Test Bank Retailing Management 10th Edition by Michael Levy

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10th Edition By Michael Levy
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Retailing Management, 10e (Levy)
Chapter 1 Introduction to the World of Retailing
1) Retailers are a key component in a supply chain that links manufacturers to consumers.
Answer: TRUE
Explanation: Retailers are a key component in a supply chain that links manufacturers to
consumers.
Difficulty: 1 Easy
Topic: What is Retailing?
Learning Objective: 01-01 Identify retailing activities.
Bloom's: Remember
AACSB: Analytic
Accessibility: Keyboard Navigation
2) Hotels, hair salons, and auto repair businesses are considered retailers.
Answer: TRUE
Explanation: Often, people think of retailing only as the sale of products in stores, but retailing
also involves the sale of services such as overnight lodging in a hotel, a doctor's exam, a haircut,
or a home-delivered pizza.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
3) The retail sector plays a key role in developed economies.
Answer: TRUE
Explanation: The retail sector plays a key role in developed economies, not only because
consumer demand is an indication of a vibrant financial system, but also because retailers are
large employers.
Difficulty: 1 Easy
Learning Objective: 01-02 Realize the importance of retailing in the U.S. and world economies.
Bloom's: Understand
AACSB: Reflective Thinking
1
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No reproduction or distribution without the prior written consent of McGraw-Hill Education.
4) Companies are totally convinced about the importance of corporate social responsibility
(CSR) during the initial stages of CSR integration.
Answer: FALSE
Explanation: Companies in the first stage engage only in CSR activities required by law. In this
stage, companies are not actually convinced of the importance of CSR actions.
Difficulty: 1 Easy
Topic: Ethical Considerations in Advertising, Promotion, and IMC Campaigns
Bloom's: Understand
AACSB: Ethics
5) The development of information systems is one of the forces facilitating the growth of large
retail firms.
Answer: TRUE
Explanation: The development of information systems is one of the forces facilitating the
growth of large retail firms—the shift from an industry dominated by small, local retailers to
large multinational chains.
Difficulty: 2 Medium
Topic: The Changing Retail Industry
Learning Objective: 01-03 Analyze the changing retail industry.
Bloom's: Understand
AACSB: Technology
6) More retail transactions take place online now than in stores.
Answer: FALSE
Explanation: More than 90 percent of all retail sales are made in stores. Online transactions are
growing at a fast pace; however, they still only occupy a small percentage of overall retail
transactions.
Bloom's: Understand
2
7) Retailers do not perform traditional business activities.
Answer: FALSE
Explanation: Retailers are businesses and, like manufacturers, undertake all the traditional
business activities.
Topic: Characteristics of Retailers
Learning Objective: 01-04 Recognize the opportunities for you in retailing.
Bloom's: Understand
AACSB: Analytic
8) Retailing offers entrepreneurial opportunities.
Answer: TRUE
Explanation: Retailing also provides opportunities for people who wish to start their own
business. Some of the world's most successful people are retailing entrepreneurs.
Difficulty: 1 Easy
Topic: Retailing as a Career
Bloom's: Remember
9) The largest retail company in the world is headquartered in the United States of America.
Answer: TRUE
Explanation: Walmart is the largest retailer in the world and is headquartered in Bentonville,
Arkansas.
Difficulty: 1 Easy
Bloom's: Knowledge
AACSB: Ethics
3
10) Ethical principles can change over time.
Answer: TRUE
Explanation: Ethical principles also can change over time. For example, some years ago, doctors
and lawyers who advertised their services were considered unethical. Today, such advertising is
accepted as common practice.
Difficulty: 1 Easy
Learning Objective: 01-05 Understand the strategic retail management decision process.
Bloom's: Understand
AACSB: Analytic; Ethics
11) All of the following businesses would be considered retailers except

A) a hot dog cart at the Highland Games.
B) Delta Airlines.
C) a university bookstore.
D) Priceline.com.
E) Procter & Gamble.
Answer: E
Explanation: Retailers are businesses that sell goods and/or services directly to a consumer for
their personal or family use. Proctor & Gamble manufactures and then sells its products to
retailers to be sold to the end user. Hence, it is not a retailer by itself.
Bloom's: Apply
4
12) Why is it imperative that manufacturers like Hewlett-Packard and Procter & Gamble
understand the operations of retailers?
A) To sell directly online
B) To encourage retailers to offer and promote their products
C) To develop strategies for selling without retailers
D) Retailers can expect fewer buyouts to occur
E) To have a wide assortment of products for customers to choose from
Answer: B
Explanation: Retailers are the customers for most business-to-consumer (B-to-C) companies
such as Procter & Gamble and Hewlett-Packard. Thus, brand managers in B-to-C companies
need to have a thorough understanding of how retailers operate and make money so that they can
encourage retailers to offer and promote their products.
Bloom's: Understand
13) A ________ is a business that sells products and/or services to consumers for their personal
or family use.
A) manufacturer
B) wholesaler
C) retailer
D) distributor
E) none of these
Answer: C
Explanation: Retailers typically buy products from wholesalers and/or manufacturers and resell
them to consumers.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
5
14) A(n) ________ is a set of firms that make and deliver a given set of goods and services to the
ultimate consumer.
A) supply chain
B) buying network
C) economic network
D) integrated wholesale network
E) extended enterprise
Answer: A
Explanation: A supply chain is a set of firms that make and deliver goods and services to
consumers.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
15) A retailer's role in a supply chain is to

A) act as the liaison between manufacturers and suppliers.
B) buy merchandise exclusively from the manufacturers.
C) negotiate with manufacturers to draw contracts for wholesalers.
D) add value to products and services sold to customers.
E) sell goods and services to wholesalers.
Answer: D
Explanation: Retailers add value and are more efficient at adding this value than manufacturers
or wholesalers.
Difficulty: 1 Easy
Topic: The Retailer's Role in the Supply Chain
Bloom's: Understand
6
16) Retailers provide important functions that increase the value of the products and services
they sell to consumers. Which of the following is not a value-creating activity performed by a
retailer?
A) Providing an assortment of products
B) Reducing production costs with innovative designs
C) Breaking bulk
D) Holding inventory
E) Providing an assortment of services
Answer: B
Explanation: The value-creating activities undertaken by retailers include (1) providing an
assortment of products and services, (2) breaking bulk, (3) holding inventory, and (4) providing
services.
Difficulty: 1 Easy
Bloom's: Understand
17) Samson's is a large clothing retailer. The store offers over 1,000 brands and 50,000 different
products. Which of the following value-creating activities can best be seen in the given example?
A) Breaking bulk
B) Scrambled merchandising
C) Vertical integration
D) Offering assortments
E) Add-on selling
Answer: D
Explanation: Conventional supermarkets typically carry about 30,000 different items made by
more than 500 companies. Offering an assortment enables their customers to choose from a wide
selection of products, brands, sizes, and prices at one location.
Difficulty: 1 Easy
Bloom's: Apply
7
18) Which of the following value-creating activities has retailers offering products in quantities
tailored to customers' consumption patterns?
A) Providing assortments
B) Breaking bulk
C) Add-on selling
E) Scrambled merchandising
Answer: B
Explanation: Retailers offer the products in smaller quantities tailored to individual consumers'
and households' consumption patterns—an activity called breaking bulk. Breaking bulk is
important to both manufacturers and consumers. It allows manufacturers to efficiently make and
ship merchandise in larger quantities at one time and enables consumers to purchase
merchandise in smaller, more useful quantities.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
19) Which of the following statements about retailers holding inventory is false?
A) This activity benefits customers with limited storage space, such as families living in small
apartments.
B) It allows customers to get the lowest price possible.
C) Holding inventory in a store helps serve customers' needs.
D) Retailers keep inventory so products are available when consumers want them.
E) Holding inventory reduces consumers' cost of storing products.
Answer: B
Explanation: A major value-providing activity performed by retailers is holding inventory so
that products will be available when consumers want them; however, because of the additional
stage in the overall supply chain, this adds to the price.
Bloom's: Understand
8
20) The value-creating retail activity that is particularly important to consumers with small living
quarters who cannot store a large quantity of products is
A) providing assortments.
B) breaking bulk.
C) holding inventory.
D) providing services.
E) consumerization.
Answer: C
Explanation: Retailers perform the activity of holding inventory so that products will be
available when consumers want them. Consumers know that retailers will have what they need
when they need it. This is important to consumers with limited storage space, such as families
living in small apartments.
Bloom's: Remember
AACSB: Analytic
21) Grocers, a large food retailer, purchases fruits from several different tropical countries. When
the fruits arrive in distribution centers across the United States, the quantities are reduced to
amounts that are appropriate for store delivery. The stores, in turn, offer the fruits in quantities
that depend on the consumption pattern of the customers. This act of offering products in smaller
quantities based on consumption patterns is known as
A) holding inventory.
B) breaking bulk.
C) forward integration.
D) intensive distribution.
E) consumerization.
Answer: B
Explanation: Breaking bulk allows manufacturers to efficiently make and ship merchandise in
larger quantities at one time and enables consumers to purchase merchandise in smaller, more
useful quantities.
Bloom's: Apply
9
22) ________ is the value-creating activity in which a retailer makes available a wide range of
products of different brands and prices at a single location.
A) Providing services
B) Breaking bulk
C) Providing assortments
E) Exclusive dealing
Answer: C
Explanation: Offering assortments enables customers to choose from a wide selection of
products, brands, sizes, and prices at one location.
Bloom's: Remember
AACSB: Analytic
23) Many retailers have and offer their own store credit card. This is an example of which of the
following value-creating activities?
A) Exclusive dealing
B) Breaking bulk
C) Holding inventory
D) Offering assortments
E) Providing services
Answer: E
Explanation: Retailers provide services that make it easier for customers to buy and use
products. For example, retailers offer credit cards so that consumers can have a product now and
pay for it later.
Bloom's: Apply
10
24) Retailers that have a website with store locations, store hours, product information, product
reviews, promotion information, instant chats, etc. offer which type of value added activity?
A) Breaking bulk
B) Holding inventory
C) Providing assortments
D) Exclusive distribution
E) Providing services
Answer: E
Explanation: Retailers provide services that make it easier for customers to buy and use
products. Some retailers employ salespeople in stores or maintain websites to answer questions
and provide additional information about the retailer and the products they sell.
Bloom's: Apply
25) Tech Games, a retailer, purchases of the video games and game consoles on a large scale. It
then offers the products to customers in single quantities. The value-creating function performed
by Tech Games in the given scenario is
A) providing assortments.
B) breaking bulk.
C) holding inventory.
D) providing services.
E) creating a retail mix.
Answer: B
Explanation: Breaking bulk enables manufacturers to efficiently make and ship merchandise in
large quantities and enables consumers to purchase merchandise in smaller, more useful
quantities.
Difficulty: 1 Easy
Bloom's: Apply
11
26) A major value-providing activity performed by retailers is ________, so that products will be
available when consumers want them.
A) breaking bulk
B) holding inventory
C) scrambled merchandising
D) backward integration
E) providing assortments
Answer: B
Explanation: A major value-providing activity performed by retailers is holding inventory so
that products will be available when consumers want them.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
27) ________ means that a firm performs more than one set of activities in the channel, as occurs
when a retailer engages in wholesaling activities by operating its own distribution centers to
supply its stores.
A) Channel diversification
B) Horizontal development
C) Horizontal integration
D) Vertical expansion
E) Vertical integration
Answer: E
Explanation: Vertical integration means that a firm performs more than one set of activities in
the channel, as occurs when a retailer engages in wholesaling activities by operating its own
distribution centers to supply its stores.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
12
28) Fresh n Fragrant is a chain of flower shops offering a variety of flowers and ornamental
plants. It recently opened a distribution center to supply ornamental plants and cut flowers to all
its stores within a 300-mile radius. From the given scenario, it can be seen that Fresh n Fragrant
is practicing
A) vertical integration.
B) channel expansion.
C) horizontal expansion.
D) horizontal integration.
E) channel diversification.
Answer: A
Bloom's: Apply
29) Florals is a popular retail chain specializing in women's lingerie and perfume. It designs and
sources its own private-label merchandise that is sold in the store. Therefore, Florals is practicing
A) channel expansion.
B) scrambled merchandising.
C) backward integration.
E) product diversification.
Answer: C
Explanation: Backward integration arises when a retailer performs some wholesaling and
manufacturing activities, such as operating warehouses or designing private-label merchandise.
Bloom's: Apply
13
30) Dailies is a large retail chain in New Jersey. Apart from selling to customers, Dailies supplies
bread and vegetables to a large number of restaurants in and around New Jersey. Therefore,
Dailies is engaged in ________ when selling to restaurants.
A) wholesaling
B) retailing
C) merchandising
D) breaking bulk
E) channel expansion
Answer: A
Explanation: Some large retailers, like Costco and Home Depot, function as both retailers and
wholesalers: They perform retailing activities when they sell to consumers, but they engage in
wholesaling activities when they sell to other businesses, such as restaurants or building
contractors.
Bloom's: Apply
31) A retailer that is vertically integrated

A) concentrates on selling only to businesses.
B) outsources all supply chain activities to independent firms.
C) has limited control on the activities of the supply chain.
D) performs more than one activity in the distribution channel.
E) concentrates only on operating its own retail stores.
Answer: D
Bloom's: Remember
AACSB: Analytic
14
32) ________ arises when a retailer performs some distribution and manufacturing activities,
such as operating warehouses or designing private-label merchandise.
A) Exclusive dealing
B) Merchandising
C) Backward integration
D) Horizontal integration
E) Forward integration
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
33) ________ occurs when a manufacturer undertakes retailing and wholesaling activities.
A) Merchandising
B) Exclusive dealing
C) Backward integration
D) Horizontal integration
E) Forward integration
Answer: E
Explanation: Forward integration occurs when a manufacturer undertakes retailing and
wholesaling activities, such as Apple operating its own retail stores.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
15
34) Essentials, a retail store, manages its own warehouse. It also owns a manufacturing facility
where it produces private-label food products. Therefore, Essentials is practicing
A) scrambled merchandising.
B) backward integration.
C) cross-selling.
E) forward integration.
Answer: B
Difficulty: 1 Easy
Bloom's: Apply
35) Retailers function as wholesalers when

A) they hold inventory.
B) they perform manufacturing activities.
C) they practice scrambled merchandising.
D) they sell to other businesses.
E) there is an intratype competition.
Answer: D
Explanation: Some large retailers, like Costco and Home Depot, function as both retailers and
wholesalers: They perform retailing activities when they sell to consumers, but they engage in
wholesaling activities when they sell to other businesses, such as restaurants or building
contractors.
Bloom's: Understand
AACSB: Analytic
16
36) Shades n Hues is a company producing cosmetics. It supplies products to stores and beauty
salons and also manages its own retail outlets. Therefore, Shades n Hues is engaged in
A) forward integration.
B) scrambled merchandising.
C) backward integration.
E) cross-selling.
Answer: A
Explanation: Forward integration occurs when a manufacturer undertakes retailing and
wholesaling activities, such as Apple operating its own retail stores.
Difficulty: 1 Easy
Bloom's: Apply
37) The U.S. retail industry

A) has the lowest concentration of large firms.
B) has the greatest retail density in the world.
C) mostly has small stores operating independently.
D) depends on a single large wholesale industry.
E) consists of a fragmented distribution system.
Answer: B
Explanation: The U.S. retail industry has the greatest retail density (retail stores per person) and
concentration of large retail firms.
Bloom's: Remember
AACSB: Analytic
17
38) ________ is the world's fastest-growing retail market.
A) China
B) the United States
C) India
D) Russia
E) Brazil
Answer: A
Explanation: China is the world's fastest-growing retail market, poised to hit the $8 trillion mark
soon.
Bloom's: Understand
AACSB: Analytic
39) Which of the following statements about the U.S. distribution system is true?
A) The U.S. retail industry is mostly composed of many small and medium-sized firms.
B) Many U.S. retailers are large enough to have their own warehouses.
C) The retail density in the U.S. is lower than that found in Europe.
D) A large independent wholesale industry supplies goods to all retailers.
E) The U.S. retail industry has a fragmented distribution system.
Answer: B
Explanation: Many U.S. retailers have stores with more than 20,000 square feet. Due to their
size, they have the scale economies to operate their own warehouses, eliminating the need for
wholesalers.
Bloom's: Remember
18
40) The Chinese retail industry
A) has a combination of large stores and large firms resulting in an efficient distribution system.
B) is characterized by many small and medium-sized firms.
C) has the most number of large retailers operating their own warehouses.
D) is characterized by a high retail density.
E) has extensive restrictions on retail locations, store size, and ownership.
Answer: A
Explanation: The Chinese distribution system is highly fragmented like the retail industry in
India. It is composed of many small and medium-sized firms. The number of national and even
regional chains is limited.
Bloom's: Remember
41) Which of the following does not describe the distribution systems of the major international
markets?
A) The U.S. distribution system has the greatest retail density and the greatest concentration of
large retail firms.
B) The Indian distribution system is characterized by small stores operated by relatively small
firms and a large independent wholesale industry.
C) In China, there is great disparity between the distribution systems in different parts of the
country.
D) Northern European retailing is similar to efficient distribution systems in the U.S.
E) Restrictions on retail locations, store size, and ownership are minimal in northern Europe and
India.
Answer: E
Explanation: Restrictions on retail locations, store size, and ownership are extensive in northern
Europe and India. They are minimal in the U.S. and modest in China.
Bloom's: Understand
19
42) ________ describes the voluntary actions taken by a company to address the ethical, social,
and environmental impacts of its business operations and the concerns of its stakeholders.
A) Forward integration
B) Corporate social responsibility
C) Integrity management
D) Customer engagement
E) Ethical behavior
Answer: B
Explanation: Corporate social responsibility (CSR) involves an organization voluntarily
engaging in business practices that meet or exceed the ethical and legal expectations of its
stakeholders—its employees, customers, community, and society in general.
Bloom's: Remember
AACSB: Ethics
43) Happy Kids clothing store started a program where customers could bring in gently used
clothing for donation to a local shelter for women and children. This is an example of which
principle of conscious marketing?
A) Recognition of the retailing firm's greater purpose
B) The presence of conscious leadership
C) Consideration of stakeholders' independence
D) Distinguishing right from wrong
E) Incentivizing employees to provide good service
Answer: A
Explanation: When a retailer recognizes that its purpose should be more than just making profits
the actions it undertakes change in focus. By taking action to help local children in need, Happy
Kids is engaged in conscious marketing.
Bloom's: Apply
AACSB: Ethics
20
44) When a firm's leaders adopt a conscious marketing approach
A) the resulting corporate culture stays in accordance with the leaders' ideals.
B) the firm engages in activities that provide a short-term financial benefit.
C) the resulting corporate culture emphasizes making a profit.
D) a group of employees is selected to focus on corporate social responsibility.
E) the majority of stakeholders are not affected.
Answer: A
Explanation: A conscious marketing approach implies that the firm's leaders are dedicated to the
proposition of being conscious at all levels of the business, throughout its entire culture. The
resulting conscious corporate culture stays in line with its higher purpose and in accordance with
the leader's ideals.
Bloom's: Understand
45) Which of the following is an example of a decision that involves business ethics?
A) A retailer decides to close a location where sales have decreased.
B) A retailer decides to start a customer loyalty program.
C) A retailer decides to use a celebrity in an advertising campaign.
D) A retailer decides to have its salespeople adopt a high-pressure sales approach when dealing
with all customers.
E) A retailer decides to manage its own distribution center.
Answer: D
Explanation: Business ethics is concerned with distinguishing between right and wrong actions
and decisions that arise in a business setting, according to broad and well-established moral
principles. Retail managers may have to ask themselves: Should retail salespeople use a high-
pressure sales approach when they know the product is not the best for the customer's needs?
Bloom's: Understand
AACSB: Reflective Thinking; Ethics
21
46) Prime Industries Inc. is a large company producing a wide range of chemicals. It decides to
focus on making its products more environmentally friendly. This is an example of
B) providing assortments.
C) wholesaling.
D) conscious marketing.
E) a supply chain.
Answer: D
Explanation: Conscious marketing entails a sense of purpose for the firm higher than simply
making a profit by selling products and services. One of the principles of conscious marketing is
recognition of the retailing firm's great purpose, such as making strides toward more
environmentally friendly products.
Bloom's: Apply
47) Which of the following is true of retailing activities in the bottom of the pyramid (BoP)
market?
A) Retrofitting business models used in the more developed markets has proven successful.
B) Most people in BoP markets live in rural areas with limited access to mass media.
C) The ideas used in BoP retail marketing are similar to conventional retailing strategies.
D) High local demand results in low prices for consumer goods.
E) Firms are not motivated to enter the BoP market.
Answer: B
Explanation: It is difficult to communicate and complete transactions with people in the BoP
market because they are more likely to lack access to mass media, the Internet, mobile phones, or
credit cards than more affluent markets.
Difficulty: 1 Easy
Topic: Global Growth Opportunities
Bloom's: Understand
AACSB: Analytic
22
48) ________ are the most concentrated sector of the retail industry in the U.S.
A) Fitness centers
B) Drugstore chains
C) Apparel stores
D) Home improvement centers
E) Food and beverage services
Answer: D
Explanation: Home improvement centers in particular are highly concentrated; the two largest
firms (Home Depot and Lowe's) account for 45.6 percent of U.S. market share.
Difficulty: 1 Easy
Topic: Evolution of Retailing
Bloom's: Remember
AACSB: Analytic
49) Retailers use customer transaction data to do all of the following except
A) identify their best customers.
B) match the needs of a store's local market.
C) create customized promotions.
D) tailor product assortments.
E) identify political party preferences.
Answer: E
Explanation: Many retailers now use the data they have on their customers to identify their best
customers and target customized promotions to them, place products close to each other when
they find that many customers are buying the same products at the same time, and tailor the
assortment of products in each store to better match the needs of the store's local market.
Difficulty: 1 Easy
Bloom's: Understand
AACSB: Technology
23
50) Students often view retailing as part of marketing because
A) retailing does not involve traditional business activities.
B) retailing involves the management of distribution systems.
C) retailing requires only people with expertise in marketing.
D) activities in retailing are confined to advertising and promotion.
E) retailers are not part of the supply chain.
Answer: B
Explanation: Students often view retailing as part of marketing because managing distribution
(place) is one of the 4 Ps of marketing.
Bloom's: Understand
AACSB: Analytic; Reflective Thinking
51) Which of the following is true of the career opportunities offered by the retailing industry?
A) Retailers employ people with exclusive expertise in supply chain management.
B) Retail managers are often given considerable responsibility early in their careers.
C) Retailing offers limited opportunities for entrepreneurs.
D) Retail management is not a very lucrative career path.
E) People with a marketing background have limited opportunities in the retail industry.
Answer: B
Explanation: Retail managers are often given considerable responsibility early in their careers.
Retail management is also financially rewarding.
Bloom's: Understand
AACSB: Communication; Ethics
24
52) The competition between the same type of retailers is called
A) intertype competition.
B) indirect competition.
C) intratype competition.
D) scrambled merchandising.
E) intrinsic competition.
Answer: C
Explanation: The competition between the same type of retailers is called intratype competition.
Difficulty: 1 Easy
Topic: The Strategic Retail Management Decision Process
Bloom's: Remember
AACSB: Analytic
53) Daily Needs and Smart Saves are two large retailers in Canada. They compete with each
other using similar marketing strategies. Which form of competition is seen between these two
retailers?
A) Intertype competition
B) Indirect competition
C) Intratype competition
D) Scrambled merchandising
E) Intrinsic competition
Answer: C
Explanation: A retailer's primary competitors are other retailers that use the same retail
approach. The competition between the same type of retailers is called intratype competition.
Bloom's: Apply
25
54) When Austin saw pastries and coffee being sold at his local bookstore, he knew it was an
example of
B) intertype competition.
C) product diversification.
D) channel conflict.
E) vertical differentiation.
Answer: A
Explanation: Scrambled merchandising occurs when retailers offer merchandise not typically
associated with their type of store.
Difficulty: 1 Easy
Bloom's: Apply
55) Karen's is a popular clothing store in Boston. The store recently started selling designer
watches. Thus, Karen's is practicing
A) channel expansion.
D) scrambled merchandising.
Answer: D
Explanation: Scrambled merchandising is when retailers offer merchandise not typically
Bloom's: Apply
26
56) The offering of merchandise not typically associated with the store type is called
B) intratype competition.
D) channel diversification.
Answer: A
Explanation: Scrambled merchandising is when retailers offer merchandise not typically
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
57) Which of the following is the first step in the retail management decision process?
A) Developing the retail communication mix
B) Buying merchandise
C) Developing a retail marketing strategy
D) Understanding the world of retailing
E) Customer relationship management
Answer: D
Explanation: The first step in the retail management decision process is understanding the world
of retailing. Retail managers need to know the environment in which they operate before they
can develop and implement effective strategies.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
27
58) ________ form a part of the microenvironment that influences retail management decisions.
A) Competitors
B) Technologies
C) Politics
D) Legal aspects
E) Ethics
Answer: A
Explanation: The retailer's microenvironment focuses specifically on its competitors and
customers.
Bloom's: Understand
AACSB: Analytic
59) A retailer's primary competitors are other retailers that

A) are more vertically integrated.
B) use the same type of store format.
C) have the same target market.
D) sell online.
E) scramble merchandise.
Answer: B
Explanation: The competition between the same type of retailers is called intratype competition.
A retailer's primary competitors are other retailers that use the same retail approach.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
28
60) Scrambled merchandising increases
C) concentric diversification.
E) intratype competition.
Answer: B
Explanation: Scrambled merchandise is offering merchandise not typically associated with the
store type, and it increases intertype competition or competition between retailers that sell similar
merchandise using different types of stores.
Bloom's: Understand
AACSB: Analytic
61) Which of the following is not an example of intertype competition?

A) A supermarket and a fresh flower stand
B) A coffee shop and a fast food restaurant
C) A supercenter and a pharmacy
D) An American Eagle store and a Macy's store
E) A Target store and a Walmart store
Answer: E
Explanation: Offering merchandise not typically associated with the store type increases
intertype competition or competition between retailers that sell similar merchandise using
different types of stores. Since Target and Walmart use the same format of store, they are
intratype competitors, and all others are intertype competitors.
Bloom's: Apply
29
62) Darius Foods Inc. and Winston Foods and Beverages Inc. are competitors selling frozen
meals. Darius sells its products through a large number of local convenience stores, while
Winston sells its frozen meals through delis. Which form of competition is seen between these
two firms?
A) Intertype competition
B) Indirect competition
C) Intratype competition
E) Intrinsic competition
Answer: A
Explanation: Intertype competition is the competition among retailers that sell similar
merchandise using different types of retail outlets, such as drug and department stores.
Bloom's: Apply
63) Increasing intertype competition has made it harder for retailers to identify their
A) competition.
B) target market.
C) merchandise mix.
D) retail mix.
E) price points.
Answer: A
Explanation: Increasing intertype competition makes it harder for retailers to identify and
monitor their competition. In one sense, all retailers compete against one another for the dollars
that consumers spend on goods and services. But the intensity of competition is greatest among
retailers whose offerings are viewed as very similar.
Bloom's: Understand
AACSB: Analytic
30
64) The intensity of competition is greatest among retailers when
A) price dominates the retail mix.
B) their retail offerings are considered to be similar.
C) they resort to scrambled merchandising.
D) they focus on a narrow demographic trend.
E) they offer a limited range of products and services.
Answer: B
Explanation: The intensity of competition is greatest among retailers whose offerings are viewed
as very similar.
Bloom's: Understand
65) A ________ refers to the market toward which a retailer will direct its efforts.
A) channel member
B) market segment
C) target market
D) mass market
E) warm market
Answer: C
Explanation: The retail strategy identifies the target market, or markets, toward which the
retailer will direct its efforts.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
31
66) The retail strategy helps a retailer to identify all of the following except:
A) the target market toward which the retailer will direct its efforts.
B) the nature of the merchandise and services the retailer will offer to satisfy the needs of the
target market.
C) how the retailer will build a long-term advantage over its competitors.
D) how to determine the break-even point for making profits.
Answer: D
Explanation: The retail strategy identifies (1) the target market, or markets, toward which the
retailer will direct its efforts; (2) the nature of the merchandise and services the retailer will offer
to satisfy the needs of the target market; and (3) how the retailer will develop unique assets that
enable it to achieve long-term advantage over its competitors.
Difficulty: 1 Easy
Bloom's: Understand
67) When developing the ________ for his salon, Theo decided to obtain a long-term
competitive advantage over other salons by offering longer hours, better prices, a well-trained
staff, and hair coloring for half-price every Wednesday to attract customers.
A) selling concept
B) business cycle
C) retail strategy
D) focal point orientation
E) marketing concept
Answer: C
to satisfy the needs of the target market; and (3) how the retailer will build develop unique assets
that enable it to achieve long-term advantage over its competitors.
Bloom's: Apply
32
68) As the owner of Knights, a store specializing in men's suits, Isabella can use a retail strategy
to identify all of the following except
A) the advertising campaign developed to sell last season's merchandise.
B) the store's target market.
C) how the store will build a competitive advantage over other similar retailers.
D) what services the store will offer its customers.
E) what types of suits the store will stock.
Answer: A
Explanation: A retail strategy identifies how the retailer will build develop unique assets that
enable it to achieve long-term advantage over its competitors.
Bloom's: Apply
69) A ________ identifies the target market, the merchandise and services that will be offered,
and how the company will achieve long-term advantage over its competitors.
A) retail strategy
B) corporate strategy
C) retail mix
D) supply chain
E) product mix
Answer: A
to satisfy the needs of the target market; and (3) how the retailer will build develop unique assets
that enable it to achieve long-term advantage over its competitors.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
33
70) Which of the following is a key strategic decision made by a retailer?
A) Managing merchandise inventories
B) Defining the target market
C) Managing the store
D) Creating the retail communication mix
E) Implementing visual merchandising
Answer: B
Explanation: The key strategic decisions a retailer makes are defining its target market and its
financial objectives.
Bloom's: Understand
71) A retail mix refers to

A) a strategy for identifying primary competitors through market research.
B) the idea of selling similar merchandise using different types of retail outlets, such as drug and
department stores.
C) the concept of offering merchandise not typically associated with their type of store.
D) a set of decisions retailers make to satisfy customer needs and influence their purchase
decisions.
E) a retailer's decision to undertake wholesaling and manufacturing activities.
Answer: D
Explanation: To implement a retail strategy, retailers develop a retail mix that satisfies the needs
of its target market better than that of its competitors. The retail mix is a set of decisions retailers
make to satisfy customer needs and influence their purchase decisions.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
34
72) Which of the following is a critical asset that enables retailers to build strategic advantages?
A) Holding inventory
B) Breaking bulk
C) Providing services
E) Supply chain organization
Answer: E
Explanation: Some strategic decisions involve the development of critical assets that enable
retailers to build strategic advantages. These strategic assets are location, human resource,
information and supply chain systems, supply chain organization, and customer loyalty.
Bloom's: Understand
AACSB: Analytic
73) A retail mix is developed to

A) promote scrambled merchandising.
B) implement a retail strategy.
C) understand the retail market.
D) implement vertical integration.
E) formulate a retail strategy.
Answer: B
Explanation: To implement a retail strategy, retailers develop a retail mix that satisfies the needs
of its target market better than that of its competitors.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
35
74) Which of the following is not an element in the retail mix?
A) Competitive response
B) Merchandise pricing
C) Location
D) Customer service
E) Advertising and promotion
Answer: A
Explanation: The elements in the retail mix include the types of merchandise and services
offered, merchandise pricing, advertising and promotional programs, store design, merchandise
display, assistance to customers provided by salespeople, and convenience of the store's location.
Difficulty: 1 Easy
Bloom's: Remember
75) Retail information and supply chain management systems help retailers to do all of the
following except
A) gain strategic advantages.
B) monitor the flow of information and merchandise.
C) make sure desired merchandise is available when customers want it.
D) minimize the retailer's inventory investment.
E) avoid class action lawsuits.
Answer: E
Explanation: Retail information and supply chain management systems also offer a significant
opportunity for retailers to gain strategic advantage. Sophisticated computer and distribution
technologies are part of an overall inventory management system that enables retailers to (1)
make sure desired merchandise is available when customers want it and (2) minimize the
retailer's inventory investment.
Bloom's: Understand
36
76) ________ are the principles governing the behavior of individuals and companies that
establish appropriate behavior and indicate what is right and wrong.
A) Ethics
B) Acts
C) Training guidelines
D) Company traditions
E) Legislations
Answer: A
Explanation: Ethics are the principles governing individuals and companies that establish
appropriate behavior and indicate what is right and wrong.
Difficulty: 1 Easy
Bloom's: Remember
77) Which of the following statements is true of ethical principles?

