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This Document Contains Chapters 2 to 3 Chapter 2—Strategic Planning for Competitive Advantage TRUE/FALSE 1. The manufacturer of Macho brand martial arts products was implementing a strategic plan when it sponsored a local karate tournament for teenagers. Answer: False Rationale: Such a short-range decision is typically a tactical plan or operating decision, not a strategic plan. 2. Berkshire Hathaway Inc., a large property insurance company, owns a large chain of jewelry stores and has recently purchased Russell Corporation, a manufacturer of sporting goods. Berkshire Hathaway uses a market penetration strategy. Answer: False Rationale: Berkshire Hathaway uses a diversification strategy. 3. When the Internet auction company eBay opened a version of the company called eBay France for the French market, it was an example of market penetration. Answer: False Rationale: Market penetration is the strategy of selling more to the existing customers. This is an example of a market development strategy, which is attracting new customers to existing products. 4. A market penetration strategy entails the creation of new products for current customers. Answer: False Rationale: This is an example of product development strategy. A market penetration strategy in one that tries to increase market share among existing customers. 5. The Home Depot’s purchase of Hughes Supply Company allows it to better meet the needs of its current business customers. This is an example of product development. Answer: False. Rationale: The Home Depot's purchase of Hughes Supply Company to better meet the needs of its current business customers is an example of market development rather than product development. Market development involves expanding into new markets or segments with existing products or services. In this case, The Home Depot is broadening its market reach and enhancing its capabilities to serve business customers through the acquisition of Hughes Supply Company, which provides complementary products and services. Product development, on the other hand, typically refers to creating new products or enhancing existing ones to better meet customer needs or preferences. 6. When a florist shop begins to sell burial caskets to its customers, it is engaged in product development. Answer: True Rationale: Product development is the offering of new products to current markets. 7. A diversification strategy entails increasing sales by introducing new products into new markets. Answer: True Rationale: A diversification strategy involves expanding a company's business activities by introducing new products or services into new markets. This strategy aims to reduce reliance on existing markets and products, thereby spreading risk and potentially increasing overall sales and profitability. By entering new markets with new offerings, companies seek to leverage their capabilities and explore new opportunities for growth beyond their current scope. 8. The portfolio matrix is a tool for allocating resources among products or strategic business units on the basis of relative market share and degree of innovation. Answer: False Rationale: The portfolio matrix is based on relative market share and market growth rate. 9. The marketing plan is a written document that acts as a guidebook of marketing activities for the marketing manager. Answer: True Rationale: The marketing plan is a comprehensive written document that serves as a roadmap or guidebook for marketing managers and teams. It outlines the marketing objectives, strategies, tactics, and action plans that the organization will implement to achieve its marketing goals. By documenting these elements, the marketing plan helps ensure alignment across the organization, provides clarity on priorities and timelines, and serves as a reference for evaluating performance and making adjustments as needed. Thus, it plays a crucial role in coordinating and executing marketing activities effectively and efficiently. 10. A firm’s mission statement should answer the question, “What products do we produce best?” Answer: False Rationale: Mission statements should not focus on specific product offerings but on the market or markets served. 11. A production costs analysis could be a part of a company’s SWOT analysis. Answer: False Rationale: A production costs analysis is typically not part of a company's SWOT analysis. SWOT analysis focuses on assessing the internal Strengths and Weaknesses of a company, as well as the external Opportunities and Threats it faces in the market environment. 12. Environmental scanning entails the collection and analysis of information about factors that may affect the organization as well as the identification of market opportunities and threats. Answer: True Rationale: Environmental scanning involves gathering and analyzing information about external factors that could impact an organization. This process helps identify market opportunities and threats, enabling the organization to adapt its strategies proactively to leverage opportunities and mitigate risks. 13. A competitive advantage is some unique aspect of a firm’s offering, or of the firm itself, that causes target customers to patronize the firm rather than its competition. Answer: True Rationale: A competitive advantage refers to a unique aspect of a firm's offering or the firm itself that distinguishes it from competitors and attracts target customers. This advantage could stem from product features, quality, pricing, brand reputation, innovation, or other factors that make the firm more appealing to its target market. 14. Developing a cost competitive advantage can enable a firm to deliver superior customer value. Answer: True Rationale: Developing a cost competitive advantage allows a firm to offer products or services at lower prices compared to competitors while maintaining acceptable profit margins. This enables the firm to deliver superior customer value by providing affordability without compromising on quality or service, thereby gaining a competitive edge in the marketplace. Cost competitiveness can enhance customer satisfaction and loyalty, attracting price-sensitive customers and supporting long-term profitability. 15. As marketers gain more experience in marketing a product, costs tend to decrease, which is an example of the maturity effect. Answer: False Rationale: This is an example of the experience curve, which means costs decline at a predictable rate as experience with a product increases. 16. Niche competitive advantages are quite common. Answer: True Rationale: The text lists several examples of how companies have created niche competitive advantages. 17. To be useful, marketing objectives should be realistic, measurable, time specific, and based on sales. Answer: False Rationale: Useful marketing objectives should be realistic, measurable, time specific, and compared to a benchmark. They do not have to be based on sales. 18. The company’s objective is to increase sales next year. This is an example of a well-stated objective. Answer: False Rationale: This objective is not specific or compared to a benchmark. 19. Marketing strategy involves the activities of selecting and describing one or more target markets and developing and maintaining a marketing mix that will produce mutually satisfying exchanges with target markets. Answer: True Rationale: Marketing strategy encompasses the process of identifying and selecting target markets based on market segmentation and then developing a marketing mix (product, price, place, promotion) tailored to meet the needs and preferences of those target markets. The goal is to create mutually satisfying exchanges where customers perceive value and the company achieves its business objectives. This strategic approach guides how the organization positions itself in the market, allocates resources, and executes marketing tactics to achieve competitive advantage and sustainable growth. 20. The development of a target market strategy begins with a marketing audit. Answer: False Rationale: The development of a target market strategy begins with a market opportunity analysis (MOA). 21. The four Ps of the marketing mix are product, planning, promotion, and price. Answer: False Rationale: The four Ps are product, place, promotion, and price. 22. Typically, the development of the marketing mix starts with determining the promotion for a product. Answer: False Rationale: The development of the marketing mix begins with the product. 23. A marketing audit helps management allocate marketing resources efficiently. Answer: True Rationale: A marketing audit is a comprehensive evaluation of a company's marketing activities, strategies, and performance. By conducting a marketing audit, management can assess the effectiveness of current marketing efforts, identify strengths and weaknesses, and uncover opportunities and threats in the market environment. 24. Strategic planning is most effective when managers view it as an annual exercise. Answer: False Rationale: Strategic planning requires creativity and an ongoing commitment, not just going through the motions once a year. 25. The most critical element for successful strategic planning is top management’s support and participation. Answer: True Rationale: Top management's support and participation are crucial because they provide the necessary authority, resources, and alignment of organizational goals. Their involvement ensures strategic initiatives are prioritized, properly funded, and integrated with broader business objectives, fostering a culture of commitment and accountability throughout the organization. MULTIPLE CHOICE 1. _____ is the managerial process of creating and maintaining a fit between the organization’s objectives and resources and the evolving market opportunities. A. Tactical management B. The market audit C. Functional planning D. Environmental scanning E. Strategic planning Answer: E Rationale: This is the definition of strategic planning. 2. Strategic plans require: A. long-term resource commitments B. a change in organizational structure C. the addition of new personnel D. new product development E. changes in prices Answer: A Rationale: The goal of strategic planning is long-run profitability and growth. Thus, strategic decisions require long-term commitments of resources. 3. With hospitals nationwide facing budget cuts and slimmer profit margins, Dekalb County’s Medical Center decided to cash in on one of the most consistently profitable services––delivering babies. It initiated a three-year project to build a $55 million state-of-the-art women’s center with 18 labor and delivery suites. When the hospital decided to commit its resources to obstetrics, it was engaging in: A. benchmarking B. alternative problem solving C. strategic planning D. portfolio evaluation E. tactical control Answer: C Rationale: Strategic planning provides a long-term vision and thus guides long-term commitment of resources. 4. Since gas prices have soared and consumers have cut back on their spending on new trucks and SUVs, Ford Motor Corporation is transforming several of its plants to create small cars. Ford has engaged in: A. benchmarking B. tactical resource realignment C. alternative selection D. portfolio evaluation E. strategic planning Answer: E Rationale: Strategic planning provides a long-term vision and thus guides long-term commitment of resources. 5. Heinz has announced that they plan to grow the company through an accelerated push into emerging markets such as China, Indonesia, and India in the next ten years. This is an example of: A. tactical objectifying B. contingency plan C. strategic planning D. marketing implementation E. horizon planning Answer: C Rationale: Strategic planning is the managerial process of creating and maintaining a fit between the organization’s objectives and evolving market opportunities. 6. Subgroups of a single business or collection of related businesses within a larger organization are referred to as: A. strategic marketing organizations B. strategic subgroups C. market segments D. business segments E. strategic business units Answer: E Rationale: A strategic business unit (SBU) is a subgroup of a single business or collection of related businesses within the larger organization. 7. A popular technique for managing a large organization with different technologies and markets is to divide it into: A. strategic business units B. different technologies C. strategic target markets D. design matrices E. tactical segments Answer: A Rationale: A strategic business unit (SBU) is a subgroup of a single business or collection of related businesses within the larger organization. 8. The SBU acronym refers to: A. stock in business units B. strategic business unit C. standard business utilization D. strategic barter units E. samples by units Answer: B Rationale: SBU refers to strategic business unit, which is a subgroup of a single business or collection of related businesses within the larger organization. 9. A strategic business unit (SBU): A. competes with the same companies as the other SBUs in the parent organization B. shares the same mission with all the other SBUs in the parent organization C. controls its business independent of other SBUs in the organization D. usually benefits from the combined corporate raw materials purchases E. still has strategic planning performed back at corporate headquarters Answer: C Rationale: SBUs have separate business functions from one another and have their own mission statements, markets, and planning. 10. Yildiz Holding of Turkey purchased Godiva Chocolates from Campbell’s Soup Company. Campbell’s sold one of its: A. strategic business units (SBUs) B. strategic alliances C. action programs D. transactional units E. synergistic divisions Answer: A Rationale: An SBU is a subgroup of a single business or collection of related businesses within the larger organization. 11. Until spun off in 2007, Kraft was part of Altria Group, Inc. Kraft had its own management team, mission statement, and target markets different from Altria. Kraft was a _____ of Altria. A. product market niche B. diversified division C. heterogeneous element D. strategic alliance E. strategic business unit Answer: E Rationale: A strategic business unit usually has its own mission statement, target markets, and separate functional departments. 