Chapter 8 Marketing

About what percentage of the annual U.S. gross domestic product is government spending?

40%

Collin Roberts of Roberts Construction is planning to buy a piece of used earth-moving equipment. He would most likely base his purchase decision on ____ of the alternative machines.

Inspections

Pi Delta Mu sorority purchases food in bulk to feed its members living in the house. This means it is part of a(n) ____ market.

Institutional

When charitable organizations such as the American Cancer Society, Second Harvest Foodbank, and the Red Cross make purchases for goods and services to use in their daily operations, they would be considered to be _______ buyers.

Institutional

Samsung is entering the home appliance market with its new French Door Refrigerator. In designing the production facility, it has a need for various pieces of equipment, including the perpetual assembly belt-drive, quasi-assembly pods, and finishing stations. The purchasing agent for the appliance division is inquiring about who will be needed for input on the purchasing decision. Samsung has already contacted several producers of the quasi-assembly pods, and has begun negotiations with their sales representatives Which of the following groups should Samsung not include in its buying center for the new equipment

Potential future Samsung customers

An accountant who purchases software for maintaining clients' books is an example of a buyer in a(n) ____ market.

Producer

Individuals and business organizations that purchase products for the purpose of making a profit either by using the products to produce other products or by using them in their operations are classified as ____ markets

Producer

Motorola buys silicone which is used in its chip-making process. Motorola produces microchips for use within a wide variety of products for other firms, such as Ford, GM and Samsung. Motorola is a buyer in a(n) ____ market.

Producer

After deciding to order replacement parts for aging machinery, the buyer for a construction company examines catalogs and trade publications looking for these parts. The buyer is at which stage in the business buying decision process?

Product-supplier search and evaluation

The North American Industry Classification System (NAICS) is based on the types of ______________ performed. It divides industrial activity into _______ sectors.

Production activities 20

Individuals and business organizations that buy finished goods and resell them to make a profit without changing the physical characteristics of the product are classified as ____ markets.

Re seller

A new-task purchase is one in which the business makes an initial purchase of a new item.

True

An example of a business market would be farmers

True

Business customers generally seek to obtain detailed information about a product before purchasing it

True

Buyers in producer markets purchase either raw materials or semifinished products

True

Government markets, although complicated in their requirements, can be very lucrative

True

In some cases, the types of services offered by a supplier may constitute a competitive advantage over suppliers of similar products

True

In the buying decision process, one of the activities included in the search for products and suppliers is examining various online and print publications

True

Industrial classification systems allow marketers to divide business customers into groups based mainly on the types of goods and services provided

True

On-time delivery is crucial to a business customer, since a late delivery may hold up a production line or cause the firm to lose sales

True

Raw materials are especially affected by joint demand

True

Reseller markets consist of intermediaries that buy finished goods and resell them for profit

True

Retailers purchase products and resell them to final consumers

True

Sometimes initial demand for a business product will drop following a price cut if buyers believe that further price reductions are forthcoming

True

The North American Industry Classification System includes all three NAFTA partners

True

The increase in government purchases has resulted partly from the increase in the number of services provided by the government

True

Value analysis focuses primarily on the examination of the cost of products relative to design, quality, and materials used

True

Vendor analysis is a formal, systematic evaluation of current and potential vendors that focuses on a variety of dimensions including price, product quality, delivery service, product availability, and overall company reliability.

True

When purchasing products, business customers are especially concerned about quality, service, price, and supplier relationships

True

When the major component of an item experiences a price increase, the demand for the item may become more elastic.

True

When trying to estimate the purchases of a potential business customer, it is reasonable to suppose that there is a relationship between the size of the potential customer's purchases and a variable such as the number of personnel employed by the customer

True

A disadvantage of reciprocity is that it can lead to

less than optimal purchases for the buyer

Most business purchases can be classified as belonging to one of three types:

modified rebuy, new-task, or straight rebuy

All of the following are important concerns of business customers except

obtaining products that exceed specifications to ensure the best possible product performance.

Institutional markets are

organizations that seek non business goals.

Individual influencing factors refer to

personal characteristics of individuals in the buying center

Product specifications are best described as

physical characteristics and level of quality.

Inelastic demand in business markets refers to a situation where

price increases or decreases will not significantly change demand for a given product.

