CHAPTER 11
MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT
MULTIPLE CHOICE QUESTIONS
1. Caterpillar (famous for earth moving equipment) has a powerful partnership with
its dealers. Which of the following is one of the basic principles upon which this
successful partnership is built?
a. the Internet
b. advertising
c. dealer profitability
d. global networks
Answer: (c) Difficulty: (2) Page: 397
2. Most producers use ___________________ to bring their products to market.
a. detailers
b. intermediaries
c. expediters
d. agents
Answer: (b) Difficulty: (1) Page: 398
3. A set of interdependent organizations involved in the process of making a product or
service available for use or consumption by the consumer or business user is called a:
a. retailer.
b. wholesaler.
c. distribution channel.
d. logistics function.
Answer: (c) Difficulty: (2) Page: 398
4. A ______________ is a set of interdependent organizations involved in the process of
making a product or service available for use of consumption by the consumer or
business user.
a. retailer
b. wholesaler
c. distribution channel
d. middleman
Answer: (c) Difficulty: (2) Page: 398
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5. Through their contacts, experience, specialization, and scale of operation,
______________ usually offer the firm more than it can achieve on its own.
a. manufacturers
b. producers
c. direct marketers
d. intermediaries
Answer: (d) Difficulty: (2) Page: 399
6. From the economic system’s point of view, the role of marketing intermediaries is to
transform:
a. raw products into finished products.
b. consumer needs into producer needs.
c. consumer needs and wants into product desires.
d. assortments of products made by producers into the assortments wanted by
consumers.
Answer: (d) Difficulty: (2) Page: 399
7. Which of the following problems do intermediaries attempt to solve within the
distribution channel?
a. the need for a legal buffer between producer and consumer
b. the need to ensure a profit for the producer
c. the need to resolve the producer’s desire to make narrow assortments in large
quantities against the consumer’s need for broad assortments in small quantities
d. the need for a manufacturer to be able to sell goods without having a final
responsibility for their usefulness
Answer: (c) Difficulty: (3) Page: 399
8. A distribution channel moves goods and services from producers to consumers. It
overcomes the major time, place, and ______________ gaps that separate goods and
services from those who would use them.
a. possession
b. profit
c. image
d. psychological
Answer: (a) Difficulty: (2) Page: 399
9. Members of the marketing channel perform many key functions. Which of the
following would be among those key functions?
a. negotiation
b. sensing
c. producing
d. creating
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Answer: (a) Difficulty: (2) Page: 399, 400
10. Shaping and fitting the offer to the buyer’s needs, including activities such as
manufacturing, grading, assembling, and packaging, describes which of the following
key functions performed by members of the marketing channel?
a. information
b. promotion
c. contact
d. matching
Answer: (d) Difficulty: (2) Page: 399, 400
11. Gathering and distributing marketing research and intelligence about the marketing
environment is part of which of the following marketing channel functions?
a. information
b. promotion
c. contact
d. matching
Answer: (a) Difficulty: (1) Page: 399, 400
12. Reaching an agreement on price and other terms of the offer so that ownership
or possession can be transferred is associated with which of the following key
functions performed by the marketing channel?
a. information
b. negotiation
c. contact
d. matching
Answer: (b) Difficulty: (1) Page: 399, 400
13. Transporting and storing goods is part of which of the following marketing channel
functions?
a. negotiation
b. physical distribution
c. contact
d. matching
Answer: (b) Difficulty: (2) Page: 400
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14. _______________ is a layer of intermediaries that performs some work in bringing
the product and its ownership closer to the buyer.
a. A direct marketing channel
b. An indirect marketing channel
c. A channel level
d. A channel switching system
Answer: (c) Difficulty: (3) Page: 400
15. With respect to a channel of distribution, the number of intermediary levels within
the channel indicates the ____________ of a channel.
a. width
b. depth
c. length
d. similarity
Answer: (c) Difficulty: (2) Page: 400, 401, Figure 11-2A
16. A(n) ________________ is a marketing channel that has no intermediary levels.
a. direct marketing channel
b. indirect marketing channel
c. forward channel
d. hybrid channel
Answer: (a) Difficulty: (2) Page: 400, 401, Figure 11-2A
17. If a company sells its product directly to the consumer without using any
intermediaries, it is using a(n):
a. direct marketing channel.
b. indirect marketing channel.
c. forward channel.
d. hybrid channel.
