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Chapter 7 1. ________ refers to the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers. A) Marketing channels B) Organizational buying C) Corporate retailing D) Brand auditing E) Inventory control Answer: B Rationale: Organizational buying, also known as business or industrial buying, involves the purchasing process within formal organizations to fulfill their needs for products and services. This process typically includes identifying needs, evaluating alternatives, and making decisions regarding suppliers and brands. 2. The ________ consists of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied to others. A) business market B) consumer market C) e-commerce market D) global market E) domestic market Answer: A Rationale: The business market encompasses all organizations that purchase goods and services for the purpose of producing other goods or services to be sold, rented, or supplied to others. This includes manufacturers, wholesalers, retailers, and various institutions. 3. How can a marketer overcome the negative effects of commoditization? A) convince target consumers that the firm's products are as good as those of competitors B) convince target consumers that price is irrelevant in determining quality C) convince target consumers that the firm's products are different from those of competitors D) convince target customers that buying the highest-priced product is no guarantee of quality E) convince target customers that all the products in the market are equivalent Answer: C Rationale: Overcoming commoditization involves differentiating the firm's products from competitors' offerings. By highlighting unique features, benefits, or value propositions, marketers can convince consumers that the firm's products are distinct and offer superior value, thereby mitigating the negative effects of commoditization. 4. Which of the following is true for business marketers? A) They deal with more and larger buyers than consumer marketers. B) They deal with more and smaller buyers than consumer marketers. C) They deal with fewer and larger buyers than consumer marketers. D) They deal with fewer and smaller buyers than consumer marketers. E) They deal with the same kind of buyers as consumer marketers. Answer: C Rationale: Business marketers typically deal with fewer but larger buyers compared to consumer marketers. Business transactions often involve larger volumes and higher monetary values, leading to fewer but significant buyer relationships. 5. Which of the following is a challenge in which business marketers differ from the consumer marketers? A) understanding deep customer needs in new ways B) identifying new opportunities for organic business growth C) geographically concentrated buyers D) calculating better marketing performance and accountability metrics E) competing and growing in global markets, particularly China Answer: C Rationale: Unlike consumer marketers who may face dispersed consumer markets, business marketers often encounter geographically concentrated buyers. This concentration can present challenges related to distribution, logistics, and market penetration strategies. 6. Ultimately, the amount of steel sold to General Motors depends on the consumers' demand for GM cars and trucks. From the standpoint of the steel manufacturer, which of the following demand forms is most pertinent? A) derived demand B) inelastic demand C) geographic demand D) relational demand E) static demand Answer: A Rationale: Derived demand refers to the demand for goods or services that arises from the demand for another product. In this case, the demand for steel by General Motors is derived from the demand for GM cars and trucks, making derived demand the most pertinent form in this context. 7. The demand for business goods is ultimately derived from the demand for ________. A) raw materials B) consumer goods C) services D) business solutions E) e-commerce Answer: B Rationale: The demand for business goods is derived from the demand for consumer goods. Businesses purchase goods and services to produce or facilitate the production of consumer goods demanded by end-users. 8. A given percentage increase in consumer demand can lead to a much larger percentage increase in the demand for plant and equipment necessary to produce the additional output. Economists refer to this as ________. A) derived demand B) inelastic demand C) the acceleration effect D) a straight rebuy E) the sales cycle Answer: C Rationale: The phenomenon described is known as the acceleration effect, where an increase in consumer demand leads to a disproportionate increase in the demand for the machinery, equipment, and infrastructure necessary to meet that demand. 9. The total demand for many business goods and services is not much affected by price changes. Thus, this demand is ________. A) derived B) fluctuating C) accelerated D) multiple E) inelastic Answer: E Rationale: Inelastic demand refers to a situation where changes in price have little impact on the quantity demanded. For many business goods and services, the total demand remains relatively stable even when prices fluctuate, indicating an inelastic demand curve. 10. The purchasing department buys office supplies on a routine basis from a pre-approved list of suppliers. This type of purchase is classified as a ________. A) straight rebuy B) modified rebuy C) new task D) secondary purchase E) procure-to-pay Answer: A Rationale: A straight rebuy occurs when a buyer routinely reorders a product or service without much evaluation or consideration of alternatives. In this scenario, the purchasing department's routine procurement of office supplies from pre-approved suppliers fits the definition of a straight rebuy. 11. Sometimes a rise of only 10% in consumer demand can cause as much as a 200% rise in business demand for products for the next period. This is an example of ________. A) inelastic demand B) direct purchasing C) fluctuating demand D) derived demand E) a straight rebuy Answer: C Rationale: Fluctuating demand refers to situations where changes in consumer demand result in disproportionate changes in business demand for products or services. In this case, a small increase in consumer demand leads to a much larger increase in business demand, indicating fluctuating demand patterns. 12. Shoe manufacturers are not going to buy much more leather if the price of leather falls, nor will they buy much less leather if the price rises, unless they can find satisfactory substitutes. This is an example of ________. A) inelastic demand B) direct purchasing C) the acceleration effect D) a modified rebuy E) a straight rebuy Answer: A Rationale: Inelastic demand refers to a situation where changes in price have little impact on the quantity demanded. In this example, the demand for leather by shoe manufacturers remains relatively unchanged despite fluctuations in price, indicating inelastic demand. 13. Kenilworth Inc. is shifting from its rented four-room office to a standalone office building owned by the company itself. This can be classified as a ________. A) modified rebuy B) regular buy C) straight rebuy D) new rebuy E) new task Answer: E Rationale: This scenario involves a significant change in the purchasing decision, as the company is transitioning from a rented office space to owning its own office building. Therefore, it falls under the category of a new task, where the buying situation involves purchasing a product or service for the first time. 14. In a ________ purchasing situation, the buyer wants to make some change to existing product specifications, prices, delivery requirements, or other terms. A) new rebuy B) regular buy C) straight rebuy D) modified rebuy E) new task Answer: D Rationale: A modified rebuy occurs when the buyer wants to make some change to existing product specifications, prices, delivery requirements, or other terms. It involves a modification of an existing purchase situation rather than a completely new purchase decision. 15. The business buyer has to make the fewest decisions when involved in a ________. A) modified rebuy B) regular buy C) straight rebuy D) new rebuy E) new task Answer: C Rationale: In a straight rebuy situation, the buyer simply reorders a product or service without making any changes to existing specifications, prices, or terms. Therefore, the buyer has to make the fewest decisions in a straight rebuy situation compared to other types of buying situations. 16. Jason Riggs' company is considered to be an in-supplier for a lawn mower manufacturer. However, recently the lawn mower company has put out a memo to in- and out-suppliers indicating that it would like to change product specifications and delivery schedules. Which of the following buying situations is most likely to be in operation given this data? A) straight rebuy B) single rebuy C) rakeback rebuy D) system buy E) modified rebuy Answer: E Rationale: The lawn mower manufacturer's request for changes in product specifications and delivery schedules indicates a modification of the existing purchase situation. Therefore, the most likely buying situation in operation is a modified rebuy. 