590 Chapter 9

What are the challenges faced by automobile manufacturers in selling online?

Answer: Currently, U.S. franchising law prohibits automobile manufacturers from selling cars directly to consumers, so automobile retailing is dominated by dealership networks. Automobile manufacturers use the Internet to deliver branding advertising, while dealers focus on generating leads. Consumers typically focus on product and pricing research, which they then use to negotiate with dealers. Direct online automobile sales are currently not common due to the complexity of the vehicle purchasing process. Difficulty: Moderate AACSB: Application of knowledge; Written and oral communication Learning Objective: 9.1: Understand the environment in which the online retail sector operates today. 7 Copyright © 2019 Pearson Education, Inc.

All of the following statements about the online real estate services market are true except: A) most people use the Internet to search for a home, but still use the services of a real estate agent to complete the purchase. B) real estate differs from other types of online financial services because it is impossible to complete a property transaction online. C) the primary service offered by real estate sites is a listing of houses available. D) the Internet and e-commerce have created a revolution in the real estate value chain.

Answer: D Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.5: Discuss the trends taking place in the online financial services industry.

What is the largest sector of the online travel services market in terms of revenue? A) hotel reservations B) car reservations C) cruise/tour reservations D) airline reservations

Answer: D Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.6: Describe the major trends in the online travel services industry today. 22 Copyright © 2019 Pearson Education, Inc.

Define the term economic viability and explain the factors involved in assessing a firm's economic viability.

Answer: Economic viability refers to the ability of a firm to survive during a specified time period as a profitable business firm. To analyze the economic viability of a firm, both strategic and financial assessments are conducted. Strategic approaches to economic viability focus on both the industry in which a firm operates and the firm itself. Industry factors to examine include barriers to entry, which are expenses such as high capital costs, or intellectual property such as patents or copyrights held by other firms, and make it difficult for new entrants to join the industry. The power of the suppliers and power of the customers in the industry must also be considered. If suppliers are sufficiently powerful they can charge higher prices, whereas if the manufacturers or retailers are more powerful they can bargain effectively for lower prices from their suppliers. The relative power of the customers determines whether they will be able to shop among the firm's competitors, thus keeping prices down. The existence of substitute products in an industry can also drive prices down if consumers have access to products with a similar function that they determine will fill their needs just as adequately. The industry value chain must be evaluated to determine if the chain of production and distribution for the industry is changing in ways that will benefit or harm the firm. Finally, the nature of the intra-industry competition must be evaluated to determine if the competition within the industry is based on differentiated products and services, price, the scope of the offerings or the focus of the offerings, and whether any imminent changes in the nature of the competition will benefit or harm the firm. The strategic factors to analyze include the firm value chain, the core competencies of the firm, the synergies available to the firm, the technology used by the firm, and the social and legal challenges facing the firm. The firm value chain must be evaluated to determine if the firm has adopted business systems that will enable it to operate at peak efficiency and whether there are any looming technological changes that might force the firm to change its processes or methods. The core competencies of a firm are its unique skills that cannot be easily duplicated. When analyzing the economic viability of a firm it is important to consider whether technological changes might invalidate these competencies. Synergies refer to the availability to the firm of the competencies and assets of related firms that it owns or with which it has formed strategic partnerships. The firm's current technology must be evaluated to determine if it has proprietary technologies that will allow it to scale with demand and if it has developed the customer relationship, fulfillment, supply chain management, and human resources systems that it will need to be viable. Finally, the social and legal challenges facing the firm should be examined to determine if the firm has taken into account consumer trust issues such as the privacy and security of personal information and if the firm may be vulnerable to legal challenges. 13 Copyright © 2019 Pearson Education, Inc. The financial factors to analyze are the firm's revenues, cost of sales, gross margin, operating expenses, operating margin, and net margin. Revenues must be examined to determine if they are growing and at what rate. Cost of sales is the cost of the products sold including all related costs. The lower the cost of sales compared to revenue, the higher the gross profit. Gross margin is calculated by dividing gross profit by net sales. If the gross margin is improving consistently, the economic outlook for the firm is enhanced. Operating expenses such as marketing, technology, and administrative costs should be evaluated to determine if the firm's needs in the near interim will necessitate increased outlays. Large increases in operating expenses may result in net losses for the firm. Operating margin tells us if the firm's current operations are covering its operating expenses, not including interest expenses and other non-operating expenses. Net margin is calculated by dividing net income or net loss by net sales. It evaluates the net profit or loss for each dollar in sales. For example, a net margin of 12% indicates that a firm is making 12 cents on each dollar in sales. These figures can be found on a firm's consolidated statement of operations and summary balance sheet. A thorough strategic and financial analysis will often reveal the true economic prospects for a firm in the near to medium term. Difficulty: Difficult AACSB: Analytical thinking; Written and oral communication Learning Objective: 9.2: Explain how to analyze the economic viability of an online firm.