A) Ethical principles can change over time.
B) Ethics remain the same irrespective of the country or industry.
C) Most people have common views on ethical and unethical practices.
D) The personal code of ethics does not play a role in business decisions.
E) Ethical principles are often easy to determine.
Answer: A
Explanation: Ethical principles also can change over time. For example, some years ago, doctors
and lawyers who advertised their services were considered unethical. Today, such advertising is
accepted as common practice.
Bloom's: Apply
37
78) What is the retailer's role in a supply chain?
Answer: A retailer is a business that sells products and/or services to consumers for their
personal or family use. Retailers are a key component in a supply chain that links manufacturers
to consumers. Retailers typically buy products from wholesalers and/or manufacturers and resell
them to consumers.
Bloom's: Understand
AACSB: Analytic; Communication
79) What are the major value-creating activities performed by retailers?
Answer: The value-creating activities undertaken by retailers include (1) providing an

assortment of products and services, (2) breaking bulk, (3) holding inventory, and (4) providing
services.
Difficulty: 1 Easy
Bloom's: Remember
80) Explain the importance of breaking bulk.
Answer: To reduce transportation costs, manufacturers and wholesalers typically ship cases of
frozen dinners or cartons of blouses to retailers. Retailers then offer the products in smaller
quantities tailored to individual consumers' and households' consumption patterns—an activity
called breaking bulk. Breaking bulk is important to both manufacturers and consumers. It allows
manufacturers to efficiently make and ship merchandise in larger quantities at one time and
enables consumers to purchase merchandise in smaller, more useful quantities.
Bloom's: Understand
AACSB: Communication; Reflective Thinking
38
81) How have retailers incorporated corporate social responsibility (CSR) into their activities?
Answer: Corporate social responsibility (CSR) involves an organization voluntarily engaging in

business practices that meet or exceed the ethical and legal expectations of its stakeholders—its
employees, customers, community, and society in general. Many retailers now go the extra mile
to support their communities, environment, and social causes. Examples include reducing their
use of energy, supporting local schools, and working with national organizations such as the
American Red Cross and Habitat for Humanity. These corporate social responsibility activities
promote a positive image to customers, build employee morale, and save money—a win-win
scenario for both the companies and their stakeholders.
Bloom's: Understand
AACSB: Communication; Reflective Thinking; Ethics
82) Explain briefly the problems faced by retailers before the development of sophisticated
information systems.
Answer: Prior to the development of sophisticated information systems, it was difficult for
someone other than the local store manager to track how the merchandise in the store was selling
—whether it was selling above plan and needed to be reordered or was selling below plan and
needed to have its price reduced. It was also difficult to collect and consolidate the plans from a
number of different stores so that a buyer could place large orders with vendors to get price
discounts. Thus, before the availability of modern information systems, it was difficult for
retailers to lower costs through scale economies, and larger retailers had limited advantages over
small local or regional retailers.
Bloom's: Understand
83) How do retailers use customer transaction data?
Answer: Many retailers now use the data they have on their customers to identify their best
customers and target customized promotions to them, place products close to each other when
they find that many customers are buying the same products at the same time, and tailor the
assortment of products in each store to better match the needs of the store's local market.
Bloom's: Understand
39
84) Why do retailers hire people with varied expertise and interests?
Answer: Retailers are businesses and, like manufacturers, undertake all the traditional business
activities. Retailers raise capital from financial institutions; purchase goods and services; use
accounting and management information systems to control their operations; manage warehouses
and distribution systems; design and develop new products; and undertake marketing activities
such as advertising, promotion, sales force management, and market research. Thus, retailers
employ people with expertise and interests in finance, accounting, human resource management,
supply chain management, and computer systems, as well as management and marketing.
Bloom's: Understand
85) How does scrambled merchandising impact retail competition?
Answer: Scrambled merchandising increases intertype competition, or competition among

retailers that sell similar merchandise using different types of retail outlets, such as drug and
department stores. Increasing intertype competition makes it harder for retailers to identify and
monitor their competition. In one sense, all retailers compete against one another for the dollars
that consumers spend on goods and services. But the intensity of competition is greatest among
retailers whose offerings are viewed as very similar.
Bloom's: Understand
86) With regard to customers, which aspects do retailers need to consider when developing a
retail strategy?
Answer: Retailers must respond to broad demographic and lifestyle trends in our society, such
as the growth in the senior and minority segments of the U.S. population or the importance of
shopping convenience to the increasing number of two-income families. To develop and
implement an effective strategy, retailers must understand why customers shop, how they select
a store, and how they select among that store's merchandise
Bloom's: Understand
40
87) How do retail information and supply chain management help retailers gain a strategic
advantage?
Answer: Retail information and supply chain management systems offer a significant
opportunity for retailers to gain strategic advantage. Retailers are developing sophisticated
computer and distribution technologies to monitor flows of information and merchandise from
vendors to retail distribution centers to retail stores. These technologies are part of an overall
inventory management system that enables retailers to (1) make sure desired merchandise is
available when customers want it and (2) minimize the retailer's inventory investment.
Bloom's: Understand
88) Refer to the most current list of top global retailers provided on www.nrf.com. List the top
five retailers and compare to the year before; discuss any changes.
Answer:
1 Walmart
2 Costco
3 The Kroger Co.
4 Schwarz Unternehmens Treuhand
5 Tesco
Bloom's: Apply
41
Chapter 2 Types of Retailers
1) The most basic characteristic used to describe the different types of retailers is their retail mix,
or the elements retailers use to satisfy their customers' needs.
Answer: TRUE
Explanation: The most basic characteristic used to describe the different types of retailers is
their retail mix, or the elements retailers use to satisfy their customers' needs. Four elements of
the retail mix are particularly useful for classifying retailers: the type of merchandise and/or
services offered, the variety and assortment of merchandise offered, the level of customer
service, and the price of the merchandise.
Difficulty: 1 Easy
Learning Objective: 02-01 List the different characteristics that define retailers.
Bloom's: Understand
AACSB: Reflective Thinking; Communication
2) Walmart is classified as an off-price retailer.
Answer: FALSE
Explanation: Walmart is a full-line discount store. Off-price retailers offer an inconsistent
assortment of brand-name merchandise at a significant discount off the manufacturers' suggested
retail price (MSRP), and Walmart has consistent assortments.
Difficulty: 1 Easy
Topic: Categories of Food and General Merchandise Retailers
Learning Objective: 02-03 Identify the various types of general merchandise retailers.
Bloom's: Understand
3) To be competitive in today's marketplace, supermarkets are focusing on offering fresh

perishables and providing better value with private-label merchandise.
Answer: TRUE
Explanation: To compete successfully against intrusions by other food retailing formats,
conventional supermarkets are differentiating their offerings by emphasizing fresh perishables,
targeting green and ethnic consumers, providing better value with private-label merchandise, and
providing a better shopping experience.
Learning Objective: 02-02 Categorize the various types of food retailers.
Bloom's: Apply
1
4) Supermarkets gain higher profit margins from private-label merchandise than national brands.
Answer: TRUE
Explanation: The benefits of private-label brands to retailers include increased store loyalty, the
ability to differentiate themselves from the competition, lower promotional costs, and higher
gross margins compared with national brands.
Bloom's: Understand
5) Private-label brands benefit retailers but not customers.
Answer: FALSE
Explanation: Private-label brands benefit both customers and retailers. The benefits to customers
include having more choices and finding the same ingredients and quality as in national brands at
a lower price or higher quality at a similar price to the national brands.
Difficulty: 1 Easy
Bloom's: Understand
6) Assortment is the number of different merchandise categories a retailer offers, also known as
the breadth of merchandise.
Answer: FALSE
Explanation: Variety (also called breadth) is the number of merchandise categories a retailer
offers. Assortment (also called depth) is the number of different items offered in a merchandise
category
Bloom's: Apply
2
7) Extreme-value retailers primarily target low-income consumers.
Answer: TRUE
Explanation: Extreme-value retailers primarily target low-income consumers. These customers
want well-known brands but cannot afford to buy the large-size packages offered by full-line
discount stores or warehouse clubs.
Difficulty: 1 Easy
Bloom's: Remember
8) Due to the intangibility of their offerings, services retailers often use tangible symbols to
inform customers about the quality of their services.
Answer: TRUE
Explanation: Due to the intangibility of their offerings, services retailers often use tangible
symbols to inform customers about the quality of their services. For example, lawyers frequently
have elegant, carpeted offices with expensive antique furniture.
Difficulty: 1 Easy
Topic: Differences Between Service and Merchandise Retailers
Learning Objective: 02-04 Explain the differences between service and merchandise retailers.
Bloom's: Remember
9) The biggest difference between service retailers and merchandise retailers is their profits.
Answer: FALSE
Explanation: Profit doesn't play a role in comparing the differences between service retailers and
merchandise retailers. Differences are intangibility, simultaneous production and consumption,
perishability, and inconsistency of the offering to customers.
Bloom's: Understand
3
10) Whereas corporate chains can tailor their offerings to their customers' needs, single-store
retailers can more effectively negotiate lower prices for merchandise and advertising because of
their larger size.
Answer: FALSE
Explanation: Whereas single-store retailers can tailor their offerings to their customers' needs,
corporate chains can more effectively negotiate lower prices for merchandise and advertising
because of their larger size. Corporate chains can and do invest in sophisticated analytical
systems to help them buy and price merchandise.
Topic: Types of Ownership for Retail Firms
Learning Objective: 02-05 Explain the types of ownership for retail firms.
Bloom's: Apply
11) Which of the following statements is true of the North American Industry Classification
System (NAICS)?
A) It was developed by the Federal Trade Commission (FTC).
B) It uses an eight-digit classification system.
C) It was created to collect data on North America's business activity.
D) It is limited in its use to only manufacturing companies.
E) It is a classification system developed by the United States.
Answer: C
Explanation: The United States, Canada, and Mexico developed the NAICS as a classification
scheme to collect data on business activity in each country.
Bloom's: Remember
4
12) With respect to retailing, which of the following best defines assortment of merchandise?
A) Each different item of merchandise offered by a retailer
B) The number of different items offered in a merchandise category
C) The number of merchandise categories a retailer offers
D) Merchandise with minor mistakes in construction
E) End-of-season merchandise that will not be used in following seasons
Answer: B
Explanation: Assortment is the number of different items offered in a merchandise category. It is
referred to as the depth of merchandise.
Difficulty: 3 Hard
Bloom's: Understand
13) With respect to retailing, which of the following best defines variety?
A) Merchandise with minor mistakes in construction
B) The number of different items offered in a merchandise category
C) End-of-season merchandise that will not be used in following seasons
D) The number of merchandise categories a retailer offers
E) Each different item of merchandise offered by a retailer
Answer: D
Explanation: Variety is the number of different merchandise categories a retailer offers, also
known as the breadth of merchandise.
Difficulty: 1 Easy
Bloom's: Remember
5
14) Because the only merchandise categories at the University Futon Shop are double-sized
futons, the Futon Shop can be said to have no
A) inventory control.
B) need for customer service.
C) variety.
D) irregularity
E) product depth.
Answer: C
Explanation: Variety is the number of different merchandise categories a retailer offers, also
known as the breadth of merchandise. Since this store only carries one stock-keeping unit (SKU),
double-sized futons, it has very little variety. It may have good product depth if it offers the
double-sized futons in many different colors and fabrications, but we don't have any information
on that.
Bloom's: Apply
15) Which of the following best defines a stock-keeping unit?

A) The number of different items offered in a merchandise category
B) End-of-season merchandise that will not be used by a retailer in following seasons
C) Merchandise with minor mistakes in construction
D) Each different item of merchandise offered by a retailer
E) The number of merchandise categories a retailer offers
Answer: D
Explanation: Each different item of merchandise is called a stock-keeping unit (SKU). Some
examples of SKUs include an original scent, 33-ounce box of Tide laundry detergent with
bleach, or a blue, long-sleeve, button-down-collar Ralph Lauren shirt, size medium.
Difficulty: 1 Easy
Bloom's: Remember
6
16) With respect to retailing, variety is often referred to as the
A) closeouts.
B) assortment of merchandise.
C) irregulars.
D) breadth of merchandise.
E) stock-keeping units.
Answer: D
Explanation: Variety is the number of different merchandise categories a retailer offers. Variety
is often referred to as the breadth of merchandise.
Difficulty: 1 Easy
Bloom's: Remember
17) With respect to retailing, assortment is often referred to as the

A) power perimeter.
B) depth of merchandise.
C) closeouts.
D) variety of merchandise.
E) irregulars.
Answer: B
Explanation: Assortment is the number of different items offered in a merchandise category.
Assortment is referred to as the depth of merchandise.
Difficulty: 1 Easy
Bloom's: Remember
7
18) The Men's Wearhouse stocks over 350 different styles and colors of ties. This assortment of
ties can be referred to as the store's
A) consignment merchandise.
B) closeouts.
C) breadth of merchandise.
D) power perimeter.
E) depth of merchandise.
Answer: E
Explanation: The depth of merchandise refers to the different items offered in a merchandise
category. "Ties" would be the category with many different colors and styles giving great depth
for the customer.
Bloom's: Apply
19) Limited-assortment supermarkets are referred to as

A) extreme-value food retailers.
B) full-line discount stores.
C) conventional supermarkets.
D) consignment shops.
E) warehouse clubs.
Answer: A
Explanation: Limited-assortment supermarkets are also called extreme-value food retailers.
They stock only about 1,500 SKUs, whereas conventional supermarkets stock about 30,000
SKUs.
Difficulty: 1 Easy
Bloom's: Remember
8
20) What type of retailer is Save-A-Lot considered to be?
A) Conventional supermarket
B) Convenience store
C) Category specialist
D) Full-line discount store
E) Limited-assortment supermarket
Answer: E
Explanation: The two largest limited-assortment supermarket chains in the United States are
Save-A-Lot and ALDI. Limited-assortment supermarkets stock about 1,500 SKUs.
Bloom's: Understand
21) The area around the outer walls of a supermarket that stock fresh-merchandise categories
such as dairy, bakery, meat, produce, etc. is referred to as the
A) power perimeter.
B) convenience rack.
C) closeouts.
D) irregulars.
E) supercenters.
Answer: A
Explanation: Fresh-merchandise categories are located in the areas around the outer walls of a
supermarket, known as the "power perimeter," and include the dairy, bakery, meat, florist,
produce, deli, and coffee bar.
Difficulty: 1 Easy
Bloom's: Remember
9
22) The ________ focuses on reducing the carbon footprint caused by the transportation of food
throughout the world.
A) core insight plan
B) locavore movement
C) sustainable agriculture act
D) limited liabilities act
E) non-compete clause
Answer: B
Explanation: The locavore movement focuses on reducing the carbon footprint caused by the
transportation of food throughout the world. Food miles are calculated using the distance that
foods travel from the farm to the plate.
Bloom's: Understand
23) Purchasing from factories that pay workers a living wage (more than the minimum wage)
and offer other benefits to the employees is called
A) a closeout.
B) power perimeter.
C) cash wrap.
D) flash sale.
E) fair trade.
Answer: E
Explanation: Fair trade is the practice of purchasing from factories that pay workers a living
wage, considerably more than the prevailing minimum wage, and offer other benefits such as
onsite medical treatment.
Bloom's: Understand
10
24) What type of retailer is Meijer considered to be?
A) Supercenter
B) Department store
C) Full-line discount store
D) Drugstore
E) Category specialist
Answer: A
Explanation: Meijer is considered to be a supercenter. Supercenters are large stores (160,000 to
200,000 square feet) that combine a supermarket with a full-line discount store.
Bloom's: Understand
25) Which of the following is a similarity between hypermarkets and supercenters?

A) Both are common in the United States.
B) Both offer self-service.
C) Both carry a negotiable percentage of nonfood items.
D) Both avoid the sale of perishables.
E) Both lack parking facilities for customers.
Answer: B
Explanation: Hypermarkets are not common in the United States. Both hypermarkets and
supercenters carry grocery and general merchandise categories, offer self-service, and are located
in warehouse-type structures with large parking facilities. However, hypermarkets carry a larger
proportion of food items than do supercenters and have a greater emphasis on perishables.
Bloom's: Understand
11
26) Which of the following differentiates a hypermarket from a supercenter?
A) Hypermarkets do not offer self-service facilities, whereas supercenters offer self-service
facilities to their customers.
B) Hypermarkets carry a larger proportion of food items, whereas supercenters carry a larger
portion of nonfood items.
C) Hypermarkets have a greater emphasis on dry groceries, whereas supercenters have a greater
emphasis on perishables.
D) Hypermarkets are very common in the United States, whereas supercenters are not common
in the United States.
E) Hypermarkets provide large parking facilities to its customers, whereas supercenters do not
provide parking facilities to their customers.
Answer: B
Explanation: Hypermarkets carry a larger proportion of food items than do supercenters.
Supercenters have a larger percentage of nonfood items.
Bloom's: Understand
27) What type of retail store is Costco considered to be?

A) A supercenter
B) A hypermarket
C) A category specialist
D) A warehouse club
E) A department store
Answer: D
Explanation: Costco is considered to be a warehouse club. Warehouse clubs are retailers that
offer a limited and irregular assortment of food and general merchandise with little service at low
prices for ultimate consumers and small businesses.
Difficulty: 1 Easy
Bloom's: Remember
12
28) Which of these is not a relevant challenge for big-box stores while developing locations in
Europe, Japan, and the United States?
A) Limited and expensive land
B) Increased operating costs
C) Restricted building size in some counties
D) Opposing sentiments from local residents
E) Lack of employable workforce
Answer: E
Explanation: Supermarket and large format stores have a difficult time finding land in the
European, Japanese, and American markets. There are also additional operating costs,
restrictions on how big the building can be, and a culture that is not receptive to big-box
retailing.
Bloom's: Understand
29) Which of the following statements best defines a warehouse club?

A) They are stores that provide a large variety and assortment of merchandise at a convenient
location with speedy checkout.
B) They are large, self-service retail food stores offering about 30,000 SKUs with high inventory
holding costs.
C) They are retailers that carry a broad variety and deep assortment, offer customer services, and
organize their stores into distinct departments for displaying merchandise.
D) They are retailers that offer a limited and irregular assortment of food and general
merchandise with little service at low prices.
E) They are large stores that combine a supermarket with a full-line discount store.
Answer: D
Explanation: Warehouse clubs are retailers that offer a limited and irregular assortment of food
and general merchandise with little service at low prices for ultimate consumers and small
businesses.
Bloom's: Understand
13
30) Convenience stores ________ than supermarkets.
A) make customers wait in a long checkout line
B) avoid selling lower profit products
C) offer a broad variety and deep assortment of merchandise
D) offer self-service to its customers
E) charge higher prices for similar products sold
Answer: E
Explanation: Convenience stores generally charge higher prices for similar products like milk,
eggs, and bread. Convenience stores provide a limited variety and assortment of merchandise at a
convenient location in 3,000- to 5,000-square-foot stores with speedy checkout.
Bloom's: Remember
31) Which of the following statements is true about warehouse clubs?

A) Warehouse clubs carry a broad variety and deep assortment of merchandise.
B) Warehouse clubs are small and typically located in high-rent districts.
C) Warehouse clubs typically have low inventory holding costs.
D) Warehouse clubs offer extensive customer service.
E) Warehouse clubs offer its fast-selling items at high prices.
Answer: C
Explanation: Warehouse clubs keep inventory holding costs low by carrying a limited
assortment of fast-selling items.
Bloom's: Understand
14
32) Which of the following statements is true of department stores?
A) They are usually located in local neighborhoods rather than large regional malls.
B) They often resemble a collection of specialty shops.
C) They can be categorized into two tiers.
D) They focus almost exclusively on hard goods.
E) They offer a limited variety and shallow assortment of merchandise.
Answer: B
Explanation: The department store often resembles a collection of specialty shops. Each
department within the store has a specific selling space allocated to it, as well as sales people to
assist customers.
Bloom's: Remember
33) A retailer that carries a broad variety and deep assortment, offers customer services, and is
organized into distinct sections for displaying merchandise is called a(n)
A) off-price retailer.
B) department store.
C) discount retailer.
D) convenience store.
E) specialty retailer.
Answer: B
Explanation: A retailer that carries a broad variety and deep assortment, offers customer
services, and is organized into distinct sections for displaying merchandise is called a department
store. The largest department store chains in the United States include Sears, Macy's, Kohl's,
JCPenney, and Nordstrom.
Difficulty: 1 Easy
Bloom's: Remember
15
34) What type of retailer is Kohl's considered to be?
A) Off-price retailer
B) Department store
D) Extreme value retailer
E) Specialty retailer
Answer: B
Explanation: Kohl's is one of the largest department store chains in the United States.
Department stores are retailers that carry a broad variety and deep assortment, offer customer
services, and organize their stores into distinct departments for displaying merchandise.
Difficulty: 1 Easy
Bloom's: Remember
35) Which of the following is a first-tier department store?

A) Macy's
B) Nordstrom
C) Sears
D) Kohl's
E) JCPenney
Answer: B
Explanation: First-tier department stores include upscale, high-fashion chains with exclusive
designer merchandise and excellent customer service. Nordstrom, Neiman Marcus,
Bloomingdale's, and Saks Fifth Avenue are first-tier department stores.
Difficulty: 1 Easy
Bloom's: Understand
16
36) Which of the following is a second-tier department store?
A) Macy's
B) Neiman Marcus
C) TJ Maxx
D) Nordstrom
E) Saks Fifth Avenue
Answer: A
Explanation: Second-tier department stores are retailers who sell more modestly priced
merchandise with less customer service than first-tier stores. Dillards is an example of a second-
tier department store.
Difficulty: 1 Easy
Bloom's: Understand
37) Which of the following is a third-tier department store?

A) Macy's
B) Neiman Marcus
C) TJ Maxx
D) Nordstrom
E) JCPenney
Answer: E
Explanation: Third-tier department stores focus on value and price-conscious customers.
Retailers in this category are Sears, JCPenney, and Kohl's.
Difficulty: 1 Easy
Bloom's: Understand
17
38) What can department stores do to differentiate their merchandise offering and strengthen
their image?
A) Increase their pricing
B) Decrease the variety and assortment of merchandise within the store
C) Seek exclusive arrangements with nationally recognized brands
D) Merge with faltering retailers to gain their market share
E) Sell only hard goods
Answer: C
Explanation: To differentiate their merchandise offerings and strengthen their image, department
stores are aggressively seeking exclusive brands in which national brand vendors sell them
merchandise that is not available elsewhere.
Bloom's: Understand
39) Attempting to combat losing market share, department stores are doing all of the following
except
A) becoming active participants in omnichannel retailing.
B) adding exclusive merchandise to their assortments.
C) developing stronger marketing campaigns to enhance their store image.
D) placing more emphasis on developing their own private-label brands.
E) increasing their prices to gain more net sales.
Answer: E
Explanation: Department stores are trying hard to not lose market share. Therefore, they are
expanding omnichannel retailing, adding exclusive merchandise, developing stronger marketing
campaigns, and placing more emphasis on developing their own private-label brands.
Bloom's: Understand
18
40) Private-label brands are also called
A) closeouts.
B) category killers.
C) irregulars.
D) inclusive brands.
E) store brands.
Answer: E
Explanation: Private-label brands are also called store brands. These items are developed and
marketed by the retailer, available only in its stores.
Difficulty: 1 Easy
Bloom's: Remember
41) Alfani (women's fashion), Hotel Collection (luxury fabrics), and Tools of the Trade
(housewares) are examples of Macy's
A) national brands.
B) store brands.
C) irregulars.
D) inclusive brands.
E) closeouts.
Answer: B
Explanation: Alfani (women's fashion), Hotel Collection (luxury fabrics), and Tools of the
Trade (housewares) are examples of Macy's store brands. These items are developed and
marketed by the retailer, available only in Macy's.
Difficulty: 1 Easy
Bloom's: Understand
19
42) What type of retailer is Target considered to be?
B) Department store
D) Extreme value retailer
Answer: C
Explanation: Target is one of the largest full-line discount store chains. Full-line discount stores
are retailers that offer a broad variety of merchandise, limited service, and low prices.
Difficulty: 1 Easy
Bloom's: Remember
43) To respond to a competitive environment, one thing that Walmart is doing is

A) converting its discount stores into supercenters.
B) leasing retail space in its stores to independent merchants.
C) focusing on high customer service.
D) converting the discount stores into convenience stores.
E) expanding into rural locations.
Answer: A
Explanation: Walmart is converting many of its discount stores into supercenters. Supercenters
are more efficient than traditional discount stores because of the economies of scale that result
from the high traffic generated by the food offering.
Bloom's: Understand
20
44) Which of the following statements about full-line discount stores is true?
A) They carry only private-label merchandise.
B) They have a narrow breadth of merchandise.
C) They typically carry more brands and sizes in each category than department stores.
D) They have inconsistent assortments.
E) They confront intense competition from category specialists.
Answer: E
Explanation: Full-line discount stores confront intense competition from category specialists
that focus on a single category of merchandise.
Bloom's: Understand
45) Why are category specialists sometimes called category killers?

A) They are often located close to full-line discount stores and discount stores that offer a deep
assortment of merchandise.
B) They are located at stand-alone sites.
C) They have a broad merchandise mix and shallow assortment.
D) They can dominate a category of merchandise making it difficult for other retailers to
compete.
E) They carry mainly technologically obsolete merchandise.
Answer: D
Explanation: By offering a complete assortment in a category, category specialists can "kill" a
category of merchandise for other retailers and thus are frequently called category killers.
Bloom's: Understand
21
46) Best Buy is a category specialist for the electronics industry. This means the stores
A) offer their customers narrow breadth and depth of merchandise.
B) sell only their own private-label brands.
C) have excellent after-sales customer service.
D) avoid a self-service approach.
E) offer a narrow but deep assortment of merchandise.
Answer: E
Explanation: Category specialists are big-box stores that offer a narrow but deep assortment of
merchandise. Most category specialists predominantly use a self-service approach, but they offer
assistance to customers in some areas of the stores.
Difficulty: 1 Easy
Bloom's: Understand
47) What type of retail store is Victoria's Secret considered to be?

A) Department store
B) Convenient store
D) Specialty store
E) Supermarket
Answer: D
Explanation: Victoria's Secret is the leading specialty retailer of lingerie and beauty products in
the United States. Specialty stores concentrate on a limited number of complementary
merchandise categories and provide a high level of service.
Difficulty: 1 Easy
Bloom's: Remember
22
48) Which of the following statements is true about specialty stores?
A) They tailor their retail strategy toward very specific market segments.
B) They group products by brand instead of product category like in department stores.
C) They offer very shallow and narrow assortments.
D) They completely avoid including their own private-label brands in the store.
E) They discourage sampling.
Answer: A
Explanation: Specialty stores tailor their retail strategy toward very specific market segments by
offering deep but narrow assortments and sales associate expertise. Specialty stores concentrate
on a limited number of complementary merchandise categories and provide a high level of
service.
Bloom's: Understand
49) A special type of resale store where merchandise is donated and proceeds go to charity is
called a(n)
A) extreme-value retailer.
B) thrift store.
C) consignment shop.
D) dollar store.
E) supercenter.
Answer: B
Explanation: A special type of resale store where merchandise is donated and proceeds go to
charity is called a thrift store. Resale stores are retailers that sell secondhand or used
merchandise.
Bloom's: Understand
23
50) A type of resale store that accepts used merchandise from people and pays them after it is
sold is called a(n)
A) dollar store.
B) consignment shop.
C) supercenter.
D) thrift store.
E) extreme-value retailer.
Answer: B
Explanation: A type of resale store that accepts used merchandise from people and pays them
after it is sold is called a consignment shop. Resale stores are retailers that sell secondhand or
used merchandise.
Difficulty: 1 Easy
Bloom's: Remember
51) Which of the following types of general merchandise retailers is also sometimes referred to
as dollar stores?
A) Extreme-value retailers
B) Department stores
C) Full-line discount stores
D) Category specialists
E) Specialty stores
Answer: A
Explanation: Extreme-value retailers are also called dollar stores. They are small discount stores
that offer a broad variety but shallow assortment of household goods, health and beauty care
(HBC) products, and groceries.
Difficulty: 1 Easy
Bloom's: Remember
24
52) What type of a retail store is Walgreens considered to be?
A) Full-line discount store
B) Drugstore
C) Department store
D) Convenience store
E) Supercenter
Answer: B
Explanation: Walgreens is one of the largest drugstores in the United States. Drugstores are
specialty stores that concentrate on health and beauty care (HBC) products.
Bloom's: Understand
53) What type of retail store is Dollar General considered to be?

B) Department store
D) Extreme-value retailer
Answer: D
Explanation: Dollar General is one of the largest extreme-value retailers. Extreme-value
retailers, also called dollar stores, are small discount stores that offer a broad variety but shallow
assortment of household goods, health and beauty care (HBC) products, and groceries.
Difficulty: 1 Easy
Bloom's: Remember
25
54) The drugstore industry has seen a decrease in their annual sales mainly due to
A) higher prices on prescription drugs.
B) pharmacies in full-line discount stores.
C) the aging population.
D) government regulations on pharmaceutical sales.
E) the wide assortment of merchandise they sell
Answer: B
Explanation: Customers drawn to the "one-stop" shopping idea may prefer getting their
groceries, paper products, and prescriptions to be filled all in one stop at a discount store.
Bloom's: Understand
55) ________ offer an inconsistent assortment of brand-name merchandise at a significant

discount off the manufacturers' suggested retail price.
A) Off-price retailers
B) Department stores
C) Discount retailers
D) Convenience stores
E) Specialty retailers
Answer: A
Explanation: Off-price retailers offer an inconsistent assortment of brand-name merchandise at a
significant discount off the manufacturers' suggested retail price (MSRP). America's largest off-
price retail chains are TJX Companies (which operates TJ Maxx, Marshalls, Winners [Canada],
HomeGoods, HomeSense [Canada], Ross Stores, Burlington Coat Factory, Big Lots, and
Overstock.com.
Difficulty: 1 Easy
Bloom's: Remember
26
56) What type of store is TJ Maxx considered to be?
B) Department store
D) Extreme-value retailer
Answer: A
Explanation: TJ Maxx is one of America's largest off-price retail chains. Off-price retailers offer
an inconsistent assortment of brand-name merchandise at a significant discount off the
manufacturers' suggested retail price (MSRP).
Difficulty: 1 Easy
Bloom's: Remember
57) Which of the following is true of off-price retailers?

A) They offer a consistent assortment of soft goods at low prices.
B) They sell brand-name merchandise at reduced prices.
C) They offer gift registries.
D) They require suppliers to give them a variety of advertising allowances and markdown
discounts.
E) They sell designer-label merchandise at 20 to 60 percent higher than the manufacturer's
suggested retail price.
Answer: B
Explanation: Off-price retailers offer an inconsistent assortment of brand-name merchandise at a
significant discount off the manufacturers' suggested retail price (MSRP). Off-price retailers are
able to sell brand-name and even designer-label merchandise at 20 to 60 percent lower than the
manufacturer's suggested retail price.
Bloom's: Remember
27
58) Off-price retailers will often sell merchandise for less than the MSRP, which means
A) the merchandise sales are profitable.
B) the merchandise is sold below the suggested retail price.
C) the merchandise is sold below the suggested realized profit.
D) the merchandise is sold less than the surrounding retail competitors.
E) the merchandise sold by them are always closeouts.
Answer: B
Explanation: MSRP is an acronym for manufacturer's suggested retail price.
Bloom's: Understand
59) ________ are products that have minor blemishes to the fabric or errors in the construction.
A) Closeouts
B) Irregulars
C) Category killers
D) Soft goods
E) Hard goods
Answer: B
Explanation: Irregulars are merchandise with minor mistakes in construction.
Bloom's: Remember
28
60) ________ are end-of-season merchandise that will not be in the manufacturer's offerings
going forward.
A) Closeouts
B) Irregulars
C) Endcaps
D) Category killers
E) Soft goods
Answer: A
Explanation: Closeouts are end-of-season merchandise that will not be used in following
seasons.
Bloom's: Remember
61) ________ are off-price retailers owned by manufacturers or retailers.

