Marketing Management, 14e (Kotler/Keller) Chapter 16 Managing Retailing, Wholesaling, and Logistics 1) includes all the activities in selling goods or services directly to final consumers for personal, nonbusiness use A) Wholesaling B) Retailing C) Procurement D) Promoting E) Warehousing Answer: B Page Ref: 447 Objective: AACSB: Analytic skills Difficulty: Easy 2) Which of the following is true for retailing? A) Manufacturers are not considered to be retailers as they are engaged in producing the product B) Vending machines are considered to be retailing only if they are located within stores C) Retailing deals only with goods; it does not include services D) Selling from a consumer's home is direct selling, but not retailing E) Wholesalers are only considered to be retailers if they are selling to final consumers Answer: E Page Ref: 447 Objective: AACSB: Analytic skills Difficulty: Easy 3) Which of the following is an example of retailing? A) Dylan's sends catalogs to retail, industrial, and institutional customers B) SEZ U Inc sells a limited line of fast-moving goods to small retailers for cash C) BEL Inc sells FMCG goods to merchant wholesalers and distributors D) Praxis International sells products to consumers directly through the Internet E) Hub Styles procures its raw materials directly from farmers in the region Answer: D Page Ref: 447 Objective: AACSB: Analytic skills Difficulty: Easy Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 4) Discount stores that try to keep prices as low as possible are more likely to function using operations A) limited service B) self-selection C) full-service D) self-service E) limited-selection Answer: D Page Ref: 448 Objective: Difficulty: Easy 5) Reynold's is a grocery chain that has always catered to mid-market customers However, the owner, Mal, has noticed that an influx of new residents are buying mostly the lower-cost products and products on discount To attract customers, Mal decides to make a gradual switch to the discount store format, but to this, he will have to cut costs wherever possible Which of the following types of service should Mal avoid in order to lower costs? A) limited service B) self-selection C) full-service D) self-service E) limited-selection Answer: C Page Ref: 448 Objective: AACSB: Analytic skills Difficulty: Easy 6) A large staff, along with a higher proportion of specialty goods and slower-moving items and many services, are usually features of retailing A) self-service B) self-selection C) limited service D) full-service E) limited-selection Answer: D Page Ref: 448 Objective: AACSB: Analytic skills Difficulty: Easy Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 7) In retailing, salespeople are ready to assist in every phase of the "locate-compareselect" process A) self-service B) self-selection C) full-service D) limited service E) limited-selection Answer: C Page Ref: 448 Objective: AACSB: Analytic skills Difficulty: Easy 8) In the type of retailing, customers usually find their own goods, although they can ask salespeople for assistance A) self-service B) self-selection C) full-service D) limited service E) limited-selection Answer: B Page Ref: 448 Objective: AACSB: Analytic skills Difficulty: Easy 9) Which of the following is true for self-service retailing? A) These retailers carry more shopping goods and services such as credit and merchandise-return privileges B) This service model is favored by discount stores and customers who want to save money C) It results in high staffing costs compared to other forms of retailing D) Salespeople are ready to assist in every phase of the "locate-compare-select" process E) Customers need more information and assistance than in other forms of retailing Answer: B Page Ref: 448 Objective: AACSB: Analytic skills Difficulty: Easy Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 10) Which of the following types of retailing generally entails the highest costs? A) full-service B) self-service C) limited-selection D) limited service E) self-selection Answer: A Page Ref: 448 Objective: AACSB: Analytic skills Difficulty: Easy 11) Which of the following is an example of a limited-service retailer? A) Customers at TAB pick out the products they want and pay at the checkout counter B) Salespeople at Eli are always on hand to offer shoppers advice and assistance in choosing products C) Mina's allows customers to checkout their own purchases in order to reduce the staff count D) As CLO's offers a number of merchandise-return privileges, customers need information and assistance while shopping E) Alison's stocks a number of specialty products and the store's salespeople generally help shoppers with all their needs Answer: D Page Ref: 448 Objective: AACSB: Analytic skills Difficulty: Easy 12) Bill and Josh are considering opening a retail store They have identified their target market and location and are finalizing the details of the merchandise they will carry Since the neighborhood is rundown and the customers in the area are very price-conscious, Bill and Josh want to offer goods from well-known brands, but at lower rates than the full retail prices of the products They choose to stock excess production from manufacturers or goods that have remained unsold at other retailers This is a description of a(n) retailer A) off-price B) specialty C) discount D) department E) catalog Answer: A Page Ref: 449 Objective: AACSB: Analytic skills