CHAPTER 12

RETAILING AND WHOLESALING MULTIPLE CHOICE QUESTIONS 1. _____________ is all the activities involved in selling goods or services directly to final consumers for their personal, nonbusiness use. a. Wholesaling b. Discounting c. Merchandising d. Retailing Answer: (d) Difficulty: (1) Page: 435 2. All of the following are examples of nonstore retailing EXCEPT: a. selling by mail. b. selling jewelry in a clothing store. c. door-to-door contact. d. selling goods on the Internet. Answer: (b) Difficulty: (1) Page: 435 3. A _________ is someone whose business comes primarily from retailing. a. distributor b. jobber c. retailer d. vendor Answer: (c) Difficulty: (1) Page: 435 4. Retailers can be classified in terms of several characteristics. Each of the following is found within this retail classification scheme EXCEPT: a. the profit potential. b. amount of service offered. c. the breadth and depth of product lines carried. d. the relative prices charged. Answer: (a) Difficulty: (2) Page: 435, 437

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5. The typical method of retail operation used by supermarkets and nationally branded fast-moving shopping goods is called: a. self-service retailing. b. limited-service retailing. c. full-service retailing. d. service-merchandiser. Answer: (a) Difficulty: (2) Page: 437 6. A good example of a retail operation that is classified as being a limited-service retailer is: a. Service Merchandise. b. Best Buy. c. JC Penney. d. Zales Jewelers. Answer: (c) Difficulty: (3) Page: 437 7. A good example of a retail classification called self-service retailing is: a. Sears. b. JC Penney. c. Best Buy. d. Macys. Answer: (c) Difficulty: (3) Page: 437 8. Describing retailers by the length and breadth of their product assortment is classification by: a. amount of service. b. product line. c. relative prices. d. control of outlets. Answer: (b) Difficulty: (1) Page: 437 9. A _______________________ is a retail store that carries a narrow product line with a deep assortment within that line. a. shopping goods store b. convenience store c. specialty store d. department store Answer: (c) Difficulty: (2) Page: 436, 437, Table 12-1

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10. The increasing use of market segmentation, market targeting, and product specialization has resulted in a greater need for: a. specialty stores. b. convenience stores. c. shopping goods stores. d. department stores. Answer: (a) Difficulty: (2) Page: 436, 437, Table 12-1 11. A mens custom-shirt store would be a good example of which of the following? a. superspecialty store b. department store c. category killer d. hypermarket Answer: (a) Difficulty: (2) Page: 436, 437, Table 12-1 12. The type of retailer that carries a wide variety of product lines, each managed by specialist buyers or merchandisers, is called a: a. specialty store. b. convenience store. c. shopping goods store. d. department store. Answer: (d) Difficulty: (2) Page: 436, 437, Table 12-1 13. The key differentiating factor that separates one department store from another is: a. products. b. location. c. service. d. promotions. Answer: (d) Difficulty: (3) Page: 437, 438 14. The most frequently shopped type of retail store is the: a. discount store. b. category killer. c. convenience store. d. supermarket. Answer: (d) Difficulty: (2) Page: 438

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15. The primary market of _____________ is young, blue-collar men. a. convenience stores b. department stores c. specialty stores d. category killers Answer: (a) Difficulty: (3) Page: 438 16. A small store, located near a residential area, that is open long hours seven days a week and carries a limited line of high-turnover convenience goods is called a: a. specialty store. b. supermarket. c. department store. d. convenience store. Answer: (d) Difficulty: (1) Page: 436, 438, Table 12-1 17. A _________________ is a giant specialty store that carries a very deep assortment of a particular line and is staffed by knowledgeable employees. a. department store b. gray market c. category killer d. hybrid market store Answer: (c) Difficulty: (2) Page: 438 18. The largest retail stores, perhaps as large as six football fields, which combine food, discount, and warehouse retailing, are called: a. style department stores. b. hypermarkets. c. category killers. d. hybrid stores. Answer: (b) Difficulty: (3) Page: 438 19. All of the following would be considered to be service retailers EXCEPT: a. banks. b. colleges. c. dry cleaners. d. a jewelry kiosk in a mall. Answer: (d) Difficulty: (2) Page: 438

