Principles of Marketing Chapter 11

Which of the following statements about a vertical marketing system (VMS) is true?

A VMS is a channel in which there is cooperation among channel members at two or more different levels of the channel

How can a firm benefit from involvement in a contractual VMS?

A contractual VMS consists of independent firms at different levels of production and distribution that join together through contracts to obtain efficiency, effectiveness, and low costs.

Compare and contrast a conventional marketing system with a vertical marketing system (VMS).

A conventional distribution channel consists of one or more independent producers, wholesalers, and retailers. Each is a separate business seeking to maximize its own profits. No channel member has much control over the other members. On the other hand, a vertical marketing system is a unified system made up of producers, wholesalers, and retailers. While members of a conventional distribution channel seek to maximize their own profits, members of a vertical marketing system all cooperate because one member owns the others, one has contracts with the others, or one wields more power than the others.

Why would a manufacturer want to prevent its products from being sold in the grey market?

A manufacturer of a luxury good sold through exclusive distribution would want to prevent its channel partners from selling the good to unauthorized channels of distribution-the grey market-in order to protect and control consumers' perception of the brand.

Why might a manufacturer choose to not select a large and powerful retailer as a channel partner?

A manufacturer would likely give up a great deal of control in marketing decision making when partnering with a powerful retailer.

Which of the following is most likely exclusively distributed?

BMW automobiles

Which of the following statements about merchandise brokers is true?

Brokers never take title to the merchandise they sell.

Why are direct channels of distribution common in business-to-business markets dealing with high-dollar, high-profit items?

Business-to-business marketing often means selling high-dollar, high-profit items, such as a single piece of industrial equipment that may cost hundreds of thousands of dollars to a market of only a few customers who can use the product. In such markets, it makes sense financially for a company to develop its own sales force that sells the products directly to customers.

Which of the following is most likely intensively distributed?

Coca-Cola beverages

Which of the following statements about business-to-business channels is true?

Direct channels are more common in business-to-business markets than consumer markets.

Explain the concept behind a dual distribution system

Dual or multiple distribution systems are in use when producers, dealers, wholesalers, retailers, and customers alike interact with more than one type of channel.

What types of products are exclusively distributed?

Exclusive distribution is often used for expensive automobiles and prestige clothing.

Due to the success of the Internet, few producers sell through intermediaries today.

FALSE

Exchanges that occur in the grey market are illegal.

FALSE

Limited-service wholesalers do not take title to the merchandise they handle.

FALSE

Rack jobbers are important to both the producers and the customers of bulky products such as coal, oil, or lumber.

FALSE

Sales branches are independent wholesalers that are allowed to operate only in specific geographical territories

FALSE

The first step in planning a channel strategy is to determine what markets need to be reached

FALSE

There will always be a need for channel intermediaries that physically handle the product.

FALSE

Traditional record labels are now able to control the online distribution piracy problems that had plagued the music industry in the past.

FALSE

When shipping large amounts of bulk products such as forest products, coal, sand, or rock over large distances, a company should choose large trucks because of their low cost per ton shipped.

FALSE

Intensive distribution seeks many outlets in a market, while selective distribution seeks only one outlet in a given market area.

FLASE

Selective distribution strategies are most suitable for convenience products.

FLASE

The supply chain only includes components dealing with the flow of materials internal to the firm

FLASE

Which of the following is the best example of a direct channel?

Farmer Mintz sells corn to the Hughes household, who will eat it for supper

Compare the responsibilities associated with full-service merchant wholesalers to those associated with limited-service merchant wholesalers.

Full-service merchant wholesalers provide a wide range of services for their customers, including delivery, credit, product-use assistance, repair, advertising, and other promotional support. At times market research is also completed by full-service merchant wholesalers. In contrast, limited-service merchant wholesalers provide fewer services. A limited-service merchant wholesaler is less likely to provide credit or marketing assistance to retailers. However, both full-service and limited-service merchant wholesalers take title to merchandise.

