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Chapter 14—Marketing Channels and Retailing TRUE/FALSE 1. A marketing channel is a set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer. Answer: True Rationale: A marketing channel comprises a network of organizations that work together to facilitate the transfer of ownership as products move from producers to end consumers or business users. 2. As products move through the marketing channel, channel members provide specialization and division of labor, overcome discrepancies, and provide contact efficiency. Answer: True Rationale: Channel members in the marketing channel specialize in tasks, reduce discrepancies between supply and demand, and enhance efficiency in reaching customers, contributing to the overall effectiveness of the channel. 3. Consider a scenario in which there are five manufacturers, no intermediaries, and four consumers. Twenty transactions would be required for each consumer to receive products from each manufacturer. The introduction of one intermediary reduces the required number of transactions to four and demonstrates the idea of contact efficiency. Answer: False Rationale: Introducing one intermediary reduces the required number of transactions to nine. See Exhibit 14.1. 4. Carl represents a manufacturer of floor coverings and gets paid a commission for finding buyers and linking them up with the manufacturer. Carl is an example of a merchant wholesaler. Answer: False Rationale: This defines an agent or broker. 5. Transactional functions include contacting potential customers and assuming the risk of owning inventory. Answer: True Rationale: Transactional functions in marketing include activities such as contacting potential customers (selling) and assuming the risk associated with owning inventory (holding inventory). 6. The direct channel is used more often in consumer markets than in business and industrial markets. Answer: False Rationale: The direct channel is used more often in business and industrial markets than in consumer markets. 7. Metallurgical Designs makes gold and silver charms for necklaces and bracelets. It markets its charms to a few retailers in any one region and promotes them intensively to those retailers. This is an example of intensive distribution. Answer: False Rationale: Intensive distribution means the product is available in every outlet the potential customer might want to buy it, not to just a few retailers. 8. Exclusive distribution increases direct competition among a great number of retailers. Answer: False Rationale: An exclusive distribution arrangement establishes a dealer and enables it to be the main beneficiary of the manufacturer’s promotion efforts in that geographic area. 9. Highly integrated channel relationships are loosely bonded relationships characterized by informal arrangements that explicitly define the relationships of the channel members. Answer: False Rationale: Highly integrated channel relationships are closely bonded relationships characterized by formal arrangements that explicitly define the relationships of the channel members. 10. Reciprocal conflict occurs among channel members on the same level, such as two or more different wholesalers or two or more different retailers that handle the same manufacturer’s brands. Answer: False Rationale: This is referred to as horizontal conflict. 11. Many regard vertical conflict as healthy competition. Answer: False Rationale: Vertical conflict occurs between different levels in a marketing channel and is much more serious than horizontal conflict among channel members on the same level. 12. Gray marketing channels assist brand name manufacturers in marketing their products more efficiently. Answer: False Rationale: “Gray” marketing channels use unauthorized channel intermediaries. 13. When discussing customer-oriented service industries, you will often hear channel members discussing the need to minimize wait times. Answer: True Rationale: Customer-oriented service industries often focus on minimizing wait times to enhance customer satisfaction. 14. A retailing establishment that sells a wide variety of shopping and specialty goods under one roof would be classified as a department store. Answer: True Rationale: A retail establishment that offers a wide range of shopping and specialty goods under one roof is typically classified as a department store. 15. Emily has just opened a health food store that sells organic foods, herbal supplements, and environmentally friendly products. Because it will be a specialty store, she should have a broad product assortment with moderately low prices. Answer: False Rationale: Specialty stores have narrow product assortments and moderate to high prices. 16. Jennifer owns a greeting card store where she also sells women’s purses, Crocs shoes for the whole family, Jibbitz charms, cell phone skins, Sandy Lion stickers, Yankee candles, Godiva chocolates, Precious Memories figurines, beaded jewelry, and stuffed animals. Jennifer uses multi-brand merchandising. Answer: False Rationale: This would be an example of scrambled merchandising because it involves offering nontraditional goods. There is no such thing as a multi-brand. 17. Supercenters are more than just larger versions of traditional “markets.” In addition to foodstuffs, supercenters have pharmacies, dry cleaners, portrait studies, photo finishing, hair salons, and restaurants. Answer: True Rationale: Supercenters offer a variety of services beyond traditional markets, including pharmacies, dry cleaners, portrait studios, photo finishing, hair salons, and restaurants. 18. Specialty discount stores differ from other discount stores. While most other discounters offer a predictable assortment of merchandise, the styles and brands offered at specialty discount stores change frequently and cost 25 percent or more below traditional department store prices. Answer: False Rationale: Off-price retailers are being described here, not specialty discount stores. 19. Marketers who use non-store retailing no longer have to worry about the “place” element of the four Ps. Answer: False Rationale: Non-store retailing refers to shopping without visiting a store; however, products must still be distributed to end users, whether by vending, in-home retailing, or direct marketing. 20. The person who called Alisa last night and tried to sell her double-paned windows for her home was using outbound telemarketing. Answer: True Rationale: Outbound telemarketing involves calling potential customers to promote products or services. 21. The two types of franchising are target market franchising and geographic franchising. Answer: False Rationale: The two types of franchising are product and trade name franchising and business format franchising. 22. The six Ps of the retailing mix are product, place, price, promotion, personnel, and planning. Answer: False Rationale: Presentation, not planning, is one of the six Ps of the retailing mix. 23. Every October through December, Hickory Farms opens a temporary store in many malls to sell products during the Christmas season without the long-term commitment of a more expensive retail lease. This is an example of a pop-up shop. Answer: True Rationale: Hickory Farms opening temporary stores during the holiday season in malls without a long-term commitment is an example of a pop-up shop strategy. 24. Color can be used by retailers to create a mood or focus customer attention on a particular product. Answer: True Rationale: Color is a powerful tool in retail environments, capable of influencing mood and directing customer attention towards specific products, thereby impacting purchasing decisions. 25. Dillard’s, Target, and Walmart use data mining to determine which products to stock at what price, how to manage markdowns, and how to advertise to draw target customers. Answer: True Rationale: Retail giants like Dillard’s, Target, and Walmart leverage data mining techniques to optimize inventory management, pricing strategies, markdowns, and targeted advertising efforts, based on detailed customer data analysis. 26. M-commerce is a type of managed commerce in which both buyer and seller end the transaction with a win–win feeling. Answer: False Rationale: M-commerce, or mobile e-commerce, enables consumers using wireless mobile devices to connect to the Internet and shop. MULTIPLE CHOICE 1. A _____ is a set of interdependent organizations that eases the transfer of ownership as products move from producer to business user or consumer. A. facilitating agency or place member B. marketing mix intermediary C. selective distribution channel D. marketing channel or channel of distribution E. transportation channel or channel of movement Answer: D Rationale: This is the definition of a marketing channel, also called the channel of distribution. 2. Kayak.com is a company that allows customers to efficiently search databases to find the best airline and hotel deals all over the Web. Kayak does not make bookings but rather provides recommendations for the best travel plans. Travel providers pay Kayak a commission when customers click through to their sites. Kayak.com, travelers, the airlines, and the hotels are all part of a: A. facilitating agency B. marketing mix intermediary C. selective promotion channel D. marketing channel or channel of distribution E. transportation channel or channel of movement Answer: D Rationale: A marketing channel is a business structure of interdependent organizations that reaches from the point of product origin to the consumer. 3. Jones Soda is positioned as the anti-Coke. In the early years, few mainstream retailers sold Jones Soda. Fans had to get their Jones fix in surf shops, tattoo parlors, and bookstores, adding to the brand’s mystique. Jones Soda used its _____ to create a competitive advantage. A. channel ascendancy B. distribution channel C. channel conflict D. channel focus E. vertical integration Answer: B Rationale: Its unusual retail venues added to the brand’s mystique. 