Difficulty: Moderate Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 13) H&A is a retail chain that specializes in selling goods at very low prices To achieve this, it stocks a very narrow assortment of basic necessities and offers customers a "no-frills" shopping experience H&A is an example of a(n) store A) off-price B) specialty C) hard-discount D) superstore E) convenience Answer: C Page Ref: 449 Objective: AACSB: Analytic skills Difficulty: Easy 14) E&OE produces and markets its own brand of skincare products using herbal remedies and natural ingredients through standalone stores as well as an online portal E&OE is a(n) retailer A) off-price B) specialty C) discount D) department E) extreme value Answer: B Page Ref: 449 Objective: AACSB: Analytic skills Difficulty: Easy 15) A factory outlet is an example of a(n) retailer A) off-price B) specialty C) discount D) department E) catalog Answer: A Page Ref: 449 Objective: AACSB: Analytic skills Difficulty: Easy Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 16) Companies who sell products door-to-door or at home sales parties are engaging in A) franchising B) network marketing C) direct-response marketing D) corporate selling E) direct marketing Answer: B Page Ref: 449 Objective: AACSB: Analytic skills Difficulty: Easy 17) Which of the following is an example of direct selling? A) E&OE sells its herbal skincare products exclusively through its stand-alone stores B) TCJ is a telemarketing firm that sells products from a number of different suppliers C) Jayne's sells most of its products to customers through home sales parties D) J3 is an online shopping portal where customers can buy directly from manufacturers E) Reynold's tries to minimize its staff costs by installing vending machines in its stores Answer: C Page Ref: 449 Objective: AACSB: Analytic skills Difficulty: Easy 18) Which of the following is an example of direct marketing? A) E&OE sells its herbal skincare products exclusively through its stand-alone stores B) TCJ is a telemarketing firm that sells products from a number of different suppliers C) Jayne's sells most of its products to customers through home sales parties D) J3 is a storeless retailer that organizes the retail activity of the employees of four firms E) Reynold's tries to minimize its staff costs by installing vending machines in its stores Answer: B Page Ref: 449 Objective: AACSB: Analytic skills Difficulty: Easy Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 19) The marketing sales system works by recruiting independent businesspeople who act as distributors A) catalog B) multilevel C) direct-response D) corporate E) direct Answer: B Page Ref: 449 Objective: AACSB: Analytic skills Difficulty: Easy 20) In , a salesperson goes to the home of a host who has invited friends, demonstrates the products and takes orders A) catalog marketing B) franchising C) direct-response selling D) network marketing E) direct marketing Answer: D Page Ref: 449 Objective: AACSB: Analytic skills Difficulty: Easy 21) Telemarketing is a type of A) direct selling B) network marketing C) multilevel selling D) close-range marketing E) direct marketing Answer: E Page Ref: 449 Objective: AACSB: Analytic skills Difficulty: Easy Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 22) Electronic shopping is a type of A) direct selling B) network marketing C) multilevel selling D) corporate selling E) direct marketing Answer: E Page Ref: 449 Objective: AACSB: Analytic skills Difficulty: Easy 23) Which of the following is true of store retailers? A) A hard-discount store offers a wider merchandise mix than discount stores at higher prices B) A discount store offers leftover goods, overruns, and irregular merchandise sold at less than retail C) A specialty store generally stocks a very narrow product line D) An extreme value store generally has a broad selection of high-markup, brand-name goods E) A catalog showroom is a large, low-cost, low-margin, high-volume, self-service store Answer: C Page Ref: 449 Objective: AACSB: Analytic skills Difficulty: Easy 24) A is a storeless retailer serving a specific clientele—usually employees of large organizations—who are authorized to buy from a list of retailers that have agreed to give discounts in return for inclusion on the list A) direct-selling vendor B) direct marketing vendor C) buying service D) automatic vendor E) corporate retailer Answer: C Page Ref: 449 Objective: AACSB: Analytic skills Difficulty: Easy Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 25) An independent retailer using a central buying organization and joint promotion efforts with other retailers is part of a A) corporate chain store B) voluntary chain C) retailer cooperative D) merchandising conglomerate E) franchise organization Answer: C Page Ref: 450 Objective: Difficulty: Easy 26) A is a retail firm owned by its customers Members contribute money to open their own store, vote on its policies, elect a group to manage it, and receive dividends A) retailer cooperative B) voluntary chain C) consumer cooperative D) merchandising conglomerate E) franchise organization Answer: C Page Ref: 450 Objective: Difficulty: Easy 27) A is wholesaler-sponsored group of independent retailers engaged in bulk buying and common merchandising A) retailer cooperative B) voluntary chain C) consumer cooperative D) merchandising conglomerate E) franchise organization Answer: B Page Ref: 450 Objective: