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Chapter-by-chapter aids: Chapter 10
A firm that sells installations might want to use direct distribution in its domestic market.
Installations are often a high-ticket purchase for the business customer and there may be
many questions for the seller. Aspects of the marketing mix – especially after the sale service
10- 4. There may be a discrepancy of quantity between the output of clothing manufacturers and the
demands of individual consumers who may want only one or two of a variety of items. But
since consumers usually want a wide variety of items and producers tend to specialize, there is
bound to be a discrepancy of assortments. As a result, we see assorting – at least at the retail
level – and some accumulating and bulk breaking at intermediate levels in channels of
distribution. Sometimes, this is done by the producer, however, or by large retailers who go
directly to the producers to develop an attractive assortment.
10- 5. See section “Channel Specialists May Reduce Discrepancies and Separations” for discussion
of the regrouping activities. Which and how much of each of these activities are needed
depends on how big the discrepancies of quantity and assortment are. There is obviously a
big discrepancy of quantity between most producers of these products and the small building
contractor or do-it-yourselfer. For a large tract builder, however, this discrepancy of quantity
may be small. There may be little or no need for marketing specialists to adjust discrepancies.
Carefully specifying target markets is important in this question, because the greater the
discrepancy of quantity, the longer the channel may be – requiring more bulk breaking. Given
that this industry is concerned with "finished" products that are produced in reasonable quantity
in a factory, there probably is little need for the accumulating process.
Part IV
IV-10-4 Perreault, Cannon, & McCarthy
10- 6. In general, most insurance companies offer a variety of different types of insurance to meet
different types of needs. So many agents work with a variety of different suppliers. The agent
brings together information and expertise about many different possible insurance products –
both to help the suppliers of those services with the selling function and to help the customer
10- 7. It is extremely important that each student specify the assumptions he is making about target
markets and product classes. Then the Place objectives (Exhibits 8-6 and 8-7) should logically
flow from these assumptions.
a. This scale would probably be appropriate only for homes and small offices and therefore
would be a convenience or shopping product for final consumers – and a supply item in
the industrial products market. The objective would probably be to get as widespread
distribution as possible in appropriate outlets, i.e., in as many office and stationery
supply stores and department stores as possible. Most prospective customers would
probably seek such an outlet and then select among the available scales.
c. This is accessory equipment and probably calls for direct sales or aggressive
wholesalers to be sure all the necessary contacts are made.
d. A fiberglass fabric used in making roofing shingles is a component material that happens
to be fairly standardized. Usually, fairly widespread contacts are necessary with
component materials; but, when we are aiming at the shingle producers, some
modification in the distribution arrangements is possible because a relatively few large
users are involved, as well as many small ones; and if we are primarily concerned with
the large users, then direct distribution – or through agents who do not handle the
products – may be practical. If we are concerned with the many small producers or the
thousands of other business users, however, some who may only use a small amount
every month or so, then intermediaries who will stock locally may be necessary. This
would be especially likely if the product were thought of as a supply by potential
customers.
Chapter-by-chapter aids: Chapter 10
customers. For example, IBM wanted to distribute its personal computers direct to large
10- 9. A channel captain could show the independent firms how they could work together to simulate
the activities of an integrated channel for the mutual benefit of all. Actually, independent firms
are part of one or more channels of distribution – whether they realize it or not. This text
argues that it would be more desirable and profitable for them if they recognized this
interdependence and then made adjustment where necessary or desirable. The channel
captain would provide the leadership in this direction.
10-10. Student answers here will vary. Usually the advantages will appear in one of several basic
ways: lower costs or more control. For example, a garden shop that sells landscaping plants
10-11. The dominant role that some retailers are playing in channels is discussed further in Chapter
12. But here the student ought to see that the retailer is close to the consumer and ought to
have a better idea what his target customers want than wholesalers or manufacturers who are
more remote from the final consumer. Also, retailers may have to serve many different kinds
10-12. Intensive distribution is frequently desired for convenience products and some industrial supply
items. This may be especially necessary in a highly competitive market. Selective distribution
may be adequate for the many business products and shopping and specialty products that
are truly differentiated. Exclusive distribution may only be feasible for specialty products or for
those shopping products for which consumers can be counted upon to do a thorough job and
therefore visit the exclusive outlet.