4. Marketing channels make distribution simpler by reducing the number of transactions required to get products from manufacturers to consumers. This is called: A. forward integration B. contact efficiency C. elimination of temporal discrepancies D. sorting E. reciprocity Answer: B Rationale: Marketing channels provide contact efficiencies by reducing the number of stores customers must shop in to complete their purchases. 5. The major characteristic that is used to differentiate among types of intermediaries is whether they: A. install exchange barriers such as location, time, and quantity B. create specialization of labor C. create economies of scale D. take title to the products they sell E. raise profit margins for independent middlemen Answer: D Rationale: Taking title means they own the merchandise and control the terms of the sale. 6. W.W. Grainger, Inc. is one of the world’s largest business-to-business distributors of equipment, component parts, and supplies in the United States and Canada. It has ownership title to over 220,000 products, which are stocked in one national and nine regional warehouses to guarantee product availability and quick service to the many manufacturers who are its customers. W.W. Grainger is an example of a(n): A. agent or broker B. merchant wholesaler C. retailer D. consumer market E. hypermarket intermediary Answer: B Rationale: A merchant wholesaler is an institution that buys goods from manufacturers and resells them to other wholesalers and retailers. Merchant Wholesalers receive and take title to the goods, own warehouses, and ship the products they sell. 7. _____ are intermediaries who facilitate the sales of a product from producer to end user by representing retailers, wholesalers, or manufacturers and providing little input as to the terms of the sale. A. Marketing facilitators B. Channel cooperatives C. Agents and brokers D. Merchant wholesalers E. Channel functionaries Answer: C Rationale: Agents and brokers simply facilitate the sale of a product from producer to end user. 8. _____ considerations affecting the wholesaler choice include how often a product is purchased and how long a customer is willing to wait to receive the product. A. Market B. Transactional C. Product D. Buyer E. Logistic Answer: D Rationale: The question describes buyer considerations. 9. The three basic functions channel intermediaries perform are: A. transactional, logistical, and facilitating B. contacting, negotiating, and ownership C. promoting, distributing, and bulk-breaking D. assorting, accumulating, and allocating E. financing, mediating, and storing Answer: A Rationale: Retailing and wholesaling intermediaries in marketing channels perform essential transactional, logistical, and facilitating functions. 10. Transactional channel functions include all of the following activities EXCEPT: A. explaining product benefits B. making buyers aware of existing products C. explaining product features, advantages, and benefits D. contacting and communicating with prospective buyers E. physically distributing and sorting products Answer: E Rationale: Physically distributing and sorting products is not a transactional channel function. 11. Which of the following are examples of facilitating functions performed by wholesaling intermediaries? A. Sorting and storing B. Risk taking and promotion C. Assorting, accumulating, grading, and allocating D. Researching and financing E. Financial management and storing Answer: D Rationale: The third basic channel function, facilitating, includes research and financing. 12. Serenity is a manufacturer of outdoor fountains that are popular in gardens. Even though fountains represent a product category that does not sell year-round due to inclement weather, Serenity’s sales remain steady all year because it sells to wholesale distributors that stock the product. Serenity sells to wholesale distributors that perform _____ functions for the manufacturer. A. financial B. transactional C. facilitating D. logistical E. promotional Answer: D Rationale: Storing for later sale to retailers is a logistical function. 13. The only way that Jim Keeler in New Mexico can get a box of Carolyn Popwell’s Festive Holiday Truffles from Washington is to order it through the mail. Popwell, who makes the candy by hand, uses a(n) _____ exclusively. A. exclusive distribution system B. conventional channel C. vertical marketing system D. reciprocal channel E. direct channel Answer: E Rationale: The manufacturer sells directly to the consumer. 14. Vutek manufactures printing machines used to print high-resolution graphics for billboards, bus cards, banners, and posters. For distribution, you would expect Vutek to use a: A. network of facilitating agents B. horizontally integrated channel C. reciprocal channel D. direct channel E. vertical marketing system Answer: D Rationale: Direct channels are typical in business and industrial markets. 15. A _____ channel is commonly used for low-cost consumer items that are frequently purchased, such as candy, cigarettes, and magazines. A. retailer B. agent/broker C. industrial distributor D. producer E. wholesaler Answer: E Rationale: Manufacturers sell their products to wholesalers in large quantities; the wholesalers then break the large quantities into smaller quantities to satisfy individual retailer orders. 16. Nontraditional channel arrangements: A. tend to make a firm’s product seem the same as the competition. B. usually broaden a brand’s coverage. C. can give a producer serving a niche market a way to gain market access without having to establish channel intermediaries. D. are not usually useful for larger firms. E. All of the above are true. Answer: C Rationale: Nontraditional channel arrangements can give a producer serving a niche market a way to gain market access without having to establish channel intermediaries 17. Customers can purchase Hewlett-Packard computers from retail stores like Best Buy and Office Depot, online directly from HP, and through various catalogs. HP is using a(n) _____ distribution arrangement. A. intensive B. multiple C. exclusive D. cumulative E. aggregated Answer: B Rationale: Multiple distribution occurs when a producer selects two or more different channels to distribute the same products to target markets. 18. Selfridges is the second-largest department store in Great Britain. It works with House of Frasier, one of its competitors, to reduce operating costs by sharing channels of distribution to ship goods from 1,500-plus suppliers. Selfridges and House of Frasier are engaged in: A. vertical conflict B. an integrated supply chain C. a strategic channel alliance D. an information-based distribution channel E. a distribution cooperative Answer: C Rationale: A strategic channel alliance is a cooperative agreement between businesses to use each other’s already-established distribution channels. 19. Which of the following statements concerning how market factors affect channel decisions is true? A. Industrial customers tend to buy in larger quantities and require more customer service. B. Geographically concentrated target markets should be served with an indirect sales force. C. Widely dispersed markets require fewer intermediaries. D. New firms in extremely competitive markets will be more successful if they use indirect channels. E. A very large market requires fewer intermediaries. Answer: A Rationale: Industrial customers’ buying habits are very different from those of consumers, and they tend to buy in larger quantities and require more customer service. 20. Canesta Company has developed a virtual keyboard out of light to be used with cell phones and PDAs. The product beams an image of a keyboard on a desk, allowing the user to type on the image. The words are picked up by the user’s digital device. When introduced to the market, the device will sell for less than $50. If, in choosing its channel, Canesta is most concerned about its lack of financial, managerial, and marketing resources to support the product’s introduction, then its choice of channels will largely be influenced by: A. factors of ownership. B. market factors. C. producer factors. D. product factors. E. internal environmental characteristics. Answer: C Rationale: Financial, managerial, and marketing issues are producer factors. 21. Chewing gum and soft drinks are sold in grocery stores, service stations, convenience stores, drugstores, discount stores, and motel vending machines. This is a an example of a(n) _____ distribution strategy. A. exclusive B. reciprocal C. selective D. horizontal E. intensive Answer: E Rationale: Intensive distribution is distribution aimed at maximum market coverage. It is used for many convenience goods that need to be available in every outlet where the potential customer might want to buy them. 22. _____ distribution is achieved by screening dealers to eliminate all but a few in any single geographic area. Shopping goods and some specialty products that consumers are willing to search for are sold this way. A. Intensive B. Selective C. Exclusive D. Dual E. Controlled Answer: B Rationale: This is a description of selective distribution. 