17. Orica Inc. competes in the market for commercial explosives. The company recently changed its business model from just selling explosives to managing an entire blast in a quarry. This customer-solution-based approach to the sale of explosives is an example of ________. A) systems selling B) straight rebuying C) customer referencing D) derived demand E) channel consolidation Answer: A Rationale: Systems selling involves providing customers with comprehensive solutions to their problems rather than simply selling individual products or services. Orica Inc.'s transition to managing entire blasts in a quarry represents a customer-solution-based approach, aligning with the concept of systems selling. 18. If you decided to go into the systems contracting business, which of the following categories would constitute your main area of expertise, the service you provide for customers? A) computer applications B) database management C) manufacturing D) promotion management E) MRO (maintenance, repair, operating) supplies Answer: E Rationale: In the systems contracting business, the main area of expertise typically revolves around providing customers with total solutions to their needs, including maintenance, repair, and operating supplies (MRO). 19. Many business buyers prefer to buy a total solution to a problem from one seller. This process is also known as ________. A) channel consolidation B) systems buying C) vertical buying D) horizontal buying E) supply buying Answer: B Rationale: Systems buying refers to the process where business buyers prefer to purchase a total solution to a problem from a single seller, rather than buying individual components from multiple suppliers. It involves acquiring an integrated solution that meets all their needs. 20. Xerox offers a ________ approach to prospective clients when it offers a complete turnkey solution, including the operation and management of the client's information and communication need. A) guided selling B) fair trading C) systems buying D) cross-selling E) local purchasing Answer: C Rationale: Xerox's offer of a complete turnkey solution, including the operation and management of the client's information and communication needs, aligns with the concept of systems buying. Systems buying involves providing customers with comprehensive solutions to their problems, rather than just selling individual products or services. 21. If Ampex Support Systems is the single supplier for a local manufacturing company's MRO (maintenance, repair, operating) supplies and needs, Ampex Support Systems is considered as providing ________ for the manufacturer. A) guided selling B) purchasing support C) turnkey logistics D) decision support E) systems contracting Answer: E Rationale: In this scenario, Ampex Support Systems is providing a comprehensive solution to the manufacturer's MRO needs, acting as a single supplier for all maintenance, repair, and operating supplies. This aligns with the concept of systems contracting, where a single provider offers integrated solutions to meet a customer's requirements. 22. ________ is a key industrial marketing strategy in bidding to build large-scale industrial products such as dams, pipelines, etc. A) Systems contracting B) Systems buying C) Systems selling D) Solutions buying E) Turnkey logistics Answer: C Rationale: Systems selling is a key strategy in industrial marketing for bidding on large-scale industrial projects such as dams, pipelines, etc. It involves providing comprehensive solutions that address the customer's needs and requirements, often including design, installation, and ongoing support services. 23. ________ is composed of all parties who participate in the purchasing decision-making process and share common goals and risks associated with their decisions. A) The buying center B) The marketing sales team C) Strategic management D) Engineering support E) The logistics center Answer: A Rationale: The buying center consists of all parties involved in the purchasing decision-making process within an organization. This includes individuals from various departments or functions who share common goals and risks associated with their decisions regarding product or service purchases. 24. In the purchasing decision process, the ________ are those who request that something be purchased. They may be users or others in the organization. A) users B) initiators C) influencers D) deciders E) approvers Answer: B Rationale: Initiators in the purchasing decision process are individuals who identify a need for a particular product or service and request that it be purchased. They may be users of the product/service or other stakeholders within the organization. 25. In the purchasing decision process, the ________ are those who have the power to prevent sellers or information from reaching members of the buying center. A) approvers B) buyers C) initiators D) gatekeepers E) deciders Answer: D Rationale: Gatekeepers in the purchasing decision process are individuals who control the flow of information to other members of the buying center. They have the power to prevent sellers or information from reaching decision-makers within the organization. 26. In the purchasing decision process, the major role of ________ is in selecting vendors and negotiating. A) gatekeepers B) buyers C) initiators D) approvers E) deciders Answer: B Rationale: Buyers in the purchasing decision process are responsible for selecting vendors and negotiating terms of purchase. They play a key role in executing the actual transaction and ensuring that the organization's needs are met. 27. If you performed the role of the ________ in a buying center, you would be the person that has the power to prevent sellers or information from reaching other members of the buying center. A) initiator B) influencer C) decider D) gatekeeper E) approver Answer: D Rationale: The gatekeeper in a buying center is responsible for controlling the flow of information to other members of the buying center. They have the power to prevent sellers or information from reaching decision-makers within the organization. 28. When purchasing disposable surgical gowns, Mercy Hospital's vice president of purchasing analyzes whether the hospital should buy disposable gowns or reusable gowns. If the findings favor disposable gowns, then the operating-room administrator compares various competitors' products and prices and makes a choice. Surgeons influence the decision retroactively by reporting their satisfaction with the particular brand. In this situation, the operating-room administrator performs the role of the ________. A) gatekeeper B) initiator C) user D) decider E) influencer Answer: D Rationale: In this scenario, the operating-room administrator has the authority to make the final decision regarding the purchase of disposable surgical gowns. As such, they perform the role of the decider in the purchasing decision process. 29. When purchasing disposable surgical gowns, Mercy Hospital's vice president of purchasing analyzes whether the hospital should buy disposable gowns or reusable gowns. If the findings favor disposable gowns, then the operating-room administrator compares various competitors' products and prices and makes a choice. Surgeons influence the decision retroactively by reporting their satisfaction with the particular brand. In this situation, the surgeons perform the role of the ________. A) decider B) initiator C) user D) gatekeeper E) buyer Answer: C Rationale: In this scenario, the surgeons are the end-users of the disposable surgical gowns. Their satisfaction with the chosen brand influences future purchasing decisions, indicating that they perform the role of the user in the purchasing decision process. 30. In which of the following is a person performing the role of an influencer? A) Dan decides on the product requirements and makes the final choice of suppliers. B) Luke has the authority to pick out the supplier and negotiate the terms of purchase. C) Liam heads the Tech team at LKG and provides information for evaluating the possible alternatives. D) LKG gets many calls from potential suppliers, and it is Leah's job to weed out the good prospects and refer them to others in LKG. E) Dana authorizes the actions of the deciders and buyers in LKG. Answer: C Rationale: In this scenario, Liam, as the head of the Tech team, provides information for evaluating the possible alternatives. As an influencer, he plays a significant role in shaping the decision-making process by providing insights, expertise, and recommendations regarding the available options. 31. In which of the following is a person performing the role of an approver? A) Dan decides on the product requirements and makes the final choice of suppliers. B) Luke has the authority to pick out the supplier and negotiate the terms of purchase. C) Liam heads the Tech team at LKG and provides information for evaluating the possible alternatives. D) LKG gets many calls from potential suppliers, and it is Leah's job to weed out the good prospects and refer them to others in LKG. E) Dana authorizes the actions of the deciders and buyers in LKG. Answer: E Rationale: In the given scenario, Dana is performing the role of an approver by authorizing the actions of the deciders and buyers in LKG. Approvers have the authority to approve or disapprove purchasing decisions made by other members of the buying center. 