Answer: (a) Difficulty: (1) Page: 400, 401, Figure 11-2A
18. Avon, Amway, and Tupperware use which of the following forms of channel
distribution?
a. direct marketing channel
b. indirect marketing channel
c. forward channel
d. fashion channel
Answer: (a) Difficulty: (1) Page: 400
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19. A(n) _________________ is a channel that contains one or more intermediary levels.
a. direct marketing channel
b. indirect marketing channel
c. forward channel
d. synthetic channel
Answer: (b) Difficulty: (1) Page: 400, 401, Figure 11-2A
20. Makers of televisions, cameras, tires, furniture, and major appliances normally use
which of the following distribution channel forms?
a. direct marketing channel
b. indirect marketing channel
c. horizontal channel
d. synthetic channel
Answer: (b) Difficulty: (2) Page: 400, 401, Figure 11-2A
21. Using manufacturer’s representatives or sales branches is usually a characteristic of
which of the following channel forms?
a. business marketing channels
b. customer marketing channels
c. service marketing channels
d. direct marketing channels
Answer: (a) Difficulty: (2) Page: 400, 401, Figure 11-2B
22. All institutions in a marketing channel are normally connected by several types of
flows. Which of the following is NOT one of those flows?
a. physical flow
b. promotion flow
c. flow of ownership
d. regulatory flow
Answer: (d) Difficulty: (1) Page: 400
23. Disagreement over the goals and roles of marketing channel members is called:
a. channel challenge.
b. channel co-dependence.
c. channel frustration.
d. channel conflict.
Answer: (d) Difficulty: (1) Page: 402
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24. When channel conflict occurs, it can occur at the same level of the channel. This
form of conflict is called:
a. parallel conflict.
b. system conflict.
c. horizontal conflict.
d. vertical conflict.
Answer: (c) Difficulty: (2) Page: 402
25. If Pizza Inn franchisees complain that other Pizza Inn franchisees are cheating on
ingredients, giving poor service, and are hurting the overall Pizza Inn image, these
complaints are indicative of a __________________.
a. parallel conflict
b. system conflict
c. horizontal conflict
d. vertical conflict
Answer: (c) Difficulty: (2) Page: 402
26. Conflicts between different levels of the same channel of distribution are referred to
as:
a. horizontal conflicts.
b. vertical conflicts.
c. layer-based conflicts.
d. parallel conflicts.
Answer: (b) Difficulty: (2) Page: 402
27. When a company like Coca-Cola has disagreements with some of its bottlers over
business practices, it is a form of:
a. horizontal conflict.
b. vertical conflict.
c. layer-based conflict.
d. parallel conflict.
Answer: (b) Difficulty: (2) Page: 402
28. Cooperation, role assignment, and conflict management in the channel of distribution
are attained through strong channel:
a. power.
b. positioning.
c. leadership.
d. threats.
Answer: (c) Difficulty: (2) Page: 403
250
29. One way to overcome traditional conflicts found in conventional channels of
distribution is to construct a:
a. synchronized channel of distribution.
b. global channel of distribution.
c. Norezi channel of distribution.
d. vertical channel of distribution.
Answer: (d) Difficulty: (2) Page: 403
30. When one or more independent producers, wholesalers, and retailers operating as
separate businesses make up the channel of distribution, it comprises which type of
distribution channel?
a. power-based
b. horizontal
c. vertical
d. conventional
Answer: (d) Difficulty: (2) Page: 403, Figure 11-3
31. If independent producers, wholesalers, and retailers align together but still seek
individually to maximize profits, even at the expense of profits for the system as a
whole, the group is most likely aligned in a:
a. conventional distribution channel.
b. power-based distribution channel.
c. horizontal distribution channel.
d. vertical distribution channel.
Answer: (a) Difficulty: (2) Page: 403, Figure 11-3
32. When producers, wholesalers, and retailers act as a unified system, they comprise a:
a. conventional marketing system.
b. power-based marketing system.
c. horizontal marketing system.
d. vertical marketing system.
Answer: (d) Difficulty: (2) Page: 403, Figure 11-3
33. Which of the following marketing systems is characterized by a channel of
distribution where one channel member owns the others, has contracts with them, or
has so much power that they all cooperate?
a. conventional marketing systems
b. power-based marketing systems
c. vertical marketing systems
d. horizontal marketing systems
Answer: (c) Difficulty: (2) Page: 403, Figure 11-3
251
34. All of the following would be considered to be forms of a vertical marketing system
(VMS) EXCEPT:
a. corporate.
b. contractual.
c. global.
d. administered.
Answer: (c) Difficulty: (1) Page: 403
35. A(n) ____________________ is a vertical marketing system that combines
successive stages of production and distribution under single ownership.
a. power-based VMS
b. corporate VMS
c. contractual VMS
d. administered VMS
Answer: (b) Difficulty: (2) Page: 403, 404
36. Sears obtains more than 50 percent of its goods from companies that it partly or
wholly owns. This would be an example of a(n):
a. power-based VMS.
b. corporate VMS.
c. contractual VMS.
d. administered VMS.