Difficulty: Easy 28) Which of the following is true for franchisors? A) The franchisor has to pay the franchisee to be part of the franchise system B) The franchisor licenses the trade mark from the franchisee C) The franchisor must change its operations to suit those of the franchisee's D) The franchisor collects royalty payments from the franchisee E) The franchisor pays start-up costs for the franchisee Answer: D Page Ref: 450 Objective: Difficulty: Easy Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 29) Which of the following is true for franchisees? A) The franchisee is paid by the franchisor to be part of the franchise system B) The franchisee licenses a trade mark to the franchisor C) The franchisee must change its operations to suit those of the franchisor's D) The franchisee collects royalty payments from the franchisor E) The franchisee owns the trade or service mark Answer: C Page Ref: 450 Objective: Difficulty: Easy 30) Which of the following is a benefit of franchising for franchisees? A) The franchisee finds it easier to borrow money from financial institutions B) The franchisee receives ownership of the franchisor's trade mark C) The franchisee must change its operations to suit those of the franchisor's D) The franchisee collects royalty payments from the franchisor E) The franchisee is paid by the franchisor for being part of the system Answer: A Page Ref: 450 Objective: Difficulty: Easy 31) Jake wants to open a Subway franchise in his small town To this, he must pay the company a fee A) slotting B) title C) royalty D) merchandising E) residual Answer: C Page Ref: 450 Objective: Difficulty: Easy 32) Which of the following is true for the retail industry? A) Discount stores and catalog showrooms are competing for the same customers B) Upscale retailers see a decline in sales as middle-market retailers thrive C) Small, specialized retailers are crowding out larger, more diverse retailers D) Store retailing sees no competition from non-store retailing E) Discount stores are not doing as well as middle-market retailers Answer: A Page Ref: 452 Objective: Difficulty: Easy 10 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 97) In order to clearly differentiate themselves from competitors, retailers must keep merchandise and prices always consistent Answer: FALSE Page Ref: 455 Objective: AACSB: Analytic skills Difficulty: Easy 98) The gross margin on a product bears a direct relation to the direct product profit Answer: FALSE Page Ref: 456 Objective: AACSB: Analytic skills Difficulty: Easy 99) Some high-volume products may have such high handling costs that they are less profitable and deserve less shelf space than low-volume products Answer: TRUE Page Ref: 456 Objective: AACSB: Reflective thinking Difficulty: Easy 100) Mass merchandisers are usually high-markup, lower-volume stores Answer: FALSE Page Ref: 456 Objective: Difficulty: Easy 101) Low prices on some items serve as traffic builders or loss leaders for retailers Answer: TRUE Page Ref: 456 Objective: Difficulty: Easy 102) EDLP can lead to lower advertising costs and higher retail profits Answer: TRUE Page Ref: 457 Objective: AACSB: Analytic skills Difficulty: Easy 28 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 103) Accepting telephone and mail orders is an example of the ancillary services that a retailer offers Answer: FALSE Page Ref: 457 Objective: AACSB: Analytic skills Difficulty: Easy 104) Postpurchase services include shipping and delivery, gift wrapping, adjustments and returns Answer: TRUE Page Ref: 457 Objective: Difficulty: Easy 105) Private label or store brands are also known as generics Answer: FALSE Page Ref: 460 Objective: AACSB: Analytic skills Difficulty: Easy 106) The lower price of generics is made possible by lower-cost labeling and packaging and minimal advertising, and sometimes lower-quality ingredients Answer: TRUE Page Ref: 460 Objective: AACSB: Analytic skills Difficulty: Easy 107) Wholesaling includes all the activities in selling goods or services to those who buy for resale or business use Answer: TRUE Page Ref: 461 Objective: Difficulty: Easy 108) Wholesalers exclude manufacturers and farmers because they are engaged primarily in production, but include retailers, as they are selling to the end consumer Answer: FALSE Page Ref: 461 Objective: Difficulty: Easy 29 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 109) Merchant wholesalers are independently owned businesses that take title to the merchandise they handle Answer: TRUE Page Ref: 462 Objective: AACSB: Analytic skills Difficulty: Easy 110) Most companies today are trying to increase the order-to-payment cycle Answer: FALSE Page Ref: 466 Objective: AACSB: Use of IT Difficulty: Easy 111) More stocking locations mean goods can be delivered to customers more quickly, and warehousing and inventory costs are lower Answer: FALSE Page Ref: 463 Objective: AACSB: Analytic skills Difficulty: Moderate 112) Inventory cost increases at an accelerating rate as the customer-service level approaches 100 percent Answer: TRUE Page Ref: 467 Objective: AACSB: Reflective thinking Difficulty: Easy 113) If setup costs are high, the manufacturer can produce the item often, and the average cost per item is stable and equal to the running costs Answer: FALSE Page Ref: 467 Objective: AACSB: Analytic skills Difficulty: Easy 114) Order-processing costs must be compared with inventory-carrying costs