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Chapter 15—Managing Retailing, Wholesaling, and Market Logistics

True/False Questions

1. Retail stores pass through a retail life cycle that parallels the product life cycle of products. True (moderate) p. 285

2. It does not matter how or where goods are sold, it is considered retailing if it is sold to the final consumer. True (difficult) p. 285

3. Discount stores are large stores that combine the principles of supermarket, discount, and warehousing into one store. False (easy) p. 286

4. An example of a retail store positioned to offer a broad product assortment and high value added would be Wal-Mart. False (moderate) p. 286

5. The slowest growing segment of retailing is nonstore retailing. False (moderate) p. 287

6. The wheel-of-retailing hypothesis is that as current store types go up the scale in price and service offerings, they create an opportunity for new, low-price, low-service competitors. True (moderate) p. 285

7. A Subway sandwich store offers a narrow but deep assortment of products. True (moderate) p. 286

8. Stores with high value added and a broad product assortment tend to focus on centralized buying and advertising to keep costs low. False (difficult) p. 286

9. Some manufacturers feel threatened by Direct Product Profitability (DPP) because it gives retailers a powerful argument for selecting or rejecting existing or new products. True (moderate) p. 288

10. Wholesaling includes all of the activities involved in selling goods or services to those who buy for resale or business use. True (moderate) p. 290

11. Global expansion, lower levels of competition, and selling an experience are all important trends in retailing. False (moderate) p. 290

12. Drop shippers sell bulky goods like coal and lumber from their inventory. False (difficult) p. 292

13. Some wholesalers do not take title to the goods they handle. True (easy) p. 292

14. Wholesalers rely primarily on sales promotions to achieve their promotional objectives. False (moderate) p. 293

15. A supply chain management perspective leads to ideas for improving productivity versus the more traditional view of wholesaling as a demand chain. False (difficult) p. 294

16. Cross-docking is the most effective way to describe a firm’s market-logistics objective of “getting the right goods to the right places at the right time.” False (difficult) p. 295


17. Fishyback, airtruck, and flyship are examples of containerization methods mentioned in the text, and each uses two modes of transportation. False (moderate) . 299

18. The optimal inventory ordering quantity can be determined by observing how order processing costs and inventory carrying costs sum up at different order levels. True (moderate) p. 298

19. A private carrier is one that is owned and controlled by the firm. True (moderate) p. 299

20. Deciding on transportation modes means shippers are choosing from private, public, and contract carriers. False (moderate) p. 299

Multiple Choice Questions

21. Which of the following is not one of the four levels of retail service mentioned in the text?


b.) self-service c.) self-selection d.) limited service

e.) full service

staffed service (moderate) pp. 285-286

22. A concept in retailing that helps explain the emergence of new retailers is called the hypothesis.

a.) retail life cycle b.) wheel-of-retailing (moderate) p. 285 c.) service-assortment d.) product life cycle e.) retail profitability

23. Convenience goods, such as snack foods, are sold through a.) the wheel-of- b.) self-selection c.) limited-service d.) full-service


self-service (moderate) p. 285


24. Which of the following best describes the retailers that carry more shopping goods, and where customers need more information and assistance? a.) self-service b.) self-selection


d.) full service

e.) automated service

limited service (moderate) p. 285

25. In which of the following retailers are salespeople ready to assist in every phase of the locate- compare-select process? a.) self-service b.) self-selection

c.) limited service

d.) full service (easy) p. 286

e.) automated service


26. Best Buy stores carry a deep assortment of the latest electronics gadgets. They offer buyers a great deal of assistance and advice in making selections. Best Buy would be an example of a


b.) factory outlet

c.) department store d.) superstore

e.) combination store

specialty store (moderate) p. 286

27. Which of the following is the BEST example of a limited-line specialty store? a.) The Precious Moments Store stocks all currently produced Precious Moments statuettes, cards, plates, and any other items related to the Precious Moments line. b.) Welcome to My Garden carries bulbs and seeds, natural fertilizing agents, ergonomic hand and other types of tools, and patio furniture. c.) Julie’s Toddlers is a retail outlet that carries children’s clothing. (difficult) p. 286 d.) The Candy Store is a small store that has a deep assortment of packaged and by-the-pound candies. e.) Circle K carries convenience snack foods and drinks, as well as local souvenirs.