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20. If a store sells standard merchandise at lower prices by accepting lower margins and selling at higher volume, the store is classified as being a(n): a. specialty store. b. off-price retailer. c. discount store. d. factory outlet. Answer: (c) Difficulty: (2) Page: 439 21. In recent years, facing intense competition from other discounters and department stores, many discount retailers have: a. traded up. b. traded down. c. traded laterally. d. traded between themselves. Answer: (a) Difficulty: (2) Page: 439 22. If a retailer buys at less-than-regular wholesale prices and sells at less-than-retail, then the retailer is called a(n): a. specialty store. b. off-price retailer. c. discount store. d. sponsor outlet. Answer: (b) Difficulty: (2) Page: 439 23. Factory outlets, independents, and warehouse clubs are examples of which of the following retail form? a. discount stores b. off-price retailers c. retail cooperatives d. franchises Answer: (b) Difficulty: (2) Page: 439 24. If Levi Strauss were to construct an off-price retail operation (owned by Levi Strauss) that would carry their surplus, discontinued, or irregular goods, Levi Strauss would call the store a: a. factory outlet. b. sponsor outlet. c. discount store. d. seconds store. Answer: (a) Difficulty: (1) Page: 439

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25. An off-price retailer that sells a limited selection of brand name grocery items, appliances, clothing, and a hodgepodge of other goods at deep discounts to members who pay annual membership fees is called a: a. factory outlet. b. super specialty store. c. seconds store. d. warehouse club. Answer: (d) Difficulty: (2) Page: 439 26. The Wal-Mart-owned Sams Club is an example of a retail form called a: a. factory outlet. b. super specialty store. c. seconds store. d. warehouse club. Answer: (d) Difficulty: (1) Page: 439 27. Two or more outlets that are commonly owned and controlled, employ central buying and merchandising, and sell similar lines of merchandise are best described as being a: a. chain store. b. voluntary chain. c. retailer cooperative. d. consumer cooperative. Answer: (a) Difficulty: (2) Page: 440, 441, Table 12-2 28. A ___________ is a wholesaler-sponsored group of independent retailers that engages in group buying and common merchandising. a. voluntary chain b. retailer cooperative c. franchise d. merchandising conglomerate Answer: (a) Difficulty: (2) Page: 440, 441, Table 12-2 29. A ____________ is a group of independent retailers that bands together to set up a jointly owned, central wholesale operation and conducts joint merchandising and promotion efforts. a. voluntary chain b. retailer cooperative c. franchise d. merchandising conglomerate Answer: (b) Difficulty: (2) Page: 440, 441, Table 12-2

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30. McDonalds, Jiffy Lube, 7-Eleven, and Pizza Hut are all examples of which of the following retail forms? a. corporate chain b. voluntary chain c. retailer cooperative d. franchise Answer: (d) Difficulty: (1) Page: 440, 441, Table 12-2 31. Dayton-Hudson operates Target (discount stores), Mervyns (lower-priced clothing), B. Dalton (bookstores) in addition to its Daytons and Hudsons department stores. As a retail form this ownership arrangement is called a: a. corporate chain. b. merchandising conglomerate. c. franchise. d. retailer cooperative. Answer: (b) Difficulty: (3) Page: 441 32. Generally, franchises are distinguished by three characteristics. Which of the following is NOT AMONG them? a. The franchiser owns a trade or service mark and licenses it to franchisees in return for royalty payments. b. The franchisee is required to pay for the right to be part of the system. c. The franchisee is required to expand its territory every two to three years. d. The franchiser provides its franchisees with a marketing and operations system for doing business. Answer: (c) Difficulty: (2) Page: 442, 443, Marketing at Work 12-1 33. Some new directions that may deliver both franchiser growth and franchisee earnings include all of the following EXCEPT: a. moving at least 30 percent of their business to the Internet through interactive Web sites. b. strategic alliances with major outside corporations. c. expansion abroad. d. nontraditional site locations. Answer: (a) Difficulty: (2) Page: 442, 443, Marketing at Work 12-1 34. Retailers have many marketing decisions that compete for their attention. Among the first decisions that any retailer must make is to: a. decide on their price policy. b. decide on their name and logo. c. define their target market and how they will position themselves in these markets. d. decide whether to go international or not.