because the larger the average stock carried, the higher the inventory-carrying costs Answer: TRUE Page Ref: 467 Objective: AACSB: Reflective thinking Difficulty: Easy 30 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 115) As inventory draws down, management must know at what stock level to place a new order This stock level is called the order point Answer: TRUE Page Ref: 467 Objective: AACSB: Analytic skills Difficulty: Easy 116) The order-processing cost per unit increases with the number of units ordered because the order costs are spread over more units Answer: FALSE Page Ref: 467-468 Objective: AACSB: Analytic skills Difficulty: Easy 117) Companies who want to carry near-zero inventory should build for order, not for stock Answer: TRUE Page Ref: 468 Objective: Difficulty: Easy 118) List and explain the four service levels offered by retailers Answer: Retailers meet widely different consumer preferences for service levels and specific services The four levels of service usually offered by retailers are: (1) self-service, (2) selfselection, (3) limited service, and (4) full service Self-service: Self-service is the cornerstone of all discount operations Many customers are willing to carry out their own "locate-compare-select" process to save money Self-selection: Customers find their own goods, although they can ask for assistance Limited service: These retailers carry more shopping goods and services such as credit and merchandise-return privileges Customers need more information and assistance Full-service: Salespeople are ready to assist in every phase of the "locate-compare-select" process Customers who like to be waited on prefer this type of store The high staffing cost, along with the higher proportion of specialty goods and slower-moving items and the many services, result in high-cost retailing Page Ref: 448 Objective: AACSB: Analytic skills Difficulty: Easy 31 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 119) List the four categories of non-store retailing and briefly explain each Answer: Although the overwhelming bulk of goods and services are sold through stores, nonstore retailing has been growing much faster than store retailing Nonstore retailing falls into four major categories: Direct selling, also called multilevel selling and network marketing, is a multibillion-dollar industry, with hundreds of companies selling door-to-door or at home sales parties A salesperson goes to the home of a host who has invited friends; the salesperson demonstrates the products and takes orders Pioneered by Amway, the multilevel (network) marketing sales system works by recruiting independent businesspeople who act as distributors The distributor's compensation includes a percentage of sales made by those he or she recruits, as well as earnings on direct sales to customers These direct-selling firms, now finding fewer consumers at home, are developing multidistribution strategies Direct marketing has roots in direct-mail and catalog marketing It includes telemarketing, television direct-response marketing, and electronic shopping As people become more accustomed to shopping on the Internet, they are ordering a greater variety of goods and services from a wider range of web sites Automatic vending offers a variety of merchandise, including impulse goods such as soft drinks, coffee, candy, newspapers, magazines, and other products such as hosiery, cosmetics, hot food, and paperbacks Vending machines are found in factories, offices, large retail stores, gasoline stations, hotels, restaurants, and many other places They offer 24-hour selling, self-service, and merchandise that is stocked to be fresh Buying service is a storeless retailer serving a specific clientele, usually employees of large organizations, who are entitled to buy from a list of retailers that have agreed to give discounts in return for membership Page Ref: 449 Objective: Difficulty: Easy 120) In what ways does franchising benefit the franchisor? In what ways does it benefit the franchisee? Answer: Franchising benefits both the franchisor and the franchisee Franchisors gain the motivation and hard work of employees who are entrepreneurs rather than "hired hands," the franchisees' familiarity with local communities and conditions, and the enormous purchasing power of being a franchisor Franchisees benefit from buying into a business with a well-known and accepted brand name They find it easier to borrow money for their business from financial institutions, and they receive support in areas ranging from marketing and advertising to site selection and staffing Page Ref: 450 Objective: AACSB: Analytic skills Difficulty: Easy 32 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 121) List some recent trends in retailing Answer: The recent trends in retail include the following: New retail forms and combinations Growth of intertype competition Competition between store-based and nonstore-based retailing Growth of giant retailers Decline of middle-market retailers Growing investment in technology Global profile of major retailers Growth of shopper marketing Page Ref: 451-452 Objective: AACSB: Analytic skills Difficulty: Easy 122) List some differentiation strategies retailers can use to compete successfully in the market Answer: To better differentiate themselves and generate consumer interest, retailers can use the following strategies: (1) Feature exclusive national brands