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 Jeweler’s.
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. Macy’s.
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 men’s 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
273
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
274
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
275
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 Sam’s 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
276
30. McDonald’s, 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), Mervyn’s (lower-priced clothing),
B. Dalton (bookstores) in addition to its Dayton’s and Hudson’s 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.
277
Answer: (c) Difficulty: (2) Page: 444, Figure 12-1
35. Which of the following were cited in the text as contributing factors to Wal-Mart’s
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. McDonald’s.
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 retailer’s ______________ 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
279
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
280
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. manufacturer’s 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. manufacturer’s 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. manufacturer’s 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. Manufacturer’s 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. Producer’s cooperatives
d. Commission merchants
Answer: (c) Difficulty: (2) Page: 458, Table 12-3
283
64. ________________ have contractual authority to sell a manufacturer’s entire
output.
a. Selling agents
b. Rack jobbers
c. Manufacturer’s 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
284
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
285
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 store’s 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
286
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 manufacturer’s entire output.
Answer: (True) Difficulty: (2) Page: 458, 459, Table 12-3
95. Manufacturer’s 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
world’s 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 (Athlete’s Foot), department stores
(Macy’s), 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 (Sam’s Club).
d). Organization--the major types of retail organization include corporate chains (Tower
Records), voluntary chains (Western Auto), retail cooperatives (Ace Hardware), franchise
organizations (McDonald’s), and merchandising conglomerates (Dayton-Hudson).
288
*****Instructor’s 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 manufacturer’s 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 McDonald’s).
(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. McDonald’s 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-Mart’s 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 retailer’s location is key to its ability to attract customers. The costs of
building or leasing facilities have a major impact on the retailer’s 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--wholesaler’s 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:
*****Instructor’s 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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