Contrary to predictions of analysts made during the early days of e-commerce, the Internet has led to both disintermediation and hypermediation on a widespread basis.

Answer: FALSE Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

Online retail constitutes about 20% of the total retail market today.

Answer: FALSE Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

Which of the following statements is not true about the automobile, and automobile parts and accessories, online retail category? A) Most of the revenue in this category is generated from the sales of automobiles. B) Automobile manufacturers use the Internet to deliver branding advertising. C) U.S. franchising law prohibits automobile manufacturers from selling cars directly to consumers. D) Automobile retailing is dominated by dealership networks.

Answer: A Difficulty: Easy AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

The term supply-push refers to: A) making products prior to orders being received based on estimated demand. B) waiting for orders to be received before building a product. C) channel conflict. D) multi-channel manufacturers who sell directly online to consumers.

Answer: A Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.3: Identify the challenges faced by the different types of online retailers.

Which of the following measures the percentage of sales revenue a firm can retain after all expenses are deducted from gross revenues? A) gross profit B) net margin C) operating margin D) working capital

Answer: B Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.2: Explain how to analyze the economic viability of an online firm.

2) The MOTO sector of the retail industry is most similar to the ________ sector. A) specialty stores B) general merchandise C) online retail sales D) consumer durables

Answer: C Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

Which of the following is not one of the methods used by traditional retailers to develop omni-channel integration? A) online catalog B) online order, in-store pickup C) online supply-push D) online promotions for offline purchases

Answer: C Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

Which of the following provides a financial snapshot of a company's assets and liabilities (debts) on a given date? A) working capital B) operating margin C) balance sheet D) gross margin

Answer: C Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.2: Explain how to analyze the economic viability of an online firm.

Which of the following occurs when retailers of products must compete on price and currency of inventory directly against the manufacturer? A) disintermediation B) localization C) channel conflict D) hypermediation

Answer: C Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.3: Identify the challenges faced by the different types of online retailers.

Which of the following best explains why the service sector is a natural avenue for e- commerce? A) The service sector is less geographically reliant and more globally oriented. B) The service sector has historically been more technology-reliant. C) Much of the value in services is based on the collection, storage, and exchange of information. D) It is not; services are difficult to translate to e-commerce because they rely on face-to-face communication and barter.

Answer: C Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.4: Describe the major features of the online service sector. 19 Copyright © 2019 Pearson Education, Inc.

Which of the following statements about online banking is not true? A) Top mobile banking activities include checking balances and bank statements and viewing recent transactions. B) Online and mobile banking transactions provide significant costs savings for banks. C) Millennials are adopting mobile banking at a much higher rate than those who are older. D) More people use a tablet for mobile banking than a mobile phone.

Answer: D Difficulty: Difficult AACSB: Application of knowledge Learning Objective: 9.5: Discuss the trends taking place in the online financial services industry.

All of the following are challenges for catalog merchants except: A) high costs of printing and mailing. B) building a credible website. C) the need to bring staff in or manage new technology. D) building sophisticated order entry and fulfillment systems.

Answer: D Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.3: Identify the challenges faced by the different types of online retailers. 15 Copyright © 2019 Pearson Education, Inc.

Service industry groups are categorized generally into two groups, those that provide transaction brokering and those that involve: A) retailing goods. B) personalization. C) information brokering. D) providing hands-on services.

Answer: D Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.4: Describe the major features of the online service sector. 18 Copyright © 2019 Pearson Education, Inc.