that are not available at competing retailers; (2) feature mostly private-label merchandise; (3) feature blockbuster distinctive merchandise events; (4) feature surprise or ever-changing merchandise; (5) feature the latest or newest merchandise first; (6) offer merchandise-customizing services; and (7) offer a highly targeted assortment Page Ref: 455 Objective: Difficulty: Easy 123) The growth of "house brands" has skyrocketed in recent years What benefits intermediaries receive from sponsoring their own brands? Answer: A private label brand (also called a reseller, store, house, or distributor brand) is a brand that retailers and wholesalers develop These brands can be more profitable Intermediaries search for manufacturers with excess capacity that will produce private label goods at low cost Other costs, such as research and development, advertising, sales promotion, and physical distribution, are also much lower, so private labels can generate a higher profit margin Retailers also develop exclusive store brands to differentiate themselves from competitors Many price-sensitive consumers prefer store brands in certain categories These preferences give retailers increased bargaining power with marketers of national brands Page Ref: 460 Objective: AACSB: Reflective thinking Difficulty: Easy 33 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 124) List the major types of limited-service wholesalers and explain how each type functions Answer: Cash and carry wholesalers sell a limited line of fast-moving goods to small retailers for cash Truck wholesalers sell and deliver a limited line of semiperishable goods to supermarkets, grocery stores, hospitals, restaurants, and hotels Drop shippers serve bulk industries such as coal, lumber, and heavy equipment They assume title and risk from the time an order is accepted to its delivery Rack jobbers serve grocery retailers in nonfood items Delivery people set up displays, price goods, and keep inventory records; they retain title to goods and bill retailers only for goods sold to the end of the year Producers' cooperatives assemble farm produce to sell in local markets Mail-order wholesalers send catalogs to retail, industrial, and institutional customers; orders are filled and sent by mail, rail, plane, or truck Page Ref: 462 Objective: AACSB: Reflective thinking Difficulty: Easy 125) Why retailers prefer to deal with wholesalers rather than directly with manufacturers? Answer: In general, retailers prefer to deal with wholesalers rather than directly with manufacturers (and vice versa) as wholesalers are better at performing the following functions: Selling and promoting: Wholesalers' sales forces help manufacturers reach many small business customers at a relatively low cost They have more contacts, and buyers often trust them more than they trust a distant manufacturer Buying and assortment building: Wholesalers are able to select items and build the assortments their customers need, saving them considerable work Bulk breaking: Wholesalers achieve savings for their customers by buying large carload lots and breaking the bulk into smaller units Warehousing: Wholesalers hold inventories, thereby reducing inventory costs and risks to suppliers and customers Transportation: Wholesalers can often provide quicker delivery to buyers because they are closer to the buyers Financing: Wholesalers finance customers by granting credit, and finance suppliers by ordering early and paying bills on time Risk bearing: Wholesalers absorb some risk by taking title and bearing the cost of theft, damage, spoilage, and obsolescence Market information: Wholesalers supply information to suppliers and customers regarding competitors' activities, new products, price developments, and so on Management services and counseling: Wholesalers often help retailers improve their operations by training sales clerks, helping with store layouts and displays, and setting up accounting and inventory-control systems They may help industrial customers by offering training and technical services Page Ref: 462-463 Objective: AACSB: Analytic skills Difficulty: Easy 34 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 126) Describe the four steps in market logistics planning Answer: Market logistics includes planning the infrastructure to meet demand, then implementing and controlling the physical flows of materials and final goods from points of origin to points of use, to meet customer requirements at a profit Market logistics planning has four steps: Deciding on the company's value proposition to its customers (What on-time delivery standard should we offer? What levels should we attain in ordering and billing accuracy?) Selecting the best channel design and network strategy for reaching the customers (Should the company serve customers directly or through intermediaries? What products should we source from which manufacturing facilities? How many warehouses should we maintain and where should we locate them?) Developing operational excellence in sales forecasting, warehouse management, transportation management, and materials management Implementing the solution with the best information systems, equipment, policies, and procedures Page Ref: 464 Objective: AACSB: Analytic skills Difficulty: Easy 127) Differentiate between brokers and agents Answer: Brokers and agents both perform wholesaling functions They facilitate buying and selling, on