Explain the concept of a hybrid marketing system. What might be the advantages of a company implementing this type of marketing system?

Hybrid marketing systems use a number of different channels and communication methods to serve a target market. A hybrid marketing system might use all or some of the following: direct sales, distributors, retail sales, and direct mail. Hybrid marketing systems can offer companies certain competitive advantages, including increased coverage of the market, lower marketing costs, and a greater potential for customization.

Explain why inventory control has such a major impact on the costs of logistics

If supplies of a product are too low to meet fluctuations in customer demand, a firm may have to make expensive emergency deliveries or lose customers to competitors. If inventories are above demand, unnecessary storage expense and the possibility of damage or deterioration can occur. Channel members want to minimize the cost of holding inventory while at the same time ensuring that inventory will be there when customers need it.

How do channel members add value to a distribution channel?

Intermediaries reduce the amount of work that must be done by both producers and consumers. They transform the assortment of products made by producers into the assortment wanted by consumers. They buy large quantities from many producers and break them down into the smaller quantities and broader assortments wanted by consumers. Intermediaries also provide facilitating functions that make the purchase process easier; examples of these facilitating functions include offering credit, providing maintenance service, taking risk, and providing communication and transaction functions. Channel members add value by bridging the major time, place, and ownership gaps that separate goods and services from those who would use them

Which of the following is an example of a dual distribution system?

J.C. Penney's catalog and retail store sales

Which of the following statements about manufacturers' agents is true?

Manufacturers' agents are compensated with commissions based on a percentage of what they sell.

What are the similarities and differences between manufacturers' agents and selling agents?

Manufacturers' agents are independent salespeople who carry several lines of noncompeting products. They have contractual arrangements with manufacturers that outline territories, selling prices, and other specific aspects of the relationship. Selling agents market a whole product line or one manufacturer's total output. Unlike manufacturers' agents, they have unlimited territories and control over pricing.

Which of the following is NOT a true statement about conventional marketing systems?

Members of conventional marketing systems do not work toward the same broad goals.

How do merchant wholesalers and agents/brokers differ?

Merchant wholesalers "take title to" (or own) what they sell; agents/brokers serve as liaisons, bringing buyers and sellers together

Explain the rationale for identifying the best modes of transportation for a product.

Mode of transportation decisions entail a compromise between minimizing costs and providing the service customers want. Factors to consider are dependability, cost, speed of delivery, accessibility, capability, and traceability. Each mode of transportation has different strengths and weaknesses that make it a good choice for different transportation needs. For example, railroads have a moderate speed of delivery and average cost, while air has a high cost and very fast speed of delivery.

Explain channel power in a vertical marketing system.

One channel member owns the others, has contracts with them, or wields so much power that they must all cooperate.

Compare and contrast the three distribution strategies, giving examples of products that might be distributed through each strategy

Producers of convenience products and staples typically seek intensive distribution as a strategy to stock their products in as many outlets as possible. For example, products such as chewing gum are available just about wherever and whenever consumers want them. Selective distribution is used when selling to more than one but fewer than all of the intermediaries who are willing to carry a company's products in a given market. Examples are name-brand blue jeans and computers. Exclusive distribution is used when the producer wants to stock its products with only one dealer in an area. Examples are expensive cars and prestige clothing.

Through the use of ________, a company is able to know exactly where a product is located within the distribution channel.

RFID

A U.S. wool producer that wants to export its product to Europe could use a selling agent or a merchandise broker.

TRUE

A franchise organization is a type of contractual VMS.

TRUE

A restaurant that features a serve-yourself buffet, which eliminates the need for a full wait staff, is using disintermediation

TRUE

Always Fresh Produce Company has a route selling to more than 100 groceries, schools, and restaurants at wholesale prices. Last week the owners opened up a walk-in discounted consumer produce outlet. Always Fresh is now using a dual distribution system

TRUE

An environmental analysis is an important step in distribution planning.

TRUE

Channels that contain intermediaries are indirect.

