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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: 1
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: 1
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: 1
AACSB: Analytic skills
Difficulty: Easy

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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: 1
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 do 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: 1
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: 1
AACSB: Analytic skills
Difficulty: Easy

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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: 1
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: 1
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: 1
AACSB: Analytic skills
Difficulty: Easy

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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: 1
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: 1
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: 1
AACSB: Analytic skills
Difficulty: Moderate

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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: 1
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: 1
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: 1
AACSB: Analytic skills
Difficulty: Easy

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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: 1
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: 1
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: 1
AACSB: Analytic skills
Difficulty: Easy

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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: 1
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: 1
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: 1
AACSB: Analytic skills
Difficulty: Easy

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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: 1
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: 1
AACSB: Analytic skills
Difficulty: Easy
24) A ________ is a storeless retailer serving a specific clienteleusually employees of large
organizationswho 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: 1
AACSB: Analytic skills
Difficulty: Easy

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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: 1
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: 1
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: 1
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: 1
Difficulty: Easy
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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: 1
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: 1
Difficulty: Easy
31) Jake wants to open a Subway franchise in his small town. To do this, he must pay the
company a ________ fee.
A) slotting
B) title
C) royalty
D) merchandising
E) residual
Answer: C
Page Ref: 450
Objective: 1
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: 3
Difficulty: Easy

10
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33) Electronic shelf labeling allows retailers to ________.


A) check inventory levels instantaneously
B) order electronically from suppliers
C) run continual promotional messages
D) advertise sales and special offers
E) change price levels instantaneously
Answer: E
Page Ref: 452
Objective: 3
Difficulty: Easy
34) Staples is a giant retailer that concentrates on selling office supplies. Staples is an example of
a(n) ________.
A) ambush marketer
B) supercenter
C) megamarketer
D) category killer
E) guerilla marketer
Answer: D
Page Ref: 452
Objective: 3
Difficulty: Easy
35) In the corporate headquarters of a supermarket chain, ________ are responsible for
developing brand assortments and listening to salespersons' presentations.
A) central buyers
B) brokers
C) specialist buyers
D) agents
E) specialized wholesalers
Answer: C
Page Ref: 455
Objective: 2
Difficulty: Easy
36) In supermarkets and other retail outlets, RFID is used to ________.
A) change prices instantaneously
B) check for spoilage or damage to goods
C) advertise special offers and discounts
D) run continual promotional messages
E) monitor inventory and track goods
Answer: E
Page Ref: 455
Objective: 2
Difficulty: Easy

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37) Which of the following is true for direct product profitability analysis?
A) It is highly correlated with the gross margin on a product.
B) It is negligible compared to the gross margin on a product.
C) It bears little relation to the gross margin on a product.
D) It is significantly lower than the gross margin on a product.
E) It is exactly the same as the gross margin on a product.
Answer: C
Page Ref: 456
Objective: 2
AACSB: Analytic skills
Difficulty: Easy
38) Mass merchandisers and discount stores typically fall into the ________ group with respect
to margins and volume.
A) mixed markup, high-volume
B) low-volume, mixed markup
C) low-volume, low-markup
D) high-volume, low-markup
E) high-markup, lower-volume
Answer: D
Page Ref: 456
Objective: 2
AACSB: Analytic skills
Difficulty: Easy
39) A store selling expensive artwork and luxury goods typically falls into the ________ group
with respect to margins and volume.
A) mixed markup, high-volume
B) low-volume, mixed markup
C) low-volume, low-markup
D) high-volume, low-markup
E) high-markup, low-volume
Answer: E
Page Ref: 456
Objective: 2
AACSB: Analytic skills
Difficulty: Easy