10-13. Intermediaries would seek to be exclusive distributors to obtain the benefits of their own or the
producer's planning and promotion of a good marketing mix. They would be less anxious to
get an exclusive if in return they are expected to carry large stocks and to do an aggressive
promotion job. They may not be equally anxious for any type of product, either, because if the
product requires extremely widespread distribution, then the producer may expect them to
Part IV
cost. If they are not expected to do this, however, that is, if they are allowed to let the
customers come to them, then almost all intermediaries would like to have an exclusive
arrangement.
10-14. See section “The Best Channel System Should Achieve Ideal Market Exposure.”
A situation: A small producer of a single line of very high-quality cocktail glasses might make
exclusive arrangements with one store (or chain) in New York, Chicago, and San Francisco –
to handle its single line exclusively. Further, the contract could be terminated at any time by
10-15. This question is anticipating the material in Chapter 13 on developing a promotion blend. But
no anticipation can be done until the student clearly understands what is involved in channel
planning for different products and target markets. Therefore, the focus should be first on the
nature of the target market and the product, and then on the appropriate channel. Then, it
should be clear what kind of promotion is needed in the particular situations cited by the
student. For example, in the case of the grocery products producer promotion would depend
on whether he was moving into a new product category, just adding another product to an
existing line, or starting from scratch. Further, it would be relevant whether he was going to
use a pushing or a pulling policy – because pushing would require more personal selling while
pulling would rely more heavily on advertising.
Chapter-by-chapter aids: Chapter 10
10-16. This chapter introduces five basic approaches for entering international markets: 1) exporting,
2) licensing, 3) management contracting, 4) joint venture and 5) direct investment. As shown
in Exhibit 10-5, this represents a continuum – and moving up the ladder has the advantage of
giving the marketing manager greater control over marketing mix decisions – but also involves
and increasing investment and greater risk to the marketing manager. A discussion of control
would help students understand that, in some of these entry modes, the marketing manager in
the home country has little control over target market and marketing mix decisions.
Other advantages and disadvantages by specific entry mode:
1. Exporting – tends to be easier to do and a fast way to enter a foreign market – as the
intermediaries can handle some of the complexities associated with international trade
(e.g., customers, taxes, shipping, exchange rates). The downside is that the exporting firm
has little control over the strategy used by the importer.
DISCUSSION OF COMPUTER-AIDED PROBLEM 10: INTENSIVE VS. SELECTIVE
DISTRIBUTION
A manager for a company that has been selling to industrial customers is thinking about expanding into a
consumer market – and the strategy requires new channels of distribution. The manager is trying to
Part IV
IV-10-8 Perreault, Cannon, & McCarthy
P L U S – SpreadSheet
Intensive
Selective
Number of Retailers
5600
*
280
*
Retailers per Sales Rep
300
*
70
*
Sales Reps Needed
19
4
Salary per Sales Rep
18000.00
*
18000.00
*
Personal Selling Expense
342000.00
72000.00
Mass-selling Expense
200000.00
*
50000.00
*
Answers to Computer-Aided 10:
a. Based on the initial spreadsheet (given above), selective distribution looks like the wisest choice. In
a "bottom line" sense, it produces the greatest profit – $214,000.00 vs. profit of only $73,000 with
intensive distribution. Note that a large part of this difference is due to the increased number of sales
reps to call on all of the retailers involved in intensive distribution – although not all of them sell in
large quantities. Further, with intensive distribution the firm would need to spend more on mass
selling. And, by focusing selectively on a subset of the retailers it is possible to get more of their
attention for the product – and a larger share of their sales to their customers.