TRUE

In a conventional marketing system, no channel member has much control over the other members, and no formal means exists for assigning roles and resolving channel conflict.

TRUE

Marketers of subscription boxes provide the distribution channel function of creating assortments.

TRUE

Middlemen is an older term for intermediaries.

TRUE

Railroads are best for carrying coal, iron ore, grain, and lumber over long distances.

TRUE

Reverse logistics are becoming even more important as more firms seriously consider sustainability as a competitive advantage.

TRUE

Rooms-To-Go furniture retailers perform a channel intermediary facilitating function by providing financing for customers' purchases.

TRUE

Supply chain management includes the coordination of both the physical movement of goods and the sharing of information about those goods.

TRUE

The producer and the final consumer are part of every type of channel of distribution

TRUE

To combat piracy, Netflix uses the strategy of making legal access to content easier and more convenient.

TRUE

When Sherwin-Williams Paint Company has single ownership of integrated, successive stages of production, distribution and retail, it has created a corporate VMS

TRUE

When the NewWay Dry Cleaners and The Easy Laundromat in your hometown join forces to pursue a new marketing opportunity, they are forming a horizontal marketing system.

TRUE

How would the Internet most likely affect the distribution channel of an artisan who makes handmade dolls that had previously been sold only at craft shows?

The Internet has become an important place for consumers to shop. By using the Internet, this artisan can market her dolls with the same competitive advantages as larger companies who market their products around the globe.

An appliance, television, and stereo dealer serves as an authorized repair center, provides maintenance contracts, and sells essential supplies to customers. What types of channel functions are being implemented by this dealer?

The dealer is offering facilitating functions; the dealer is making the purchase process easier for customers by having so many added benefits available at one location.

What are some advantages of a farmer selling strawberries grown on his farm directly to consumers instead of using channel intermediaries?

The farmer will be able to directly serve the customer and may be able to sell the strawberries at a lower price but higher profit margin than if an intermediary were involved. Also, the farmer has control of the product and the sale, making sure that the berries are sold when they are still fresh.

Explain the concept of the supply chain.

The supply chain encompasses all the activities necessary to turn raw materials into a good or service and put it in the hands of the consumer or business customer. Firms may decide to outsource or insource some of these activities. Distribution channels are a subset of the supply chain, and logistics management is the process of actually moving goods through the supply chain.

Describe the three sources of power for a channel captain.

There are three potential sources of power for channel captains. A channel captain has economic power when it has the ability to control resources. A channel captain has legitimate power when it has the legal authority to call the shots. A channel captain has reward or coercive power if it engages in exclusive distribution and has the ability to give profitable products and to take them away from the channel intermediaries.

What types of products are intensively distributed?

These products must be available where and when consumers want them; examples include chewing gum, soft drinks, toothpaste, and candy

Which of the following is true about sales branches, sales offices, and manufacturers' showrooms?

They are all manufacturer-owned intermediaries.

A major manufacturer of bread sells its finished products to a grocery store chain. This grocery store then sells the bread to its customers. What type of channel of distribution is this, and what are the levels of distribution?

This is a typical consumer channel of distribution. There are three levels of distribution: the producer (the bread manufacturer), the retailer (the grocery store), and the consumer

How might a channel leader stimulate channel cooperation?

To improve channel cooperation and foster the success of all channel members, the channel leader might establish high intermediary profit margins, offer training programs, or provide corporate advertising and marketing advice

How can a firm benefit from participating in a horizontal marketing system?

Two or more companies at one level may join together to follow a new marketing opportunity; by working together, companies can combine their financial, production, or marketing resources to accomplish more than any one company could alone.

A supply chain relies on profitable relationships all along the way. How might Walmart rely on its marketing partners in order to offer low prices?

Walmart must rely on suppliers that will provide merchandise at low costs, a low-cost and efficient distribution system, and a strong partnership with each member of its supply chain.

How can a company benefit from just-in-time inventory techniques?