32. In which of the following is a person performing the role of a gatekeeper? A) Dan decides on the product requirements and makes the final choice of suppliers. B) Luke has the authority to pick out the supplier and negotiate the terms of purchase. C) Liam heads the Tech team at LKG and provides information for evaluating the possible alternatives. D) LKG gets many calls from potential suppliers, and it is Leah's job to weed out the good prospects and refer them to others in LKG. E) Dana authorizes the actions of the deciders and buyers in LKG. Answer: D Rationale: In the given scenario, Leah acts as a gatekeeper by controlling the flow of information to others in LKG. Gatekeepers regulate access to decision-makers or information within the buying center. 33. Which of the following is true about the buying center? A) In a buying center, one person cannot play more than one role. B) A typical buying center has a maximum of five or six members. C) A buying center consists of only mid-level managers and below. D) It is the decision-making unit of a buying organization. E) Gatekeepers in a buying center are people who authorize the proposed actions of deciders or buyers. Answer: D Rationale: The buying center is the decision-making unit of a buying organization, responsible for evaluating, influencing, and making purchasing decisions. It typically consists of individuals from various departments or levels within the organization who share common goals related to purchasing. 34. Small sellers should first concentrate their marketing efforts on reaching ________. A) approvers B) initiators C) influencers D) users E) initiators Answer: C Rationale: Influencers play a crucial role in the purchasing decision process, especially in influencing the opinions and preferences of other members of the buying center. Therefore, small sellers should focus their marketing efforts on reaching influencers to sway their decision-making. 35. If you were an upper-level marketing executive of a large seller of trucks, which of the following strategies would be most appropriate in reaching buying center targets? A) Concentrate on key buying influencers. B) Use multilevel in-depth selling. C) Use trade-based promotions. D) Concentrate sales efforts on the support staff. E) Move all operations to the Internet. Answer: B Rationale: Multilevel in-depth selling involves engaging with various levels and departments within the buying organization to understand their needs, provide tailored solutions, and build relationships. This strategy is particularly effective for reaching buying center targets, as it ensures comprehensive coverage and addresses diverse requirements. 36. ________ occurs when customers are given a perspective or point of view that allows the firm to "put its best foot forward." A) Gatekeeping B) Commoditization C) Framing D) Rebuying E) Bartering Answer: C Rationale: Framing refers to the process of presenting information or choices in a way that influences the perception or interpretation of the audience. It allows firms to shape how customers view their products or services, enabling them to present their offerings in the best possible light. 37. The new, more strategically oriented purchasing departments have a mission. Which of the following most accurately describes that mission? A) Make the most profit possible and remain independent of entanglements. B) Approach every purchasing opportunity as means to create interdependency. C) Seek the best value from fewer and better suppliers. D) Outsource the supply function. E) Abandon all strategies except for systems selling and buying. Answer: C Rationale: The mission of strategically oriented purchasing departments is to seek the best value from fewer and better suppliers. This approach emphasizes efficiency, quality, and strategic partnerships to optimize procurement processes and enhance organizational performance. 38. Patrick J. Robinson and his associates have identified eight stages in the business buying-decision process. This model is called the ________ framework. A) buygrid B) buying/selling C) seller-centered D) commercial E) buy-analysis Answer: A Rationale: Patrick J. Robinson's model, which identifies eight stages in the business buying-decision process, is commonly referred to as the buygrid framework. This framework provides a structured approach for understanding and analyzing business purchasing behaviors. 39. According to Patrick J. Robinson, the eight stages in the business buying-decision process are known as ________. A) buyphases B) buybacks C) buyouts D) buyables E) buyoffs Answer: A Rationale: According to Patrick J. Robinson, the eight stages in the business buying-decision process are known as buyphases. These stages represent the sequential steps involved in evaluating, selecting, and purchasing products or services for business use. 40. Which of the following is a step in the straight rebuy buyclass? A) problem recognition B) general need description C) product specification D) supplier search E) proposal solicitation Answer: C Rationale: In the straight rebuy buyclass, the product specification step involves reordering a product or service without significant changes to existing specifications, prices, or terms. This step is characteristic of routine purchases where the buyer simply reorders from a preferred supplier. 41. A new-task buyclass decision begins with which of the following steps? A) supplier search B) general need description C) product specification D) problem recognition E) proposal solicitation Answer: D Rationale: Problem recognition is the first step in the new-task buyclass decision process. It occurs when business buyers identify a need or problem that can be addressed through the acquisition of a product or service. 42. In reordering office supplies, the only stages that the buyer passes through are the product specification stage and the ________ stage. A) problem recognition B) general need description C) order-routine specification D) supplier search E) performance review Answer: E Rationale: In routine purchases like reordering office supplies, the buyer typically goes through the product specification stage to ensure consistency with previous orders and then directly to the performance review stage, where the purchased items are evaluated after use. 43. The approach to cost reduction that studies whether components can be redesigned or standardized or made by cheaper methods of production without adversely impacting product performance is termed as ________. A) maintenance, repair, and operating (MRO) B) product value analysis (PVA) C) vendor managed inventories (VMI) D) supplier performance management (SPM) E) supplier added value effort (SAVE) Answer: B Rationale: Product value analysis (PVA) focuses on examining the components, materials, and production processes to identify opportunities for cost reduction without compromising product quality or performance. 44. Business buyers may get new ideas at a trade show, see an ad, or receive a call from a sales representative who offers a better product or a lower price compared to the current in-supplier. These situations spur the ________ stage. A) problem recognition B) general need description C) order-routine specification D) supplier search E) performance review Answer: A Rationale: These situations trigger problem recognition, as they prompt business buyers to identify a need or problem that may require a solution through the acquisition of products or services. 45. Business marketers can stimulate problem recognition by ________. A) ensuring a presence in trade directories B) direct mail, telemarketing, and calling on prospects C) encouraging the Better Business Bureau to release statistics D) using consumer advertising E) conducting surveys of existing customers Answer: B Rationale: Business marketers can stimulate problem recognition by actively reaching out to potential buyers through direct mail, telemarketing, and personal sales calls, thus highlighting the benefits or solutions their products or services can offer. 46. With respect to e-procurement, Coca-Cola, Sara Lee, Kraft, PepsiCo, P&G, and several other companies joined forces to form a ________ called Transora to use their combined leverage to obtain lower prices for raw materials. A) manufacturer's co-op B) supplier's co-op C) middleman group D) buying alliance E) buying cabal Answer: D Rationale: Transora represents a buying alliance, where multiple companies collaborate to leverage their purchasing power and negotiate better prices or terms from suppliers. 47. Plastics.com allows plastics buyers to search the best prices among thousands of plastics sellers. Plastics.com is an example of a(n) ________. A) buying alliance B) barter market C) systems seller D) vertical market E) auction site Answer: D Rationale: Plastics.com serves as a vertical market, focusing specifically on connecting buyers and sellers within the plastics industry, allowing buyers to search for the best prices and suppliers for their needs. 48. On an online ________, prices change by the minute. A) buying alliance B) barter market C) systems seller D) spot market E) catalog site Answer: D Rationale: The spot market operates online where prices are subject to frequent changes based on supply and demand dynamics. In this market, buyers and sellers engage in immediate transactions at prevailing market prices. 