Marketing Channels, 8e (Palmatier) - Chapter 3

Marketing Channels, 8e (Palmatier) Chapter 03 Channel Analysis: Auditing Marketing Channels 1) The primary purpose of auditing marketing channels is to ________. A) evaluate the long-term service output solutions established by the manufacturer B) assess each channel member’s ability to provide service outputs efficiently C) examine the necessity of service intermediaries in the overall channel D) identify the short-run service output demands of targeted markets E) determine how to modify and shorten the channel structure Answer: B Difficulty: Moderate Objective: LO1; LO5 2) Which term refers to channel member activities that produce the service outputs demanded by end-users? A) information sharing B) channel segmentation C) reverse logistics D) channel functions E) bulk breaking Answer: D Difficulty: Easy Objective: LO1 3) What is the most likely benefit of auditing channel functions? A) identifying gaps in desired service outputs B) establishing channel oversight teams C) conducting data mining activities D) gathering end-user feedback E) segmenting the market Answer: A Difficulty: Moderate Objective: LO1; LO5 4) Which term refers to the process the marketing channel uses to handle returned merchandise? A) service outputs B) bulk breaking C) reverse logistics D) activity-based costing E) inventory holding Answer: C Difficulty: Easy Objective: LO1 5) It is most likely appropriate to remove a channel member from the marketing channel system if the channel member ________. A) engages in both bulk breaking and information sharing B) conducts most of the channel’s service output activities C) avoids channel conflicts by asserting channel power D) holds less channel power than other members E) performs redundant service output activities Answer: E Difficulty: Moderate Objective: LO1 6) Fab Furniture, a furniture wholesaler, owns a 500,000 square-foot warehouse that houses large volumes of home furniture that the firm purchases from multiple manufacturers. The expenses associated with shipping furniture to retailers around the U.S. and running the warehouse are most likely examples of ________ costs. A) financing B) negotiation C) order processing D) physical possession E) information sharing Answer: D Difficulty: Moderate Objective: LO1 AACSB: Analytical Thinking 7) Which of the following statements is most likely true about physical possession in a marketing channel system? A) Physical possession costs are not an issue for service providers. B) Decreasing inventory holding time typically lowers physical possession costs. C) Physical possession costs stem from taking title to goods and tying up capital. D) Ownership and physical possession always move together through channel systems. E) Handling product returns is a component of consignment selling rather than physical possession. Answer: B Difficulty: Difficult Objective: LO1 8) The combined costs of physical possession and ownership in a channel system are known as ________ costs. A) inventory holding B) service output C) safety stock D) consignment E) promotion Answer: A Difficulty: Easy Objective: LO1 9) What is the LEAST likely reason for holding inventory? A) anticipated demand surges B) shifts in service output needs C) supply and demand uncertainty D) economies of scale in production E) lengthy shipment transportation time Answer: B Difficulty: Moderate Objective: LO1 10) All of the following would most likely be described in an efficiency template EXCEPT the ________. A) share of total channel profits that each channel member should reap B) types of work done by each channel member to perform the marketing functions C) number and significance of service and cost gaps caused by each channel member D) amount of work done by each channel member to perform the marketing functions E) importance of each channel function to the provision of end-user service outputs Answer: C Difficulty: Moderate Objective: LO2 11) A(n) ________ indicates the share of total channel profits that each channel member is responsible for generating. A) holding cost B) safety stock C) equitable margin D) service output share E) normative profit share Answer: E Difficulty: Easy Objective: LO2 12) According to the equity principle, the compensation of each channel member should be based on the ________. A) power of the channel captain B) equal division of channel profits C) external competitive environment D) value created by the channel member E) promotional efforts of the channel member Answer: D Difficulty: Moderate Objective: LO4 13) A(n) ________ channel meets the target market segment’s service output demands at the minimum cost of performing the channel functions that produce those service outputs. A) service-oriented B) promotional C) zero-based D) equitable E) generic Answer: C Difficulty: Easy Objective: LO3 14) What is the best method for controlling inventory holding costs? A) increasing product variety B) extending the life of goods C) using multiple vendors D) changing warehouse locations E) monitoring factory processes Answer: B Difficulty: Moderate Objective: LO3 15) Which term refers to the decreasing predictability of end-user demand as the channel member’s distance from the end-user increases? A) capacity utilization B) environmental bounds C) service gap D) zero-sum gain E) bullwhip effect Answer: E Difficulty: Easy Objective: LO3 16) Which of the following questions is LEAST relevant to establishing a zero-based channel? A) Can information systems be modified to reduce the costs of generating quotes and placing orders? B) Is it possible to eliminate, combine, or redefine certain tasks to