28. McRae’s is a chain of stores found primarily in Mississippi and Alabama. Each store carries several product lines, and each line is managed separately by a specialist buyer or merchandiser. McRae’s offers many types of customer service, and its prices reflect that fact. McRae’s is an example of a

a.) specialty store

b.) factory outlet c.) superstore d.) combination store


department store (moderate) p. 286

29. Every night after working the swing shift, Sierra stops by the 24-Store near her house. She often buys bread, cold cuts, and Dr. Pepper while she’s there even though the prices at the 24-Store are higher than at her local supermarket. The 24-Store is an example of a

a.) specialty store

b.) superstore c.) warehouse store

d.) convenience store (moderate) p. 286

e.) combination store

30. When Cyler goes to do his grocery shopping for the week, he also likes to drop off his finished rolls of film and visit the bank at the same time. He would also like the idea of having a package-mailing service to use while he is shopping. Cyler would enjoy doing his grocery shopping at a

a.) combination store

b.) category killer


d.) hypermarket e.) warehouse store

superstore (moderate) p. 286


31. The fastest growing segment of retailing is


b.) chain store retailing

c.) warehouse stores d.) hypermarkets

e.) category killers

nonstore retailing (moderate) p. 287

32. A businesswoman has agreed to buy the right to use a process and a system from a company that also sells the same thing to other businesspeople. The woman is a a.) wholesaler b.) member of a voluntary chain c.) corporate chains store d.) franchiser


franchisee (moderate) p. 287

33. The citizens of North Cheshire Village, Massachusetts, got tired of having to drive 18 miles to buy gasoline and sundry items. They have decided to open their own store. All have contributed money to purchase the initial inventory and open this store, which will carry gasoline and a small amount of related accessories and lubricants. Each participant will have a vote in store policy, will elect someone to operate the store, and will receive dividends based on any profits. They are engaged in a(n)


b.) retailer cooperative


d.) voluntary store


consumer cooperative (difficult) p. 287

merchandising cooperative

independent superspecialty store

34. A

consists of a wholesaler-sponsored group of independent retailers engaged in

bulk buying and common warehousing.


b.) voluntary chain (moderate) p. 287 c.) consumer cooperative d.) retailing franchise


retailer cooperative

merchandising conglomerate

35. A

is a free-form corporation that combines several diversified retailing lines and

forms under central ownership, along with integration of distribution-and-management functions of those retailing lines and forms.

a.) voluntary chain

b.) retailer cooperative c.) consumer cooperative d.) retail licensing arrangement


merchandising conglomerate (moderate) p. 287

36. The most important retail marketing decision a retailer has to make is to


b.) identify its target market (moderate) p. 288


d.) select the product assortment e.) develop an effective store atmosphere

choose the service level it wants to support

choose a positioning strategy


37. Josie is choosing the mix of products and determining how many product lines she will carry in her

teacher supply store. Josie is making the a.) target market b.) market segmentation


d.) store atmosphere

e.) service level

product-assortment (moderate) p. 288


38. Which of the following product differentiation strategies would NOT allow retailers to significantly distinguish themselves from others? a.) feature the latest or newest merchandise before any other retailer can b.) offer a broad merchandise assortment (moderate) p. 288


d.) offer merchandise customizing services e.) feature exclusive national brands not carried by competitors

feature mostly private branded merchandise

39. Check cashing is an example of what type of service, related to the services mix of a store? a.) prepurchase b.) full-coverage


d.) postpurchase

e.) profitability

ancillary (moderate) p. 288

40. Which of the following is NOT a part of a store’s atmosphere?

a.) the music played by the speakers located throughout the store b.) the way merchandise is displayed


d.) the employee that helps you carry your purchases to your car (moderate) p. 288 e.) the smell from potpourri containers scattered throughout the store

the lighting system used in the store

41. The pricing decision in retailing is a.) made independently of the product-assortment decision b.) increasingly based on sales pricing


d.) the least important of all the retail marketing decisions


key to the retailer’s positioning strategy (difficult) p. 289

not an effective tool for store differentiation

42. Jorge owns an equine sports equipment superstore, and wants to open a second store in nearby Paducah, Kentucky. He wants it to be the second anchor store at that location. He believes the store’s product line needs to draw customers from 5-20 miles away to be successful. The best location for this retail outlet would be in a


b.) community shopping center c.) central business district d.) neighborhood shopping center

e.) strip mall

regional shopping center (moderate) p. 289


43. Which of the following describes a significant trend in retailing?


b.) Retailers are going smaller to chase smaller target segments.


d.) Retail life cycles are growing longer.