Answer: (b) Difficulty: (2) Page: 403, 404
37. A(n) ______________________ is a vertical marketing system in which independent
firms at different levels of production and distribution join together through contracts
to obtain more economies or sales impact than they could achieve alone.
a. power-based VMS
b. corporate VMS
c. contractual VMS
d. administered VMS
Answer: (c) Difficulty: (2) Page: 404
38. Independent Grocers Alliance (IGA), Western Auto, and Do It Best hardware are
all examples of:
a. franchise organizations.
b. retailer cooperatives.
c. manufacturer-sponsored retailer franchise systems.
d. wholesaler-sponsored voluntary chains.
Answer: (d) Difficulty: (3) Page: 404
252
39. If a retailer joins other retailers in organizing a new, jointly owned business to carry
on wholesaling and possibly production, the retailer has formed a:
a. retailer kiosk.
b. retailer-sponsored voluntary chain.
c. retailer cooperative.
c. franchise.
Answer: (c) Difficulty: (3) Page: 404
40. Most motels and fast-food restaurants are considered to be:
a. retailer cooperatives.
b. voluntary chains.
c. franchise organizations.
d. administered VMS organizations.
Answer: (c) Difficulty: (2) Page: 404
41. The type of franchise operation used by the automobile industry is usually a:
a. service-firm sponsored franchise system.
b. manufacturer-sponsored retailer franchise system.
c. manufacturer- sponsored wholesaler franchise system.
d. service-firm sponsored direct channel franchise system.
Answer: (b) Difficulty: (3) Page: 404, 405
42. Which type of vertical marketing system coordinates the stages of production and
distribution through the size and power of one of the parties?
a. administered VMS
b. independent VMS
c. contractual VMS
d. dependent VMS
Answer: (a) Difficulty: (2) Page: 405
43. A ___________________ is a channel arrangement in which two or more
companies at one level join together to follow a new marketing opportunity.
a. vertical marketing system
b. parallel marketing system
c. diversified marketing system
d. horizontal marketing system
Answer: (d) Difficulty: (2) Page: 405
253
44. When Coca-Cola and Nestle formed a joint venture to market a ready-to-drink coffee
and tea worldwide, the type of marketing system that was formed would best be
described as being a:
a. vertical marketing system.
b. parallel marketing system.
c. diversified marketing system.
d. horizontal marketing system.
Answer: (d) Difficulty: (3) Page: 405, 406
45. A multichannel distribution system in which a single firm sets up two or more
marketing channels to reach one or more customer segments is called a(n):
a. vertical marketing channel.
b. parallel marketing channel.
c. hybrid marketing channel.
d. horizontal marketing channel.
Answer: (c) Difficulty: (3) Page: 406, 407, Figure 11-4
46. IBM at one time only sold through their own sales force. Today, however, the market
has caused changes in IBM’s distribution philosophy. The company now has 18
new channels. The correct description of this form of marketing would be to
characterize IBM’s approach as being one where ____________________ are used.
a. vertical marketing channels
b. parallel marketing channels
c. hybrid marketing channels
d. horizontal marketing channels
Answer: (c) Difficulty: (2) Page: 406, 407, Figure 11-4
47. What is one of the common complaints about a hybrid marketing channel and its
effectiveness?
a. expanded sales functions
b. expanded market coverage
c. expanded global networks
d. harder to control and more conflict
Answer: (d) Difficulty: (1) Page: 406, 407, Figure 11-4
48. The displacement of traditional resellers from a marketing channel by radical new
types of intermediaries is called:
a. regeneration.
b. bounded distribution.
c. disintermediation.
d. territoriality.
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Answer: (c) Difficulty: (2) Page: 408
49. Traditional intermediaries, to avoid being swept aside in the new wave of
disintermediation, must find new ways to:
a. generate profits.
b. advertise.
c. form binding networks.
d. add value in the supply chain.
Answer: (d) Difficulty: (2) Page: 408
50. If a company were seeking to design a channel system, the first step would be to:
a. analyze consumer-service needs.
b. set the channel objectives and constraints.
c. analyze marketing intermediaries.
d. factor in (or out) foreign middlemen alternatives.
Answer: (a) Difficulty: (1) Page: 411
51. Another term or phrase for a marketing channel is:
a. customer value delivery system.
b. push-pull system.
c. service system.
d. flow system.
Answer: (a) Difficulty: (1) Page: 411
52. After a company has defined its channel objectives, it should next identify its:
a. profit centers.
b. major channel alternatives.
c. selection process.
d. motivation system.
Answer: (b) Difficulty: (2) Page: 412
53. When a marketer is in the process of identifying its major channel alternatives, it
should determine all of the following EXCEPT: (Choose the LEAST LIKELY.)
a. the ownership of the intermediary.
b. the types of intermediaries.
c. the number of intermediaries.
d. the responsibility of each channel member.