. When marketing to business customers, marketers have to understand the key characteristics of the business customer, and alter their marketing mix accordingly. For example, a business customer views _________ as the amount of investment necessary to obtain a desired level of return or savings. Moreover, the business customer demand ______________ before buying to be sure their needs are being met with the product

price; detailed information

Business markets are typically divided into four categories. These categories are

producer, re seller, government, and institutional

For business products, the concept of inelasticity of demand applies equally to industry demand for the product and to demand for an individual supplier

False

Grocery stores and supermarkets are a part of producer markets

False

In industries in which price changes occur frequently, demand fluctuations have practically been eliminated since buyers have become used to these changes and have learned to ignore them

False

In the long run, business demand becomes totally unrelated to consumer demand

False

Inspection refers to a purchasing method in which a representative unit is taken from a lot and evaluated, and the buying decision is based on the conclusions

False

Institutional markets include state prisons

False

Interpersonal dynamics are easy to observe and simple for the marketer to assess.

False

It is customary for contracts for raw materials and components to be negotiated semiannually

False

NAICS provides less information about service industries and high-tech products than did the SIC system

False

Of the three types of business purchases, the straight rebuy purchase usually requires the most information

False

One very important consideration for business purchases is the type of packaging used.

False

Orders placed by business customers are usually smaller and more numerous than consumer sales

False

Reciprocal dealing is widespread because it is one of the few avenues not regulated by the FTC, and it facilitates optimal purchases

False

The factors that influence business buying behavior are the same as those that influence consumer buying behavior.

False

The five-stage business buying decision process is used primarily for routine, straight rebuy purchases

False

The fourth stage in the business buying decision process is that of searching for products and suppliers

False

The old Standard Industrial Classification system is more comprehensive than NAICS.

False

There is little or no difference between wholesalers' customers and retailers' customers

False

To obtain the names of specific potential customers, the business marketer is well advised to employ the services of a commercial data company, since this is both cheaper and faster than any other method

False

Ultimate consumers are generally more rational than business customers

False

Wholesalers sell primarily to ultimate consumers

False

Demand for business products is characterized as derived. From what is the demand derived?

Demand for consumer products

. The term business markets refers only to producer markets.

False

The four categories of consumer markets are producer, reseller, government, and institutional.

False

Samsung is entering the home appliance market with its new French Door Refrigerator. In designing the production facility, it has a need for various pieces of equipment, including the perpetual assembly belt-drive, quasi-assembly pods, and finishing stations. The purchasing agent for the appliance division is inquiring about who will be needed for input on the purchasing decision. Samsung has already contacted several producers of the quasi-assembly pods, and has begun negotiations with their sales representatives What type of business purchase is Samsung undertaking?

New Task

When a business is making its initial purchase of an item to be used to perform a new job, it is known as a ____ purchase

New Task

Which of the following statements about business buying is false?

Orders in business markets tend to be smaller than those placed in consumer markets.

Perry Supply's sales and sales force have continued to expand. Now, the firm plans to add a fleet of company cars as part of its sales compensation package. For Perry Supply, these vehicles would represent a ____ purchase

New Task

. The demand for many business products is inelastic at the industry level

True

Feedback acquired during the fifth stage of the business buying decision process is kept on file but not used as a reference for future business purchase decisions.

False

Your firm manufactures motorcycles for the consumer market. You purchase raw materials to build the motorcycles from a variety of suppliers in the U.S. and abroad. The volume of your raw materials purchases is a function of the customer demand for your firm's motorcycles. Which of the following best describes the type of demand your firm has for these raw materials?

Derived demand

Marketers can take advantage of a wealth of public and private data about business customers using various industrial classification systems. However, as with any data, there are limitations associated with industrial classification systems' data. Which of the following is a limitation of industrial classification systems' data?

Double counting of sales data may occur when products are shipped between two divisions within the same organization.