49. With respect to e-procurement, which of the two types of e-hubs are Web sites organized around? A) vertical and horizontal hubs B) vertical and functional hubs C) functional hubs and organizational hubs D) supplier and user hubs E) manufacturer and supplier hubs Answer: B Rationale: E-hubs are typically organized around either vertical or functional hubs. Vertical hubs focus on specific industries or sectors, while functional hubs cater to specific functions or processes within organizations. 50. Which of the following is an example of a functional hub? A) Plastics.com allows plastics buyers to search the best prices among thousands of plastics sellers. B) ChemConnect.com is an online exchange for buyers and sellers of bulk chemicals. C) SteelMart.com concentrates on steel buyers from the United States. D) SupplyLink.com offers manufacturers information on ensuring workplace safety. E) PaperTiger.com offers paper buyers a comprehensive look at the prices and quality in the paper market. Answer: D Rationale: SupplyLink.com serves as a functional hub by providing information and resources related to workplace safety for manufacturers. Functional hubs focus on specific functions or processes within organizations, rather than specific industries or sectors. 51. The ________ approach to consumer research asks customers to attach a monetary value to alternative levels of a given attribute. The value of a given configuration is determined by adding the average values of each of the given attributes. A) benchmarking B) compositional C) importance rating D) focus-group E) conjoint analysis Answer: B Rationale: Compositional approach to consumer research involves asking customers to assign a monetary value to different levels of specific attributes of a product or service. Conjoint analysis, often associated with this approach, helps in determining the value of various configurations by aggregating the average values of individual attributes. 52. In the ________ method for assessing customer value, customers are asked how costs of using a new product compare to those of using an incumbent. A) direct survey B) importance ratings C) field value-in-use assessment D) benchmarking E) conjoint analysis Answer: C Rationale: Field value-in-use assessment method involves asking customers about the costs associated with using a new product compared to those of using an existing one. This method directly evaluates the perceived value of a product or service in real-world usage scenarios. 53. Robert Jennings consultants help farmers deliver an incremental animal weight gain of 8% to 12% over competitors. This is an example of ________. A) solutions selling to enhance customer revenues B) solutions selling to reduce customer costs C) solutions selling to decrease customer risks D) solutions selling to simplify customer purchasing E) solutions to provide better partnership Answer: A Rationale: By helping farmers achieve an incremental animal weight gain of 8% to 12% over competitors, Robert Jennings consultants are providing solutions that directly contribute to enhancing customer revenues. 54. A supplier signs an agreement with a customer that states that $350,000 in savings will be earned by the customer over the next 18 months in exchange for a tenfold increase in the customer's share of supplies ordered by the customer. If the supplier achieves less than this promised savings, it will make up the difference. If the supplier achieves substantially more than promised, it participates in the extra savings. This is an example of ________. A) solution selling B) price fixing C) demand shifting D) systems buying E) risk and gain sharing Answer: E Rationale: The scenario describes a risk and gain sharing agreement between a supplier and a customer, where the supplier commits to delivering a certain level of savings, with provisions for adjusting payments based on actual outcomes. This arrangement aligns the interests of both parties and encourages collaboration. 55. GM employees work at large customer facilities to reduce materials-management spending. This is an example of the ________ form of solution selling. A) solutions to encourage partnerships B) solutions to alter corporate culture C) solutions to enhance customer revenues D) solutions to decrease customer risks E) solutions to reduce customer costs Answer: E Rationale: GM employees working at large customer facilities to reduce materials-management spending exemplifies a solution aimed at reducing customer costs. By optimizing processes and reducing expenses, GM helps its customers improve their bottom line. 56. Through its dedicated research team, CISCO Systems Inc. has developed new value-added business solutions which enable its variant class-II capacitors to provide incremental productivity of 10 to 20 percent over its competitors. This is an example of the ________ form of solution selling. A) solutions to reduce customer costs B) solutions to decrease customer risks C) solutions to alter corporate culture D) solutions to enhance customer revenues E) solutions to partnerships Answer: D Rationale: CISCO Systems Inc.'s development of new value-added business solutions resulting in an incremental productivity increase for its variant class-II capacitors demonstrates a solution aimed at enhancing customer revenues. By providing products with added value, CISCO enables its customers to generate more revenue. 57. Praxair Limited is a supplier of synthetic graphite to a number of electrode manufacturers in the U.S. Its customers have shifted their ordering responsibilities to Praxair and the company regularly monitors its customer's inventory levels and has taken responsibility for replenishing the supplies automatically through continuous replenishment programs. Which of the following systems do Praxair and its customers follow with respect to order-routine specification? A) Supplier Added Value Effort ($AVE) B) Vendor Managed Inventory (VMI) C) Direct Concentrated Buying (DCB) D) Supplier Performance Management (SPM) E) Product Value Analysis (PVA) Answer: B Rationale: Praxair Limited's practice of monitoring customer inventory levels and replenishing supplies automatically aligns with Vendor Managed Inventory (VMI) system, where the supplier takes responsibility for managing and replenishing inventory at the customer's location. 58. Which of the following methods is most likely to be used by buyers to review the performance of chosen suppliers? A) the buyer may contact different suppliers and ask for their evaluations B) the buyers may rate the end-users on several criteria using a weighted-score method C) the buyer might aggregate the cost of poor performance to come up with adjusted costs of purchase, including price D) the buyers may aggregate the opinions of various competitors and come up with the adjusted cost of supply E) the buyers might adopt the Supplier Added Value Effort technique to calculate supplier efficiency Answer: C Rationale: Reviewing supplier performance by aggregating the costs of poor performance allows buyers to assess the overall impact of supplier performance on their operations. By including factors beyond just price, such as quality and timeliness, this method provides a comprehensive evaluation. 59. A ________ establishes a long-term relationship in which the supplier promises to resupply the buyer as needed, at agreed-upon prices, over a specified period of time. A) stockless purchase plan B) direct stock purchase plan C) defined contribution plan D) stock purchase plan E) share purchase plan Answer: A Rationale: A stockless purchase plan establishes a long-term relationship between a buyer and a supplier, wherein the supplier commits to resupplying the buyer as needed over a specified period, typically without the buyer maintaining significant on-site inventory. 60. In the ________ category of buyer-supplier relationships, competition rather than cooperation is the dominant form of governance. A) basic buying and selling B) bare bones C) contractual transaction D) customer supply E) collaborative Answer: D Rationale: In the customer supply category of buyer-supplier relationships, competition is the dominant form of governance. This means that interactions between buyers and suppliers are primarily transactional and focused on obtaining the best terms rather than fostering cooperation or collaboration. 61. Which of the following relationships is characterized by much trust and commitment leading to a true partnership? A) mutually adaptive B) collaborative C) basic buying and selling D) customer supply E) cooperative systems Answer: B Rationale: A collaborative relationship is characterized by high levels of trust and commitment, where partners work together closely towards common goals. This involves sharing resources, information, and responsibilities, leading to a true partnership where mutual benefits are prioritized. 62. The partners in ________ systems are united in operational ways, but neither demonstrates structural commitment through legal means or adaptation. A) mutually adaptive B) collaborative C) basic buying and selling D) customer supply E) cooperative Answer: B Rationale: Collaborative systems involve partners working together operationally, but without legal commitments or significant structural adaptations. This means they cooperate in day-to-day activities but may not have formalized agreements or deep integration. 