12. Chrysler has a financial unit that is responsible for vehicle leases to consumers. It has a distinct mission, control over its resources, and plans independent of the other divisions of Chrysler. This financial unit is an example of a(n): A. organizational level B. SWOT C. secure business unit D. business sales unit E. strategic business unit Answer: E Rationale: A strategic business unit is a subgroup of a single business or collection of related businesses within a larger organization. 13. Which of the following is a type of strategic alternative that tries to increase market share among existing customers? A. Vertical integration B. Product penetration C. Divestment D. Horizontal integration E. Market penetration Answer: E Rationale: Market penetration strategies focus on increasing market share among existing customers through tactics such as promotional campaigns, pricing adjustments, or product enhancements, aiming to maximize sales within current market segments. 14. _____ is a strategy of increasing market share for present products in existing markets. A. Market penetration B. Product development C. Market development D. Diversification E. Product penetration Answer: A Rationale: This is the definition of market penetration. 15. Market penetration occurs when: A. a supermarket adds a new store B. a U.S.-based company begins to sell its products in China C. Motown records sells DVDs to Walmart D. Yoplait sends yogurt coupons to its existing customers E. 3M distributes Breathe Right nasal strips in Europe Answer: D Rationale: Market penetration is the marketing of the same product to current customers. 16. Kraft Foods created a magazine full of recipes and coupons for customers as well as a Web site with product and recipe information. The goal was to get current customers to purchase more of Kraft’s products. These activities are representative of a _____ strategy. A. diversification B. product development C. market development D. market penetration E. product penetration Answer: D Rationale: Selling more of the same product to existing markets is market penetration. 17. _____ is a strategy that attempts to attract new customers to existing products. A. Product development B. Market development C. Market penetration D. Product penetration E. Diversification Answer: B Rationale: This is the definition of a market development. 18. In order to expand its sales into the U.S. market, BRL, an Australia-based winemaker, agreed to a merger with a U.S.-based wine distribution company. According to Ansoff’s strategic opportunity matrix, BRL would be implementing a _____ strategy. A. diversification B. market development C. product development D. divestment E. product penetration Answer: B Rationale: Market development refers to the attracting of new markets (in this case, U.S. consumers) to existing products. 19. Yard Whimzees, a Statesboro, Georgia, sign business, began by making wooden signs for residential use to announce births, anniversaries, and such. The company then turned to the business market by making signs for businesses. Creating signs for a new market is an implementation of a _____ strategy. A. market development B. market penetration C. product penetration D. product development E. diversification Answer: A Rationale: Yard Whimzees used the same product (signs) for a new market (businesses), which is characteristic of a market development strategy. 20. In the past, PajamaGram marketed pajamas only to women. Now the company offers pajamas for men and children. This is an example of a _____ strategy. A. market development B. product development C. market penetration D. product penetration E. divestment Answer: A Rationale: Market development finds new uses for a product to stimulate sales among new customers. 21. LVMH, a maker of luxury goods, has expanded its products offerings into China, Russia, India, and the Middle East. This exemplifies a _____ strategy. A. market development B. product development C. market penetration D. diversification E. product expansion Answer: A Rationale: Market development is the introduction and sale of present products to new markets. 22. All of the following are strategic alternatives that match products with markets EXCEPT: A. product development B. market penetration C. product penetration D. diversification E. market development Answer: C Rationale: The four strategic alternatives that match products with markets are market penetration, market development, product development, and diversification. 23. _____ is a marketing strategy that creates new products for present markets. A. Product penetration B. Market penetration C. Product development D. Market development E. Diversification Answer: C Rationale: This is the definition of product development. 24. Kraft introduced Philadelphia Ready-To-Eat Cheesecake Filling for those who do not have time to make cheesecake in the traditional manner. This is an example of a _____ strategy. A. diversification B. market development C. product development D. divestment E. product penetration Answer: C Rationale: A product development strategy entails the creation of a new product for existing markets. 25. The marketing of new organic cotton tee-shirts for Life is good’s existing customers would be an example of a _____ strategy. A. market development B. product development C. market penetration D. product penetration E. diversification Answer: B Rationale: Product development is the introduction of new products to existing customers. 26. Clay Market began as a retailer of terra-cotta pots and garden figures imported from Turkey and Mexico. It has since added Turkish rugs and fabrics, leather-trimmed purses, and a line of women’s clothes for its customers. These activities are indicative of a _____ strategy. A. vertical integration B. market penetration C. diversification D. product development E. market development Answer: D Rationale: Product development stimulates new sales to existing markets. Since the question states the items are for the firm’s customers, they are aimed at existing markets (buyers). 27. The Hallmark Company was inspired by the popularity of Jan Karon’s best-selling novels about Mitford, a fictional town in the mountains of North Carolina, to develop a new line of products for Hallmark Gold Crown Stores nationwide. Hallmark created hundreds of Mitford-inspired products that authentically bring “the little town with the big heart” into tangible reality. The products include greeting cards, partyware and gift wrap, mugs, and puzzles for Hallmark’s existing customers. Hallmark used a _____ strategy. A. market development B. market penetration C. product penetration D. product development E. diversification Answer: D Rationale: Hallmark created new Mitford-based items for its regular customers. 28. _____ is the strategy of increasing sales by introducing new products into new markets. A. Product penetration B. Product development C. Market penetration D. Market development E. Diversification Answer: E Rationale: This is the definition of a diversification strategy. 29. Orange growers in Florida have lost millions of dollars due to hurricanes. As a result, some growers have decided to bulldoze their orange groves and put in freshwater lakes for raising shrimp, a product that has a strong popularity and is more weather resistant. Former orange growers who are now raising shrimp are pursuing a _____ strategy. A. market penetration B. product development C. diversification D. market development E. product penetration Answer: C Rationale: Diversification is defined as selling a new product to a new market. 30. The company that manufactures Molson beer, which is typically consumed by males, launched an alcoholic lemonade beverage to attract more females. This launch of a new product to attract a new market for Molson’s products is an illustration of a _____ strategy. A. market development B. market penetration C. product penetration D. product development E. diversification Answer: E Rationale: Diversification is a strategy of increasing sales by introducing new products into new markets. 31. For most American consumers, the brand name Benetton brings to mind a retail clothing store that carries many products that bear the Benetton brand. But Edizone Holding, which also owns a chain of restaurants, several toll roads in Italy, and a telecommunications company, holds the Benetton Group. The list of the company’s holdings indicates that the company’s managers believe in growth through: A. market penetration B. diversification C. product development D. market development E. market integration Answer: B Rationale: Diversification is defined as strategy of increasing sales by selling new products to a new market. 32. Pure Digital Technologies created the Flip, a digital camera priced around $150. It filled a gap between expensive digital cameras and webcams. The Flip plugs straight into a computer, and the video can easily be viewed and shared instantly. Creating a new product for a new market is called _____. A. divestment B. segment development C. target marketing D. diversification E. directed growth Answer: D Rationale: Diversification is creating a new product for a new market. 33. The _____ is a tool for allocating resources among products or strategic business units on the basis of relative market share and market growth rate. A. market audit B. portfolio matrix C. experience matrix D. market development analysis E. market opportunity analysis Answer: B Rationale: This is the definition of the portfolio matrix. 34. Which of the following categories in the portfolio matrix is a market leader and growing fast? A. Star B. Meteor C. Cash cow D. Shiner E. Top dog Answer: A Rationale: A star is a fast-growing market leader. 35. Russell Athletic, which is part of Berkshire Hathaway, Inc., is a market leader in sports apparel, an industry that is growing rapidly. Russell Athletic is an example of a(n) _____ according to the portfolio matrix. A. star B. question mark C. problem child D. exclamation point E. widow Answer: A Rationale: A star has a large market share in a rapidly growing industry. 36. A business unit that usually generates more than it needs to maintain its market share is called a(n) _____ in the portfolio matrix. A. star B. cash cow C. problem child D. dog E. independent Answer: B Rationale: A cash cow is in a low-growth market, but the product has a dominant market share, so it generates more cash than it needs to maintain its market share. 37. Tide laundry detergent is the market leader, but overall industry growth is low in this market. Tide would be classified as a _____ in the portfolio matrix. A. star B. cash cow C. problem child D. question mark E. dog Answer: B Rationale: Cash cows generate more cash than they need to maintain market share and are characterized as a product with a dominant market share in a low-growth market. 38. All of the following are categories used in the Boston Consulting Group’s portfolio matrix EXCEPT: A. cash cows B. stars C. problem children D. meat eaters E. dogs Answer: D Rationale: The four categories of the Boston Consulting Group portfolio matrix are stars, cash cows, problem children (or question marks), and dogs. 39. Which of the following represents a business unit that shows rapid growth but poor profit margins? A. Star B. Cash cow C. Problem child D. Loss leader E. Dog Answer: C Rationale: This is the definition of a problem child, also called a question mark. 40. Before Heinz sold its 9-Lives brand cat food unit, the company identified the product as having a low market share in a high-growth market. The portfolio matrix would classify 9-Lives as a(n): A. star B. exclamation point C. problem child D. cash cow E. widow Answer: C Rationale: A problem child, also called a question mark, shows rapid growth but has poor profit margins. 41. John R. Harland Company is best known for printing checks. Its Financial Solutions division develops software for mortgage companies and is currently producing much less than the desired level of profitability in a high-growth industry. According to the portfolio matrix, Harland would label its Financial Solutions division as a(n): A. widow B. exclamation point C. problem child D. star E. dog Answer: C Rationale: A problem child, also called a question mark, has a low market share in a rapidly growing industry. 42. In the portfolio matrix, a business unit that has low growth potential and a small market share is called a(n): A. widow B. problem child C. cash cow D. dog E. bust Answer: D Rationale: This is the definition of a dog in the portfolio matrix. 43. All of the following are basic strategies resulting from a portfolio analysis EXCEPT: A. harvest B. build C. hold D. divest E. milk Answer: E Rationale: The four strategies are build, hold, harvest, and divest. 44. John R. Harland Company is best known for printing checks. Its Financial Solutions division develops software for mortgage companies, which is a growing industry. This division is currently not producing at the desired level of profitability, but Harland plans to turn the division into a success by acquiring other companies that develop similar software. To accomplish this, Harland will be engaging in a _____ strategy. A. harvesting B. diversification C. divesting D. holding E. building Answer: E Rationale: If an organization has a strategic business unit that it believes has potential to be a star, building would be an appropriate strategy. 45. _____ is the process of anticipating events and determining strategies to achieve organizational objectives. A. Planning B. Portfolio evaluation C. Forecasting D. Implementation E. Evaluation Answer: A Rationale: This is the definition of planning. 46. A written document that acts as a guidebook of marketing activities for the marketing manager is known as the: A. strategy document B. marketing plan C. vision statement D. mission statement E. strategic plan Answer: B Rationale: The marketing plan is a written document that acts as a guidebook of marketing activities for the marketing manager. 47. Earl is starting a new bank. Before the opening day, Earl had a meeting with all employees. He discussed their mission, defined objectives for the bank for the coming years, and shared who their target market is. He talked about their product offerings and where their future branches would be located. Earl is sharing the bank’s: A. reengineering B. hierarchical restructuring C. financial analysis D. marketing plan E. strategic contingency planning Answer: D Rationale: See Exhibit 2.4. All the listed activities are part of the marketing planning process. 