Answer: (a) Difficulty: (3) Page: 412
255
54. The strategy whereby a company stocks its products in as many outlets as possible is
called:
a. intensive distribution.
b. exclusive distribution.
c. selective distribution.
d. closed distribution.
Answer: (a) Difficulty: (1) Page: 412
55. If a company seeks to maximize brand exposure, which of the following distribution
alternatives would be the correct choice?
a. intensive distribution
b. exclusive distribution
c. selective distribution
d. open distribution
Answer: (a) Difficulty: (2) Page: 412, 413
56. Giving a limited number of dealers the exclusive right to distribute the company’s
products in their territories is called _________________.
a. intensive distribution.
b. exclusive distribution.
c. selective distribution.
d. closed distribution.
Answer: (b) Difficulty: (1) Page: 413
57. Rolls Royce uses which of the following distribution formats?
a. intensive distribution
b. exclusive distribution
c. selective distribution
d. open distribution
Answer: (b) Difficulty: (2) Page: 413
58. Maytag, Whirlpool, and General Electric prefer which of the following distribution
formats to distribute the majority of their products?
a. intensive distribution
b. exclusive distribution
c. selective distribution
d. open distribution
Answer: (c) Difficulty: (2) Page: 413
256
59. The use of more than one, but fewer than all, of the intermediaries who are willing
to carry the company’s products is characteristic of which of the following
distribution formats?
a. intensive distribution
b. exclusive distribution
c. selective distribution
d. open distribution
Answer: (c) Difficulty: (1) Page: 413
60. Estimating the costs of selling different volumes through each proposed channel is
part of which decision area used in evaluating the major channel alternatives?
a. promotional criteria
b. economic criteria
c. control criteria
d. adaptive criteria
Answer: (b) Difficulty: (3) Page: 414
61. All of the following would be considered to be positive motivators to be applied to
channel members by other channel members EXCEPT:
a. higher margins.
b. ownership in the supplying company.
c. special deals.
d. display allowances.
Answer: (b) Difficulty: (1) Page: 416
62. When a seller of a product requires that its dealers not handle competitors’ products,
the seller’s strategy is called:
a. multilevel distribution.
b. prohibitive retailing.
c. exclusive dealing.
d. bonded partnering.
Answer: (c) Difficulty: (2) Page: 418
63. Tying agreements, though not necessarily illegal, do tend to violate the ___________
if they tend to lessen competition substantially.
a. Robinson-Patman Act
b. Sherman Anti-trust Act
c. Clayton Act
d. Hatfield Act
Answer: (c) Difficulty: (3) Page: 419
257
64. Which of the following terms is similar to the term “marketing logistics?”
a. channel of distribution
b. vertical integration of distribution
c. physical distribution
d. horizontal distribution
Answer: (c) Difficulty: (2) Page: 419
65. ______________ is the tasks involved in planning, implementing, and controlling
the physical flow of materials, final goods, and related information from points of
origin to points of consumption to meet customer requirements at a profit.
a. A channel of distribution
b. Vertical integration of distribution
c. Horizontal distribution
d. Physical distribution
Answer: (d) Difficulty: (1) Page: 419
66. Customer-centered marketing logistics thinking starts with:
a. products at the plant and tries to find low-cost solutions to get them to customers.
b. the marketplace and works backwards to the factory.
c. retailers and identifies their problems as a way to satisfy the ultimate consumer.
d. wholesalers (as gatekeepers) and identifies their problems as being the secret to
successful distribution.
Answer: (b) Difficulty: (3) Page: 419, 420, Figure 11-5
67. Managing value-added flows of materials, final goods, and related information
between suppliers, the company, resellers, and final users is called:
a. a channel of distribution.
b. marketing network analysis.
c. supply chain management.
d. conscription flow management.
Answer: (c) Difficulty: (2) Page: 419, 420, Figure 11-5
68. Moving broken, unwanted, or excess products returned by consumers or resellers
is called __________ distribution.
a. outbound
b. inbound
c. reverse
d. salvage
Answer: (c) Difficulty: (2) Page: 419
258
69. About ___________ percent of an average product’s price is accounted for by
shipping and transportation.
a. 5
b. 15
c. 18
d. 22
Answer: (b) Difficulty: (3) Page: 420
70. The goal of the marketing logistics system should be to provide:
a. a targeted level of promotional support.
b. a targeted level of customer service at the least cost.
c. a targeted level of transportation expense ratio.
d. a targeted level of field support.
Answer: (b) Difficulty: (2) Page: 420
71. All of the following are considered to be major logistics functions EXCEPT:
a. promotion to wholesalers and retailers.
b. order processing.
c. inventory management.
d. transportation.