63. Value Central has a partnership of high trust and commitment with certain suppliers and gives them access to its sophisticated and detailed daily, individual store-based sales data. In exchange, those suppliers are responsible for managing Value Central's inventory of their products. This relationship is best described as ________. A) basic buying and selling B) contractual transaction C) collaborative D) customer supply E) customer is king Answer: C Rationale: This scenario best fits a collaborative relationship where both parties work closely together, sharing valuable information and responsibilities for mutual benefit. 64. The relationship between a company and its office supplies vendor where competition rather than cooperation is the dominant form of governance is probably best described as ________. A) basic buying and selling B) contractual transaction C) collaborative D) customer supply E) customer is king Answer: D Rationale: In a customer supply relationship, competition tends to be the dominant form of governance, with the buyer dictating terms to the supplier rather than collaborating closely. 65. In the ________ category of buyer-supplier relationship, although bonded by a close, cooperative relationship, the seller adapts to meet the customer's needs without expecting much adaptation or change on the part of the customer in exchange. A) contractual transaction B) cooperative system C) collaborative D) mutually adaptive E) customer is king Answer: E Rationale: The "customer is king" relationship involves a close, cooperative bond, but the seller adapts to meet the customer's needs without necessarily expecting reciprocal adaptation from the customer. 66. According to research studies, the closest relationships between customers and suppliers arise when ________. A) supply is important to the customer and there were procurement obstacles B) procurement is simple C) there are many undifferentiated vendors in the marketplace D) the customer is highly price sensitive E) the suppliers charge a premium for their products Answer: A Rationale: Close relationships between customers and suppliers often develop when the supply is critical to the customer, and there are obstacles in procurement, necessitating a deeper level of collaboration and trust. 67. The type of buyer-supplier relationship in which buyers and sellers make many relationship-specific adaptations, but without necessarily achieving strong trust or cooperation is termed as ________. A) customer is king B) mutually adaptive C) collaborative D) contractual transaction E) customer supply Answer: B Rationale: Mutually adaptive relationships involve both parties making numerous adaptations to meet each other's needs, but without necessarily establishing strong levels of trust or cooperation. 68. ________ investments are those expenditures tailored to a particular company and value chain partner. A) Diversified B) Pooled C) Specific D) Umbrella E) General Answer: C Rationale: Specific investments are tailored to a particular company and its specific value chain partner, ensuring that the resources allocated are dedicated to achieving mutual objectives and enhancing the relationship. 69. Which of the following is a form of cheating or undersupply relative to an implicit or explicit contract which usually takes place when buyers cannot easily monitor supplier performance? A) Institutional sale B) Business buying C) Opportunism D) Vertical integration E) Contractual transactionism Answer: C Rationale: Opportunism refers to the act of cheating or undersupply relative to a contract, exploiting situations where buyers cannot easily monitor supplier performance to gain an unfair advantage. 70. The ________ market consists of schools, hospitals, nursing homes, prisons, and other institutions that must provide goods and services to people in their care. A) vertical B) nonprofit C) spot D) secondary business E) institutional Answer: E Rationale: The institutional market comprises organizations such as schools, hospitals, and prisons that provide goods and services to people under their care, representing a distinct segment with specific purchasing needs and behaviors. 71. In most countries, ________ are the major buyers of goods and services. They typically require suppliers to submit bids and often award the contract to the lowest bidder. A) consumer packaged-goods companies B) government organizations C) health services vendors D) educational institutions E) households Answer: B Rationale: Government organizations are major buyers of goods and services in most countries, procuring a wide range of products and services for public use. They often follow competitive bidding processes where suppliers submit bids, and contracts are frequently awarded to the lowest bidder as a means of ensuring cost-effectiveness and transparency in public procurement. 72. Organizational buying is the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers. Answer: True Rationale: Organizational buying involves a structured process where businesses identify their needs, evaluate options, and make decisions regarding purchasing products and services. This process is similar to consumer buying behavior but is tailored to the requirements of formal organizations. 73. The business market consists of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied to others. Answer: True Rationale: The business market comprises organizations that purchase goods and services for use in their operations, including manufacturing, service provision, or resale to other businesses or consumers. 74. Commoditization strengthens customer loyalty. Answer: False Rationale: Commoditization typically leads to increased price competition and decreased product differentiation, making it more difficult for businesses to build customer loyalty as customers may switch suppliers based solely on price. 75. The business market is essentially the same market as the consumer market. Answer: False Rationale: The business market and the consumer market are distinct entities with different characteristics, buying behaviors, and needs. While some products may overlap between the two markets, they serve different purposes and involve different decision-making processes. 76. Business buyers often select suppliers who also buy from them. Answer: True Rationale: Reciprocity is common in business markets, where buyers may prefer suppliers who also purchase goods or services from them. This practice helps build mutually beneficial relationships and can lead to long-term partnerships. 77. The business marketer normally deals with far fewer, much larger buyers than the consumer marketer does. Answer: True Rationale: Business marketers typically deal with fewer, larger buyers compared to consumer marketers, as business purchases often involve larger volumes and higher value transactions. Building relationships with key buyers is crucial in business markets. 78. An increase in the demand for plant and equipment can lead to a much larger increase in consumer demand. This is known as the acceleration effect. Answer: False Rationale: The described phenomenon is known as the multiplier effect, where an increase in business investment can lead to subsequent increases in consumer spending, thereby stimulating economic growth. The acceleration effect refers to the responsiveness of investment to changes in income or output. 79. The demand for business goods is ultimately derived from the demand for raw materials. Answer: False Rationale: While the demand for business goods may be influenced by the demand for raw materials, it is not solely derived from it. Business demand is influenced by various factors, including consumer demand, investment decisions, technological advancements, and market trends. 80. The total demand for many business goods and services is inelastic that is, not much affected by price changes. Answer: True Rationale: Inelastic demand means that changes in price have relatively little impact on the quantity demanded. Many business goods and services, especially those that are essential to operations or have few substitutes, exhibit inelastic demand as businesses prioritize functionality over price. 81. In the straight rebuy, "out-suppliers" try to get a small order and then enlarge their purchase share over time. Answer: True Rationale: In a straight rebuy situation, "out-suppliers" attempt to secure a small initial order and then gradually expand their share of the buyer's purchases over time by providing superior value, service, or incentives. 82. The buyer in a straight rebuy usually changes product specifications, prices, delivery requirements, or other terms. Answer: False Rationale: In a straight rebuy situation, the buyer typically reorders the same products from the same supplier without making significant changes to product specifications, prices, delivery requirements, or other terms. This reflects a routine purchasing decision based on familiarity and satisfaction with the existing supplier and product. 83. The business buyer makes the fewest decisions in the straight rebuy situation and the most in the new-task situation. Answer: True Rationale: In a straight rebuy situation, the buyer typically makes minimal decisions since they are reordering a product or service they are already familiar with. In contrast, in a new-task situation, the buyer must make numerous decisions because they are purchasing a product or service for the first time, requiring extensive evaluation and decision-making. 