48. Marketing plans should be written to do all of the following EXCEPT: A. compare actual and expected performance B. provide clearly stated activities C. create common goals for employees to work toward D. allow managers to enter the marketplace with an awareness of possibilities and problems E. control the elements of the external marketing environment Answer: E Rationale: Marketing environment variables cannot be controlled. 49. All of the following are elements of the marketing plan EXCEPT: A. the business mission statement B. situation analysis C. the target market strategy D. the marketing mix E. portfolio analysis Answer: E Rationale: See Exhibit 2.4. Portfolio analysis typically falls under strategic management rather than the marketing plan itself, which primarily includes elements like the business mission statement, situation analysis, target market strategy, and the marketing mix as essential components for guiding marketing activities. 50. A statement of the firm’s business based on a careful analysis of benefits sought by present and potential customers and an analysis of existing and anticipated environmental conditions is known as a(n): A. business audit B. marketing plan C. mission statement D. environmental focus E. portfolio matrix Answer: C Rationale: This is the definition of a mission statement, which answers the question, “What business are we in?” 51. The _____ answers the question, “What business are we in, and where are we going?” A. mission statement B. financial statement C. situation analysis D. market strategy E. strategic plan Answer: A Rationale: A mission statement is a statement of the firm’s business based on a careful analysis of benefits sought by present and potential customers and on analysis of existing and anticipated environmental conditions. 52. PepsiCo’s annual report has the following statement: “Our business is to increase the value of our shareholder’s investment. We do this through sales growth, cost controls, and wise investment of resources. We believe our commercial success depends upon offering quality and value to our consumers and customers; providing products that are safe, wholesome, economically efficient, and environmentally sound; and providing a fair return to our investors while adhering to the highest standards of integrity.” This statement is an example of PepsiCo’s: A. marketing mix strategy B. quantifiable goal C. mission statement D. statement of economic potential E. market segmentation strategy Answer: C Rationale: A mission statement answers the question, “What business are we in?” 53. The focus of an organization’s mission statement should be on: A. the products it wishes to sell B. the market it wishes to serve C. its social responsibilities D. the desires of government regulators E. technologies it understands well Answer: B Rationale: A mission statement should focus on the market or markets the organization is attempting to serve rather than on the good or service offered. The choice of the market to serve determines the product and technology decisions. 54. _____ occurs when a business is defined in terms of goods and services rather than in terms of the benefits customers seek. A. Synergy B. Tunnel vision C. Narrowcasting D. Un-empowerment E. Marketing myopia Answer: E Rationale: This is the definition of marketing myopia. 55. By defining its business as “printing books” instead of “empowering imaginations,” a children’s book publishing company would more than likely experience: A. market synergy B. product entropy C. market harvesting D. nonspecific strategic planning E. marketing myopia Answer: E Rationale: Publishing books focuses on one product rather than a broad range of opportunities as found in “empowering imaginations.” 56. A _____ is a study conducted by an organization to identify its internal strengths and weaknesses and also examine external opportunities and threats. A. situation analysis B. marketing audit C. trend analysis D. strategic alternative selection E. competitive advantage audit Answer: A Rationale: A situation analysis is sometimes referred to as a SWOT analysis and involves identifying internal strengths (S) and weaknesses (W) and also examining external opportunities (O) and threats (T). 57. The SWOT acronym refers to a firm’s analysis of its: A. sales, width of product mix, observations, and technology B. situations, wealth, organizational strengths, and target markets C. strengths, weaknesses, opportunities, and threats D. service levels, willingness to spend, organizational culture, and total revenues E. strategies, willingness to change, objectives, and trends Answer: C Rationale: SWOT stands for strengths, weaknesses, opportunities, and threats. 58. Tub King is a small company that refinishes antique claw foot bathtubs and antique sinks, and provides training for bathtub refinishing. The company’s management is currently conducting a formal study of its current strengths and weaknesses by looking at the company’s profit and sales histories and searching for opportunities and threats by studying consumer trends. Tub King is conducting a(n): A. marketing audit B. SWOT analysis C. environmental scan D. market differentiation scan E. strategic window search Answer: B Rationale: A SWOT analysis attempts to ascertain the present situation. 59. Briggs & Stratton is a company that makes small engines. The company is looking at customer trends, its competitors, and the economy to see if there are any threats or opportunities on the horizon. It has also examined its production policies and sales histories to determine its strengths and weaknesses. Briggs & Stratton is conducting a(n): A. environmental test B. market audit C. trend analysis D. situation analysis E. competitive advantage search Answer: D Rationale: A situation analysis identifies internal strengths (S) and weaknesses (W) and also examines external opportunities (O) and threats (T). 60. Coca-Cola vending machines are found all over the world. The newest machines have an interactive screen that runs advertisements and allows users to obtain free photos of themselves and ringtones after they have bought a drink. The reason for the introduction of this new style of vending machine is to “allow the company to interact more directly with its customers.” According to a SWOT analysis, the technology used by these machines is an example of a(n): A. strength because it is part of Coca-Cola’s external environment B. advantage because it is part of Coca-Cola’s marketing environment C. weakness because Coca-Cola cannot control technology D. opportunity because it is part of Coca-Cola’s external environment E. benefit because Coca-Cola has the resources to make use of the new technology Answer: D Rationale: Technological advances represent an external opportunity. 61. Smucker’s purchased Folgers Coffee in 2008. The option to buy Folgers represented a(n) _____ to Smucker’s. A. opportunity B. strength C. weakness D. threat E. burden Answer: A Rationale: An opportunity is a favorable option external to the organization. 62. Coca-Cola vending machines are found all over the world. The newest machines have an interactive screen that runs advertisements and allows users to obtain free photos of themselves and ringtones after they have bought a drink. Critics of these new vending machines are concerned that entertaining technology is being used to market sugary products. In terms of a SWOT analysis, this concern would be an example of a(n): A. weakness B. strength C. advantage D. opportunity E. threat Answer: E Rationale: A threat is an external condition that may lessen the success of the strategy. 63. _____ is defined as the collection and interpretation of information about forces, events, and relationships that may affect the organization. A. Market sampling B. An internal audit C. Opportunity analysis D. Environmental scanning E. Stakeholder analysis Answer: D Rationale: Environmental scanning helps identify market opportunities and threats and provides guidelines for the design of marketing strategy. 64. The set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition is known as a(n): A. environmental advantage B. experience curve C. competitive advantage D. market segment E. strategic business unit Answer: C Rationale: This is the definition of competitive advantage. 65. As a customer entered the Hornady store, which sells muzzleloading rifles, a salesperson approached her and said, “Hornady lead round balls are the musket balls you ought to buy. They are the most uniform in size and shape, and they are made of pure lead. Our shot is used by the Muzzle Loading World Champion.” The salesperson was describing Hornady’s: A. competitive advantage B. strategic strength C. tactical opportunity D. opportunity mission E. quality objective Answer: A Rationale: A competitive advantage is a set of unique features of a company and its product that are perceived by the target market as significant and superior to the competition. 66. Land O’Lakes makes a light butter with canola oil that has 60 percent less cholesterol and 50 percent less fat and calories than butter. This marketing gives the product a: A. strategic edge B. competitive advantage C. tactical strength D. marketing mix E. mission statement Answer: B Rationale: A competitive advantage is set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition. 67. Each labor and delivery room at the new Dekalb County Medical Center has hardwood floors, soft lighting, and mission-style furniture. The facility also features a stone fireplace in the lobby, a bistro-style restaurant, and VIP suites for discerning mothers-to-be. This unique design and furnishings give the medical center a: A. profit-enhanced advantage B. competitive advantage C. quality objectivity D. strategic strength E. tactical opportunity Answer: B Rationale: A competitive advantage is a set of unique features of a company and its product that are perceived by the target market as significant and superior to the competition. 68. Which of the following is NOT a type of competitive advantage? A. Management structure B. Cost C. Product/service differentiation D. Niche E. All of these choices are types of competitive advantages. Answer: A Rationale: The three types of competitive advantage are cost, product/service differentiation, and niche. 69. Walmart realizes a _____ using its relationships with suppliers to give customers low prices and good customer service. A. brand name strategy B. niche competitive advantage C. cost competitive advantage D. marketing competitive advantage E. synergistic competitive advantage Answer: C Rationale: Having a cost competitive advantage means being the low-cost competitor in an industry while maintaining satisfactory profit margins. 70. Aldi is a no-frills grocery chain. It sells grocery staples right out of crates and boxes with emphasis on low-priced, private label brands. Aldi stores are typically about one-third the size of the traditional supermarket. By controlling expenses, Aldi enables its customers to save 30 to 50 percent compared to Kroger customers. The chain targets bargain hunters who are willing to rent a cart and bag their own groceries. Aldi has a: A. market-homogeneous focus B. cost competitive advantage C. product aggregation strategy D. revenue-based competitive advantage E. profit-enhanced advantage Answer: B Rationale: A cost competitive advantage is a set of unique features of a company and its product that are perceived by the target market as significant and superior to the competition. 71. All of the following are sources of a cost competitive advantage EXCEPT: A. reengineering B. experience curves C. break-even analyses D. efficient labor E. production innovations Answer: C Rationale: Costs can be reduced in a variety of ways, such as experience curves, efficient labor, no-frills goods and services, government subsidies, product design, reengineering, production innovations, and new methods of service delivery. 72. _____ show costs declining at a predictable rate as experience with a product increases. A. Liquidity growth curves B. EOQ graphs C. Break-even analyses D. Experience curves E. Supply/demand curves Answer: D Rationale: This is the definition of experience curves. 73. Jiffy Mixes does not do any type of traditional advertising or use fancy packaging in marketing its products. The company stores its own wheat and makes its own flour and little blue boxes. Jiffy is an example of a low-cost strategy based on: A. efficient labor B. no-frills goods and services C. government subsidies D. product design E. reengineering Answer: B Rationale: No-frills goods and services offer low costs to the consumer because they do not do much marketing. 74. Zipcar is a car rental service found in many metropolitan areas. It targets people who take mass transit or carpool to work but who occasionally need a car to run errands, visit the doctor, or check on a sick child. Zipcar is one of a few companies currently providing cars that can be rented by the hour. Zipcar has created a(n) _____ advantage. A. reengineering B. experience curve C. service differentiation competitive D. alternative market E. sustainable competitive Answer: C Rationale: A service differentiation competitive advantage exists when a firm provides something unique that is valuable to buyers beyond simply offering a low price. 75. Everyone knows the brand name Kleenex. Kleenex is what many consumers think of when they think of tissues. This widely recognized brand name is a source of: A. a product differentiation competitive advantage B. a cost advantage C. market augmentation D. a niche competitive advantage E. none of these things Answer: A Rationale: Brand names differentiate products from competitive offerings and can provide competitive advantage. 76. Arizona Tea is marketed by Vultaggio & Sons. Vultaggio & Sons took a basic drink and put it into unusual bottles with elaborate designs. The wide-mouthed, long-necked bottles are now considered to be trendsetters in the new age beverage industry, and customers often buy the tea just for the bottle. The success of Arizona Tea is based on: A. supply-demand curves B. reengineering C. a product differentiation competitive advantage D. a cost competitive advantage E. a heterogeneous marketing strategy Answer: C Rationale: A product differentiation competitive advantage exists when a firm provides something unique that is valuable to buyers beyond simply offering a low price. 