Answer: (a) Difficulty: (1) Page: 421
72. Deciding on the number of and location for stocking facilities for storage of products
is part of which of the following physical distribution decisions?
a. order processing
b. warehousing
c. inventory
d. transportation
Answer: (b) Difficulty: (1) Page: 421
73. A large, highly automated warehouse designed to receive goods from various plants
and suppliers is called a:
a. storage bin.
b. collection point.
c. distribution center.
d. demarcation facility.
Answer: (c) Difficulty: (1) Page: 421
259
74. The mode of transportation that accounts for the largest percentage of cargo moved
in the United States is:
a. rail.
b. truck.
c. water.
d. pipeline.
Answer: (b) Difficulty: (2) Page: 422
75. The most expensive form of transportation with respect to shipping goods is:
a. rail.
b. water.
c. air.
d. truck.
Answer: (c) Difficulty: (1) Page: 422
76. The slowest form of transportation for shipping goods is:
a. rail.
b. water.
c. air.
d. truck.
Answer: (b) Difficulty: (1) Page: 422
77. If a company were to piggyback (using rail and trucks combined) its products, it
would be using what is called:
a. alternative transportation.
b. dual transportation.
c. intermodal transportation.
d. train spotting.
Answer: (c) Difficulty: (2) Page: 423
78. A growing number of firms now outsource their logistics to ________________
providers such as Ryder Systems, UPS Worldwide Logistics, or FedEx Logistics.
a. ground system
b. point-to-point
c. speed factor
d. third-party logistics
Answer: (d) Difficulty: (1) Page: 425
260
79. All of the following are reasons companies use third-part logistics providers
EXCEPT: (Pick the LEAST LIKELY.)
a. these providers accept low profit margins willingly.
b. these providers can often get products to market more efficiently and at a lower
cost.
c. outsourcing frees a company to focus more intensely on its core business.
d. integrated logistics companies understand increasingly complex logistics
environments.
Answer: (a) Difficulty: (2) Page: 428
TRUE/FALSE QUESTIONS
80. Marketing channel decisions are among the most important decisions that
management faces.
Answer: (True) Difficulty: (1) Page: 398
81. Companies often pay too little attention to their distribution channels.
Answer: (True) Difficulty: (1) Page: 398
82. One of reasons that distribution decisions usually can be managed is that the channel
decision involves relatively short-term commitments.
Answer: (False) Difficulty: (1) Page: 398
83. Most producers choose to not use intermediaries to bring their products to market
because of the cost involved.
Answer: (False) Difficulty: (2) Page: 398
84. A distribution channel is described as being a set of interdependent organizations
involved in the process of making a product or service available for use or
consumption by the consumer or business user.
Answer: (True) Difficulty: (1) Page: 398
85. From the economic system’s point of view, the role of marketing intermediaries is
to boost the profits of manufacturer’s who tend to drive the entire system.
Answer: (False) Difficulty: (2) Page: 399
261
86. Several key functions operate a distribution channel. One of these, matching, is
described as being shaping and fitting the offer to the buyer’s needs, including
activities such as manufacturing, grading, assembling, and packaging.
Answer: (True) Difficulty: (2) Page: 399, 400
87. A key question in distribution management is whether such functions as matching,
negotiation, contact, promotion, information, financing, risk taking, and physical
distribution need to be performed.
Answer: (False) Difficulty: (2) Page: 399, 400
88. A channel level is the layer of intermediaries that performs some work in bringing
the product and its ownership closer to the final buyer.
Answer: (True) Difficulty: (1) Page: 400
89. An indirect marketing channel has no intermediary levels.
Answer: (False) Difficulty: (2) Page: 400
90. All institutions in the distribution channel are connected by several types of flows
and one of these flows is described as being flow of ownership.
Answer: (True) Difficulty: (1) Page: 400
91. Today, channel members have learned to take a broad view of channel success where
every member’s needs and long-term goals are appreciated and recognized.
Answer: (False) Difficulty: (2) Page: 402
92. Vertical conflict in a distribution channel occurs among firms at the same level of the
channel.
Answer: (False) Difficulty: (2) Page: 402
93. Some conflict in the channel of distribution is considered to be healthy.
Answer: (True) Difficulty: (2) Page: 402
94. Vertical marketing systems are now challenging conventional marketing channels
for dominance in distribution networks.
Answer: (True) Difficulty: (1) Page: 403
262
95. Western Auto would be a good illustration of a retailer cooperative.
Answer: (False) Difficulty: (3) Page: 404
96. Kraft and General Electric would be good examples of firms that use
administered VMS.
Answer: (True) Difficulty: (3) Page: 405
97. If McDonald’s places one of its fast-food outlets in a Wal-Mart store this would
be an illustration of a horizontal marketing system.