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Answer: (c) Difficulty: (2) Page: 444, Figure 12-1 35. Which of the following were cited in the text as contributing factors to Wal-Marts unparalleled success? a. treating employees as partners b. maintaining a shareholder equity of at least 20 percent c. expansion into major cities such as New York City d. expansion into third world countries Answer: (a) Difficulty: (2) Page: 445, 446, Marketing at Work 12-2 36. Retailers must decide on three major product variables: a. style, size, and color. b. product assortment, services mix, and store atmosphere. c. length, depth, and width of product line. d. location, location, and location. Answer: (b) Difficulty: (3) Page: 447 37. Every store has a physical layout that makes moving around in it either hard or easy. This feel is called: a. store psychology. b. buyer enhancements. c. store atmosphere. d. store personality. Answer: (c) Difficulty: (2) Page: 447 38. Increasingly, retailers are turning their stores into theaters that transport consumers into unusual, exciting shopping environments. A good example, according to the text, would be: a. JC Penny. b. Service Merchandise. c. Barnes & Noble Booksellers. d. McDonalds. Answer: (c) Difficulty: (2) Page: 447 39. Perhaps the most dramatic conversion of stores into theaters (where consumers are transported into unusual, exciting shopping environments) is: a. JC Penny. b. Mall of America near Minneapolis. c. the local outlet mall. d. Wal-Mart.

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Answer: (b) Difficulty: (2) Page: 448 40. The choice between high markups and high volume is part of which of the following retailer marketing decisions? a. target market decisions b. product assortment and services decisions c. pricing decisions d. promotion decisions Answer: (c) Difficulty: (1) Page: 448 41. A retailers ______________ is the key to its ability to attract customers. a. location b. pricing system c. promotion system d. store personnel Answer: (a) Difficulty: (2) Page: 449 42. According to retail studies, the undisputed winner in placing stores in the correct locations to attract customers has been: a. Wal-Mart. b. Kmart. c. Jiffy Lube. d. Hallmark Cards. Answer: (a) Difficulty: (2) Page: 449 43. The main form of retail cluster until the 1950s was the: a. free-standing store. b. drive-in retailer. c. central business district. d. shopping center. Answer: (c) Difficulty: (3) Page: 449 44. The type of store cluster that consists of a group of retail businesses planned, developed, owned, and managed as a unit is called a: a. franchise. b. merchandise conglomerate. c. central business district. d. shopping center. Answer: (d) Difficulty: (1) Page: 449

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45. A ____________ is a huge unenclosed shopping center that consists of a long strip of retail stores, including large, free-standing anchors such as Wal-Mart or Home Depot. a. community shopping center b. strip mall c. urban shopping center d. power center Answer: (d) Difficulty: (1) Page: 449, 450 46. The concept that many retailing forms begin as low-margin, low-price operations that gradually upgrade their offerings until new forms evolve with lower costs and prices is called the: a. product-life cycle. b. business-form cycle. c. wheel of retailing. d. margin cycle. Answer: (c) Difficulty: (2) Page: 451 47. Which of the following statements is MOST TRUE about the growth of nonstore retailing? a. Nonstore retailing has primarily grown in the southern United States. b. More nonstore retailing is conducted by click-and-brick retailers than by click-only retailers. c. The primary growth of nonstore retailing has been in Europe. d. Nonstore retailing has surpassed store retailing as the number one way people shop. Answer: (b) Difficulty: (3) Page: 451 48. Retailers increasingly face competition from many different forms of retailers. This is called: a. intratype competition. b. parallel competition. c. intertype competition. d. regional competition. Answer: (c) Difficulty: (2) Page: 453