A) Dollar stores
B) Closeouts
C) Thrift stores
D) Outlet stores
E) Supercenters
Answer: D
Explanation: A special type of off-price retailer is the outlet store. Outlet stores are off-price
retailers owned by manufacturers or retailers.
Difficulty: 1 Easy
Bloom's: Remember
29
62) With respect to off-price retailing, in a ________ sale, each day at the same time, members
receive an e-mail that announces the deals available.
A) closeout
B) clearance
C) enterprise
D) consultative
E) flash
Answer: E
Explanation: With respect to off-price retailing, in a flash sale, each day at the same time,
members receive an e-mail that announces the deals available. An online twist to off-price
retailing comes from flash sale sites such as Gilt, Rue La La, and HauteLook.
Difficulty: 1 Easy
Bloom's: Remember
63) A special type of off-price retailer owned by manufacturers is called a

A) consignment shop.
B) thrift store.
C) dollar store.
D) warehouse club.
E) factory outlet.
Answer: E
Explanation: A special type of off-price retailer owned by manufacturers is called a factory
outlet. Outlet stores are off-price retailers owned by manufacturers or retailers.
Difficulty: 1 Easy
Bloom's: Remember
30
64) Merrill Lynch, Marriott, and Century 21 are examples of
A) dollar stores.
B) off-price retailers.
C) service retailers.
D) specialty stores.
E) full-line discount stores.
Answer: C
Explanation: Merrill Lynch, Marriott, and Century 21 are examples of service retailers. Service
retailers are firms that primarily sell services rather than merchandise.
Bloom's: Remember
65) Services are difficult to be evaluated before customers buy or even after they buy and
consume them. Which of the following characteristics of service causes this challenge for service
retailers?
A) Intangibility
B) Perishability
C) Inconsistency
D) Consumability
E) Compatibility
Answer: A
Explanation: Since customers cannot see, touch, or feel what is being sold, the intangibility of
the service can sometimes be a concern for customers in trying to decide whether to buy or not.
Difficulty: 3 Hard
Bloom's: Apply
31
66) How can a service retailer best cope with the problems associated with the intangibility of
service?
A) Use low prices during off-seasons to help match supply and demand.
B) Use mass production.
C) Emphasize quality control.
D) Solicit customer evaluations and complaints.
E) Increase staffing at peak demand times.
Answer: D
Explanation: Services retailers often solicit customer evaluations and scrutinize complaints to
cope with the problems associated with the intangibility of service. Services are less tangible
than products—customers cannot see, touch, or feel them. They are performances or actions
rather than objects.
Bloom's: Understand
67) A dermatologist has her diplomas prominently displayed above her large desk, which sits on
a Persian rug in an office filled with tasteful, yet expensive furnishings. Which of the following
service characteristics is the doctor trying to handle with her office décor?
A) Intangibility
B) Perishability
C) Inconsistency
D) Consumability
E) Compatibility
Answer: A
Explanation: Since customers cannot see, touch, or feel what is being sold, the intangibility of
the service can sometimes be a concern for customers in trying to decide whether to buy or not.
Having tangible symbols, such as the earned degrees on the wall, helps to give confidence to the
customer about the dermatologist's credentials. The elaborate furnishings are a subtle way of
exuding success and accomplishments, giving the customers additional confidence in the
services they are about to purchase.
Bloom's: Apply
32
68) A therapeutic massage service requires its therapists to keep a database on each customer and
include in that database what was done on each visit for the customer's aches and pains. Which
of the following service characteristics is the massage service trying to cope with?
A) Intangibility
B) Perishability
C) Inconsistency
D) Consumability
E) Compatibility
Answer: C
Explanation: In order to provide quality customer service, service retailers will keep a database
on each customer to provide consistent high-quality service upon their return.
Bloom's: Apply
69) Due to the ________ of services, service retailers like Six Flags, Delta, and Applebee's
restaurants, sometimes find it difficult to match supply and demand.
A) intangibility
B) perishability
C) inconsistency
D) consumability
E) compatibility
Answer: B
Explanation: Due to the perishability of services, service retailers like Six Flags, Delta, and
Applebee's restaurants, sometimes find it difficult to match supply and demand. Services are
perishable. They cannot be saved, stored, or resold.
Bloom's: Understand
33
70) Why do movie theaters sell tickets for an afternoon showing of a movie at a lower price than
the 7 p.m. showing of the same movie?
A) To deal with the perishability of services
B) To make sure the service offered is consistent
C) To deal with the intangible characteristic of services
D) To deal with the incompatibility characteristic of services
E) To minimize inventory losses
Answer: A
Explanation: Services retailers use a variety of programs to match demand and supply. Movie
theaters set lower prices when they have excess capacity.
Bloom's: Apply
71) 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) Avoid simultaneity of production and consumption of service.
D) Train and motivate service providers.
E) Increase staffing at peak demand times.
Answer: D
Explanation: A service retailer can best cope with the problem associated with the inconsistency
of service by training and motivating the service providers. Because services are performances
produced by people (employees and customers), no two services will be identical.
Bloom's: Apply
34
72) Which of the following is true of single-store retailers?
A) They do not have direct contact with their customers.
B) They are not bound by the bureaucracies inherent in large retail organizations.
C) They are totally independent of their owner-managers' capabilities to make any retail
decision.
D) They must join a wholesale-sponsored voluntary competitive group to compete against
corporate chains.
E) They are very rigid and lack quick adaptability to market changes and customer needs.
Answer: B
Explanation: Single-store retailers are not bound by the bureaucracies inherent in large retail
organizations. Many retail start-ups are owner-managed, which means management has direct
contact with customers and can respond quickly to their needs.
Bloom's: Remember
73) Which of the following is a drawback of the franchise ownership?

A) The franchisee lacks any kind of off- or onsite training from the franchisor.
B) The franchisor lacks any benefit from the success of his or her franchisee.
C) The franchisee must adhere to the franchisor's rules and operating guidelines.
D) The franchisee must join a single-store retailer to become independent of the franchisor.
E) The franchisor must incur the capital costs like purchase and modification of the retail space.
Answer: C
Explanation: There are also several drawbacks to franchise ownership. In addition to incurring
the capital costs, the franchisee must adhere to the franchisor's rules and operating guidelines.
Bloom's: Remember
74) Differentiate between variety and assortment of merchandise offered by a retailer.
Answer: Variety is the number of merchandise categories a retailer offers. Assortment is the
number of different items offered in a merchandise category. Variety is often referred to as the
breadth of merchandise, and assortment is referred to as the depth of merchandise.
Bloom's: Understand
35
75) Explain the strategies that limited-assortment supermarkets (extreme-value food retailers)
use in order to provide customers with high-quality merchandise at low prices to compete against
other food retailing formats.
Answer: Limited-assortment supermarkets only stock about 1,500 SKUs, but conventional
supermarkets carry about 30,000 SKUs. Limited-assortment supermarkets offer one or two
brands and sizes, one of which is a store brand. Stores are designed to maximize efficiency and
reduce costs. For example, merchandise is shipped in cartons on crates that can serve as displays
so that no unloading is needed. Some costly services that consumers take for granted, such as
free bags and paying with credit cards, are not provided. Stores are typically located in second-
or third-tier shopping centers with low rents. By trimming costs, limited-assortment
supermarkets can offer merchandise at prices 40 percent lower than those at conventional
supermarkets. These features have supported the substantial growth of such retailers, which
appeal strongly to customers who are not loyal to national brands and more willing to try a store
brand, especially if it means they pay lower prices.
Bloom's: Understand
76) How are department stores categorized into tiers? How do the tiers differ? Give examples of
each tier.
Answer: Department store chains are categorized into three tiers. The first tier includes upscale,
high-fashion chains with exclusive designer merchandise and excellent customer service, such as
Neiman Marcus, Nordstrom, Saks Fifth Avenue, and Bloomingdale's. Macy's and Dillards are in
the second tier of traditional department stores, in which retailers sell more modestly priced
merchandise with less customer service. The third is the value-oriented tier, Sears, JCPenney,
and Kohl's, which caters to more price-conscious consumers.
Bloom's: Understand
36
77) Discuss the reasons that department stores are losing their market share to discount stores,
and list the steps taken by department stores to deal with their eroding market share.
Answer: Many consumers view department stores as not as convenient as discount stores, such
as Target, because they are located in large regional malls rather than local neighborhoods.
Customer service has diminished in the second- and third-tier stores because of the retailers'
desire to increase profits by reducing labor costs. To deal with their eroding market share,
department stores are (1) increasing the amount of exclusive merchandise they sell, (2)
increasing their use of private-label merchandise, and (3) expanding their omnichannel presence.
Bloom's: Understand
78) Describe what category specialist retailers are while providing specific examples of category
specialist retailers and how they differentiate themselves from their competitors.
Answer: Category specialists are big-box stores that offer a narrow but deep assortment of
merchandise. Most category specialists predominantly use a self-service approach, but they offer
assistance to customers in some areas of the stores. For example, Staples stores have a
warehouse atmosphere, with cartons of copy paper stacked on pallets, plus equipment in boxes
on shelves. But in some departments, such as computers and other high-tech products, it provides
salespeople in the display area to answer questions and make suggestions. By offering a
complete assortment in a category, category specialists can "kill" a category of merchandise for
other retailers and thus are frequently called category killers. Using their category dominance
and buying power, they buy products at low prices and are ensured of supply when items are
scarce. Department stores and full-line discount stores located near category specialists often
have to reduce their offerings in the category because consumers are drawn to the deep
assortment and competitive prices at the category killer.
Bloom's: Understand
AACSB: Reflective Thinking; Communication; Diversity
37
79) Explain what drugstores do to remain competitive in the marketplace.
Answer: Drugstores face competition from pharmacies in discount stores and from pressure to
reduce health care costs. In response, the major drugstore chains are offering a wider assortment
of merchandise, including more frequently purchased food items, as well as new services, such
as the convenience of drive-through windows for picking up prescriptions, in-store medical
clinics, and even makeovers and spa treatments.
Difficulty: 3 Hard
Bloom's: Understand
80) Discuss how off-price retailers opportunistically obtain their merchandise and the different
types of merchandise found at off-price retailers.
Answer: Off-price retailers are able to sell brand-name and even designer-label merchandise at
20 to 60 percent lower than the manufacturer's suggested retail price because of their unique
buying and merchandising practices. Much of the merchandise is bought opportunistically from
manufacturers that have overruns, canceled orders, forecasting mistakes causing excess
inventory, closeouts, and irregulars. They also buy excess inventory from other retailers.
Closeouts are end-of-season merchandise that will not be used in following seasons. Irregulars
are merchandise with minor mistakes in construction. Off-price retailers can buy at low prices
because they do not ask suppliers for advertising allowances, return privileges, markdown
adjustments, or delayed payments.
Bloom's: Understand
38
81) Describe the four important differences in the nature of the offerings provided by services
and merchandise retailers.
Answer: Four important differences in the nature of the offerings provided by services and
merchandise retailers are (1) intangibility, (2) simultaneous production and consumption, (3)
perishability, and (4) inconsistency of the offering to customers.
(1) Intangibility
Services are less tangible than products—customers cannot see or touch them. They are
performances or actions rather than objects. For example, health care services cannot be seen or
touched by a patient. Intangibility introduces several challenges for services retailers. Because
customers cannot touch and feel services, it is difficult for them to evaluate services before they
buy them or even after they buy and consume them.
(2) Simultaneous production and consumption
Products are typically made in a factory, stored and sold by a retailer, and then used by
consumers in their homes. Service providers, however, create and deliver the service as the
customer is consuming it. For example, when you eat at a restaurant, the meal is prepared and
consumed almost at the same time.
(3) Perishability
Services are perishable. They cannot be saved, stored, or resold. Once an airplane takes off with
an empty seat, the sale is lost forever. In contrast, merchandise can be held in inventory until a
customer is ready to buy it. Due to the perishability of services, services retailing must match
supply and demand.
(4) Inconsistency of the offering to customers
Products can be produced by machines with very tight quality control, so customers are
reasonably assured that all boxes of Cheerios will be identical. But because services are
performances produced by people (employees and customers), no two services will be identical.
Difficulty: 3 Hard
Bloom's: Apply
39
82) What is franchising? What does a franchisor offer its franchisees to get the franchisees off to
a good start?
Answer: Franchising is a contractual agreement in which the franchisor (the company) sells the
rights to use its business trademark, service mark, or trade name, or another commercial symbol
of the company, to the franchisee for a one-time franchise fee and an ongoing royalty fee,
typically expressed as a percentage of gross monthly sales. To get franchisees off to a good start,
most franchisors provide off- and onsite training, location analysis assistance, advertising, and
sometimes a protected territory (i.e., no other franchise may open a store within a certain radius
of the first store). Some franchisors even provide financing or offer third-party financing
opportunities.
Bloom's: Understand
40
Chapter 3 Multichannel and Omnichannel Retailing
1) Omnichannel retailing is a coordinated multichannel retail offering that provides a seamless

and synchronized customer experience, using all of the retailer's shopping channels.
Answer: TRUE
Explanation: Omnichannel retailing refers to a coordinated multichannel retail offering that
provides a seamless and synchronized customer experience, using all of the retailer's shopping
channels. These various channels run in collaboration and effectively
Topic: Single-Channel vs. Multi-Channel Retailers
Learning Objective: 03-01 Understand the channels used by retailers.
Bloom's: Remember
AACSB: Communication
2) Direct selling is a retail channel where salespeople interact with customers face-to-face.
Answer: TRUE
Explanation: Direct selling is a retail channel in which salespeople interact with customers face-
to-face in a convenient location, either at a customer's home or at work. Direct salespeople
demonstrate merchandise benefits and/or explain a service, take an order, and deliver the
merchandise.
Topic: Relative Benefits of Retail Channels
Learning Objective: 03-02 Compare the relative strengths of the major retail channels: stores;
Internet, mobile, and social; and catalog and other nonstore channels.
Bloom's: Remember
3) Automated retailing is a retail channel in which merchandise or services are stored in a

machine and dispensed to customers.
Answer: TRUE
Explanation: Automated retailing is a retail channel in which merchandise or services are stored
in a machine and dispensed to customers when they deposit cash or use a credit card. Automated
retailing machines, also known as vending machines, are typically placed at convenient, high-
traffic locations.
Difficulty: 1 Easy
Topic: Nonstore Retail Channels
Bloom's: Remember
AACSB: Analytic
1
4) M-commerce should be approached by retailers the same as e-commerce.
Answer: FALSE
Explanation: The mobile channel (also called mobile retailing, mobile commerce, or m-
commerce), implies accessing the Internet using a tablet or smartphone. From a retailing
perspective, smartphones differ from traditional computers in that they are more portable, have a
smaller display, and are location-aware. As a result of these factors, they produce a different
interface experience with the user
Difficulty: 3 Hard
Bloom's: Understand
AACSB: Analytic
5) Stores offer immediate gratification to customers.
Answer: TRUE
Explanation: Customers can use merchandise immediately after they buy it in stores. Thus,
when customers have a fever or need a last-minute gift, for example, they do not have to wait a
day or two for the delivery of a prescription from Drugstore.com or a gift from Amazon.com.
Bloom's: Remember
AACSB: Analytic
6) An effective way of combatting channel migration is for retailers to offer exclusive items and
brands.
Answer: TRUE
Explanation: To prevent customers from doing product research on their site and then
purchasing the product elsewhere, retailers can market more heavily their own private label that
can exclusively be found only at their retail business.
Learning Objective: 03-04 Analyze the challenges facing multichannel and omnichannel
retailers.
Bloom's: Understand
AACSB: Analytic
2
7) Multichannel and omnichannel retailers can leverage their stores to lower the cost of fulfilling
orders and processing returned merchandise.
Answer: TRUE
Explanation: Multichannel and omnichannel retailers can use their stores as "warehouses" for
gathering merchandise for delivery to customers. Customers also can be offered the opportunity
to pick up and return merchandise at the retailer's stores rather than pay shipping charges.
Learning Objective: 03-03 Describe the opportunities associated with a true omnichannel
strategy.
Bloom's: Remember
AACSB: Analytic
8) Retailers need to provide a consistent brand image of themselves and their private-label
merchandise across all channels.
Answer: TRUE
Explanation: Retailers need to provide a consistent brand image of themselves and their
merchandise across all channels. For example, Patagonia reinforces its image of selling high-
quality, environmentally friendly sports equipment in its stores, its catalogs, and on its website.
Each of these channels emphasizes function, not fashion, in the descriptions of Patagonia's
products.
retailers.
Bloom's: Understand
9) Automated retailing occurs when a consumer goes into a store to learn about different brands
and products and then searches the Internet for the same product sold at a lower price.
Answer: FALSE
Explanation: A particularly concerning form of channel migration is called showrooming.
Showrooming occurs when a consumer goes into a store to learn about different brands and
products and then searches the Internet for the same product sold at a lower price.
retailers.
Bloom's: Understand
AACSB: Analytic
3
10) The majority of retail transactions take place online.
Answer: FALSE
Explanation: The vast majority of sales are a function of in-store retailing and occur through the
store channel, but the Internet and catalog channels also account for significant sales, and the
mobile channel shows the highest growth rate.
Bloom's: Remember
AACSB: Technology
11) A multichannel retailer is one that

A) is a combination of single-channel retailers.
B) channels all assortments through stores.
C) works with other retailers who are in the channel.
D) sells merchandise or services through more than one channel.
E) buys merchandise from multiple channels to sell in the stores.
Answer: D
Explanation: Multichannel retailing involves using more than one channel to sell and deliver
merchandise and services to consumers.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
4
12) Mason's is an apparel store that also offers online shopping apart from its stores. Therefore,
Mason's is a(n)
A) computerized retailer.
B) direct seller.
C) electronic retailer.
D) single-channel retailer.
E) multichannel retailer.
Answer: E
Explanation: Multichannel retailing involves using more than one channel to sell and deliver
merchandise and services to consumers.
Difficulty: 1 Easy
Bloom's: Apply
AACSB: Analytic
13) What best describes using all of the retailer's shopping channels to create a seamless and
synchronized customer experience?
A) Social retailing
B) M-Commerce
C) Omnichannel retailing
D) Multichannel retailing
E) Direct retailing
Answer: C
Explanation: Modern retailers aspire to omnichannel retailing. Omnichannel retailing refers to a
coordinated multichannel retail offering that provides a seamless and synchronized customer
experience, using all of the retailer's shopping channels. These various channels run in
collaboration and effectively ensure that the customer (and customer data) is the center of the
retail management processes.
Difficulty: 1 Easy
Bloom's: Remember
5
14) How is m-commerce different than e-commerce?
A) main retailing versus event retailing
B) a planned purchase versus an impulse purchase
C) researching products online prior to purchasing versus an impulse purchase online
D) an interchange of goods on a large scale versus on a small scale
E) accessing the Internet using a tablet or smartphone versus a computer
Answer: E
Explanation: The mobile channel (also called mobile retailing, mobile commerce, or m-
commerce) implies accessing the Internet using a tablet or smartphone.
Difficulty: 1 Easy
Bloom's: Remember
15) The highest percentage of retail sales is through what channel?

A) Internet
B) Stores
C) Catalog
D) Mobile
E) Social media
Answer: B
Explanation: The vast majority of sales are a function of in-store retailing and occur through the
store channel, but the Internet and catalog channels also account for significant sales, and the
mobile channel shows the highest growth rate.
Difficulty: 1 Easy
Bloom's: Remember
6
16) What can an online retailer site do to increase personalization?
A) Offer live chats.
B) Offer expanded merchandise assortments.
C) Offer free shipping.
D) Offer order online pick up in store.
E) Offer unlimited time on returns.
Answer: A
Explanation: Customers can click a button at any time and have an instant messaging or voice
conversation with a customer service representative. This technology also enables retailers to
send a proactive chat invitation automatically to customers on the site. The timing of these
invitations can be based on the time the visitor has spent on the site, the specific page the
customer is viewing, or a product on which the customer has clicked.
Bloom's: Apply
17) An example of s-retailing is when

A) a customer has their credit card skimmed when making an online purchase.
B) a customer posts a review of a product with 5-star satisfaction.
C) a customer shops and compares items only in store and also makes their purchase in a store.
D) a customer utilizes the self-checkout system at a store.
E) a customer clicks on an advertisement on Facebook and is connected to the advertiser's
website to make a purchase.
Answer: E
Explanation: Social retailing, also known as s-retailing, involves conducting purchase
transactions through a social media site
Bloom's: Apply
7
18) Direct selling is characterized by all of the following except that it is not
A) a highly interactive form of retailing.
B) taking place in the home.
C) mainly performed by independent agents.
D) a low-cost method of retailing.
E) used for selling personal care products.
Answer: D
Explanation: Direct selling is a retail channel in which considerable information is conveyed to
customers through face-to-face discussions and demonstrations. However, providing this high
level of personalized information, including extensive demonstrations, is costly.
Bloom's: Remember
19) Avon, a cosmetics company, primarily uses which form of retailing?

A) expanded
B) direct selling
C) omnichannel
D) automated
E) showrooming
Answer: B
Explanation: Direct selling is a retail channel in which salespeople interact with customers face-
to-face in a convenient location, either at the customer's home or at work.
Bloom's: Remember
8
20) Which of the following is not an advantage of Internet retailing over store retailing?
A) can offer a larger assortment of product offerings
B) can offer more detailed information and product reviews
C) can enter new markets more quickly and economically
D) can collect more information about the customers' buying behavior
E) can offer increased security in payment transactions
Answer: E
Explanation: Some consumers are concerned about buying products through an Internet channel.
Specifically, some believe that the security of credit card transactions is greater in stores than
online.
Bloom's: Understand
21) Automated retailing

A) is most effective in high-traffic areas.
B) is based on the idea that social relationships influence buying habits.
C) uses a master distributor as lead salesperson.
D) is a recruiting tool for multilevel networks.
E) promotes products through infomercials.
Answer: A
Explanation: Automated retailing is a retail channel in which merchandise or services are stored
in a machine and dispensed to customers when they deposit cash or use a credit card. Automated
retailing machines, also known as vending machines, are typically placed at convenient, high-
traffic locations.
Bloom's: Understand
AACSB: Analytic
9
22) Redbox, a DVD rental service, utilizes machines to dispense DVDs to customers. Which
form of retailing is Redbox using?
A) Internet retailing
B) Store Channel
C) Direct Selling
D) Automated retailing
E) Catalog retailing
Answer: D
Explanation: Redbox uses automated retailing machines, also known as vending machines, to
rent out DVDs. Automated retailing is a retail channel in which merchandise or services are
stored in a machine and dispensed to customers when they deposit cash or use a credit card.
Bloom's: Apply
AACSB: Analytic
23) A retailer that sells product online through their website but does not accept that product to
be returned to their store if the customer is not satisfied with it is not yet fulfilling a(n) ________
strategy.
A) multichannel
B) multilevel network
C) omnichannel
D) cross migration
E) single channel
Answer: C
Explanation: Retailers that can devise an effective omnichannel strategy by providing
consumers a seamless experience will cause less frustration to the customer and be most
successful.
strategy.
Bloom's: Apply
10
24) Which of the following is not a method for devising an effective omnichannel strategy?
A) Offering varying prices for each channel depending on which channel is most costly to
manage
B) Using each channel to promote the others, such as highlighting their web address on bags that
customers carry from their stores
C) Fulfilling orders placed online through the website from stores to increase shipping speed
D) Offering coupons through e-mail for customers to use in store
E) Having private events in stores for customers that RSVP through a social media invite
Answer: A
Explanation: Retailers that can devise an effective omnichannel strategy by providing
consumers a seamless experience will cause less frustration to the customer and be most
successful. Having different prices in different channels causes frustration for customers.
strategy.
Bloom's: Apply
25) Which of the following is not a method for devising an effective omnichannel strategy?
A) allowing returns of merchandise to any channel regardless of channel of purchase
B) having the same pricing strategies and promotions for all channels
C) splitting buying responsibilities up at the corporate office to specialize in either stores or e-
commerce to better understand the different customers' buying behaviors
D) having a consistent image across all channels
E) advertising in-store that additional sizes and colors are available online
Answer: C
Explanation: Retailers wanting to devise an effective omnichannel strategy have been merging
the buyer positions to oversee both store and online channels to offer more of a consistent
offering for customers shopping more than one channel. All other options are also ways retailers
are working to offer more of a seamless experience for customers.
strategy.
Bloom's: Apply
11
26) Which channel allows the customer the most ease and unbiased information about products?
A) Internet
B) Stores
C) Catalog
D) Showrooming
E) Automated retailing
Answer: B
Explanation: The availability of Internet and mobile channels enables customers to search easily
for information about products and their prices along with seeing real customer reviews about
their experience with the product (as opposed to the brand or retailer just providing a marketing
spin on the benefits of the product).
retailers.
Bloom's: Understand
27) Which of the following is not a benefit of a store channel shopping experience?
A) Browsing
B) Immediate gratification
C) Risk reduction
D) Personal service
E) Expanded assortments
Answer: E
Explanation: Shopping in a store offers benefits such as immediate gratification, personal
service, browsing, touching and feeling merchandise, risk reduction, and cash payment; however,
a store cannot physically offer as much expanded assortment as the assortment offered online.
Bloom's: Understand
AACSB: Analytic
12
28) Which of the following is a benefit of only store channel shopping?
A) Convenience
B) Extensive information
C) Personalization
D) Immediate gratification
E) Broad and deep assortments
Answer: D
Explanation: Immediate gratification is a benefit of store channel shopping; all of the other
choices are benefits of other channels. Customers can use merchandise immediately after they
buy it in stores.
Bloom's: Understand
AACSB: Analytic
29) Margaret went to the mall to meet her sister, Val. While at the mall, they witnessed a back-
to-school fashion show in a store. They took a walk and watched the children play in the center
arena. Which benefit of store shopping did Margaret and Val enjoy?
A) Immediate Gratification
B) Entertainment and social interaction
C) Convenience
D) Personal service
E) Touch and feel products
Answer: B
Explanation: In-store shopping can be a stimulating experience for some people, providing a
break in their daily routine and enabling them to interact with friends.
Difficulty: 1 Easy
Bloom's: Apply
13
30) Compared to other retail formats, the greatest benefit that store shopping offers is
A) the ability to touch and feel the products.
B) personal safety.
C) easy availability of information for product comparison.
D) broader and deeper assortments.
E) availability of detailed information for evaluating a product.
Answer: A
Explanation: Perhaps the greatest benefit offered by stores is the opportunity for customers to
use all five senses—touching, smelling, tasting, seeing, and hearing—when examining and
evaluating products. Although new technologies such as three-dimensional and 360-degree
projections can enhance representations of products on a computer or mobile phone screen, these
visual improvements do not provide the same level of information customers get when they
actually try on a swimsuit or smell the fragrance of a candle.
Bloom's: Understand
31) Which retail channel has the least perceived risk when purchasing products?
A) Internet
B) Stores
C) Catalog
D) Showrooming
E) Mobile retailing
Answer: B
Explanation: The physical presence of the store reduces perceived risk and increases customers'
confidence that any problems with a purchase will be corrected. Customers can easily access
people in the store to resolve issues concerning defective or unsuitable merchandise or get
additional information on how to use a product.
Bloom's: Understand
14
32) Brett has a headache and needs a pain reliever. He goes to the nearby drugstore, buys some
Tylenol, and uses it. Which of the following benefits offered by stores can be seen in the given
example?
A) Risk reduction
C) Personal service
D) Entertainment and Social experience
E) Browsing
Answer: B
Explanation: Customers can use merchandise immediately after they buy it in stores, unlike
ordering something online and waiting for the shipment to arrive.
Bloom's: Apply
AACSB: Analytic
33) Which of the following benefits is offered by the Internet channel?

A) Deeper assortments
C) Social interaction
D) Personal service
E) Less perceived risk
Answer: A
Explanation: Individual retailers' websites typically offer deeper assortments of merchandise
(more colors, brands, and sizes) than are available in stores or catalogs. This expanded offering
enables them to satisfy consumer demand for less popular styles, colors, or sizes. Many retailers
also offer a broader assortment (more categories) on their websites.
Bloom's: Understand
AACSB: Analytic
15
34) Which of the following statements about Internet retailing is true?
A) Internet retailing gives customers an opportunity to use all five senses.
B) Customers can have more personalized information on products.
C) Customers do not receive sufficient information to evaluate products.
D) The electronic channel offers a less satisfying shopping experience than catalogs.
E) Online stores offer limited assortments compared to store channels.
Answer: B
Explanation: The addition of the Internet channels has the potential to offer a greater selection of
products. They allow retailers to provide more information. They enable retailers to provide
customers with more personalized information about products and services.
Bloom's: Understand
35) Which retail channel has the ability to economically provide the most product information
for the consumer purchasing products?
A) Internet
B) Stores
C) Direct Selling
D) Automated
E) All of these
Answer: A
Explanation: Retail channels differ in terms of how much information customers can access.
The amount of information available through the store channel is limited by the number and
training of sales associates and the space allocated to informative signage. Similarly, the
information available through a catalog channel is limited by the number of pages in the catalog.
In contrast, the information provided through the Internet channels is unlimited.
Bloom's: Understand
16
36) Which of the following is true of the benefits offered by Internet shopping?
A) The Internet offers a limited assortment of products.
B) Customers can get information that is useful across channels.
C) The perceived risk is lower when compared to store channels.
D) The Internet is not economically viable for retailers looking to expand their markets.
E) It has limited effectiveness in making personalized recommendations.
Answer: B
Explanation: Internet channels enable retailers to provide customers with more personalized
information about products and services. They offer sellers the unique opportunity to collect
information about consumer shopping. Internet channels provide an opportunity for retailers to
enter new markets economically. They provide information that retailers can use to improve the
shopping experience across all channels.
Bloom's: Understand
37) By obtaining information about customer preferences and past purchase behavior, retailers
operating an electronic channel are able to:
A) design more secure sites for credit card users.
B) develop faster download times.
C) promote showrooming.
D) respond immediately to consumer inquiries.
E) tailor merchandise and recommendations.
Answer: E
Explanation: The interactive nature of the Internet provides an opportunity for retailers to
personalize their offerings for each of their customers. For example, Amazon.com serves
customers a personalized landing page with information about books and other products of
interest based on the customer's past purchases and search behavior on the website.
Bloom's: Understand
17
38) Internet retailers offer ________, where customers can click a button at any time and have an
instant messaging e-mail or voice conversation with a customer service representative.
A) live chats
B) cookies
C) showrooming
D) contact scraping
E) intranet portals
Answer: A
Explanation: The retailer can play a more proactive role in personalizing merchandise and
information through the Internet channels. For example, many retailers offer live chats:
Customers can click a button at any time and have an instant messaging e-mail or voice
conversation with a customer service representative. This technology also enables retailers to
send a proactive chat invitation automatically to customers on the site.
Bloom's: Remember
AACSB: Technology
39) Retailers can use multiple channels synergistically by

A) using one channel to promote the others.
B) providing similar assortments across channels.
C) providing a limited amount of information to customers.
D) concentrating only on catalogs for product promotions.
E) reducing prices for products in all channels.
Answer: A
Explanation: Retailers also benefit by using multiple channels synergistically. Multichannel and
omnichannel retailers can use one channel to promote the services offered by other channels. For
example, the URL of a store's website can be advertised on in-store signs, shopping bags, credit
card billing statements, point-of-sale (POS) receipts, and the print or broadcast advertising used
to promote the store.
strategy.
Bloom's: Understand
18
40) Which of the following strategies can a retailer utilize to attract shoppers to its website?
A) Persuade investors with positive sales forecasts.
B) Encourage vendors to deliver the assortments.
C) Focus on bankruptcy proceedings to create a trustworthy image.
D) Print the website address on signage, bags, and in advertising.
E) Prime its sales associates to use its website.
Answer: D
Explanation: Retailers benefit by using multiple channels synergistically. Multichannel and
omnichannel retailers can use one channel to promote the services offered by other channels. For
example, the URL of a store's website can be advertised on in-store signs, shopping bags, credit
card billing statements, point-of-sale (POS) receipts, and the print or broadcast advertising used
to promote the store. The physical stores and catalogs are also advertisements for a retailer's
other channels.
strategy.
Bloom's: Apply
41) Multichannel and omnichannel retailers struggle to provide an integrated shopping

experience, because
A) various channels demand various skills and unique resources.
B) they do not have intermediaries for supplying products.
C) they generally offer limited assortments in their channels.
D) multichannel retailing often results in a pyramid scheme.
E) merchandise is offered at the same price across channels.
Answer: A
Explanation: Multichannel and omnichannel retailers still struggle to provide an integrated
shopping experience, because the various channels demand various skills as well as unique
resources. Handling individual items, rather than cartons, and shipping them to individual
consumers, instead of retailers, requires unique packaging, a different type of storage and order
picking system, different transportation systems, and intermediaries.
retailers.
Bloom's: Understand
19
42) ________ involves selling the same products at the same prices through the same distribution
system for all channels.
A) Channel migration
B) Showrooming
C) Automated retailing
D) Integration
E) Personalization
Answer: D
Explanation: Many store-based retailers have a separate organization to manage their Internet
and catalog operations. But as the multichannel and omnichannel operation matures and becomes
more omnichannel, retailers tend to integrate all operations under one organization.
Difficulty: 3 Hard
retailers.
Bloom's: Understand
AACSB: Analytic
43) Which of the following statements is true of the operations of multichannel retailers?
A) Integrating various channel operations does not pose a major problem.
B) They need to maintain a consistent image across channels.
C) Most retailers have a common organization to manage all channels.
D) Competition does not have a significant impact on pricing.
E) Similar assortments are often suitable for various channels.
Answer: B
Explanation: Retailers need to provide a consistent brand image of themselves and their
merchandise across all channels. For example, Patagonia reinforces its image of selling high-
quality, environmentally friendly sports equipment in its stores, its catalogs, and on its website.
Each of these channels emphasizes function, not fashion, in the descriptions of Patagonia's
products.
Bloom's: Understand
20
44) ________ occurs when a consumer goes into a store to learn about different brands and
A) Returning
B) Direct selling
C) Automated retailing
D) Showrooming
E) Sweethearting
Answer: D
products and then searches the Internet for the same product sold at a lower price. Three
approaches that multichannel and omnichannel retailers can use to reduce showrooming are (1)
providing better customer service, (2) offering uniquely relevant information based on
proprietary data the retailer has collected about the customers, and (3) promoting private-label
merchandise that can be purchased only from the retailer.
Difficulty: 1 Easy
retailers.
Bloom's: Remember
AACSB: Analytic
45) ________ occurs when customers gather information from a retailer's channel and buy
products from a competitor's channel.
A) Channel expansion
B) Channel integration
C) Channel migration
D) Omniretailing
Answer: C
Explanation: As long as the store and the Internet channel represent the same retailer, the firm is
happy. But if customers gather information from one of its channels, then buy from a channel
hosted by a competitor, the retailer suffers from the frustrating problem of channel migration
retailers.
Bloom's: Remember
AACSB: Analytic
21
46) Matt often goes to a retail store to look at electronic goods. He learns about the brands and
products and searches the Internet for lower prices. This act by Matt is an example of
A) sweethearting.
B) automated retailing.
C) omniretailing.
D) showrooming.
E) channel integration.
Answer: D
Explanation: Showrooming occurs when a consumer goes into a store to learn about different
brands and products and then searches the Internet for the same product sold at a lower price.
Three approaches that multichannel and omnichannel retailers can use to reduce showrooming
are (1) providing better customer service, (2) offering uniquely relevant information based on
retailers.
Bloom's: Apply
AACSB: Analytic
47) Retailers can reduce showrooming by

A) designing programs to sell merchandise to other distributors rather than end-users.
B) using a single channel to promote products.
C) offering limited assortments on their websites.
D) promoting private-label merchandise that can be purchased only from the retailer.
E) recruiting people to become distributors in their network.
Answer: D
Explanation: Showrooming occurs when a consumer goes into a store to learn about different
brands and products and then searches the Internet for the same product sold at a lower price.
Three approaches that multichannel and omnichannel retailers can use to reduce showrooming
are (1) providing better customer service, (2) offering uniquely relevant information based on
retailers.
Bloom's: Understand
22
48) Which of the following terms represents a form of channel migration?
A) Showrooming
B) Phishing
C) Multilevel system
D) Omniretailing
E) Pyramid scheme
Answer: A
retailers.
Bloom's: Understand
AACSB: Analytic
49) Which of the following strategies aids in reducing channel migration?

