reveal implement to help with order processing? Answer: Sophisticated and integrated enterprise resource planning (ERP) systems now manage much of the logistics process for many firms. ERP is a software application designed to integrate information related to logistics processes throughout the organization. Once data are entered, they are automatically linked through internal systems and become available for use with all relevant decisions that rely on the ERP information. ERP enables employees throughout the system, whether in sales, billing, customer service, or some other group, to take ownership of their piece of the supply chain and to accurately communicate order status both to the customer and among themselves. 119. What are the transaction and communication functions that are performed by intermediaries and how do they help fulfill completed transactions and maintain the viability of the channel relationships? Answer: • Selling. Often, intermediaries provide a sales force to represent a manufacturer's product line. This could take the form of manufacturers' representatives, or brokers, that represent a product line down the channel. Alternatively, the salespeople might work for a wholesaler or retailer. • Buying. Both wholesalers and retailers perform an important function by evaluating products and ultimately simplifying purchase decisions by creating assortments. • Marketing communications. Intermediaries frequently receive incentives from manufacturers to participate in helping promote products in the channel. When a Target ad features Tide laundry detergent, it's a safe bet that Target has received a promotional allowance from P&G to feature the brand. Likewise, that shelf tag in your neighborhood pharmacy featuring a special price on Rolaids very likely was placed there by the pharmacy's wholesaler as part of a promotion by Pfizer. Test Bank for Essentials of Marketing Management Greg W. Marshall, Mark W. Johnston 9780078028786, 9780071082020, 9780077400187

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