23. Canesta Company has developed a virtual keyboard out of light to be used with cell phones and PDAs. The product beams an image of a keyboard on a desk, allowing the user to type on the image. The words are picked up by the user’s digital device. When introduced to the market, the device will sell for less than $50. What level of distribution intensity should the company use? A. Exclusive B. Controlled C. Extensive D. Reciprocal E. Selective Answer: E Rationale: Screening dealers will promote a quality image for the product. Price is also a factor in its level of distribution intensity. It is not a convenience good. 24. Which level of distribution intensity is the most restrictive and entails establishing only one or a few dealers within a given geographic area? A. Selective B. Intensive C. Exclusive D. Dual E. Premium Answer: C Rationale: This is the definition of exclusive distribution. 25. Caterpillar, the manufacturer of tractors and other earthmoving equipment, has an extremely high market share, which means customers seek the dealers out regardless of where they are. There are approximately 50 Caterpillar dealers in the United States––one in each state. From this information, you can surmise that Caterpillar uses _____ distribution. A. selective B. premium C. intensive D. exclusive E. inclusive Answer: D Rationale: Exclusive distribution, the most restrictive form of distribution, entails establishing one or a few dealers within a given geographic area. Because buyers need to be willing to search or travel to acquire the product, this form of distribution is limited to consumer specialty goods, a few shopping goods, and major industrial equipment. 26. This summer, college student Pat is planning on selling kites at Panama City Beach. He has found some suppliers and has preordered all of the kites he thinks he can sell this summer. What type of a distribution channel relationship does Pat have with his suppliers? A. Arm’s-length B. Functional C. Cooperative D. Hierarchical E. Integrated Answer: A Rationale: The arm’s-length relationship is considered to be temporary. 27. With the _____ channel relationship, both parties retain their independence and pursue their own interests while attempting to benefit from the goods or services provided by the other. A. Arm’s-length B. functional C. cooperative D. hierarchical E. integrated Answer: A Rationale: These types of relationships are often referred to as “Arm’s-length” relationships due to the company’s unwillingness or lack of ability to develop a closer type of relationship. 28. One of the earliest, largest, and most famous examples of vertical integration was the Carnegie Steel Company. The company controlled not only the mills where the steel was manufactured but also the mines where the iron ore was extracted, the coal mines that supplied the coal, the ships that transported the iron ore, and the railroads that transported the coal to the factory. Carnegie Steel had a(n) _____ channel relationship. A. Arm’s-length B. functional C. cooperative D. hierarchical E. integrated Answer: E Rationale: Integrated relationships are tightly connected, with linked processes across and between firm boundaries and high levels of trust and commitment. 29. Which channel relationship is less ambiguous than an Arm’s-length relationship but without the longer-term and/or capital investment required to achieve full integration? A. Ersatz B. Cooperative C. Functional D. Integrated E. Supplemental Answer: B Rationale: Cooperative relationships are between companies that take the form of informal partnership with moderate levels of trust and information sharing as needed to further each company’s goals. 30. The capacity of a particular marketing channel member to control or influence the behavior of other channel members is known as: A. channel power. B. channel conflict. C. channel control. D. channel dominance. E. channel inversion. Answer: A Rationale: Channel power is a channel members’ ability to control or influence the behavior of other channel members. 31. A situation that occurs when one marketing channel member intentionally affects another member’s behavior is called: A. channel power. B. channel control. C. channel conflict. D. channel dominance. E. channel inversion. Answer: B Rationale: Channel control is when one channel member actually affects another. 32. DeBeers sells most of the diamonds it produces to industry. The company controls over 90 percent of the market and has great power over its distributors. In its marketing channel, DeBeers would be considered a: A. channel authority. B. channel member. C. channel captain. D. channel gatekeeper. E. power broker. Answer: C Rationale: The channel captain is a member of a marketing channel that exercises authority and power over the activities of other channel members. DeBeers has control over delivery, inventory, and so on. 33. Channel conflict: A. always has an adverse effect on the members of the channel B. is not caused by ideological differences, because such differences would prevent the members from ever operating as a channel C. is often caused by an inability of some channel members to keep up with the changing times D. can appear as either internal or external E. does not occur when multiple distribution channels are used Answer: C Rationale: In a broad context, channel conflict can be good for a channel. It is sometimes caused by ideological differences. It appears as vertical or horizontal. 34. Honda uses just-in-time manufacturing to build its Odyssey minivans. Five companies that make component parts for the Honda Odyssey relocated to Alabama and states bordering Alabama when Honda announced plans to build a new Odyssey manufacturing plant in Alabama. This relocation in order to provide efficient delivery of goods indicates that Honda is a: A. channel captain B. horizontal integrator C. distribution champion D. distribution ombudsman E. demand maverick Answer: A Rationale: A channel captain exercises authority and power over the other channel members. 35. Horizontal channel conflict occurs most often when manufacturers practice: A. dual or multiple distribution B. trade loading C. promotional pricing D. direct distribution E. channel distribution Answer: A Rationale: Horizontal conflict occurs when more than one channel is used to handle the same brand. 36. Channel conflict that occurs between different levels in a marketing channel is referred to as: A. horizontal conflict B. primary conflict C. vertical conflict D. secondary conflict E. parallel conflict Answer: C Rationale: This describes vertical conflict, which typically occurs between the manufacturer and wholesaler or between the manufacturer and retailer. 37. _____ is the joint effort of all channel members to create a channel that serves customers and creates a competitive advantage. A. Selective partnering B. Direct distribution C. Channel partnering D. Intensive integration E. Closed channel distribution Answer: C Rationale: This is the definition of channel partnering, which is also called channel cooperation. 38. You are responsible for physical distribution of your company’s service and should focus on: A. ensuring the intangibility of the service so that physical distribution becomes a less important factor. B. minimizing wait times, managing service capacity, improving service delivery, and establishing channel-wide network coherence. C. making sure production and consumption are simultaneous. D. setting quality standards, choosing faster transportation modes, and using safety stock. E. customer-oriented order processing and inventory control. Answer: B Rationale: Service industries are customer oriented and must manage intangible services by minimizing wait times, managing service capacity, improving service delivery, and establishing channel-wide network coherence. 39. Paul operates Kayak.com, a company that allows customers to efficiently search company databases and find the best airline and hotel deals all over the Web. Kayak does not make bookings but rather provides recommendations for the best travel plans. Travel providers pay Kayak a commission for most customers who click through to their sites. Paul wants his users to have as short and sweet an experience on Kayak as possible. Time is of the essence in responding to any customer question, especially in this day where airfare can increase dramatically in just a couple of hours. Paul is devoted to: A. improving service delivery. B. maximizing queues. C. reducing discrepancies of assortment. D. reducing wait time. E. managing service capacity. Answer: A Rationale: The Internet is an alternative channel for delivering these deals. Kayak is a service organization. 40. _____ is defined as all activities directly related to the sale of goods and services to the ultimate consumer for personal, nonbusiness use or consumption. A. Wholesaling B. Retailing C. Business D. Franchising E. Distribution Answer: B Rationale: This is the definition of retailing. 41. A Target store is an example of a(n): A. merchant wholesaler B. retailer C. broker D. agent E. exporter Answer: B Rationale: Retailers are firms that sell mainly to consumers. 42. Which of the following intermediaries sell mainly to consumers? A. Retailers B. Merchant wholesalers C. Agents D. Brokers E. Specialists Answer: A Rationale: Retailers are firms that sell mainly to consumers. 43. Retail establishments are generally classified according to all of the following EXCEPT: A. ownership B. level of sales C. level of service D. price E. product assortment Answer: B Rationale: The four elements used to classify retail establishments are its ownership, level of service, product assortment, and price. 44. Around the world, most retailers are _____, operating one or a few stores in their community, owned by a single person or partnership and not operated as part of a larger retail institution. A. independent B. chain stores C. franchise outlets D. specialty clubs E. product assortment stores Answer: A Rationale: Independent retail outlets are owned by a single person or partnership and not operated as part of a larger retail institution. 