With such systems, producers and retailers carry only small inventories of parts or merchandise, often only enough for a few days of operations. This creates substantial savings in inventory-carrying and handling costs.

What types of products are selectively distributed?

With this type of distribution, more than one, but fewer than all, of the intermediaries who are willing to carry a company's products are used. Products include appliances, furniture, and some name-brand clothing.

Which of the following is a distribution system that uses different channels and communication methods to reach and serve a target market?

a hybrid marketing system

Which of the following is most likely to force a manufacturer to pay a slotting allowance?

a large retail chain

Tony Pool Chemical Co. purchased 144 buckets of chlorine tablets over the Internet from Chemical, Inc., which then placed the order with the manufacturer and arranged for its transportation by truck to the Tony Pool store. Chemical, Inc. is an example of which of the following?

a wholesaling intermediary

Manufacturers' ________, also called manufacturers' representatives, represent a buyer or seller on an ongoing basis

agents

A commission merchant would most likely sell which of the following?

agricultural products

Jewels for the Rich and Famous sells very exclusive jewelry with a minimum price of $25,000 to customers around the world. Speed of delivery to distant markets is a must. Management should use ________ as its main carrier.

air

The fastest and most expensive mode of transportation is ________.

air

Mail-order wholesalers are associated with all of the following EXCEPT which one?

allowing shipment prior to receiving payment

Leadership in which type of marketing system is assumed not through common ownership or contractual ties but through the size and power of a single dominant channel member.

an administered vertical marketing system

Which of the following figures is needed to calculate inventory turnover?

annual cost of sales

Burt can visit his local hardware store and buy one 4-inch paint brush and not the case of 24 brushes that the retailer had to buy. This is an example of how the channel of distribution facilitates ________.

breaking bulk

Wholesalers and retailers purchase large quantities of goods from manufacturers but sell only one or a few at a time to many different customers. This process is called ________.

breaking bulk

A ________ brings buyers and sellers together and facilitates transactions, typically charging a fee after a transaction is completed.

broker

You own an independent store in your neighborhood and like to offer fresh seafood in your meat display case. Which type of wholesaler is likely to best serve you?

cash-and-carry wholesaler

Which of the following is another name for the channel leader?

channel captain

Which of the following is the term for the firms and individuals who help move a product to the consumer or the business user?

channel intermediaries

Channel members can help producers by identifying customer complaints, customer preferences, and new competitors in the market. These are all examples of the ________ function of channel intermediaries.

communication

A brand of variety stores is part of a wholesaler-sponsored voluntary chain. This means these retailers are members of a(n) ________ vertical marketing system (VMS).

contractual

A retailer cooperative is a form of a(n) ________ vertical marketing system (VMS).

contractual

Burger King, Holiday Inn, Avis, and H&R Block tax service are all franchises, which means they are also members of a(n) ________ vertical marketing system (VMS).

contractual

A channel consisting of one or more independent producers, wholesalers, or retailers, each seeking to maximize its own profits with little concern for other channel members, is a(n) ________.

conventional marketing system

Which type of vertical marketing system (VMS) gives an organization more control over both supply sources and resale of its products, while at the same time increasing the organization's capital investment and its fixed costs?

corporate

Which type of vertical marketing system (VMS) gives an organization more control over resale of its products, while at the same time increasing the organization's capital investment and its fixed costs?

corporate

What are the three major types of vertical marketing systems?

corporate, contractual, and administered

Nita can visit her local supermarket and buy a dozen roses, a gallon of milk, two birthday cards, a bag of cat litter, and a pan for roasting a turkey. This illustrates how channels of distribution benefit consumers by ________.

creating assortments

Wholesalers and retailers create efficiencies in the flow of goods from producer to end consumer by ________ when they provide a variety of products in one location.

creating assortments

At minimum, a channel of distribution consists of a producer and a(n) ________.

customer

Which of the following should be the first step in distribution planning?