Craigslist is a player in which of the following online services markets? A) real estate services and career services B) insurance services and brokerage services C) travel services D) online accounting services

Answer: A Difficulty: Easy AACSB: Application of knowledge Learning Objective: 9.5: Discuss the trends taking place in the online financial services industry.

6) All of the following were parts of the vision during the early days of e-commerce except the belief that: A) new, "first-mover" middlemen, with expertise in e-commerce, would force traditional intermediaries out of business. B) online consumers were rational and cost-driven. C) entry costs to the online retail market would be much less than those needed to establish a physical storefront. D) the cost of acquiring customers would be much lower.

Answer: A Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

For a quick check of a firm's short-term financial health, examine its: A) working capital. B) gross margin. C) long-term debt. D) cost of sales.

Answer: A Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.2: Explain how to analyze the economic viability of an online firm.

Operating margin is defined as: A) operating income or loss divided by net sales revenues. B) operating income or loss divided by total operating expenses. C) net sales revenues divided by net income or loss. D) net assets divided by net liabilities.

Answer: A Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.2: Explain how to analyze the economic viability of an online firm.

Which of the following is not be considered a current asset? A) long-term investments B) cash C) accounts receivable D) marketable securities

Answer: A Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.2: Explain how to analyze the economic viability of an online firm.

Which of the following is not categorized as an operating expense? A) the cost of products being sold B) marketing costs C) administrative overhead D) amortization of goodwill

Answer: A Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.2: Explain how to analyze the economic viability of an online firm. 10 Copyright © 2019 Pearson Education, Inc.

Which of the following has the second-highest share of online retail sales? A) omni-channel merchants B) virtual merchants C) catalog merchants D) manufacturer-direct

Answer: A Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.3: Identify the challenges faced by the different types of online retailers.

All of the following services require extensive personalization except: A) financial services. B) legal services. C) medical services. D) accounting services.

Answer: A Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.4: Describe the major features of the online service sector.

In ________, all of a customer's financial (and even nonfinancial) data are pulled together into a single, personalized website. A) account aggregation B) a financial portal C) integrated financial services D) EBPP systems

Answer: A Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.5: Discuss the trends taking place in the online financial services industry.

Describe the state of the online retail sector today.

Answer: Although the online retail sector is one of the smallest segments of the total retail market, constituting only about 9% of the total retail market in 2017, it is growing faster than its offline counterparts, with new functionality and product lines being added every day. During the recession of 2008-2009, online retail revenues were basically flat, but have since resumed their upward trajectory. More people than ever are shopping online, and for most consumers, the advantages of online shopping overcome the disadvantages. While the number of new Internet users in the United States is not growing as rapidly as it was, with almost 84% of the U.S. population already on the Internet, this slowdown will not necessarily reduce the growth in online retail e-commerce because the average shopper is spending more on the Internet each year and finding many new categories of items to buy. For instance, in 2003, the average annual amount spent online by users was $675, but by 2017, it had jumped to over $2,455. Millions of additional consumers more look for information about purchases they make at offline stores. Offline retailers who have the brand-name recognition, supportive infrastructure, and financial resources have entered the online marketplace successfully and continue to integrate their online operations with their physical store operations to provide an "integrated shopping customer experience," and leverage the value of their physical stores. Some of the most significant changes in retail e-commerce in 2017 were the continuing growth in social e-commerce, the growing ability of firms to market local services and products using location-based marketing, and, not least, the rapidly growing mobile platform composed of smartphones and tablet computers. In retail circles, smartphones have become a leading shopping tool, while tablets and ultra-light laptops are increasingly both shopping and purchase platforms. Social networks like Facebook, Twitter, Pinterest, Instagram, Snapchat and others have developed into major marketing and advertising platforms. After trials, Facebook, Pinterest, and Instagram have all introduced their own versions of "buy buttons" that allow consumers to more easily purchase goods on a much wider scale. In addition, location-based mobile marketing and advertising solutions such as Groupon have enabled local merchants to inexpensively enter local mobile marketing. Social and local e-commerce are enabled by the tremendous growth in mobile Internet devices, both smartphones and tablet computers. In 2017, U.S. retail m-commerce is expected to generate over $153 billion overall. In 2017, almost 80% of online buyers are expected to make a purchase using a mobile device, and it is estimated that this percentage will grow to over 85% by 2021. Difficulty: Moderate AACSB: Analytical thinking; Written and oral communication Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

Virtual merchants face potentially large costs for all of the following except: A) building and maintaining a website. B) building and maintaining physical stores. C) building an order fulfillment infrastructure. D) developing a brand name.