commission of percent to percent of the selling price and generally specialize by product line or customer type Brokers bring buyers and sellers together and assist in negotiation; they are paid by the party hiring them—food brokers, real estate brokers, insurance brokers Agents represent buyers or sellers on a more permanent basis Most manufacturers' agents are small businesses with a few skilled salespeople: Selling agents have contractual authority to sell a manufacturer's entire output; purchasing agents make purchases for buyers and often receive, inspect, warehouse, and ship merchandise; commission merchants take physical possession of products and negotiate sales Page Ref: 464 Objective: AACSB: Reflective thinking Difficulty: Easy 128) Sandy's Stores is a small chain of grocery stores located in a few neighboring towns The stores have always been largely self-service, but the company is considering making a switch to full-service stores Offer reasons why Sandy's should stick with its current system Answer: Student answers may vary As Sandy's is primarily a grocery chain, it is unlikely that customers will need much help in locating products The high staffing cost of full-service retailing will only increase operational costs for Sandy's, without conferring any benefit Page Ref: 448 Objective: AACSB: Analytic skills Difficulty: Easy 35 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 129) Sandy's Stores is a small chain of grocery stores located in a few neighboring towns The stores have always been largely self-service, but the company is considering making a switch to full-service stores What can Sandy's to justify this move? Answer: Student answers may vary To justify the increased staff costs of full-service retailing, Sandy's can add higher-value products to its line-up The company can begin carrying a higher proportion of specialty goods Page Ref: 445 Objective: AACSB: Analytic skills Difficulty: Moderate 130) Sandy's Stores is a small chain of grocery stores located in a few neighboring towns The stores have always been largely self-service, but the company is considering making a switch to full-service stores Offer one possible reason why this move is justified Answer: Student answers may vary Full-service retailing is preferred by customers who like to be waited upon If most of Sandy's customers show a preference for being waited upon, this can justify the costs of full-service retailing If Sandy's has a number of products or services for which customers need information or guidance, or stocks high-value or specialized product, full-service retailing will be justified Page Ref: 445 Objective: AACSB: Analytic skills Difficulty: Moderate 131) Skincare company E&OE has realized that its customers are very loyal to the brand and play a large part in popularizing it by word of mouth E&OE wants to leverage this customer loyalty by using it to generate sales outside its store format How can E&OE achieve this? Answer: Student answers may vary E&OE can opt for the direct selling method, using multilevel or network marketing A salesperson can go to the home of a loyal customer who has invited friends; the salesperson demonstrates the products and takes orders The company can also recruit independent customers who act as distributors The distributor's compensation includes a percentage of sales made by those he or she recruits, as well as earnings on direct sales to customers Page Ref: 449 Objective: AACSB: Analytic skills Difficulty: Moderate 36 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 132) Mal's father and grandfather ran Reynold's, a general store in the town of Bayswater When Mal inherited the store, the town was expanding rapidly and a number of multinational franchisors showed interest in entering the town Mal wants to turn Reynold's into a franchise of Blue Sun, a fast-food chain What benefits can Mal gain from this move? Answer: Student answers may vary As the franchisor's brand is usually well-known, Mal obtains the benefit of a brand name that has already been accepted by customers He could find it easier to get loans and financial help from banks on the basis of the well-known brand name As the franchisor will provide everything from operational processes to marketing assistance, Mal need not spend time and effort beginning the process from scratch Page Ref: 450 Objective: AACSB: Analytic skills Difficulty: Moderate 133) Mal's father and grandfather ran Reynold's, a general store in the town of Bayswater When Mal inherited the store, the town was expanding rapidly and a number of multinational franchisors showed interest in entering the town Mal wants to turn Reynold's into a franchise of Blue Sun, a fast-food chain Why shouldn't Mal go the franchise route? Answer: Student answers may vary Most franchises offer franchisees limits or negligible independence in the questions of staffing, pricing, store decor, sourcing and processes Mal may have to make changes that he does not agree with He may not have the freedom to run the business as he thinks best Page Ref: 450 Objective: AACSB: Reflective thinking Difficulty: Moderate 134) Skincare company E&OE retails its products through standalone stores or through its own stores within malls The management uses this method so that customers are sure of finding only E&OE products at the stores and the brand image remains strong In this scenario, what can E&OE to generate consumer