Answer: (False) Difficulty: (2) Page: 405
98. One of the advantages of a hybrid marketing channel system is that it is easier to
control than traditional marketing channel systems.
Answer: (False) Difficulty: (2) Page: 407
99. The displacement of traditional resellers from a marketing channel by radical new
types of intermediaries is called disintermediation.
Answer: (True) Difficulty: (2) Page: 408
100. Intensive distribution occurs if a firm is stocking the product in as many outlets as
possible.
Answer: (True) Difficulty: (1) Page: 412, 413
101. A good illustration of selective distribution would be Rolls-Royce and their system
of dealers.
Answer: (False) Difficulty: (3) Page: 413
102. Most companies see their intermediaries as first-line customers.
Answer: (True) Difficulty: (2) Page: 416
103. Exclusive dealing has been declared strictly illegal by the Clayton Act of 1914.
Answer: (False) Difficulty: (3) Page: 419
104. A channel of distribution is another term for physical distribution.
Answer: (False) Difficulty: (2) Page: 419
263
105. Logistics systems traditionally maximize customer service and minimize distribution
costs.
Answer: (False) Difficulty: (2) Page: 420
106. The major logistics functions include order processing, warehousing, inventory
management, and transportation.
Answer: (True) Difficulty: (2) Page: 421
107. A vendor-managed inventory system is a large, highly automated warehouse
designed to receive goods from various plants and suppliers, take orders, fill them
efficiently, and deliver goods to customers as quickly as possible.
Answer: (False) Difficulty: (3) Page: 421
108. Water carriers, because of the bulk they can carry, account for the largest
percentage of cargo ton-miles among the major transportation alternatives found
in the United States.
Answer: (False) Difficulty: (3) Page: 422
109. If a distributor were to combine rail and truck to bring a good from point of
manufacture to the consumer, the distributor would have just used the piggyback
system found in intermodal transportation.
Answer: (True) Difficulty: (2) Page: 423
110. The goal of integrated supply chain management is to harmonize all of the
company’s logistics decisions.
Answer: (True) Difficulty: (1) Page: 424
111. A good illustration of a third-party logistics provider would be Ryder Systems.
Answer: (True) Difficulty: (2) Page: 425
ESSAY QUESTIONS
112. Caterpillar and its dealers work in close harmony to find better ways to bring value
to customers. This close working relationship between Caterpillar and its dealers comes
down to more than just formal contracts and business agreements. List and briefly
describe the five (5) principles and practices that Caterpillar’s powerful partnership rests
upon. Be specific in wording and description.
264
Answer:
The powerful partnership between Caterpillar and its dealers rests upon the following
principles and practices:
(a) Dealer profitability: Caterpillar’s rule is “Share the gain as well as the pain.” When
times are good, Caterpillar shares the bounty with its dealers rather than trying to grab all
the riches for itself. When times are bad, Caterpillar protects its dealers.
(b) Extraordinary dealer support: Nowhere is this support more apparent than in the
company’s parts delivery system, the fastest and most reliable in the industry. Together,
Caterpillar and its dealers guarantee parts delivery within 48 hours anywhere in the
world. In contrast, it’s not unusual for competitor’s customers to wait four to five days
for a part.
(c) Communications: Caterpillar communicates with its dealers--fully, frequently, and
honestly. There are no secrets between the company and its dealers.
(d) Dealer performance: Caterpillar does all it can to ensure that its dealerships are run
well. It closely monitors each dealership’s sales, market position, service capability,
financial situation, and other performance measures.
(e) Personal relationships: Caterpillar forms close personal ties with its dealers in a kind
of family relationship.
Difficulty: (2) Page: 397, 398
113. Explain why companies use marketing intermediaries and what key functions are
performed within the channel.
Answer:
Marketing intermediaries are used to increase efficiency in making goods available to
target markets. Though the intermediaries’ contacts, experience, specialization, and scale
of operation, intermediaries usually offer the firm more than it can achieve on its own.
The key functions include providing: information, promotion, contact, matching,
negotiation, physical distribution, financing, and risk taking.
Difficulty: (1) Page: 399, 400
114. Describe and illustrate the concepts of channel level, a direct marketing channel, and
an indirect marketing channel.
Answer:
Channel level--a layer of intermediaries that performs work in bringing the product and
its ownership closer to the final buyer.
Direct marketing channel--a marketing channel that has no intermediary levels. For
example if a manufacturer sells directly to the consumer there are no intermediary levels.
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Indirect marketing channel--a channel containing one or more intermediary levels. The
traditional distribution channel (an indirect marketing channel) is one where a
manufacturer sells to a wholesaler who in turn sells to a retailer that then sells to a
consumer.