A) Offer uniquely relevant information to customers.
B) Persuade suppliers to increase their sales forecasts.
C) Encourage vendors to deliver complete assortments.
D) Increase efficiencies of supply chain management.
E) None of these
Answer: A
Explanation: Three approaches that multichannel and omnichannel retailers can use to reduce
channel migration are (1) providing better customer service, (2) offering uniquely relevant
information based on proprietary data the retailer has collected about the customers, and (3)
promoting private-label merchandise that can be purchased only from the retailer.
retailers.
Bloom's: Understand
23
50) Catherine wanted to purchase a digital camera. Hence, she visited an online retailer's website
to learn more about the different features and capabilities of the device. Catherine went to a big-
box store to make other purchases. She sees the camera there and purchases it. Which of the
following terms describes Catherine's actions?
A) Channel migration
B) Channel expansion
C) E-tailing
D) Phishing
Answer: A
Explanation: As long as the store and the Internet channel represent the same retailer, the firm is
hosted by a competitor, the retailer suffers from the frustrating problem of channel migration.
retailers.
Bloom's: Apply
AACSB: Analytic
51) What is m-commerce, and how is it different from e-commerce?
Answer: The mobile channel (also called mobile retailing, mobile commerce, or m-commerce),
involves accessing the Internet using a smartphone, and Internet retailing involves retailers
interacting with consumers via the Internet, whether they use a traditional computer or a laptop, a
variety of sizes of tablets, or a smartphone. The channel that involves accessing the Internet
through a traditional computer is the electronic channel (also called e-commerce).
Difficulty: 1 Easy
Bloom's: Understand
24
52) Describe the direct selling channel along with pros and cons of the direct selling model.
Answer: Direct selling is a retail channel in which salespeople interact with customers face-to-
face in a convenient location, either at the customer's home or at work. Direct salespeople
demonstrate merchandise benefits and/or explain a service, take an order, and deliver the
merchandise. Direct selling is a highly interactive retail channel in which considerable
information is conveyed to customers through face-to-face discussions and demonstrations.
Direct selling is highly personal; however, it is also an expensive type of retailing.
Bloom's: Understand
53) How have traditional store-based retailers benefitted by adding Internet channels to their
operations?
Answer: The addition of Internet channels to traditional store-based retailers and catalogers has
improved their ability to serve their customers and build a competitive advantage in several
ways:
1. The addition of the Internet channels has the potential to offer a greater selection of products.
2. They allow retailers to provide more information.
3. They enable retailers to provide customers with more personalized information about products
and services.
4. They offer sellers the unique opportunity to collect information about consumer shopping.
5. Internet channels provide an opportunity for retailers to enter new markets economically.
6. They provide information that they can use to improve the shopping experience across all
channels.
Bloom's: Understand
25
54) How does the Internet help customers evaluate merchandise when making buying decisions?
Answer: An important service offered by retailers is providing information that helps consumers
make better buying decisions. Retail channels differ in terms of how much information
customers can access. The amount of information available through the store channel is limited
by the number and training of sales associates and the space allocated to informative signage.
Similarly, the information available through a catalog channel is limited by the number of pages
in the catalog. In contrast, the information provided through the Internet channels is unlimited.
The vast amount of information available through these channels enables customers using this
channel to solve problems, rather than just get information about specific products.
Bloom's: Understand
55) Explain the perceived risks involved in Internet shopping.
Answer: Some consumers are concerned about buying products through an Internet channel.
Specifically, some believe that the security of credit card transactions is greater in stores than
online, and they also worry about the potential for privacy violations. Although many consumers
remain concerned about credit card security, extensive security problems have been rare. Almost
all retailers use sophisticated technologies to encrypt communications. Also, all major credit card
companies provide some consumer protection for retail transactions. Consumers also are
concerned about the ability of retailers to collect information about their purchase history,
personal information, and search behavior on the Internet without their knowledge. They are
worried about how this information will be used in the future.
Bloom's: Understand
26
56) How can multichannel and omnichannel retailers reduce showrooming?
Answer: Three approaches that multichannel and omnichannel retailers can use to reduce
showrooming are (1) providing better customer service, (2) offering uniquely relevant
information based on proprietary data the retailer has collected about the customers, and (3)
promoting private-label merchandise that can be purchased only from the retailer.
Difficulty: 1 Easy
retailers.
Bloom's: Understand
57) Explain how channel migration poses a challenge to multichannel and omnichannel retailers.
Answer: As long as the store and the Internet channel represent the same retailer, the firm is
hosted by a competitor, the retailer suffers from the frustrating problem of channel migration.
Modern technologies, including those that allow customers to gather information and buy online
or through their mobile devices, also make channel migration very easy. Thus, retaining
customers remains a constant challenge for multichannel and omnichannel retailers.
retailers.
Bloom's: Understand
27
Chapter 4 Customer Buying Behavior
1) When consumers go shopping for pleasure, they are seeking to satisfy their hedonic needs.
Answer: TRUE
Explanation: From the consumer's perspective, utilitarian needs are associated with work,
whereas hedonic needs are associated with pleasure.
Topic: Consumer Attitudes, Shopping Behavior and the Buying Process
Learning Objective: 04-01 Describe the process that consumers go through when making retail
patronage and buying decisions.
Bloom's: Remember
AACSB: Analytic
2) Retailers need to provide adequate information and an effortless shopping experience for
hedonic shoppers.
Answer: FALSE
Explanation: Retailers need to provide adequate information and an effortless shopping
experience for utilitarian shoppers. On the other hand, shoppers with hedonic needs desire
excitement, stimulation, status and power, recreation, and adventure.
Bloom's: Remember
AACSB: Analytic
3) The pattern of buying both premium and low-priced merchandise or patronizing both status-
oriented retailers and price-oriented retailers is referred to as multichannel retailing.
Answer: FALSE
Explanation: The pattern of buying both premium and low-priced merchandise or patronizing
both expensive, status-oriented retailers and price-oriented retailers is called cross-shopping.
Bloom's: Remember
AACSB: Analytic
1
4) Customers have two sources of information: internal and external.
Answer: TRUE
Explanation: Internal sources are information in a customer's memory. External sources consist
of information provided by a host of sources.
Difficulty: 1 Easy
Topic: Consumer Decision Process
Bloom's: Remember
5) Customers engage in extended problem solving when they have a large amount of information
on the product they plan to buy.
Answer: FALSE
Explanation: Consumers engage in extended problem solving when they are making a buying
decision to satisfy an important need or when they have little knowledge about the product or
service.
Learning Objective: 04-02 Identify the different types of buying processes.
Bloom's: Understand
6) Making an unplanned purchase is an example of limited problem solving.
Answer: TRUE
Explanation: One common type of limited problem solving is impulse buying, or unplanned
purchasing, which is a buying decision made by customers on the spot after seeing the
merchandise.
Bloom's: Remember
2
7) Many purchase decisions involve products that the entire family will consume or use.
Answer: TRUE
Explanation: When families make purchase decisions, they often consider the needs of all
family members.
Difficulty: 1 Easy
Learning Objective: 04-03 Summarize how the economy and social factors affect customer
purchase decisions.
Bloom's: Remember
AACSB: Analytic
8) A reference group includes one or more people whom a person uses as a basis of comparison
for beliefs, feelings, and behaviors.
Answer: TRUE
Explanation: A reference group includes one or more people whom a person uses as a basis of
comparison for beliefs, feelings, and behaviors.
purchase decisions.
Bloom's: Remember
AACSB: Analytic
9) A retail market segment is a group of customers who are attracted to the same retail mix
because they have similar needs.
Answer: TRUE
Explanation: A retail market segment is a group of customers who are attracted to the same
retail mix because they have similar needs.
Difficulty: 1 Easy
Topic: Selecting Market Segments
Learning Objective: 04-04 Determine why and how retailers group customers into market
segments.
Bloom's: Remember
AACSB: Analytic
3
10) Of the various methods of segmenting, lifestyle is the one that delves the most into how
consumers describe themselves.
Answer: TRUE
Explanation: Lifestyle refers to how people live, how they spend their time and money, what
activities they pursue.
segments.
Bloom's: Remember
AACSB: Analytic
11) Which of the following is not a stage in the buying process?

A) Evaluation
B) Making a selection
C) Need recognition
D) Searching for information
E) Segmentation
Answer: E
Explanation: The buying process starts with need recognition, followed by information search,
evaluation of alternatives, purchasing, and postpurchase.
Difficulty: 1 Easy
Bloom's: Understand
AACSB: Analytic
4
12) After using her same car for 17 years, Tracey's mechanic told her that it would cost more to
fix the transmission than what the car was worth. She decided it was time for a new car. In which
stage of the buying process is Tracey involved?
A) Product selection
B) Need recognition
C) Information search
D) Product examination
E) Product purchase
Answer: B
Explanation: The buying process is triggered when consumers recognize they have an
unsatisfied need.
Difficulty: 1 Easy
Bloom's: Apply
13) Retailers use stimulation to

A) satisfy customers' utilitarian needs.
B) enable extended problem solving.
C) promote cross-shopping.
D) segment the market based on lifestyles.
E) satisfy customers' hedonic needs.
Answer: E
Explanation: Retailers and mall managers use background music, visual displays, scents, and
demonstrations in stores and malls to create a carnival-like, stimulating experience for their
customers.
Bloom's: Understand
5
14) When customers go shopping to accomplish a specific task, they are seeking to satisfy
A) emotional needs.
B) hedonic needs.
C) utilitarian needs.
D) cultural requirements.
E) impulse buying desires.
Answer: C
Explanation: When customers go shopping to accomplish a specific task, they are seeking to
satisfy utilitarian needs.
Bloom's: Remember
AACSB: Analytic
15) When consumers go shopping for pleasure, they are seeking to satisfy their
A) emotional needs.
B) hedonic needs.
C) utilitarian needs.
D) cultural requirements.
E) impulse buying desires.
Answer: B
Explanation: When consumers go shopping for pleasure, they are seeking to satisfy their
hedonic needs—their needs for entertaining, emotional, and recreational experiences.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
6
16) Parents shopping for their children's school uniforms and stationery are motivated by
________, which involve accomplishing a specific task.
A) emotional needs
B) hedonic needs
C) utilitarian needs
D) cultural requirements
E) impulse buying desires
Answer: C
Explanation: From the consumer's perspective, utilitarian needs are associated with work,
whereas hedonic needs are associated with pleasure.
Difficulty: 1 Easy
Bloom's: Understand
17) A retailer that sells designer clothes and accessories has a pop-up ad on Facebook that
features their new collection. Which method for satisfying customers' hedonic needs has been
used?
A) Adventure
B) Stimulation
C) Status and power
D) Conversion rate
E) Consideration set
Answer: B
Explanation: Retailers attempt to stimulate customers with exciting graphics and photography in
their catalogs and on their websites.
Difficulty: 1 Easy
Bloom's: Apply
7
18) Catherine enjoys relaxing while getting a manicure and pedicure at the Mystique Resort and
Spa. She enjoys the attention and respect given to her by the staff. Hence, Catherine's hedonic
needs are satisfied by a sense of ________ at the spa.
A) adventure
B) motivation
C) status and power
D) deliberation
E) stimulation
Answer: C
Explanation: A store or a service facility can provide customers with attention and respect,
which satisfies the customer's hedonic needs.
Bloom's: Apply
19) After many years of doing his laundry at a public laundromat, Brett was glad to move into an
apartment with washer and dryer hookups. He planned to buy a washer and dryer to save time
and money. Which of the following needs would the purchase satisfy?
A) Utilitarian needs
B) Motivational needs
C) Physiological needs
D) Psychological needs
E) Social needs
Answer: A
Explanation: When consumers go shopping to accomplish a specific task, they are seeking to
satisfy utilitarian needs.
Bloom's: Apply
8
20) Which of the following types of needs is satisfied by shopping for designer label
merchandise?
A) Physiological needs
B) Hedonic needs
C) Functional needs
D) Utilitarian needs
E) Cultural needs
Answer: B
Explanation: Shoppers with hedonic needs desire excitement, stimulation, status and power,
recreation, and adventure.
Difficulty: 1 Easy
Bloom's: Understand
AACSB: Analytic
21) While eating may satisfy a functional need, Lucia's Italian Restaurant features gurgling
fountains, live music, Baroque paintings, and lush gardens to stroll while you wait. Which of the
following needs is also satisfied while eating at Lucia's?
A) Physiological needs
B) Rational needs
C) Hedonic needs
D) Social needs
E) Motivational needs
Answer: C
Explanation: This describes how retailers create a stimulating experience to encourage
consumers to take a break and enjoy their experience at the place of business which supports the
hedonic need.
Bloom's: Apply
9
22) Amanda considers shopping to be like a game. She goes shopping because she enjoys finding
bargains and discounts. Amanda is always on the lookout for special offers and discounts.
Hence, Amanda's hedonic needs are satisfied by a sense of
A) adventure.
B) stimulation.
C) status and power.
D) deliberation.
E) functionality.
Answer: A
Explanation: Often, consumers go shopping because they enjoy finding bargains, looking for
sales, and finding discounts or low prices. They treat shopping as a game to be "won."
Difficulty: 1 Easy
Bloom's: Apply
23) Which of the following statements does not hold true for cross-shopping?
A) Consumers show cross-shopping patterns because one store cannot satisfy their often
conflicting, multiple needs.
B) People buy both premium and low-priced merchandise.
C) Customers patronize both expensive, status-oriented retailers and price-oriented retailers.
D) Buying patterns of cross-shoppers provide great opportunities only for specialty retailers.
Answer: D
Explanation: Because customers have multiple yet conflicting needs, needs cannot be satisfied
by one store or one type of store.
Bloom's: Understand
10
24) The pattern of buying both premium and low-priced merchandise or patronizing both status-
oriented retailers and price-oriented retailers is called
A) cocooning.
B) comparison shopping.
C) cross-retailing.
D) retailer loyalty.
E) cross-shopping.
Answer: E
Explanation: This is the definition of cross-shopping, which is also a conflicting need.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
25) Calvin enjoys dining at Dawson's, a fast food restaurant. He feels that they make the best
French fries for a low price. However, when it comes to dessert, he feels he's a cake connoisseur.
He prefers to have cake only at Marina's Patisserie, even though a piece of cake costs $7.00.
Calvin's patronizing of Dawson's and Marina's demonstrates a behavior called
A) cross-shopping.
B) comparison shopping.
C) composite segmentation.
D) cross-docking.
E) postpurchase satisfaction.
Answer: A
Explanation: Having conflicting needs and purchasing both premium and budget products or
services describes cross-shopping.
Bloom's: Apply
11
26) The imminent approach of Halloween pushes millions of homeowners to go out and
purchase candy corn. Halloween stimulates a(n) ________, which forms a part of the buying
process.
A) choice of alternatives
B) need recognition
C) information search
D) postpurchase satisfaction
E) evaluation of consideration sets
Answer: B
Explanation: Customers must first recognize unsatisfied needs before they are motivated to visit
a store or go online to buy merchandise. Sometimes these needs are stimulated by an event in a
person's life.
Bloom's: Understand
27) Which of the following steps follows the recognition of a need?

A) Evaluation of alternatives
B) Information search
C) Composite segmentation
D) Postpurchase evaluation
E) Evaluation of consideration sets
Answer: B
Explanation: Once customers identify a need, they typically seek information about retailers,
channels, or products to help them satisfy that need.
Bloom's: Remember
AACSB: Analytic
12
28) Which of the following is not true of the amount of information searched by customers?
A) The amount of information searched depends on the value customers feel they can get from
searching versus the cost of searching.
B) Consumers will spend more time searching for information when they have prior experience
with the merchandise category.
C) The value of the search stems from how it improves the customer's purchase decision.
D) The costs of search include both the customer's time and money.
Answer: B
Explanation: Customers who have prior experience purchasing and using the product or service
tend to search less.
Bloom's: Understand
29) Which of the following is an internal source of product information for a customer?
A) Past shopping experiences
B) Product demonstrations
C) Blogs
D) Search engines
E) Websites
Answer: A
Explanation: Internal sources are information in a customer's memory, such as names, images,
and past experiences with different stores.
Difficulty: 1 Easy
Bloom's: Remember
13
30) Which of the following statements is true of the information search carried out by
customers?
A) Customers with prior experience often search extensively.
B) The amount of information searched depends on the individual.
C) Shoppers seeking hedonic benefits generally search less information.
D) Time pressure does not influence the amount of information searched.
E) Greater market competition reduces the information search.
Answer: B
Explanation: The amount of information search is affected by (1) characteristics of the
individual customer and (2) aspects of the market and buying situation in which the purchase is
made. Some people search more than others. Shoppers seeking hedonic benefits typically spend
more time collecting information and shopping because they enjoy the process. Customers who
have prior experience purchasing and using the product or service tend to search less.
Bloom's: Understand
31) Consumer Reports, a nonprofit organization that evaluates products, would serve as a source
of ________ as it provides Lewis with useful knowledge about available features, convenience
of use, and machine quality of various table saws.
A) rational information
B) primary data
C) selective data
D) motivational data
E) external information
Answer: E
Explanation: External sources consist of information provided by a host of sources. People
search for products and information using search engines such as Google, visit the websites
maintained by manufacturers and retailers, acquire information from traditional media (e.g.,
advertising), read blogs, watch product demonstrations on YouTube, and ask friends, in person
and through social media.
Bloom's: Apply
14
32) Gabriella needs copper wire to make hanging candle lanterns out of antique glass canisters.
Based on her previous craft projects, she feels she would find this particular type of wire at
Michael's, a large arts and crafts store. Gabriella is relying on a(n) ________ source for her
buying situation.
A) rational information
B) internal information
C) primary data
D) motivational data
E) selective data
Answer: B
Explanation: Internal sources are information in a customer's memory, such as names, images,
and past experiences with different stores. The major source of internal information here is the
customer's past shopping experience.
Difficulty: 1 Easy
Bloom's: Apply
33) Conversion rate can be described as

A) the percentage of customers buying only premium products.
B) the percentage of customers buying both premium and budget products.
C) the time pressure under which the purchase must be made.
D) the percentage of customers who enter a store and buy products from that same store.
E) the retailer's score when evaluated on the basis of attributes.
Answer: D
Explanation: Conversion rate is the percentage of customers who enter a store or access a
website and then buy a product from that same store or website.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
15
34) A retailer that uses an everyday low pricing (EDLP) strategy
A) relies on discount coupons to persuade customers to return to their stores.
B) creates low prices through the use of sales promotions.
C) focuses more on economy rather than assortments.
D) is attempting to limit the customer information search to the retailer's offering.
E) uses the multiattribute attitude model for fixing product prices.
Answer: D
Explanation: Everyday low pricing policies tend to limit the customer information search to the
retailer's offering. The Everyday Low Price strategy reduces information search, because it helps
assure customers that they won't find a lower price for these products any other time at this
retailer. This pricing policy tends to limit the customer information search to the retailer's
offering.
Difficulty: 1 Easy
Bloom's: Understand
35) The multiattribute attitude model is designed to

A) predict how a customer will evaluate a store based on its attributes and how important these
attributes are to the customer.
B) forecast inventory needs based on a multiple regression model.
C) stratify the target market by examining customers' attributes and determine the store's or
product's position in the market.
D) modify preexisting attitudes by providing customers with a list of benefits (attributes) for
shopping at a particular store or buying a particular product.
E) shorten the buying process by highlighting the attributes that will most likely affect the
buying behavior of the targeted market.
Answer: A
Explanation: The multiattribute model is based on the notion that customers see a retailer, a
product, or a channel as a collection of attributes or characteristics. The model is designed to
predict a customer's evaluation of a product, retailer, or channel on the basis of (1) its
performance on relevant attributes and (2) the importance of those attributes to the customer.
Bloom's: Understand
16
36) In order to develop a multiattribute attitude model of its customers, a retailer should gather
information about all of the following except
A) the alternative retailers that customers consider.
B) the benefits that customers consider when making their retailer choices.
C) the importance weights that customers attach to the features they consider when choosing a
retailer.
D) customers' belief ratings of each retailer's performance on the characteristics when selecting a
store.
E) the customer's age, education, and income levels.
Answer: E
Explanation: All of these are collected by market research when developing a multiattribute
attitude model except the information of age, income, and education. The model focuses on
attitudes, not demographic information.
Bloom's: Understand
37) In order to get into a customer's consideration set, a retailer should

A) develop programs to ensure that customers remember them.
B) limit the options for return and money-back guarantees.
C) encourage cross-shopping.
D) limit the information provided to customers on its website.
E) target its offerings toward satisfying hedonic needs.
Answer: A
Explanation: To be included in the consideration set, retailers develop programs to increase the
likelihood that customers will remember them when they're about to go shopping. Retailers can
increase customer awareness through communication and location decisions.
Bloom's: Understand
17
38) Which of the following is used by a customer when making a choice of a retailer to
patronize?
A) Conversion rate
B) Consideration set
C) Multiattribute attitude model
D) Habitual decision making
E) Lifestyle segmentation
Answer: B
Explanation: The consideration set is the set of alternatives the customer evaluates when making
a choice of a retailer to patronize.
Bloom's: Remember
AACSB: Analytic
39) Before purchasing his son's shoes, Lamar evaluated the following stores: Boot World,
Terence's Shoe Palace, Imperial Collection, Royal Shoe Store, and Leather World. Which is the
term used to describe these stores that are being evaluated by Lamar?
A) Target market
B) Retail market segment
C) Consideration set
D) Attributes
E) Reference group
Answer: C
Explanation: Retailers need to be included in the customer's consideration set, or the set of
alternatives the customer evaluates when making a choice of a retailer to patronize.
Bloom's: Apply
18
40) If you were to ask Roland to recommend a restaurant in Charleston, South Carolina, he
would tell you to go to Brendon's, The Paradise Hotel, or Linda's Dinner Bar. There are
obviously many restaurants in Charleston, but these form a part of Roland's
A) attributes.
B) retail market segment.
C) targeted market.
D) consideration set.
E) reference group.
Answer: D
Explanation: Retailers need to be included in the customer's consideration set, or the set of
alternatives the customer evaluates when making a choice of a retailer to patronize.
Bloom's: Apply
41) Which of the following is not true of changing performance beliefs after a retailer gets into
the customers' consideration set?
A) A retailer should focus on improving its performance on all benefits.
B) A change in a performance belief about an important benefit should result in a large change in
customers' overall evaluations.
C) It can get costly for a retailer to improve its performance on all benefits.
D) Retailers must focus on improving their performance on those benefits that are important to
customers in their target markets.
Answer: A
Explanation: Because it can get costly for a retailer to improve its performance on all benefits,
retailers must focus on improving their performance on those benefits that are important to
customers in their target market.
Bloom's: Understand
19
42) Changing importance weights is difficult because
A) it involves the addition of a new benefit.
B) importance weights reflect customers' personal values.
C) many customers make purchases based on a single attribute.
D) the retailer needs to improve performance on all benefits.
E) the retailer has to include a wide range of fair trade merchandise.
Answer: B
Explanation: Typically, changing importance weights is harder than changing performance
beliefs because importance weights reflect customers' personal values.
Bloom's: Understand
43) Tires Plus is a store that specializes in auto maintenance and tires. After making sure that it is
in the consumers' consideration set, Tires Plus, can ________ to increase the chances that the
consumer will select its store for a visit.
A) offer free fluid checks with each oil change as a new benefit
B) focus its resources by limiting itself to one advertising medium
C) use a vertical marketing system
D) implement a price skimming strategy
E) focus only on the customers' utilitarian needs
Answer: A
Explanation: Retailers might try to add a new benefit to the set of benefits customers consider
when selecting a retailer.
Bloom's: Apply
20
44) The Brainchild is a store that specializes in educational toys for children. In order to increase
the probability of customers visiting the store, it has now introduced offers such as discounts, gift
wrapping, and free shipping. The Brainchild is looking to increase the chances of customer
purchases by
A) decreasing an importance weight.
B) increasing a performance belief.
C) decreasing the performance belief for a competitive retailer.
D) adding new benefits.
E) focusing on all benefits.
Answer: D
Explanation: Retailers might try to add a new benefit to the set of benefits customers consider
when selecting a retailer.
Bloom's: Apply
45) Offering a range of fair trade merchandise supports the idea of ________, which is used to
increase the chances of customers visiting the retailer after inclusion in the consideration set.
A) adding benefits
B) increasing beliefs about the store's performance
C) increasing customers' importance weights
D) market segmentation
E) composite segmentation
Answer: A
Explanation: Offering fair trade merchandise is a benefit that is important to consumers who are
concerned about the welfare of people in less developed countries.
Bloom's: Understand
21
46) Eve's is a retail store selling skincare products. It recently introduced fair trade products such
as handmade soaps, herbal skin creams, and shampoos made by rural workers. Eve's also
claimed that a part of the sales proceeds of these products would be utilized for the workers'
welfare. The store aims to attract customers who are interested in social causes. Therefore,
including fair trade merchandise involves
A) decreasing an importance weight.
B) increasing a performance belief.
C) decreasing the performance belief for competitive retailer.
D) adding a new benefit.
E) focusing on a single attribute.
Answer: D
Explanation: Offering fair trade merchandise is a benefit that is important to consumers who are
concerned about the welfare of people in less developed countries.
Bloom's: Apply
47) Which of the following is a measure of retailers' success at converting positive evaluations
into purchases?
A) The number of customers at the retailers' stores
B) The number of visits to the store's website
C) The number of catalogs on the website
D) The time spent at the retailers' stores
E) The number of virtual abandoned carts on the store's website
Answer: E
Explanation: One measure of retailers' success at converting positive evaluations to purchases is
being able to minimize the number of real or virtual abandoned carts in the retailer's store or
website.
Bloom's: Understand
22
48) ________ is a postconsumption evaluation of how well a store or product meets or exceeds
customer expectations.
A) Attribution
B) Contemplation
C) Analysis
D) Satisfaction
Answer: D
Explanation: After making a purchase, the customer uses the product and then evaluates the
experience to determine whether it was satisfactory or unsatisfactory. Satisfaction is a
postconsumption evaluation of how well a store or product meets or exceeds customer
expectations.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
49) A purchase decision process in which customers devote considerable time and effort for
analyzing alternatives is called
A) attribution.
B) consumerism.
C) extended problem solving.
D) habitual decision making.
E) limited problem solving.
Answer: C
Explanation: Extended problem solving is a purchase decision process in which customers
devote considerable time and effort to analyze their alternatives. Customers typically engage in
extended problem solving when the purchase decision involves a lot of risk and uncertainty.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
23
50) Bella is about to be married in two months. When she shopped for the bridesmaids' gowns,
her gown, and flowers for the ceremony, she spent a lot of time in deciding what to buy. She was
not sure whether her parents, in-laws, and fiancé would like her selections. Which form of
purchase decision process is Bella engaged in?
A) Composite segmentation
B) Extended problem solving
D) Habitual decision making
E) Limited problem solving
Answer: B
Explanation: Customers typically engage in extended problem solving when the purchase
decision involves a lot of risk and uncertainty.
Bloom's: Apply
51) People engage in extended problem solving

A) to avoid too much time and effort in making the decision.
B) because they have little knowledge about the product.
C) to make an impulse purchase.
D) because retailers influence them by providing so much information.
E) because it is easier than making an inappropriate purchase.
Answer: B
Explanation: Customers engage in extended problem solving when they are making a buying
decision to satisfy an important need or when they have little product knowledge about the
product or service.
Difficulty: 1 Easy
Bloom's: Understand
24
52) Even though Miller loves bacon, he is worried about his cholesterol. He is concerned that
eating bacon may impact his cholesterol levels. Before deciding to buy the low-fat Oscar-Meyer
Bacon, he read the label information on all the various brands of bacon in the meat counter.
Therefore, Miller is engaged in ________, a purchase decision process.
A) complex decision making
B) extended problem solving
C) habitual decision making
D) limited problem solving
E) composite segmentation
Answer: B
Explanation: Customers typically engage in extended problem solving when the purchase
decision involves a lot of risk and uncertainty.
Bloom's: Apply
53) ________ is a purchase decision process involving a moderate amount of effort and time.
A) Extended problem solving
B) Habitual decision making
C) Utilitarian shopping
D) Limited problem solving
E) Psychological problem solving
Answer: D
Explanation: This is the definition of limited problem solving, when consumers will rely more
on their own personal knowledge than on external information.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
25
54) When customers have some prior experience with the product and their risk is moderate, like
the purchase of a new frying pan, they engage in
A) extended problem solving.
B) cross-shopping.
C) contemplation.
E) limited problem solving.
Answer: E
Explanation: Limited problem solving is a purchase decision process involving a moderate
amount of effort and time. Customers engage in this type of buying process when they have had
some prior experience with the product or service and their risk is moderate.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
55) Retailers stimulate sales from customers engaged in extended problem solving by
A) offering deep coupon discounts.
B) using prominent point-of-purchase displays to attract customers.
C) providing the necessary information in an understandable manner.
D) offering exclusive private-label brands.
E) encouraging impulse purchasing.
Answer: C
Explanation: Retailers stimulate sales from customers engaged in extended problem solving by
providing the necessary information in a readily available and easily understood manner and by
offering money-back guarantees.
Difficulty: 1 Easy
Bloom's: Understand
26
56) During the limited problem-solving process, customers tend to rely on
A) personal knowledge.
B) reference groups.
C) promotional advertisements.
D) discount offers.
E) store advocates.
Answer: A
Explanation: In these situations, customers tend to rely more on personal knowledge than on
external information.
Bloom's: Understand
57) Veronica walks into a drugstore to buy a quick pain relief drug. In the past, she has used
Advil, an Ibuprofen product. Although there are several other brands containing Ibuprofen, she
decides to purchase Advil because it has worked for her in the past. What kind of decision-
making process is she using when choosing her pain relief?
A) Limited problem solving
B) Complex decision making
C) Extended problem solving
D) Attribution
E) Composite segmentation
Answer: A
Explanation: Customers involved in limited problem solving usually choose a retailer they have
shopped at before and select merchandise they have bought in the past.
Bloom's: Apply
27
58) Which of the following is true of limited problem solving?
A) The majority of customer purchase decisions involve limited problem solving.
B) It happens when customers become loyal to a store or brand.
C) It involves little or no conscious effort.
D) Customers have little knowledge on the product they intend to purchase.
E) It involves a high amount of risk and uncertainty.
Answer: A
Explanation: The majority of customer purchase decisions involve limited problem solving.
Retailers attempt to reinforce this buying pattern and make it habitual when customers are
buying merchandise from them.
Difficulty: 1 Easy
Bloom's: Understand
59) Which type of consumer decision-making process will most likely result in an impulse buy?
C) Utilitarian shopping
E) Composite segmentation
Answer: D
Explanation: A common type of limited problem solving is impulse buying, or unplanned
purchases, which is a buying decision made by customers on the spot after seeing the
merchandise.
Bloom's: Remember
28
60) While waiting in the checkout line at Essentials, Autumn spotted a nail care kit displayed
among the candy and batteries. She liked it and asked the cashier to add it to her bill. Which
form of limited problem solving did Autumn engage in?
A) Contemplation
B) Cross-shopping
C) Impulse buying
D) Planned purchasing
E) Psychological problem solving
Answer: C
Explanation: Unplanned purchases such as the example described are impulse buying decisions.
Difficulty: 1 Easy
Bloom's: Apply
61) Impulse buying is associated with

B) complex decision making.
C) limited problem solving.
E) composite segmentation.
Answer: C
Explanation: One common type of limited problem solving is impulse buying, or unplanned
purchasing, which is a buying decision made by customers on the spot after seeing the
merchandise.
Bloom's: Understand
AACSB: Analytic
29
62) Retailers encourage impulse-buying behavior by
A) readily providing information for making purchase decisions.
B) using prominent point-of-purchase displays.
C) improving their performance on all benefits.
D) concentrating on composite segmentation.
E) encouraging cross-shopping.
Answer: B
Explanation: Retailers have long recognized that the most valuable real estate in the store is at
the point of purchase.
Difficulty: 1 Easy
Bloom's: Remember
63) Geraldo went to the supermarket to buy a bottle of chocolate syrup. While there, he saw the
latest copy of National Enquirer at the checkout stand. He had not planned on buying the
magazine, but on the spur of the moment he bought himself a copy. This decision by Geraldo is
an example of
A) impulse buying.
B) a habitual solution.
C) expected behavior.
D) extended problem solving.
E) convenience buying.
Answer: A
Explanation: An impulse purchase is one that the consumer does not plan on making before
going to the store.
Difficulty: 1 Easy
Bloom's: Apply
30
64) Which of the following items would most likely be purchased as an impulse item?
A) A smartphone
B) A marketing textbook
C) A pair of Italian boots
D) A packet of chewing gum
E) A Waterford crystal vase
Answer: D
Explanation: Retailers look to increase impulse buying by offering candy, gum, mints, and other
fun, hedonic items at their cash registers.
Difficulty: 1 Easy
Bloom's: Apply
65) Habitual decision making occurs when

A) a decision process involves little or no conscious effort.
B) a decision requires assistance from sales associates.
C) the purchase decision involves a lot of risk and uncertainty.
D) retailers stimulate sales by suggesting complementary merchandise.
E) a decision requires extended problem solving.
Answer: A
Explanation: Habitual decision making is a purchase decision process involving little or no
conscious effort.
Bloom's: Understand
31
66) When Terry fed her dog, she noticed that only one can of Alpo Beef Chunk Dinner
remained. Since it was the only kind her aging dog ate, she stopped at the supermarket and
bought a case of Alpo Beef Chunk Dinner dog food. What kind of purchase decision-making
process did Terry use to replenish her stock of canned dog food?
A) Attribution
B) Extended problem solving
C) Habitual decision making
Answer: C
Explanation: The habitual decision-making process typically occurs when decisions aren't very
important to customers and involve familiar merchandise they have bought in the past.
Bloom's: Apply
67) When a customer has brand loyalty for a specific brand of hot dogs, each purchase decision
to buy that brand would be an example of
B) attribution.
C) limited problem solving.
E) contemplation.
Answer: D
Explanation: When customers are loyal to a brand or a store, they engage in habitual decision
making.
Bloom's: Apply
32
68) Consumers engage in habitual decision making for all the following except
A) for purchases that aren't important to the consumers.
B) for merchandise they have purchased in the past.
C) when they are loyal to a store.
D) when they haven't developed brand loyalty.
E) when they use little or no conscious effort to make their decision.
Answer: D
making.
Bloom's: Understand
69) How can brand loyalty become a problem for retailers?