. If a business product exceeds specifications, so much the better; the customer can then be assured of obtaining a minimum level of acceptability

False

. Price is of concern to a business marketer primarily because of its psychological impact on purchasing agents

False

. Specific details regarding terms, credit arrangements, and technical assistance are worked out during the product specification stage of the buying decision process

False

A fall in consumer demand for a product is likely to result in increased buying from suppliers as consumer goods producers replenish depleted inventories and gear up for the next surge in consumer demand

False

After finding out which industries purchase the major portion of an industry's output, the next step is to begin production

False

All companies, no matter what their size or market position, maintain only one buying center

False

Business customers are forced to satisfy personal goals in pursuits that lie outside their jobs

False

Resellers are business intermediaries who buy finished goods and resell them for a profit. Their business model dictates that they consider several factors when deciding which products to buy. Which of the following is a factor the reseller considers when making purchase decisions?

How the product fits within the product mix of the reseller's other products.

You recently raised your prices on the products you sell to your business customers. To your surprise, these customers did not change the amount of units they purchase from you. It was as if the price increase did not matter to these customers. Which of the following types of business demand most accurately describes this situation?

Inelastic demand

. You are manager of a clothing manufacturing firm that has operations in different countries. Your Indonesian manufacturing facility is dedicated solely to producing elementary school uniforms for the U.S. market. Most of your product output is sold to a larger school uniform company in the U.S. called School Uniforms, Inc. School Uniforms, Inc. has major contracts with school districts like the Los Angeles Unified School District. In this scenario, the Los Angeles Unified School District is part of which of the following business markets?

Institutional market

. Business purchasing agents may indirectly contribute to the satisfaction of their own personal needs by helping their firms achieve organizational objectives

True

. Industrial demand derives from consumer demand.

True

A marketer who starts selling to the business market, after having spent most of his career selling directly to consumers, will quickly come to realize that business customers are very demanding. Business customers place a high value on which of the following aspects of a buying relationship?

The mix of services offered by the selling firm

Businesses follow a defined buying decision process in order to ensure the goods and services they purchase will meet their organization's needs. The process has multiple stages, and in one of the stages the business will evaluate each component of potential purchase. This includes evaluating the quality, design, materials and any other relevant aspect of the purchase. This evaluation takes place in which of the following stages of the business buying decision process?

Third stage - Search for potential products

Which of the following entities is part of the buying center?

Users

In a buying center, purchasing agents or purchasing managers are also known as

buyers

Which of the following products is most likely to be purchased on the basis of contract negotiation?

A custom made bulldozer

When the city of Chicago buys iPads for its restaurant inspectors to use during their visits, the purchase from Apple would be considered

A government Purchase

The Eagle Pawn Company is a regional business that owns seven pawn stores in the Houston area. The owners of Eagle Pawn have recently purchased a new software system designed to better track their inventory. Now that they have had the system for a couple of months, they have decided to upgrade to a newer version. The original purchase is an example of a(an) ________, while the current purchase will be a(an) _____.

A new task Modified rebuy

What are the two ways governments make purchases?

Bids and negotiated contracts

When Hunter Ceiling Fans buys electrical wire for use in producing its ceiling fans, Hunter is part of what type of market for electrical wire?

Business

What is a primary difference between business and consumer buyers?

Business buyers generally make larger orders than consumer buyers.

Which of the following is true with respect to buyers in business markets?

Business customers demand detailed information about a product's functional features and technical specifications.

Precision Brake Company is a supplier of brake components to the manufacturers of lawn tractors and 4-wheel ATV's. It also sells its products to independent repair centers, dealers, and other wholesalers in the northeast and southern states. Precision Brake has done research on the demand for lawn tractors and found that most manufacturers are in the states of Kentucky, Tennessee, and Alabama. Research also shows that most of the dealers who sell directly to individual consumers are in the Midwestern states, while dealers who sell to small business landscaping companies tend to be located in the northeastern states. Company executives are considering expansion of its distribution to markets in the Midwest. Refer to Scenario 8.2. Given the type of business market in which Precision Brake is currently operating, which group would it be least likely to sell to?

Consumers

Samsung is entering the home appliance market with its new French Door Refrigerator. In designing the production facility, it has a need for various pieces of equipment, including the perpetual assembly belt-drive, quasi-assembly pods, and finishing stations. The purchasing agent for the appliance division is inquiring about who will be needed for input on the purchasing decision. Samsung has already contacted several producers of the quasi-assembly pods, and has begun negotiations with their sales representatives. There are many factors that would influence Samsung's business buying decisions. Which one of the following would not?