See Figure 11-2 for additional examples.
Difficulty: (1) Page: 400, 401, Figure 11A
115. Explain what channel conflict is and the various forms it can take.
Answer:
Channel conflict is disagreement among marketing channel members on goals and roles-who should do what and for what rewards.
Channel conflict can take two primary paths. First, horizontal conflict occurs among
firms at the same level of the channel. For example, Ford dealers in a certain city can
complain about other dealers in the city who steal sales by being too aggressive in their
pricing and advertising or by selling outside their assigned territories. Second, vertical
conflict occurs between different levels of the same channels. For example, McDonald’s
might come into conflict with its franchisees if it were to build company stores in areas
previously held by franchise operators. From the standpoint of McDonald’s this would
be a way of expanding corporate sales. For the standpoint of the franchisees it would be
a way of reducing their particular sales.
Difficulty: (2) Page: 402, 403
116. Identify what a vertical marketing system is and characterize the three primary
forms described in the text.
Answer:
A vertical marketing system (VMS) is a distribution channel structure in which
producers, wholesalers, and retailers act as a unified system. One channel member owns
the others, has contacts with them, or has so much power that they all cooperate.
The three primary forms are:
(a) The corporate VMS--a vertical marketing system that combines successive stages of
production and distribution under single ownership--channel leadership is established
through common ownership.
(b) The contractual VMS--a vertical marketing system in which independent firms at
different levels of production and distribution join together through contracts to obtain
more economies or sales impact than they could achieve alone. Forms include the
wholesaler-sponsored voluntary chain, retailer cooperatives, and franchises (there are
three forms of franchises--manufacturer-sponsored retailer franchise systems,
manufacturer-sponsored wholesaler franchise systems, and service-firm-sponsored
retailer franchise systems).
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(c) The administered VMS--a vertical marketing system that coordinates successive stages
of production and distribution, not through common ownership or contractual ties, but
through the size and power of one of the parties.
Difficulty: (3) Page: 403-405, Figure 11-3
117. Characterize a horizontal marketing system and provide an illustration of such a
system.
Answer:
A horizontal marketing system is a channel arrangement in which two or more companies
at one level join together to follow a new marketing opportunity. By working together,
companies can combine their capital, production capabilities, or marketing resources to
accomplish more than one company could alone. Companies might join forces with
competitors or noncompetitors. For example, McDonald’s now places “express” versions
of its restaurants in Wal-Mart stores. McDonald’s benefits from Wal-Mart’s considerable
store traffic, while Wal-Mart keeps hungry shoppers from having to go elsewhere to eat.
Difficulty: (2) Page: 405, 406
118. Explain the phenomenon known as disintermediation. What problems and
opportunities does disintermediation hold for both producers and intermediaries in the
future?
Answer:
Disintermediation is the displacement of traditional resellers from a marketing channel by
radical new types of intermediaries. Changes in technology and the explosive growth of
direct and online marketing are having a profound impact on the nature and design of
marketing channels. To avoid being swept aside, traditional intermediaries must find
new ways to add value in the supply chain. Competition and conflict are bound to arise.
See Marketing at Work 11-1 for examples and ideas on how effective disintermediation
can be accomplished.
Difficulty: (2) Page: 408-410, Marketing at Work 11-1
119. Companies must make decisions on how many marketing intermediaries to use at
any level of marketing distribution. This is especially critical at the retail level. Name
and identify the three strategies that are available with respect to number of marketing
intermediaries. Give an example of each form.
Answer:
(a) Intensive distribution--stocking the product in as many outlets as possible. For
example, toothpaste and candy are sold in this way. Companies that frequently use this
method are Proctor&Gamble, Coca-Cola, and Campbell Soup.
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(b) Exclusive distribution--giving a limited number of dealers the exclusive right to
distribute the company’s products in their territories. This form is often used in the
distribution of new automobiles and prestige women’s clothing. Rolls-Royce would use
this method.
(c) Selective distribution--the use of more than one, but fewer than all, of the
intermediaries who are willing to carry the company’s products. Most television,
furniture, and small appliance brands are distributed in this manner. Maytag, Whirlpool,
and General Electric use this method to distribute their products.
Difficulty: (2) Page: 412, 413
120. Define physical distribution and characterize the major functions performed within a
physical distribution system.
Answer:
Physical distribution (marketing logistics) is the tasks involved in planning,
implementing, and controlling the physical flow of materials, final goods, and related
information from points of origin to points of consumption to meet customer
requirements at a profit.
The major functions performed within a physical distribution system include:
(a) Order processing--this is the method chosen by the firm to receive orders from the
customer. It could be by mail, telephone, through salespeople, or via computer or the
Internet. Once received, orders must be processed quickly and accurately then shipped to
the customer.