12
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40) Most retailers will put low prices on some items in order to increase traffic to the store.
These low-priced products are known as ________.
A) loss leaders
B) price ceilings
C) price skimmers
D) price floors
E) cold calls
Answer: A
Page Ref: 456
Objective: 2
AACSB: Analytic skills
Difficulty: Easy
41) American businessman King Gillette pioneered the sales model in which razor handles were
given away for free or sold at a loss, but sales of disposable razor blades were very profitable.
This is known as the _______ model.
A) two-tiered pricing
B) predatory pricing
C) cross selling
D) loss leading
E) product churning
Answer: D
Page Ref: 456
Objective: 2
AACSB: Analytic skills
Difficulty: Moderate
42) Which of the following is a prepurchase service offered by retailers?
A) accepting orders over the telephone
B) shipping the product
C) delivery to the customer's doorstep
D) general information
E) interior decoration of the retail outlet
Answer: A
Page Ref: 457
Objective: 2
Difficulty: Easy

13
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43) Which of the following is a postpurchase service offered by retailers?


A) accepting orders over the telephone
B) advertising and window displays
C) delivery to the customer's doorstep
D) general information
E) interior decoration of the retail outlet
Answer: C
Page Ref: 457
Objective: 2
Difficulty: Easy
44) Which of the following is an ancillary service offered by retailers?
A) accepting orders over the telephone
B) advertising and window displays
C) delivery to the customer's doorstep
D) general information
E) alterations and tailoring
Answer: D
Page Ref: 457
Objective: 2
Difficulty: Easy
45) In your neighborhood there is a small men's store that has a limited selection of clothing, but
the selection that is carried is of very 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 carpet. Upon entering the store, a customer feels
"special and rich." In terms of differentiation, what is this retailer trying to communicate by its
decorations and service level?
A) differentiation based on services mix and atmosphere
B) differentiation based on prepurchase services
C) differentiation based on postpurchase services and atmosphere
D) differentiation based on ancillary services and atmosphere
E) differentiation based on prepurchase and postpurchase services
Answer: A
Page Ref: 457
Objective: 2
AACSB: Reflective thinking
Difficulty: Easy

14
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46) Which of the following is the strongest differentiator for brick-and-mortar stores who want to
emphasize their superiority over online retailers?
A) product quality
B) the shopping experience
C) product range
D) pricing
E) the retailer's reputation
Answer: B
Page Ref: 457
Objective: 2
AACSB: Analytic skills
Difficulty: Easy
47) A brand developed by a retailer and/or wholesaler that is available only in selected retail
outlets is called a ________ brand.
A) generic
B) franchisee
C) marque
D) national
E) private-label
Answer: E
Page Ref: 459
Objective: 4
AACSB: Analytic skills
Difficulty: Easy
48) Though it is sold only in Wal-Mart stores, Wal-Mart's Ol'Roy dog food has surpassed Nestl's
Purina brand as the top-selling dog food. Ol'Roy is an example of a ________.
A) generic product
B) national brand
C) franchise
D) copy-cat brand
E) private label
Answer: E
Page Ref: 459
Objective: 4
AACSB: Analytic skills
Difficulty: Moderate

15
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49) Which of the following is true for distributor brands?


A) They sell at higher volumes than national brands and are also known as generics.
B) They are usually sold at higher prices than national brands because production costs are
higher.
C) They are always of better quality than national brands as production is strictly monitored.
D) Distributor brands can be sold at lower prices yet generate a higher profit margin because of
their lower cost structure.
E) Advertising and sales promotion costs for distributor brands are much higher than those for
national brands.
Answer: D
Page Ref: 460
Objective: 4
AACSB: Reflective thinking
Difficulty: Easy
50) ________ are unbranded, plainly packaged, less expensive versions of common products
such as spaghetti, paper towels, and canned peaches.
A) Common carriers
B) Shills
C) Generics
D) Private labels
E) Marques
Answer: C
Page Ref: 460
Objective: 4
AACSB: Analytic skills
Difficulty: Easy
51) In addition to its store brands and nationally well-known brands of detergents, Reynold's also
carries much cheaper varieties of detergents that are not advertised and have little-known names.
They are often manufactured from lower-quality ingredients and save on packaging and
advertising costs. These are known as ________.
A) common carriers
B) shills
C) generics
D) private labels
E) marques
Answer: C
Page Ref: 460
Objective: 4
AACSB: Analytic skills
Difficulty: Moderate