P L U S – SpreadSheet
Intensive
Selective
Number of Retailers
5600
*
280
*
Retailers per Sales Rep
300
*
70
*
Sales Reps Needed
19
4
Salary per Sales Rep
18000.00
*
18000.00
*
Personal Selling Expense
342000.00
72000.00
Mass-selling Expense
200000.00
*
100000.00
*
c. Hydropump would need would need to get 14.08 percent of the retailers' total unit sales to make
$200,000. Actually, as shown in the What If data display below, that percentage would yield profit of
Chapter-by-chapter aids: Chapter 10
$200,400. This analysis may warrant some class discussion. Some students will argue that it should
be easy to increase share of purchases by "just a few percentage points" – especially when this is
compared with the much higher percentage used in the column for selective distribution. And, in
some cases this might be possible. But, many firms mistakenly assume that such increases are
going to come easily. They forget that it may be expensive – if possible at all – to try to extract
"extra" effort from such a large network of retailers. The retailers may simply do what they want to do
– depending on their own objectives, what other products they carry, and what profit they can make
in other ways.
P L U S - What If Data Display
-Intensive-
-Intensive-
Percent
Profit
14.02
196725.00
14.03
197320.00
14.04
197950.00
14.12
202850.00
CHAPTER 10 – COMMENTS ON USE OF SUGGESTED CASES WITH THIS
CHAPTER
Case 13: AAA Office World
The case deals with the relationship between AAA Office World, a producer, and one of its major
Case 15: The Buckeye Group
This case can be used here to discuss the strategy decision areas in Place (see section “Marketing
Strategy Planning Decisions for Place”). This case is suggested again for Chapter 12 – at which time the
Case 16: J&J Lumber Supply
This case can be used as suggested above for Case 15. It too is suggested for use in Chapter 12 – at
which time the students will understand that Jimmy Olson is a drop-shipper who is now facing a tough
oligopolistic competitor and is considering an opportunity which will change the functions he provides in
the channels. He will be a manufacturers' agent. See case discussion.
Part IV
IV-10-10 Perreault, Cannon, & McCarthy
Case 32: Lever, Ltd.
Case 34: Chess Aluminum Worldwide
This case can be used here to illustrate the need for a coherent distribution (Place) policy as part of an
overall strategy. The case focuses on different channels that a company is using in different countries
around the world, so it also serves as a useful vehicle for covering some of the "typical" problems (and
errors) faced by firms as they get into exporting. See case discussion in Part V.
CHAPTER 10 – COMMENTS ON USE OF ETHICS QUESTION WITH THIS CHAPTER
Situation: Assume you are the sales manager for a small producer of hip-hop fashions. As you arrive at a
trade show to promote your firm’s new line, your assistant pulls you aside to warn you that some of the
owners of shops that usually carry your line are looking for you—and are hopping mad. They’ve heard
rumors that a big retail chain will be carrying your new line in all of its stores. In the past, your firm has
distributed its fashions only through these small, “independent” retail shops, and they see the big chains
as threats. Although you have had some negotiations with a buyer for the big retail chain, no deal has
been reached yet. What will you say to the owners of the small shops, many of whom helped your firm
get started and have always supported your marketing plans? If you are certain that most of these small
retailers will not place any orders if they think the big chain will be carrying the same line, will you respond
differently? Explain your thinking.
This scenario addresses an interesting question that faces many fast-growing firms. New start-up firms
Problems like this can be sometimes be avoided if managers think clearly in advance about how to help
current distributors at the same time as working to get improved distribution. After all, the current small
shops will probably continue to be important to the producer even if a deal is struck with a large retail
chain. For example, it might be that certain types of fashions would go first (or only) to the smaller,
independent shops. That sort of plan may or may not satisfy the owners of the small shops, but it is
better to have a positive plan that can be discussed truthfully than to have nothing to say except “no
comment.”
Chapter-by-chapter aids: Chapter 10
CHAPTER 10 – COMMENTS ON USE OF CREATING MARKETING PLANS
QUESTION WITH THIS CHAPTER
The Marketing Plan Coach software on the text website includes a sample marketing plan for Hillside
Veterinary Clinic. Look through the “Marketing Strategy” section.
a. Why does Hillside sell its product directly instead of indirectly?
b. Hillside has a small selection of pet supplies that it sells to people who bring in their pets. What
products does it resell at retail? What channel functions does it provide, and what channel
functions are performed by its suppliers?
