MGMT 421: Chapter 5

19. Which of the following statements is true of franchising? A. The parties in a franchising arrangement usually compete with each other for success. B. The franchisee is the company that owns the franchise's name and distinctive elements and grants others the right to sell its product. C. A franchise is an agreement whereby an independent businessperson is given exclusive rights to sell a specified good or service. D. A franchiser is usually an independent local businessperson who agrees with the franchise owner to operate the business on a local or regional basis.

C. A franchise is an agreement whereby an independent businessperson is given exclusive rights to sell a specified good or service.

2. John wants to start his own business. After doing some research, he has decided to specialize in cleaning kitchens since most homemakers are not satisfied with the quality of the service offered by the residential cleaning companies. This process of finding a small—but profitable—demand for something and producing a custom-made product or service is known as _____. A. out-of-home advertising B. niche marketing C. sales promotion D. visual merchandising

b. Niche marketing

20. What does a franchiser do? A. Owns the company's name and licenses others to sell its products B. Provides a licensing fee to the owner of the business C. Runs the day-to-day operations of the local business D. Agrees to sell the product according to the franchisee's requirements

A. Owns the company's name and licenses others to sell its products

16. In franchising, which of the following is a benefit to the franchisee? A. Share in local or national promotion B. Low operating costs C. Fast expansion and penetration of business D. Increase in royalty fees

A. Share in local or national promotion

28. Which document provides information to possible new franchisees on 20 items required by the Federal Trade Commission? A. Business plan agreement B. Disclosure statement C. Marketing statement D. Buy-sell agreement

B. Disclosure statement

31. _____ is the most important professional assistance one needs before investing in a franchise. A. Technological advice B. Legal advice C. Medical advice D. Communication advice

B. Legal advice

17. In a franchise, which of the following is an advantage for a franchiser? A. Brand recognition B. Low operating costs C. Financial assistance D. Share in national promotion

B. Low operating costs

5. Which of the following is a good source of information through which prospective business owners get help and advice? A. Business Committee for the Arts B. State Economic Development Agencies C. Federal Trade Commission D. Business Council for International Understanding

B. State Economic Development Agencies

6. _____ are private associations of local (or regional) business and professional people who are familiar with an area's needs. A. Offices of International Trade B. Chambers of commerce C. Directory of Trade Associations in the United States D. State Economic Development Agencies

B. Chambers of commerce

27. The continuous fee paid by the franchisee to the franchiser based on a percentage of the franchisee's gross revenue is termed: A. royalty fee. B. start-up fee. C. licensing fee. D. franchise fee.

A. royalty fee.

9. Which of the following statements is true of market research in the context of small businesses? A. Formal research programs are a valuable but an expensive way to obtain guidance. B. The district offices of the U.S. Department of Education have good libraries that can be helpful to small businesses. C. The Business Committee for the Arts has publications on organizing small businesses. D. Market research consists of granting a franchisee the right to sell a product.

A. Formal research programs are a valuable but an expensive way to obtain guidance.

7. _____ is the system of gathering, recording, classifying, analyzing, and interpreting data related to merchandising of goods and services. A. Market research B. Operational research C. Drip marketing D. Global marketing

A. Market research

3. Which of the following refers to a group of retired—but active—managers from all walks of life who help people develop their business ideas? A. Service Corps of Retired Executives B. Federal Small Business Administration C. State Economic Development Agency D. Small Business Development Center

A. Service Corps of Retired Executives

11. Which of the following is a reason for starting a new business? A. The owner has the freedom to select his or her own competitive environment. B. It is easy to find the right business. C. The chances of succeeding is not as high in a franchise as in a small business start-up. D. The owner does not have to experience problems in establishing basic management systems and controls when starting his or her own business.

A. The owner has the freedom to select his or her own competitive environment.

25. What is due diligence? A. The research and analysis of the company that is done before a business transaction B. The efforts of managers from all walks of life to help people develop their business ideas C. The process of producing a custom-made product for that market D. The arrangement under which employees may schedule their own hours around a core time

A. The research and analysis of the company that is done before a business transaction

22. Product and trademark franchising: A. grants the franchisee the right to sell a widely recognized brand. B. is the systematic gathering, recording, and analyzing of data related to the marketing of goods and services. C. is a partnership in which each partner actively participates as an equal in managing the business. D. grants a franchisee the right to market the brand and trademark and to use a complete operating system.