77. Yuengling is the oldest brewery in the United States. It was founded in 1827 in a time when small breweries dotted the nation. For many years, the brewery only sold in a ten-state area on the Eastern Seaboard. For over 170 years, this strategy gave the brewery a: A. brand name strategy B. niche competitive advantage C. price differentiation advantage D. marketing competitive advantage E. sustainable competitive advantage Answer: B Rationale: A niche competitive advantage is achieved when a firm seeks to target and effectively serve a small segment of the market. 78. Fujisawa is Japan’s seventh-largest pharmaceutical company. It sells drugs for organ transplant patients to increase the probability the new organ will operate efficiently and not be rejected. Currently, the only product Fujisawa makes is these organ transplant drugs, which it sells worldwide. Its patents protect it from competitors. Fujisawa has a: A. brand name advantage B. niche competitive advantage C. cost competitive advantage D. marketing competitive advantage E. complete competitive advantage Answer: B Rationale: A niche competitive advantage is the advantage achieved when a firm seeks to target and effectively serve a small segment of the market, in this case people who need organ transplant drugs. 79. Technol Medical Products makes specialty face masks to shield healthcare workers from infection. Because it focuses on this narrow market, it is able to outsell its primary competitors––3M and Johnson & Johnson. Technol has a(n): A. aggregated positioning strategy B. demarketing focus C. heterogeneous target marketing strategy D. cost competitive advantage E. niche competitive advantage Answer: E Rationale: A niche competitive advantage is the advantage achieved when a firm seeks to target and effectively serve a small segment of the market. 80. An advantage that cannot be copied by the competition is called a(n) _____ competitive advantage. A. sustainable B. monopolistic C. primary D. unique E. dominant Answer: A Rationale: This is the definition of a sustainable competitive advantage. 81. Patents on prescription medications give pharmaceutical companies that own the patents a(n) _____ for 17 years until the patent expires. A. targeted market position B. sustainable competitive advantage C. strategic focus D. situational strength E. opportunistic privilege Answer: B Rationale: A sustainable competitive advantage is one that cannot be copied by the competition, in this case at least until the patent expires. 82. iTunes has a(n) _____, as they have exclusive agreements with some of the most sought after music corporations that other digital music stores do not have. A. targeted market position B. sustainable competitive advantage C. strategic focus D. situational strength E. opportunistic privilege Answer: B Rationale: A sustainable competitive advantage is one that cannot be copied by the competition. 83. A(n) _____ describes and estimates the size and sales potential of market segments of interest to the firm and assesses key competitors in these market segments. A. marketing orientation B. environmental scan C. marketing mix audit D. target market strategy E. market opportunity analysis Answer: E Rationale: This is the definition of a market opportunity analysis. 84. A _____ is defined as a statement of what is to be accomplished through marketing activities. A. mission statement B. business plan C. marketing objective D. goal-driven directive E. marketing criteria Answer: C Rationale: This is the definition of a marketing objective. 85. All of the following are characteristics of a good objective EXCEPT: A. profitable B. realistic C. measurable D. time specific E. consistent Answer: A Rationale: Good objectives are not necessarily stated in terms of profit. 86. Of the following, what is the most useful objective for Purina cat food? A. To increase sales of Purina brand cat food by 15 percent over 2010 sales of $300 million B. To increase sales of Purina brand cat food between January 1, 2010, and December 31, 2010 C. To increase sales of Purina brand cat food from $300 million to $345 million D. To increase sales of Purina brand cat food E. To increase sales of Purina pet food Answer: A Rationale: Marketing objectives should be realistic, measurable, time specific, and compared to a benchmark. 87. All of the following are functions served by objectives EXCEPT: A. communicating philosophies and provide direction B. motivating employees C. clarifying executives’ thinking D. forming the basis for control E. guaranteeing market performance Answer: E Rationale: Objectives serve four functions: communicating, motivating, clarifying, and aiding in the control function. 88. Heinz is introducing 400 new products in the next two years. To know which markets to reach, Heinz should first perform a: A. market diversification analysis B. market audit C. social audit D. market opportunity analysis E. niche analysis Answer: D Rationale: An market opportunity analysis (MOA) is the description and estimation of the size and sales potential of market segments that are of interest to the firm. 89. The _____ is the unique blend of product, place, promotion, and pricing strategies designed to produce mutually satisfying exchanges with a target market. A. internal environmental mix B. marketing mix C. product mix D. product line E. market portfolio Answer: B Rationale: This is the definition of a marketing mix. 90. The typical starting point of any firm’s marketing mix is the: A. analysis of what production equipment is available and owned by the company B. design of the promotion campaign to be used for the product C. selection of the places through which the good or service will be sold D. determination of the product’s price, enabling future revenues and budgets to be estimated E. development of the good or service to be sold Answer: E Rationale: The marketing mix typically starts with the product. Without it, pricing, distribution, and promotion are irrelevant. The production capacity can be changed to fit the proposed product. 91. Lands’ End guarantees its products for as long as you own them. The company would seem most concerned with which element of the marketing mix? A. Price B. Distribution C. Personalization D. Promotion E. Product Answer: E Rationale: The product element of the marketing mix includes guarantees and quality. 92. Ocean Spray’s development of Craisins sweetened dried cranberries to compete against raisins most directly affected the _____ element of the company’s marketing mix. A. place B. production C. product D. distribution E. target market Answer: C Rationale: Ocean Spray began with the product offering of the marketing mix by deciding to sell Craisins. 93. Golden Valley Microwave Foods, Inc. is the manufacturer of ACT II popcorn. In its early years, the company had trouble financing the development and marketing of products for the microwave, so it chose to participate in a financial arrangement in which it agreed that it would not sell ACT II popcorn in supermarkets or grocery stores. Which element of the marketing mix was most influenced by this arrangement? A. Product B. Place C. Price D. Public relations E. Promotion Answer: B Rationale: Where a product is sold is part of the place (distribution) element of its marketing mix. 94. Making sure products are available when and where customers want them is the job of which element of the marketing mix? A. Advertising strategies B. Production strategies C. Product strategies D. Promotion strategies E. Distribution strategies Answer: E Rationale: Distribution strategies make products available when and where customers want them. 95. InBev bought Anheuser-Busch. How will this purchase affect InBev’s marketing mix? A. It will only affect the product element of InBev’s marketing mix. B. It will only affect InBev’s four Ps––not its marketing mix. C. It will affect all of InBev’s marketing mix elements, either directly or indirectly. D. It will not affect the promotion or distribution elements of the InBev marketing mix. E. It will have no affect on InBev’s marketing mix. Answer: C Rationale: The purchase will directly change the company’s product mix and indirectly affect its promotion, pricing, and distribution elements. 96. For the first several years it was available, Apple’s iPhone could only be purchased through AT&T cell phone distributors and the Apple retail store. This limitation on the _____ element of its marketing mix supported the product’s competitive advantage. A. planning B. product C. promotion D. distribution E. production Answer: D Rationale: Distribution strategies make products available when and where customers want them. 97. Apple, Inc. is now offering the iPhone 3G for half its original price. This new strategy reflects a change in the _____ element of its marketing mix. A. price B. production C. product D. distribution E. target market Answer: A Rationale: Apple changed the price element of the marketing mix, which is often the quickest element to change. 98. SoBe nutritional beverages uses twin lizards on every bottle of its products and in all of its promotion efforts. It even has its own Team Lizard made up of skateboarders, mountain bike riders, and in-line skaters that it sponsors. The lizard is used to remind consumers of the product and its benefits. To which of the four Ps does this represent? A. Promotion B. Price C. Publicity D. Place E. Product Answer: A Rationale: Promotion covers a wide range of communication vehicles. 99. Which of the marketing mix elements is often the most flexible? A. Product B. Promotion C. Publicity D. Place E. Pricing Answer: E Rationale: The only element that is often subject to quick and easy change is price. 100. There is an overabundance of apartments in Atlanta. Post Properties, the owner of many of the metropolitan area’s largest apartment complexes, has reduced its rent so it can fill vacant apartments. Which marketing mix element did Post change to create more demand for its apartments? A. Production B. Personnel C. Distribution D. Product E. Price Answer: E Rationale: The firm tried to increase demand by altering its pricing strategies. This is often the only element of the marketing mix that is capable of quick and easy change. 101. _____ is the process that turns a marketing plan into action assignments and ensures that these assignments are executed in a way that accomplishes the plan’s objectives. A. Mechanistic control B. Strategic analysis C. Implementation D. Strategic planning E. Strategic design Answer: C Rationale: This is the definition of implementation. 102. General Motors Corporation has a goal of launching an electric vehicle soon. The car has been in test-drives, and GM is in the process of working out any bugs that may occur. GM also is in the process of working toward mass production of the vehicle. The company is in which stage of the marketing plan? A. Product planning B. Mechanistic organization C. Synergistic control D. Strategic diversification E. Implementation Answer: E Rationale: GM is turning its marketing plan into action, so the company is in the implementation stage. 103. Compass is a United Kingdom–based catering company that has developed a marketing plan designed to make it the largest caterer in China within the next two decades. As part of _____, it has already begun serving meals on trains that run between Shanghai and Beijing. A. policy B. implementation C. evaluation D. control E. strategy Answer: B Rationale: Implementation is the process that turns marketing plans into action assignments. 104. _____ is the process of gauging the extent to which marketing objectives have been achieved during the specified time period. A. Implementation B. Control C. Heuristic measurement D. Evaluation E. Mechanistic compliance Answer: D Rationale: This is the definition of evaluation. 105. _____ provides the mechanisms for evaluating marketing results in light of the plan’s objectives and for correcting actions that do not help the organization reach those objectives within the budget guidelines. A. Control B. Implementation C. Reengineering D. Planning E. Budgeting Answer: A Rationale: This is the definition of control. 106. An international company that needs to develop a way to compare its actual marketing results with planned results must engage in: A. external market research B. implementation C. comparative analyses D. planning E. control Answer: E Rationale: Control involves the mechanism for evaluating results and correcting actions in the planning and implementation phases. 107. All of the following are common reasons why companies fail to achieve a marketing objective EXCEPT: A. unrealistic marketing objectives B. poor implementation C. plan not formalized D. inappropriate marketing strategies E. changes in the environment after the objective was specified and the strategy was implemented Answer: C Rationale: Even a formalized plan can fail. 108. A marketing audit is a(n): A. thorough, systematic, periodic evaluation of the objectives, strategies, structure, and performance of the marketing organization B. financial examination of the firm’s marketing performance C. financial examination of the firm’s accounting records performed by outside consultants D. evaluation of the effectiveness of advertising E. evaluation of pricing strategies across all the relevant competitors in an industry Answer: A Rationale: This is the definition of a marketing audit. 109. Le Feast is a catering company that has developed a marketing plan designed to make it the largest caterer in the country within the next two decades. Which of the following will be useful to the company to evaluate how successful its efforts have been at the end of the first decade? A. SWOT analysis B. Environmental scan C. Competitive analysis D. Marketing audit E. Comprehension sales analysis Answer: D Rationale: A market audit is a thorough, systematic, periodic evaluation of the objectives, strategies, structure, and performance of the marketing organization. 110. A planning manager visiting a company’s health and beauty aids division discovers the division has no effective method for allocating resources, nor for evaluating actual results against planned results. His suggestion to the division would likely be to prepare a: A. marketing audit B. contingency plan C. service audit D. market share analysis E. series of tactical evaluations Answer: A Rationale: A marketing audit is a thorough, systematic, periodic evaluation of the objectives, strategies, structure, and performance of the marketing organization. 