interest while retaining its exclusivity? Answer: Student answers may vary E&OE can any or all of the following: Feature blockbuster distinctive merchandise events Feature surprise or ever-changing merchandise Feature the latest or newest merchandise first Offer merchandise-customizing services Offer a highly targeted assortment Page Ref: 455 Objective: AACSB: Analytic skills Difficulty: Moderate 37 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 135) Over the past three years, skincare products retailer E&OE has realized that it is losing sales to competitors who sell products online E&OE has always cultivated an exclusive upscale image, and the management feels that shifting to the online route will only harm the brand image and sales in the long run How can E&OE encourage customers to frequent its stores? Answer: Student answers may vary E&OE can offer more in-store services for its customers It can offer information about the products, consultation and advice about the kinds of products to choose and allow customers to test or experience the products themselves The retailer can also revamp the store atmosphere to be more inviting to customers, using music and fragrances and store design to create a pleasurable experience E&OE can also increase the number of activities and experiences that customers can participate in Page Ref: 457 Objective: AACSB: Analytic skills Difficulty: Moderate 136) Imagine that you are in charge of creating a distinctive store atmosphere at a clothing retailer What can you to make your store stand out in the customer experience? Answer: Student answers may vary Answers can include the use of fragrances, music, store design and layout, and activities Page Ref: 457 Objective: AACSB: Analytic skills Difficulty: Moderate 137) Give one example of a retailer that uses stand-alone stores as opposed to stores located in malls Why you think retailers opt for this channel? Answer: Student answers may vary Retailers may opt for standalone stores so that they are not associated with other retailers It can avoid competition from conflicting attractions in a mall Customers will be less motivated to check other options available at other retailers Stand-alone stores may give a retailer an upscale image and prevent dilution of the brand identity Page Ref: 459 Objective: AACSB: Analytic skills Difficulty: Moderate 38 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 138) Supermarket chain Reynold's is considering making a switch to stocking almost exclusively private-label products in order to offer customers the lowest prices Offer reasons why Reynold's should think twice before opting to stock exclusively private-label products Answer: Student answers may vary Reynold's should think twice about opting for private-label products because consumers prefer certain national brands, and many product categories are not feasible or attractive on a privatelabel basis Page Ref: 459 Objective: AACSB: Analytic skills Difficulty: Moderate 139) Supermarket chain Reynold's is considering stocking a number of private-label products in order to offer customers the lowest possible prices Explain how this strategy could benefit the company Answer: Student answers may vary Private brands can be more profitable for Reynold's if it searches for manufacturers with excess capacity that will produce private label goods at low cost Other costs, such as research and development, advertising, sales promotion, and physical distribution, are also much lower, so private labels can generate a higher profit margin Exclusive store brands can also help Reynold's differentiate itself from competitors Many price-sensitive consumers prefer store brands in certain categories These preferences could give Reynold's increased bargaining power with marketers of national brands Page Ref: 459 Objective: AACSB: Analytic skills Difficulty: Moderate 140) JGB manufactures the K-Nine brand of dog food that is carried in supermarkets across the country The company has always used wholesalers instead of selling directly to the retailers However, recently, the sales team at JGB has noticed that wholesalers don't aggressively promote JGB's product line They often don't carry enough inventory and therefore don't fill customers' orders fast enough However, the marketing team insists that the wholesaling route is the best What reasons can the marketing team offer to justify this? Answer: Student answers may vary Wholesalers' sales forces help JGB reach many small business customers at a relatively low cost They have more contacts, and the buyers often trust them more than they trust JGB Wholesalers can often provide quicker delivery to buyers because they are closer to the buyers Wholesalers absorb some risk by taking title and bearing the cost of theft, damage, spoilage, and obsolescence Wholesalers supply information regarding competitors' activities, new products, price developments, and so on Page Ref: 462 Objective: AACSB: Analytic skills Difficulty: Moderate 141) Reynold's, a supermarket chain, carries the K-Nine range of dog food manufactured by 39 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall JGB However, the chain does not interact directly with JGB, but obtains stocks from wholesalers It has been suggested that Reynold's save costs by sourcing products directly from JGB However, Mal, the CEO of the Reynold's, insists that wholesalers are the most hassle-free option