Answer: B Difficulty: Easy AACSB: Application of knowledge Learning Objective: 9.3: Identify the challenges faced by the different types of online retailers.

Which of the following is not a digitally native vertical brand? A) Warby Parker B) Wayfair C) Everlane D) Caspar

Answer: B Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today. 5 Copyright © 2019 Pearson Education, Inc.

Gross margin is defined as gross profit: A) minus total operating expenses. B) divided by net sales revenues. C) divided by cost of sales. D) minus net income.

Answer: B Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.2: Explain how to analyze the economic viability of an online firm.

All of the following are examples of the challenges that traditional manufacturers experience when using the Internet to sell directly to the consumer except: A) moving to a demand-pull model. B) high cost structures. C) developing a fast-response online order and fulfillment system. D) channel conflict.

Answer: B Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.3: Identify the challenges faced by the different types of online retailers.

Omni-channel merchants are also referred to as: A) virtual merchants. B) bricks-and-clicks companies. C) catalog merchants. D) manufacturer-direct firms.

Answer: B Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.3: Identify the challenges faced by the different types of online retailers.

Which of the following has the highest share of online retail sales? A) omni-channel merchants B) virtual merchants C) catalog merchants D) manufacturer-direct

Answer: B Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.3: Identify the challenges faced by the different types of online retailers. 16 Copyright © 2019 Pearson Education, Inc.

All of the following are terms used to describe on-demand service companies except: A) mesh economy. B) collaborative commerce. C) we-commerce. D) omni-channel commerce.

Answer: D Difficulty: Easy AACSB: Application of knowledge Learning Objective: 9.8: Understand the business models of on-demand service companies.

All of the following are strategic factors that pertain specifically to a firm and its related businesses except: A) core competencies. B) synergies. C) technology. D) power of customers.

Answer: D Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.2: Explain how to analyze the economic viability of an online firm.

All of the following are challenges faced by bricks-and-clicks firms except: A) coordinating prices across channels. B) handling returns of online purchases at retail outlets. C) building a credible website. D) building a brand name.

Answer: D Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.3: Identify the challenges faced by the different types of online retailers.

Which of the following is not an example of a virtual merchant? A) Overstock B) Wayfair C) Rue La La D) Dell

Answer: D Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.3: Identify the challenges faced by the different types of online retailers.

Which of the following is not true about on-demand service firms? A) The growth of on-demand service firms is supported using online reputation systems based on peer review. B) It is not likely that on-demand service firms will totally escape government regulation. C) On-demand service firms facilitate access to resources. D) On-demand service firms are a totally new phenomenon without precedent in the history of e- commerce.

Answer: D Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.8: Understand the business models of on-demand service companies.

Personal consumption of retail goods and services accounts for over 75% of total gross domestic product (GDP).

Answer: FALSE Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

Consumers are primarily price-driven when shopping on the Internet.

Answer: FALSE Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today. 6 Copyright © 2019 Pearson Education, Inc.

The online mortgage industry has transformed the process of obtaining a mortgage.

Answer: FALSE Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.5: Discuss the trends taking place in the online financial services industry.

Describe the vision of online retailing during the early days of e-commerce. Did these predictions and assumptions turn out to be true?

