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 systems 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 producers desire to make narrow assortments in large quantities against the consumers 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 buyers 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 manufacturers 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

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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

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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

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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

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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 IBMs distribution philosophy. The company now has 18 new channels. The correct description of this form of marketing would be to characterize IBMs 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

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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 companys 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

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59. The use of more than one, but fewer than all, of the intermediaries who are willing to carry the companys 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 sellers 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

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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

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69. About ___________ percent of an average products 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

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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

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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 systems point of view, the role of marketing intermediaries is to boost the profits of manufacturers who tend to drive the entire system. Answer: (False) Difficulty: (2) Page: 399

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86. Several key functions operate a distribution channel. One of these, matching, is described as being shaping and fitting the offer to the buyers 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 members 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

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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 McDonalds 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

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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 companys 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 Caterpillars powerful partnership rests upon. Be specific in wording and description.

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Answer: The powerful partnership between Caterpillar and its dealers rests upon the following principles and practices: (a) Dealer profitability: Caterpillars 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 companys 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, its not unusual for competitors 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 dealerships 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, McDonalds 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 McDonalds 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, McDonalds now places express versions of its restaurants in Wal-Mart stores. McDonalds benefits from Wal-Marts 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 companys products in their territories. This form is often used in the distribution of new automobiles and prestige womens 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 companys 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 nations 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 companys 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. Joness 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 Byrds 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: *****Instructors 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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