for Reynold's What can Mal say to justify this? Answer: Student answers may vary Mal can justify this using any or all of the following reasons: Wholesalers are able to select items and build the assortments Reynold's needs, saving Reynold's considerable work Wholesalers achieve savings for Reynold's by buying large carload lots and breaking the bulk into smaller units Wholesalers hold inventories, thereby reducing inventory costs and risks for Reynold's, who needn't hold the inventory for itself Wholesalers finance Reynold's by granting credit Wholesalers supply information regarding competitors' activities, new products, price developments, and so on Page Ref: 462 Objective: AACSB: Analytic skills Difficulty: Moderate 142) How would merchant wholesaler HCN operate? Answer: Merchant wholesalers are independently owned businesses that take title to the merchandise they handle They are full-service and limited-service jobbers, distributors, and mill supply houses Page Ref: 462 Objective: AACSB: Analytic skills Difficulty: Easy 143) Jayne runs a small grocery store in a small town As there are only few customers, the store does not require to stock goods in large quantities Explain why sourcing products from a wholesaler will be beneficial for Jayne Answer: Student answers may vary Wholesalers are able to select items and build the assortments Jayne needs, saving considerable work Wholesalers achieve savings for Jayne by buying large carload lots and breaking the bulk into smaller units Thus, Jayne can benefit from lower bulk prices while buying only as much as the store can sell Wholesalers also hold inventories, thereby reducing inventory costs and risks for Jayne Page Ref: 462 Objective: AACSB: Analytic skills Difficulty: Moderate 40 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 144) HCN is a wholesaler that supplies consumer goods products to a number of retailers HCN has witnessed the worrying trend of its competitors losing out on suppliers, who approach retailers directly How can HCN strengthen its relationship with manufacturers and prevent this? Answer: Student answers may vary HCN can work to reach a clear agreement with their manufacturers about their expected functions in the marketing channel It can gain insight into the manufacturers' requirements by visiting their plants and attending manufacturer association conventions and trade shows HCN must also fulfill its commitments to the manufacturer by meeting the volume targets, paying bills promptly, and feeding back customer information to the manufacturers It can also identify and offer value-added services, such as financing, on-site inventory management, parts-tracking software, and chip programming, to help its suppliers Page Ref: 463 Objective: AACSB: Analytic skills Difficulty: Moderate 145) ShoeZone is a shoe retailer with outlets across the country The company is trying to reduce its inventory and warehousing costs, but needs to keep delivery speeds as short as possible What can ShoeZone to achieve this? Answer: More stocking locations mean goods can be delivered to customers more quickly, but warehousing and inventory costs are higher To reduce these costs, ShoeZone might centralize its inventory in one place and use fast transportation to fill orders Page Ref: 467 Objective: AACSB: Analytic skills Difficulty: Moderate 146) E&OE is looking to reduce its inventory costs for all its products The company realizes that its inventory depends on the setup costs of its various products How setup costs affect E&OE's inventory costs? Answer: As inventory draws down, management must know at what stock level to place a new order The company needs to balance order-processing costs and inventory-carrying costs Orderprocessing costs for E&OE consist of setup costs and running costs (operating costs when production is running) for the item If setup costs are low, E&OE can produce the item often, and the average cost per item is stable and equal to the running costs If setup costs are high, E&OE can reduce the average cost per unit by producing a long run and carrying more inventory The larger the average stock carried, the higher the inventory-carrying costs Page Ref: 467 Objective: AACSB: Analytic skills Difficulty: Moderate 41 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall 147) E&OE wants to minimize inventory costs as far as possible Explain one way by which it can achieve a near-zero inventory Answer: Student answers may vary Manufacturers can achieve a near-zero inventory by building for order, not for stock, i.e., manufacturing a product only when it receives an order However, this system will work only when the customers not need a product immediately Page Ref: 468 Objective: AACSB: Analytic skills Difficulty: Moderate 42 Copyright © 2012 Pearson Education, Inc Publishing as Prentice Hall ... high quality and price Services include free alterations and tailoring, personalized record keeping, and free dry cleaning The inside of the store has deep leather chairs and couches and thick pile... Difficulty: Easy 12) Bill and Josh are considering opening a retail store They have identified their target market and location and are finalizing the details of the merchandise they will carry... Analytic skills Difficulty: Easy 14) E&OE produces and markets its own brand of skincare products using herbal remedies and natural ingredients through standalone stores as well as an online portal