45. Jim’s Bike Shop sells bicycles for the serious racer to the casual cyclist. Jim’s also sells biking gear and clothing. Jim is the sole owner of the store, so in terms of ownership, his store would be classified as a(n): A. independent retailer. B. freestanding store. C. franchise. D. chain store. E. common retailer. Answer: A Rationale: Independent retailer stores are owned by a single person or partnership and not operated as part of a larger retail institution. 46. Which type of retail ownership is owned and operated by an individual but is licensed by a larger supporting organization? A. Independent retailer B. Chain store C. Franchise D. Cooperative E. Secondary retailer Answer: C Rationale: This describes a franchise. 47. The number of different varieties of fishing lures carried by the Angler’s Store refers to the store’s: A. supply standard. B. complete retail offering. C. retail mix. D. volume. E. assortment depth. Answer: E Rationale: Breadth and depth refers to product assortment. 48. _____ shows how much the retailer makes as a percentage of sales after the cost of goods sold is subtracted. A. Net income B. Retained earnings C. Profitability D. Net equity E. Gross margin Answer: E Rationale: This is the definition of gross margin. 49. Housing several departments under one roof, a _____ carries a wide variety of shopping and specialty goods, including apparel, cosmetics, housewares, electronics, and sometimes furniture. A. supermarket B. specialty store C. convenience store D. super club E. department store Answer: E Rationale: Department stores house several departments under one roof. 50. Each department in a department store is usually treated as a different _____ center and central management sets broad policies about the types of merchandise carried and prices. A. franchise B. financial C. comptroller D. human resources E. buying Answer: E Rationale: Each department in a department store is treated as a separate buying center 51. Which type of retail store specializes in a given type of merchandise? A. An independent store B. A department store C. A discount store D. A specialty store E. A first-level store Answer: D Rationale: This is the definition of a specialty store. 52. James wants to open a small store that caters to the model railroad hobbyist. The store would sell model trains, scenery, accessories, and books on the subject of model railroading. Which of the following types of stores would most likely support an effective launch of his business idea? A. An off-price retailer B. A specialty store C. A full-discount store D. A general store E. A warehouse club Answer: B Rationale: Specialty stores specialize in a given type of merchandise. 53. Which of the following statements about specialty stores is true? A. Specialty stores find it easy to compete on price with big-box stores. B. Customers at specialty stores are not concerned with the distinctiveness of the merchandise or the store’s physical appearance. C. Customers of specialty stores usually consider price to be secondary. D. Specialty stores are ineffective test markets. E. A typical specialty store carries a wider assortment of specialty merchandise than department stores. Answer: C Rationale: Customers usually consider price to be of secondary importance in their selection of a specialty store. Customers at specialty stores are very concerned with the distinctiveness of the merchandise or the store’s physical appearance. Specialty stores provide a low-risk testing ground for new products. A typical specialty store carries a narrower assortment of specialty merchandise than department stores. 54. Fairway is a chain of retail outlets in Iowa, Minnesota, Nebraska, and Illinois that are described as large, departmentalized, self-service stores that specialize in food and limited non-food items. Fairway stores are: A. off-price retailers B. discount stores C. wholesale clubs D. convenience stores E. supermarkets Answer: E Rationale: The key factors are the emphasis on food and the size of the stores. 55. Kroger is the second-largest supermarket chain in the United States. Which of the following is the most likely reason why Kroger supermarkets sell all types of foodstuffs as well as non-food products including a wide range of eyewear and accessories? A. Consumer demand for one-stop shopping often leads to scrambled merchandising. B. The fulfillment of the wheel of retailing hypothesis C. Inflationary economic climate D. Repositioning as a discounter E. Growth of convenience merchandising Answer: A Rationale: In many cases, supermarkets offer a wide variety of nontraditional goods and services under one roof (a strategy called scrambled merchandising) to respond to consumers who want convenience. 56. _____ carry a limited line of high-turnover, high-priced goods and resemble miniature supermarkets. These self-service stores are typically located near residential areas and are open long hours, seven days a week. A. Specialty stores B. Wholesale stores C. Convenience stores D. Factory outlets E. General stores Answer: C Rationale: This describes convenience stores. 57. Prices are usually higher in convenience stores than in supermarkets because convenience stores offer: A. more specialty goods B. a wider variety of products C. a higher level of customer services D. better location, longer hours, and faster service E. higher-quality goods Answer: D Rationale: Convenience stores carry a limited amount of high-turnover, high-priced goods and resemble miniature supermarkets. Customers patronize these stores because of convenience. 58. _____ are retailers that compete on the basis of low prices, high turnover, and high volume. A. Convenience outlets B. Discount stores C. General stores D. Department stores E. Specialty stores Answer: B Rationale: This is the definition of discount stores. Convenience stores are miniature supermarkets, carrying only a limited line of high-turnover convenience goods. 59. _____ is the retailing strategy of offering consumers very limited service and carrying a broad assortment of well-known, nationally branded “hard goods.” A. Specialty store positioning B. Merchandise positioning C. M-store retailing D. The wheel of retailing E. Full-line discounting Answer: E Rationale: This describes full-line discounters. 60. A retail operation that has a 90,000-square-foot facility and houses a florist, baker, bank, craft shop, photo finisher, dry cleaner, and pharmacy under the same roof as grocery and household items would be called a: A. membership warehouse club. B. wholesale outlet. C. factory outlet. D. super center. E. mass merchandiser. Answer: D Rationale: Super centers offer an array of products and services, as well as groceries. 61. Toys “R” Us sells a huge assortment of toys and children’s books at greatly reduced prices. It offers customers few services and competes on the basis of moderate to low prices on the large quantities of merchandise it stocks. Toys “R” Us is an example of a: A. full-line discount store. B. specialty discount store. C. general store. D. department store. E. wholesale store. Answer: B Rationale: A specialty discount store (also called a category killer) offers a nearly complete selection of single-line merchandise and uses self-service, discount prices, high volume, and high turnover to its advantage. 62. _____ sell a limited selection of brand name appliances, household items, and groceries, usually in bulk on a cash-and-carry basis to members only. A. Super outlets B. Factory outlets C. Wholesale discounters D. Off-price discount retailers E. Warehouse membership clubs Answer: E Rationale: This describes warehouse membership clubs. 63. Off-price retailers: A. usually don’t ask for return privileges B. very often offer a consistent assortment of merchandise. C. seldom stock brand name merchandise. D. are owned by the manufacturer of the products they sell. E. offer very deep assortments. Answer: A Rationale: Off-price retailers usually don’t ask for return privileges. 64. A _____ is an off-price retailer that is owned and operated by a manufacturer and carries one line of merchandise––its own. A. mass merchandiser B. factory outlet C. wholesale club D. discount store E. bargain basement store Answer: B Rationale: This describes a factory outlet. CB&E Model Distribution 65. _____ refers to shopping without visiting a store and is currently growing faster than in-store shopping because of the consumer demand for convenience. A. Non-store retailing B. Customerization C. Hyper shopping D. Niche marketing E. Specialty merchandising Answer: A Rationale: Non-store retailing is selling to consumers through other means than by visiting a store. 66. _____ is the most pervasive retail business in the United States. Consumers get products out of automated machines, and it accounts for billions of dollars worth of goods each year in the United States. A. Automatic vending B. Party-plan selling C. Direct marketing D. A pyramid scheme E. Professional selling Answer: A Rationale: Automatic vending is the use of machines to offer goods for sale. 67. Southwestern Company recruits and trains college students to sell educational reference books, software, and children's books door-to-door. This form of non-store retailing is called: A. direct retailing B. personal marketing C. direct marketing D. automatic vending E. electronic retailing Answer: A Rationale: Direct retailing is the selling of products by representatives who work door-to-door, office-to-office, or at home sales parties. 68. _____ refers to the techniques used to get consumers to buy from their home. Those techniques include direct mail, catalogs and mail-order, telemarketing, and electronic retailing. A. Non-store vending B. In-home retailing C. Franchising D. Direct marketing E. Direct retailing Answer: D Rationale: Direct marketing includes techniques, such as catalogs and telemarketing, to get consumers to make a purchase from their home, office, or other nonretail setting. 