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49. Which of the following is MOST TRUE about the state of global expansion by United States retailers? a. U.S. retailers are significantly behind Europe and Asia when it comes to global expansion. b. U.S. retailers are significantly ahead of Europe and Asia when it comes to global expansion. c. U.S. retailers are tied with Europe and Asia when it comes to global expansion. d. Most retailers in the U.S., Europe, and Asia have no interest in global expansion. Answer: (a) Difficulty: (3) Page: 455 50. A __________ is a firm primarily engaged in wholesaling activity. a. retailer b. franchise cooperative c. conglomerate d. wholesaler Answer: (d) Difficulty: (1) Page: 457 51. The activities involved in selling goods and services to those buying for resale or business use are called: a. retailing. b. factoring. c. discounting. d. wholesaling. Answer: (d) Difficulty: (2) Page: 457 52. Traditional wholesale functions include all of the following EXCEPT: a. production. b. selling and promotion. c. buying and assortment building. d. bulk breaking. Answer: (a) Difficulty: (1) Page: 457 53. When wholesalers buy in carload lots and divide these shipments into smaller quantities for resale, this function is called: a. assortment building. b. risk bearing. c. bulk breaking. d. bulk accumulation. Answer: (c) Difficulty: (2) Page: 457

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54. If a wholesaler takes title to the goods he or she carries and bears the cost of theft, damage, spoilage, and/or obsolescence, then the wholesaler is performing which of the following functions for others in the distribution channel? a. assortment building b. risk bearing c. bulk breaking d. bulk accumulation Answer: (b) Difficulty: (2) Page: 457 55. Independently owned businesses that take title to the merchandise they handle are referred to as: a. merchant wholesalers. b. agents and brokers. c. manufacturers sales branches. d. purchasing offices. Answer: (a) Difficulty: (2) Page: 458, Table 12-3 56. Wholesalers fall into three major groups. Which of the following is NOT among those groups? a. merchant wholesalers b. secondary cooperatives c. agents and brokers d. manufacturers sales branches and offices Answer: (b) Difficulty: (2) Page: 458, Table 12-3 57. A ____________________ is a wholesaler who does not take title to goods and whose function is to bring buyers and sellers together and assist in negotiation. a. merchant wholesaler b. broker c. rack jobber d. truck jobber Answer: (b) Difficulty: (2) Page: 458, Table 12-3 58. A(n) _______________ is a wholesaler who represents buyers or sellers on a relatively permanent basis, performs only a few functions, and does not take title to goods. a. merchant wholesaler b. manufacturers purchaser c. agent d. rack jobber

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Answer: (c) Difficulty: (2) Page: 458-460, Table 12-3 59. _________________ usually represent two or more manufacturers of complementary lines. Contractual agreements spell out the relationships. a. Selling agents b. Rack jobbers c. Manufacturers agents d. Purchasing agents Answer: (c) Difficulty: (2) Page: 459, Table 12-3 60. When you go into a grocery store and see a specialized wholesaler setting up a display of bread, milk, or snack items, the wholesaler is usually classified as being a: a. drop shipper. b. truck jobber. c. rack jobber. d. selling agent. Answer: (b) Difficulty: (3) Page: 458, Table 12-3 61. Drop shippers perform which of the following functions? a. assume title and ships coal, lumber, or heavy equipment to a buyer b. stock the bread rack in a grocery store c. maintain, own, and stock a CD display in a grocery store d. sell jewelry out of a catalog Answer: (a) Difficulty: (2) Page: 458, Table 12-3 62. If a retailer were looking for a specialized wholesaler to set up and maintain a counter of toys, paperbacks, or health and beauty aids (retaining title to the goods until they were sold), they would seek out a: a. drop shipper. b. truck jobber. c. rack jobber. d. selling agent. Answer: (c) Difficulty: (2) Page: 458, Table 12-3 63. __________ are owned by farmer members and assemble farm produce to sell in local markets. a. Drop shippers b. Truck jobbers c. Producers cooperatives d. Commission merchants Answer: (c) Difficulty: (2) Page: 458, Table 12-3

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64. ________________ have contractual authority to sell a manufacturers entire output. a. Selling agents b. Rack jobbers c. Manufacturers agents d. Purchasing agents Answer: (a) Difficulty: (3) Page: 459, Table 12-3 65. A common standard percentage that wholesalers apply to the cost of the goods they process and eventually resell is: a. 20 percent. b. 50 percent. c. 5 percent. d. 60 percent. Answer: (a) Difficulty: (2) Page: 461 66. The wholesaling industry faces considerable challenges as it enters into the twentyfirst century. It remains vulnerable to one of the most enduring trends of the last decade. What is this enduring trend? a. an inability to carry wholesaling to the World Wide Web b. fierce resistance to price increases and the winnowing out of suppliers based on cost and quality c. producers who have engaged in vertical marketing d. retailers who have engaged in horizontal marketing Answer: (b) Difficulty: (3) Page: 461 TRUE/FALSE QUESTIONS 67. In recent years nonstore retailing has been growing much faster than has store retailing. Answer: (True) Difficulty: (1) Page: 435 68. You do not have to be a retailer to do retailing. Answer: (True) Difficulty: (2) Page: 435 69. One of the ways retailers can be classified is based on the type of promotion they use. Answer: (False) Difficulty: (2) Page: 435, 437