reduce the steps for a sale? C) What non-valued functions can be eliminated without damaging customer satisfaction? D) What information sharing activities occur between channel members and customers? E) What redundant activities exist and can be eliminated? Answer: D Difficulty: Difficult Objective: LO3 AACSB: Analytical Thinking 17) Which term refers to the idea that compensation should reflect the normative profit shares of each channel member? A) equity principle B) speculative selling C) productive activity D) channel gap E) postponement Answer: A Difficulty: Easy Objective: LO4 18) Tyrone, the channel manager for Federated Batteries, has built a channel that meets service output demands at a minimum cost, and he has closed all service and cost gaps. The channel created by Tyrone is best described as ________. A) functional B) speculative C) free riding D) zero-based E) fully integrated Answer: D Difficulty: Moderate Objective: LO3 AACSB: Analytical Thinking 19) Which term refers to limitations that create channel gaps and prevent the establishment of a zero-based channel? A) gaps B) bounds C) outputs D) variables E) weaknesses Answer: B Difficulty: Easy Objective: LO7 20) Legal constraints in the local marketplace that hinder the establishment of a zero-based channel are known as ________. A) inefficient channel functions B) product and service gaps C) environmental bounds D) service output gaps E) managerial bounds Answer: C Difficulty: Easy Objective: LO7 21) Country X requires that at least 40% of all suppliers to government agencies be either small or medium-sized vendors. For a large vendor trying to gain a government contract in Country X, this requirement is most likely an example of ________. A) illegal constraints B) managerial bounds C) service output gaps D) environmental bounds E) affirmative action laws Answer: D Difficulty: Moderate Objective: LO7 AACSB: Analytical Thinking 22) Which term refers to constraints on distribution structures that arise from rules within a company? A) service gaps B) managerial bounds C) physical infrastructure D) environmental bounds E) channel function gaps Answer: B Difficulty: Easy Objective: LO7 23) What is the typical source of managerial bounds? A) manufacturer B) wholesaler C) retailer D) end-user E) government Answer: A Difficulty: Easy Objective: LO7 24) Which of the following most likely occurs if the amount of a service supplied is less than the service demanded? A) environmental bound B) managerial bound C) service segment D) service gap E) cost gap Answer: D Difficulty: Moderate Objective: LO7 25) Which of the following statements is most likely FALSE? A) Channel efficiency occurs if service output supply exceeds service output demand. B) Cost gaps occur when one or more channel functions are performed at high costs. C) Service gaps occur when service output demand exceeds service output supply. D) Environmental bounds are constraints that stem from outside the channel E) Managerial bounds are restrictions imposed from inside the channel. Answer: A Difficulty: Difficult Objective: LO7 26) Which of the following is most important when determining how to close service gaps? A) assessing the service outputs of other industries B) providing higher levels of all service and cost outputs C) substituting one service output for another service output D) considering a global change in service outputs for all segments E) identifying the segment for which a service output is appealing Answer: E Difficulty: Difficult Objective: LO7 27) When the total cost of performing all channel functions is too high, a(n) ________ most likely occurs. A) speculative sale B) cost gap C) postponement sale D) service gap E) environmental bound Answer: B Difficulty: Moderate Objective: LO7 28) Which of the following statements about cost gaps is most likely true? A) A cost gap typically is indicated through negative feedback from end-users in a segment. B) Cost gaps exist when a single channel function is performed at a price that fluctuates. C) A cost gap occurs when the performance of channel functions is jointly inefficient. D) Cost gaps usually trigger high compensation expenses for channel members. E) Low costs typically indicate both cost gaps and service gaps. Answer: C Difficulty: Difficult Objective: LO7 29) Managers at Global-Tech, a manufacturer of electronic components, want to delay the start of production until the firm receives orders to eliminate inventory holding costs. Global-Tech is most likely engaging in ________. A) generic channel functions B) service output design C) channel gap analysis D) postponement E) speculation Answer: D Difficulty: Moderate Objective: LO7 AACSB: Analytical Thinking 30) Managers at Global-Tech, a manufacturer of electronic components, want to delay the start of production until the firm receives orders. What is the most likely risk of this strategy? A) producing beyond demand B) engaging in speculation C) segmenting the market D) establishing a cost gap E) creating a service gap Answer: E Difficulty: Moderate Objective: LO7 AACSB: Analytical Thinking 31) Managers at Fido’s Finest, a pet apparel firm, are expecting a large number of orders for dog sweaters because winter is approaching. In anticipation of these orders, the firm has started manufacturing large batch lots of dog sweaters. Fido’s Finest is most likely engaging in ________. A) promotion B) marketing C) speculation D) segmentation E) postponement Answer: C Difficulty: Moderate Objective: LO7 AACSB: Analytical Thinking 32) What is the most likely benefit of speculation? A) decreased inventory holding costs B) increased economies of scale C) decreased