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Grading Key MAR 3231 Introduction to Retail Systems and Management Fall 2008 Section 7175 3:00 to 5:00

pm This exam is open notes. There are 80 points on the exam 3 points at the end are extra credit (42 points) Answer all 28 questions. Your score for these questions is 1 points for each correct answer. Circle the best answer for each question. 1. How can a retailer get customer to go from the evaluation to the choice stage of the buying process? (a) Provide a wide variety of merchandise (b) provide a deep assortment of merchandise (c) increase advertising (d) provide well-trained customer service providers (e) do any or all of the above 2. Why are store-based retailers evolving into multi-channel retailers? (a) Credit card fraud continues to be an issue for single-channel retailers. (b) Sales through an electronic channel are growing at over 100% per year. (c) Adding an electronic channel creates immediate possession utility. (d) Multi-channel retailers can better attract and satisfy customers. (e) The growth of sales in stores is declining. 3. How can a small town hardware supply store compete against Wal-Mart and still thrive? (a) extend its operating hours. (b) hire less staff or cut hours to reduce costs. (c) lower prices (d) offer classes in doing home repair by experts (e) all of the above 4. Consider customers that come to store to buy a specific product such as a wide screen HDTV or a pair of jeans. To make sure that customers find what they want, the retailer should have a: (a) wide variety of merchandise (b) deep the assortment of merchandise (c) wide variety and deep assortment of merchandise (d) narrow variety of merchandise (e) shallow assortment of merchandise 5. To effectively sell chewing gum, the most critical element in the retail mix is: (a) price (b) website design (c) advertising (d) customer service (e) location in store 6. Which of the following statements about the retail industry is true? (a) retailing is one of the lowest paid industries that a college graduates consider (b) retailers and other firms in the channel of distribution add little to the value of products they sell 1

(c) Sales of merchandise are greater over the Internet than in stores (d) Large companies dominate the retail industry and thus retailing does not offer many opportunities for entrepreneurs (e) all of the statement are NOT true 7. Which of the following statements is true? (a) branded product like perfume with important touch and feel attributes will typically are not bought through an electronic channel (b) when consumers need a lot of information before buying a product, they typically will not use an electronic channel (c) gifts will typically are not bought over the Internet (d) services will typically not be bought over the Internet (e) the greatest effect of an electronic channel will be supporting and increasing in store sales 8. Which of the following is not a basis for developing a strategic competitive advantage: (a) customer loyalty (b) lower prices (c) lower costs (d) location (e) vendor relationships 9. Publix, a supermarket chain targeting quality-oriented shoppers in Southeast U.S., is considering a number of growth opportunities. Which of the following alternatives is likely to be the best investment have the highest return for the effort devoted to it? (a) opening supermarkets in Latin America. (b) launching a chain of convenience store in Florida (c) getting customers to buy more on each trip by redesigning store layout and offering a broader merchandise assortment. (d) opening healthy food restaurants in California, the state with the greatest population. (e) opening a chain of supermarket in Florida targeting price-oriented consumers. 10. Which of the following alternatives is likely to be the worst investment for Publix the least like to have a high return on effort invested? (a) opening supermarkets in Latin America. (b) launching a chain of convenience store in Florida (c) getting customers to buy more on each trip by redesigning store layout and offering a broader merchandise assortment. (d) opening health food restaurants in California, the state with the greatest population. (e) opening a chain of supermarket in Florida targeting price-oriented consumers.

11. Conventional discount stores like Wal-Mart carry about 20,000 SKUs, but extreme value extreme value discount retailers like Family Dollar only stock 2000 SKUs. Which of the following is an advantage of stocking fewer SKUs? (a) Provide more choice for customers (b) Charge higher prices (c) Have lower inventory investments and inventory carrying costs (d) Have shorter checkout lines (e) Have lower energy costs for lighting the store and air conditioning 12. How can a service retailer best cope with the problems associated with the inconsistency of service? (a) Use low prices during off-seasons to help match supply and demand. (b) Use mass production. (c) Improve training of sales associates. (d) Hire fewer sales associates (e) Increase staffing at peak demand times. 13. Customers that are loyal to a store (a) patronize the store because it is convenient (b) will shop in the store even though the same merchandise is available a lower prices from a more convenient store (c) shop at the store because of its low prices (d) shop at the store because it has frequent sales (e) all of the above characterize customers that have a high degree of store loyalty 14. Why should a retailer be concerned with building a sustainable competitive advantage? (a) It could affect merchandise planning. (b) They should not be concerned about building a competitive advantage because other retailers will just duplicate the efforts. (c) It over an opportunity to decrease costs (d) It is the final step in developing the retailers annual plan. (e) It results in long-term profitability. 15. Providing assortments is a benefit provided by retailers and valued by consumers because: (a) it enables retailers to create a more informational and entertaining environment which would promote more sales (b) it enables retailers to reinvest for the future of the business. (c) it enables customer to choose from a wide selection of brands, designs, sizes and prices all in one store (d) it enables customer to pay lower prices (e) it enables the customer to stock up individual items