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70. A specialty store is a retail store that carries a wide product line with a narrow assortment within that line. Answer: (False) Difficulty: (2) Page: 436, Table 12-1 71. A hypermarket is characterized as being a huge store (sometimes as large as six football fields) that carries a large assortment of routinely purchased items. Answer: (True) Difficulty: (1) Page: 436, 438, Table 12-1 72. Limited-service retailers, such as specialty stores, usually carry more specialty goods for which customers like to be waited on. Answer: (False) Difficulty: (2) Page: 437 73. Convenience stores are experimenting with micromarketing. Answer: (True) Difficulty: (2) Page: 438 74. A category killer is a specialized boutique that specializes in consignment selling. Answer: (False) Difficulty: (2) Page: 436, 438, Table 12-1 75. The traditional definition for a discount store is one that sells standard merchandise at lower prices by accepting lower margins and selling higher volumes. Answer: (True) Difficulty: (1) Page: 439 76. A good example of a warehouse club would be Burlington Coat Factory. Answer: (False) Difficulty: (2) Page: 439 77. A voluntary chain is a wholesaler-sponsored group of independent retailers that engages in group buying and common merchandising. Answer: (True) Difficulty: (1) Page: 441 78. One of the unique aspects of a franchise is that the corporation that owns the franchise system combines several different retailing forms under central ownership. Answer: (False) Difficulty: (3) Page: 441

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79. Merchandising conglomerates are corporations that combine several different retailing forms under central ownership. Answer: (True) Difficulty: (2) Page: 441 80. Too many retailers fail to define their target markets and positions clearly. Answer: (True) Difficulty: (1) Page: 444 81. A good illustration of a component of a stores atmosphere would be its location within a town or city. Answer: (False) Difficulty: (2) Page: 447 82. Retailers often cite three critical factors in retailing success: location, location, and location. Answer: (True) Difficulty: (1) Page: 449 83. The main form of retail cluster until the 1950s was the city marketplace. Answer: (False) Difficulty: (2) Page: 449 84. Most shopping centers today are classified as regional shopping centers that generally have between 40 to 200 stores. Answer: (False) Difficulty: (2) Page: 449 85. According to the wheel of retailing concept, many new types of retailing forms begin as low-margin, low-price, low-status operations. Answer: (True) Difficulty: (2) Page: 451 86. Wal-Mart would be classified as a megaretailer because of its power and control in the distribution channel. Answer: (True) Difficulty: (1) Page: 454 87. U.S. retailers are still significantly behind Europe and Asia when it comes to global expansion. Answer: (True) Difficulty: (3) Page: 455

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88. Retailing is defined as being all activities involved in selling goods and services to those buying for resale or business use. Answer: (False) Difficulty: (1) Page: 457 89. One of the chief functions of a wholesaler is that of bulk breaking. Answer: (True) Difficulty: (2) Page: 457 90. One of the differences between a merchant wholesaler and an agent is that the agent takes title to the goods that are processed. Answer: (False) Difficulty: (2) Page: 457-460, Table 12-3 91. Manufacturers agents are the most common form of agent wholesaler. Answer: (True) Difficulty: (2) Page: 460 92. Rack jobbers perform primarily a delivery function for the retailer. Answer: (False) Difficulty: (2) Page: 458, 459, Table 12-3 93. Drop shippers serve grocery and drug retailers, mostly in nonfood items (such as magazines and health and beauty aids). Answer: (False) Difficulty: (2) Page: 458, 459, Table 12-3 94. A selling agent has the contractual authority to sell a manufacturers entire output. Answer: (True) Difficulty: (2) Page: 458, 459, Table 12-3 95. Manufacturers agents represent two or more manufacturers of complementary lines. Answer: (True) Difficulty: (1) Page: 458, 459, Table 12-3 96. Wholesalers usually mark up the cost of goods by a standard percentage of 40 percent. Answer: (False) Difficulty: (2) Page: 461 97. One of the most enduring trends with respect to wholesaling is the tendency for wholesalers to purchase, absorb, or otherwise acquire retailers. Answer: (False) Difficulty: (3) Page: 461