84. Most business buyers reject what is called systems buying from one seller. Answer: False Rationale: Systems buying, where buyers acquire a complete solution from a single seller, is often preferred by many business buyers as it can simplify procurement processes, reduce integration issues, and provide a single point of accountability. Therefore, it is not typically rejected by most business buyers. 85. Systems selling is a key industrial marketing strategy in bidding to build large-scale industrial projects such as dams or pipelines. Answer: True Rationale: Systems selling involves offering a comprehensive solution to meet a customer's specific needs, often involving large-scale industrial projects. This approach is common in industries such as construction, where customers require integrated solutions rather than individual components. 86. Sellers benefit from systems contracting through lower operating costs as a result of steady demand and reduced paperwork. Answer: True Rationale: Systems contracting, where a seller provides a complete solution to a buyer's needs, can lead to lower operating costs for sellers due to the steady demand for integrated solutions and reduced paperwork associated with dealing with multiple suppliers for individual components. 87. The buying center is where consumers go to purchase their goods and services. Answer: False Rationale: The buying center refers to the group of individuals within an organization who are involved in the purchasing decision-making process for business goods and services. It is not a physical location where consumers go to make purchases. 88. With respect to the buying center, approvers are people who have the power to prevent sellers or information from reaching members of the buying center. Answer: False Rationale: Approvers in the buying center are individuals who have the authority to approve or reject purchasing decisions. They do not typically prevent sellers or information from reaching other members of the buying center; instead, they play a role in finalizing the decision-making process. 89. Initiators are those who authorize the proposed action of deciders or buyers. Answer: False Rationale: Initiators in the buying center are individuals who recognize a need for a product or service within the organization and propose the purchase. They do not authorize the proposed action of deciders or buyers; instead, they initiate the purchasing process by identifying the need. 90. Influencers influence the buying decision by helping define specifications and providing information for evaluating alternatives. Answer: True Rationale: Influencers in the buying center are individuals who impact the purchasing decision by providing information, influencing specifications, and evaluating alternatives. Their input helps shape the decision-making process within the organization. 91. In the buying center, several people can occupy a given role such as user or influencer, and one person may play multiple roles. Answer: True Rationale: The composition of the buying center can vary, with multiple individuals potentially occupying the same role (e.g., multiple users or influencers), and one person may indeed play multiple roles within the decision-making process. 92. Small sellers concentrate on multilevel in-depth selling instead of reaching the key buying influencers. Answer: False Rationale: Small sellers often focus on building relationships and reaching key buying influencers within organizations to secure sales. Multilevel in-depth selling involves thoroughly understanding the needs of different individuals within the buying center and tailoring sales efforts accordingly, which is a common strategy regardless of the size of the seller. 93. In the business market, small sellers concentrate on reaching as many participants as possible because their chances of success are slim. Answer: False Rationale: Small sellers in the business market often concentrate on building relationships with key decision-makers rather than reaching as many participants as possible. Success in the business market often hinges on targeted marketing efforts and personalized interactions with potential buyers rather than casting a wide net. 94. Framing occurs when customers are given a perspective or point of view that allows the firm to "put its best foot forward." Answer: True Rationale: Framing involves presenting information in a way that influences customers' perceptions and biases, allowing the firm to showcase its products or services in the most favorable light and potentially sway purchasing decisions. 95. A performance review is the first step in the buygrid framework. Answer: False Rationale: A performance review is not the first step in the buygrid framework. The buygrid framework typically begins with the recognition of a need within the organization, followed by the development of product specifications and a search for potential suppliers. 96. The buying process begins when someone places an order with a sales representative. Answer: False Rationale: The buying process in the business market begins with the recognition of a need within the organization, followed by an assessment of available options, negotiations with suppliers, and ultimately, the purchase decision. Placing an order with a sales representative occurs later in the process. 97. Product value analysis is an approach to efficiency that studies whether components can be redesigned or made by more efficient methods of production without adversely impacting product performance. Answer: False Rationale: Product value analysis focuses on assessing the value provided by a product to customers relative to its cost. It evaluates whether features or components contribute to customer satisfaction and whether they justify the costs incurred. It is not primarily concerned with production efficiency or redesigning components. 98. On spot electronic markets, prices of products or commodities change by the minute. Answer: True Rationale: In spot electronic markets, prices of products or commodities can change rapidly in response to market conditions, demand-supply dynamics, and other factors. These markets facilitate real-time trading where prices are determined by market forces. 99. In buying alliances, participants offer to trade goods or services. Answer: False Rationale: In buying alliances, participants collaborate to achieve common purchasing goals, such as leveraging their collective buying power to negotiate better terms with suppliers. They do not typically engage in direct trading of goods or services among themselves. 100. With respect to assessing customer value, in conjoint analysis customers are asked to rank their preference for alternative market offerings or concepts. Answer: True Rationale: Conjoint analysis is a market research technique used to assess customer preferences and value by presenting respondents with different combinations of product features or attributes. Customers then rank or rate these alternatives, allowing businesses to understand the relative importance of different attributes in driving purchasing decisions. 101. One of the forms of solution selling is to provide solutions to enhance customer revenues. Answer: True Rationale: Solution selling involves offering customized solutions to address specific customer needs or challenges. One form of solution selling is to provide solutions that directly contribute to enhancing customer revenues or achieving other business objectives. 102. Risk and gain sharing can offset price reductions that customers request. Answer: True Rationale: Risk and gain sharing arrangements involve sharing risks and rewards between buyers and sellers. By offering such arrangements, sellers can offset price reductions requested by customers while still providing value and maintaining profitability. 103. Companies are increasingly reducing the number of suppliers they utilize, and there is a trend toward single sourcing. Answer: True Rationale: Many companies are streamlining their supply chains by reducing the number of suppliers they work with and adopting a single-sourcing strategy where feasible. This trend aims to simplify procurement processes, achieve economies of scale, and build stronger relationships with key suppliers. 104. Most performance reviews are conducted by outside auditing agencies to avoid bias and internal discrepancies. Answer: False Rationale: Performance reviews are typically conducted internally by the organization itself or its designated departments. While some companies may hire external auditing agencies for certain aspects of performance evaluation, the primary responsibility for conducting performance reviews lies with the organization. 105. In buyer-seller relationships, the contractual transaction generally shows low levels of trust, cooperation, and interaction. Answer: True Rationale: In contractual transactions, the emphasis is typically on fulfilling the terms of the contract rather than building trust or cooperation between the buyer and seller. These transactions often involve limited interaction beyond what is necessary to execute the terms of the contract. 106. Corporate credibility depends on corporate expertise, corporate trustworthiness, and corporate likability. Answer: True Rationale: Corporate credibility is influenced by factors such as expertise, trustworthiness, and likability. These attributes shape stakeholders' perceptions of the company's reliability, integrity, and overall reputation, which are essential for maintaining credibility in the business environment. 