This chapter notes that services are usually sold directly. Services typically have to be produced in the
presence of the customer – and may involve co-production with the customer. This allows for some class
discussion on why most medical services are offered directly from caregiver to patient. The quality of a
diagnosis largely depends on information provided by the patient (and, in this case, the pet owner).
There are also no suitable intermediaries for this type of product.
CHAPTER 10 – SUMMARY OF CONNECT HOMEWORK EXERCISES
Exercise 10.1: A Tale of Two Stores: Apple Stores and Gateway Country Stores
Question Type: Case analysis
Exercise 10.2: Soft Drink Channels
Question Type: Video case
Exercise 10.3: Regrouping Using Intermediaries
Question Type: Drag-and-drop
IV-10-12 Perreault, Cannon, & McCarthy
Chapter-by-chapter aids: Chapter 11
CHAPTER 11: DISTRIBUTION CUSTOMER SERVICE AND
LOGISTICS
CHAPTER 11 – COMMENTS ON QUESTIONS AND PROBLEMS
11- 1. A firm should seek to offer the customer service level that is sufficient to meet customer needs,
but not so high that it exceeds customers' needs and simply adds unnecessarily to the cost of
11- 2. There is no reason to expect that students know much about furniture manufacturing or the
fabrics that might be used to make upholstered furniture. Thus, this is intended as a thought
question and there is not a single correct answer. Rather, the idea is for the student to think
about what the needs might be – based on what they do know – and come up with an
"educated guess" about which service elements might be most important.
Many students will recognize that furniture is often available in a variety of different upholstery
fabrics – either as part of the selection at a retail store or available as a custom order (through
the retailer) to the producer. Further, with a little thought most students will see that furniture
producers usually produce a variety of different types of furniture and often different styles (for
example, chairs, sofas, loveseats, etc.). Since the producer is likely to need to plan production
to accommodate the different types of fabric and different types of furniture, it will be very
important to make certain that fabric is available when it is needed. The producer doesn't want
be willing to pay a higher price to be able to get fast delivery on small orders.
11- 3. Student responses to this question will vary – but an out-of-stock situation might prompt a
customer to find another source for the desired product. When posing this question in class
we have found that most students focus on situations where they selected a product or store
because of a higher customer service level. It can be useful, however, to ask students to think
IV-11-2 Perreault, Cannon, & McCarthy
11- 4. Basically, there are trade-offs between the cost of the physical distribution system, the service
level provided, and the sales achieved. There are also more specific trade-offs among
elements of the logistics system. For example, a better system for coordinating logistics
11- 5. There are a number of examples in the book that illustrate ways that coordination is taking
place and/or why it is important, so students should not have a lot of trouble coming up with
“hypothetical” answers. On the other hand, most students don’t have a very clear idea how
difficult it sometimes is for companies with different priorities, different philosophies, different
computer systems, and different cultures to work together for their common good. So, one
way to expand the thinking prompted by this question is to ask students what might get in the
way of the coordination actually occurring, or with it happening smoothly. If they seem to be
slow to come up with ideas, ask them to think about times when they have worked with a group
of people where it was difficult to get cooperation and then ask them if the same problems
might apply to relationships among whole firms.
11- 6. The use of computers (and other types of information technology) in the physical distribution
area are discussed throughout the chapter. Products are now stored in computer-controlled
warehouses and moved using automated conveyor systems. Computers are also being used
to keep track of inventory – and to order stock only when it is needed. EDI (electronic data
11- 7. A just-in-time delivery system can result in really big problems if there is a breakdown in
product quality – especially if products are not standardized (for example, different styles of
seats in different type of upholstery for different makes of automobiles on a production line). At
11- 8. It is no accident that firms that want just-in-time delivery systems prefer to work with suppliers
who are located close by. The greater the distance between the supplier and the customer,
the greater is the likelihood of some unexpected complication causing delays or irregularities in
deliveries. Such problems are likely to be magnified in international shipments, especially if
water transportation is involved. The long lead times required for water transportation make it
difficult to respond quickly to a change in customer needs. Further, problems can arise
because of a hold up in customs, with government red tape, etc.