69. Marketers can precisely target their customers according to demographics, geographics, and psychographics with: A. direct mail. B. vending machines. C. franchise stores. D. specialty retail outlets. E. electronic selling. Answer: A Rationale: With direct mail, marketers can precisely target their customers according to demographics, geographics, and even psychographics. 70. Telemarketing can consist of either unsolicited _____ sales calls, or _____ sales calls, which allow companies to receive orders through toll-free telephone numbers. A. order placement; lead generation B. push strategy; pull strategy C. systematic; synergistic D. qualifying; finalizing E. outbound; inbound Answer: E Rationale: Outbound telemarketing is generally used for unsolicited selling, while inbound calls are from customers placing orders. 71. _____ is a type of shopping available to consumers with access to the Internet. A. Shop-at-home networks B. Online retailing C. Franchising D. Electronic wholesaling E. Mobile vending Answer: B Rationale: Online retailing, also called e-tailing, is a type of shopping available to consumers with access to the Internet. 72. The Cedar Store carries a full line of cedar swings, gliders, garden benches, and tables. All of its products can be purchased through its Web site. The site has done well since the Cedar Store’s products do not need to be touched or smelled before purchase. The Cedar Store is engaging in: A. online retailing. B. shop-at-home networking. C. mobile vending. D. franchising. E. electronic wholesaling. Answer: A Rationale: Online retailing is a two-way interactive service offered to users with personal computers. 73. A(n) _____ is a continuing relationship in which an individual or business grants business rights to operate or sell a product to another individual or business. A. leasing contract B. alliance for profit C. brokered partnership D. franchise E. countertrade Answer: D Rationale: A franchise is a continuing relationship in which a franchiser grants to a franchisee the business rights to operate or sell a product. 74. The party in a franchise relationship that is an individual or business granted the right to sell another party’s product is called the: A. franchisor B. franchisee C. receiver D. renter E. owner/operator Answer: B Rationale: The franchisee sells the franchisor’s products. 75. Chattanooga Bottling Company is licensed to bottle Coke products. The Chattanooga Bottling Company is an example of a: A. product and trade name franchisee. B. redistributor franchisor. C. business format franchisee. D. licensed franchisor. E. relationship franchisee. Answer: A Rationale: In product and trade name franchising, a dealer agrees to sell certain products provided by a manufacturer or wholesaler. 76. Domino’s pizza, Hyatt Corporation, and Wendy’s are all examples of _____ because the franchisee buys the right to use the franchisor’s approach to doing business. A. product and trade name franchisors B. redistributor franchisors C. business format franchisors D. licensed franchisors E. relationship franchisors Answer: C Rationale: Business format franchising is an ongoing relationship between a franchisor and a franchisee in which the franchisor sells a franchisee the rights to use a format or approach to doing business. 77. The first task of developing a retail strategy is to: A. create a buying organization. B. decide what to buy. C. define the target market. D. create a promotional strategy. E. define the pricing policies. Answer: C Rationale: The target market’s wants and needs form the foundation for a successful retail strategy. 78. Retailers such as Dillard’s and Sears are responding to consumer needs by changing product mixes, hours of operation, locations, and prices. These stores are changing aspects of their: A. merchandising groupings. B. retailing mixes. C. product offerings. D. retail trade areas. E. store positioning strategies. Answer: B Rationale: Retailers are altering several aspects of the six Ps of the retailing mix. See Exhibit 14.6. 79. Which of the following statements about a retailer’s promotion strategy is true? A. The design of the promotion strategy would be done separately from the creation of the retailing mix. B. The goal of a retail store’s promotion mix is to position the store in consumers’ minds. C. Most advertising for retailers is carried out at the national level. D. Retailers find direct mail marketing inefficient. E. Retail promotion strategy does not include public relations activities. Answer: B Rationale: Promotion is part of the retailing mix and includes advertising, public relations and publicity, and sales promotions. Most advertising for retailers is carried out at the local level. Retailers have been very successful with direct marketing. 80. When opening a new retail operation, the retailer needs to consider all of the following factors EXCEPT: A. traffic flow. B. employee density. C. geographic region. D. growth potential. E. zoning regulations. Answer: B Rationale: Employee density is concerned with the amount of employees per 1,000 square feet in the store––not in the neighborhood. The other four factors are to be considered when deciding on a location. 81. Large retailers such as Target and Walmart and sellers of shopping goods such as automobiles and furniture often use _____ for their locations. A. remote, rural locations B. office complexes C. factory outlets D. freestanding stores E. regional malls Answer: D Rationale: Freestanding stores are often used by large retailers. 82. Maggie Moo’s has decided that consumers will drive out of their way for the store’s yummy ice cream offerings. The owner needs to keep his overhead costs (such as rent) low and wants to avoid locating near competitors. For a location, Maggie Moo’s should open in a: A. factory outlet. B. strip center. C. freestanding store. D. shopping center. E. regional mall. Answer: C Rationale: A freestanding store has the advantage of low site costs and will be a benefit if consumers are willing to seek it out. 83. Another name for an anchor store is a: A. mass merchandiser. B. generator store. C. host store. D. shopping center pillar. E. destination store. Answer: B Rationale: Anchor stores or generator stores are usually located at opposite ends of the mall to create heavy foot traffic. 84. The newest generation of shopping centers is the: A. regional mall. B. shopping business district. C. lifestyle center. D. franchised center. E. strip mall. Answer: C Rationale: Lifestyle centers are open-air shopping centers targeted to upper-income shoppers with an aversion to “the mall.” 85. The Halloween Super Store is only open from September until November, usually in an otherwise vacant store. This is an example of a: A. temp store. B. m-commerce. C. convenience retailing. D. pop-up shop. E. flash store. Answer: D Rationale: Pop-up shops are temporary shops that allow a flexible location without a long-term commitment. 86. All of the following are factors in creating a store’s atmosphere EXCEPT: A. employee type and density. B. fixture type and density. C. sound. D. price. E. odors. Answer: D Rationale: Influential factors in creating a store’s atmosphere include employee type and density, merchandise type and density, fixture type and density, sound, odors, and visual factors. 87. The _____ of retail stores is a key factor in their success; the goal is to use all space in the store effectively, including aisles, displays, and even non-selling areas. A. merchandise density B. layout C. target strategy D. merchandise mix E. promotional strategy Answer: B Rationale: The layout of retail stores is described here. 88. A common practice among most retailers that seeks to broaden customers’ original purchases with related items is called: A. suggestion selling. B. trading up. C. bait and switch. D. comprehensive selling. E. interactive selling. Answer: A Rationale: Suggestion selling is common in helping customers recognize true needs. 89. When Irvin went into Lowe’s to buy his wife a small tool set she said she wanted, the sales clerk suggested a larger set with a tool kit on wheels that included a router and circular saw. In this example, the sales clerk engaged in: A. trading up. B. suggestion selling. C. bait and switch. D. customer relationship retailing. E. service-disguised selling. Answer: A Rationale: Trading up means persuading customers to buy a higher-priced item than the one they intended to buy. 90. Whenever a customer opens an account at First Southern National Bank, a teller or account representative asks the customer whether he or she needs a CD, online banking, or other services. In other words, the account representative engages in: A. interactive selling. B. bait and switch. C. trading up. D. customer relationship retailing. E. suggestion selling. Answer: E Rationale: Suggestion selling seeks to broaden customers’ original purchase with related items. 