developing distribution objectives

A husband and wife have a small store that is located at a beach resort. The only products sold at this store are hand-dipped and sculptured candles made by this couple. Marketers would classify the channel of distribution for these candles as ________.

direct

Through a process of ________, traditional intermediaries are being eliminated as many companies question the value added by layers in the distribution channel.

disintermediation

Tony Pool Chemical Co. purchased 144 buckets of chlorine tablets over the Internet from Chemical, Inc., then placed the order with the manufacturer and arranged for its transportation by truck to the Tony Pool store. Chemical, Inc. took title to the pool chemicals but never actually took possession of them. Chemical, Inc. is an example of a ________.

drop shipper

Which of the following is in place when a producer, dealer, wholesaler, retailer, or customer interacts with more than one type of channel?

dual or multiple distribution system

Which of the following integrates information from across the company in order to automate order processing?

enterprise resource planning system (ERP)

Through the practice of insourcing, a company brings in an external company to run its ________.

essential operations

Once an organization has developed its distribution objectives, it should next ________.

evaluate the internal and external environments

Tiffany & Co jewelry can only be found in a very limited number of intermediaries. This is an example of ________ distribution.

exclusive

Which type of distribution means limiting distribution of a product to a single outlet in a particular region?

exclusive

Functions provided by channel intermediaries that make the purchase process easier for customers and manufacturers are referred to as ________ functions.

facilitating

Offering credit to buyers and providing refund services for products are both examples of ________ functions provided by channel intermediaries.

facilitating

Truck jobbers are limited-service merchant wholesalers who would most likely handle which of the following?

fruits and vegetables

Increasingly commonplace today is the appearance of two different franchise chains under the same roof, such as Pizza-Hut and Taco Bell. This is an example of a(n) ________ marketing system.

horizontal

In a ________, two or more companies at the same channel level join together to develop a new marketing opportunity.

horizontal marketing system

Proud Pets, a producer of clothing and accessories for pets, has recently partnered with a regional chain of pet stores. Which of the following would Proud Pets be LEAST likely to expect from its new channel member?

identifying raw materials and other productive inputs

During ________ the company receives materials it needs to manufacture its products.

inbound logistics

Conventional distribution channels consist of one or more ________ producers, wholesalers, and retailers.

independent

Intermediaries that do business with many different manufacturers and many different customers are most accurately referred to as ________.

independent intermediaries

A business buys candy and gum from many different manufacturers and then resells the items to a variety of different stores. The business is an example of a(n) ________.

independent intermediary

Steve's Physco Skates sells its products to Walmart, who then sells them to the consumer. This is an example of a(n) ________.

indirect marketing channel

In business-to-business channels, the functions of a merchant wholesaler are performed by a(n) ________.

industrial distributor

Chewing gum is stocked in many outlets in the same market or community; in fact, it is placed in as many outlets as possible. This is an example of ________ distribution

intensive

Which of the following is a logistics activity that involves developing and implementing a process to ensure the firm always has sufficient goods available to meet customers' demands, no more and no less?

inventory control

To reduce inventory management costs, many companies use a system called ________, which involves carrying only small inventories of parts or merchandise, often only enough for a few days of operation

just in time (JIT)

Which of the following describes a comprehensive approach to collecting, organizing, storing, and retrieving a firm's information assets?

knowledge management

To a producer of goods, a greater number of channel levels means ________.

less control

To balance inventory capabilities and production capacity constraints, some companies use a practice called ________, which involves the use of a consistent production schedule, both during and beyond times of peak demand.

level loading

Which of the following is the process of designing, managing, and improving the movement of products through the supply chain?

logistics

Rack jobbers are limited-service merchant wholesalers who would most likely handle which of the following?

magazines

An independent hardware retail store 100 miles from the nearest city of more than 5,000 people but providing needed supplies for area ranchers would most likely buy its plumbing and electrical supplies through a ________.