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ESSAY QUESTIONS 98. Home Depot, the giant do-it-yourself home improvement retail chain, is one of the worlds hottest retailers. List and briefly identify the key strategies that have helped Home Depot become dominant in the do-it-yourself home improvement field. Be specific in your descriptions. Answer: Home Depot has been successful because of the following reasons: (a) It is one of a new breed called category killers. It carries a huge selection of merchandise in a single product category at such good prices that competition is destroyed. It carries some 35,000 items at prices that range 20 to 30 percent below those of local hardware stores. (b) It has high quality customer service. It is more than just customer driven--it is customer obsessed. It seeks to help customers solve their fix-it problems and build lasting relationships. This can only be accomplished with well-trained employees. (c) Salespeople are paid above-average salaries, are trained thoroughly, and have a vast product knowledge. Home Depot treats their employees as partners. (d) No high pressure sales tactics are allowed. Take as much time as is necessary to solve customer problems is a rule. (e) It has extended its high-grade relationship-building efforts to the Internet. Difficulty: (2) Page: 433-435 99. Retailers can be classified in many ways. The chief method described in your text revolved around four specific areas. Cite each area and give an example of a retailer that might fit in each of these categories. Answer: The four categories used in the text were the amount of service, the breadth and depth of their product lines, the relative prices they charge, and how they are organized. Examples would include: (a) Amount of service--self-service (Service M erchandise), limited service (Sears or JC Penney), and full service retailers (NeimanMarcus). (b) Breadth and depth of product line--specialty stores (Athletes Foot), department stores (Macys), supermarkets (Safeway), convenience stores (7-Eleven), superstores (Wal-Mart Supercenters), and category killers (Toys-R-Us). (c) Relative prices--discount stores (Target) and off-price retailers--includes independent off-price retailers (T. J. Maxx), factory outlets (Mikasa), and warehouse or wholesale clubs (Sams Club). d). Organization--the major types of retail organization include corporate chains (Tower Records), voluntary chains (Western Auto), retail cooperatives (Ace Hardware), franchise organizations (McDonalds), and merchandising conglomerates (Dayton-Hudson).

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*****Instructors Note: For additional examples see Table 12-1.***** Difficulty: (3) Page: 435-441, Table 12-1 100. Identify and describe the different types of retailers as distinguished by product line sold. Answer: Five categories are discussed in the text. Specialty stores carry a product line with a deep assortment. Department stores carry a wide variety of product lines, each managed as a separate department with specialist buyers of merchandise. Supermarkets are large, lowcost, low-margin, high-volume, self-service organizations. Convenience stores carry a limited line of high-turnover convenience goods. Superstores are giant retailers carrying large assortments of many product lines. A special version of the superstore is the category killer that carries a deep assortment of a particular line. *****NOTE: Students should see the categories under Product Line (beginning on page 437). If students refer only to Table 12-1 they may become confused and add discount stores, off-price retailers, independent off-price retailers, factory outlets, and warehouse clubs to this answer. Note that the above are listed as variations based on price, not product line.***** Difficulty: (2) Page: 436-438, Table 12-1 101. Identify and describe the different types of retailers as distinguished by relative prices. Answer: Five categories are discussed in the text. Discount stores sell standard merchandise at lower prices by accepting lower margins and selling higher volumes. Off-price retailers sell a changing and unstable collection of higher-quality merchandise, often leftover goods, over runs, and irregulars obtained at reduced prices from manufacturers or other retailers. Independent off-price retailers are owned and run either by entrepreneurs or by divisions of large retail corporations. Factory outlets are owned and operated by manufacturers and normally carry the manufacturers surplus, discontinued, or irregular goods. Warehouse clubs (or wholesale clubs) sell a limited selection of brand name grocery items, appliances, clothing, and a hodgepodge of other goods at deep discounts to members who pay $25 to $50 annual membership fees. Difficulty: (2) Page: 436-439, Table 12-1