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52) Because shelf space is scarce, many supermarkets now charge a ________ for accepting a
new brand, to cover the cost of listing and stocking it.
A) retainer
B) slotting fee
C) residual fee
D) contingent fee
E) royalty
Answer: B
Page Ref: 460
Objective: 4
AACSB: Analytic skills
Difficulty: Easy
53) ________ includes all the activities in selling goods or services to those who buy for resale
or business use.
A) Retailing
B) Wholesaling
C) Procurement
D) Promoting
E) Warehousing
Answer: B
Page Ref: 461
Objective: 1
Difficulty: Easy
54) Which of the following is considered a wholesaler?
A) retailers
B) brokers
C) producers
D) manufacturers
E) farmers
Answer: B
Page Ref: 461
Objective: 1
Difficulty: Easy
55) ________ 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.
A) Brokers
B) Agents
C) Merchant wholesalers
D) Specialized wholesalers
E) Retailers' branches
Answer: C
Page Ref: 462
Objective: 1
Difficulty: Easy
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56) ________ serve bulk industries such as coal, lumber, and heavy equipment, assuming title
and risk from the time an order is accepted to its delivery.
A) Producers' cooperatives
B) Cash and carry wholesalers
C) Truck wholesalers
D) Drop shippers
E) Rack jobbers
Answer: D
Page Ref: 462
Objective: 1
Difficulty: Easy
57) ________ sell and deliver a limited line of semiperishable goods to supermarkets, grocery
stores, hospitals, restaurants, and hotels.
A) Producers' cooperatives
B) Cash and carry wholesalers
C) Truck wholesalers
D) Drop shippers
E) Rack jobbers
Answer: C
Page Ref: 462
Objective: 1
Difficulty: Easy
58) The owner of supermarket chain Reynold's has realized that customers want a wider variety
of goods than is currently available. However, Reynold's cannot afford the costs of storing excess
inventory. Additionally, the owner is not willing to take the risk that the new products will
remain unsold. Which of the following types of wholesalers can help Reynold's meet customer
demand while minimizing costs?
A) Producers' cooperatives
B) Cash and carry wholesalers
C) Truck wholesalers
D) Drop shippers
E) Rack jobbers
Answer: E
Page Ref: 462
Objective: 1
AACSB: Analytic skills
Difficulty: Moderate

18
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59) Agricultural assemblers, petroleum bulk plants and terminals, and auction companies are
examples of ________.
A) full-service wholesalers
B) specialized wholesalers
C) limited-service wholesalers
D) merchant wholesalers
E) brokers
Answer: B
Page Ref: 462
Objective: 1
AACSB: Analytic skills
Difficulty: Easy
60) Which of the following is true of brokers?
A) Brokers represent buyers or sellers on a semipermanent basis.
B) Most brokers are small businesses with a few skilled salespeople.
C) Brokers bring buyers and sellers together and assist in negotiation.
D) Selling brokers have contractual authority to sell a manufacturer's entire output.
E) Purchasing brokers make purchases for buyers and often receive, inspect, warehouse, and ship
merchandise.
Answer: C
Page Ref: 462
Objective: 1
AACSB: Analytic skills
Difficulty: Easy
61) ________ refers to buying large carload lots and dividing them into smaller units before
shipping them out to consumers.
A) Bulk breaking
B) Containerization
C) Wholesaling
D) Warehousing
E) Broking
Answer: A
Page Ref: 462
Objective: 1
AACSB: Analytic skills
Difficulty: Easy