Answer: In the early days of e-commerce, entrepreneurial online retailers saw the Web as one of the largest market opportunities in the United States economy. They believed that entering the online retail market would be an easy proposition because the new marketing channel would revolutionize the retail industry. The belief was that the Internet would greatly reduce both search costs and transaction costs, causing consumers to use the Internet to find the lowest prices for products. This would result in consumers being increasingly drawn to the new channel, and only the low-cost, high-service quality e-tailers would survive. Economists assumed that online consumers would be rational and cost-driven rather than brand-name and perceived-value driven. The entrepreneurs also believed that entry costs to the online retail market would be much lower than the costs to establish a physical store, and that they could be more efficient at marketing and order fulfillment than their offline counterparts. They believed they could inexpensively create compelling websites that would attract customers and that these costs would no doubt be far less than the costs of warehouses, fulfillment centers, and physical stores. They severely underestimated the costs to build sophisticated order entry, shopping cart, and fulfillment systems because they believed the technology had already been developed and furthermore believed with technology prices falling every year, updating and building any other necessary systems would be economical. With search engines almost instantaneously connecting consumers to relevant online vendors, customer acquisition costs would also be negligible. As prices fell, the unwieldy and outdated offline merchants would be driven out of business and the new entrepreneurs of the efficient online marketplace would take over. Smart entrepreneurs would exploit first mover advantages to take their place at the head of the online merchant class and the old general merchandisers would be locked out of the market. In some industries, such as apparel, electronics, and digital content, the market would be disintermediated, eliminating the traditional "middlemen" as manufacturers and distributors built a direct relationship with the consumer. The Web would become the dominant channel replacing the physical stores, sales clerks, and sales forces. In other industries, retailers would outsource the warehousing and order-fulfillment functions and a kind of hypermediation would occur in which many intermediaries would perform the functions for the virtual firm. Unfortunately for many failed businesses and investors, these assumptions did not turn out to be correct. The structure of the retail marketplace remained intact, and consumers have proven to be less price sensitive than the economists expected. In online merchandising, the importance of brand names to consumers' perceptions of quality and service has been extended rather than decreased or eliminated. The retail marketplace was neither disintermediated nor revolutionized. Although an entirely new channel emerged, it today belongs not to the pure-play, online- only, first movers, but also to the multi-channel firms with established brand names. Difficulty: Moderate AACSB: Analytical thinking; Written and oral communication Learning Objective: 9.1: Understand the environment in which the online retail sector operates today. 8 Copyright © 2019 Pearson Education, Inc.

Almost all recruiting professionals now use social networks in the recruiting process.

Answer: TRUE Difficulty: Easy AACSB: Application of knowledge Learning Objective: 9.7: Identify current trends in the online career services industry.

In 2017, about 80% of online buyers were expected to make a purchase using a mobile device.

Answer: TRUE Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

Identify and discuss the key features of the online insurance industry.

Answer: The insurance industry forms a major part of the financial services sector. It has four major segments: automobile, life, health, and property and casualty. Insurance products can be very complex, and have not become true online products. Some policies can only be explained by an experienced sales agent, and there are many types of policies and products (i.e., non- automotive property and casualty insurance). Traditional reliance on thousands of local insurance offices and agents to sell complex products uniquely suited to the circumstances of the insured person and/or property make it difficult to be completely transferred to the new online channel. In addition, the industry is regulated separately in each state, with differing regulations. While many national insurance underwriting companies initially did not offer competitive products directly on the Web because it might injure the business operations of their traditional local agents, the websites of almost all major firms now provide the ability to obtain an online quote. Even if consumers do not actually purchase insurance policies online, the Internet has proven to have a powerful influence by dramatically reducing search costs and changing the price discovery process. Difficulty: Difficult AACSB: Analytical thinking; Written and oral communication Learning Objective: 9.5: Discuss the trends taking place in the online financial services industry.

3) Which of the following is not one of the seven major segments of the retail industry? A) electronics and computers B) specialty stores C) gasoline and fuel D) food and beverage

Answer: A Difficulty: Easy AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today. Copyright © 2019 Pearson Education, Inc.

Approximately ________ % of the United States labor force is involved in providing services. A) 50 B) 60 C) 70 D) 80

Answer: D Difficulty: Difficult AACSB: Application of knowledge Learning Objective: 9.4: Describe the major features of the online service sector.

7) All of the following have introduced their own versions of Buy buttons except: A) Facebook. B) Pinterest. C) Instagram. D) Tumblr.

Answer: D Difficulty: Easy AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today. 3 Copyright © 2019 Pearson Education, Inc.

Which of the following is not an example of a transaction broker? A) a stockbroker B) a real estate agent C) an accountant D) an employment agency

Answer: C Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.4: Describe the major features of the online service sector.