Competition today is increasingly intratype.

Superstores and combination stores are putting an end to nonstore retailing’s growth.

Retailers are increasingly selling an “experience.” (difficult) p. 290

44. includes all of the activities involved in selling goods or services to those who buy for resale or business use. a.) Retailing b.) Wholesaling (easy) p. 290 c.) Bartering d.) Purchasing e.) Distributing

45. Wholesaling excludes all of the following types of companies EXCEPT a.) manufacturers b.) farmers c.) retailers d.) distributors (moderate) p. 290 e.) consumers

46. Which of the following is not a function of wholesalers? a.) bulk-breaking b.) selling and promoting c.) transportation d.) risk bearing e.) final customer segment selection (moderate) p. 291

47. Which of the following is an example of a merchant wholesaler? a.) a mail-order wholesaler b.) a food broker


d.) an industrial distributor


a drop shipper (moderate) p. 292

a commission merchant

48. Which of the following products would be most likely handled by a drop shipper?

a.) fresh tulips

b.) paperback books

c.) snack foods

d.) coal (moderate) p. 292

e.) Dell servers

49. Which of the following products would a rack jobber most likely handle?

a.) Dell servers

b.) eggs and dairy products c.) industrial shelving d.) fresh tulips


magazines (moderate) p. 292


50. do not carry inventories, are paid by the party who hired them, and their chief function is bringing buyers and sellers together.


b.) Industrial distributors

c.) Rack jobbers

d.) Producer’s cooperatives


Brokers (moderate) p. 292

Commission merchants

51. have long-term relationships with buyers and make purchases for them. These wholesalers often receive, inspect, warehouse, and ship merchandise for their buyers. a.) Brokers b.) Purchasing agents (moderate) p. 292

c.) Drop shippers

d.) Commission merchants

e.) Selling agents

52. A manufacturers’ agent would be most likely to handle

a.) coal and cotton

b.) books on tape and Stanley tools


d.) High blood pressure medicines and camping gear e.) wheelchairs and orthopedic braces (difficult) p. 292

Mars candy products and Arrow shirts

53. Which of the following statements about manufacturers’ branches and offices is true?


b.) Sales offices carry inventory. c.) Sales branches perform a role similar to one performed by agents and brokers.

d.) Sales offices are prominent in the dry-goods industry. (difficult) p. 292


Sales branches do not carry inventory.

Sales offices are not part of the manufacturer’s organization, while sales branches are.

54. Which form of marketing communications is most likely to be used by wholesalers? a.) print advertising b.) in-kind promotions c.) sales promotions d.) personal selling (moderate) p. 293 e.) broadcast advertising

55. logically looks at the creation of a product. It begins with the examination of the procurement of inputs and raw materials and then examines how suppliers obtain their inputs. It sees the market as a destination point for the manufactured goods.


b.) Supply chain management (moderate) p. 294 c.) Demand-driven management d.) Market logistics


Physical distribution

Distribution management


56. Marketing logistics a.) is the process of getting goods to customers

b.) includes all the activities involved in the selling of goods and services directly to final customers


d.) involves planning, implementing, and controlling the physical flows of materials and final goods from points of origin to points of use (difficult) pp. 294-295


is also called materials management

is getting the right goods to the right places at the right time

57. Integrated market logistics involves all of the following EXCEPT a.) materials management b.) material flow systems


d.) information technology


physical distribution

financing (moderate) p. 295

58. Some goods arriving at Wal-Mart at a delivery dock are moved directly onto a truck going out of another dock, they are never put into inventory. This saves money and is called a.) just-in-time production b.) an intermediary swap


d.) supplier willingness

e.) dual handling

cross-docking (moderate) p. 295

59. By definition, a(n)

warehouse receives goods from various company plants and

suppliers and moves them out as soon as possible. a.) storage b.) automated c.) field d.) common


distribution (moderate) p. 297

60. An order point of 20 means a.) orders are batched in parcels of 20s

b.) reordering when the stock falls to 20 units (moderate) p. 297


d.) there is a 20 percent cost increase in out-of-stock costs when the order point is not complied with


order processing costs rise greatly when ordering more than 20 items

inventory turns 20 times per year

61. If speed is a concern, the two best modes of transportation are


b.) water and rail


d.) pipeline and water


rail and truck

water and air

air and truck (easy) p. 298

62. If the transportation goal is low cost, then

a.) truck and rail

b.) pipeline and water (easy) p. 298

c.) water and rail

d.) truck and water

e.) pipeline and truck


should be used.