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62) ________ encompass sales forecasting, production planning, and inbound materials
transportation.
A) Market logistics
B) Containerization
C) Transportation
D) Nonstore retailing
E) Wholesaling
Answer: A
Page Ref: 464
Objective: 1
AACSB: Analytic skills
Difficulty: Easy
63) The elapsed time between an order's receipt, delivery, and payment is called the ________.
A) variable-costs-to-payment cycle
B) product-to-payment cycle
C) inventory-to-sale cycle
D) order-to-inventory cycle
E) order-to-payment cycle
Answer: E
Page Ref: 466
Objective: 2
AACSB: Analytic skills
Difficulty: Easy
64) ________ costs for a manufacturer consist of setup costs and running costs.
A) Inventory-carrying
B) Containerization
C) Wholesaling
D) Order-processing
E) Transportation
Answer: D
Page Ref: 467
Objective: 2
Difficulty: Easy
65) As inventory draws down, management must know at what stock level to request additional
stock. This stock level is called the ________.
A) reorder point
B) least fixed point
C) point of divergence
D) inflection point
E) critical point
Answer: A
Page Ref: 467
Objective: 2
Difficulty: Easy
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66) A stock order point of 10 means ordering the product ________.


A) every 10 days
B) when stock falls to 10 units
C) every 10 units
D) when stock falls to 9 units
E) in batches of 10 items
Answer: B
Page Ref: 467
Objective: 2
AACSB: Analytic skills
Difficulty: Easy
67) Optimal order quantities exist when the curves for the order-processing cost per unit and
inventory-carrying cost per unit ________.
A) are collinear
B) are diagonal to each other
C) intersect
D) are parallel to each other
E) equal zero
Answer: C
Page Ref: 467
Objective: 2
AACSB: Analytic skills
Difficulty: Easy
68) E&OE is trying to minimize its inventory costs, which are extremely high. The company has
realized that it can achieve this by maintaining a near-zero inventory and producing more only
once a product is ordered. Which of the following is true for E&OE?
A) Inventory costs are lower than order-processing costs.
B) Running costs are higher than inventory-carrying costs.
C) Setup costs for the products are low.
D) Order-processing costs are high.
E) Order-processing costs are lower than setup costs.
Answer: C
Page Ref: 467
Objective: 2
AACSB: Analytic skills
Difficulty: Moderate

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69) E&OE is trying to minimize its inventory costs, which are extremely high. The company has
realized that it can achieve this by maintaining a near-zero inventory and producing only once a
product is ordered. Which of the following will be true for E&OE?
A) Short production runs will be more expensive than longer ones.
B) Setup and order-processing costs will be high.
C) The order point will be high.
D) Order-processing costs will be lower than the inventory-carrying costs.
E) E&OE can reduce the average cost per unit by producing a long run.
Answer: D
Page Ref: 467
Objective: 2
AACSB: Analytic skills
Difficulty: Moderate
70) Beyond the optimal order quantity, total cost per unit increases because ________.
A) inventory-carrying cost per unit increases
B) inventory-carrying cost per unit decreases
C) order-processing cost per unit increases
D) order-processing cost per unit increases though inventory cost decreases
E) inventory-processing cost per unit falls slowly
Answer: A
Page Ref: 467-468
Objective: 2
AACSB: Communications
Difficulty: Easy
71) Companies are reducing their inventory costs by treating inventory items differently,
positioning them according to risk and opportunity. High-risk, low-opportunity items are known
as ________.
A) nuisance items
B) bottleneck items
C) variable items
D) critical items
E) commodities
Answer: B
Page Ref: 468
Objective: 2
AACSB: Analytic skills
Difficulty: Moderate

22
Copyright 2012 Pearson Education, Inc. Publishing as Prentice Hall

72) HCN recently introduced a product that the distributor considers a "bottleneck" item. What is
the risk/opportunity relationship for bottleneck items?
A) low risk, mediocre opportunity
B) low risk, high opportunity
C) low risk, low opportunity
D) high risk, mediocre opportunity
E) high risk, low opportunity
Answer: E
Page Ref: 468
Objective: 2
Difficulty: Easy
73) An item described as low-risk and low-opportunity is a ________.
A) nuisance item
B) bottleneck item
C) variable item
D) critical item
E) commodity
Answer: A
Page Ref: 468
Objective: 2
AACSB: Analytic skills
Difficulty: Moderate
74) ________ consists of putting goods in boxes or trailers that are easy to transfer between two
transportation modes.
A) Containerization
B) Haulage
C) Inventory carrying
D) Order processing
E) Warehousing
Answer: A
Page Ref: 468
Objective: 2
AACSB: Analytic skills
Difficulty: Easy

23
Copyright 2012 Pearson Education, Inc. Publishing as Prentice Hall

75) Which of the following is an example of a private carrier?