91. One of the new developments in retailing is m-commerce. The “m” in m-commerce stands for: A. motivated B. multimedia C. marketing D. managed E. mobile Answer: E Rationale: M-commerce, or “mobile” e-commerce enables consumers using wireless mobile devices to connect to the Internet and shop. 92. _____ uses complex mathematical models to help retailers make better product mix decisions. A. Inbound telemarketing B. Data mining C. Blogs D. Spamming E. Online auctions Answer: B Rationale: This is the definition of data mining. Redbox Movie DVD sales represent a $16 billion market, and rentals make up another $7.5 billion. Naturally, production studios would prefer consumers purchase DVDs rather than rent them. Production studios like Twentieth-Century Fox, Warner Bros., and General Electric refused to sell new releases to Redbox, a DVD vending machine company, until almost a month after new releases arrived in stores. Redbox, the ubiquitous DVD rental red kiosks found in and outside of convenience stores, grocery stores, drugstores, fast-food restaurants, and Walmart, is cutting in on production companies’ profits. These studios are tangled in lawsuits with Redbox. Sony, Paramount, and Lionsgate, on the other hand, permit distribution through Redbox, and Disney allows third-party distribution to Redbox. With more than 20,000 kiosks now in operation, Redbox ranks fifth in DVD rental revenues, which is impressive considering the rental fee is only $1.00. But Blockbuster is trying to steal vending market share by allowing NCR Corporation, known for ATM machines, to license its name to place Blockbuster Express kiosks in similar types of locations. 93. Refer to Redbox. Warner Bros., Blockbuster, Redbox, Walmart, and third-party DVD distributors are part of a: A. distribution cooperative B. marketing mix C. transportation channel D. marketing channel E. logistics system Answer: D Rationale: A marketing channel is a set of interdependent organizations that facilitate the transfer of ownership as products move from producer to business user or consumer. 94. Refer to Redbox. Redbox offers DVDs from several production studios, such as Disney, Sony, and Paramount. Consumers can rent from Redbox instead of obtaining the DVD from the various production studios if they want a children’s movie from Disney and an action movie from Paramount. Thus, one kiosk provides _____ for both consumers and the production studios. A. contact efficiency B. integration C. synergy D. distribution efficiency E. distribution intensity Answer: A Rationale: Marketing channels provide contact efficiencies by reducing the number of stores customers must shop in to complete their purchases. 95. Refer to Redbox. Video stores that distribute DVDs usually also sell popcorn, candy, soft drinks, and entertainment publications. Basically, they overcome discrepancies of quantity and assortment by combining products into collections or assortment that consumers want available in one place. Which channel function does this describe? A. Logistical functions B. Transactional functions C. Facilitating functions D. Purchasing functions E. Secondary functions Answer: A Rationale: Logistical functions include physically distributing, storing, and sorting. Sorting overcomes discrepancies of quantity and assortment. 96. Refer to Redbox. Production studios distribute DVDs in grocery stores, drugstores, discount stores, entertainment stores, and vending machines like Redbox. Which level of distribution intensity does this represent? A. Intensive B. Extensive C. Product focused D. Market focused E. Exclusive Answer: A Rationale: Intensive distribution is aimed at maximum market coverage. 97. Refer to Redbox. Production studios are potentially producing _____ among its existing distributors by allowing Redbox to rent their DVDs for $1.00. A. vertical conflict B. cognitive dissonance C. supply management divergence D. horizontal conflict E. disintermediation Answer: D Rationale: Horizontal conflict occurs among channel members on the same level. Walmart Walmart, the world’s largest retailer by revenue, announced that it will get back to its founder’s roots by initiating more price cuts. Critics claimed that the giant was getting away from its original focus because it posted relatively high gross profit margins. CEO Mike Duke assuaged critics by saying Walmart’s $400 billion in sales will become even larger because the price cuts will attract more customers and it will lower its costs of goods sold. 98. Refer to Walmart. In terms of ownership, Walmart would be classified as a(n): A. independent retailer. B. chain store. C. franchise. D. discount store. E. department store. Answer: B Rationale: Chain stores are owned and operated as a group by a single organization. While Walmart is a discount store, in terms of ownership, it is a chain store. 99. Refer to Walmart. Walmart’s gross margin is the: A. total sales from all of its stores worldwide. B. amount of money it makes as a percentage of sales after the cost of goods sold is subtracted. C. amount of money it makes as a percentage of sales before taxes. D. amount of money it makes as a percentage of sales after all costs are subtracted. E. net profit it earns after all expenses and taxes are subtracted. Answer: B Rationale: Gross margin is the money the retailer makes as a percentage of sales after the costs of goods sold is subtracted. 100. Refer to Walmart. Which type of pricing strategy describes Walmart’s commitment to offer consistently lower prices? A. High–low pricing B. Everyday low pricing C. extreme value pricing D. Prestige pricing E. Marginal pricing Answer: B Rationale: Everyday low pricing offers consumers a low price all the time rather than holding periodic sales on merchandise. 101. Refer to Walmart. Many Walmart stores have a full line of groceries and general merchandise with a wide range of services, such as a pharmacy, portrait studio, optical shop, and bank. Walmart is an example of which type of discount store? A. Hypermarket B. Supermarket C. Extreme-value retailer D. Super center E. Category killer Answer: D Rationale: Super centers combine a full line of groceries and general merchandise with a wide range of services––all in one location. Walmart operates over 7,200 super centers worldwide. 102. Refer to Walmart. Most Walmart stores are not located in shopping centers but rather are buildings all by themselves. This type of location is referred to as a: A. primary outlet. B. freestanding store. C. pop-up store. D. single-unit retailer. E. strip store. Answer: B Rationale: An isolated, freestanding location can be used by large retailers like Walmart. Diaz John Diaz immigrated to Tallahassee from Cuba in the 1980s. He set up a coffee shop called Diaz in a small upper-middle-class neighborhood. It rapidly became popular because of the wonderful coffee it brewed. Soon Diaz was selling the finest coffees from around the world, plus coffee-making necessities such as grinders and brewers. Within ten years, Diaz was operating a lucrative mail-order business in addition to his coffee shop. Upon entering the shop, the first thing the customer sees is a countertop crowded with all of the machinery needed for making a perfect cup of coffee. Marble-topped tables are set in cozy nooks with overstuffed chairs. Bookshelves on one wall hold books about coffee for patrons to read while they sip. The smell is intoxicating to a real coffee lover. Coffee drinkers can take home a pound when they leave. The store carries all types of coffee from $8 per pound Brazilian Cerrado to $300 per pound Kopi Luwak from Sumatra. 103. Refer to Diaz. In terms of ownership, Diaz’s coffee shop would be classified as a(n): A. franchise. B. wholesaler. C. independent retailer. D. agency. E. chain store. Answer: C Rationale: It is owned by a single person. 104. Refer to Diaz. The type of merchandise carried by Diaz is deep but with a narrow assortment. The store would most likely be classified as a: A. convenience store. B. mass merchandiser. C. specialty store. D. category killer. E. membership club. Answer: C Rationale: A specialty store specializes in a given type of merchandise with a deep but narrow assortment. 105. Refer to Diaz. Customers of Diaz’s coffee shop can purchase coffee, coffee makers, mugs, chocolate, music CDs, and all sorts of unique gift items. Diaz is practicing: A. m-commerce. B. interactive merchandising. C. lifestyle merchandising. D. scrambled merchandising. E. pop-up shopping. Answer: D Rationale: Scrambled merchandising is the tendency to offer a wide variety of nontraditional goods and services under one roof. 106. Refer to Diaz. If Diaz wanted to grow his business and granted another owner the rights to use his format and approach to doing business, he would be involved in: A. trading up. B. m-commerce. C. direct marketing. D. product and trade name franchising. E. business format franchising. Answer: E Rationale: Business format franchising is a business relationship in which the franchisor (Diaz) “sells” a franchisee the rights to use the franchisor’s format or approach to doing business. 107. Refer to Diaz. The smell of fresh coffee, the fact it is made where drinkers can watch the process, and the comfortable chairs all are used to create the store’s: A. atmosphere. B. cultural impact. C. target strategy. D. merchandise mix. E. promotional strategy. Answer: A Rationale: The main element of a store’s presentation is its atmosphere––how the store’s physical layout, decor, and surroundings convey an overall impression. Apple Stores Apple, Inc. opened its first Apple Store in 2001 and currently has hundreds of stores spanning several countries. Many of the Apple Stores are inside malls, but Apple also has several freestanding stores, which they call their flagship stores, with each looking a little different on the outside. These are located in New York City, Boston, Los Angeles, Chicago, San Francisco, Montreal, Tokyo, and Osaka. The store in New York City is a glass cube with a glass cylindrical elevator and spiral staircase that leads to an underground store. Inside, they have long tables displaying products ranging from the iMac, MacBook Air, iPods, printers, cameras, and other accessories. All these products are accessible to customers who can try them out and ask various questions of informed associates. The walls are mostly metallic, and the signs are all backlit. All stores have a Genius Bar where customers can receive technical advice or set up service and repair for their products. To address the needs of the many iPod users, some stores, such as the New York store, have set up a separate iPod Bar where customers can get their own technical assistance. They also have an iMac station for kids who want to try out games and learning products and a theater for workshops, product training sessions, and special presentations. Apple introduced the handheld Easy Pay system where customers don’t have to wait in line to purchase products. With a simple click of a paperless, handheld credit card scanner, the employee brings the cash register to the customer. Items can be rung up anywhere on the show room floor. Apple plans to open several more stores in the years to come. Apple also has its online store. At its Web site, a customer can order any Mac or iPod product, plus a large variety of accessories. In addition to its product offerings, a customer can watch a demonstration of how products work or check out the latest Mac ads or news. 108. Refer to Apple Stores. In terms of ownership, which of the following best describes Apple stores? A. Independent retailer B. Chain stores C. Franchises D. Pop-up shops E. Department stores Answer: B Rationale: Chain stores are owned and operated as a group by a single organization. 