Demographic

Goodyear is a manufacturer and marketer of tires for new passenger cars. In recent years, the company's business has declined because of the overall decrease in consumer demand for new cars. In this case, the demand for Goodyear's tire products is said to be ____ since it depends on the demand for new cars.

Derived

Precision Brake Company is a supplier of brake components to the manufacturers of lawn tractors and 4-wheel ATV's. It also sells its products to independent repair centers, dealers, and other wholesalers in the northeast and southern states. Precision Brake has done research on the demand for lawn tractors and found that most manufacturers are in the states of Kentucky, Tennesseeand Alabama. Research also shows that most of the dealers who sell directly to individual consumers are in the Midwestern states, while dealers who sell to small business landscaping companies tend to be located in the northeastern states. Company executives are considering expansion of its distribution to markets in the Midwest. Refer to Scenario 8.2. Last year, Precision Brake's sales to the manufacturers of lawn tractors declined, partially due to the fact that more consumers were hiring small landscaping businesses to cut their grass. This decline in sales for Precision Brake is an example of

Derived demand

Which method of business buying is most likely to be used when the products being purchased are standardized based on certain characteristics?

Description

When buying materials, the purchasing agent for Alco Pillow Manufacturing Company considers a variety of factors. Which one of the following is least likely to concern this buyer?

Does the supplier also sell to my competitors?

What are the four major factors that influence business buying decisions?

Environmental, organizational, interpersonal, and individual

When certain consumer products are in high demand, producers might buy extra materials and equipment and when demand subsides, producers will cut back on their material purchases. This describes ____ demand

Fluctuation

Management at Readyfresh Dry Cleaners is concerned that it maintains a high level of service for its business accounts. How should the firm monitor the level of service these customers receive?

Formally survey customers

As the new sales representative for H & L Electronics, Sophie is responsible for calling on hospital management and selling electronic hospital equipment such as blood pressure cuffs, scales, and heart monitors. Sophie knows that she needs to be friendly with the administrative assistants in the management offices in order to make sure that H & L's information brochures and new product diagrams actually get to the management staff. In this situation, Sophie is exhibiting her knowledge that administrative assistants are often ________ in the buying decision process

Gatekeeper

Barry Gluckman of WP International, a major marketer of word-processing software, calls the secretary of Renee Dorchette, director of purchasing for MMK, Inc. He sets up an appointment to discuss an upcoming purchase of software. The secretary plays the role of ____ in this purchase decision

Gatekeeper

Which type of business market tends to have the most complex buying procedures?

Government

Demand for business products is also known as ____ demand

Industrial

. In placing a tire order with Michelin, South Side Industrial Supply finds that the truck tires it is ordering have increased $37.50 in price since the last order. South Side proceeds with the order, confident that it can pass on the price increase to future customers. This is an example of business products having ____ demand.

Inelastic

Christoff's Lawn & Lot is a small business that provides landscaping and grass cutting services in the spring and summer. Christoff's usually contracts with customers on an annual basis, with the terms set out at the beginning of the season. This year, the area experienced a significant amount of rain, causing the grass to grow more quickly. Christoff's was required to cut the grass every time it grew 2 inches, and no matter how many times it needed cutting, the customer paid the same monthly amount based on the original contract. The price of gas has now grown by 35% causing Christoff's to pay more for their supplies. The demand for gas despite its price represents ________ demand for Christoff's Lawn & Lot.

Inelastic

. Your university has decided to purchase new computers for all of the computer labs on campus. Typically, the purchasing agent negotiates with manufacturers and makes the decision on what to buy. However, for this purchase he has asked members of the computer science department to give input on the purchase decision. In this instance, the student senate would be acting as a(n) ____, while the purchasing agent is a(an) ______.

Influence Decider

Precision Brake Company is a supplier of brake components to the manufacturers of lawn tractors and 4-wheel ATV's. It also sells its products to independent repair centers, dealers, and other wholesalers in the northeast and southern states. Precision Brake has done research on the demand for lawn tractors and found that most manufacturers are in the states of Kentucky, Tennessee, and Alabama. Research also shows that most of the dealers who sell directly to individual consumers are in the Midwestern states, while dealers who sell to small business landscaping companies tend to be located in the northeastern states. Company executives are considering expansion of its distribution to markets in the Midwest. When Precision Brake's sales team calls on tractor manufacturing companies, the meetings typically include the engineers who design the tractors. In this situation, the engineers would most likely be considered to be ____, part of the buying center.