In the United States, the service sector accounts for approximately ________ % of the United States GDP. A) 70 B) 75 C) 80 D) 85

Answer: C Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.4: Describe the major features of the online service sector.

Which of the following statements is not true? A) Price competition among online travel services is difficult as comparison shopping for better prices is easy. B) The online travel services sector is one of the few in which extensive disintermediation has occurred. C) The ability of travel products and services to be commoditized is a significant factor in the explosive growth of the online travel services industry. D) The online travel services industry has gone through a period of consolidation.

Answer: B Difficulty: Difficult AACSB: Application of knowledge Learning Objective: 9.6: Describe the major trends in the online travel services industry today.

8) In 2017, approximately what percentage of Internet users over the age of 14 made a purchase at an online retail store? A) 38% B) 58% C) 78% D) 98%

Answer: C Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

In 2016, ________ retailers generated approximately 85% of all online retail? A) 5 B) 50 C) 500 D) 5,000

Answer: C Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

Which of the following is not one of the central challenges facing the online retail industry? A) lack of physical store presence B) consumer concerns about the privacy of personal information C) inconvenience in returning goods D) delivery delays

Answer: A Difficulty: Difficult AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today. 4 Copyright © 2019 Pearson Education, Inc.

All of the following statements about Amazon are true except: A) in 2016, Amazon purchased Jet.com, one of its discount competitors. B) Amazon Web Services is now a major part of Amazon's business. C) eBay can be considered a competitor of Amazon's. D) the rising cost of shipping represents one of the biggest threats to Amazon's long-term profitability.

Answer: A Difficulty: Difficult AACSB: Application of knowledge Learning Objective: 9.3: Identify the challenges faced by the different types of online retailers.

The Internet has resulted in lower search costs, increased price comparison, and lower prices to consumers for which insurance product line? A) term life insurance B) automobile insurance C) health insurance D) property and casualty insurance

Answer: A Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.5: Discuss the trends taking place in the online financial services industry.

All of the following statements about the online insurance industry are true except: A) the Internet has lowered search costs, increased price comparison, and decreased prices to consumers for all forms of insurance. B) websites of almost all the major firms provide the ability to obtain an online quote. C) According to comScore, the online channel is consumers' preferred method for shopping for auto insurance policies. D) the industry has been very successful in attracting visitors searching for information.

Answer: A Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.5: Discuss the trends taking place in the online financial services industry. 20 Copyright © 2019 Pearson Education, Inc.

________ has introduced a tool known as Consumer Alerts to inform readers when a review is likely to be fraudulent? A) Yelp B) TripAdvisor C) Angie's List D) TripExpert

Answer: A Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.6: Describe the major trends in the online travel services industry today.

Which of the following is not a major trend in the online recruitment services industry? A) disintermediation B) Millennials and GenX primarily use mobile devices to search for jobs C) social recruiting D) use of big data technologies in the hiring process

Answer: A Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.7: Identify current trends in the online career services industry.

The lower the ________ compared to revenue, the higher the gross profit. A) assets B) cost of sales C) gross margin D) operating expenses

Answer: B Difficulty: Difficult AACSB: Application of knowledge Learning Objective: 9.2: Explain how to analyze the economic viability of an online firm.

________ is a subscription-based retailer using predictive marketing and Big Data? A) Macy's B) Stitch Fix C) Dell D) Lands' End

Answer: B Difficulty: Easy AACSB: Application of knowledge Learning Objective: 9.3: Identify the challenges faced by the different types of online retailers. 14 Copyright © 2019 Pearson Education, Inc.

4) All of the following statements about the MOTO sector are true except: A) compared to general merchandisers, the transition to e-commerce has been easier for MOTO firms. B) the MOTO sector is also referred to as the specialty store sector. C) MOTO was the last technological revolution that preceded e-commerce. D) distribution of catalogs is one of MOTO retailers' biggest expenses.

Answer: B Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

5) All of the following were factors that precipitated the growth of MOTO except: A) the national toll-free call system. B) the growth of the cellular phone industry. C) falling long distance telecommunications prices. D) the growth of the credit card industry.