107. One of the problems facing B2B on the Web is that many firms often impose more stringent requirements on their online business partners than they do on non-online partners. Answer: True Rationale: Some firms may impose stricter requirements on their online business partners due to concerns about security, reliability, and data protection in online transactions. This can pose challenges for B2B e-commerce relationships compared to traditional offline partnerships. 108. The "customer is king" category of buyer-seller relationship is relatively simple, and one in which routine exchanges with moderately high levels of cooperation and information exchange occur. Answer: False Rationale: The "customer is king" category of buyer-seller relationship implies a close, cooperative bond where the seller adapts to meet the customer's needs without necessarily expecting reciprocal adaptation from the customer. While there may be routine exchanges, the level of cooperation and information exchange is typically high, not moderately high. 109. Contracts are always sufficient to govern supplier transactions and prevent supplier opportunism. Answer: False Rationale: While contracts are essential for governing supplier transactions and clarifying expectations, they may not always prevent supplier opportunism, especially in complex or dynamic business environments. Additional measures such as monitoring, relationship-building, and legal remedies may also be necessary to address supplier opportunism effectively. 110. A good illustration of a member of the institutional market would be Boeing because it is a member of the aviation institution structure. Answer: False Rationale: Boeing is a manufacturer of aircraft and aerospace products, not an institutional entity such as a school, hospital, or government agency. The institutional market typically includes organizations that provide goods and services to people in their care, rather than manufacturers or suppliers. 111. The U.S. government is the largest customer in the world. Answer: True Rationale: The U.S. government is indeed one of the largest customers in the world, given its extensive procurement activities across various sectors such as defense, healthcare, infrastructure, and technology. Its purchasing power and scope make it a significant player in global markets. 112. Business markets have several characteristics that contrast sharply with those of consumer markets. Name and briefly characterize five of those characteristics. Answer: The characteristics of business markets as compared to consumer markets are: (1) fewer, larger buyers, (2) close supplier-customer relationship, (3) professional purchasing, (4) multiple buying influences, (5) multiple sales calls, (6) derived demand, (7) inelastic demand, (8) fluctuating demand, (9) geographically concentrated buyers, and (10) direct purchasing. See chapter section for brief characterizations. 113. Explain how fluctuating demand impacts business markets differently from consumer markets. Answer: The demand for business goods and services tends to be more volatile than the demand for consumer goods and services. A given percentage increase in consumer demand can lead to a much larger percentage increase in the demand for plant and equipment necessary to produce additional output. Economists refer to this as the acceleration effect. 114. Illustrate the differences between a straight rebuy, modified rebuy, and a new-task purchase. Answer: In a straight rebuy, the purchasing department reorders on a routine basis and choose from suppliers on an approved list. In a modified rebuy, the buyer wants to modify product specifications, prices, delivery requirements, or other terms. Lastly, in the new-task purchase, a purchaser buys a product or service for the first time. 115. What are the three different types of buying situations faced by a typical business buyer? Answer: The business buyer faces many decisions in making a purchase. Three types of buying situations are the straight rebuy, modified rebuy, and new task. Straight rebuy- In a straight rebuy, the purchasing department reorders supplies such as office supplies and bulk chemicals on a routine basis and chooses from suppliers on an approved list. The suppliers make an effort to maintain product and service quality and often propose automatic reordering systems to save time. "Out-suppliers" attempt to offer something new or exploit dissatisfaction with a current supplier. Their goal is to get a small order and then enlarge their purchase share over time. Modified rebuy- The buyer in a modified rebuy wants to change product specifications, prices, delivery requirements, or other terms. This usually requires additional participants on both sides. The in-suppliers become nervous and want to protect the account. The out-suppliers see an opportunity to propose a better offer to gain some business. New task- A new-task purchaser buys a product or service for the first time (an office building, a new security system. The greater the cost or risk, the larger the number of participants, and the greater their information gathering, the longer the time to a decision. 116. Describe the practices of systems buying and systems contracting. Answer: Systems buying involves buying a total solution to a problem from one seller. Systems contracting is a variant of systems selling in which a single supplier provides the buyer with his entire requirement for maintenance, repair, and operating supplies. During the contract period, the supplier manages the customer's inventory. 117. What is the composition of the buying center? Answer: A buying center is composed of "all those individuals and groups who participate in the purchasing decision-making process, who share some common goals and the risks arising from the decisions." The buying center includes all members of the organization who play any of seven roles in the purchase decision process: initiators, users, influencers, deciders, approvers, buyers, gatekeepers. Buying centers usually include several participants with differing interests, authority, status, and persuasiveness. Each member of the buying center is likely to give priority to very different decision criteria. 118. List the seven roles of people in a buying center. Answer: 1. Initiators—Users or others in the organization who request that something be purchased. 2. Users—Those who will use the product or service. In many cases, the users initiate the buying proposal and help define the product requirements. 3. Influencers—People who influence the buying decision, often by helping define specifications and providing information for evaluating alternatives. Technical personnel are particularly important influencers. 4. Deciders—People who decide on product requirements or on suppliers. 5. Approvers—People who authorize the proposed actions of deciders or buyers. 6. Buyers—People who have formal authority to select the supplier and arrange the purchase terms. Buyers may help shape product specifications, but they play their major role in selecting vendors and negotiating. In more complex purchases, buyers might include high level managers. 7. Gatekeepers—People who have the power to prevent sellers or information from reaching members of the buying center. For example, purchasing agents, receptionists, and telephone operators may prevent salespersons from contacting users or deciders. 119. Explain with examples, the concept of solution selling. Answer: Solution selling approaches buyers from a solutions-to-problems approach rather than a product-purchase approach. Three forms include: (1) solutions to enhance customer revenues, e.g., Hendrix UTD has used its sales consultants to help farmers deliver an incremental animal weight gain of 5 percent to 10 percent over competitors, (2) solutions to decrease customer risks, e.g., ICI Explosives formulated a safer way to ship explosives for quarries, and (3) solutions to reduce customer costs, e.g., W.W. Grainger employees work at large customer facilities to reduce materials-management costs. 120. What are the methods available to the buyer to review the performance of the chosen supplier? What advantage does performance review offer to the buyer? Answer: The buyer periodically reviews the performance of the chosen supplier(s) using one of three methods. The buyer may contact end users and ask for their evaluations, rate the supplier on several criteria using a weighted-score method, or aggregate the cost of poor performance to come up with adjusted costs of purchase, including price. The performance review may lead the buyer to continue, modify, or end a supplier relationship. Many companies have set up incentive systems to reward purchasing managers for good buying performance, in much the same way sales personnel receive bonuses for good selling performance. These systems lead purchasing managers to increase pressure on sellers for the best terms. 121. Vertical coordination can facilitate stronger customer-seller ties but at the same time may increase the risk to the customer's and supplier's specific investments. What are specific investments and why are they risky? Answer: Specific investments are those expenditures tailored to a particular company and value chain partner. These might include investments in company-specific training, equipment, and operating procedures or systems. Because these investments are partially sunk, they lock the firm that makes them into a particular relationship. A buyer may be vulnerable to holdup because of switching costs; a supplier may be more vulnerable to holdup in future contracts because of dedicated assets and/or expropriation of technology/knowledge. 