109. Refer to Apple Stores. Of the major types of retail operations, Apple stores are: A. department stores. B. specialty stores. C. Superstores. D. convenience stores. E. discount stores. Answer: B Rationale: A specialty store specializes in a deeper but narrower assortment of merchandise. The Apple Store’s specialty product is electronics. 110. Refer to Apple Stores. What method of non-store retailing does Apple take advantage of through the use of its Web site? A. Telemarketing B. Automatic vending C. Direct mail D. Catalogs and mail orders E. Online retailing Answer: E Rationale: Online retailing is a type of shopping available to consumers with personal computers and access to the Internet. 111. Refer to Apple Stores. Some shoppers purposely plan to visit the Apple store on Fifth Avenue in New York City, which is characteristic of: A. generator stores. B. lifestyle stores. C. interactive stores. D. m-stores. E. destination stores. Answer: E Rationale: Destination stores are ones that consumers purposely plan to visit. 112. Refer to Apple Stores. Apple has the Genius Bar, the backlit signs, the Apple products themselves, the modern metallic walls and spiral staircases in its stores. These are all work together to convey the store’s: A. impression. B. environment. C. atmosphere. D. surroundings. E. elements. Answer: C Rationale: Atmosphere is the overall impression given by a store’s physical layout, decor, and surroundings. ESSAY 1. What is a marketing channel? What type of businesses make up a marketing channel? Answer: A marketing channel, or channel of distribution, is a business structure of interdependent organizations that eases the transfer of ownership as products move from producer to business user or consumer. It encompasses the processes involved in getting the right product to the right place at the right time. Marketing channels represent “place” in the marketing mix. Channel members include wholesalers, distributors, agents and brokers, and retailers. 2. One important reason channel members are included between producers and users is the concept of specialization and division of labor. Define these concepts and explain their roles in channels of distribution. Answer: Specialization and division of labor break down a complex task into smaller, simpler ones and allocate them to specialists, which results in much greater efficiency. Marketing channels achieve economies of scale through specialization and division of labor. Some producers do not have the interest, financing, or expertise to market directly to end users or consumers. These producers use channel members to perform functions and activities that the producers are not equipped to perform or that these intermediaries are better prepared to perform. Channel members can perform some functions and activities more efficiently than producers, and they enhance the overall performance of the channel because of their specialized expertise. 3. One important reason channel members are included between producers and users is to increase contact efficiency. How do channel members increase contact efficiency? Use the following two scenarios to illustrate your answer: (1) Assume that there are 2,000 business students who need to buy textbooks from eight textbook publishers. How many transactions must take place? (2) Assume the first scenario, but now one campus bookstore is acting as an intermediary. Now how many transactions must take place? Answer: Channels make distribution simpler and more efficient by reducing the number of transactions required to get products from manufacturers to consumers. In the provided example, the first scenario requires 16,000 transactions (2,000 students 8 publishers). In the second scenario, only 2,008 transactions are necessary (1 bookstore × 8 publishers + 2,000 students × 1 bookstore). Clearly, a significant reduction in transactions takes place if intermediaries are added to the system. 4. Intermediaries must perform three basic functions. Name these functions and describe the activities involved in each function. Answer: TRANSACTIONAL FUNCTIONS include contacting and promoting (contacting potential customers, promoting products, soliciting orders), negotiating (determining how many goods or services to buy and sell, transportation types, delivery times, and payment method and timing), and risk taking (assuming the risk of owning inventory). LOGISTICAL FUNCTIONS include physical distribution (transporting and storing goods to overcome temporal and spatial discrepancies), storing (maintaining inventories and protecting goods), and sorting (overcoming discrepancies of quantity and assortment by sorting out, accumulating, allocating, and assorting). FACILITATING FUNCTIONS include researching (gathering information about other channel members and consumers) and financing (extending credit and other financial services to facilitate the flow of goods through the channel to the final consumer). 5. What are the three factors affecting channel choice? Briefly discuss how each factor might influence a company to implement a direct channel of distribution. Answer: MARKET FACTORS. Industrial customers tend to buy in larger quantities and require more customer service. Conversely, consumers usually buy in very small quantities and sometimes do not mind if they get no service at all. Geographic location and size also determine channel choice. A geographically concentrated market is appropriate for direct selling through a direct sales force. Markets that are more widely dispersed may need more intermediaries. Generally, a very large market requires more intermediaries. Also, if there is lots of existing competition, choosing a direct channel may be less difficult and more profitable. PRODUCT FACTORS. Products that are more complex, customized, and expensive tend to benefit from shorter and more direct marketing channels. Product life cycle also plays a role. In fact, the choice of channels may change over the life of the product. As products become more common and less intimidating to potential users, producers tend to look for alternative channels. Finally, fragile and perishable products require a shorter channel that involves less handling. PRODUCER FACTORS. Producers with large financial, managerial, and marketing resources are better able to use channels that require fewer intermediaries. More direct channels may also be used by producers who wish to control pricing, positioning, brand image, and customer support. 6. A retail clothing store in a small northwest Georgia community is the sole distributor of Spanx brand hosiery in the region. How does this form of market coverage benefit the retailer? How does it benefit the manufacturer? Answer: Exclusive distribution entails only one or a few dealers within a given market area. It is the most restrictive form of distribution intensity. Retailers may be unwilling to commit the time and money necessary to promote a product unless the manufacturer guarantees them an exclusive territory. The arrangement shields the retailer from direct competition and enables it to be the main beneficiary of the manufacturer’s promotion within the geographic area. For the manufacturer, exclusive distribution can serve to project an exclusive image for the product. 7. Define channel power, channel control, channel leadership, and channel partnering and explain how these four terms are related. Answer: Power, control, leadership, conflict and partnering are the main social dimensions of marketing channel relationships. CHANNEL POWER refers to the capacity of one channel member to control or influence the behavior of other channel members. CHANNEL CONTROL occurs when one channel member intentionally affects another member’s behavior. CHANNEL LEADERSHIP is the exercise of authority and power. CHANNEL PARTNERING is the joint effort of all channel members to create a channel that serves customers and creates a competitive advantage. Collaborating channel partners meet the needs of consumers more effectively by ensuring the right products reach shelves at the right time and at a lower cost, boosting sales and profits. They are all components of channel relationship management. 