63. As Chin sat in his car waiting for the barges to pass through the drawbridge, he noticed several semi- trailers being carried on the barges. This is an example of a.) encapsulation b.) trainship distribution c.) dual distribution d.) fishyback distribution (moderate) p. 299 e.) bimodal distribution

64. People who live alongside the Mississippi River often see barges hauling rail cars. They are seeing

a.) railwater distribution b.) dual distribution c.) bimodal distribution d.) piggyback distribution


fishyback distribution (moderate) p. 299

65. A

provides services between predetermined points on a schedule and is available

to all shippers at standard rates.

a.) private carrier

b.) contract carrier

c.) drop shipper

d.) common carrier (moderate) p. 299 e.) freight forwarder

66. Planning the infrastructure to meet demand, then implementing and controlling physical flows of materials and final goods from place to place to meet customer needs at a profit is called

a.) market logistics (moderate) p. 295 b.) demand chain planning c.) sales forecasting d.) supply chain management


value-added services

67. Which is true of market-logistics systems?


b.) They cannot simultaneously maximize customer service and minimize distribution cost. (moderate) pp. 295-296 c.) As long as a logistics strategy is in place, no specific tactics are necessary. d.) Voluntary value chains tie distribution to production. e.) Transportation is a part of logistics, but storage is not.

So-called cross-docking systems are likely to add costs and value.

68. Which of the following is not one of the major decisions related to market logistics?


b.) Where should stocks be located?


d.) Should a particular line be carried? (moderate) p. 296


How should orders be handled?

How much stock should be held?

How should goods be shipped?


69. The order-to-payment cycle may include all of the following except a.) order entry b.) salesperson soliciting order (moderate) p. 296


d.) order shipment


customer credit check

receipt of payment

70. Albertson’s, a large western and southwestern chain of grocery stores, sometimes stocks up on Hi-Lo brand paper products when the prices are extremely low. They are likely to store these products in warehouses. a.) distribution b.) cross-docking c.) antiquated d.) central


storage (moderate) p. 297

Essay Questions

71. Retailers can position themselves at four levels of service. In a short essay, list and describe those levels.


(1 )Self-service is the cornerstone of all discount operations. Many customers are willing to carry out their own locate-compare-select process to save money. (2) With self-selection, customers find their own goods although they can ask for assistance. Customers complete their transactions by paying a salesperson for the item. (3) With limited service, the retailers carry more shopping goods, and customers need more information and assistance. The store also offers services such as credit and merchandise-return privileges. (4) With full-service, salespeople are ready to assist in every phase of the locate-compare-select process. (moderate) pp. 285-286

72. Patty Allegro has a summer intern job at a manufacturing company that makes guitar strings. Patty works in the shipping department. All summer she has heard her immediate boss (who’s been there for years) be negative about the distributors the company uses. In a short essay, discuss the reasons a manufacturer would talk in negative terms about its wholesalers?


Manufacturers’ major complaints about wholesalers are as follows: Wholesalers do not aggressively promote manufacturers’ product lines. They often act more like order takers. Often wholesalers do not carry enough inventory and therefore fail to fill customers’ orders fast enough. Wholesalers often do not provide manufacturers with up-to-date customer and competitive information. Manufacturers believe wholesalers do not attract high-caliber managers. Finally, manufacturers often believe wholesalers charge too much for the services they provide. (moderate) p. 290



Whitney is thinking about opening a new high-end collectibles store along the historic Route 66, which goes through her town of Winslow, Arizona. She knows that the services mix she offers will be

key tool for differentiating her store from others in the area. She hires you to advise her on the services mix possibilities. What do you tell her?





The three main types of services are: prepurchase services, postpurchase services, and ancillary services. a.) Prepurchase services for the store might include telephone and mail order capabilities, advertising in travel brochures, even the store’s window displays and the way the interior looks with its displays. Whitney may accept trade-ins of other antiques for hers. The hours the store is open and possible events are all part of the list of prepurchase services Whitney might provide. b.) Postpurchase services should include shipping assistance or assistance with delivery, gift wrapping, and a returns policy. Also possible are engraving services, installations, and alterations.