(b) Warehousing--every company must store its goods while they wait to be sold. This
storage function is necessary because production and consumption cycles rarely match.
Companies can use either storage warehouses or distribution centers to process their
goods.
(c) Inventory management--inventory decisions involve knowing both when to order and
how much to order. During the past decade, many companies have greatly reduced their
inventories and related costs through just-in-time logistics systems.
(d) Transportation--the choice of transportation carriers affects the pricing of products,
delivery performance, and condition of the goods when they arrive--all of which affect
customer satisfaction. The major forms that are available are rail, truck, water, pipeline,
and air.
Difficulty: (3) Page: 419-423
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121. In shipping goods to its customers, a company can choose from among five
transportation forms. List and characterize each of these forms.
Answer:
(a) Trucks--trucks have 39 percent of total cargo ton-miles (the most). They also account
for the largest portion of transportation within cities as opposed to between cities. Trucks
are highly flexible in their routing and time schedules, and they can usually offer faster
service than railroads. They are efficient for short hauls of high-value merchandise.
b). Railroads--second in cargo ton-miles with 38 percent. They are one of the most costeffective for shipping large amounts of bulk products over long distances.
c). Water carriers--account for about 10 percent of ton-miles and use inland waterways
as well as coastal means. The cost is low for shipping bulky products, however, water is
a slow form of transportation and can be affected by the weather.
d). Pipelines--a specialized means of shipping petroleum, natural gas, and chemicals
from sources to markets.
e). Air carriers--transport less than 1 percent of the nation’s goods. Air freight rates are
the highest forms of transportation but air freight excels in speed.
Difficulty: (2) Page: 422
122. Discuss the term “integrated supply chain management” and its implications.
Answer:
Integrated supply chain management is the logistics concept that emphasizes teamwork,
both inside the company and among all the marketing channel organizations, to maximize
the performance of the entire distribution system. Outside, the company must integrate
its logistics system with those of its suppliers and customers to maximize performance of
the entire system. The goal of supply chain management is to harmonize all of the
company’s logistics decisions.
Difficulty: (1) Page: 423, 424
APPLICATION QUESTION
123. Listed below are three separate scenarios that require correct transportation
decisions to ensure that the products in question reach their final destination on time and
intact. For each of the scenarios choose one of the established transportation means (air,
water, truck, pipeline, or rail) that seems to be most appropriate. Justify and explain your
choice. Be specific with your justification and explanation.
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(a) Jerry Jones, president of Flowers-R-Us, wants to order some unique orchids from
Hawaii for the upcoming prom season in his local community. He has one month before
the big dances begin. He plans to use brochures to sell the flowers to his young
customers in local high schools. What would be Mr. Jones’s best transportation
alternative?
(b) Byrd Lumber Company has received a large order of lumber to build three new 200unit apartment complexes. It is essential that the lumber arrive on time, however,
delivery is not required for three weeks. Byrd Lumber is located in Lubbock, Texas, and
must order its goods from mills in Oregon. What would be Byrd’s best transportation
alternative?
(c) Phillips Drilling of Houston, Texas, needs to order a new technical precision
surveying instrument from a supplier in Toronto, Canada. The instrument is highly
sensitive and must be packed with great care. The instrument is about the size of a
microwave oven and weights about 80 pounds. Its total value is $30,000. The company
needs the instrument as soon as possible but is under no emergency situation. What
would be Phillips’ best transportation alternative?
Answer:
*****Instructor’s Note: Students may consider several transportation alternatives,
however, the choices made below are consistent with the data provided by the text in the
section on transportation. Note that this question can be used in conjunction with or as
an alternative to Question #121. It is suggested that both questions, because of
similarities, not be asked on the same exam.*****
(a) The best alternative for Mr. Jones is to have the orchids shipped via air-freight. The
text notes that among the most frequently air-freighted products are cut flowers because
of their perishability (a truck would delivery them from the airport or they could be
picked up by the firm itself). Some students might think of UPS, FedEx, or the Postal
Service, however, given the amount to be ordered, air-freight would be better.
(b) Byrd Lumber would most likely choose rail to bring in the lumber. Water would be
out because of the time frame and location of the mills and final destination (there is no
water source close to Lubbock, Texas). As indicated by the text, one of the chief
products shipped by rail is forestry products. Rail would be chosen over trucks because
of the amount of lumber needed to build three 200-unit apartment complexes.
Piggybacking might be a possibility, however, straight rail would be most likely.
(c) Phillips Drilling would most certainly choose air for its method of transportation.
Even though trucking would be a possibility, air-freight is known for transporting highvalue, low-bulk products (for example, technical instruments). Trucking could be used,
however, the likelihood of damage would probably not be worth the risk.
Difficulty: (2) Page: 422, 423
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