A. grants the franchisee the right to sell a widely recognized brand.

32. The _____ in the United States has a code of ethics that covers a franchiser's obligations to its franchisees. A. International Franchise Association B. Franchising Code of Conduct C. Business Format Franchising D. Product and Trademark Franchising

B. A. International Franchise Association

23. Which type of franchising system grants the franchisee the right to market the product and trademark and use a complete operating system? A. Product format franchising B. Business format franchising C. Trademark franchising D. International franchising

B. Business format franchising

30. Which of the following is true of combination franchising? A. It is opposed to the concept of synergy. B. Cultural clashes can lead to the breakup of this arrangement. C. Firms involved in this arrangement should be competing against each other. D. This type of merger weakens the participating firms.

B. Cultural clashes can lead to the breakup of this arrangement.

8. Prospective entrepreneurs can access data from _____ to obtain information on subjects such as population, business, and housing. A. MIT Enterprise Forum B. International Franchise Association C. Census Bureau D. Federal Trade Commission

C. Census Bureau

26. Which of the following is true of a franchise fee? A. It is a fee paid to the franchiser at regular intervals of time. B. It is a fee based on the percentage of a franchisee's gross revenue. C. It is a one-time fee paid to the franchiser. D. It is a continuous fee paid by the franchiser to the franchisee.

C. It is a one-time fee paid to the franchiser.

13. Jane, who wants to start her own business, considers buying an Internet café which is up for sale in her neighborhood. However, Jane discovers that Internet connectivity tends to be erratic in the store since she lives in a remote town and decides against it. Which of the following is most likely the reason for Jane's refusal to buy the business? A. Lack of an established product line B. Lack of an established channel of distribution C. Problems due to old and obsolete facilities D. Problems associated with workforce availability

C. Problems due to old and obsolete facilities

4. The website of the Federal Small Business Administration has a self-help program called the _____, which helps prospective entrepreneurs focus on some of the factors they need to consider before starting their own business. A. Market Research Questionnaire B. Directory of Entrepreneurship C. Small Business Startup Kit D. Test Marketing Tool

C. Small Business Startup Kit

14. Which of the following is a benefit of buying a franchise? A. The franchisee can identify his or her market niche. B. The franchisee can select his or her own sales activities. C. The franchiser brings proven methods of operation to aid the franchisee. D. The franchiser gives complete independence to run the franchise.

C. The franchiser brings proven methods of operation to aid the franchisee.

24. Which of the following is true of business format franchising? A. The franchiser exercises very little control over the franchisee's business operations. B. Gasoline service stations and truck dealerships use this form of franchising. C. The franchiser provides assistance to the franchisee to train franchise personnel. D. Franchisees concentrate on handling the franchiser's product line and identify their business with that firm.

C. The franchiser provides assistance to the franchisee to train franchise personnel.

10. While working in a fast food outlet, Harold observed that most of the customers were working in offices in the neighborhood. Sensing a profitable opportunity, he decided to open a catering business. He offered to deliver lunch directly to the offices so that the businesspeople would not have to interrupt their meetings to go out for lunch. In the context of the above scenario, which of the following was the reason for Harold to start his own business? A. To obtain fresh inventory B. To take advantage of the latest technology to fill a void C. To select a competitive environment D. To have a free hand in selecting personnel

C. To select a competitive environment

21. Burger's Inc. owns a number of fast food stores across the country. Ryan, who wants to start his own business, decides to open a store under the Burger's Inc. trademark. He has to sell and market the fast food products according to the terms of the licensing agreement. In this scenario, Ryan is a: A. venture capitalist. B. franchiser. C. franchisee. D. manufacturing agent.

C. franchisee.

15. Which of the following is a drawback of buying a franchise? A. Franchisers do not provide any guidance to the franchisee. B. Franchises are not available in a wide range of endeavors. C. Franchisers have to identify their market niche and conduct their own sales activities. D. Franchisees face issues in understanding their role in the responsibilities of operating the franchise.

D. Franchisees face issues in understanding their role in the responsibilities of operating the franchise.

18. _____ is a marketing system based on a legal arrangement that permits one party to conduct business as an individual owner while abiding by the terms and conditions set by the second party. A. Joint venture B. Wholesaling C. Wholly owned subsidiary D. Franchising

D. Franchising

1. _____ is the process of finding a small—but profitable—demand for something and producing a custom-made product for that market. A. Lead marketing B. Challenge marketing C. Content marketing D. Niche marketing

D. Niche marketing

29. _____ is the concept that two or more people, working together in a coordinated way, can accomplish more than the sum of their independent efforts. A. Duality B. Due diligence C. Equity investment D. Synergy

D. Synergy

12. Catherine, who loves dogs, wants to offer dog-walking services in her neighborhood. Her research leads her to a small professional pet care store operating in the area, which she decides to buy. Which of the following is a good reason for Catherine to buy the pet care store? A. The latest technology can be used to fill a service gap. B. A fresh inventory can be obtained. C. A competitive environment may be selected. D. The facilities are already available.

D. The facilities are already available.