8. Discuss the four main areas of importance in service distribution. Answer: MINIMIZING WAIT TIMES. Minimizing the amount of time a customer waits for service is a key factor in maintaining the quality of service. People tend to overestimate the amount of time they spend waiting in line, and unexplained waiting seems longer than explained waiting. MANAGING SERVICE CAPACITY. If service firms don’t have the capacity to meet demand, they must either turn down dome prospective customers, let service slip, or expand capacity. For instance, at tax time, a tax preparation firm may have so many customers desiring its services that it has to either turn business away or add temporary offices or prepares. IMPROVING SERVICE DELIVERY. Like manufacturers, service providers are now experimenting with different distribution channels. These new channels can increase the time that service is available (such as the Internet) or add to consumer convenience (plan a vacation cruise). ESTABLISHING CHANNEL-WIDE NETWORK COHERENCE. Because services are to some degree intangible, service firms also find it necessary to standardize their service offering quality across different geographic regions in order to maintain brand image. Network coherence means that suppliers, service processes and customer service have quality standards that are maintained regardless of where the service is purchased or consumed. 9. Define retailing and list the factors that are used to classify retail operations. Answer: Retailing is defined as all the activities directly related to the sale of goods and services to the ultimate consumer for personal, nonbusiness use. Retail establishments can be classified according to ownership, level of service, product assortment, and price, and retailers use the latter three variables to position themselves in the competitive marketplace. 10. There are several types of retail stores, each offering a different product assortment, service level, and price level, according to the shopping preferences of its customers. Name eight types of retailers. For each type, indicate the level of service, product assortment, and level of price. Answer: See Exhibit 14.4. 11. A specialty store is not only a type of store but also is a method of retail operations. Describe the specialty store strategy. Then name two examples of specialty stores. Answer: Specialty stores specialize in a given type of merchandise such as children’s clothing, baked goods, and pet supplies. Specialty stores carry a narrow assortment of merchandise but a very deep product selection. Specialty stores typically offer more customer service and more knowledgeable salesclerks. Prices and gross margins tend to be high, but this is of secondary importance to the customer who strongly values distinctive merchandise, attractive stores, and quality personnel. Examples of specialty stores include The Children’s Place, Gadzooks, Williams-Sonoma, and Foot Locker. 12. Discount stores are retail chains that compete on the basis of low prices, high turnover, and high volume. Name and briefly describe four types of discounters, and give an example of each type. Answer: FULL-LINE DISCOUNTERS. These stores are similar to traditional department stores, except that they carry a much broader assortment of well-known, nationally branded “hard goods” and offer consumers very limited service. Most full-line discounters are national chains such as Kmart, Walmart, and Target. Supercenters combine a full line of groceries and general merchandise with a wide range of services. Extreme-value retailers cater to low-income consumers; their stores are generally rather small, they offer a narrow selection of merchandise emphasizing day-to-day necessities, and they stress rock-bottom prices. SPECIALTY DISCOUNT STORES. Single-line specialty discount stores offer consumers a nearly complete selection of one line of merchandise and use self-service, discount prices, high volume, and high-turnover merchandise in their retailing strategies. These stores are also called “category killers” because they dominate their narrow segment. Toys “R” Us (toys), Home Depot (home improvement), Office Depot (office supplies), and Best Buy (electronics) are examples. WAREHOUSE MEMBERSHIP CLUBS. These are usually warehouse outlets that allow members to buy items on a cash-and-carry basis. Examples include Costco and Sam’s Club. OFF-PRICE RETAILERS. These retailers buy manufacturers’ overruns, irregular merchandise, unsold end-of-season output, and goods from bankrupt stores. The merchandise is then sold at large discounts from traditional department stores. Examples include T.J.Maxx, Ross Stores, Marshalls, and Tuesday Morning. A special case of this type is the single-price store, such as Family Dollar, Dollar General, and the One Price Clothing Stores. Factory outlets are owned and operated by manufacturers and carry only their own line of merchandise. Outlets are used to sell surplus goods, factory seconds, return merchandise, and closeouts. Most manufacturers place these outlets in locations that do not conflict with their normal retailer. Manufacturers with factory outlets include Liz Claiborne, J. Crew, Calvin Klein, West Point Pepperel, Oneida, and Lands’ End. 13. Retailing opportunities can take place without customers shopping at a store. Name and briefly discuss four forms of non-store retailing. Answer: Answers will vary, and may include: AUTOMATIC VENDING. Vending machines for items such as soft drinks, snacks, and coffee are an important form of non-store retailing. Vending is the most pervasive retail business in the United States, with about 11.5 million vending machines selling billions of dollars worth of goods annually. Consumers are willing to pay higher prices for products from a vending machine than for the same products in a traditional retail setting. DIRECT RETAILING. This form of non-store retailing is characterized by sales transactions in a home setting. This includes door-to-door selling and party plan selling. Direct retailers are also using the Internet as a channel to reach more customers and increase sales. DIRECT MARKETING. In this case, consumers buy from their homes. Direct marketing (sometimes called direct response marketing) refers to a variety of techniques such as telemarketing, direct mail, and catalogs and mail order. TELEMARKETING is the use of the telephone to sell directly to consumers. It consists of outbound sales calls, usually unsolicited, and inbound calls—that is, orders through toll-free 800 numbers or fee-based 900 numbers. SHOP-AT-HOME TELEVISION NETWORKS are specialized forms of direct response marketing. These shows display merchandise, with the retail price, to home viewers. Viewers can phone in their orders directly on a toll-free line and shop with a credit card. ONLINE RETAILING, or e-tailing, is a type of shopping available to consumers with personal computers and access to the Internet. ELECTRONIC RETAILING. This form of non-store retailing includes the 24-hour, shop-at-home television networks and online retailing, and mobile retailing. The best-known television networks are HSN and QVC. Online retailing, or e-tailing, is a type of shopping available to consumers over the Internet. Mobile retailing, or m-commerce, involves consumers using wireless mobile devices to connect to the Internet and shop 14. What is the first task of developing a retail strategy? What is involved in this task? Answer: The first and foremost task of developing a retail strategy is defining the target market the prospective retailer wishes to serve. This process begins with market segmentation and a thorough knowledge of the segment targeted. Target markets in retailing are often defined on demographic, geographic, and psychographic dimensions. Different combinations of the elements in the retail marketing mix enable a retailing establishment to position itself for its particular targeting strategy. 15. When retailers decide on location, they have two basic site options: the freestanding store and the shopping center. Briefly describe these location alternatives and discuss the advantages and disadvantages of each location alternative. Answer: FREESTANDING STORES. This alternative is an isolated, freestanding location that customers will seek out (a destination store). Advantages include low site cost or rent and no direct competitors close by. Disadvantages are that it may be difficult to attract customers, and there are no shared costs. SHOPPING CENTERS. These include strip centers, community shopping centers, malls, and lifestyle centers. An advantage of a strip store is customer convenience. A disadvantage is crowding, lack of parking, and old buildings. Community shopping centers and malls provide several advantages, including a planned shopping environment, anchor stores, good parking, a unified image, and special activities. Disadvantages include expensive leases, common promotional expenses, not attracting customers to a particular store, lease restrictions on merchandise and hours of operation, domination by anchors, and possibility of direct competition within the same facility. Lifestyle centers are newer, open-air shopping centers targeted to upper-income shoppers with an aversion for “the mall” and seek to create an atmosphere that is part neighborhood park and part urban shopping center. 16. Compare and contrast trading up and suggestion selling. Answer: These are two common selling techniques, and they should always help shoppers recognize true needs rather than sell them unwanted merchandise. TRADING UP means convincing the customer to buy a higher-priced item than he or she originally intended to buy. To avoid selling customers something they do not need or want, however, salespeople should take care when practicing trading-up techniques. SUGGESTION SELLING seeks to broaden the customer’s original purchase with related items. For example, if a consumer buys a new printer, the sales representative will ask if he or she would like to purchase paper, a USB cable, and/or extra ink cartridges. Test Bank for MKTG Charles W. Lamb, Jr. Hair, Joseph F., Carl McDaniel 9781285091860

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