16. Compared to catalogs and other non-store formats, Internet shopping offers the following benefit: (a) insures that customers will get product sooner (b) accepts cash payments (c) provides free delivery on most purchases (d) tailor information so customers can make more satisfying selections (e) increases a sense of security 17. If a retailer plans to use the electronic channel synergistically with other channels (stores and catalogs), it can expect: (a) customers to make more purchases (b) massive cannibalization sales shifting from stores to Internet (c) a decrease in sales from all of its other channels (d) customers to research on the website and shop in competitive stores (e) sales to stabilize equally among the channels 18. How can conventional supermarkets differentiate themselves from other types of food retailers formats especially food retailers that focus on offering low prices? (a) emphasize fresh perishables (b) target health conscious and ethnic consumers (c) provide a better in-store experience and customer service (d) lower prices (e) (a), (b), and (c) above 19. Which of the following products does a retailer have to provide the greatest amount of information to get customers to make a buying decision? (a) a bag of bird seed (b) a motorcycle (c) a package of tofu (d) a box of breakfast cereal (e) a box of greeting cards 20. How can a retailer help customers limit their information search to the retailer's store or website? (a) offer a broad and deep selection of merchandise (b) offer lower prices (c) offer a money back guarantee (d) offer extensive information about merchandise (e) All of the above are ways retailers can help limit the customer's search. 21. Retailers using the electronic channel can reduce the emphasis on price by providing: (a) improving web site design (b) provide price comparison infromation (c) reducing the assortment offered (d) reducing delivery charges (e) private label merchandise

22. To effectively sell a home entertainment system, the most critical element in the retail mix is: (a) price (b) customer service (c) advertising (d) location in the store (e) merchandise presentation 23. A strategic competitive advantage: (a) is difficult for competitors to duplicate (b) does not require much investment (c) has not effect on the retailers profits (d) increases the firms flexibility (e) is not difficult for a company to achieve 24. Which of the following is not aspects of a retail strategy? (a) the retailers pricing strategy (b) the retailers target market (c) the format (retail mix) the retailer will use (d) the bases of competitive advantage the retailer will use (e) all of the above are aspects of the retailers strategy 25. Which of the following statements about electronic channel retailing is true? (a) Pure e-retailers have been successful because they have a cost advantages. (b) Electronic retailing can offer superior benefits in comparison to those offered by other channels because its ability to personalize information to each customer economically. (c) Retail sales through the electronic channel are growing the same rate of sales growth through the catalog channel. (d) The electronic channel offers a less satisfying shopping experience than catalogs. (e) All of the above are true 26. It is difficult for retailers to develop a sustainable competitive advantage by offering branded merchandise because: (a) distribution centers are unreliable on shipping dates (b) designers specify which retailers can sell their brands (c) different regions of the country carry different merchandise (d) competitors can purchase and sell the same national brands (e) vendors favor the larger retailers because they buy more volume

27. Which of the following is accurately describes the characteristics of franchise systems? (a) The franchise ownership system attempts to combine the advantages of ownermanaged businesses with the efficiencies of centralized decision making in chain store operations (b) Franchisees are not motivated to make their stores successful (c) The franchisor are not motivated to develop new products and to promote the franchise (d) The franchisee is responsible for advertising, product development, and system development and pays all (e) All are true 28. Which of the following types of retailers would find it easiest to expand their operation beyond their home country: (a) supermarket chain (b) convenience store chain (c) consumer electronics category specialist chain (d) department store chain (e) all of the above (38 points) Grading of Essay Questions When answering the following essay questions, you should focus on the key points. There is no need to make complete sentences. Your grade will be based on covering the key points, not the length of your answer. Incorrect and irrelevant comments will count against you. 1. (6 points) An entrepreneur approaches you about how to sell her new writing pens to consumers. The pens have a unique benefit they are more comfortable to use than traditional pens. The entrepreneur is concerned the retailers she has approached want to buys the pen from her at $10.00 a piece and then sell the pens in their stores at $15.00 a piece to consumers. The entrepreneur is dismayed at the extra $5.00 the retailers are getting and thinking about selling the product directly to consumers for $10.00. She wants to know if you think this is a good idea. What do you think? Why? It is not a good idea to attempt to sell the pens directly to consumers primarily because the entrepreneurs customers would still want the entrepreneur to provide the services that the retailer provides. The entrepreneur would have provide these services like letting customer try out the pen, handle returns, provide customer service, offering the pens with other things (an assortment) the customer might want to buy at the same time, etc entrprenuer will not be as efficient at providing these services as a retailer. Clearly, it would be very inefficient for the entrepreneur to open a store that would just sell these innovative pens. But it would also be difficult for the entrepreneur to sell these pens directly to consumers over the Internet. The entrepreneur would have to spend a lot of money to attract customers to the website and pick and pack the individual orders for shipment. In addition, someone, either the entrepreneur or the customers, would have to pay the shipping costs. In addition, consumer would not be able to try the pen before buying it. Once, the brand name is established, the entrepreneur could sell the pens over the Internet, but it would be vary expensive to establish the brand name. 2. (5) Loreal, a manufacturer of well-known cosmetic brands for women, sells its products primarily through department stores. It is considering selling its products directly 6