A) Brand loyalty mostly has an adverse impact of retailer loyalty.
B) Retailers may develop problems with the suppliers of the brand.
C) Private-label brands generally cause problems for a retailer.
D) Retailers need to focus on all the performance benefits.
E) Brand loyalty impacts the extended problem-solving process.
Answer: B
Explanation: Because retailers must carry high loyalty brands, they may not be able to negotiate
favorable terms with the suppliers of the popular national brands. If, however, the high-loyalty
brands are private-label brands (i.e., brands owned by the retailer), retailer loyalty is heightened.
Bloom's: Understand
33
70) To effectively sell merchandise that typically involves impulse purchases, what is the most
critical element in the retail mix?
A) Price
B) Prominent displays
C) Advertising
D) Customer service
E) Store location
Answer: B
Explanation: Retailers encourage impulse-buying behavior by using prominent point-of-
purchase (POP) or point-of-sale (POS) displays to attract customers' attention.
Bloom's: Understand
71) Every morning, Peter goes to one of the nearby convenience stores and buys a carton of
Levin's chocolate milk for breakfast. When the store is out of Levin's, Peter goes without milk
rather than buying other popular brands of chocolate milk. Therefore, Peter has a high
A) brand loyalty.
B) extended decision-making capacity.
C) retailer loyalty.
D) impulse buying tendency.
E) conversion rate.
Answer: A
Explanation: Brand loyalty means that customers like and consistently buy a specific brand in a
product category.
Difficulty: 1 Easy
Bloom's: Apply
34
72) Marybeth usually shops for her wardrobe in various department stores. However, when
purchasing shoes, she shops only at Great Shoes. Marybeth's allegiance to Great Shoes is an
example of
A) brand loyalty.
B) extended problem solving.
C) composite segmentation.
D) impulse buying.
E) retailer loyalty.
Answer: E
Explanation: Retailer loyalty means that customers like and habitually visit the same retailer to
purchase a type of merchandise.
Bloom's: Apply
73) When serving brand loyal customers, which of the following factors is most important for a
retailer?
A) Encouraging cross-shopping
B) Offering only private-label brands
C) Offering only national brands
D) Offering suitable alternatives
E) Offering specific brands
Answer: E
Explanation: Retailers can satisfy these customers' needs only if they offer the specific brands
desired. Brand loyal customers are reluctant to switch to other brands if their favorite brand isn't
available.
Bloom's: Understand
35
74) Since it set up a free daycare center for its shoppers, Ingrid has developed great ________ for
the Raleigh County Kroger store. She wouldn't consider going to another store and having to
contend with her two-year old while she is trying to decide what to buy.
A) store awareness
B) consumer attachment
C) retailer loyalty
D) brand recognition
E) brand awareness
Answer: C
Explanation: Retailer loyalty means that customers habitually visit the same store.
Difficulty: 1 Easy
Bloom's: Apply
75) What kind of consumer decision-making process is most closely associated with retailer
loyalty?
C) Impulsive problem solving
E) Contemplation
Answer: B
making.
Bloom's: Remember
AACSB: Analytic
36
76) Retailer loyalty can be increased by
A) rewarding customers for frequent purchases.
B) offering only private-label brands.
C) decreasing customers' importance weights.
D) encouraging cross-shopping.
E) offering alternatives for customers' preferred brands.
Answer: A
Explanation: All retailers would like to increase their customers' loyalty, and they can do so by
selecting a convenient location, offering complete assortments of national and private-label
brands, reducing the number of stockouts, rewarding customers for frequent purchases, or
providing good customer service.
Bloom's: Understand
77) Diego began his first job out of college with a consulting firm. He wanted to make a good
impression on his superiors. He noticed the attire of the associates when he attended the
interview and decided to dress in a similar manner. Which social factor has influenced Diego's
dressing style?
A) Culture
B) Reference group
D) Peer group
E) Subculture
Answer: B
purchase decisions.
Bloom's: Apply
37
78) Many department stores have advisory teen boards to help the retailer understand the
fashions and fads of teens. This teen board acts as a(n) ________ for other teens to emulate.
A) consideration set
B) attribute mix
C) peer group
D) reference group
E) subculture
Answer: D
Difficulty: 1 Easy
purchase decisions.
Bloom's: Understand
79) In the 1960s, bands like the Beatles and the Rolling Stones influenced culture. Students grew
their hair, wore beads, and became more socially conscious about war, segregation, and family.
The culture looked to bands like these for inspiration and encouragement. Therefore, the
members of these bands whose style was emulated by people are known as
A) social stereotypes.
B) ethnic groups.
C) reference groups.
D) peer groups.
E) private communities.
Answer: C
purchase decisions.
Bloom's: Apply
AACSB: Diversity
38
80) Reference groups can influence buying decisions by
A) encouraging impulse purchasing.
B) entering into a customer's consideration set.
C) focusing on a specific customer.
D) enhancing a consumer's image.
E) promoting lavish spending.
Answer: D
Explanation: Reference groups affect buying decisions by (1) offering information, (2)
providing rewards for specific purchasing behaviors, and (3) enhancing a consumer's self-image.
purchase decisions.
Bloom's: Understand
81) Both a weight-loss center and a health club would be pleased to learn that health and fitness,
along with individualism, mastery and control, and self-improvement are core values common in
the ________ of the U.S.
A) experiential base
B) environment
C) civilization
D) marketing mix
E) culture
Answer: E
Explanation: Culture is the meaning, beliefs, morals, and values shared by most members of a
society.
purchase decisions.
Bloom's: Understand
AACSB: Diversity
39
82) ________ forms the basis of the social factors influencing people's buying decisions.
A) Culture
B) Brand loyalty
C) Segmentation
D) Status
E) Religion
Answer: A
Explanation: As the basis of the social factors that influence people's buying decisions, the
culture or cultures in which each consumer participates often align with his or her reference
groups.
purchase decisions.
Bloom's: Understand
AACSB: Diversity
83) ________ are customers who like a store so much that they actively share their positive
experiences with friends and family.
A) Store advocates
B) Laggards
C) Brand ambassadors
D) Hedonic shoppers
E) Early birds
Answer: A
Explanation: Retailers are particularly interested in identifying and reaching out to those in a
reference group who act as store advocates and actively influence others in the group.
Difficulty: 1 Easy
purchase decisions.
Bloom's: Remember
AACSB: Analytic
40
84) Catherine's is a chain of retail stores having merchandise assortments for women over size
14. Women who meet this criterion form a
A) consideration set.
B) retail market segment.
C) demographic set.
D) reference group.
E) subculture.
Answer: B
segments.
Bloom's: Apply
85) Hot Topic is a specialty retailer with an assortment that interests young teens. Merchandise
ranges from T-shirts to music to jewelry to makeup, all geared to the interests of young
teenagers. Therefore, Hot Topic is catering to a particular
B) demographic set.
C) reference group.
D) psychosocial segment.
E) retail market segment.
Answer: E
segments.
Bloom's: Apply
AACSB: Diversity
41
86) The Tackle Box is a store that sells anything you may need to catch fish, including local
information about what is running, where it's running, and what bait works best. The fishing
enthusiasts who rely on the Tackle Box for reliable equipment and information constitute the
retailer's
B) demographic set.
C) media set.
D) retail market segment.
E) psychosocial segment.
Answer: D
segments.
Bloom's: Apply
87) ________ means that the retailer should know what to do to satisfy needs for the consumers
in the segment.
A) Actionable
B) Identifiable
C) Substantial
D) Reachable
E) Profitable
Answer: A
Explanation: Actionable means that the retailer should know what to do to satisfy needs for the
consumers in the segment.
Difficulty: 1 Easy
segments.
Bloom's: Remember
AACSB: Analytic
42
88) ________ means that the retailer is able to determine which customers are in the market
segment.
A) Actionable
B) Identifiable
C) Reachable
D) Substantial
E) Sustainable
Answer: B
Explanation: Identifiable means that the retailer is able to determine which customers are in the
market segment.
Difficulty: 1 Easy
segments.
Bloom's: Remember
AACSB: Analytic
89) Which of the following is not a criterion used to evaluate whether a retail segment is a viable
target market?
A) Accessibility
B) Actionability
C) Family lifecycle
D) Size
E) Reachability
Answer: C
Explanation: Family lifecycle is one way to segment a market. The other alternatives are ways
to evaluate whether a retail segment is a viable target market.
Difficulty: 1 Easy
segments.
Bloom's: Understand
43
90) A clothing retailer realizes that its customers desire the latest clothing designs and
accordingly maintains selection. Which criteria for evaluating retail segments is seen in this
example?
A) Accessible
B) Identifiable
C) Flexible
D) Actionable
E) Market size
Answer: D
Explanation: Actionable means that the retailer should know what to do to satisfy needs for the
consumers in the segment.
segments.
Bloom's: Apply
91) Resorts that specialize in massage and aromatherapy look to target health-conscious people.
Hence, they place advertisements in health and fitness magazines. Which criterion for evaluating
a market segment is seen in the example?
A) Reachable
B) Actionable
C) Identifiable
D) Substantial
E) Profitable
Answer: A
Explanation: Reachable means that the retailer can target promotions and other elements of the
retail mix to consumers in the segment.
segments.
Bloom's: Apply
44
92) A retailer in Lincoln, Nebraska, who wants to open a store that will sell surfboards and
surfing accessories finds that the local market is very small. He would be able to serve a national
market better by means of Internet marketing. Which factor for evaluating a market segment is
seen in the given scenario?
A) Competition
B) Substantiality
C) Reachability
D) Actionability
E) Identifiability
Answer: B
Explanation: If a market is too small or its buying power insignificant (i.e., not substantial), it
cannot generate sufficient profits to support the retailing mix activities.
segments.
Bloom's: Apply
93) Which of the following segmentation methods would be most appropriate for a retailer
selling beach apparel?
A) Geographic segmentation
B) Buying situation segmentation
C) Demographic segmentation
D) Benefit segmentation
E) Personality segmentation
Answer: A
Explanation: Geographic segmentation groups customers according to where they live.
segments.
Bloom's: Understand
45
94) Beall's is a chain of department stores that operates all over Florida. After serving Florida for
100 years, Beall's has learned that different merchandise is needed in order to satisfy the different
needs of the customers who live in different regions of the state. Which form of retail market
segmentation does Beall's use?
A) Consideration set
B) Mass-market theory
C) Geodemographic segmentation
D) Buying situation segmentation
E) Multiattribute attitude model
Answer: C
Explanation: Geodemographic segmentation uses both geographic and demographic
characteristics to classify consumers.
segments.
Bloom's: Apply
95) ________ is the segmentation scheme which is based on the principle that "birds of a feather
flock together."
A) Benefit segmentation
D) Geodemographic segmentation
E) Psychographic segmentation
Answer: D
characteristics to classify consumers. This segmentation scheme is based on the principle that
"birds of a feather flock together."
Difficulty: 1 Easy
segments.
Bloom's: Remember
AACSB: Diversity
46
96) Mainland Automobiles Inc. classifies its market on the basis of income into low, middle, and
high income groups. Which market segmentation scheme has the company used?
A) Benefit segmentation
D) Composite segmentation
E) Psychographic segmentation
Answer: C
Explanation: Demographic segmentation groups consumers on the basis of easily measured,
objective characteristics such as age, gender, income, and education.
segments.
Bloom's: Apply
AACSB: Diversity
97) Gibson's is a clothing retailer. It divides its market based on the age group of the customers
and accordingly designs its merchandise. Which of the following approaches of market
segmentation has Gibson's used?
A) Lifestyle segmentation
B) Benefit segmentation
C) Geographic segmentation
D) Psychographic segmentation
E) Demographic segmentation
Answer: E
segments.
Bloom's: Apply
AACSB: Diversity
47
98) Ashley's is a clothing retailer. It recently launched a new range of cotton and linen clothing
aimed at women in Middle Eastern countries. Light fabrics are preferred in these countries due to
the hot climate. The segmentation approach used by Ashley's is
A) lifestyle segmentation.
B) geographic segmentation.
C) demographic segmentation.
D) psychographic segmentation.
E) geodemographic segmentation.
Answer: E
characteristics to classify consumers. Gender is a demographic variable.
segments.
Bloom's: Apply
AACSB: Diversity
99) A cruise ship service specializing in entertaining young adults would most likely be using
________ as the segmentation method to attract business.
A) a multiattribute model
B) geographic segmentation
C) benefit segmentation
D) psychographic segmentation
E) demographic segmentation
Answer: E
segments.
Bloom's: Apply
AACSB: Diversity
48
100) The retail market segments for licensed World Wrestling Entertainment shirts, jackets, and
hats are 6- to 17-year old boys, 18- to 24-year old women, and 18- to 44-year old men. This
segmentation scheme based on age groups is called
A) lifestyle segmentation.
B) geographic segmentation.
C) cultural segmentation.
D) psychographic segmentation.
E) demographic segmentation.
Answer: E
Explanation: Age and gender are demographic variables.
segments.
Bloom's: Apply
AACSB: Diversity
selling laptops mainly targeting college students?
Answer: C
segments.
Bloom's: Understand
49
selling children's apparel?
Answer: C
segments.
Bloom's: Understand
103) Harley-Davidson stores sell merchandise that attracts people who love motorcycles and the
idea of an open road and freedom. Some are bikers and others are those who do not have a
Harley-Davidson motorcycle but buy the HD logo apparel and accessories. Therefore, Harley-
Davidson is using ________ as the scheme for market segmentation.
A) composite segmentation
B) geographic segmentation
C) demographic segmentation
D) benefit segmentation
E) lifestyle segmentation
Answer: E
Explanation: Lifestyle refers to how people live, how they spend their time and money, and
what activities they pursue.
segments.
Bloom's: Apply
50
104) Gambler's Den, a casino, has identified 2,000 people it categorizes as high rollers. Since the
casino people contend that there are no unifying demographics that can be used to identify a high
roller, what sort of segmentation must they be using?
A) Social class and income
B) Occupation, perceived risk, and social class
C) Lifestyle
D) Occupation, education, and lifestyle
E) Occupation, education, and geographic
Answer: C
Explanation: The lifestyle segmentation aids in identifying how people live, how they spend
their time and money, what activities they pursue, and their attitudes and opinions about the
world in which they live.
segments.
Bloom's: Apply
105) ________ refers to the way people live, how they spend their time and money, and what
activities they pursue.
A) Marketing mix
B) Demographics
C) Lifestyle
D) Target marketing
E) Market segmentation
Answer: C
Explanation: This is the definition of lifestyle.
Difficulty: 1 Easy
segments.
Bloom's: Remember
51
106) The Main Game, a retail store, appeals to people who enjoy role-playing games. The store
carries games, books, and has a play area where fans can meet and play against one another. The
store mainly targets people who enjoy adventure and games. Therefore, the store is using
________ as the scheme for classifying its target market.
A) geodemographic segmentation
B) demographic segmentation
C) lifestyle segmentation
D) geographic segmentation
E) benefit segmentation
Answer: C
Explanation: Lifestyle segmentation is done on the basis of how people spend their time and
money and what activities they pursue.
segments.
Bloom's: Apply
AACSB: Diversity
107) "Do It Again Sports" has everything a weekend warrior needs to get back into shape at
reduced prices. They feature an array of treadmills, weights, sporting gear, and helpful staff.
Thus, Do It Again Sports utilizes ________ as the scheme to segment the market.
A) lifestyle segmentation
C) buying situation segmentation
E) geodemographic segmentation
Answer: A
Explanation: Lifestyle segmentation is done on the basis of how people spend their time and
money and what activities they pursue.
segments.
Bloom's: Apply
52
selling fishing tackle and bait?
A) Personality segmentation
E) Lifestyle segmentation
Answer: E
Explanation: Lifestyle refers to how people live, how they spend their time and money, and
what activities they pursue. their attitudes and opinions about the world in which they live.
segments.
Bloom's: Understand
109) The Mattress Firm sells mattresses, pillows, sound machines, and other items that enhance
sleep. The store is popular because many people do not enjoy a full night's sleep, and the
Mattress Firm offers products that promise comfortable sleep. Therefore, the Mattress Firm is
using ________ as the scheme for defining its target segment.
A) benefit segmentation
C) geographic segmentation
D) lifestyle segmentation
E) geodemographic segmentation
Answer: A
Explanation: Benefit segmentation targets groups seeking similar benefits.
segments.
Bloom's: Apply
53
110) Brian's is a department store. It observes that most of its customers prefer weekly shopping
and accordingly maintains its merchandise stock. Therefore, the store's segmentation is based on
A) buying situation.
B) demographics.
C) income.
D) personality.
E) social class.
Answer: A
Explanation: The buying behavior of customers with the same demographics or lifestyle can
differ depending on their buying situation. Thus, retailers may use buying situations, such as fill-
in versus weekly shopping, to segment a market.
segments.
Bloom's: Apply
111) Stacy's is a popular convenience store. It notices that most of its customers visit the store
during the week to shop for products such as milk and fruit. Therefore, it maintains sufficient
stock of these products. Which of the following segmentation methods is the store using?
D) Psychographic segmentation
Answer: B
Explanation: Consumers may have the diverse demographics or lifestyles but have similar
buying situations. Thus, retailers may use buying situations, such as fill-in versus weekly
shopping, to segment a market.
segments.
Bloom's: Apply
54
112) All 'Essentials' stores stock Comfort, a private-label brand. Comfort provides relaxed,
fashionable, and ready-to-wear clothing that is more economical than similar clothing in other
department stores. Essentials is looking at a market in which consumers are looking for similar
advantages such as cost and comfort. Therefore, Essentials can use ________ as the scheme to
segment its market.
A) geodemographic segmentation
B) composite segmentation
C) demographic segmentation
E) benefit segmentation
Answer: E
Explanation: Customers in the same benefit segment would have a similar set of importance
weights for the attributes of a store or product.
segments.
Bloom's: Apply
113) ________ is the segmentation method that uses multiple variables to identify customers in
the target segment according to their benefits sought, lifestyles, and demographics.
A) Hedonic need identification
D) Multiattribute model
E) Trickle-down approach
Answer: C
Explanation: As no segmentation approach meets all the criteria, multiple variables are needed
to identify the customers' needs. Therefore, composite segmentation is used, which considers
multiple variables to target customers.
segments.
Bloom's: Remember
AACSB: Analytic
55
114) Briefly explain the consumer buying process.
Answer: The buying process—the steps consumers go through when buying a product or service
—begins when customers recognize an unsatisfied need. Then they seek information about how
to satisfy the need—what retailers, channels, and products or services might satisfy the need.
Customers then evaluate the alternatives and choose a store or Internet site to visit or a catalog to
review. Their encounter with a retailer provides more information and may alert customers to
additional needs. After evaluating the retailer's offering, customers may make a purchase or go to
another retailer to collect more information. Eventually, customers purchase a product, use the
product, and then decide whether the retailer, channel, and product satisfies their needs during
the postpurchase evaluation stage of the customer buying process.
Bloom's: Understand
115) Describe the different ways retailers satisfy a customer's hedonic needs. Provide examples.
Answer: Retailers try to satisfy customers' hedonic needs in the following ways:
1. Stimulation: Retailers tap into the various human senses to create a pleasant and desirable
atmosphere
2. Status and power: giving the customer attention and the feeling of status
3. Adventure: like a game to be won, retailers can create a treasure hunt sense of experience
Bloom's: Understand
AACSB: Communication; Analytic
56
116) How can a retailer use the multiattribute model to encourage customers to shop more
frequently?
Answer: The multiattribute attitude model is based on the notion that customers see a retailer, a
product, or a channel as a collection of attributes or characteristics. The model is designed to
predict a customer's evaluation of a product, retailer, or channel on the basis of (1) its
performance on relevant attributes and (2) the importance of those attributes to the customer.
Bloom's: Understand
117) What are ways retailers can encourage customers to shop at their stores more frequently
after they enter into consumers' consideration set?
Answer: Retailers can encourage customers to shop at their stores more frequently after they
enter into consumers' consideration set in the following ways:
1. Increase beliefs about the store's performance.
2. Change customers' importance weights.
3. Add a new benefit.
Bloom's: Remember
118) What steps do retailers take in order to increase the chances that customers will easily
convert their positive merchandise or service evaluation into purchases?
Answer: Retailers use various tactics to increase the chances that customers will convert their
positive evaluations into purchases. First, they attempt to make it easy to purchase merchandise.
More and more retailers are ensuring that their websites are mobile friendly. In their stores, they
can reduce the actual wait time for buying merchandise by having more checkout lanes open and
placing them conveniently in the store. In addition to reducing actual waiting time, they can
reduce perceived wait times by installing digital displays to entertain customers waiting in line.
Bloom's: Understand
57
119) Identify and describe the three types of consumer decision-making processes.
Answer: The three types of consumer decision-making processes are
1. Habitual decision making: little or no conscious effort

2. Limited problem solving: moderate amount of effort and time. Customers engage in this type
of buying process when they have had some prior experience with the product or service and
their risk is moderate.
3. Extended problem solving: customers devote considerable time and effort to analyze their
alternatives; factors such as financial, physical, and social risks are considered
Bloom's: Remember
120) How does the brand loyalty of customers impact retailers?
Answer: Brand loyalty creates both opportunities and problems for retailers. Customers are
attracted to stores that carry popular brands, but because retailers must carry these high-loyalty
brands, they may not be able to negotiate favorable terms with the suppliers of the popular
national brands. If, however, the high-loyalty brands are private-label brands (i.e., brands owned
by the retailer), retailer loyalty is heightened.
Bloom's: Understand
58
121) Why is it important for retailers to understand how families make purchase decisions?
Answer: Retailers should understand how families make purchase decisions. When families
make purchase decisions, they often consider the needs of all the family members. In some cases,
all participate in the decision making. In other situations, one assumes the role of decision maker
but is highly influenced by the others. Children especially can influence family decisions. Also,
retailers can attract consumers who shop with other family members by satisfying the needs of
all family members. Examples of this can include babysitting services in hotels, play areas in
stores, and comfortable seating and televisions outside dressing rooms to keep other family
members entertained.
purchase decisions.
Bloom's: Understand
122) How do reference groups influence buying decisions?
Answer: Reference groups affect buying decisions by (1) offering information, (2) providing
rewards for specific purchasing behaviors, and (3) enhancing a consumer's self-image.
purchase decisions.
Bloom's: Understand
123) What are the four criteria used for evaluating retail market segments?
Answer: The four criteria used for evaluating whether a retail segment is a viable target market
are as follows: actionable, identifiable, substantial, and reachable.
Difficulty: 1 Easy
segments.
Bloom's: Remember
59
124) Explain the concept of buying situation segmentation.
Answer: The buying behavior of customers with the same demographics or lifestyle can differ
depending on their buying situation. Thus, retailers may use buying situations, such as fill-in
versus weekly shopping, to segment a market. The segments are actionable because it is
relatively easy to determine what a marketer should do to satisfy the needs of a particular
segment. They are identifiable and accessible because retailers or service providers can
determine who the customers are on the basis of who has purchased the product or service and
under what circumstances. Once they have identified the customer segment, they can assess its
size.
segments.
Bloom's: Understand
60
Chapter 5 Retail Market Strategy
1) A retail format describes the nature of the retailer's operations that it will use to satisfy the
needs of its target market.
Answer: TRUE
Explanation: A retail format describes the nature of the retailer's operations—its retail mix (type
of merchandise and services offered, pricing policy, advertising and promotion programs, store
design and visual merchandising, typical locations, and customer services)—that it will use to
satisfy the needs of its target market.
Difficulty: 1 Easy
Topic: What is a Retail Strategy?
Learning Objective: 05-01 Define retail strategy.
Bloom's: Remember
2) After selecting a target market and a retail mix, the final element in a retail strategy is the
identification of prospective wholesalers.
Answer: FALSE
Explanation: After selecting a target market and a retail mix, the final element in a retail strategy
is the retailer's approach to building a sustainable competitive advantage.
Difficulty: 1 Easy
Learning Objective: 05-02 Illustrate how retailers build a sustainable competitive advantage.
Bloom's: Remember
3) Building strong relationships with wholesalers is one of the three approaches for developing a
sustainable competitive advantage.
Answer: FALSE
Explanation: Three approaches for developing a sustainable competitive advantage are (1)
building strong relationships with customers, (2) building strong relationships with suppliers, and
(3) achieving efficient internal operations.
Difficulty: 1 Easy
Topic: How Retailers Build a Sustainable Competitive Advantage
Bloom's: Remember
1
4) Customer relationship management programs collect data about customer shopping behavior
to enable retailers to build and maintain customer loyalty.
Answer: TRUE
Explanation: Customer relationship management programs collect data about customer shopping
behavior to enable retailers to build and maintain customer loyalty.
Difficulty: 1 Easy
Topic: Customer Relationship Management Process
Bloom's: Remember
5) Market expansion approaches include opening more stores in the target market and/or keeping
existing stores open for longer hours.
Answer: FALSE
Explanation: Market penetration approaches include opening more stores in the target market
and/or keeping existing stores open for longer hours.
Topic: Strategic Growth Opportunities for Retailers
Learning Objective: 05-03 Classify the different strategic growth opportunities retailers pursue.
Bloom's: Remember
6) A retail format development growth opportunity is an opportunity in which a retailer develops

a new retail format for the same target market.
Answer: TRUE
Explanation: A retail format development growth opportunity is an opportunity in which a
retailer develops a new retail format—a format with a different retail mix—for the same target
market.
Bloom's: Remember
2
7) Horizontal integration describes diversification by retailers into wholesaling or manufacturing.
Answer: FALSE
Explanation: Vertical integration describes diversification by retailers into wholesaling or
manufacturing.
Bloom's: Remember
8) Direct investment occurs when a retail firm invests in and owns a retail operation in its home
country.
Answer: FALSE
Explanation: Direct investment occurs when a retail firm invests in and owns a retail operation
in a foreign country.
Difficulty: 1 Easy
Learning Objective: 05-04 Identify issues that arise as domestic retailers become global
retailers.
Bloom's: Remember
9) The first step in the strategic retail planning process is to define the business mission.
Answer: TRUE
Explanation: The first step in the strategic retail planning process is to define the business
mission.
Topic: Retail Strategic Planning and Operations
Learning Objective: 05-05 Know the steps retailers go through to develop a strategic plan.
Bloom's: Remember
10) Scale economies are cost advantages due to a retailer's size.
Answer: TRUE
Explanation: Scale economies are cost advantages due to a retailer's size.
Bloom's: Remember
3
11) A retail strategy is a statement that identifies all the following except
A) the target market.
B) the format that the retailer plans to use.
C) the employee compensation plan.
D) the bases upon which the retailer plans to build a sustainable competitive advantage.
E) the retail mix.
Answer: C
Explanation: A retail strategy is a statement identifying (1) the retailer's target market, (2) the
format and resources the retailer plans to use to satisfy the target market's needs, and (3) the
bases on which the retailer plans to build a sustainable competitive advantage.
Difficulty: 1 Easy
Bloom's: Remember
12) The ________ is the market segment(s) toward which the retailer plans to focus its resources
and retail mix.
A) target market
B) retail market
C) virtual market
D) labor market
E) global market
Answer: A
Explanation: The target market is the market segment(s) toward which the retailer plans to focus
its resources and retail mix.
Bloom's: Remember
4
13) A cafe focuses primarily on customers who are aged between 18 and 35 and earning about
$20,000 to $40,000 annually. This segmentation of customers is known as its
A) retail market.
B) target market.
C) virtual market.
D) global market.
E) labor market.
Answer: B
Explanation: The target market is the market segment(s) toward which the retailer plans to focus
its resources and retail mix.
Bloom's: Apply
14) Hot Topic LLC appeals to tweens and teens through their Gothic frocks, fad movie gear,
piercing paraphernalia, and popular T-shirts and posters. The staff at Hot Topic wears the
merchandise. Also, they are active in helping their young customers choose from the hip
merchandise. The teens and tweens can be considered the
A) target market.
B) marketing mix.
C) marketing objective.
D) retail format.
E) retail mix.
Answer: A
Explanation: The target market is the market segment towards(s) which the retailer plans to
focus its resources and retail mix.
Bloom's: Apply
5
15) A(n) ________ describes the nature of the retailer's operations that it will use to satisfy the
needs of its target market.
A) situation analysis
B) organizational chart
C) competitor analysis
D) market research report
E) retail format
Answer: E
Explanation: A retail format describes the nature of the retailer's operations that it will use to
satisfy the needs of its target market.
Difficulty: 3 Hard
Bloom's: Remember
16) Which of the following is a component of retail mix?

A) Product design
B) Market intelligence
C) Human resource practice
D) Pricing policy
E) Employee performance data
Answer: D
Explanation: The retail mix consists of the type of merchandise and services offered, pricing
policy, advertising and promotion programs, store design and visual merchandising, typical
locations, and customer services.
Difficulty: 1 Easy
Bloom's: Understand
6
17) Store design is a component of the
A) pricing mix.
B) product mix.
C) wholesale mix.
D) organizational mix.
E) retail mix.
Answer: E
Explanation: The retail mix consists of the type of merchandise and services offered, pricing
policy, advertising and promotion programs, store design and visual merchandising, typical
locations, and customer services.
Bloom's: Understand
18) Which of the following statements is true of a sustainable competitive advantage?