reliance on intermediaries D) increased demand by end-users E) decreased industry competition Answer: B Difficulty: Moderate Objective: LO7 33) A Service Gap Analysis Template is used to identify service gaps based on ________. A) over-compensated intermediaries B) segmented channel functions C) correlated generic channels D) demanded service outputs E) targeted end-user segments Answer: E Difficulty: Moderate Objective: LO8 34) What is the LEAST likely result of a cost gap analysis? A) identifying cost gaps in a marketing channel B) segmenting end-users by cost gap responses C) determining potential actions to close cost gaps D) identifying environmental and managerial bounds E) assessing whether potential actions will create other gaps Answer: B Difficulty: Moderate Objective: LO8 35) How does CDW implement the equity principle? A) offering customers a choice in the cost of channel functions B) sharing information with customers to reduce purchasing risks C) performing the same financing functions for all levels of customers D) compensating salespeople with the same commission rate for online and personal sales E) negotiating with channel intermediaries to eliminate the potential for service and cost gaps Answer: D Difficulty: Moderate Objective: LO4 36) Which of the following statements about product returns is most likely FALSE? A) Restocking fees are intended to offset the costs of handling returns. B) Processing Web returns costs significantly less than handling store returns. C) Most firms take 1-2 months to move a returned product back into the market. D) Third-party logistics firms handle receiving, checking, and repackaging returned products. E) Retailers tend to invest more than manufacturers in reverse logistics management technologies. Answer: B Difficulty: Difficult Objective: LO1 37) Which of the following is most likely a true statement about reverse logistics? A) Accounting cost transparency is low because of inconsistent tracking. B) Low channel risk exists because of significant market demand. C) Economies of scale are gained by shipping items in bulk. D) Volume forecasting is simple for most new products. E) Product packaging and product quality are uniform. Answer: A Difficulty: Difficult Objective: LO1 38) Outside-In, an outdoor apparel firm, loses money each month because of returned merchandise. Which of the following actions should Outside-In LEAST likely consider? A) contracting with third-party logistics specialists B) providing tools to help prescreen customer orders C) assigning customer service reps to assist buyers D) investing in better demand forecasting methods E) eliminating unnecessary intermediaries Answer: E Difficulty: Moderate Objective: LO1 AACSB: Analytical Thinking 39) Which of the following most likely indicates the existence of a cost gap? A) The price/value proposition is appropriate for a less demanding segment. B) The price/value proposition is appropriate for a more demanding segment. C) Service levels are too low, and the costs are too high. D) Service levels are right, but the costs are too low. E) Service demands meet service output levels. Answer: C Difficulty: Moderate Objective: LO7 40) When using an efficiency template, the first step is to ________. A) compare the compensation of channel members B) determine the weights of each channel function C) distinguish between environmental and managerial bounds D) calculate a weighted average of function performance levels E) quantify retail and wholesale price points using gap analysis Answer: B Difficulty: Moderate Objective: LO2 41) Physical possession costs are non-existent for service providers because of the lack of a tangible product. Answer: FALSE Difficulty: Moderate Objective: LO1 42) It is best to create a separate efficiency template for each channel that distributes the product and for each targeted segment of end-users. Answer: TRUE Difficulty: Moderate Objective: LO2 43) Violations of the equity principle are a common cause of channel conflicts. Answer: TRUE Difficulty: Easy Objective: LO4 44) Speculation involves delaying production until orders are received to eliminate the costs of holding expensive inventory. Answer: FALSE Difficulty: Easy Objective: LO7 45) Service gaps occur when the amount of a service supplied is less than the service demanded. Answer: TRUE Difficulty: Easy Objective: LO7 46) What are physical possession costs? What types of physical possession costs are experienced by service providers? How do physical possession costs affect a channel’s success? Answer: Physical possession refers to channel activities pertaining to the storage of goods, including transportation between channel members. The costs of running warehouses and transporting products from one location to another are physical possession costs. For a service, such as online bill payment, physical possession costs seemingly should be lower, but they still apply to channel members who host the data (i.e., own, operate, and maintain the computer hardware and software systems necessary to provide ready access to financial data in the system). This channel function might seem trivial at first glance, but in such a services market, it is both costly and utterly crucial to the channel’s success. Controlling physical possession costs—such as by lessening the time the channel holds inventory—is a powerful means to improve overall channel profitability, because of the enormous costs of handling product returns. Difficulty: Difficult Objective: LO1 AACSB: Analytical thinking 47) What are the uses and benefits of efficiency templates? What qualitative and quantitative cost information is necessary