Chapter-by-chapter aids: Chapter 11
When a supplier is providing just-in-time delivery for its international customers, it is likely to
need facilities in the vicinity of the customer's factory – or alternatively work with an
intermediary who holds inventory and meets the demands of local customers on a just-in-time
basis.
11- 9. The book is clear in explaining that EDI, the Internet, and related information technologies
have had an important impact–often in ways that both improve customer service and cut costs
at the same time. This question encourages them to go back and rethink the discussion of
factors that impact customer service in light of that discussion. They will realize that EDI or
web-based information sharing can improve performance on many of the items on that list, and
even for those items where it doesn’t have a direct effect it often can make problems less
serious (or, at least not so long-lasting) because it speeds up the whole order cycle process.
11-10. The total cost approach requires a look at the whole physical distribution effort – not just at
individual functions such as transporting or storing, with a view to minimizing the costs of the
individual functions. Traditionally, these various functions have been handled by separate
11-11. Exhibit 11-5 provides a concise summary of the key points here. For more detail, see section
“Which Transporting Alternative Is Best?”
11-12. One reason is that there may be transportation economies in shipping large orders directly to a
wholesaler rather than shipping many smaller orders to local retailers (or other types of
11-13. Airfreight is opening new markets, especially for lightweight, high value perishable products.
Note that perishable here includes non-food items that have time value (such as fashions,
weekly magazines, etc.). Airfreight is changing packaging requirements for some products –
since there is less handling and less change of damage. Airfreight is creating new channels
for some products – as they can be ordered with a toll-free telephone call direct from a central
location and delivered to the customer within a day or two. This is reducing the costs of
inventory and storage in the channel. In some cases airfreight is increasing the price of
products. But that is not necessarily the case. For example, airfreight has made it possible to
bring fresh flowers from areas where they grow all year round to areas where there are harsh
winters. This has made flowers so popular in many of these areas that they are now available
in grocery stores and from other mass merchandisers – and that has helped to bring the price
down. See section “Which Transporting Alternative Is Best?” for additional discussion.
Part IV
IV-11-4 Perreault, Cannon, & McCarthy
11-14. Most suitable is usually interpreted as the lowest cost in the absence of any time requirement.
The suggested answers assume a lowest-cost criterion consistent with the type of product.
a. Boat to Los Angeles and then truck to store. Note: some students will argue that crabs
are perishable and that airfreight might be the method of choice – to reduce the risk of
spoiling during transit. That reflects useful thinking and airfreight is sometimes used, but
it also ignores refrigerated shipping compartments and other specialized facilities that
are often less expensive ways of accomplishing the same outcome.
11-15. Students in colleges located in a rural setting will probably find agricultural commodities stored
nearby. On the other hand, students located near large urban areas will most likely find that
the nearest major storage facilities are right downtown in the inner city. The discussion in the
text (see section “The Storing Function and Marketing Strategy”) explains why the kinds of
products are stored where they are.
11-16. Use public warehouse if needs for storage fluctuate during the year, or if needs are too small to
justify a private warehouse. For example, antifreeze manufacturers build up inventories in
11-17. The distribution center concept is especially important for items having a high turnover. For
the many slower-moving items that have been the "bread and butter" of the conventional
merchant wholesalers, much storage still may be necessary. A small grocery wholesaler may
11-18. Storing is the basic object of a warehouse, while breaking-bulk and minimum storage is the
object in a distribution center. A warehouse would be geared for efficient storage, perhaps
with facilities to maximize vertical storage. A distribution center would be more concerned with
horizontal movement of goods – and fast data processing to facilitate movement in and out.
11-19. The logistics issues faced by Internet retailers and traditional retailers have some similarities
and some differences. Both types of retailers need to consider the level of customer service
Chapter-by-chapter aids: Chapter 11
DISCUSSION OF COMPUTER-AIDED PROBLEM 11: TOTAL DISTRIBUTION COST
A company that makes plastic blanks for credit cards is considering two different distribution systems –
airfreight and railroad. Classroom discussion will soon turn to weighing the balance between the bottom
line ("Total Cost-PD") and the customer service level that might result from these decisions.