A) It is not easily copied by the competitors.
B) It cannot be maintained over a long period of time.
C) It can only be maintained over a short period of time.
D) It can be easily copied by the competitors.
E) It can be achieved by reducing the price of the product.
Answer: A
Explanation: A sustainable competitive advantage is an advantage the retailer maintains over its
competition that is not easily copied by competitors and thus can last over a long period of time.
Difficulty: 3 Hard
Bloom's: Understand
7
19) A toy store has acquired an edge over its competition that cannot be easily copied by its
competitors. Which of the following has the store achieved?
A) Customer brand affiliation
B) Sustainable competitive advantage
C) Customer loyalty
D) Service excellence
E) Brand recall
Answer: B
Explanation: A sustainable competitive advantage is an advantage the retailer maintains over its
competition that is not easily copied by competitors and thus can last over a long period of time.
Difficulty: 1 Easy
Bloom's: Understand
20) A ________ is a group of consumers with similar needs and a group of retailers that satisfy
those needs using a similar retail channels and format.
A) retail market segment
B) virtual market segment
C) wholesale market segment
D) target market segment
E) global market segment
Answer: A
Explanation: A retail market segment is a group of consumers with similar needs and a group of
retailers that satisfy those needs using similar retail channels and format.
Difficulty: 1 Easy
Bloom's: Remember
8
21) After selecting a target market and a retail mix, the final element in a retail strategy is the
retailer's approach to
A) build a sustainable competitive advantage.
B) identify all potential wholesalers.
C) identify all possible channels of communication.
D) identify possible channels of distribution.
E) manage the logistics of the product.
Answer: A
Explanation: After selecting a target market and a retail mix, the final element in a retail strategy
is the retailer's approach to building a sustainable competitive advantage.
Bloom's: Remember
22) Why should a retailer be concerned with building a sustainable competitive advantage?
A) It could increase organizational turnover.
B) It would decrease organizational commitment.
C) It could decrease organizational productivity.
D) It could result in short-term profitability.
E) It could result in long-term profitability.
Answer: E
Explanation: Establishing a sustainable competitive advantage means that the retailer, in effect,
builds a wall around its battle position—that is, around its present and potential customers and its
competition. When the wall is high, it will be hard for external competitors (i.e., retailers
operating in other markets or entrepreneurs) to scale the wall and enter the market to compete for
the retailer's target customers.
Difficulty: 1 Easy
Bloom's: Understand
9
23) Forester, a jewelry store, has developed a sustainable competitive advantage. Which of the
following characteristics of Forester is most likely to be the reason for this advantage?
A) Repeat purchases from a vendor due to limited alternatives
B) Knowledgeable and helpful salespeople
C) Automated warehouses
D) More merchandise
E) Higher advertising budgets
Answer: B
Explanation: Training knowledgeable and helpful salespeople is a sustainable competitive
advantage that is hard to replicate.
Difficulty: 3 Hard
Bloom's: Apply
24) Which of the following characteristics is most likely to be the least sustainable competitive
advantage?
A) Convenient locations
B) Ability to get scarce merchandise
C) Shared systems with vendors
D) More sales promotions
E) Coordination of procurement efforts
Answer: D
Explanation: Having more sales promotions is the least sustainable competitive advantage
compared to the other options.
Difficulty: 3 Hard
Bloom's: Understand
10
25) Which of the following characteristics is most likely to be the more sustainable competitive
advantage?
A) Extended hours of operation
B) Bigger warehouses
C) Ability to get scarce merchandise
D) More employees
E) Greater assortment of merchandise
Answer: C
Explanation: The ability to get scarce merchandise is the most sustainable competitive
advantage compared to the other options.
Difficulty: 1 Easy
Bloom's: Understand
26) Which of the following characteristics of a footwear store would most likely be its least
sustainable competitive advantage?
A) Shared systems with vendors
B) Convenient store location
C) Knowledgeable employee force
D) Helpful sales force
E) Lower price
Answer: E
Explanation: Lowering prices can easily be replicated, and hence, it is not a sustainable
competitive advantage.
Bloom's: Apply
11
27) John plans to start a grocery store in his locality. Which of the following is most likely to
give him the least sustainable competitive advantage in the market?
A) Convenient locations
B) More employees
C) Exclusive merchandise
D) Coordination of procurement efforts
E) Helpful sales force
Answer: B
Explanation: Recruiting more employees can easily be replicated, and hence, it is not a
sustainable competitive advantage.
Difficulty: 3 Hard
Bloom's: Apply
28) Sally's LLC, a local supermarket, has all of the following characteristics. Which of the
following characteristics of Sally's is most likely to be a more sustainable competitive
advantage?
A) Extended hours of operation
B) More employees
C) Shared systems with vendors
D) More merchandise
E) More sales promotions
Answer: C
Explanation: A shared system with vendors is a sustainable competitive advantage that is hard to
replicate.
Difficulty: 3 Hard
Bloom's: Apply
12
29) Establishing a sustainable competitive advantage is the key to ________ performance.
A) short-term market
B) short-term financial
C) short-term employee
D) long-term employee
E) long-term financial
Answer: E
Explanation: Establishing a sustainable competitive advantage is the key to long-term financial
performance.
Difficulty: 1 Easy
Bloom's: Understand
30) Although Rosa visits several retailers when shopping for suits, she always buys suits at Bow
and Arrow Inc. Which of the following approaches best demonstrates her affinity for Bow and
Arrow Inc.?
A) Customer loyalty
B) Product pricing
C) Location
D) Unique merchandise assortment
E) Good vendor relations
Answer: A
Explanation: Customer loyalty is evident when customers are committed to buying merchandise
and services from a particular retailer.
Bloom's: Apply
13
31) Tara gets her oil changed only at Tires Plus Inc. This commitment to Tires Plus Inc.
illustrates
A) ethical business practices.
B) store awareness.
C) good customer service.
D) customer loyalty.
E) price competitiveness.
Answer: D
Difficulty: 1 Easy
Bloom's: Apply
32) My Favorite Quilt Shop offers members of their Fabric Lovers Club merchandise worth $20
for every $200 they purchase plus additional discounts on classes and new fabric lines. The
Fabric Lovers Club is a good way to develop
A) internal excellence.
B) store awareness.
C) good customer service.
D) customer loyalty.
E) ethical business practices.
Answer: D
Difficulty: 1 Easy
Bloom's: Apply
14
33) Myra wanted to purchase a vase as a wedding gift. Pier 1 Imports offers a better assortment
and slightly lower prices, but she immediately went to her local gift shop instead of Pier 1
Imports. This is an example of
A) a SWOT analysis.
B) strategic control.
C) direct competition.
D) retail perception.
E) customer loyalty.
Answer: E
Explanation: Customer loyalty means that customers are committed to buying merchandise and
services from a particular retailer. Loyalty means that customers will be reluctant to switch and
patronize a competitive retailer.
Difficulty: 1 Easy
Bloom's: Apply
34) Retailers can foster customer loyalty by

A) having a generalized organizational mission statement.
B) providing good customer service.
C) having no distinct brand image.
D) trying to attain qualitative objectives rather than quantitative ones.
E) using a mass advertising strategy.
Answer: B
Explanation: Approaches for developing customer loyalty include building a strong brand
image, creating a unique positioning in the target market, offering unique merchandise,
providing excellent customer service, implementing a customer relationship management
program, and building a retail community.
Bloom's: Understand
15
35) Wendy's has established itself in the fast food market as one of the top five restaurants in the
city. Customers frequent Wendy's because of the impeccable quality of food associated with it.
Which of the following is most likely to be the reason for Wendy's sustainable competitive
advantage?
A) Unique merchandise
B) Brand image
C) Customer service
D) Location
E) Price
Answer: B
Explanation: Customers frequent Wendy's because of the impeccable quality of food associated
with its name. Hence, the brand image is the sustainable competitive advantage.
Difficulty: 1 Easy
Bloom's: Apply
36) Positioning is the process of

A) acquiring a lease for a retail store in a region.
B) creating and supporting a clear and distinct retailer image.
C) finding a retail location site.
D) negotiating the percentage-of-sales payment to the mall owners.
E) performing a situation audit.
Answer: B
Explanation: A retailer's brand image reflects its positioning strategy. Positioning is the design
and implementation of a retail mix to create an image of the retailer in the customer's mind
relative to its competitors.
Difficulty: 3 Hard
Bloom's: Remember
16
37) ________ is the design and implementation of a retail mix in order to create an image of the
retailer within the customer's mind relative to its competitors.
A) Retail perception
B) Positioning
C) Imaging
D) Detailing
E) Competitive feedback
Answer: B
Explanation: Positioning is the design and implementation of a retail mix in order to create an
image of the retailer within the customer's mind relative to its competitors.
Bloom's: Remember
38) Customers who shop at Books-A-Million find that it has a large selection of books, in
addition to a helpful and friendly staff. Furthermore, they can enjoy a peaceful place to read
while sipping a cappuccino at its in-store Joe Muggs Café. This intimate perception of the store
indicates its ________ strategy.
A) perceptual retailing
B) imaging
C) positioning
D) visual merchandising
E) retail feedback
Answer: C
Explanation: Positioning refers to the image that the customer has of the store relative to its
competitors.
Difficulty: 1 Easy
Bloom's: Apply
17
39) ________ are developed such that the distance between two retailers' positions on the map
indicates how similar those stores appear, according to consumers.
A) Perceptual maps
B) Geographical maps
C) Brand perceptions
D) Product perceptions
E) Demographic maps
Answer: A
Explanation: Perceptual maps are developed such that the distance between two retailers'
positions on the map indicates how similar the stores appear, according to consumers. A
perceptual map is frequently used to represent the customer's image and preferences for retailers.
Bloom's: Remember
40) In perceptual maps, retailers that are closer to an ideal point are evaluated
A) less favorably by the consumers.
B) more favorably by the producers.
C) more favorably by the suppliers.
D) less favorably by the suppliers.
E) more favorably by the consumers.
Answer: E
Explanation: In perceptual maps, retailers that are closer to an ideal point are evaluated more
favorably by the consumers in the segment than are retailers located farther away.
Difficulty: 1 Easy
Bloom's: Remember
18
41) Which of the following is most likely to be a disadvantage for a retailer in developing
customer loyalty through offering popular national brands?
A) The costs associated with offering popular national brands are very high.
B) There is often a huge reduction in the profit margin for the retailer.
C) Other competitors can purchase and sell the same popular products.
D) Training employees to operate the new product or service involves time and effort.
E) It leads to brand cannibalization.
Answer: C
Explanation: It is difficult for a retailer to develop customer loyalty through its merchandise
offerings, because most competitors can purchase and sell the same popular national brands.
Difficulty: 3 Hard
Bloom's: Remember
42) Competitive retailers can sell the same popular-national brands. Which of the following
should retailers do to secure a competitive advantage?
A) Prevent its customers from comparison shopping.
B) Limit its store traffic to qualified buyers.
C) Increase its sales expenses.
D) Increase its merchandising flexibility.
E) Develop private-label brands.
Answer: E
Explanation: It is difficult for a retailer to develop customer loyalty through its merchandise
offerings, because most competitors can purchase and sell the same popular national brands.
Many retailers thus develop private-label brands (also called store brands or own brands) that are
marketed by and available only from that retailer to keep customers loyal.
Difficulty: 1 Easy
Bloom's: Understand
19
43) La Rouge, a fabric store, is one of the most famous in the country. Customers flock to the
store from all across the nation for its exclusive collection of store brands. Which of the
following is most likely to be the sustainable competitive advantage of La Rouge?
B) Ethical business practices
C) Customer service
D) Location
E) Price
Answer: A
Explanation: Customers frequent La Rouge for its unique merchandise. Private-label brands
(store brands or own brands) are products developed and marketed by a retailer and available
only from that retailer.
Bloom's: Apply
44) Which of the following is true of private-label brands?

A) Products developed and marketed by a retailer and available with other retailers
B) Products developed by a retailer but marketed and available with a third party
C) Products developed and available with a retailer but marketed by a third party
D) Products developed by a third party but marketed and available with a retailer
E) Products developed and marketed by a retailer and available only from that retailer
Answer: E
Explanation: Private-label brands are products developed and marketed by a retailer and
available only from that retailer.
Difficulty: 1 Easy
Bloom's: Remember
20
45) Private-label brands are also called
A) personal brands.
B) store brands.
C) faith brands.
D) umbrella brands.
E) individual brands.
Answer: B
Explanation: Private-label brands are also called store brands or own brands.
Difficulty: 1 Easy
Bloom's: Remember
46) Kola is a chain of supermarkets across the country. Kola's sales staff treat their customers
very well, which in turn creates great customer satisfaction. Which of the following is most
likely to be the sustainable competitive advantage of Kola?
B) Ethical business practices
C) Customer service
D) Location
E) Price
Answer: C
Explanation: Retailers also can develop customer loyalty by offering excellent customer service.
Difficulty: 1 Easy
Bloom's: Apply
21
47) Which of the following is an opportunity for retailers to develop a sustainable competitive
advantage?
A) Reduced prices
B) Deeper assortment
C) Longer hours of operation
D) Good customer service
E) Coupons
Answer: D
Explanation: The best option for building a long-term advantage is good customer service, as the
other choices are easily replicated by competitors.
Difficulty: 1 Easy
Bloom's: Remember
48) Customer relationship management programs are also known as

A) transitional programs.
B) sustaining programs.
C) twelve-step programs.
D) incentive programs.
E) loyalty programs.
Answer: E
Explanation: Customer relationship management programs are also known as loyalty or
frequent-shopper programs.
Difficulty: 1 Easy
Bloom's: Remember
22
49) Which of the following is a suggested method for improving the efficiency of internal
operations?
B) Customer service
C) Human resource management
D) Brand image
E) Building a retail community using social media
Answer: C
Explanation: Efficiency of internal operations can be improved by human resource management
and distribution and information systems.
Bloom's: Remember
50) Developing programs to motivate and coordinate employee efforts, providing incentives,
fostering a positive organizational culture, and managing diversity are functions of the
A) human resource management.
B) district management.
C) general store manager.
D) chief executive officer.
E) marketing manager.
Answer: A
Explanation: Retailers build their human resource assets by developing programs to motivate
and coordinate employee efforts, provide appropriate incentives, foster a strong and positive
organizational culture and environment, and manage diversity.
Difficulty: 1 Easy
Bloom's: Remember
23
51) Which of the following is an advantage of the use of sophisticated distribution and
information systems?
A) It creates a positive image of the brand in the minds of the consumers.
B) It offers an opportunity for the retailer to reduce operating costs.
C) It helps an organization to attain cultural diversity within its workforce.
D) It helps an organization to monitor the productivity of its entire workforce.
E) It helps an organization to monitor the movements of its employees.
Answer: B
Explanation: The use of sophisticated distribution and information systems offers an opportunity
for retailers to reduce operating costs—the costs associated with running the business—and
make sure that the right merchandise is available at the right time and place.
Difficulty: 1 Easy
Bloom's: Understand
52) Sam loves shopping. She frequently goes window shopping in the city. During times of need,
she visits the nearest supermarket even though she loathes going there. Which of the following is
most likely to be the reason why Sam shops in the supermarket?
B) Brand image
C) Customer service
D) Location
E) Price
Answer: D
Explanation: Location is the most important factor determining which store a consumer
patronizes. For example, most people shop at the supermarket closest to where they live.
Difficulty: 1 Easy
Bloom's: Apply
24
53) The best way for a retailer to develop a sustainable competitive advantage is to
A) concentrate on finding the best location.
B) concentrate on having the lowest prices in town.
C) develop a good distribution system.
D) rely on multiple approaches.
E) maintain good vendor relations.
Answer: D
Explanation: A retailer should have multiple sources of competitive advantages to be
competitive in today's marketplace.
Difficulty: 1 Easy
Bloom's: Remember
54) A ________ is a growth opportunity directed toward existing customers using the retailer's
present retailing format.
A) market expansion growth opportunity
B) market penetration growth opportunity
C) retail format development growth opportunity
D) wholesale format development growth opportunity
E) diversification growth opportunity
Answer: B
Explanation: A market penetration growth opportunity is a growth opportunity directed toward
existing customers using the retailer's present retailing format.
Bloom's: Remember
25
55) Walgreens has had rapid growth in their store openings. Many times, they have stores within
just a few blocks of each other. This is an example of Walgreens practicing
A) retail format development.
B) diversification growth.
C) market penetration.
D) market expansion.
E) market divestment.
Answer: C
Explanation: With market penetration, retailers use their existing retail format and devise
approaches to get current customers to visit the retailer more often or to buy more. Market
penetration approaches include opening more stores in the target market and/or keeping existing
stores open for longer hours.
Bloom's: Apply
56) A bagel shop that decides to open up an hour earlier every morning is taking advantage of a
________ opportunity.
A) market penetration
B) diversification
C) retail format development
D) market depletion
E) market divestment
Answer: A
Explanation: With market penetration, retailers use their existing retail format and devise
approaches to get current customers to visit the retailer more often or to buy more. Market
penetration approaches include opening more stores in the target market and/or keeping existing
stores open for longer hours.
Bloom's: Apply
26
57) Bine Lane is a fabric store that sells only cotton clothing. After a situation analysis, the
marketing team of Bine Lane wants its current customers to visit and purchase from the store
more frequently. Which of the following growth strategies should Bine Lane follow to achieve
its objective?
A) Wholesale format development growth opportunity
B) Market expansion growth opportunity
C) Retail format development growth opportunity
D) Diversification growth opportunity
E) Market penetration growth opportunity
Answer: E
Explanation: A market penetration growth opportunity is a growth opportunity directed toward
existing customers using the retailer's present retailing format. Such opportunities involve either
attracting new consumers from the retailer's current target market who don't patronize the retailer
currently or devising approaches that get current customers to visit the retailer more often and/or
buy more merchandise on each visit.
Bloom's: Apply
58) Which of the following is an example of a market penetration growth opportunity?

A) Opening new stores in new geographical markets
B) Changing the brand name to appeal to newer market segments
C) Keeping existing stores open for longer hours
D) Opening new stores to cater to a different demographic segment
E) Changing the brand name in new geographical markets
Answer: C
Explanation: Market penetration approaches include opening more stores in the target market
and/or keeping existing stores open for longer hours.
Bloom's: Remember
27
59) Cross-selling is most commonly practiced with the
A) wholesale format development growth opportunity.
B) market expansion growth opportunity.
C) retail format development growth opportunity.
D) diversification growth opportunity.
E) market penetration growth opportunity.
Answer: E
Explanation: Cross-selling is most commonly practiced with the market penetration growth
opportunity.
Bloom's: Remember
60) A ________ involves using the retailer's existing retail format in new market segments.
A) market expansion growth opportunity
C) diversification growth opportunity
D) wholesale format development growth opportunity
E) retail format growth opportunity
Answer: A
Explanation: A market expansion growth opportunity involves using the retailer's existing retail
format in new market segments.
Bloom's: Remember
28
61) Alvo's, a producer of candy, has decided to expand its operations geographically. Which of
the following strategies should Alvo's use to achieve its objective?
A) Retail format growth opportunity
B) Market penetration growth opportunity
C) Diversification growth opportunity
D) Market expansion growth opportunity
E) Wholesale format development growth opportunity
Answer: D
Bloom's: Apply
62) When Home Movies Inc. opened stores in other countries, it increased the company's
international market share. Home Movies took advantage of a ________ opportunity.
A) diversification
B) market expansion
C) market divestment
D) retail format development
E) market penetration
Answer: B
Explanation: Market expansion involves using the retailer's existing retail format in new market
segments.
Bloom's: Apply
29
63) Which of the following is an example of a market expansion growth opportunity?
A) Displaying merchandise to increase impulse purchases
B) Opening new stores in new geographic markets
C) Opening more stores in the same market
D) Keeping existing stores open for long hours
E) Engaging in cross-selling
Answer: B
Bloom's: Remember
64) A ________ is an opportunity in which a retailer develops a new retail mix for the same
target market.
A) retail format development growth opportunity
D) market expansion growth opportunity
E) wholesale format development growth opportunity
Answer: A
Explanation: A retail format development growth opportunity is an opportunity in which a
retailer develops a new retail format—a format with a different retail mix—for the same target
market.
Bloom's: Remember
30
65) Ashton, a chain of supermarkets, intends to change its pricing policy and promotional mix
but intends on catering to the same market segment. Which of the following growth strategies
will best suit Ashton LLC?
A) Market penetration growth opportunity
C) Retail format growth opportunity
E) Wholesale format growth opportunity
Answer: C
Explanation: A retail format growth opportunity is an opportunity in which a retailer develops a
new retail format—a format with a different retail mix—for the same target market.
Bloom's: Apply
66) When Nordstrom department stores launched a website to sell its merchandise to its present
customers; it took advantage of a ________ opportunity.
A) diversification
B) market format investment
C) market expansion
D) market penetration
E) retail format development
Answer: E
Explanation: Retail format development is when the retailer develops a new retail format for the
same target market; the online retailing was the new format.
Bloom's: Apply
31
67) A ________ is one in which a retailer introduces a new retail format directed toward a
market segment that's not currently served by the retailer.
A) retail format growth opportunity
D) market expansion growth opportunity
E) wholesale format development growth opportunity
Answer: C
Explanation: A diversification growth opportunity is one in which a retailer introduces a new
retail format directed toward a market segment that's not currently served by the retailer.
Bloom's: Remember
68) Krueger Burgers, a chain of restaurants, intends to change its pricing policy and promotional
mix to cater to a new market segment. Which of the following growth strategies will best suit
Krueger Burgers?
A) Market penetration growth opportunity
C) Retail format growth opportunity
E) Wholesale format growth opportunity
Answer: D
Explanation: A diversification growth opportunity is one in which a retailer introduces a new
retail format directed toward a market segment that's not currently served by the retailer.
Bloom's: Apply
32
69) In a related diversification growth opportunity,
A) the retailer's present target market and retail format share nothing in common with the new
opportunity.
B) the retailer's future target market and retail format share nothing in common with a missed
opportunity.
C) the retailer's past target market and retail format share nothing in common with a missed
opportunity.
D) the retailer's future target market and retail format share something in common with a missed
opportunity.
E) the retailer's present target market and retail format share something in common with the new
opportunity.
Answer: E
Explanation: In a related diversification growth opportunity, the retailer's present target market
and retail format share something in common with the new opportunity.
Bloom's: Understand
70) Which of the following is an example of related diversification?

A) Purchasing from different vendors
B) Operating in similar locations
C) Targeting another market segment
D) Using a newer medium for advertising
E) Developing a management information system
Answer: B
Explanation: In a related diversification growth opportunity, the retailer's present target market
and retail format share something in common with the new opportunity. This commonality might
entail purchasing from the same vendors, operating in similar locations, using the same
distribution or management information system, or advertising in the same newspapers to similar
target markets.
Bloom's: Understand
33
71) An unrelated diversification growth opportunity
A) has a lot in common between the retailer's present business and the new growth opportunity.
B) is less risky compared to a related growth opportunity.
C) is less effective compared to a related growth opportunity.
D) is less expensive compared to related growth opportunity.
E) has little commonality between the retailer's present business and the new growth opportunity.
Answer: E
Explanation: An unrelated diversification growth opportunity has little commonality between
the retailer's present business and the new growth opportunity.
Bloom's: Understand
72) Which of the following is an example of unrelated diversification?

A) Operating in similar locations
B) Creating a new management information system
C) Using the same distribution
D) Advertising in the same newspapers
E) Purchasing from the same vendors
Answer: B
Explanation: An unrelated diversification growth opportunity has little commonality between
the retailer's present business and the new growth opportunity.
Bloom's: Understand
34
73) Which of the following statements is true of vertical integration?
A) It is the diversification by retailers into manufacturing.
B) It is the diversification by wholesalers into retailing.
C) It is the diversification by manufacturers into marketing.
D) It is the diversification by supply chain management into marketing.
E) It is the diversification by marketing into manufacturing.
Answer: A
Explanation: Vertical integration describes diversification by retailers into wholesaling or
manufacturing.
Bloom's: Remember
74) Jose runs a gallery that specializes in neon art with an emphasis on vacation icons like
flamingos, dolphins, and palm trees. Since demand was high and supplies were low, he decided
to buy an old warehouse and then hire craftspeople to work there in order to produce the art. He
would provide them with all of the supplies they needed, and he would be their only customer.
Jose engaged in
A) horizontal integration.
B) market expansion.
C) co-operative buying.
D) market penetration.
E) vertical integration.
Answer: E
Explanation: Vertical integration means that the retailer has invested in manufacturing
merchandise that the retailer will sell.
Bloom's: Apply
35
75) Designing private-label merchandise is a(n) ________ because it builds on the retailer's
knowledge of its customers.
A) unrelated diversification growth opportunity
B) market expansion growth opportunity
C) related diversification growth opportunity
D) market penetration growth opportunity
E) retail format development growth opportunity
Answer: C
Explanation: Designing private-label merchandise is a related diversification growth opportunity
because it builds on the retailer's knowledge of its customers.
Learning Objective: 05-03 C) Classify the different strategic growth opportunities retailers pursue.
related diversification growth opportunity
Bloom's: Remember
76) Which of the following retail growth strategies has the greatest chance for succeeding?
A) Related diversification growth opportunity
B) Market penetration growth opportunity
C) Market expansion growth opportunity
D) Retail format development growth opportunity
E) Unrelated diversification growth opportunity
Answer: B
Explanation: Typically, retailers have the greatest competitive advantage and most success when
they engage in opportunities that are similar to their present retail operations and markets. Thus,
market penetration growth opportunities have the greatest chances of succeeding because they
build on the retailer's present bases of advantage and don't involve entering new, unfamiliar
markets or operating new, unfamiliar retail formats.
Bloom's: Remember
36
77) Retailers have the least opportunity to exploit a competitive advantage when they pursue
A) retail format growth opportunities.
B) market penetration growth opportunities.
C) diversification growth opportunities.
D) market expansion growth opportunities.
E) wholesale format development growth opportunities.
Answer: C
Explanation: Retailers have the least opportunity to exploit a competitive advantage when they
pursue diversification opportunities.
Bloom's: Understand
78) The emerging international markets that receive the most attention from global retailers are
collectively referred to as the ________ nations.
A) Asian Tigers
B) Next Eleven
C) MIKT
D) CIVETS
E) BRIC
Answer: E
Explanation: The emerging international markets that receive the most attention from global
retailers are Brazil, Russia, India, and China, collectively referred to as the BRIC nations
Difficulty: 1 Easy
retailers.
Bloom's: Remember
37
79) Which of the following statements is true of the challenges faced by organized retailing in
India?
A) The cost of setting up facilities is significantly high.
B) The ever-increasing operating costs.
C) Government impedes foreign investment in retailing.
D) The supply chain is underdeveloped and inefficient.
E) Managerial talent is becoming more difficult to find and retain.
Answer: C
Explanation: Previously, government regulations greatly restricted foreign investments in
retailing; today, though some of the restrictions have been relaxed, foreign retailers still must
comply with a myriad of regulations before opening stores and shipping merchandise.
Difficulty: 1 Easy
retailers.
Bloom's: Remember
China?
A) Government impedes foreign investment in retailing.
B) Stringent regulations on profit margins discourage capitalism.
C) An unstable political scenario increases the risk associated with direct investments.
D) Managerial talent is becoming more difficult to find and retain.
E) Retailers cannot rely on domestic products as their quality is low.
Answer: D
Explanation: Doing business in China is challenging. Operating costs are increasing, managerial
talent is becoming more difficult to find and retain, and an underdeveloped and inefficient supply
chain predominates.
retailers.
Bloom's: Remember
38
Russia?
A) Retailers cannot rely on domestic products as their quality is low.
B) Government impedes foreign investment in retailing.
C) Managerial talent is becoming more difficult to find and retain.
D) Stringent regulations on profit margins discourage capitalism.
E) An unstable political scenario increases the risk associated with direct investments.
Answer: A
Explanation: Retailers often cannot rely on domestic products because the quality of products
made in Russia tends to be poor.
Difficulty: 1 Easy
retailers.
Bloom's: Remember
82) Mindy's, a fashion brand, has a significant cost benefit that facilitates success in international
markets in which price plays an important role in consumer decision making. Which of the
following is most likely a reason for Mindy's success in international markets?
A) A global culture
B) Adaptability
C) Human resources
D) Financial resources
E) Globally sustainable competitive advantage
Answer: E
Explanation: This is an example of a globally sustainable competitive advantage. Entry into
nondomestic markets is most successful when the expansion opportunity builds on the retailer's
core bases of competitive advantage.
Difficulty: 1 Easy
retailers.
Bloom's: Apply
39
83) Papa Bean, a global chain of pizzerias, has operations in more than 80 countries around the
world. Its menu varies considerably in different countries, assimilating minute details from the
local culture to add to its truly global flavor. Which of the following is most likely a reason for
the success of Papa Bean in international markets?
A) A global culture
B) Adaptability
C) Human resources
E) Rigidity
Answer: B
Explanation: Successful global retailers recognize cultural differences and adapt their core
strategy to the needs of local markets. This is an example of adaptability.
Difficulty: 1 Easy
retailers.
Bloom's: Apply
84) Fresh Foods, a chain of international supermarkets, has operations in 20 countries around the
world. Fresh Foods always encourages the rapid development of local management and retains
few expatriates in its overseas operations. Fresh Foods' management ranks are truly international.
Which of the following is most likely a reason for the success of Fresh Foods in international
markets?
A) A global culture
B) Adaptability
C) Capital assets
E) Rigidity
Answer: A
Explanation: To be global, retailers must think globally. This is an example of success through a
global culture.
retailers.
Bloom's: Apply
40
85) Lezos, a chain of international restaurants, has operations in more than 50 countries around
the world. The company has a practice of investing in projects long enough for them to become
successful. Which of the following is most likely a reason for the success of Lezos in
international markets?
A) A global culture
B) Adaptability
C) Human resources
E) Rigidity
Answer: D
Explanation: Successful global retailers have the ability to keep investing in projects long
enough to become successful. This is an example of success because of the availability of
financial resources.
retailers.
Bloom's: Apply
86) ________ occurs when a retail firm invests in and owns a retail operation in a foreign
country.
A) Inventory investment
B) Portfolio investment
C) Direct investment
D) Philatelic investment
E) Alternative investment
Answer: C
Difficulty: 1 Easy
retailers.
Bloom's: Remember
41
87) Toss, a chain of sports equipment retailers, plans to invest in a retail operation in a foreign
country. Which of the following categories of investments does this belong to?
A) Philatelic investment
B) Alternative investment
C) Inventory investment
D) Portfolio investment
E) Direct investment
Answer: E
Difficulty: 3 Hard
retailers.
Bloom's: Apply
88) Which of the following statements is a key advantage of direct investments?

A) The retailer has complete control of the operations.
B) The retailer is exempted from trade taxes.
C) The retailer is at freedom to choose which nation's law they adhere to.
D) The retailer is exempted from local trade laws.
E) A loss is borne equally by all involved parties.
Answer: A
Explanation: A key advantage of direct investment is that the retailer has complete control of the
operations.
Difficulty: 1 Easy
retailers.
Bloom's: Remember
42
89) A(n) ________ is formed when the entering retailer pools its resources with a local retailer to
form a new company in which ownership, control, and profits are shared.
A) merger
B) joint venture
C) acquisition
D) strategic alliance
E) takeover
Answer: B
Explanation: A joint venture is formed when the entering retailer pools its resources with a local
retailer to form a new company in which ownership, control, and profits are shared.
Difficulty: 1 Easy
retailers.
Bloom's: Remember
90) Flee, a chain of electronic stores, plans to grow geographically. It has tied up with local
retailers in international markets to form a new company in which ownership, control, and profits
are shared between all involved parties. Which of the following entry strategies is being followed
by Flee?
A) Acquisition
B) Merger
C) Takeover
D) Joint venture
E) Strategic alliance
Answer: D
Explanation: A joint venture is formed when the entering retailer pools its resources with a local
retailer to form a new company in which ownership, control, and profits are shared.
Difficulty: 1 Easy
retailers.
Bloom's: Apply
43
91) Which of the following statements is an advantage of a joint venture?
A) The entering retailer is exempted from trade taxes.
B) Trade laws favor the entering retailer.
C) The entering retailer takes all the profits.
D) The entering retailer has complete control of the operations.
E) The local partner provides an understanding of the market.
Answer: E
Explanation: A joint-venture entry strategy reduces the entrant's risks. In addition to sharing the
financial burden, the local partner provides an understanding of the market and has access to
local resources, such as vendors and real estate.
Difficulty: 1 Easy
retailers.
Bloom's: Remember
92) Which of the following statements is a disadvantage of a joint venture?

A) The entering retailer must bear all the loss.
B) Only the local retailer is exempted from trade laws.
C) Government places restrictions on the repatriation of profits.
D) Only the local retailer is exempted from trade tax.
E) The local retailer is at freedom to choose which laws they adhere to.
Answer: C
Explanation: Problems with a joint venture entry approach can arise if the partners disagree or
the government places restrictions on the repatriation of profits.
Difficulty: 1 Easy
retailers.
Bloom's: Understand
44
93) A(n) ________ is a collaborative relationship between independent firms.
A) strategic alliance
B) joint venture
C) acquisition
D) merger
E) takeover
Answer: A
Explanation: A strategic alliance is a collaborative relationship between independent firms.
Difficulty: 1 Easy
retailers.
Bloom's: Remember
94) MarMa, a retailer of auto accessories, plans to grow geographically. It has tied up with
independent international firms to facilitate its local logistical activities. Which of the following
entry strategies is being followed by MarMa?
A) Takeover
B) Joint venture
C) Acquisition
D) Merger
E) Strategic alliance
Answer: E
Explanation: A strategic alliance is a collaborative relationship between independent firms. A
retailer might enter an international market through direct investment but use independent firms
to facilitate its local logistical and warehousing activities.
Difficulty: 1 Easy
retailers.
Bloom's: Apply
45
95) Which of the following statements is true of franchising?
A) It offers the highest risk and requires the least investment but also has the highest potential
return on investment.
B) It offers the lowest risk and requires the least investment but also has the lowest potential
C) It offers the lowest risk and requires the most investment but also has the highest potential
D) It offers the highest risk and requires the most investment but also has the highest potential
E) It offers the highest risk and requires the most investment but also has the lowest potential
Answer: B
Explanation: Franchising offers the lowest risk and requires the least investment but also has the
lowest potential return on investment.
Difficulty: 1 Easy
retailers.
Bloom's: Remember
96) Which of the following statements is a disadvantage of franchising?

A) The retailer bears all the loss.
B) Heavy taxes are levied on the retailer.
C) Local laws favor the franchise.
D) The potential profit is reduced.
E) This is the most expensive method of entering a new market.
Answer: D
Explanation: Franchising offers the lowest risk and requires the least investment but also has the
lowest potential return on investment. The retailer has limited control over the retail operations
in the foreign country, its potential profit is reduced, and the risk of assisting in the creation of a
local domestic competitor increases.
Difficulty: 1 Easy
retailers.
Bloom's: Remember
46
97) Which of the following steps is typically the first step in the strategic retail planning process?
A) Develop a retail mix to implement strategy.
B) Evaluate performance and make adjustments.
C) Define the business mission.
D) Evaluate strategic alternatives.
E) Identify strategic opportunities.
Answer: C
Explanation: Defining the business mission is typically the first step in the strategic planning
process.
Bloom's: Remember
98) Dave is a part of the strategic retail planning process in his organization. He has defined the
business mission. Which of the following steps is most likely Dave's next stage in the strategic
planning process?
A) Conduct a SWOT analysis.
B) Evaluate performance and make adjustments.
C) Develop a retail mix to implement strategy.
D) Establish specific objectives and allocate resources.
E) Evaluate strategic alternatives.
Answer: A
Explanation: After developing a mission statement and setting objectives, the next step in the
strategic planning process is to conduct a SWOT analysis. A SWOT analysis involves an
analysis of the retailer's internal environment (strengths and weaknesses) and external
environment (opportunities and threats).
Bloom's: Apply
47
99) Which of the following factors is classified as a market factor?
A) Economic conditions
B) New technology
C) Barriers to entry
D) Competitive rivalry
E) Seasonality
Answer: E
Explanation: Market size, market growth, cyclicality of sales, and seasonality are classified as
market factors.
Bloom's: Remember
100) Which of the following factors is classified as a competitive factor?