to consumers through its web site and company owned retail stores. Do you think this a good strategy to pursue? Why or why not? Points to consider Pros for selling direct Might expand market beyond customers patronizing retailers selling the products LOreal has a strong brand name encourages people to buy their product even though they can not try them before they buy them. Cons for selling direct These are relatively low price products and the picking, packing, and ship costs might raise the prices considerable LOreal is probably not as efficient as a retailer in the retail functions. To provide a brad enough assortment to attract customer LOreal might have to also sells health and beauty aids made by other companies. LOreals department store customers might be vey upset with the competition from LOeals direct sales and stop selling their products.

3. (6) Proctor & Gamble has changed the focus of its marketing efforts. (a) (2) How has the focused changed? The focus has shifted from focusing research on developing great products and strong names through mass media advertising (the second moment of truth) to influencing consumer behavior in the store (first moment of truth). (b) (2) Why has P&G shifted the focus of its research? The store experience has a bigger impact on purchase behavior than the mass media advertising. Consumers spend less time in the stores, make decisions faster, and are greatly influences by things like packaging and shelf placement. (c) (2) Give two specific examples of objectives that P&G now has when it works with its retail customers? Put best selling brand (sign post brand) in the middle of the aisle to get customer to walk down the aisle Display a brand vertical so that the wall of color attracts attention Shelf complement products (diapers and sweeps) next two each other

4. (6) Recognizing your expertise in retailing, the owner of a successful, five-store chain selling sporting goods equipment in Orlando asks for advice about setting up a web site for his chain and selling merchandise over the web site. One of his concerns is that so many electronic retailers have gone bankrupt that he fears that having a web site will significantly reduce his profitability. He is also concerned about cannibalizing his sales from his stores customers will buy from the Internet web site and store sales will decrease. What advice would you give him? 7

Should he launch the web site? Why or why not? yes A multi-channel offering will provide greater benefits and sales from customers The Internet and store channels can be used synergistically promote store on website, etc. Might be costly to set up a fulfillment system to sell merchandise over Internet. Could outsource fulfillment.

5. (10 points) Best Buy is a U.S. national consumer electronics specialty store a discount retailer with large stores sell a deep assortment of consumer electronic products. The company is looking for new opportunities for increasing its sales. Using the growth opportunity matrix below, suggest a growth opportunity in each quadrant for Best Buy: (1) point) Market Penetration Growth Opportunity Get more sales from same customers in same format open more U.S. stores. Train salespeople to cross sell sell accessories with equipment (1 point) Market Expansion Growth Opportunity same format new market. Expand internationally, open a category killer store focused on selling exercise equipment. (1 point) Retail Format Development Growth Opportunity same market, new format. Open small electronics tore like Radio Shack in enclosed malls. Sell merchandise through catalogs and Internet. Sell ipod from kiosks in airports (1 point) Diversification Growth Strategy new market, new format. Open restaurant in china. Open an apparel store focusing on teens (3 points) Which of these growth opportunities would recommend? Why Generally the growth strategies that have the success rat are: Penetration > format development, market expansion > diversification (3) Which would you not recommend? Why Because the strategies with high success probability exploit the retailers bases of competitive advantage, either knowledge of the market and reputation in the market or skills at operating a retail format. 7. (5) How can a small local sporting goods store compete in a market with Wal-Mart and still thrive? Need to differentiate itself from Wal-mart which can typically be done by offering unique merchandise tailored to the local community and/or excellent customer service. The worse think it can it to try to make Wal-mart on price for the same products. 8

extra credit (3 points) What is an SKU? Give an example of a SKU SKU stands for shop keeping unit and is the number on the lowest level of inventory tracked. A specific example is a 32 oz box of Tide with whitening or a32 sleeve, 16 collar, white button down, Oxford cloth Ralph Lauren dress shirt