mail-order wholesaler

Ed Barney owns a chain of small gift shops. Before buying merchandise to carry in his store, Barney can visit a ________ where he can examine a manufacturer's products before he stocks his stores

manufacturer's showroom

At some catalog retailers, employees on roller skates called pickers are handed a printout of the products a customer wants, and then the pickers skate through large warehouses accumulating the desired products into one central location. The pickers are engaged in ________.

materials handling

Which of the following are intermediaries that receive fees for facilitating transactions in markets such as real estate, food, and used equipment in which there are a lot of small buyers and sellers?

merchandise brokers

Which group of independent intermediaries can be divided into the two broad types of full-service and limited-service?

merchant wholesalers

Producers benefit from using intermediaries because they ________.

offer greater efficiency in making goods available to target markets

Limited-service merchant wholesalers are less likely than full-service merchant wholesalers to do which of the following?

offer marketing assistance or delivery for the products they sell

The theft and unauthorized repurposing of intellectual material via the Internet is called ________.

online distribution piracy

Which stage of activity in logistics involves shipping the product out to customers?

outbound logistics

Marketing logistics involves which of the following types of distribution flows?

outbound, inbound, and reverse

A firm that brings in outside companies to accomplish supply chain activities is using ________.

outsourcing

The difference between distribution centers and storage warehouses is that distribution centers are designed to ________.

perform other functions, such as breaking bulk

A new company called LidRock is prospering because it figured out a novel way to get music, video games, and movies into the hands of consumers: on mini-CDs tucked into the lids of soft drinks. LidRock is focusing on which one of the four Ps?

place

Through the practice of ________, a channel member sells a product through channels that the manufacturer did not authorize

product diversion

The owner of a grocery store wants to have non-food items delivered, priced, displayed, and inventoried by a wholesaler. Which type of wholesaler best fits the owner's needs?

rack jobber

Which of the following do manufacturers typically NOT use as a factor in deciding which mode of transportation to use for a product?

responsiveness

Which stage of activity in logistics involves waste disposal and recycling?

reverse logistics

A retailer that takes a loss on perishable items that do not sell before their expiration date is an example of the ________ function provided by channel intermediaries.

risk-taking

Which of the following are manufacturer-owned facilities that carry inventory and provide sales and services to customers?

sales branches

Which of the following are manufacturer-owned facilities that do NOT carry inventory but provide selling functions for the manufacturer in a specific geographic area?

sales offices

When determining the number of channel members to use at each level, three strategies are available: intensive, exclusive, and ________ distribution.

selective

Which type of distribution is used when the producer wants to place its products with more than one, but fewer than all, of the intermediaries who are willing to carry its products?

selective

A selective distribution strategy is most suitable for which consumer product category?

shopping products

A corporate VMS has the advantage of controlling the entire distribution chain under ________.

single ownership

Drop shippers do all of the following EXCEPT which of the following?

take actual possession of the merchandise

Drop shippers do all of the following EXCEPT which one?

take actual possession of the merchandise

An intermediary who ________ legally owns the goods being handled

takes title

Which of the following is the series of firms or individuals that facilitate(s) the movement of a product from the producer to the final customers?

the channel of distribution

The producer-retailer-consumer channel is ________.

the shortest indirect channel

Which of the following is NOT a channel intermediary?

the supplier of the raw materials used to make glass windows

Which of the following includes all the activities necessary to convert raw materials into a good or service and put it in the hands of the consumer or business customer?

the supply chain

What type of utility does warehousing provide to consumers by holding onto products until consumers need them?

time

It is most accurate to say that channels of distribution provide which of the following?

time, place, and possession utility

Retailers handle the financial exchange when a customer pays for a product. This is an example of the ________ function of channel intermediaries.

transaction

Which of the following modes of transportation would most likely be used to quickly haul lettuce from California, where it was grown, to markets in Nevada?

trucks

Grayville Rock and Gravel, located in a seaport town, sells rock, gravel, and sand to local markets. It has just been awarded a contract with a company 500 miles down the coast. Management should consider switching from truck to ________ transport to save money.

water