A) MET is a transporter that operates only in the Chicago area and charges fixed prices.
B) BCL is a family firm that owns only three trucks, but takes small orders for transport.
C) VTV owns a fleet of trucks and transports goods for any client for a fee.
D) COM is a shipping firm that transports goods by road and rail across the U.S.
E) BEL Inc. manufactures parts for automobiles and transports its products to customers itself.
Answer: E
Page Ref: 468
Objective: 2
AACSB: Analytic skills
Difficulty: Moderate
76) The trucking firm hired by your transportation manager provides a trucking service between
the city of Sacramento and the surrounding towns on a regular schedule and at fixed prices. The
trucking firm saves transportation costs by transporting the goods using trains as well as trucks,
instead of trucks alone. Your transportation manager has hired a(n) ________.
A) airship carrier
B) airtruck carrier
C) trainship carrier
D) fishyback carrier
E) piggyback carrier
Answer: E
Page Ref: 468
Objective: 2
AACSB: Analytic skills
Difficulty: Easy
77) If the shipper owns its own truck or air fleet, it becomes a ________.
A) containerized carrier
B) private carrier
C) contract carrier
D) common carrier
E) diversified carrier
Answer: B
Page Ref: 468
Objective: 2
Difficulty: Easy
78) Retailing includes all the activities involved in selling goods or services directly to final
consumers.
Answer: TRUE
Page Ref: 447
Objective: 1
AACSB: Analytic skills
Difficulty: Easy

24
Copyright 2012 Pearson Education, Inc. Publishing as Prentice Hall

79) Full-service retailers generally have the lowest costs of all retail types.
Answer: FALSE
Page Ref: 448
Objective: 1
Difficulty: Easy
80) Discount stores usually stock leftover goods, overruns, and irregular merchandise, sold at
less than retail.
Answer: FALSE
Page Ref: 449
Objective: 1
AACSB: Reflective thinking
Difficulty: Easy
81) The network marketing sales system works by recruiting independent businesspeople who
act as distributors.
Answer: TRUE
Page Ref: 449
Objective: 1
AACSB: Reflective thinking
Difficulty: Easy
82) Electronic shopping is a form of direct marketing.
Answer: TRUE
Page Ref: 449
Objective: 1
AACSB: Analytic skills
Difficulty: Easy
83) A superstore is a storeless retailer serving a specific clientele who are entitled to buy from a
list of retailers that have agreed to give discounts in return for membership.
Answer: FALSE
Page Ref: 449
Objective: 1
AACSB: Analytic skills
Difficulty: Easy
84) A retailer cooperative is a retail firm that is owned by its customers.
Answer: FALSE
Page Ref: 450
Objective: 1
Difficulty: Easy

25
Copyright 2012 Pearson Education, Inc. Publishing as Prentice Hall

85) A franchise organization is a corporate retail organization.


Answer: TRUE
Page Ref: 450
Objective: 1
Difficulty: Easy
86) The franchisor owns a trade or service mark and licenses it to franchisees in return for
royalty payments.
Answer: TRUE
Page Ref: 450
Objective: 1
Difficulty: Easy
87) "Pop-up" stores let retailers promote brands to seasonal shoppers for a limited time.
Answer: TRUE
Page Ref: 451
Objective: 3
Difficulty: Easy
88) Department stores only face competition from other department stores as other retailing
forms are not a threat to their sales and profitability.
Answer: FALSE
Page Ref: 452
Objective: 3
AACSB: Reflective thinking
Difficulty: Easy
89) Consumers now receive sales offers through direct-mail letters and catalogs, television, cell
phones, and the Internet. The nonstore-based retailers are taking business away from store-based
retailers.
Answer: TRUE
Page Ref: 452
Objective: 3
Difficulty: Easy
90) Supercenters retail grocery items as well as a huge selection of nonfood merchandise.
Answer: TRUE
Page Ref: 452
Objective: 3
AACSB: Reflective thinking
Difficulty: Easy