111. Which of the following statements about marketing audits is true? A. Marketing audits only need to be performed once. B. The main purpose of the marketing audit is to develop a full profile of a company’s marketing effort. C. Marketing audits are only necessary after a major crisis. D. Marketing audits simply examine the external environment in which a company operates. E. The marketing audit should only be performed by outside accounting firms. Answer: B Rationale: Marketing audits should be performed periodically by an inside or outside party who is independent enough to have top management’s confidence and has the ability to be objective. Marketing audits examine all facets of an organization’s internal and external marketing environments. 112. What is the most critical element in successful strategic planning? A. Creativity B. Top management support and participation C. Continual attention D. The use of a BCG portfolio matrix E. A stringent and narrow mission statement Answer: B Rationale: Effective strategic planning requires continual attention, creativity, and management commitment. However, the most critical element is top management’s support and participation. DeFeet International DeFeet International started as a cyclist sock company. The founder, Shane Cooper, said that the existing socks for cyclists were just not of great quality, so he made socks for his cycling team by knitting them inside out. The socks were of special materials aimed at giving the cyclist the most comfortable fit. These socks were not the traditional white socks but were bright, bold, and flashy colored socks with cool graphics. These high-tech socks were priced around $10 a pair. Their Web site says “DeFeet Is Made for Driven Soles.” Soon, cycling elites like Lance Armstrong and Greg LeMond were sporting the DeFeet brand. The company branched into running, hiking, and snow gear. Products include socks, armskins, calfskins, boxer briefs, gloves, and shirts for the serious athlete. DeFeet has a custom department where socks, armskins, and gloves can be personalized with any motif, including sponsor types of logos like Michelin, Pabst Blue Ribbon, or BP. Even kids can enjoy DeFeet’s high-quality socks. DeFeet’s products can be found in retailers across the world––in more than 20 countries like Israel, Australia, Belgium, and the United States. More than two dozen online retailers also carry DeFeet products. 113. Refer to DeFeet International. DeFeet branched from making socks for cyclists to making apparel for skiing, hiking, corporate sponsors, and kids. This is an example of which of Ansoff’s strategic alternatives? A. Market penetration B. Market development C. Product development D. Diversification E. Concentration Answer: D Rationale: DeFeet made new products for new markets. 114. Refer to DeFeet International. If you were to define DeFeet’s mission, which would be most appropriate? A. DeFeet makes socks. B. DeFeet makes clothes for athletes. C. DeFeet creates high-tech products for the serious athlete. D. DeFeet provides the highest-quality apparel for customers who demand the best. E. DeFeet covers the world. Answer: D Rationale: The mission statement should not be so broad as answer E, as “covers” could be blankets or car covers. Yet answers A, B, and C would limit DeFeet’s business to socks, clothes, and athletic products. From the discussion above, we know that DeFeet products are made for kids, corporate sponsors, and athletes, so answer D would be the best choice. 115. Refer to DeFeet International. What kind of competitive advantage would you say DeFeet has? A. Low cost B. Niche C. Product/service differentiation D. Product development E. Diversification Answer: C Rationale: A product/service differentiation competitive advantage exists when a firm provides something unique and valuable to buyers beyond simply offering a low price. DeFeet has high-tech apparel for a variety of target groups and is not a low-cost provider, so answer C would be the best choice. 116. Refer to DeFeet International. What is DeFeet’s most likely target market strategy? A. Appeal to the entire market B. Concentrate on one segment of the market C. Appeal to multiple segments D. Appeal to athletes E. Appeal to the world Answer: C Rationale: DeFeet makes products for various target groups––cyclists, runners, hikers, athletic women and men, and corporate sponsors––so their appeal would be to multiple segments. 117. Refer to DeFeet International. DeFeet’s _____ is high-tech apparel, the packaging it comes in, and the brand name, company image, and value. A. product B. place C. price D. promotion E. position Answer: A Rationale: Product is the physical unit, the warranty, the service, brand name, company image, value, and many other factors. 118. Refer to DeFeet International. DeFeet’s _____ includes retailers and online retailers throughout the world. A. product strategy B. place strategy C. price strategy D. promotion strategy E. positioning strategy Answer: B Rationale: In this example, place is the physical distribution of DeFeet’s product. 119. Refer to DeFeet International. DeFeet’s _____ is what its customers give up to obtain their apparel. A. product B. place C. price D. promotion E. positioning Answer: C Rationale: Price is what buyers give up to obtain a product. 120. Refer to DeFeet International. DeFeet’s _____ includes advertising, public relations, sales promotion, and personal selling. A. product B. place C. price D. promotion E. position Answer: D Rationale: Promotion includes advertising, public relations, sales promotion, and personal selling. Novartis Novartis, a Swiss drug maker, is planning to purchase a majority stake in Zhejiang Tianyuan Bio-Pharmaceutical Company, a Chinese vaccine maker. Novartis has agreed to pay $125 million for the company, which holds a 3 percent share of China’s $1 billion vaccines market. The market for vaccines is growing 20 percent or more in the developing nations of Asia, Africa, and Australasia. In the past, vaccine use has been limited to basic shots against diseases such as polio, tuberculosis, and measles, but as the economies of these countries grow, government and private healthcare spending focuses on preventing diseases such as hepatitis B, cholera and rotavirus, tetanus, and others. Some critics are against the acquisition, claiming that prices will increase. Novartis claims it is not interested in raising prices but rather in expanding Tianyuan’s product offerings. 121. Refer to Novartis. Novartis is creating and maintaining a fit between its objectives and resources and evolving market opportunities in developing countries. Novartis is engaging in: A. strategic planning B. selective assessment C. functional planning D. environment scanning E. decision analysis Answer: A Rationale: Strategic planning is the managerial process of creating and maintaining a fit between the organization’s objectives and resources and evolving market opportunities. 122. Refer to Novartis. If Novartis goes through with the purchase of Tianyuan, it will become a subgroup of its overall pharmaceutical business and organization. Tianyuan will then be considered a _____ of Novartis. A. stock-keeping unit (SKU) B. portfolio element C. strategic business unit (SBU) D. market segment E. business segment Answer: C Rationale: A strategic business unit (SBU) is a subgroup of a single business or collection of related businesses within the larger organization. 123. Refer to Novartis. By acquiring Tianyuan, Novartis will be offering vaccines, which is a product that it currently offers in its existing markets, to new markets for the company. This is an example of which strategic alternative? A. strategic window B. market penetration C. product development D. diversification E. market development Answer: E Rationale: Market development entails marketing current products to new target markets. 124. Refer to Novartis. Tianyuan has a relatively small market share of a high-growth market in China. How would this company be classified in the Novartis portfolio matrix? A. Problem child B. Star C. Cash cow D. Dog E. Emergent Answer: A Rationale: A problem child, also called a question mark, has a low market share in a high-growth industry. 125. Refer to Novartis. One thing Novartis plans to do is increase sales to governments and to the United Nations agencies since these are the typical buyers of vaccines to distribute in poor countries. Thus, the company is willing to give up short-term profits to increase market share for this company. In terms of the portfolio matrix, which basic strategy will Novartis be implementing? A. Holding B. Harvesting C. Divesting D. Building E. Diverting Answer: D Rationale: If an organization has a strategic business unit that it believes has the potential to be a star (probably a problem child at present), building would be an appropriate goal. 126. Refer to Novartis. Novartis assessed the opportunity presented by the growing potential markets in developing countries and determined it was consistent with its internal quality production processes and extensive research and development capabilities. The assessment process in which Novartis learned this about the environment is called a: A. market audit B. situation analysis C. primary analysis D. profit and loss assessment E. strategic window search Answer: B Rationale: When a company pursues a study to ascertain its current status and capabilities and its future expectations, it is conducting a situation analysis. Delta Faucet Company Masco is the name of a well-recognized company in the construction industry. It produces cabinetry, furniture, lighting, and plumbing fixtures for the upper-end homeowner and builder. One of the divisions of Masco is the Delta Faucet Company, which is the leader in the faucet industry. Delta was founded in 1955. Over the decades, it has developed a legacy based on well-crafted, high-quality products. Since the 1970s, Delta has focused its energies on building loyalty with the builder marketplace. Research in 2002 showed that while builders respected the Delta faucet for its quality, durability, and dependability, household consumers were not enamored with Delta products. Due to the number of new magazines and television programs devoted to home style, homeowners wanted faucets that were chic and stylish. This was not the image of the Delta faucet. To change its image, Delta began a marketing program in which it committed itself to developing new products to appeal to homeowners. It adopted a new slogan––“Beautifully Engineered.” 127. Refer to Delta Faucet Company. The marketing program that Delta designed to develop new products to appeal to homeowners is an example of: A. strategic planning B. a mission statement C. mass marketing D. production-oriented marketing E. tactical planning Answer: A Rationale: Strategic planning is the managerial process of creating and maintaining a fit between the organization’s objectives and resources and the evolving market opportunities. 128. Refer to Delta Faucet Company. Delta is a _____ of Masco. A. target market B. transactional division C. strategic business unit (SBU) D. share-bearing unit (SBU) E. situational business usage (SBU) Answer: C Rationale: A strategic business unit (SBU) is a subgroup of a single business or collection of related businesses within the larger organization. 129. Refer to Delta Faucet Company. Since Delta was already marketing to homeowners (although not very successfully), its development of new styles of faucets to appeal to this underserved market would be an example of a _____ strategy. A. market penetration B. product diversification C. market development D. product development E. product penetration Answer: D Rationale: A product development strategy entails the creation of new products for present markets. 130. Refer to Delta Faucet Company. While new home construction is not growing as rapidly as it once did, the number of homeowners who are remodeling bathrooms and kitchens is growing. According to the portfolio matrix, Masco would consider Delta a(n): A. question mark B. exclamation point C. star D. cash cow E. problem child Answer: D Rationale: A cash cow is an strategic business unit that usually generates more cash than it needs to maintain its market share. 131. Refer to Delta Faucet Company. Delta would most likely have gathered the information about how homeowners perceive its products through the use of a(n): A. break-even analysis B. correlation analysis C. sales potential assessment D. situation analysis E. economic forecast Answer: D Rationale: A situation analysis, sometimes referred to as a SWOT analysis, identifies a firm’s internal strengths (S) and weaknesses (W) and external opportunities (O) and threats (T). 132. Refer to Delta Faucet Company. The reputation the Delta faucet has for its quality, durability, and dependability among builders is an example of a(n): A. tactical threat B. competitive advantage C. experience curve D. economy of scale E. market differentiator Answer: B Rationale: Competitive advantage is a set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition. 133. Refer to Delta Faucet Company. Delta’s decision to make more stylish faucets represents a change in the _____ element of its marketing mix. A. product B. promotion C. place D. production E. distribution Answer: A Rationale: The product includes not only the physical unit but also its package, warranty, after-sale service, brand name, company image, value, and many other factors. 