A) Social changes
B) Bargaining power of vendors
C) New technology
D) Economic conditions
E) Market growth
Answer: B
Explanation: Barriers to entry, bargaining power of vendors, and competitive rivalry are
classified as competitive factors.
Bloom's: Remember
48
101) Which of the following is true of scale economies?
A) Scale economies are volume advantages due to a retailer's cost.
B) Scale economies are volume advantages due to a retailer's size.
C) Scale economies are cost advantages due to a retailer's size.
D) Scale economies are size advantages due to a retailer's cost.
E) Scale economies are size advantages due to a retailer's volume.
Answer: C
Explanation: Scale economies are cost advantages due to a retailer's size.
Bloom's: Remember
102) Which of the following factors is classified as environmental dynamics?

A) Market size
B) Seasonality
C) Barriers to entry
D) Social changes
E) Competitive rivalry
Answer: D
Explanation: Technological changes, economic/consumer/social changes, and regulatory
changes are classified as environmental dynamics.
Bloom's: Remember
49
103) Which of the following is a condition that may lead to competitive rivalry?
A) Large number of competitors of the same size
B) Presence of perceived differences between competing retailers
C) Fast growth
D) Low fixed costs
E) Lack of competition
Answer: A
Explanation: Conditions that may lead to intense rivalry include (1) a large number of
competitors that are all about the same size, (2) slow growth, (3) high fixed costs, and (4) a lack
of perceived differences between competing retailers.
Bloom's: Understand
104) Josh is responsible for the strategic retail planning process in his organization. He has
defined the business mission and conducted a SWOT analysis. Which of the following steps is
most likely his next stage in the strategic retail planning process?
A) Evaluate strategic opportunities.
B) Establish specific objectives and allocate resources.
C) Identify strategic opportunities.
D) Develop a retail mix to implement strategy.
E) Evaluate performance and make adjustments.
Answer: C
Explanation: Identifying strategic opportunities is typically the next step after conducting a
SWOT analysis in the strategic retail planning process.
Bloom's: Apply
50
105) Luke is responsible for the strategic retail planning process in his organization. He is
currently identifying the strategic opportunities. Which of the following steps is most likely to
have been Luke's previous step before identifying the strategic opportunities?
A) Evaluating performance
B) Developing a retail mix
C) Establishing specific objectives
D) Evaluating strategic opportunities
E) Conducting a SWOT analysis
Answer: E
Explanation: Identifying strategic opportunities is typically the stage after conducting a SWOT
analysis in the strategic retail planning process.
Bloom's: Apply
106) Zara is responsible for the strategic retail planning process in her organization. She has
identified the strategic opportunities. Which of the following steps is most likely Zara's next
stage in the strategic retail planning process?
A) Define the business mission.
B) Evaluate strategic opportunities.
C) Evaluate performance.
D) Develop a retail mix.
E) Establish specific objectives.
Answer: B
Explanation: Evaluating strategic opportunities is typically the stage after identifying strategic
opportunities in the strategic retail planning process.
Bloom's: Apply
51
107) Which of the following steps is typically the next step after evaluating strategic
opportunities in the strategic retail planning process?
A) Establishing specific objectives
B) Developing a retail mix
C) Evaluating performance
D) Defining the business mission
Answer: A
Explanation: After evaluating strategic alternatives, specific objectives are established in the
typical strategic retail planning process.
Bloom's: Understand
108) Which of the following steps is typically the previous step before evaluating the strategic
opportunities in the strategic retail planning process?
A) Defining the business mission
B) Establishing specific objectives
C) Identifying strategic opportunities
D) Developing a retail mix
E) Evaluating performance
Answer: C
Explanation: Identifying strategic opportunities is typically the previous stage before evaluating
strategic opportunities in the strategic retail planning process.
Bloom's: Understand
52
109) Which of the following steps is typically the next step after establishing specific objectives
and allocating resources in the strategic retail planning process?
A) Identifying strategic opportunities
B) Developing a retail mix to implement the strategy
C) Evaluating performance and making adjustments
Answer: B
Explanation: Developing a retail mix to implement the strategy is typically the next step after
establishing specific objectives and allocating resources in the strategic retail planning process.
Bloom's: Understand
110) Which of the following steps is typically the previous step before establishing specific
objectives and allocating resources in the strategic retail planning process?
A) Identifying strategic opportunities
B) Developing a retail mix to implement strategy
C) Evaluating performance and making adjustments
E) Evaluating strategic opportunities
Answer: E
Explanation: Evaluating strategic opportunities is typically the previous step before establishing
specific objectives and allocating resources in the strategic retail planning process.
Bloom's: Understand
53
111) Which of the following steps is typically the next step after developing a retail mix to
implement the strategy in the strategic retail planning process?
A) Establishing specific objectives and allocating resources
B) Evaluating strategic opportunities
D) Evaluating performance and making adjustments
E) Defining the business mission
Answer: D
Explanation: Evaluating performance and making adjustments is typically the next step after
developing a retail mix to implement the strategy in the strategic retail planning process.
Bloom's: Understand
112) Which of the following steps is typically the previous step before developing a retail mix to
implement the strategy in the strategic retail planning process?
A) Establishing specific objectives and allocating resources
B) Evaluating strategic opportunities
D) Evaluating performance and making adjustments
E) Defining the business mission
Answer: A
Explanation: Establishing specific objectives and allocating resources is typically the previous
step before developing a retail mix to implement the strategy in the strategic retail planning
process.
Bloom's: Understand
54
113) Which of the following steps is typically the last step in the strategic retail planning
process?
A) Develop a retail mix to implement strategy.
B) Establish specific objectives and allocate resources.
C) Evaluate performance and make adjustments.
D) Identify strategic opportunities.
E) Define the business mission.
Answer: C
Explanation: Evaluating performance and making adjustments is typically the last step in the
strategic planning process.
Bloom's: Understand
114) Which of the following steps is most likely to be the previous step before evaluating
performance and making adjustments in the strategic retail planning process?
A) Define the business mission.
B) Develop a retail mix to implement strategy.
C) Identify strategic opportunities.
D) Conduct a SWOT analysis.
E) Evaluate strategic opportunities.
Answer: B
Explanation: Developing a retail mix to implement the strategy is the previous step before
evaluating performance and making adjustments in the strategic retail planning process.
Bloom's: Understand
55
115) Name five approaches for retailers to develop a sustainable competitive advantage.
Answer: The five approaches for retailers to develop a sustainable competitive advantage are
• Customer loyalty
• Location
• Human resource management
• Distribution and information systems
• Vendor relations
Difficulty: 1 Easy
Bloom's: Remember
116) Describe customer loyalty and the ways in which retailers can build customer loyalty.
Answer: Customer loyalty means that customers are committed to buying merchandise and
services from a particular retailer. A retailer can build customer loyalty by
• developing a strong brand for the store or store brands,
• developing clear and precise positioning strategies,
• offering unique merchandise,
• providing outstanding customer service,
• implementing customer relationship management programs (such as loyalty programs), and
• building a retail community.
Difficulty: 1 Easy
Bloom's: Remember
117) Define positioning.
Answer: Positioning is the design and implementation of a retail mix to create an image of the
retailer in the customer's mind relative to its competitors.
Difficulty: 1 Easy
Bloom's: Remember
56
118) Why would a retailer desire to have private-label or store brands?
Answer: It is difficult for a retailer to develop customer loyalty through its merchandise
offerings because most competitors can purchase and sell the same popular national brands. But
many retailers build customer loyalty by developing private-label brands. These brands that are
found only at the retailer's stores can build customer loyalty, resulting in a sustainable
competitive advantage.
Difficulty: 1 Easy
Bloom's: Remember
119) What are customer relationship management programs?
Answer: Customer relationship management (CRM) programs, also called loyalty or frequent
shopper programs, are activities that focus on identifying and building loyalty with a retailer's
most valued customers. These programs typically involve offering customers rewards based on
the amount of services or merchandise they purchase. For example, airlines offer free tickets to
travelers who have flown a prescribed number of miles, and Subway gives customers a free
sandwich for each 10 they purchase.
Difficulty: 1 Easy
Bloom's: Remember
120) How can a retailer use the market penetration opportunity to foster growth?
Answer: Growth can be achieved by using the market penetration opportunity by attracting
customers in the retailer's current target market who don't patronize the retailer currently or
devising strategies that induce current customers to visit the retailer more often and/or buy more
merchandise on each visit.
Bloom's: Remember
57
121) Differentiate between related and unrelated diversification.
Answer: In a related diversification growth opportunity, the retailer's present target market and
retail format share something in common with the new opportunity. This commonality might
entail purchasing from the same vendors, operating in similar locations, using the same
distribution or management information system, or advertising in the same newspapers to similar
target markets. In contrast, an unrelated diversification growth opportunity has little
commonality between the retailer's present business and the new growth opportunity.
Bloom's: Remember
122) List the key opportunities for success in global retailing.
Answer: Four characteristics of retailers that have successfully exploited international growth
opportunities are
• a globally sustainable competitive advantage,
• adaptability,
• a global culture, and
• financial resources.
Difficulty: 1 Easy
retailers.
Bloom's: Remember
123) Describe franchising.
Answer: Franchising offers the lowest risk and requires the least investment but also has the
lowest potential return on investment. The retailer has limited control over the retail operations
in the foreign country, its potential profit is reduced, and the risk of assisting in the creation of a
local domestic competitor increases.
Difficulty: 1 Easy
retailers.
Bloom's: Remember
58
124) List the steps in the strategic retail planning process.
Answer: The following are the steps in the strategic retail planning process:
• define the business mission,
• conduct a SWOT analysis,
• identify strategic opportunities,
• evaluate strategic opportunities,
• establish specific objectives and allocate resources,
• develop a retail mix to implement the strategy, and
• evaluate performance and make adjustments.
Bloom's: Remember
59
Chapter 6 Financial Strategy
1) Return on assets (ROA) is the profit generated by the assets possessed by the firm.
Answer: TRUE
Explanation: Return on assets (ROA) is the profit generated by the assets possessed by the firm.
Difficulty: 1 Easy
Topic: Strategic Objectives for the Retail Firm
Learning Objective: 06-01 Review the strategic objectives of a retail firm.
Bloom's: Remember
2) Self-gratification for the retailer is classified as a societal objective.
Answer: FALSE
Explanation: Self-gratification for the retailer is a personal objective.
Bloom's: Remember
3) Gross margin is the total revenues received by a retailer that are related to selling merchandise
during a given time period minus returns, discounts, and credits for damaged merchandise.
Answer: FALSE
Explanation: Net sales are the total revenues received by a retailer that are related to selling
merchandise during a given time period minus returns, discounts, and credits for damaged
merchandise.
Topic: Asset Management and the Strategic Profit Model
Learning Objective: 06-02 Contrast the two paths to financial performance using the strategic
profit model.
Bloom's: Remember
1
4) Cost of goods sold (COGS) includes what the retailer pays to suppliers for the merchandise
the retailer sells.
Answer: TRUE
Explanation: What the retailer is invoiced for and pays to the supplier or vendor is part of the
cost of goods sold (COGS). Also included in COGS is any transportation cost that the retailer
initially pays to get the merchandise to their distribution center from the supplier.
Difficulty: 1 Easy
profit model.
Bloom's: Remember
5) A formula for calculating inventory turnover is: Cost of goods sold (COGS)/Average
inventory at cost.
Answer: TRUE
Explanation: The formula for calculating inventory turnover is: Cost of goods sold
(GOGS)/Average inventory at cost or Net sales (at Retail)/Average inventory (at retail).
profit model.
Bloom's: Remember
6) The formula for calculating asset turnover is: Asset turnover = Cost of goods/Total assets.
Answer: FALSE
Explanation: The formula for calculating asset turnover is: Asset turnover = Net sales/Total
assets.
Learning Objective: 06-03 Illustrate the use of the strategic profit model for analyzing growth
opportunities.
Bloom's: Remember
2
7) Charging for space in stores is referred to as a slotting allowance.
Answer: TRUE
Explanation: Grocery stores often charge vendors for space in their stores, known as a slotting
fee or slotting allowance.
Difficulty: 1 Easy
profit model.
Bloom's: Remember
8) Same-store sales is the same as comparable-store sales growth.
Answer: TRUE
Explanation: Both same-store sales and comparable store sales growth compare sales growth in
stores that have been open for at least one year.
Topic: Measures for Assessing Retailers Performance
Learning Objective: 06-04 Review the measures retailers use to assess their performance.
Bloom's: Remember
9) Top-down planning means that goals get set at the top of the organization and are passed
down to the lower operating levels.
Answer: TRUE
Explanation: Top-down planning means that goals get set at the top of the organization and are
passed down to the lower operating levels.
Difficulty: 1 Easy
Bloom's: Understand
3
10) Output measures assess the results of a retailer's investment decisions.
Answer: TRUE
Explanation: Output measures assess the results of a retailer's investment decisions.
Difficulty: 1 Easy
Bloom's: Understand
11) Jake, who runs a health food store, finds it is rewarding to interact with customers who like
to eat organic and health food. Hence, he is recognized in the local community. Which objective
of retailing does Jake emphasize by this practice?
A) Financial objective
B) Personal objective
C) Societal objective
D) Environmental objective
E) Administrational objective
Answer: B
Explanation: Many retailers, particularly owners of small, independent businesses, have
important personal objectives, including self-gratification, status, and respect.
Bloom's: Apply
12) Which of the following statements is not true about the strategic profit model?
A) It is a method for summarizing the factors that affect a firm's financial performance.
B) It indicates the impacts of factors affecting a firm's return on assets (ROA).
C) It decomposes return on assets (ROA) into net profit and operating expenses.
D) It illustrates the different approaches for achieving a high return on assets (ROA).
E) It suggests profit margin management path and asset turnover management path.
Answer: C
Explanation: In the strategic profit model, ROA is decomposed into operating profit margin
percentage and asset turnover.
profit model.
Bloom's: Remember
4
13) Which of the following is an integral part of the strategic profit model?
A) Retained earnings
B) Asset turnover
C) Inventory turnover
D) Current liabilities
E) Gross margin
Answer: B
Explanation: Asset turnover is the only component of these choices in the strategic profit model.
profit model.
Bloom's: Remember
14) What does asset turnover measure?

A) It is the retailer's gross sales divided by its net sales.
B) It is the retailer's total productivity divided by its net sales.
C) It is the retailer's average productivity divided by gross sales.
D) It is the retailer's net sales divided by its assets.
E) It is the retailer's total productivity divided by gross sales.
Answer: D
Explanation: Asset turnover is the retailer's net sales divided by its assets.
profit model.
Bloom's: Remember
5
15) Operating profit margin is
A) Gross margin minus operating expenses.
B) Cost of goods sold minus gross margin.
C) Net sales minus gross margin
D) Operating expenses minus gross margin.
E) Operating expenses divided by net sales.
Answer: A
Explanation: Operating profit margin is the gross margin minus the operating expenses.
profit model.
Bloom's: Remember
16) If you had $50,000 and you wanted to invest in stocks, you have two options. Which of the
following ratios would best help you to decide on your investment?
A) Inventory turnover
B) Asset turnover
C) Return on assets
D) Gross profit margin
E) Net profit margin
Answer: C
Explanation: Return on assets is an important performance measure for a firm and its
stockholders because it measures the profits that a firm makes relative to the assets it possesses.
profit model.
Bloom's: Understand
6
17) By knowing the return on assets for his bakery, Chuck will know
A) how much profit was generated from his investment in assets.
B) information found only on his balance sheet.
C) information found only on his income statement.
D) total assets divided by net profits.
E) total assets divided by owners' equity.
Answer: A
Explanation: Return on assets is an important performance measure for a firm and its
stockholders because it measures the profits that a firm makes relative to the assets it possesses.
profit model.
Bloom's: Understand
18) Which of the following statements does not describe asset turnover?
A) It is the retailer's net sales divided by its assets.
B) It assesses the productivity of a firm's investments in its assets.
C) It indicates how many sales dollars are generated by each dollar of asset.
D) It suggests the profit management path.
E) It helps determine the retailer's ROA.
Answer: D
Explanation: Asset turnover assesses the productivity of a retailer's investment in its assets and
indicates how many dollars are generated for each dollar of assets.
profit model.
Bloom's: Understand
7
19) The strategic profit model decomposes ROA into two components
A) operating profit margin percentage and asset turnover.
B) net sales and average organizational turnover.
C) gross sales and average employee productivity.
D) total number of employees and total sales volume.
E) average number of employees and average productivity.
Answer: A
Explanation: The strategic profit model decomposes ROA into two components: (1) operating
profit margin percentage and (2) asset turnover.
profit model.
Bloom's: Remember
20) Calculate the return on assets for a gun shop that has total assets of $410,000, current assets
of $74,000, total liabilities of $280,000, accounts receivable of $12,000, net sales of $64,000,
and operating profit margin of $30,000.
A) 18.3 percent
B) 8.2 percent
C) 7.3 percent
D) 25.0 percent
E) 26.5 percent
Answer: C
Explanation: Return on assets equals operating profit margin ($30,000) divided by total assets
($410,000) converted to a percentage.
profit model.
Bloom's: Apply
8
21) An appliance store has total assets of $2,800,000, accounts receivable of $900,000, accounts
payable of $700,000, inventory valued at $1,500,000, and total liabilities of $2,500,000. In 2016,
its net sales were $2,100,000, and its operating profit margin equaled $42,000. Calculate the
store's return on assets.
A) 71.4 percent
B) 2.8 percent
C) 7.5 percent
D) 1.5 percent
E) 75 percent
Answer: D
Explanation: Return on assets equals operating profit margin ($42,000) divided by total assets
($2,800,000) converted to a percentage.
profit model.
Bloom's: Apply
22) Melanie's Bead Shoppe has total assets of $45,000, accounts receivable of $2,000, accounts
payable of $3,100, and inventory valued at $20,000. Last year, her net sales were $29,000, and
her operating profit margin equaled $14,000. What is her return on assets?
A) 31.1 percent
B) 12.5 percent
C) 7.0 percent
D) 22.0 percent
E) 48.3 percent
Answer: A
Explanation: Return on assets equals operating profit margin of $14,000 divided by total assets
of $45,000, which equals 31.1%.
profit model.
Bloom's: Apply
9
23) The information used to analyze a firm's profit path comes from the
A) balance sheet.
B) profitability statement.
C) income statement.
D) strategic profit model.
E) financial leverage statement.
Answer: C
Explanation: The information used to examine the profit margin management path comes from
the retailer's income statement, also known as the statement of operations.
profit model.
Bloom's: Remember
24) Tony wanted to know what the net sales and the net profit after tax were last year for his
nephew's business, The Big Guy Shop. Tony should look at the store's
A) balance sheet.
B) financial leverage statements.
C) strategic profit model.
D) profitability statement.
E) income statement.
Answer: E
Explanation: The income statement summarizes the financial performance of a firm over a
period of time.
profit model.
Bloom's: Apply
10
25) ________ are the total revenues received by a retailer that are related to selling merchandise
during a given time period.
A) Gross assets
B) Net profits
C) Gross sales
D) Total profits
E) Net sales
Answer: E
Explanation: Net sales are the total revenues received by a retailer that are related to selling
merchandise during a given time period minus returns, discounts, and credits for damaged
merchandise.
profit model.
Bloom's: Remember
26) Which of the following is not a component in the calculation of net sales?
A) Gross sales
B) Customer returns
C) Promotional allowances
D) Interest
Answer: D
Explanation: Net sales are revenues received in relation to selling products; interest would
therefore not be a component, whereas all other selections impact sales.
profit model.
Bloom's: Remember
11
27) Country Homes is a store for people who collect country arts and crafts and use them to
decorate their homes. Last year, its net sales totaled $120,500. The cost value of the items it sold
was $72,300. Taxes for the year were $7,680. The only expenses that the operation had were (1)
rent for $3000, (2) salaries to the owner and one part-time assistant for $27,000, (3) utilities at
$1,200, and (4) advertising of $500. Calculate the gross margin percentage for Country Homes.
A) 40 percent
B) 26.3 percent
C) 9.6 percent
D) 60.2 percent
E) 7.3 percent
Answer: A
Explanation: Gross Margin = Net Sales - Cost of goods sold = $120,500 - $72,300 = $48,200.
Gross margin/Net sales = Gross margin percent. 48,200/120,500 = 0.4 * 100 = 40%
profit model.
Bloom's: Apply
28) The amount paid for the merchandise by the retailer is the
A) cost of goods sold.
B) gross margin.
C) operating expense.
D) fixed expense.
E) variable expense.
Answer: A
Explanation: Cost of goods sold (COGS) is the amount a retailer pays to vendors for the
merchandise the retailer sells.
profit model.
Bloom's: Remember
12
29) What measures the profitability of products that are sold?
A) Accounts receivable
B) Asset turnover
C) Gross margin
D) Owner's equity
E) Shrinkage
Answer: C
Explanation: Gross margin is a measurement of the profitability of the goods sold, or profit on
the merchandise. Gross margin, also called gross profit, is the net sales minus the cost of the
goods sold. It is an important measure in retailing because it indicates how much profit the
retailer is making on merchandise sold, without considering the expenses associated with
operating the store and corporate overhead expenses.
profit model.
Bloom's: Remember
30) ________ gives the retailer a measure of how much profit it is making on merchandise sales
without considering the expense associated with operating the store.
A) Gross margin
B) Financial leverage
C) General expenses
D) Expenses
E) Net profit
Answer: A
Explanation: Gross margin, also called gross profit, is the net sales minus the cost of the goods
sold. It is an important measure in retailing because it indicates how much profit the retailer is
making on merchandise sold, without considering the expenses associated with operating the
store and corporate overhead expenses.
profit model.
Bloom's: Remember
13
31) The formula for calculating gross margin is
A) net sales minus the cost of the goods sold.
B) gross sales plus the cost of goods sold.
C) net sales minus gross sales plus the cost of goods sold.
D) gross sales minus the cost of goods sold.
E) net sales plus the cost of goods sold.
Answer: A
Explanation: Gross margin, also called gross profit, is the net sales minus the cost of the goods
sold.
profit model.
Bloom's: Remember
32) Which of the following statements does not describe gross margin?
A) It can be expressed as a percentage of net sales.
B) It is the profit on the goods sold excluding the operating expenses.
C) It is also referred to as gross profit.
D) It is a performance measurement.
E) It is a measure of return on assets.
Answer: E
Explanation: Gross margin, also called gross profit, is a performance measurement of the profit
on the goods sold.
profit model.
Bloom's: Remember
14
33) What ratio should a retailer use to best compare the performance of cashmere sweaters
versus cotton sweaters?
A) Cost of goods sold percent
B) Gross margin percent
C) Operating expense percent
D) Fixed expense percent
E) Variable expense percent
Answer: B
Explanation: Gross margin percentage is gross margin divided by net sales. Retailers use this
ratio to compare (1) the performance of various types of merchandise and (2) their own
performance with that of other retailers with higher or lower levels of sales.
profit model.
Bloom's: Understand
34) In response to a growing trend of workers eating at their work stations, OfficeEase, an
Internet retailer, offers a line of products that can be used to protect office equipment and
furniture, including a plastic sheath for a computer keyboard and a spill-proof cup. Last year, its
net sales were $1,450,000 with cost of goods sold for $353,000. The company's expenses last
year totaled $960,000. Calculate the company's net profit percentage.
A) 9.4 percent
B) 24.3 percent
C) 66.2 percent
D) 75.6 percent
E) 8.0 percent
Answer: A
Explanation: Gross Margin = Net Sales − Cost of Goods Sold = $1,450,000 − $353,000 =
$1,097,000.
Net Profit = Gross Margin − Expenses = $1,097,000 − $960,000 = $137,000.
Net Profit Percentage = (Net Profit/Net Sales) * 100 = ($137,000/$1,450,000) * 100 = 9.4
percent.
Difficulty: 3 Hard
profit model.
Bloom's: Apply
15
35) How is gross margin percent calculated?
A) Gross margin divided by net sales
B) Add operating and interest expenses together and divide by gross sales
C) Net sales multiplied by gross margin
D) Cost of goods sold divided by gross sales
E) Divide net profit by net sales
Answer: A
Explanation: Gross margin percent is calculated by diving gross margin by net sales.
profit model.
Bloom's: Remember
36) The hosting of a website for the purpose of online retailing would be classified as a(n)
A) cost of goods sold.
B) operating expense.
C) promotional allowance.
D) profit center.
E) asset productivity center.
Answer: B
Explanation: Operating expenses are costs other than the cost of the merchandise. The hosting of
a website would be similar to paying rent for space.
profit model.
Bloom's: Remember
16
37) How is operating profit margin percent calculated?
A) Gross margin divided by net sales
B) Add operating and interest expenses together and divide by gross sales
C) Net sales multiplied by gross margin
D) Cost of goods sold divided by gross sales
E) Divide operating profit by net sales
Answer: A
Explanation: Operating profit margin is calculated by dividing operating profit dollars by net
sales dollars.
profit model.
Bloom's: Remember
38) Second Chance is a paperback book exchange. For each book trade, the buyer pays a $1
trade fee. Books that are sold and not traded cost half of their original purchase price. The store
has total assets of $126,000 and current assets of $40,200. Its net sales equaled $35,000, and its
net profit after taxes was $9,000. Calculate the store's net profit percentage.
A) 7.1%
B) 21.7%
C) 22.4%
D) 25.7%
E) 27.7%
Answer: D
Explanation: Net Profit Percentage = (Net profit after taxes/Net sales) * 100 = ($9,000/$35,000)
* 100 = 25.7%
profit model.
Bloom's: Apply
17
39) Which of the following is expressed as a percentage of net sales?
A) Accounts receivable
B) Net profit margin
C) Gross sales
D) Operating expenses
E) Total assets
Answer: B
Explanation: Net profit/net sales = net profit margin
profit model.
Bloom's: Remember
40) Candle in the Wind is a store for people who enjoy and collect candles to decorate their
homes. Last year, its net sales totaled $125,000 with $13,700 in taxes. The cost value of the
candles it sold was $42,300. The expenses that the operation has are salaries to the owner and
one part-time assistant for $52,000, administrative expenses of $400, and utilities at $900.
Calculate the net profit after tax for Candle in the Wind.
A) $29,400
B) $17,000
C) $53,300
D) $15,700
E) $16,100
Answer: D
Explanation: Expenses = $52,000 + $400 + $900 = $53,300
Gross Margin = Net Sales − Cost of goods sold = $125,000 − $42,300 = $82,700
Net Profit before tax = Gross Margin − Expenses = $82,700 − $53,300 = $29,400
Net Profit after tax = Net Profit before Tax − Taxes = $29,400 − $13,700 = $15,700
Difficulty: 3 Hard
profit model.
Bloom's: Apply
18
41) Alpha is popular loungewear that prides itself on its versatility. Last year, its net sales were
$1,750,000 with cost of goods of $390,000. The company's operating expenses totaled $960,000.
Calculate the company's net operating profit margin percentage.
A) 77.1 percent
B) 22.2 percent
C) 22.9 percent
D) 12.5 percent
E) 19.3 percent
Answer: C
Explanation: Gross Margin = Net Sales − Cost of goods sold = $1,750,000 − $390,000 =
$1,360,000.
Gross Margin – Operating Expenses = $1,360,000 − $960,000 = $400,000 Net Operating Profit
Net Operating Profit/Net Sales = Net Operating Profit Margin
$400,000 / $1,750,000 = 22.9% (.2285 rounds to 22.9%)
Difficulty: 3 Hard
profit model.
Bloom's: Apply
42) Billie Jean's Bridals has total assets of $350,000, current assets of $74,000, total liabilities of
$280,000, accounts receivable of $12,000, net sales of $64,000, and net profit after taxes of
$23,000. Calculate the retailer's net profit percentage.
A) 18.75 percent
B) 20 percent
C) 25 percent
D) 31.1 percent
E) 35.9 percent
Answer: E
Explanation: Net profit margin % = Net profit after tax/Net sales.
Net profit margin of $23,000 divided by $64,000 = 35.9%
profit model.
Bloom's: Apply
19
43) Why would a discount store have a lower gross margin percent than a jewelry store?
A) Discount stores are only beginning to explore gross margin in pricing decisions.
B) Jewelry stores cannot offer the variety that discount stores offer.
C) Discount stores traditionally do not profit as well as jewelry stores.
D) Discount stores have a lower priced merchandise strategy.
E) Discount stores have a higher cost of goods sold.
Answer: D
Explanation: A retailer's strategy differs based upon its target customer and merchandise
strategy. A retailer that offers less customer service and ambiance needs less gross margin to
cover operating expenses.
profit model.
Bloom's: Remember
44) Why is it important for department stores to achieve a high gross margin?
A) Their operating expenses are higher than other retail formats.
B) It is stated in the store's financial objectives.
C) Without a high gross margin, department stores will be unable to achieve a high asset
turnover.
D) The strategic profit model will otherwise change the strategy of the retailer.
E) A low gross margin will turn it into a discounter.
Answer: A
Explanation: It is important for department stores to achieve a relatively high gross margin
because their operating expenses tend to be higher than those of other retail formats like discount
stores. Operating expenses are costs, other than the cost of merchandise, incurred in the normal
course of doing business, such as salaries for sales associates and managers, advertising, utilities,
office supplies, and rent.
profit model.
Bloom's: Understand
20
45) When Chris charges a gallon of chlorine for his pool at Pinch-A-Penny to his store account,
he creates a(n) ________ for the retailer.
A) long-term liability
B) accounts payable
C) notes receivable
D) notes payable
E) accounts receivable
Answer: E
Explanation: Accounts receivables are what is owed to the retailer by customers who have
purchased merchandise on credit.
profit model.
Bloom's: Remember
46) The formula for calculating operating expenses percentage is

A) total sales/operating expenses.
B) gross sales/operating expenses.
C) operating expenses/net sales.
D) average sales/gross sales.
E) total sales/average sales.
Answer: C
Explanation: The operating expenses percentage is operating expenses divided by net sales.
profit model.
Bloom's: Remember
21
47) The information used to analyze a retailer's asset management path primarily comes from the
A) strategic profit model.
B) financial leverage statement.
E) balance sheet.
Answer: E
Explanation: The balance sheet summarizes a retailer's financial position at a given point in
time, typically the end of its fiscal year.
profit model.
Bloom's: Remember
48) Which of the following would be listed as an asset on the balance sheet for a children's
clothing shop?
A) Interest due on startup loan
B) Retained earnings
C) Accounts receivable
D) Money owed to vendors
E) Cost of goods sold
Answer: C
Explanation: Current assets can be normally converted to cash within one year. Examples would
be primarily cash, accounts receivable, and merchandise inventory.
profit model.
Bloom's: Understand
22
49) Which of the following would not be listed as an asset on the balance sheet of a hardware
store?
A) Nuts and bolts
B) A set of metric wrenches
C) Display cabinets
D) A $55 credit card charge from a store patron
E) Accounts payable
Answer: E
Explanation: All are assets except for accounts payable. Accounts receivable is an asset, but not
what needs to be paid out.
profit model.
Bloom's: Understand
50) If Mohammed wanted to examine the assets and liabilities of the Silver Exchange Coin Shop
for the end of the year, he should look at its
A) balance sheet.
B) financial leverage statements.
E) strategic profit model.
Answer: A
Explanation: The balance sheet summarizes a retailer's financial position at a given point in
time, typically the end of its fiscal year.
profit model.
Bloom's: Understand
23
51) The Bookstore Café is a small restaurant located in a downtown business district. It is
opened for breakfast and lunch and serves simple yet nutritious meals and also sells books from
the New York Times bestseller list. How would you categorize the book inventory, cooking
equipment, tables, chairs, and the register?
A) As retained earnings
B) As assets
C) As current liabilities
D) As investor capital
E) As owners' equity
Answer: B
Explanation: All are economic resources owned and/or controlled by the storeowner, so these
are assets. The inventory is a current asset. The others are fixed assets.
profit model.
Bloom's: Apply
52) Of the following, which can be converted into cash within one year?
A) Current assets
B) Fixed assets
C) Accrued assets
D) Accountable assets
E) Substantial assets
Answer: A
Explanation: Current assets can normally be converted to cash within one year. For retailers,
current assets are primarily cash, merchandise inventory, and other assets such as accounts
receivable.
profit model.
Bloom's: Remember
24
53) Which of the following can be considered as a current asset?
A) Net profit percentage
B) Accounts receivable
C) Selling expenses
D) Gross margin
E) Operating expenses
Answer: B
receivable.
Difficulty: 1 Easy
profit model.
Bloom's: Remember
54) Which of the following is classified as an asset?