26
Copyright 2012 Pearson Education, Inc. Publishing as Prentice Hall

91) Growth in the retail market is centered firmly in the middle market, leaving luxury retailers
and discounting specialists struggling.
Answer: FALSE
Page Ref: 452
Objective: 3
AACSB: Analytic skills
Difficulty: Easy
92) As discount retailers improve their quality and image, consumers have been willing to trade
down.
Answer: TRUE
Page Ref: 452
Objective: 3
AACSB: Analytic skills
Difficulty: Easy
93) Electronic shelf labeling allows retailers to check inventory levels instantaneously.
Answer: FALSE
Page Ref: 452
Objective: 3
AACSB: Analytic skills
Difficulty: Easy
94) Firms are increasingly recognizing the importance of influencing consumers at the point of
purchase.
Answer: TRUE
Page Ref: 453
Objective: 3
AACSB: Analytic skills
Difficulty: Easy
95) Retailers can target their customers more effectively by using only a single channel to reach
them.
Answer: FALSE
Page Ref: 454
Objective: 2
Difficulty: Easy
96) Featuring exclusive national brands that are not available at competing retailers is a way of
generating consumer interest in a retailer.
Answer: TRUE
Page Ref: 455
Objective: 2
AACSB: Reflective thinking
Difficulty: Easy

27
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: 2
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: 2
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: 2
AACSB: Reflective thinking
Difficulty: Easy
100) Mass merchandisers are usually high-markup, lower-volume stores.
Answer: FALSE
Page Ref: 456
Objective: 2
Difficulty: Easy
101) Low prices on some items serve as traffic builders or loss leaders for retailers.
Answer: TRUE
Page Ref: 456
Objective: 2
Difficulty: Easy
102) EDLP can lead to lower advertising costs and higher retail profits.
Answer: TRUE
Page Ref: 457
Objective: 2
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: 2
AACSB: Analytic skills
Difficulty: Easy
104) Postpurchase services include shipping and delivery, gift wrapping, adjustments and
returns.
Answer: TRUE
Page Ref: 457
Objective: 2
Difficulty: Easy
105) Private label or store brands are also known as generics.
Answer: FALSE
Page Ref: 460
Objective: 4
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: 4
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: 1
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: 1
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: 1
AACSB: Analytic skills
Difficulty: Easy
110) Most companies today are trying to increase the order-to-payment cycle.
Answer: FALSE
Page Ref: 466
Objective: 2
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: 2
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: 2
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: 2
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: 2
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: 2
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: 2
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: 2
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: 1
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: 1
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: 1
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: 3
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: 2
Difficulty: Easy
123) The growth of "house brands" has skyrocketed in recent years. What benefits do
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: 4
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: 1
AACSB: Reflective thinking
Difficulty: Easy
125) Why do 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: 2
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: 1
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 2 percent to 6 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 themfood 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: 1
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: 1
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 do 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: 1
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: 1
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: 1
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: 1
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: 1
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 do to generate consumer interest while retaining its exclusivity?
Answer: Student answers may vary.
E&OE can do 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: 2
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: 2
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 do 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: 2
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 do 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: 2
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: 4
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: 4
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: 2
AACSB: Analytic skills
Difficulty: Moderate
141) Reynold's, a supermarket chain, carries the K-Nine range of dog food manufactured by
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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: 2
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: 1
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: 2
AACSB: Analytic skills
Difficulty: Moderate

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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: 3
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 do 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: 2
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 do 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: 2
AACSB: Analytic skills
Difficulty: Moderate

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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 do not need a product immediately.
Page Ref: 468
Objective: 2
AACSB: Analytic skills
Difficulty: Moderate

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