to complete an efficiency template? Answer: The efficiency template is a useful tool for codifying the costs borne and the value added to the channel by each channel member, including end-users. Among its many uses, the efficiency template can reveal how the costs of particular functions get shared among channel members, indicate how much each channel member contributes to overall value creation in the channel, and demonstrate how important each function is to total channel performance. It also can be a powerful explanatory tool and justification for current channel performance or changes to existing operating channels. For products sold through multiple channels, their efficiency templates can be compared to find any differences in the costs of running the different channels, which may help the channel lower costs without compromising desired service output levels. You need good quantitative measures of the costs of all activities performed by all the channel members. Even without quantitative measures of cost, analysts can use qualitative techniques to estimate the cost weights. Difficulty: Difficult Objective: LO2; LO6 AACSB: Analytical thinking 48) What is a zero-based channel? What role does inventory management play in achieving a zero-based channel? What methods are available for reducing inventory? Answer: A zero-based channel meets the target market segment’s demands for service outputs by performing necessary channel functions to produce those service outputs at a minimum cost. Cost control in channels often depends on reducing inventory. Some methods for reducing inventory are to avoid items that sell slowly, lengthen the life of goods (e.g., add preservatives to foods), find a vendor who resupplies faster, or locate a cheaper warehouse. Less obvious methods include developing better demand forecasts or altering factory processes to attain scale economies at lower production levels. A powerful way to cut inventory is to simplify, that is, to reduce variety. Of course, that method is risky because it may cut sales as well. A channel that adopts this approach must find offerings that no one will really miss by rationalizing the product line. Thus, the service output levels pertaining to assortment and variety remain the same, in the target consumer’s minds. Some channels have sought the benefits of modular design for products, combined with manufacturing processes that postpone, as late as possible, the point of product differentiation. Difficulty: Difficult Objective: LO3 AACSB: Analytical thinking 49) How do environmental channel bounds and managerial channel bounds differ? What are the potential causes and effects of each? Answer: The characteristics of the marketplace in which the channel operates can constrain the establishment of a zero-based channel. Such environmental bounds in turn create channel gaps. Two key examples of environmental bounds are local legal constraints and the sophistication of the physical and retailing infrastructure. Environmental bounds occur outside the boundaries of the companies directly involved in the channel and constrain channel members from establishing a zero-based channel, whether because they cannot offer an appropriate level of service outputs or because the constraints impose unduly high costs on channel members. In contrast, though managerial bounds also constrain channel design, they emanate from within the channel structure itself or from the orientation or culture of specific channel members. Managerial bounds refer to constraints on distribution structure arising from the rules within a company. Typically they stem from the company that manufactures the product. Sometimes a desire to control the customer, or simply a lack of trust among channel members, prevents managers from implementing a less bounded channel design. Whether channel gaps arise due to managerial bounds, environmental bounds, or a lack of attention to the well-being of the channel, they can profoundly affect either side of a zero-based channel, that is, services or cost gaps. Difficulty: Difficult Objective: LO7 AACSB: Analytical thinking 50) What are the causes and effects of both service gaps and cost gaps? Answer: Service gaps can arise because a particular service output, provided to a particular target segment of end-users, is too low and the service outputs demanded exceed the service outputs supplied (SD > SS); or because a particular service output, provided to a particular target segment of end-users, is too high and the service outputs supplied exceed the service outputs demanded (SD < SS). When SD < SS, the channel is operating inefficiently, because consumers are not willing to pay for the high level of service offered, due to their low valuation of that service. In general, service gaps may remain if competitors are no better at providing these service outputs than the channel is. However, persistent service gaps provide an ideal opportunity for the channel to build overall market demand and steal market share, by investing in improved service output levels. Cost gaps arise when one or more channel function(s) are performed at high costs. Sometimes, one or more functions may seem inefficient, but only because the channel members have purposefully traded off inefficiency in one function for super-efficiency in another, resulting in lower costs overall. The cost gap inflicts higher costs on channel members than are necessary. Some channel member must pay those costs, whether end-users, paying through higher prices, or upstream channel members, paying through decreased profit margins. Difficulty: Difficult Objective: LO7 AACSB: Analytical thinking