Influencers

Which one of the following countries will not be included in the data presented in the new industry classification system that is replacing the SIC?

Japan

Demand for a business product is ____ when two or more items are used in combination to produce a product.

Joint

King Auto Supply sells car and truck parts, as well as tire replacement and balancing services. As King places its order for truck tires with Michelin, it must also place an order for valve stems and balancing weights for the tires. Such business products are characterized as having ____ demand

Joint

Anderson Distribution Company has purchased 15 forklifts over the past two years. As it plans to place its next order for another five machines, management wonders if additional features may be needed in order to handle changes in the product lines it carries. For Anderson, these new forklifts represent a ____ purchase.

Modified rebuy

Safeway Supermarkets recently placed an order with the Kahn Corporation for hotdogs. The typical weekly order is for 10 cases; however, since the upcoming weekend includes a holiday, this time Safeway is ordering 100 cases of hotdogs. Safeway orders this product on a regular basis. What type of purchase does this week's purchase represent?

Modified rebuy

St. Jude's Hospital decides to redo its kitchen with new flooring, cabinets, counters, and appliances. The hospital compiles a description of the project and then asks sellers to submit bids. After determining the most attractive bids, the hospital will then work with two or three companies to determine who will get the contract. This is an example of using ____ for a purchase decision

Negotiation

A buyer for Macy's Department Stores orders handbags from a supplier because that supplier allows the buyer to maintain Macy's company policy of 30-day advance purchase notice. This is an example of ____ influence on the business buying decision process

Organizational

Raython Hardware and Thames Industrial Supplier have worked closely for many years and have a mutually beneficial relationship in which Raython provides all of Thames's hardware needs in a timely manner. Raython and Thames's relationship could be best characterized as a(n)

Partnership

Many suppliers and their customers invest time and resources to build and maintain mutually beneficial relationships which are often called

Partnerships

Samsung is entering the home appliance market with its new French Door Refrigerator. In designing the production facility, it has a need for various pieces of equipment, including the perpetual assembly belt-drive, quasi-assembly pods, and finishing stations. The purchasing agent for the appliance division is inquiring about who will be needed for input on the purchasing decision. Samsung has already contacted several producers of the quasi-assembly pods, and has begun negotiations with their sales representatives. What was the first step of the buying decision process that Samsung went through when looking for the quasi-assembly pods?

Recognizing the problem or need

Which of the following statements about reseller markets is false?

Resellers are not concerned with how much space the product takes up as long as it has a high price.

A Pillsbury mill in Utah buys grain from growers in the western region. The purchasing agent for Pillsbury will most likely use which buying method?

Sampling

A representative product taken from a lot or batch, evaluated, and purchased refers to

Sampling

Which method of business buying is necessary when products are highly homogeneous and examination of each item is not feasible?

Samplinng

The state of Montana is preparing to buy a large quantity of frozen orange juice for use in a large school district. Citrus Sweet, Inc. is in the citrus juice business but has never sold to the government market. To have a chance at getting this order, Citrus Sweet's first step must be to get her firm to

Secure a slot on the list for qualified bidders

An organization that decides to buy all of a certain part from the same company is using

Sole sourcing

. In its purchase of desktop business computers, Albertson's asked that potential suppliers provide information only on units with 8GB of memory. As Albertson's management evaluates this purchase, it finds that 8GB is inadequate for many of the software programs used at Albertson's. In this instance, the firm would need to modify which aspect of the purchase process?

Specification development

Volkswagen purchases upholstery for the interiors of its vehicles from various suppliers. This upholstery must have a set of characteristics that is expressed by Volkswagen. This set is called

Specifications

Ben Davideau is assigned by his sales manager to come up with the names and addresses of twenty firms in his territory that have some potential for using sizable quantities of his firm's products. Wanting to be as efficient as possible, Ben looks in

Standard & Poor's Register.

A representative from Coca-Cola stops by at a local fast-food restaurant once a month to inquire how much soft drink syrup the store will need. The restaurant's orders are an example of which type of business purchase?