134. Refer to Delta Faucet Company. Delta’s development of a new slogan represents a change in the _____ element of its marketing mix. A. product B. promotion C. place D. production E. distribution Answer: B Rationale: Promotion includes advertising, public relations, sales promotion, and personal selling. ESSAY 1. What is an SBU? If properly created, what characteristics should an SBU have? Answer: SBU is an acronym for strategic business unit, defined as a subgroup of a single business or collection of related businesses within the larger organization. A popular technique for managing large, heterogeneous organizations is to divide the firm into SBUs. When properly created, an SBU will have the following characteristics: • a distinct mission and specific target market • control over its own resources • its own competitors • plans independent of other SBUs in the organization 2. What is the difference between planning, strategic planning, and marketing planning? Answer: Planning is the process of anticipating future events and determining strategies to achieve organizational objectives in the future. Strategic planning is the managerial process of creating and maintaining a fit between the organization’s objectives and resources and the evolving market opportunities. The goal of strategic planning is long-run profitability and growth. Thus, strategic decisions require long-term commitments of resources. Marketing planning involves designing activities relating to marketing objectives and the changing marketing environment. Marketing planning is the basis for all marketing strategies and decisions. Issues such as product lines, distribution channels, marketing communications, and pricing are all delineated in the marketing plan. 3. Name and describe the four strategic alternatives in Ansoff’s strategic opportunity matrix, which matches products with markets. For each of the four strategic alternatives, give a specific example of a firm following that strategy. Answer: MARKET PENETRATION––increase market share among existing customers. Kraft Foods using heavy promotional expenditures in the form of aggressive advertising and cents-off coupons for Maxwell House coffee. MARKET DEVELOPMENT––attracting new customers to existing products. McDonald’s opening restaurants in Russia, China, and Italy; colleges and universities expanding to executive development and continuing education. PRODUCT DEVELOPMENT––creating new products for present markets. Brooks Brothers has introduced a line of poplin suits with polyester fibers that move moisture away from the body. DIVERSIFICATION––introducing new products into new markets. LTV entering the monorail business; Sony’s acquisition of Columbia Pictures; Coca-Cola manufacturing water treatment equipment. 4. List the four basic strategies used once an organization has identified its strategic business units in terms of the portfolio matrix. Describe when each is used. Answer: Four basic strategies are used to allocate future resources for a company’s strategic business units (SBUs). (1) Build is used when an organization has identified an SBU it believes has the potential to be a star. Most likely, the SBU has been identified as a problem child. (2) Hold is used when the SBU has been identified as a very successful cash cow. (3) Harvest is used with all SBU classifications except stars. The basic goal with this strategy is to increase short-term cash return. (4) Divest means to get rid of SBUs with low market share. Divestment strategy may be used with either dogs or problem children (also called question marks). 5. What is marketing myopia? If a movie theater company had a myopic orientation, how might it state its business purpose? If the movie theater company avoided a myopic orientation, how would its business purpose change? Answer: Defining a business in terms of goods and services rather than in terms of the benefits customers seek is called marketing myopia, which implies a narrow, short-term orientation. This orientation can threaten the survival of an organization. If a movie theater had a myopic orientation, it might state its business as “selling tickets to movies.” A better business statement for the theater would be “to provide convenient entertainment.” 6. What is a SWOT analysis? How does it relate to strategic planning? Answer: The SWOT acronym represents the four components of a situation analysis, the second step in strategic business planning. SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal components of the organization that should be analyzed, while opportunities and threats are characteristics of the external environment that should be analyzed. With the SWOT analysis, the company is determining its present status, its current capabilities, and its future expectations. 7. What is environmental scanning? Name four environmental forces that affect marketing decision making. Answer: Environmental scanning is the collection and interpretation of information about forces, events, and relationships in the external environment that may affect the future of the organization. It helps identify market opportunities and threats and provides guidelines for the design of marketing strategy. Important forces include those that are: • social • demographic • economic • technological • political and legal • competitive 8. Stump’s Hot Olives are manufactured by a family business in Wisconsin and are sold in Midwestern grocery stores, through mail order, and to a few local restaurants. The company has been in operation since 1998 and relies on labor from family and friends to produce and package olives in attractive, reusable glass containers. Stump’s uses store demonstrations to introduce its spicy olives to new customers. Discuss how this company can establish or maintain at least one of the three types of competitive advantage. Answer: Student answers to this question will vary, but they should discuss one of the three types of competitive advantage: cost, product/service differentiation, and niche. Their answers could include a cost competitive advantage, which can be achieved through no-frills goods and customer service, efficient labor, production innovations (such as new products not currently on the market), and the experience curve. A product/service differentiation competitive advantage might be achieved by the use of the value impression (this possibility is implied in the description of the containers). The company might also try selling an augmented product offering by bundling pickles and pepper products with its olives. The niche competitive advantage may be appropriate for this company. Some students may suggest targeting gourmets or some other single market. Stump's Hot Olives can maintain a differentiation competitive advantage by emphasizing their unique packaging in reusable glass containers and their spicy flavor, which stands out in the market. 9. What is a competitive advantage? What makes a competitive advantage sustainable? Answer: A competitive advantage is a set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition. A sustainable competitive advantage is one that cannot be copied by the competition. Without this, a competitive advantage could be easily copied and the advantage lost. 10. What is a marketing objective? Name three criteria for good marketing objectives. Use the criteria to write an objective for a business with which you are familiar. Answer: A marketing objective is a statement of what is to be accomplished through marketing activities. For marketing objectives to be realized, they must meet several criteria. They must be: • realistic––managers should develop objectives that have a chance of being met • measurable––managers need to be able to quantitatively measure whether or not an objective has been met • time specific––by what time should the objective be met? • compared to a benchmark––it is important to know the baseline against which the objective will be measured The example objective should fulfill the above criteria and be stated in terms of actions expected by the target consumers. 11. An essential part of marketing strategy is target market strategy. Selection of target market(s) drives marketing objectives and selection of the marketing mix (the four Ps). What are the three general strategies for selecting target markets? Answer: The strategies are to: • appeal to the entire market with a single marketing mix • concentrate on only one segment of the market • appeal to multiple market segments using multiple marketing mixes 12. The marketing mix refers to a unique blend of marketing variables known as the four Ps. Name and briefly describe each of the 4 Ps. Answer: PRODUCT. The firm’s product offerings are the heart of the marketing mix. The Product P includes packaging, warranties, after-sale servicing, branding, company image, and other components in addition to the physical unit. PLACE (or DISTRIBUTION). Distribution strategies make products available when and where customers want them. Physical distribution (storing and transportation logistics) is also part of the Place P.PROMOTION. Promotion includes advertising, public relations, sales promotion, and personal selling. Promotion serves to inform, educate, persuade, and remind target markets about product benefits. PRICE. Price strategies are an important competitive weapon. Pricing is an important component of the marketing mix because it is flexible and allows revenue to be estimated and measured. 13. Perhaps the broadest control device available to marketing management is the marketing audit. Describe this tool and its characteristics. Answer: A marketing audit is a thorough, systematic, periodic evaluation of the objectives, strategies, structure, and performance of the marketing organization. The audit is designed to aid management in allocating marketing resources efficiently. The main purpose of such an audit is to develop a full profile of the organization’s marketing effort and to provide a basis for developing and revising the marketing plan, but it is also an excellent way to improve communication and raise the level of marketing consciousness within the organization. The marketing audit should be Comprehension, systematic, independently conducted, and run periodically. 14. The Heritage Bank is unaware of all the many tools available that will let marketers examine a firm’s processes and identify potential areas for improvement. This firm wants to examine all of its goals, strategies, and structure to ensure it’s on the right track and doing things well. Heritage has hired you as an outside consultant to recommend a plan of action. What do you suggest and why? Answer: The broadest control device available to marketing management is the marketing audit. A marketing audit is a thorough, systematic, periodic evaluation of the goals, strategies, structure, and performance of the marketing organization. This would address all of the issues this firm wants more information about. 15. Name and describe the three requirements for effective strategic planning. Answer: CONTINUAL PROCESS. Strategic planning should be an ongoing process because the environment is continually changing and the firm’s resources and capabilities are continually evolving. CREATIVITY. Sound strategic planning is based on creativity. Existing assumptions about the firm and the environment should be challenged, and new rules of the game should be established. Developing unique and visionary strategies that defy conventional wisdom also prevents managers from locking into static and predictable options. MANAGEMENT COMMITMENT. Perhaps the most critical element of successful strategic planning is top management’s support and participation. Without the involvement of top management, no strategic plan can be effectively implemented. Chapter 3—Ethics and Social Responsibility TRUE/FALSE 1. Most people have not applied ethical standards in their everyday lives. Answer: False Rationale: If you have experienced resentment at a line-cutter, then you have applied ethical standards. 2. Ethical questions range from narrowly defined issues to broader philosophical, social questions. Answer: True Rationale: Ethical questions can encompass specific, situational dilemmas as well as broader considerations that involve philosophical and societal implications, reflecting varying scopes of ethical inquiry. 3. Morals are rules people develop as a result of cultural values and norms. Answer: True Rationale: Morals are shaped by cultural values and norms, guiding individuals in developing personal rules of conduct and ethical judgments within their social contexts. 4. Today’s business ethics are difficult to learn because they are different from those used outside the business world. Answer: False Rationale: Today’s business ethics actually consist of a subset of major life values learned since birth. 5. Unfortunately, most businesspeople have not progressed beyond the self-centered and manipulative actions of preconventional morality. Answer: False Rationale: Preconventional morality is childlike––calculating, self-centered, and even selfish, based on what will be immediately punished or rewarded. Fortunately, most businesspeople have progressed beyond this behavior. 6. Top managers who behave ethically can influence others in an organization to behave ethically. Answer: True Rationale: Ethical behavior by top managers sets a positive example and establishes norms that encourage ethical behavior throughout the organization, fostering a culture of integrity and responsibility. 7. A code of ethics can be an effective internal control on behavior, which is more desirable than external controls such as government regulation. Answer: True Rationale: A well-implemented code of ethics serves as an internal guideline that aligns organizational behavior with ethical standards, promoting voluntary compliance and ethical decision-making, which can be more effective and adaptive than external regulatory controls. 8. When writing codes of ethics, businesses must ensure their codes deal with every possible situation. Answer: False Rationale: Codes that are too detailed encourage employees to substitute rules for judgment. 9. The greater the number of persons affected by a negative outcome, the more likely it is that marketers will recognize a problem as unethical. Answer: True Rationale: Marketers are more likely to recognize ethical issues when a larger number of people are impacted because the scale of impact increases scrutiny and potential consequences, necessitating ethical evaluation and potentially corrective action to maintain trust and reputation. 10. Sustainability refers to a business’s concern for society’s welfare. Answer: False Rationale: Sustainability refers to the idea that socially responsible companies will outperform their peers by focusing on the world’s social problems and viewing them as opportunities to build profits and help the world at the same time. 11. The foundation for the pyramid of corporate social responsibility is philanthropic responsibility. Answer: False Rationale: The pyramid of corporate social responsibility portrays economic performance as the foundation for the other three responsibilities (legal, ethical, and philanthropic). 