Ancillary services might include: check cashing, parking, credit, and rest rooms in the store.

(moderate) p. 288


When considering logistics and the ways to minimize the associated costs, the text gives the following equation: M = T + FW + VW + S, where the goal is to minimize M.

Explain the model, and what trade-offs are associated with marketing logistics objectives.





= total market-logistics cost of proposed system

T = total freight cost of proposed system FW = total fixed warehouse costs of proposed system VW = total variable warehouse cost (including inventory) of proposed system


= total cost of lost sales due to delays in the system

The variables on the right need to be minimized in order to minimize M.

As the text says, “no market-logistics system can simultaneously maximize customer service and minimize distribution cost.” Maximum customer service implies large inventories, fast transportation, and multiple warehouse locations—all of which raise costs. Most logistics systems have cost reduction as a major goal. (difficult) p. 296



a short essay, discuss supply chain management.


Supply chain management takes a broader perspective than physical distribution. It is concerned with the manufacturer’s procurement of the right inputs (raw materials, components, and capital equipment), how the inputs are efficiently converted into finished products, and how the finished

products are dispatched to their final destination. An even broader perspective calls for studying how the company’s suppliers themselves obtain their inputs all the way back to the raw materials. The supply chain perspective can be used by a company for identifying superior suppliers and distributors and helping them improve their productivity. This process will eventually bring down the manufacturer’s costs. The drawback to the supply chain perspective is the fact that it views markets

as destination points.

(moderate) pp. 294-295



Mini-Case 15-1 Big Lots! sells a wide variety of goods that have been clearanced to them (close-out merchandise, products that represent overruns in production, etc.). Although consumers never know what will be on the shelves at Big Lots!, they know that the prices are typically 40 percent to 75 percent less than what those goods go for elsewhere. Big Lots! Corporation owns all the stores. They like to house the stores along major thoroughfares of large cities, clustered with other stores in long buildings. They have had good success with this business model since the beginning.

76. Refer to Mini-Case 15-1. What type of organization is Big Lots!?

a.) voluntary chain

b.) corporate chain (moderate) p. 287


d.) consumer cooperative e.) franchise operation

retailer cooperative

77. Refer to Mini-Case 15-1. What type of retailer is Big Lots!?

a.) factory outlet

b.) warehouse club

c.) independent off-price retailer (moderate) p. 286 d.) superstore

e.) specialty store

78. Refer to Mini-Case 15-1. Big Lots! tends to favor what type of retail location? a.) general business district b.) regional shopping center

community shopping center

d.) location within larger operation


e.) strip mall (moderate) p. 289

Mini-Case 15-2 Elliott and Robin want to open a store and call it The Home Shop. They have decided that it will feature household items such as decorative vases and planters, sheets and towels, bathroom accessories, and pictures. Their offerings will change from week to week depending on what’s available from their wholesalers. Initially, they plan to sell irregulars and factory overruns, but they are flexible. Elliott has a real knack for spotting items others admire. People are always telling him what good taste he has. They must, however, be careful about how they spend the small amount of capital they have. One of their goals is to find an inexpensive location.

Once the store is up and operational, they hope they can use their cash flow to meet expenses. They plan to have no more than two full-time employees other than themselves and possibly some part-time help as the need arises. Customers will be allowed to make their own selections, but either Elliott or Robin will be there if they request some advice. Elliott and Robin plan on letting their customers use credit cards. They also feel it is important to have a generous merchandise return policy. Because Elliott and Robin are retailing novices, they want to join a retail organization for advice and support and to share the costs of promotions. Elliott and Robin think that word-of-mouth will be their most powerful advertising tool. They expect to attract customers that appreciate the merchandise found at major department stores and mall specialty stores, but who would like the lower prices.


79. Refer to Mini-Case 15-2. The Home Shop will offer what level of service? a.) self-service b.) self-selection


d.) full service


limited service (moderate) p. 288

relationship service

80. Refer to Mini-Case 15-2. Elliott and Robin should join what type of retail organization? a.) retailer cooperative (moderate) p. 287 b.) voluntary chain c.) consumer cooperative d.) wholesaler-sponsored cooperative


merchandising conglomerate

81. Refer to Mini-Case 15-2. What would be the best location for this outlet, given Elliott and Robin’s perspective on their business. a.) central business district b.) regional shopping center


d.) strip mall (moderate) p. 289


stand-alone destination site

a location within a larger store