Answer: B Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

9) Which of the following categories generates the highest percentage of online retail revenue? A) computers and electronics B) apparel and accessories C) books/music/video D) automobile and automobile parts and accessories

Answer: B Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

Expedia owns all of the following except: A) Travelocity. B) Orbitz. C) TripAdvisor. D) CheapTickets.

Answer: C Difficulty: Easy AACSB: Application of knowledge Learning Objective: 9.6: Describe the major trends in the online travel services industry today.

The existence of substitute products is a key industry strategic factor.

Answer: TRUE Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.2: Explain how to analyze the economic viability of an online firm. 12 Copyright © 2019 Pearson Education, Inc.

Which of the following is not a key industry strategic factor? A) synergies B) barriers to entry C) industry value chain D) existence of substitute products

Answer: A Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.2: Explain how to analyze the economic viability of an online firm. 9 Copyright © 2019 Pearson Education, Inc.

What is another name for pro forma earnings? A) net margin B) operating income C) earnings before income taxes, depreciation, and amortization (EBITDA) D) generally accepted accounting principles (GAAP) earnings

Answer: C Difficulty: Difficult AACSB: Application of knowledge Learning Objective: 9.2: Explain how to analyze the economic viability of an online firm.

Which of the following is an on-demand service company focused on lodging? A) Uber B) Lyft C) Airbnb D) Task Rabbit

Answer: C Difficulty: Easy AACSB: Application of knowledge Learning Objective: 9.8: Understand the business models of on-demand service companies.

Current liabilities are debts of the firm that will be due within: A) three months. B) six months. C) one year. D) two years.

Answer: C Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.2: Explain how to analyze the economic viability of an online firm. 11 Copyright © 2019 Pearson Education, Inc.

Which of these job recruitment sites is not a job listing aggregator? A) Indeed B) SimplyHired C) Glassdoor D) CareerBuilder

Answer: D Difficulty: Easy AACSB: Application of knowledge Learning Objective: 9.7: Identify current trends in the online career services industry. 23 Copyright © 2019 Pearson Education, Inc.

1) Which of the following is not a major trend in online retail for 2017-2018? A) Buying online has become a normal, mainstream, everyday experience. B) The average annual purchase of online buyers continues to increase. C) Online retailers place an increased emphasis on providing an improved "shopping experience". D) The number of online buyers begins to plateau.

Answer: D Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

All of the following are advantages of online retail except: A) lower supply chain costs. B) lower cost of distribution. C) ability to change prices. D) faster delivery of goods.

Answer: D Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

On-demand service companies collect a fee from both sellers and buyers who use the platform.

Answer: TRUE Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.8: Understand the business models of on-demand service companies.

Discuss the issue of consolidation in the online travel services industry.

Answer: The online travel services industry has gone through a period of intense consolidation. Expedia now owns Travelocity, Orbitz, CheapTickets, Hotels.com, Hotwire, and meta-search engine Trivago. Its primary competition consists of Priceline, which owns Booking.com, Lowestfare.com, and Kayak. Together, Expedia and Priceline control a whopping 95% of the online travel agency booking market. However, Google is also poised to become a player in the market, with its Google Flights that also provides booking functionality. The U.S. Department of Justice also cited the TripAdvisor's introduction of an Instant Booking service as a factor in its approval of Expedia's acquisition of Orbitz. Difficulty: Moderate AACSB: Application of knowledge; Written and oral communication Learning Objective: 9.6: Describe the major trends in the online travel services industry today.

Discuss Amazon's future prospects. Do you think Amazon will ever be consistently profitable?

Answer: In 2016, Amazon finally began to show investors and analysts what they had been waiting years to see—sustainable profitability, including a landmark $879 million profit in the second quarter of 2016. The profitability of its AWS unit is also a major positive for Amazon, with revenues from AWS continuing to rapidly grown in 2017. Amazon Prime is also a key component of the company's strong performance, with Prime subscription revenue doubling from $2.8 billion in 2014 to $6.4 billion in 2016. However, Amazon has reached its current position of dominance in e-commerce by defying analysts' expectations, and the company plans to return to its old habits of spending prodigiously to grow even larger in 2017 and beyond, compromising profitability in the process. Difficulty: Moderate AACSB: Application of knowledge; Written and oral communication Learning Objective: 9.3: Identify the challenges faced by the different types of online retailers. 17 Copyright © 2019 Pearson Education, Inc.