12. Because social responsibility has proven to have a limited return on investment, the number of businesses opting to act socially responsible is declining. Answer: False Rationale: Social responsibility of business is growing around the world. 13. While there are plenty of benefits for a socially responsible company, there is no clear-cut determination that ignoring social responsibility will have an adverse impact. Answer: False Rationale: See BP example in text. Ignoring social responsibility can indeed have adverse impacts, as seen with examples like BP's environmental disaster in the Gulf of Mexico, which led to significant environmental and reputational damage, highlighting the potential consequences of neglecting social responsibility. 14. Sustainability is the development and marketing of products designed to minimize negative effects on the physical environment or to improve the environment. Answer: False Rationale: Green marketing is the development and marketing of products designed to minimize negative effects on the physical environment or to improve the environment. 15. Some “green” products have an easily recognizable benefit to consumers and the environment. Answer: True Rationale: Certain "green" products, such as energy-efficient appliances or biodegradable packaging, provide tangible benefits that are easily recognized by consumers (e.g., cost savings on energy bills, reduced environmental footprint), aligning with both consumer preferences for sustainability and environmental conservation goals. MULTIPLE CHOICE 1. Which of the following statements describes ethics? A. Ethics are the moral principles or values that generally govern the conduct of an individual. B. Ethics is the standard of behavior by which conduct is judged. C. Morals are a foundation for ethical behavior. D. Ethical values are situation specific and time oriented. E. All of the statements describe ethics. Answer: E Rationale: Ethics refers to the moral principles or values that generally govern the conduct of an individual or a group. Ethics also can be viewed as the standard of behavior by which conduct is judged. 2. _____ refers to the moral principles or values that generally govern the conduct of an individual or a group. A. Righteousness B. Social consensus C. Sustainability D. Virtue E. Ethics Answer: E Rationale: This is the definition of ethics. 3. _____ are the rules people develop as a result of cultural values and norms. A. Virtues B. Ethics C. Socialization D. Conscience E. Morals Answer: E Rationale: This is the definition of morals. 4. One approach to developing a personal set of ethics is to: A. rely solely on one’s personal character to determine what action to take B. stress the importance of rules C. ignore problems associated with the magnitude of consequences D. avoid examining the consequences of particular acts E. never trust your own behavioral instincts Answer: B Rationale: One approach to developing a personal set of ethics stresses the importance of rules. Another is to examine the consequences of a particular act. 5. Ethical development can be thought as having three levels. The most basic, childlike level is the _____ stage. A. preconventional morality B. transformationalism C. conventional morality D. postconventional morality E. actualized morality Answer: A Rationale: The three levels morality are preconventional (the most basic), conventional, and postconventional. 6. Hallie is a calculating, self-centered salesperson. She never engages in relationship marketing. She looks on any sales situation as a “win–lose” situation, and she believes any legal method she can use is justified when she wins. Hallie is most likely at the _____ stage of ethical development. A. preconventional morality B. transformationalism C. conventional morality D. egocentrism E. basic morality Answer: A Rationale: Preconventional morality is the most basic level of morality. 7. Which level of ethical development moves from an egocentric viewpoint toward the expectations of society? A. Postconventional morality B. Conventional morality C. Preconventional morality D. Secondary morality E. Primary morality Answer: B Rationale: Conventional morality is the second level of morality and moves from an egocentric viewpoint of the preconventional level toward the expectations of society. 8. Ruthanne Ross is a sales manager for Pampered Chef, a company that sells kitchen tools and other aids for cooking through party plans. She is very concerned about making sure her salespeople understand the importance of treating each customer fairly and developing long-term relationships with them. She asks that before a sale is made, the salesperson should make sure customers can afford the items and are not buying due to social pressures. Ross is most likely at the _____ stage of ethical development. A. preconventional morality B. transformationalism C. conventional morality D. postconventional morality E. actualized morality Answer: D Rationale: Postconventional morality is that of the mature adult. At this level, the individual is more concerned about others than about himself or herself. 9. In the _____ stage of ethical development, loyalty and obedience to the organization or to society become paramount. A. preconventional morality B. transformationalism C. conventional morality D. postconventional morality E. actualized morality Answer: C Rationale: The conventional stage moves from an egocentric viewpoint toward the expectations of society. 10. The _____ stage of ethical development represents the morality of the mature adult. A. preconventional morality B. transformationalism C. conventional morality D. postconventional morality E. actualized morality Answer: D Rationale: At this level, people are less concerned about how others might see them and more concerned about how they see and judge themselves over the long run. 11. Which of the following factors will influence ethical decision making and judgments? A. Likelihood of stakeholder responsibility B. Proactive nature of organizational sustainability C. Potential magnitude of the consequences D. Probability of ethical consensus E. Consequence of adjacencies Answer: C Rationale: The potential magnitude of the consequences is one of several factors that tend to influence ethical decision making and judgment. 12. All of the following are factors influencing ethical decision making and judgments EXCEPT: A. rate of prosecution B. top management actions on ethics C. probability of a harmful outcome D. number of people to be affected E. social consensus Answer: A Rationale: Other factors include extent of ethical problems within the organization, potential magnitude of the consequences, and the length of time between the decision and the onset of consequences. 13. Like many other professional organizations and businesses, the American Marketing Association has developed a formal, written guideline to help its members make better ethical decisions. This document is called a: A. behavioral practice B. moral ruling C. code of ethics D. direction of value E. principled regulation Answer: C Rationale: While codes of ethics are most often defined as guidelines for businesses, they are also important moral guides for professional organizations. 14. All of the following statements about the creation of a code of ethics are true EXCEPT: A. A written code helps employees avoid confusion when determining whether their decisions are ethical. B. A code can be an effective internal control on behavior. C. The process of formulating the code facilitates discussions that ultimately create better decisions. D. A code helps employees identify what their firm recognizes to be acceptable business practices. E. A code guarantees ethical behavior among a firm’s employees. Answer: E Rationale: Creating ethics guidelines has several advantages, but it does not guarantee ethical behavior. 15. In order to combat U.S. corporations use of illegal payments and bribes in international business dealings, Congress enacted: A. the Future Corporation Protection Act (FCPA) B. the Foreign Corrupt Practices Act (FCPA) C. the Foreign Anti-Bribery Act (FABA) D. the Corporations Against Foreign Corruptions Act (CAFCA) E. None of these, Congress cannot pass laws regarding foreign business practices. Answer: B Rationale: This is the definition of the Foreign Corrupt Practices Act. 16. _____ is the concern of business for the long-range welfare of both the company and its relationships to the society within which it operates. A. Consumerism B. Corporate social responsibility C. Cultural sensitivity D. Conventional morality E. Environmental consideration Answer: B Rationale: Corporate social responsibility is a business’s concern for society’s welfare. 17. Corporate social responsibility is defined as the: A. belief that the legal system defines ethical behavior B. development of inclusive codes of ethics C. rules by which social rewards are attained D. business’s concern for society’s welfare E. coordination of social programs for publicity purposes Answer: D Rationale: This is the definition of corporate social responsibility. 18. For every home built by Habitat for Humanity, Whirlpool Corporation has given and continues to give free kitchen appliances to the deserving family. This donation of appliances is an example of how companies assume their: A. corporate social responsibility B. ethical conveyance C. duty to engage in cause marketing D. right to engage in social marketing E. multiculturalism Answer: A Rationale: Corporate social responsibility is a business’s concern for society’s welfare, in this case deserving families selected by the Habitat organization. 19. NSTAR Gas & Electric Company in Boston provides continuing financial support for an injury prevention program run by the Children’s Hospital Boston. This funding is an example of: A. corporate social responsibility B. ethical conveyance C. a duty to engage in cause marketing D. a right to engage in social marketing E. multiculturalism Answer: A Rationale: Corporate social responsibility is a business’s concern for society’s welfare, in this case an injury prevention program. 20. Novartis created the Novartis Research Institute for Tropical Diseases in Singapore. The institute is unique because it is a not-for-profit organization that focuses on the discovery of new drugs for the treatment of neglected diseases, such as dengue fever and tuberculosis. Not only is this good business, it is also: A. mandated by Supreme Court rulings B. socially responsible C. not ethically motivated D. demonstrating a lack of concern for diversity E. using environmental marketing Answer: B Rationale: Social responsibility is the duty that a business feels for the welfare of society. By helping developing nations, Novartis is helping to meet the needs of society. 21. Many airlines offer passengers the option to purchase carbon offsets as an environmentally friendly compensation for their carbon footprint. For example, Delta customers can pay $10 to a fund that plants trees as a way to offset the carbon emissions from the airplane. Some would say Delta is: A. acting in accordance with recent rulings by the U.S. Supreme Court B. socially responsible C. not ethically motivated D. demonstrating a lack of concern for diversity E. using issue-oriented marketing Answer: B Rationale: Social responsibility is the duty that business feels for the welfare of society. 22. _____ is the idea that socially responsible companies will outperform their peers by focusing on the world’s social problems and viewing them as opportunities to build profit and help the world at the same time. A. Sustainability B. Philanthropy C. Cause marketing D. Creative ethics E. International ethics Answer: A Rationale: This is the definition of sustainability, which looks at the long term and is based on the notion that companies cannot thrive for long in a world where billions of people are suffering and are desperately poor. 23. Which of the following statements about the theory of sustainability is true? A. Sustainability is an internal process in which companies match resources and objectives. B. Sustainability is the idea that socially responsible companies will outperform their peers when they focus on the world’s problems as marketing opportunities. C. According to the theory of sustainability, a company cannot be socially responsible without a code of ethics and managerial support of that code. D. According to the theory of sustainability, ethical behavior should never be viewed as the means of obtaining a competitive advantage. E. Sustainability is only successful if it focuses on organizational strengths. Answer: B Rationale: Sustainability is the idea that socially responsible companies will outperform their peers by focusing on the world’s social problems and viewing them as opportunities to build profit and help the world at the same time. 24. The fact that many people believe that businesses should focus on making a profit and leave social and environmental issues to nonprofit organizations is: A. one of the arguments in support of social responsibility B. one of the reasons so many organizations have a sustainability plan C. creating a competitive disadvantage for larger corporations D. forcing organizations to choose between stakeholders and the environments in which the stakeholders live E. one of the arguments against social responsibility Answer: E Rationale: This is just one argument against social responsibility. 25. Which of the following is an argument used to support corporate social responsibility (CSR)? A. The free market, not companies, should decide what is best for the world. B. CSR can be a profitable undertaking. C. Businesses are not responsible for social or environmental problems. D. Businesses don’t have the expertise to make social decisions. E. All of the above are arguments used in support of CSR. Answer: B Rationale: Smart companies can prosper and build shareholder value by tackling global problems. 26. The four components of the pyramid of corporate social responsibility are: A. sustainability, creativity, profit, and culture B. organizational culture, creativity imagery, economic performance, and objectivity C. organizational, financial, social, and cultural responsibilities D. sustainability, legality, creativity, and competition E. economic, legal, ethical, and philanthropic responsibilities Answer: E Rationale: The four components of the pyramid of corporate social responsibility are economic, legal, ethical, and philanthropic responsibilities. 