Straight Rebuy

The United States Navy purchases uniforms from a single supplier. For the last twenty-five years, the trousers purchased from this supplier have not changed and have been bought every six months, in seven different sizes. This example is called a

Straight rebuy

The group of people within a business who are involved in making business buying decisions is referred to as

The buying center

The government decides to purchase a new fleet of fighter jets for the U.S. Air Force. What type of buying procedure is the government most likely to use?

The government will select a few firms and enter into negotiations with them until the contract is awarded.

Which of the following would be considered an institutional buyer?

The united way

The owner of a trucking business, who buys gasoline from the nearby service station for the company trucks, is a part of a business market

True

Christy Bridgman is considering the purchase of a new fax machine for her real estate office. She is considering a machine that doesn't have as many functions but is available at a considerably lower price than her current machine. She is engaged in ____ analysis

Value

During the search for products and evaluating possible suppliers stage of the business buying decision process, marketers sometimes use ____ analysis to examine the quality, design, materials, and possibly item reduction in order to acquire the product in the most cost-effective way

Value

____ analysis is a systematic evaluation of current and potential suppliers that focuses on many dimensions including price, product quality, delivery service, product dependability, and overall company reliability.

Vendor

buy products from manufacturers and then resell the products to other firms in the distribution system

Wholesaler

Most business buying decisions are made by

a firm's buying center.

Inelastic demand simply means that

a price increase or decrease will not significantly change the demand for an item.

Compared with the SIC system, the North American Industry Classification System (NAICS) will

contain the most up-to-date information for the NAFTA partners

The fact that business customers purchase products to be used directly or indirectly in the production of goods and services to satisfy customers' needs means that demand for business products is

derived

. The second stage in the business buying decision process is to

develop product specifications.

All of the following describe the demand for business products except

elastic

Compared with consumer goods, marketers aiming at business customers

have an enormous amount of information available concerning potential customers

Mike's Roadside Market buys produce from area farmers, marks the merchandise at a price that includes some profit, and then sells the fruit and vegetables to the people in and around Centerville. Mike's would be classified as part of a ____ market

re seller

Precision Brake Company is a supplier of brake components to the manufacturers of lawn tractors and 4-wheel ATV's. It also sells its products to independent repair centers, dealers, and other wholesalers in the northeast and southern states. Precision Brake has done research on the demand for lawn tractors and found that most manufacturers are in the states of Kentucky, Tennessee, and Alabama. Research also shows that most of the dealers who sell directly to individual consumers are in the Midwestern states, while dealers who sell to small business landscaping companies tend to be located in the northeastern states. Company executives are considering expansion of its distribution to markets in the Midwest. Refer to Scenario 8.2. When Precision Brake sells to the individual dealers, they would be considered which of the following business types?

re seller

Retailers like Target and Kmart are considered to be members of which business market?

re seller

Snappy Tools, Inc., purchases hammers, bolts, and other hardware items from a variety of manufacturers and sells them to hardware stores at a price that includes a profit for Snappy Tools, Inc. The company would be part of what type of business market?

re seller

. Bob Denton of Denton Pest Control buys equipment from Allied Tools because Allied hires him to spray its warehouse for insects periodically. This practice is an example of

reciprocity

Jason owns a small landscaping business called GreenScapes. When buying a new pickup truck for his landscaping business, Jason negotiated with Palmetto Dodge, a dealer, with the agreement that GreenScapes would be the service company Palmetto Dodge used for all of its landscaping needs. This is an example of

reciprocity

The stages of the business buying decision process, in order, are

recognizing the problem, establishing product specifications, searching for products and evaluating possible suppliers, selecting suppliers and products, and evaluating performance.

In business markets, individuals or groups purchase products for one of three purposes. These purposes are

resale, direct use in producing other products, and use in general daily operations.

The three purposes for which individuals or groups can use products in order for it to be considered a business market are

resale, use in daily operations, and direct use in producing other products.

Because retailers have to be concerned with product selection, price, and space, they often evaluate products on the basis of

sales per square foot of selling area

The third stage in the business buying decision process is to

search for products and suppliers

A friend of yours starts his own business. He would like to expand his client base to include the government, but he believes his small business would be ignored. Based on your knowledge from the text, you tell him

the government buys products from all sizes of business, but there is some red tape

Most businesses try to control the level of quality in the parts they buy from suppliers. Most firms develop standards for ____ in order to achieve their quality goals.

the percentage of defects allowed