Answers to Computer-Aided Problem 11:
a. The initial spreadsheet shows an advantage of $34,000 in Total Cost-PD for the Airfreight option,
even though the unit shipping cost is much higher:
P L U S - SpreadSheet
Airfreight
Railroad
Selling Price
40.00
*
40.00
*
Expected Sales Quantity
20000
*
20000
*
Inventory Carrying Cost Percent
5.00
*
10.00
*
Unit Shipping Cost
7.50
*
2.00
*
b. It is the inventory carrying cost and paying for warehouse space that makes the Total Cost for
Railroad more than the Airfreight option. If the firm can save money on the warehouses, that's still not
quite enough for Railroad to beat the Airfreight option as shown in the spreadsheet. Airfreight still
has a $10,000 advantage.
P L U S - SpreadSheet
Airfreight
Railroad
Selling Price
40.00
*
40.00
*
Expected Sales Quantity
20000
*
20000
*
Inventory Carrying Cost Percent
5.00
*
10.00
*
Unit Shipping Cost
7.50
*
2.00
*
Part IV
IV-11-6 Perreault, Cannon, & McCarthy
P L U S - SpreadSheet
Airfreight
Railroad
Selling Price
40.00
*
40.00
*
Expected Sales Quantity
20000
*
20000
*
Inventory Carrying Cost Percent
4.00
*
7.50
*
Many students will argue that the apparent $2,000 savings using Railroad is not sufficient to dismiss
Airfreight. After all, lower interest rates cannot be guaranteed. What Proto Company would actually
do might depend on some additional factors: If volume is expected to grow substantially, then
building a PD system around the Railroad option might make sense – plastic blanks are heavy but
nonperishable. On the other hand, if the company's marketing strategy includes being able to
CHAPTER 11 – COMMENTS ON USE OF SUGGESTED CASES WITH THIS
CHAPTER.
Case 16: J&J Lumber Supply
This case can be used here to illustrate how a drop-shipper is used to avoid unnecessary transporting
and storing costs in one product-market. It probably should be emphasized that the drop shipper does
sell to merchant wholesalers who do provide storing – because it is necessary to adjust both quantity and
assortment discrepancies in this channel. See case discussion.
Case 26: Abundant Harvest
This case can be used here to discuss the role of food brokers – and in particular how they arrange for
accumulating enough quantities to meet the needs of customers at other levels in a channel of
distribution. The food broker would probably reduce transporting and storing costs to a minimum, while
CHAPTER 11 – COMMENTS ON USE OF ETHICS QUESTION WITH THIS CHAPTER
Situation: Many major firms, ranging from Nike and Starbucks to Walmart and IKEA, have been criticized
for selling products from overseas suppliers whose workers toil in bad conditions for long hours and at
low pay. Defenders of the companies point out that overseas sourcing provides jobs that are better than
what workers would have without it. Critics think that companies that sell products in wealthy countries
Chapter-by-chapter aids: Chapter 11
have a social responsibility to see that suppliers in less-developed nations pay a fair wage and provide
healthy working conditions. What do you think? Should U.S. firms be required to monitor the employment
practices of suppliers in their supply chains? Should all suppliers be held to Western legal or moral
standards? What solutions or compromises might be offered?
If you plan to discuss this situation in class, be aware in advance that it may turn out to be a very
emotional topic—perhaps because of the displacement of local jobs and income rather than the “remote”
CHAPTER 11 – COMMENTS ON USE OF CREATING MARKETING PLANS
QUESTION WITH THIS CHAPTER
The Marketing Plan Coach software on the text website includes a sample marketing plan for Hillside
Veterinary Clinic. Look through the “Marketing Strategy” section. To provide veterinary care to pets,
Hillside needs to have a variety of medical supplies on hand. To handle that, it relies on deliveries from
suppliers and its own inventory decisions. It also sells some retail pet products to customers, and that
requires a separate set of decisions about how it will handle inventory.
a. What logistics issues related to medical supplies should Hillside consider? Can you think of ways
in which delivery from its suppliers or its own inventory decisions will be important in its ability to
help patients?
b. With respect to the retail pet products that Hillside sells, what level of customer service should
customers expect?
c. What issues are involved in storage of pet supplies?