27. The pyramid of corporate social responsibilities contains all of the following components EXCEPT: A. economic responsibilities B. ethical responsibilities C. cultural responsibilities D. legal responsibilities E. philanthropic responsibilities Answer: C Rationale: The four components of the pyramid of corporate social responsibility are economic, legal, ethical, and philanthropic responsibilities. 28. At the most basic level, a firm must be profitable. What level of the pyramid of corporate social responsibility is this? A. Social B. Economic C. Ethical D. Legal E. Accountability Answer: B Rationale: The pyramid of corporate social responsibility portrays economic performance as the foundation for the other three responsibilities (legal, ethical, and philanthropic). 29. One of the favorite foods in Thailand is shark fin soup. A San Francisco–based organization claimed the soup made by its leading producer contained mercury poison, yet the leading producer of shark fin soup wanted to continue selling the soup because it believes it has a responsibility to its investors to be profitable. In terms of the pyramid of corporate social responsibility, this indicates that the soup manufacturer was operating at a(n) _____ responsibility level. A. Legal B. philanthropic C. ethical D. economic E. cultural Answer: D Rationale: The company believed its mission was to be profitable. 30. At which level of the pyramid of corporate social responsibility must a business “play by the rules”? A. Economic B. Philanthropic C. Legal D. Ethical E. Conformist Answer: C Rationale: Firms operating at the legal level obey the law and play by the rules of the game. 31. Japanese law prohibits the storage of more than 50 pounds of explosive at any single site in the nation. Every night, Universal Studios Japan hosts a fireworks display. The theme park recently came under government investigation when allegations were made that the park was detonating more than 50 pounds of explosives in its nightly fireworks displays. If the allegations are true, in terms of the pyramid of corporate social responsibility, then Universal Studios Japan is not operating at a(n) _____ responsibility level. A. Legal B. philanthropic C. ethical D. economic E. cultural Answer: A Rationale: Universal Studios Japan is not obeying the letter of the law. 32. In the future, electrical power may come from quantum nucleonics, a form of nuclear power that produces no residual radiation. The ability to use this form of power will require equipment adaptations, but it will solve the world’s need for clean and efficient power. Companies that replace inefficient sources of power with quantum nucleonics only after they are required to by the Environmental Protection Agency are operating at a(n) _____ responsibility level. A. Legal B. philanthropic C. ethical D. economic E. cultural Answer: A Rationale: At the legal responsibilities level, the business obeys the law. 33. At what level of the pyramid of corporate social responsibility will firms do what is right, just, and fair? A. Economic B. Philanthropic C. Legal D. Ethical E. Moral Answer: D Rationale: At the ethical responsibilities level, firms will be ethical and do what is right, just, and fair. 34. Girls between the ages of 8 and 15 years are one of the growing markets for high-end shoe manufacturers, and podiatrists say the trend is leading to many stylish young girls with grown-up foot problems. Shoe manufacturers who develop and market adult-styled shoes to this group are not operating at a(n) _____ responsibility level of the pyramid of corporate social responsibility. A. legal B. philanthropic C. ethical D. economic E. cultural Answer: C Rationale: The companies are not doing what is right, just, and fair and so are not operating ethically. 35. At what level of the pyramid of corporate social responsibility will a company be a good corporate citizen? A. Economic B. Philanthropic C. Social D. Legal E. Ethical Answer: B Rationale: Philanthropic responsibilities involve being a good corporate citizen by contributing resources to the community and improving the quality of life. 36. Pacific Gas and Electric (PG&E) Company has donated almost $300,000 to 58 local governments and community-based organizations for local economic development projects. Recipients of these grants include the San Benito County Economic Development Corporation’s Business Outreach Program, the San Jose Conservation Corps’ Hennessy Place Affordable Single-Family Housing Project, and Mariposa County’s Business Development Training Program. This sort of donation indicates PG&E was operating at a(n) _____ responsibility level of the pyramid of corporate social responsibility. A. legal B. philanthropic C. ethical D. economic E. cultural Answer: B Rationale: By supporting local economic development projects, PG&E was being a good corporate citizen. 37. The movement to develop and market products designed to minimize negative effects on the physical environment or to improve the environment is known as: A. enviro-marketing B. green marketing C. cause marketing D. social marketing E. minimalist marketing Answer: B Rationale: This is the definition of green marketing. Florida Hospitals A group of hospital administrators in Florida were discussing the amount of resources used to care for patients who were illegal immigrants and had no medical insurance. One man discussed how his hospital had spent over $2 million on one illegal immigrant who had no family or friends and who was not getting better. Another administrator stated that his hospital was losing $20 million annually in order to provide care for the influx of illegal immigrants into the state. After a great deal of discussion, it was determined that there was probably nothing any one could do about the situation, and that each of them had definite ideas about how to deal with the problems. 38. Refer to Florida Hospitals. In order to make an ethical decision on how to handle uninsured illegal immigrants, the Florida hospital administrators must consider all of the following EXCEPT: A. social consensus B. number of people affected by the decision C. probability of harmful outcome to the hospital and to the individuals D. magnitude of morality E. length of time between the decision and the onset of consequences Answer: D Rationale: Other considerations include potential magnitude of the consequences, top management’s actions on ethics, and the extent of ethical problems within the organization. Drug Marketing Pharmaceutical companies spent $4.4 billion on prescription drug advertising in 2008, mostly on television and in magazines. While the Internet is becoming a more prominent medium to reach consumers and is the primary source used to seek health information, these companies spent less than $130 million on Web marketing. One reason is that there are no guidelines, which makes these heavily regulated marketers uneasy. For example, television commercials for prescription drugs must include disclosures regarding the major side effects if the brand name is mentioned in the ad. The Food and Drug Administration (FDA) claims that existing regulations address many of the Internet advertising issues, but other aspects of Web marketing, such as social networking and search marketing, must be reviewed. That’s why the FDA hearings on this issue were attended by pharmaceutical giants and Web companies like Google, Yahoo, and WebMD Health. 39. Refer to Drug Marketing. Which level of the pyramid of social responsibility is most relevant to this situation in which the drug companies want to ensure that they are “playing by the rules”? A. legal responsibilities B. ethical responsibilities C. philanthropic responsibilities D. economic responsibilities E. standard responsibilities Answer: A Rationale: Legal responsibilities are based on obeying the law. Law is society’s codification of right and wrong. 40. Refer to Drug Marketing. If a drug manufacturer claims that its manufacturing processes are environmentally friendly in its advertising, this is an example of: A. sustenance marketing B. green marketing C. philanthropy D. deontological marketing E. clean marketing Answer: B Rationale: Green marketing is an outgrowth of the social responsibility movement and is the development and marketing of products designed to minimize negative effects on the physical environment or to improve the environment. ESSAY 1. List and describe the three levels of ethical development. Answer: (1) Preconventional morality, the most basic level, is childlike. It is calculating, self-centered, and even selfish, based on what will be immediately punished or rewarded.(2) Conventional morality moves from an egocentric viewpoint toward the expectations of society. Loyalty and obedience to the organization (or society) becomes paramount. (3) Postconventional morality represents the morality of a mature adult. At this level, people are less concerned about how others might see them and more concerned about how they see and judge themselves over the long run. 2. A recent study of marketing professionals found that their ethical judgments were influenced by several factors. List four of these factors. How do these factors contribute to the ethical environment of a marketing organization? Answer: Ethical judgments were influenced by several factors, and students can list any four: (1) The extent of ethical problems within the organization The healthier the ethical environment, the more likely it is that marketers will take a strong stand against questionable practices. (2) Top management actions on ethics Top management can have a profound influence on the ethical behavior of marketing professionals by performing actions that encourage ethical behavior or discourage unethical behavior. Setting an example communicates an ethical philosophy. (3) Potential magnitude of the consequences The greater the harm, the more likely it is that marketers will recognize the action is unethical. (4) Social consensus The greater the degree of agreement among other marketers that an action is harmful, the more likely it is that marketers will recognize it as unethical. (5) Probability of a harmful outcome Higher probabilities of harmful outcomes mean that marketers are more likely to realize that the actions are unethical. (6) Length of time between the decision and the onset of consequences The shorter the time frame between the action and the onset of negative consequence, the more likely it is that marketers will perceive a problem as unethical. (7) Number of people to be affected The more people affected by a negative outcome, the more likely it is that marketers will recognize the decision as unethical. 3. List three ways an organization will benefit from the development and use of a code of ethics. Answer: The text provides four advantages that result from the creation and use of ethical standards, and students can list any three:(1) The guidelines help employees identify what their firm recognizes as acceptable business practices.(2) A code of ethics can be an effective internal control on behavior, which is more desirable than external controls such as government regulation.(3) A written code helps employees avoid confusion when determining whether their decisions are ethical. (4) The process of formulating the code of ethics facilitates discussion among employees about what is right and wrong and ultimately leads to better decisions. 4. The newest theory in social responsibility is called sustainability. Explain what this means. Answer: Sustainability refers to the idea that socially responsible companies will outperform their peers by focusing on the world’s social problems and viewing them as opportunities to build profits and help the world at the same time. It is also the notion that companies cannot thrive for long (i.e., lack sustainability) in a world where billions of people are suffering and are desperately poor. Thus, it is in business’s interest to find ways to attack society’s ills. 5. For every home built by Habitat for Humanity, Whirlpool Corporation has given and continues to give free kitchen appliances to the deserving family. At first Whirlpool gave the appliances with no promotion, then Whirlpool began talking about its philanthropy in its advertising campaigns. Is this unethical behavior according to the pyramid of social responsibility? Answer: Students’ answers to this question may vary, but the better students will understand that economic performance is the foundation of the pyramid. If Whirlpool’s advertising of its donations increases profit, then it is not wrong. The company has not abandoned its efforts to improve the quality of life. No, this behavior is not unethical according to the pyramid of social responsibility. Philanthropy falls under the category of philanthropic responsibilities, the highest level of the pyramid, where companies voluntarily contribute to the well-being of society, and promoting such contributions can inspire others and further benefit the community. 6. Describe the pyramid of corporate social responsibility, and include a description of its components. Answer: The pyramid of corporate social responsibility portrays four kinds of responsibility: economic, legal, ethical, and philanthropic. Economic performance is the foundation for the structure, because if the company does not make a profit, then the other three responsibilities are moot. While maintaining a profit, business is expected to obey the law, do what is ethically right, and be a good corporate citizen. (1) Philanthropic responsibilities are to be a good corporate citizen, contribute resources to the community, and improve the quality of life. (2) Ethical responsibilities are to be ethical; to do what is right, just, and fair; and to avoid harm. (3) Legal responsibilities are to obey the law, which is society’s codification of right and wrong, and play by the rules of the game. (4) Economic responsibilities are to be profitable, because profit is the foundation on which all other responsibilities rest. Test Bank for MKTG Charles W. Lamb, Jr. Hair, Joseph F., Carl McDaniel 9781285091860

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