122. The business market consists of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied to others. List the major industries that make up the business market. Answer: The major industries making up the business market are agriculture, forestry, and fisheries; mining; manufacturing; construction; transportation; communication; public utilities; banking, finance, and insurance; distribution; and services. 123. Define organizational buying. Answer: Organizational buying is the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers. 124. Explain the concept of derived demand. Answer: The demand for business goods is ultimately derived from the demand for consumer goods. Consumer demand for business' end products drives their production. Production of those end products drives business demand for the inputs to those production processes. 125. If you were a purchasing agent facing a modified rebuy situation, how would you describe that situation? Answer: The buyer wants to modify product specifications, prices, delivery requirements, or other items. The modified rebuy usually involves additional participants on both sides. 126. Which type of buying situation would be preferred if the management wants to minimize decision-making time and effort. Answer: The business buyer makes the fewest decisions in the straight rebuy situation and the most in the new-task situation. Hence, a straight rebuy situation would be preferable. 127. In systems buying, the U.S. government often solicits bids from prime contractors. What do prime contractors do? Answer: The government solicits bids from prime contractors who assemble the package or system. The contractor who was awarded the contract would be responsible for bidding out and assembling the system's subcomponents from second-tier contractors. Thus, the prime contractor provides a turnkey solution. 128. Systems selling is a key industrial marketing strategy in bidding to build large-scale industrial projects. Competition for these projects is fierce. What are the main areas of competition for these project engineering firms? Answer: Primary competitive areas include: price, quality, reliability, and other attributes to win contracts. 129. List the seven roles played by members of a buying center. Answer: The roles are: (1) initiators, (2) users, (3) influencers, (4) deciders, (5) approvers, (6) buyers, and (7) gatekeepers. 130. Mason's is a supplier of specialty chemicals to a number of companies. The company previously supplied just three big clients, but the CEO is considering targeting the small business market. Selling to small businesses presents a huge opportunity, he says, but some board members disagree, saying it also presents huge challenges. Explain the challenges the firm might face in targeting small businesses. Answer: The small business market is large and fragmented by industry, size, and number of years of operation. Additionally, small business owners are notably averse to long-range planning and have an "I'll buy it when I need it" decision-making style. 131. BEL is a small seller of specialized auto parts, while MES is a large seller of auto parts. Both firms want to approach the same car company with a view to supplying parts to it. How will their approaches differ? Answer: Small sellers like BEL concentrate on reaching the key buying influencers in order to make the most effective use of their small sales force. Large sellers like MES go for multilevel in-depth selling to reach as many participants as possible to increase sales volumes and strengthen relationships. 132. With reference to online buying, what are vertical markets? Give an example of a vertical market. Answer: Companies buying industrial products such as plastics, steel, or chemicals or services such as logistics or media can go to specialized Web sites (called e-hubs. Plastics.com allows plastics buyers to search the best prices among thousands of plastics sellers. 133. E-procurement Web sites are organized around two types of e-hubs. If you were in the advertising business and were seeking to take advantage of e-procurement, what type of e-hub should be constructed by your company? Answer: The two types of hubs are vertical hubs (centered on industries such as plastics) and functional hubs (centered on functions such as advertising. Therefore, you would construct a functional hub. 134. KEK is a supplier of paper and paper products to several businesses. Name some contract restrictions that KEK can use to protect its margins when dealing with price-oriented buyers. Answer: KEK can handle price-oriented buyers by setting a lower price but establishing restrictive conditions, such as: (1) limited quantities, (2) no refunds, (3) no adjustments, and (4) no services. 135. Explain risk and gain sharing with the help of an example. Answer: Risk and gain sharing can offset price reductions that customers request. Suppose Medline, a hospital supplier, signs an agreement with Highland Park Hospital promising $350,000 in savings over the first 18 months in exchange for getting a tenfold increase in the hospital's share of supplies. If Medline achieves less than this promised savings, it will make up the difference. If Medline achieves substantially more than promised, it participates in the extra savings. 136. What do you understand by vendor-managed inventory (VMI)? Answer: Some companies go further and shift the ordering responsibility to their suppliers in systems called vendor-managed inventory (VMI. These suppliers are privy to the customer's inventory levels and take responsibility for replenishing automatically through continuous replenishment programs. 137. As part of the buyer selection process, buying centers must decide how many suppliers to use. What might motivate a buyer to use multiple sources? Answer: Companies that use multiple sources often cite the threat of a labor strike as the biggest deterrent to single sourcing. Another reason companies may be reluctant to use a single source is that they fear they'll become too comfortable with the relationship and lose their competitive edge. 138. In the buygrid framework model, where the major stages of the industrial buying process are listed and characterized, supplier selection is an important process. What follows supplier selection and what occurs in this phase? Answer: The step that follows supplier selection is order-routine specification. After selecting suppliers, the buyer negotiates the final order, listing the technical specifications, the quantity needed, the expected time of delivery, return policies, warranties, and so on. 139. Researchers have found that buyer-supplier relationships differed according to four factors: availability of alternatives; importance of supply; complexity of supply; and supply market dynamism. Based on these four factors, they classified buyer-supplier relationships into eight different categories. What are those categories? Answer: The categories are: (1) basic buying and selling, (2) bare bones, (3) contractual transaction, (4) customer supply, (5) cooperative systems, (6) collaborative, (7) mutually adaptive, and (8) customer is king. For additional information, see the specific chapter section. 140. As a seller in the business market, you have promised your customers that you have corporate credibility as one of your corporate goals. What three factors will have some bearing on whether you will be able to meet your goal and promise? Answer: The three factors are: (1) corporate expertise, (2) corporate trustworthiness, and (3) corporate likability. In other words, a credible firm is seen as being good at what it does, it keeps its customers' best interests in mind, and it is enjoyable to work with. 141. Researchers have found that buyer-supplier relationships could be classified into eight different categories. What category would be appropriate for a relationship where, although bonded by a close, cooperative relationship, the seller adapts to meet the customer's needs without expecting much adaptation or change on the part of the customer in exchange? Answer: The appropriate category would be the "customer is king" category. 142. Explain the term opportunism with respect to business relationships. Answer: When buyers cannot easily monitor supplier performance, the supplier might shirk or cheat and not deliver the expected value. Opportunism is "some form of cheating or undersupply relative to an implicit or explicit contract." It may entail blatant self-serving and deliberate misrepresentation that violates contractual agreements. 143. Your organization is considering selling its products to the institutional market. What type of customers will you be making your appeals to? Answer: The institutional market consists of schools, hospitals, nursing homes, prisons, and other institutions that must provide goods and services to people in their care. Test Bank for Marketing Management Philip T Kotler, Kevin Lane Keller 9780132102926, 9780273753360, 9781292092621, 9780133856460, 9789332587403, 9780136009986