Big data plays an important role in predictive marketing.

Answer: TRUE Difficulty: Easy AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

Why have so many online retailers had difficulty in achieving profits? How has this changed by 2017?

Answer: There are several reasons for the difficulties experienced by online retailers in achieving profits. The path to success in any form of retail involves having a central location to attract a larger number of shoppers, charging high enough prices to cover the costs of goods and marketing, and developing highly efficient inventory and fulfillment systems so that the company can offer goods at lower costs than competitors and still make a profit. Many online merchants failed to follow these fundamental ideas, lowering prices below the total costs of goods and operations, failing to develop efficient business processes, failing to attract a large enough audience to their websites, and spending far too much on customer acquisition and marketing. Now, however, the lessons of the past have been learned, and far fewer online merchants are selling below cost, especially if they are start-up companies. There's also been a change in consumer culture and attitudes. Whereas in the past consumers looked to the Web for cheap prices, in 2017, they look to online purchasing for convenience, time savings, and time shifting (buying retail goods at night from the sofa). Consumers have been willing to accept higher prices in return for the convenience of shopping online and avoiding the inconvenience of shopping at stores and malls. This allows online merchants more pricing freedom. Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.3: Identify the challenges faced by the different types of online retailers.

In 2017, the number of online buyers was over 180 million.

Answer: TRUE Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

Explain why online career services are so well suited to the Web.

Answer: Next to travel services, job-hunting services have been one of the Internet's most successful online services because they save money for both job hunters and employers. Job resumes can be posted for free, many other career-related services can be easily accessed, and for a fee, job hunters can access lists of job openings that have been posted by companies. Online recruiting provides an efficient and cost-effective means of linking employers and job hunters, and reduces the total time-to-hire. Job hunters can easily build, update, and distribute their resumes, conduct job searches, and gather information on employers at their convenience and leisure. They can also take skills assessment tests, fill out personality assessment questionnaires, and access such services as personalized account management for job hunters, job search tools, employer blocking tools, organizational culture assessments, and e-mail notifications when an appropriate job is newly listed on the site. Career recruitment is an information-intense business process that the Internet can automate, thus reducing search time and costs for all parties. In addition to matching job applicants with available positions, online sites also serve the larger function of automating this information- intense business process. Difficulty: Moderate AACSB: Analytical thinking; Written and oral communication Learning Objective: 9.7: Identify current trends in the online career services industry. 24 Copyright © 2019 Pearson Education, Inc.

Naturebox is an example of a subscription-based retail revenue model.

Answer: TRUE Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

Online retailing provides an example of the powerful role that intermediaries continue to play in retail trade.

Answer: TRUE Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.1: Understand the environment in which the online retail sector operates today.

In 2017, almost 60% of the adult U.S. population was expected to use online banking.

Answer: TRUE Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.5: Discuss the trends taking place in the online financial services industry.

The major impact of Internet real estate sites is influencing offline decisions.

Answer: TRUE Difficulty: Moderate AACSB: Application of knowledge Learning Objective: 9.5: Discuss the trends taking place in the online financial services industry. 21 Copyright © 2019 Pearson Education, Inc.

Describe the virtual merchant business model and its unique challenges in becoming financially viable.

Answer: Virtual merchants are single-channel e-commerce firms that generate almost all their revenue from online sales. Unfortunately, they face a number of challenges. They must build a business and brand name from scratch quickly, and face many virtual merchant competitors. They also face large costs in building and maintaining an e-commerce presence, building an order fulfillment infrastructure, and developing a brand name. Customer acquisition costs are high, and the learning curve is steep. Like all retail firms, their gross margins are low. Therefore, virtual merchants must achieve highly efficient operations to preserve a profit, while building a brand name as quickly as possible in order to attract sufficient customers to cover their costs of operations. Most merchants in this category adopt low-cost and convenience strategies, coupled with extremely effective and efficient fulfillment processes to ensure customers receive what they ordered as fast as possible. Difficulty: Moderate AACSB: Analytical thinking; Written and oral communication Learning Objective: 9.3: Identify the challenges faced by the different types of online retailers.