HVC must make some key decisions with respect to the level of customer service it chooses to offer.
These tie into the logistics decisions the clinic must make. With medical supplies, HVC must determine
Part IV
IV-11-8 Perreault, Cannon, & McCarthy
CHAPTER 11 – SUMMARY OF CONNECT HOMEWORK EXERCISES
Exercise 11.1: Best Buy Distribution, Customer Service, and Logistics
Question Type: Case analysis
Exercise 11.2: Dell Computer Corporation
Question Type: Case analysis
Exercise 11.3: Transportation Options
Question Type: Drag-and-drop
Exercise 11.4: Logistics Alternatives
Question Type: Drag-and-drop
Learning Objectives: 11-5
Topic: Which Transporting Alternative is Best?
Chapter-by-chapter aids: Chapter 12
CHAPTER 12: RETAILERS, WHOLESALERS, AND THEIR
STRATEGY PLANNING
CHAPTER 12 – COMMENTS ON QUESTIONS AND PROBLEMS
12- 1. The purpose of this question is to have students recognize a marketing mix for retailers. This
12- 2. Specialty shops are offering a service to particular groups of target consumers. Organizing a
chain of specialty shops is a possibility when there are similar target consumers in many
different geographic markets and the special offering would appeal to them equally. Without
this relatively homogeneous demand in different markets, centralized management and
12- 3. Discount houses have a policy of low-margin selling to obtain large sales volume. Low-margin
selling is the policy around which much of the rest of the marketing mix is shaped, whereas
discount selling refers to a competitive reaction (by "conventional" stores) to meet low-margin
selling in certain lines. No intention to shift to a low-margin policy is implied by a discount
selling policy – which merely cuts price where necessary. These temporary price cuts may
force a temporary adjustment in the marketing mix – that the company would really rather not
offer.
There is no doubt that price competition is building among some Internet merchants, in part
because once a consumer has decided to seek a particular brand from a seller on the Internet
it is relatively easy to compare prices and availability – perhaps even with the use of an
Internet shopping (ro)bot. There is a detailed discussion in the text of the current status of
such Internet merchants. It is not clear how shopping for convenience products will evolve on
the Internet, but it is likely that for this class of products the changes will occur more gradually.
Part IV
12- 4. Cheaper technology has made it easier for firms to install toll-free telephone order lines,
Internet websites, and the like. Deregulation of the transportation industry has increased
competition and lowered prices in that area, and that has lowered the costs of shipping
12- 5. See the discussion in section “Retailing on the Internet.” This question refers to “shopping”
and thus it, at least implicitly, focuses on final consumers rather than business customers. On
the other hand, the discussion can be expanded to include the changes taking place in
wholesaling. They are discussed throughout the second half of the chapter.
12- 6. Usually, established retailers become involved in their ongoing strategies and seem unable to
adapt to changing conditions. Sometimes they get locked into serving their present customers
because the new needs are not yet large enough to justify changing the whole strategy. This
allows room for a small newcomer to come in and provide for these special needs. As this
12- 7. This question draws on the text discussion in section “Retailer Size and Profits.” Basically, a
chain type operation offers the potential for economies of scale and greater purchasing power.
For example, economies of scale may develop with respect to advertising (one ad serves
many outlets) and certain types of specialization (one set of top managers, one credit
department, one set of buyers, etc. can serve the needs of multiple stores). The increased
volume that is possible with multiple outlets may make it possible for the chain to get products
with a better quantity discount, or in general to have more clout with the supplier (i.e., be
assured of delivery when product shortages exist, better attention from salespeople about
12- 8. Many large retail chains are seeking to expand their sales and profits by moving into
international markets. Walmart and Toys 'R' Us are good examples of that. Retailing formats
that are popular in one country (culture) may prove to be popular in other countries as well.