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102. Although many retail stores are independently owned, an increasing number are banding together under some form of corporate or contractual organization. List and briefly identify the major types of retail organizations that would be considered to be corporate or contractual in nature. Answer: (a) Corporate chain stores--two or more outlets that are commonly owned and controlled, employ central buying and merchandising, and sell similar lines of merchandise (an example would be Tower Records). (b) Voluntary chains--wholesaler-sponsored groups of independent retailers engaged in bulk buying and common merchandising (an example would be Western Auto). (c) Retailer cooperatives--groups of independent retailers who set up a central buying organization and conduct joint promotion efforts (an example would be ACE Hardware). (d) Franchise organizations--a contractual association between a franchiser and franchisees. Normally based on some unique product, service, or method of doing business, or on a trade name or patent, or on goodwill that the franchiser has developed (an example would be McDonalds). (e) Merchandising conglomerates--a free-form corporation that combines several diversified retailing lines and forms under central ownership, along with some integration of their distribution and management functions (an examples would be Dayton-Hudson). Difficulty: (3) Page: 440-441, Table 12-2 103. Franchises are generally distinguished by three general characteristics. List and briefly describe each of these characteristics. Answer: (a) The franchiser owns a trade or service mark and licenses it to franchisees in return for royalty payments. This is the general description of what happens in the franchising business and what each party receives from the other. (b) The franchisee is required to pay for the right to be part of the system. This initial fee is only a small part of the total amount that franchisees invest when they sign a franchising contract. Generally, start-up costs include rental and lease of equipment and fixtures, and sometimes a regular license fee. McDonalds may invest as much as $600,000 in initial start-up costs. (c) The franchiser provides its franchisees with a marketing and operations system for doing business. The franchiser will probably require that the franchisee go through training, train employees, maintain franchise integrity and management style, and use common materials. Difficulty: (3) Page: 442, 443, Marketing at Work 12-1

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104. Wal-Mart has had unparalleled success in the field of retailing. According to information presented in the text, what are Wal-Marts secrets to success? Answer: According to information presented in the text, Wal-Mart attributes its success to three factors: (a) Listening to and taking care of customers. (b) Treating employees as partners. (c) Keeping a tight rein on costs. Difficulty: (2) Page: 445, 446, Marketing at Work 12-2 105. Explain why location is such a critical factor in determining the success of a retail operation. Answer: Retailers often cite three critical factors in retailing success--location, location, and location. A retailers location is key to its ability to attract customers. The costs of building or leasing facilities have a major impact on the retailers profits. Thus, sitelocation decisions are among the most important the retailer makes. The undisputed winner in selecting locations is Wal-Mart. It used a strategy of locating in small and rural markets. Difficulty: (1) Page: 449 106. Briefly describe the wheel of retailing concept. Be sure to explain how retailers might evolve under this concept. Answer: The wheel of retailing is a concept of retailing that states that new types of retailers usually begin as low-margin, low-price, low-status operations but later evolve into higher-priced, higher-service operations, eventually becoming like the conventional retailers they replaced. The cycle begins again when still newer types of retailers evolve with lower costs and prices. The wheel of retailing concept seems to explain the initial success and later troubles of department stores, supermarkets, and discount stores, and the recent success of off-price retailers. Difficulty: (2) Page: 451

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107. List and briefly identify the major channel functions performed by wholesalers. Answer: (a) Selling and promoting--wholesalers sales forces help manufacturers reach many small customers at a low cost. (b) Buying and assortment building--wholesalers can select items and build assortments needed by their customers. (c) Bulk breaking--they buy in carload lots and break the bulk into smaller quantities. (d) Warehousing--they hold inventories until retailers need them. (e) Transportation--they provide the transportation link between manufacturer and retailer. (f) Financing--they grant retailers credit when manufacturers will not. (g) Risk bearing--by owning the merchandise they bear risk. (h) Market information--they provide retailers with the latest information on selling and processing goods. (i) Management services and advice--they help retailers with their training function and inventory and control systems. Difficulty: (3) Page: 457 108. Discuss the differences between merchant wholesalers and agents. Answer: Merchant wholesalers are independently owned businesses that take title to the merchandise they handle. In different trades they are called jobbers, distributors, or mill supply houses. The two broad types are full-service and limited-service wholesalers. Agents and brokers differ from merchant wholesalers in two ways: They do not take title to goods, and they perform only a few functions. Agents represent either the buyer or the seller on a more permanent basis than brokers do. However, like the broker, their chief function is to bring buyers and sellers together and to offer assistance in negotiation. They are generally paid by the party that hired them, do not carry inventory, get involved in financing, or assume risk. Difficulty: (1) Page: 457-460, Table 12-3 109. As the thriving wholesaling industry moves into the 21st century, it faces considerable challenges. List and briefly discuss the forecasted trends or challenges for wholesaling in this new century. Answer: The industry remains vulnerable to one of the most enduring trends of the last decade-fierce resistance to price increases and the winnowing out of suppliers based on cost and quality. Therefore, wholesalers must constantly improve their services and reduce their costs.

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Second, the distinction between large retailers and wholesalers continues to blur. Many retailers now operate formats such as wholesale clubs that perform many wholesale functions. In return, many wholesale operations are setting up retail operations. Third, wholesalers will continue to increase the services they provide to retailers--retail pricing, cooperative advertising, marketing and management information reports, accounting services, online transactions, and others. Improved technology and the Web will help to reduce costs. Fourth, facing slow growth in their domestic markets and such developments as NAFTA, many large wholesalers are now going global. Difficulty: (2) Page: 461, 462 APPLICATION QUESTION 110. One of the necessary skills for any marketing manager directly involved in the distribution process is that of knowing when and how to use specific wholesaling middlemen (intermediaries). This knowledge can help to spread risk, reduce costs, and provide greater service and satisfaction for ultimate consumers. From the three scenarios listed below, list the correct wholesaler that the marketing manager of the retail organization in question should use. Once you have listed the correct wholesaler (by specific title), justify your decision. Be specific in your comments. Scenarios: (a) Your grocery store wishes to establish a new department in the store where shoppers can relax for a few minutes during a busy shopping trip. This department would have new paperback books, a limited number of best selling hardback books, magazines, and daily newspapers. What would be the best wholesaler to use for the majority of this merchandise? (b) You have noticed the current trend toward increased demand for bottled water. Several reports indicate that consumers are shifting from a desire for bottled sodas to a desire for 20-ounce bottled water products. Your grocery store wants to capitalize on this trend. What type of wholesaler would be best to use to enter into this new product line? (c) Your lumber yard needs to acquire two railroad carloads of wooden shingles to meet the demand produced by recent bad weather in your area. You are unfamiliar with who might have such products for sale and what might be the best prices from the various lumber mills around the country. Instead of spending a great deal of time to investigate the suppliers and market situation, you have decided to use a wholesaler to get the products for you. To reduce your risk, you would like to find a wholesaler who would assume responsibility for the order from the time it is placed until the time you receive the goods. What would be the best type of wholesaler for you to use in this situation?

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Answer: *****Instructors Note: As with all questions of this type that require judgment, several choices (answers) could be feasible. The answer listed is the best given available data (students should support their answers with justification or explanation). All answers were derived from the information provided in Table 12-3. For best results on this question, students should be instructed to review Table 12-3 in advance or this question could be given as a take-home assignment due at the time of the examination.***** (a) The best choice in this situation would be the rack jobber. They send delivery trucks to stores, where the delivery people set up such items as paperbacks (as per the illustration). They price the goods, keep them fresh, set up point-of-purchase displays, and keep inventory records. Rack jobbers retain title to the goods and bill the retailers only for the goods sold to consumers. (b) The best choice in this situation would be the truck wholesaler (truck jobber). They perform primarily a selling and delivery function. They carry a limited line of merchandise items such as sodas and bottled waters. They sell for cash as they make their rounds to supermarkets. (c) The best choice in this situation would be the drop shipper. They do not carry inventory or handle the product. On receiving the order, they select a manufacturer, who ships the merchandise directly to the customer. The drop shipper assumes title and risk from the time the order is accepted to its delivery to the customer. They operate in bulk industries such as lumber. Difficulty: (3) Page: 458, 459, Table 12-3

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