A) Debts
B) Buildings
C) Accrued wages
D) Deferred revenue
E) Interest payable
Answer: B
Explanation: Assets are economic resources (e.g., inventory, buildings, computers, store
fixtures) owned or controlled by a firm.
profit model.
Bloom's: Remember
25
55) When Erica calculates the current assets for her picture framing business, she should not
include which of the following?
A) Her accounts payable
B) The money in her cash register
C) Office supplies
D) Her accounts receivable
E) The store's inventory of matting
Answer: A
receivable.
profit model.
Bloom's: Understand
56) Harriet's Wimsey is a bookstore for people who love mysteries. How would a complete set of
P. D. James mystery novels, a first edition copy of The Maltese Falcon, the money in the cash
register, and an IOU from a loyal customer who forgot her wallet one day when she came to
purchase the newest Dorothy Cannell book be listed on the store's balance sheet?
A) As owners' equity
B) As current liabilities
C) As fixed assets
D) As long-term liabilities
E) As current assets
Answer: E
receivable.
profit model.
Bloom's: Apply
26
57) As Dean calculates his current assets for his used video game store, he is sure to include
which of the following?
A) Merchandise inventory
B) Accrued liabilities
C) Fixed assets
D) Notes receivable
E) Retained earnings
Answer: A
receivable.
profit model.
Bloom's: Understand
58) When Nick is figuring the current assets for his nail salon, he should be certain to include
________ in his calculations.
A) the cash in the drawer
B) accrued liabilities
C) fixed assets
D) notes receivable
E) retained earnings
Answer: A
receivable.
profit model.
Bloom's: Understand
27
59) What is inventory turnover used to evaluate?
A) It is used to see the speed of the inventory sold.
B) It is used to calculate net sales.
C) It is used to measure average inventory.
D) It is used to see how effectively buyers purchase the right assortments.
E) It is used to calculate gross margin.
Answer: A
Explanation: Inventory turnover shows how many times, on average, inventory cycles through
the store during a specific period of time (usually a year).
profit model.
Bloom's: Remember
60) A store that sells books, magazines, and newspapers has an average inventory of $15,000 at
cost. Its cost of goods for the previous year was $62,000, and its net profit was $9,000. Calculate
the retailer's inventory turnover.
A) 1.67
B) 2.14
C) 6.89
D) 4.13
E) 14.5
Answer: D
Explanation: Inventory turnover = Cost of Goods/Average Inventory at cost = $62,000/$15,000
= 4.13
profit model.
Bloom's: Apply
28
61) Inventory turnover
A) is calculated by dividing accounts receivable by net sales.
B) equals total assets minus current assets divided by average inventory.
C) is calculated by dividing cost of goods sold by average inventory.
D) equals net sales minus cost of goods sold divided by average turnover.
E) is calculated by dividing accounts receivable by average inventory.
Answer: C
Explanation: Inventory turnover is COGS during a time period, typically a year, divided by the
average level of inventory (expressed at cost) during the time period.
profit model.
Bloom's: Remember
62) Which of the following would be a fixed asset?

A) Merchandise inventory
B) A hand calculator
C) The store building
D) Accounts receivable
E) Accounts payable
Answer: C
Explanation: Fixed assets require more than a year to convert to cash. Examples would be
owned buildings, distribution centers, display fixtures, and equipment.
profit model.
Bloom's: Remember
29
63) Which of the following is an example of a fixed asset for a music store?
A) Sheet music that is played in the store
B) An assortment of music displayed in the store
C) A selection of jazz CDs owned by the store employees
D) A wide range of classical and electric guitars
E) A computer that is used to manage the store's inventory
Answer: E
Explanation: Fixed assets require more than a year to convert to cash. Examples would be
owned buildings, distribution centers, display fixtures, and equipment.
profit model.
Bloom's: Understand
64) Which of the following is not an example of a fixed asset for a lawn care service?
A) The trailer used to haul away debris
B) The plant nursery owned by the service
C) The bucket truck it uses to trim trees
D) A computer which is used to manage the store's inventory
E) Its accounts receivable
Answer: E
Explanation: Buildings, stocks, and equipment, which cannot be converted into cash quickly, are
fixed assets.
profit model.
Bloom's: Remember
30
65) Asset turnover
A) is calculated from information found on a firm's income statement.
B) is calculated by dividing total assets by net sales.
C) reveals how profitable a company is.
D) is net sales divided by total assets.
E) is another term for inventory turnover.
Answer: E
Explanation: Asset turnover is net sales divided by total assets. The ratio indicates how many
sales dollars are generated for each dollar of assets.
profit model.
Bloom's: Remember
66) ________ equals a company's net sales divided by its total assets.
A) Asset turnover
B) Current ratio
C) Gross margin
D) Net sales margin
E) Return on assets
Answer: A
Explanation: Asset turnover is net sales divided by total assets. The ratio indicates how many
dollars are generated for each dollar of assets.
profit model.
Bloom's: Remember
31
67) The strategic profit model is useful to retailers because it
A) is derived from the income statement.
B) uses owner's equity as its primary criterion.
C) uses inventory turnover as its primary criterion.
D) is derived from the balance sheet from the last day of the year.
E) combines profit margin management and asset management.
Answer: E
Explanation: Both net profit margin and asset turnover are important to evaluate.
opportunities.
Bloom's: Remember
68) Grocery stores charging their vendors for space in their stores is referred to as a
A) Charge back
B) Shelf space allocation
C) Vertical variance
D) Save space
E) Slotting allowance
Answer: E
Explanation: Grocery stores will often charge their vendors a stocking fee or slotting allowance
to have space in their stores.
profit model.
Bloom's: Remember
32
69) ________ is a method entrepreneurs use to raise money from various individuals to support a
particular project.
A) Chargebacks
B) Crowdfunding
C) Vouchsafing
D) Stocking fee
E) Oddity allowance
Answer: B
Explanation: Crowdfunding, or crowdsourcing, raises money to support a particular project by
convincing a large group of people to donate money, often in relatively small amounts.
profit model.
Bloom's: Remember
70) If a retailer's gross margin percent is on plan, however the retailer is tracking below plan for
net operating profit margin plan, which of these options would help improve their situation?
A) increase cost of goods
B) increase markdowns
C) increase payroll
D) decrease selling, general and administrative expenses
E) borrowing money from a lender
Answer: D
Explanation: Since gross margin – selling, general and administrative expenses = net operating
profit then decreasing the SG&A would improve the net operating profit margin plan.
Difficulty: 3 Hard
profit model.
Bloom's: Apply
33
71) If a retailer's gross margin is tracking below plan, which of these options would increase
their gross margin?
A) Negotiate better prices with vendors to decrease cost of goods sold
B) Increase payroll
C) Increase markdowns
D) Decrease utilities
E) Defer paying taxes
Answer: A
Explanation: Since net sales – cost of goods sold = gross margin, decreasing cost of goods of
sold would increase gross margin.
Difficulty: 3 Hard
profit model.; 06-04 Review the measures retailers use to assess their performance.
Bloom's: Apply
72) Michael's sets goals at the top of the organization. Then, it breaks down these objectives for
merchandise categories and regions. When these objectives reach the buyers, each objective is
personalized. What does this process demonstrate?
A) Accountable design planning
B) Decentralized planning
C) Functional development
D) Indirect planning
E) Top-down planning
Answer: E
Explanation: Top-down planning means that the goals are set at the top of the organization and
are passed down to the lower operating levels.
Bloom's: Apply
34
73) The executives for New Haus set the retail objective for the company. These objectives are
broken down in order to create the objectives for each merchandise category, as well as for each
region of the country. Further breakdowns of the objectives occur when the executives'
objectives reach the buyers who must personalize those objectives. This is an example of
________ planning.
A) accountable design
B) decentralized
C) functional development
D) indirect
E) top-down
Answer: E
Explanation: Top-down planning means that the goals are set at the top of the organization and
are passed down to the lower operating levels.
Bloom's: Understand
74) If the executives for OfficeMax developed the chain's objectives by asking buyers and store
managers to forecast sales and merchandise for the next year, and then transmitted those
estimates up the organization to the top level, it would be an example of ________ planning.
A) accountable
B) bottom-up
C) conventional
D) direct
E) functional
Answer: B
Explanation: Bottom-up planning involves lower levels in the company developing performance
objectives that are aggregated up to develop overall company objectives. Buyers and store
managers estimate what they can achieve, and their estimates are transmitted up the organization
to the corporate executives.
Bloom's: Understand
35
75) Which of the following would be the best example of an input measure?
A) Inventory
B) Gross margin
C) Net profits
D) Return on assets
E) Sales revenue
Answer: A
Explanation: Input measures are the resources or money allocated by a retailer to achieve
outputs, or results. For example, the amount and selection of merchandise inventory, the number
of stores, the size of the stores, the employees, advertising, markdowns, store hours, and
promotions all require managerial decisions on inputs. Inventory is an input measure, while all
other choices are output measures.
Bloom's: Remember
76) Which of the following assesses the results of a retailer's investments?

A) Balance sheets
B) Input measures
C) Owners' equity
D) Output measures
E) Revenue assessments
Answer: D
Explanation: Output measures assess the results of a retailer's investment decisions.
Bloom's: Understand
36
77) Which of the following would be the best example of an output measure?
A) The square feet of shelf space allocated to a particular item
B) The expense of utilities
C) The purchase of new inventory
D) The number of employees it takes to run a store
E) Net profits for the store for the year
Answer: E
Explanation: Output measures assess the results of a retailer's investment decisions. For
example, sales revenue, gross margin, and net profit margin are all output measures and ways to
evaluate a retailer's input or resource allocation decisions.
Bloom's: Understand
78) Which of the following is used to assess overall performance at a corporate level?
A) Asset
B) Square foot of selling space
C) The number of full-time employees
D) Comparable-store sales growth
E) Inventory
Answer: D
Explanation: A commonly used measure of overall performance is comparable-store sales
growth (also called same-store sales growth), which compares sales growth in stores that have
been open for at least one year. Growth in sales can result from increasing the sales generated per
store or by increasing the number of stores. Growth in same-store sales assesses the first
component in sales growth and thus indicates how well the retailer is doing with its core business
concept.
Bloom's: Understand
37
79) Which of the following would be the best example of an output measure?
A) Square feet of shelf space allocated to a particular item
B) The expense of running a magazine advertisement
C) The purchase of new inventory
D) The cost of paying overtime to a clerk who worked late
E) Monthly net profits for the entire store
Answer: E
Explanation: Output measures assess the results of a retailer's investment decisions. For
example, sales revenue, gross margin, and net profit margin are all output measures and ways to
evaluate a retailer's input or resource allocation decisions.
Bloom's: Understand
80) Which of the following is an example of a productivity measure?

A) Cost of merchandise
B) Inventory turnover
C) Gross margin
D) Net sales
E) Advertising expenses
Answer: B
Explanation: A productivity measure determines how effectively retailers use their resources; it
is the ratio of an output to an input. Since inventory turnover is cost of goods/average inventory,
it is a productivity measure.
Bloom's: Understand
38
81) Identify and describe the three types of objectives retailers might have in the strategic
planning process.
Answer: Financial objectives such as return on assets; societal objectives such as how the
retailer may benefit society and give back; and personal objectives such as self-gratification,
status, and respect are the three types of objectives retailers might have in the strategic planning
process.
Bloom's: Remember
82)
Retailer A Retailer B
Net Sales $200,000 $340,000
Total Sales $355,000 $580,000
Using the information above, calculate each retailer's asset turnover and compare the results.
Discuss what the results indicate about each retailer.
Net Sales/Total Assets = Asset Turnover
Answer: Retailer A has an asset turnover of 56.3% and Retailer B has better asset turnover of
58.6%. The asset turnover indicates the productivity of the retailer's investment in its assets and
indicates how many dollars are generated for each dollar of assets. Retailer A generates 56.3
cents of sales for each dollar invested in the retailer's assets. Retailer B generates 58.6 cents for
each dollar invested in the retailer's assets.
profit model.
Bloom's: Remember
39
83) Identify and describe the two paths of activities that determine return on assets (ROA).
Answer: One path is profit margin management. The information used to examine the profit
margin management path comes from the retailer's income statement, also called the statement of
operations. The income statement summarizes a firm's financial performance over a period of
time, typically a quarter (three months) or year. The four components in the profit margin
management path are net sales, cost of goods sold (COGS), gross margin, and operating profit
margin. The other path is asset management. The information used to analyze a retailer's asset
management path primarily comes from the retailer's balance sheet. While the income statement
summarizes financial performance over a period of time (usually a year or quarter), the balance
sheet summarizes a retailer's financial position at a given point in time, typically the end of its
fiscal year. Assets are economic resources (e.g., inventory, buildings, computers, store fixtures)
owned or controlled by a firm. There are two types of assets, current and fixed.
profit model.
Bloom's: Understand
84) Identify and describe the measures retailers use to assess their financial performance.
Answer: Gross margin: Net sales − COGS; GM% = GM$/Net sales

Operating profit margin: Gross Margin − Operating Expenses-Extraordinary (recurring)
operating expenses; Operating profit margin% = Operating profit margin$/Net sales
Net profit margin: Operating profit margin − Extraordinary nonrecurring expenses-taxes-interest-
depreciation; Net profit% = NP$/Net sales
profit model.
Bloom's: Remember
40
85)
Net Sales $200,00 $340,000
COGS $83,000 $180,000
Operating Expenses $50,000 $93,000
Using the information above, calculate each retailer's gross margin percent and net operating
profit percent. Compare the two and discuss which retailer is performing better. What could the
poorer performing retailer do to increase their financial performance?
Answer:
Net Sales $200,000 $340,000
COGS $83,000 $180,000
Gross Margin $ $117,000 $160,000
Gross Margin % 58.5% 47.1%
Operating Expenses $50,000 $93,000
Operating Exp% 25% 27.4%
NOP $ $67,000 $67,000
NOP % 33.5% 19.7%
Although both retailers earned a net profit of $67,000, Retailer A performed significantly better.
Retailer A achieved a higher gross margin percent with 58.5% whereas Retailer B achieved only
47.1%. Retailer A's net operating percent was significantly better earning 33.5% whereas
Retailer B was only at 19.7%.
Retailer B should strive to decrease their cost of goods sold by negotiating with vendors for
lower prices and try to sell more merchandise at higher prices to increase their gross margin.
Retailer B could also strive to decrease their operating expenses.
opportunities.
Bloom's: Apply
41
86) What is same-store sales growth and how retailers use it?
Answer: A commonly used measure of overall performance is comparable-store sales growth

(also called same-store sales growth), which compares sales growth in stores that have been open
for at least one year. Growth in sales can result from increasing the sales generated per store or
by increasing the number of stores. Growth in same-store sales assesses the first component in
sales growth, and thus indicates how well the retailer is doing with its core business concept.
Bloom's: Understand
87) What are the critical assets controlled by a store manager?
Answer: The critical assets controlled by a store manager are use of store space and the
management of employees. Thus, measures of store operations productivity include sales per
square foot of selling space, sales per employee (or sales per employee per working hour, to take
into account that some employees work part-time), theft by employees and customers (referred to
as inventory shrinkage), store maintenance, and energy costs (lighting, heating, and air
conditioning).
Bloom's: Understand
42
Chapter 7 Retail Locations
1) A trade area is the geographic area encompassing most of the customers who would patronize
a specific retail site.
Answer: TRUE
Explanation: A trade area is the geographic area encompassing most of the customers who
would patronize a specific retail site.
Difficulty: 1 Easy
Topic: Types of Retail Locations
Learning Objective: 07-01 Describe the types of retail locations available to retailers.
Bloom's: Understand
2) Gross leasable area (GLA) is the real estate industry's term for the total floor area designed for
the retailer's occupancy and exclusive use, including any basements, mezzanines, or upper floors.
Answer: TRUE
Explanation: Gross leasable area (GLA) is the real estate industry's term for the total floor area
designed for the retailer's occupancy and exclusive use, including any basements, mezzanines, or
upper floors.
Difficulty: 1 Easy
Bloom's: Understand
3) The inner city is the traditional downtown financial and business area in a city or town.
Answer: FALSE
Explanation: The central business district is the traditional downtown financial and business
area in a city or town.
Learning Objective: 07-02 Review the types of unplanned locations.
Bloom's: Understand
1
4) Power centers are shopping centers that have an open-air configuration of specialty stores,
entertainment, and restaurants, with design ambience and amenities such as fountains and street
furniture.
Answer: FALSE
Explanation: Lifestyle centers are shopping centers that have an open-air configuration of
specialty stores, entertainment, and restaurants, with design ambience and amenities such as
fountains and street furniture.
Learning Objective: 07-03 Analyze the characteristics of the different types of shopping centers.
Bloom's: Understand
5) Outlet centers are shopping centers that contain mostly manufacturers' and retailers' outlet
stores.
Answer: TRUE
Explanation: Outlet centers are shopping centers that contain mostly manufacturers' and
retailers' outlet stores.
Difficulty: 1 Easy
Bloom's: Understand
6) Pop-up stores are stores in temporary locations that focus on new products or a limited group
of products.
Answer: TRUE
Explanation: Pop-up stores are stores in temporary locations that focus on new products or a
limited group of products.
Difficulty: 1 Easy
Learning Objective: 07-04 Discuss nontraditional retail locations.
Bloom's: Understand
2
7) When consumers are engaged in comparison shopping situations, they are primarily
concerned with minimizing their effort to get the product or service they want.
Answer: FALSE
Explanation: When consumers are engaged in convenience shopping situations, they are
primarily concerned with minimizing their effort to get the product or service they want.
Learning Objective: 07-05 Match the locations to the retailer's strategy.
Bloom's: Understand
8) When consumers go specialty shopping, they know what they want and will not accept a
substitute.
Answer: TRUE
Explanation: When consumers go specialty shopping, they know what they want and will not
accept a substitute.
Difficulty: 1 Easy
Bloom's: Understand
9) Urban sprawl is the increased expansion of residential and shopping center development in
suburban and rural areas outside of their respective urban centers.
Answer: TRUE
Explanation: Urban sprawl is the increased expansion of residential and shopping center
development in suburban and rural areas outside of their respective urban centers.
Difficulty: 1 Easy
Topic: Societal and Legal Considerations in Selecting Retail Locations
Learning Objective: 07-06 Review the societal and legal considerations in selecting locations.
Bloom's: Understand
3
10) Building codes are legal restrictions that specify the type of building, signs, size and type of
parking lot, and so forth that can be used at a particular location.
Answer: TRUE
Explanation: Building codes are legal restrictions that specify the type of building, signs, size
and type of parking lot, and so forth that can be used at a particular location.
Difficulty: 1 Easy
Bloom's: Understand
11) The maintenance of common facilities, security, advertising, and special events to attract
consumers are handled by the shopping center management and are covered under ________
costs.
A) common area maintenance
B) community coverage
C) location revival
D) uniform code
E) development preservation
Answer: A
Explanation: The shopping center management maintains the common facilities such as the
parking area—an arrangement referred to as common area maintenance (CAM)—and is
responsible for providing security, parking lot lighting, outdoor signage for the center,
advertising, special events to attract consumers, and so on.
Difficulty: 1 Easy
Bloom's: Understand
4
12) Jake is looking to rent a retail space in a shopping center for his restaurant business. He is
looking for a space of around 250,000 square feet with annual occupancy cost of around $50 per
square feet. An ideal space should be high on pedestrian traffic but low on vehicular traffic.
Which of the following locations will best suit Jake?
A) Neighborhood and community shopping centers
B) Power centers
C) Regional and super-regional enclosed malls
D) Theme/festival centers
E) Outlet centers
Answer: D
Explanation: Jake's needs for his restaurant business are the typical characteristics of
theme/festival centers.
Difficulty: 1 Easy
Bloom's: Apply
13) Which of the following locations is typically the best for a supermarket?
A) Regional and super-regional enclosed malls
B) Lifestyle centers
C) Neighborhood and community shopping centers
D) Outlet centers
E) Theme/festival centers
Answer: C
Explanation: Neighborhood and community shopping centers are typically the best locations for
a supermarket.
Difficulty: 1 Easy
Bloom's: Understand
5
14) A supermarket requires a large amount of operating space. Therefore, it is most likely to be
located in a
A) shopping mall.
B) life-style center.
C) freestanding site.
D) central business district.
E) off-price center.
Answer: C
Explanation: Freestanding sites are likely to be locations for retailers that require easy access
and parking for their customers, high vehicular traffic, and modest occupancy costs.
Difficulty: 1 Easy
Bloom's: Understand
15) Which of the following is an advantage of freestanding locations?

A) Unlimited trade area
B) High pedestrian traffic
C) Light pedestrian traffic
D) Less expensive compared to shopping centers
E) High vehicular traffic
Answer: E
Explanation: The advantages of freestanding locations are their convenience for customers (easy
access and parking); high vehicular traffic and visibility to attract customers driving by; modest
occupancy costs; and fewer restrictions on signs, hours, or merchandise that might be imposed
by the managers of planned locations.
Difficulty: 1 Easy
Bloom's: Understand
6
16) Which of the following is a disadvantage of freestanding sites?
A) Hard to access
B) Limited trade area
C) Heavy restrictions
D) Low vehicular traffic
E) Low visibility
Answer: B
Explanation: There are several disadvantages to freestanding sites. Their trade area might be
limited if there are no other nearby retailers to attract customers interested in conveniently
shopping for multiple categories of merchandise on one trip.
Difficulty: 1 Easy
Bloom's: Understand
17) Where is a central business district typically located?

A) Downtown area
B) Rural area
C) Semi-urban area
D) Airport
E) Shopping malls
Answer: A
Explanation: The central business district (CBD) is the traditional downtown financial and
business area in a city or town.
Difficulty: 1 Easy
Bloom's: Remember
7
18) James is a store manager at Fresco. His store is located in the traditional downtown financial
business area in the city. In which of the following classifications of retail locations is James'
store located?
A) Semi-urban area
B) Gentrified residential area
C) Inner city
D) Main street
E) Central business district
Answer: E
Explanation: The central business district (CBD) is the traditional downtown financial and
business area in a city or town.
Difficulty: 1 Easy
Bloom's: Apply
19) Which of the following statements is true of a central business district?

A) It has low pedestrian traffic.
B) It has limited vehicular traffic.
C) It provides inexpensive retail space.
D) The shopping flow is fast during weekends.
E) The shopping flow is fast during evenings.
Answer: B
Explanation: In a central business district, there is a high level of pedestrian traffic, but shopping
flow in the evening and on weekends is slow in many CBDs. Vehicular traffic is limited due to
congestion in cities, and parking problems reduce consumer convenience. Many CBDs have a
large number of residents living in nearby areas.
Difficulty: 1 Easy
Bloom's: Understand
8
20) The inner city is a
A) high-income commercial area within a large city.
B) low-income commercial area within a small city.
C) high-income residential area within a small city.
D) low-income residential area within a large city.
E) high-income commercial area within a small city.
Answer: D
Explanation: The inner city is a low-income residential area within a large city.
Difficulty: 1 Easy
Bloom's: Remember
21) Which of the following statements is a reason why U.S. retailers avoid opening stores in the
inner city?
A) The retailers keep away from the inner city because of the rising cost of real estate.
B) The retailers keep away from the inner city because of stringent government regulations.
C) The retailers think these stores are riskier and produce lower returns than other areas.
D) The retailers keep away from the inner city because of the lack of competent human
resources.
E) The retailers keep away from the inner city because of complications in the supply chain.
Answer: C
Explanation: Some U.S. retailers avoid opening stores in the inner city because they think these
stores are riskier and produce lower returns than other areas.
Difficulty: 1 Easy
Bloom's: Remember
9
22) Urban customers typically place more importance on
A) reducing their shopping time.
B) diversity of the retailer's assortment.
C) reducing their shopping expense.
D) finding better bargains.
E) getting all possible alternatives.
Answer: A
Explanation: When selecting a store to patronize, urban consumers, unlike suburban consumers,
typically place more importance on reducing their shopping time rather than finding a deep and
broad assortment.
Difficulty: 1 Easy
Bloom's: Remember
23) Which of the following is a disadvantage of main street locations?

A) High occupancy cost
B) Heavy pedestrian traffic
C) Heavy vehicular traffic
D) Wide range of entertainment and recreational activities to choose from
E) Small overall draw
Answer: E
Explanation: Main Street locations share most of the characteristics of locations in gentrified
urban areas, but their occupancy costs are generally lower. Main Street locations do not draw as
many people as the CBD because fewer people work in the area, and the fewer stores generally
mean a smaller overall draw to the area.
Difficulty: 1 Easy
Bloom's: Understand
10
24) The retailers that attract a significant number of consumers and consequently make the center
more appealing for other retailers are ________ stores.
A) parasite
B) anchor
C) location rival
D) leader
E) alpha
Answer: B
Explanation: Anchors are typically larger format and well-known stores that attract customers to
the shopping center. These retailers are courted by the center's developer because they attract a
significant number of consumers and consequently make the center more appealing for other
retailers.
Difficulty: 1 Easy
Bloom's: Remember
25) The major retailers in a shopping center, typically large department stores or big-box stores,
are referred to as the ________ stores.
A) parasite
B) anchor
C) location rival
D) leader
E) alpha
Answer: B
Explanation: Anchors are typically larger format and well-known stores that attract customers to
the shopping center. These retailers are courted by the center's developer because they attract a
significant number of consumers and consequently make the center more appealing for other
retailers.
Difficulty: 1 Easy
Bloom's: Remember
11
26) Which of the following statements is not a responsibility of the shopping center property
management firm?
A) Maintain the parking lots.
B) Ensure that the parking lot has good lighting.
C) Maintain the outdoor signage for the shopping center.
D) Create special events to attract customers to the shopping center.
E) Provide temporary holiday sales staff for retailers.
Answer: E
Explanation: Shopping center management is responsible for all of these except to provide
temporary holiday sales staff for the retailers.
Difficulty: 1 Easy
Bloom's: Understand
27) On his way home from work, Phil stopped at a shopping center. He parked in front of the dry
cleaner, where he could pick up his suit. He did not have to move his car because next door was
a gift shop where he could pick up a gift for his niece. Conveniently enough, next door to that
store was a supermarket, where he purchased essentials like milk and cornflake cereal. Phil was
shopping in which type of shopping center?
A) Lifestyle center
B) Mixed-use development center
C) Enclosed shopping mall
D) Power center
E) Strip shopping center
Answer: E
Explanation: Convenience, neighborhood, and community shopping centers (also called strip
shopping centers) are attached rows of open-air stores, with onsite parking usually located in
front of the stores. Smaller centers (convenience and neighborhood centers) are 10,000 to 60,000
square feet and are typically anchored by a supermarket. They are designed for convenience
shopping. These centers typically have 10 to 15 smaller retailers such as a bakery, dollar store,
dry cleaner, florist, laundry center, barber shop, and mail service.
Difficulty: 1 Easy
Bloom's: Apply
12
28) As Leah drove down Fairfax Road, she noticed a group of adjacent stores. In the group, she
saw a hair salon, a pizzeria, a supermarket, an optometrist, and a grocery store. All the stores had
entrances into a parking lot, which was landscaped with trees and flowers. What type of
shopping center is this?
A) Mixed-use development center
B) Lifestyle center
C) Outlet center
D) Neighborhood shopping center
E) Theme/festival center
Answer: D
Explanation: Convenience, neighborhood, and community shopping centers (also called strip
shopping centers) are attached rows of open-air stores, with onsite parking usually located in
front of the stores. Smaller centers (convenience and neighborhood centers) are 10,000 to 60,000
square feet and are typically anchored by a supermarket. They are designed for convenience
shopping. These centers typically have 10 to 15 smaller retailers such as a bakery, dollar store,
dry cleaner, florist, laundry center, barber shop, and mail service.
Difficulty: 1 Easy
Bloom's: Apply
29) Full-line discount stores are typically located in

A) omnicenters.
B) power centers.
C) community shopping centers.
D) marketing complexes.
E) lifestyle centers.
Answer: C
Explanation: The larger centers (community centers) are typically 25,000 to 50,000 square feet
and are anchored by at least one big-box store such as a full-line discount store, an off-price
retailer, or a category specialist.
Difficulty: 1 Easy
Bloom's: Remember
13
30) ________ are shopping centers that consist primarily of collections of big-box retail stores,
such as full-line discount stores, off-price stores, warehouse clubs, and category specialists.
A) Neighborhood shopping centers
B) Power centers
C) Enclosed shopping malls
D) Lifestyle centers
E) Outlet centers
Answer: B
Explanation: Power centers are shopping centers that consist primarily of collections of big-box
retail stores, such as full-line discount stores, off-price stores, warehouse clubs, and category
specialists.
Difficulty: 1 Easy
Bloom's: Remember
31) Lowe's and Best Buy would most likely be found in a ________ shopping center.
A) power
B) regional or super regional
C) strip
D) theme/festival
E) central-business
Answer: A
Explanation: Power centers house big-box destination stores such as Lowe's and Best Buy.
Difficulty: 1 Easy
Bloom's: Understand
14
32) Shopping centers consisting primarily of collections of big-box retail stores, such as
Walmart, TJ Maxx, Home Depot, Dick's Sporting Goods, and Costco are called
A) community centers.
B) neighborhood centers.
C) power centers.
D) lifestyle centers.
E) theme centers.
Answer: C
Explanation: Shopping centers that consist primarily of collections of big-box retail stores are
called power centers.
Difficulty: 1 Easy
Bloom's: Understand
33) Sara, a traveler, visits a climate-controlled, lighted shopping center with retail stores on both
sides of an enclosed walkway. What type of shopping center is this most likely to be?
A) Outlet center
B) Neighborhood shopping center
C) Power center
D) Enclosed shopping mall
E) Lifestyle center
Answer: D
Explanation: Shopping malls are enclosed, climate-controlled, lighted shopping centers with
retail stores on one or both sides of an enclosed walkway.
Difficulty: 1 Easy
Bloom's: Apply
15
34) Which of the following is an approach for dealing with aging malls and the changing
demographics in their trade areas?
A) Lowering occupancy costs
B) Increasing the number of department stores
C) Changing the hours of operation
D) Increasing square footage
E) Tailoring offerings to current markets
Answer: E
Explanation: Another approach for dealing with aging malls and the changing demographics in
their trade areas is to tailor the offerings to the markets that do exist today. Older shopping
centers such as Northridge Mall in northern California (built in 1972) can be repositioned to
appeal to immigrant populations.
Difficulty: 1 Easy
Bloom's: Understand
35) Which of the following is an advantage of enclosed shopping malls?

A) They have a large trade area.
B) Mall occupancy costs are cheap.
C) Less competition within the shopping center
D) Low pedestrian traffic
E) Low vehicular traffic
Answer: A
Explanation: Enclosed shopping malls have several advantages over alternative locations. First,
shopping malls attract many shoppers and have a large trade area because of the number of stores
and the opportunity to combine shopping with an inexpensive form of entertainment.
Difficulty: 1 Easy
Bloom's: Understand
16
36) Which of the following statements is a disadvantage of shopping malls?
A) Each retailer is allowed to establish its hours of operation.
B) Competition is kept to a minimum because developers try not to have more than one specialty
store for each product category.
C) The mall management has no control over exterior signs.
D) Rents in malls are higher than other locations.
E) Most malls were built after 1990.
Answer: D
Explanation: The occupancy cost (rent, common area maintenance, and taxes) for an enclosed
mall is almost 140 percent greater than that for an open-air shopping center ($50 compared with
$28 per square foot).
Difficulty: 1 Easy
Bloom's: Understand
37) What of the following is a challenge faced by malls?

A) Customers are not able to stay at malls for extended periods of time because of the lack of
places to get food.
B) Foot traffic is low at malls.
C) There is little entertainment value at malls.
D) Many aging malls have not been updated and are unappealing to shoppers.
E) Mall management does not maintain consist hours of operation for retailers.
Answer: D
Explanation: Some malls were built more than 50 years ago and have not been subject to any
significant remodeling, so they appear rundown and unappealing to shoppers.
Difficulty: 1 Easy
Bloom's: Remember
17
38) Because of the open-air configuration of upscale specialty stores, coupled with entertainment
and restaurants, ________ are very convenient for shoppers.
A) convenience centers
B) regional malls
C) off-price centers
D) outlet centers
E) lifestyle centers
Answer: E
Difficulty: 1 Easy
Bloom's: Remember
39) Bea is a young professional living in the suburbs. She and a friend decide to meet on a
Saturday for a day of shopping, dining, and a movie. Since it's a beautiful day outside, they wish
to enjoy the weather but also find a place that features upscale apparel shops and boutiques. They
will most likely choose to patronize a
A) lifestyle center.
B) central mall.
C) outlet mall.
D) power center.
E) mixed-use development.
Answer: A
Difficulty: 1 Easy
Bloom's: Apply
18
40) Where would you most likely find a lifestyle center?
A) At interstate interchanges
B) In higher-income neighborhoods
C) In low-income neighborhoods
D) In small towns
E) Near discount store malls
Answer: B
specialty stores with a pleasing ambience including fountains and street furniture. They cater to
the lifestyles of the consumers in the trade area. Many lifestyle centers are located near higher-
income areas, so the higher purchases per visit compensate for the fewer number of shoppers.
Difficulty: 1 Easy
Bloom's: Understand
41) What type of shopping center has an open-air configuration of specialty stores,
entertainment, and restaurants?
A) Omnicenters
B) Power centers
C) Shopping strips
D) Marketing complexes
E) Lifestyle centers
Answer: E
Difficulty: 1 Easy
Bloom's: Remember
19
42) Developers will usually look for ________ to build lifestyle centers.
A) small towns
B) middle-class neighborhoods
C) higher-income neighborhoods
D) interstate interchanges
E) inner city locations
Answer: C
Explanation: Many lifestyle centers are located near higher-income areas, so the higher
purchases per visit compensate for the fewer number of shoppers.
Difficulty: 1 Easy
Bloom's: Remember
43) An old factory was converted into condominiums on the top six floors, a health club on the
fourth floor, offices on floors two and three, and specialty shops and restaurants on the ground
floor. This would be an example of a(n)
A) omnicenter.
B) mixed-use development.
C) multiformat development.
D) theme/festival center.
E) super regional mall.
Answer: B
Explanation: Mixed-use developments (MXDs) combine several different uses into one complex
including retail, office, residential, hotel, recreation, or other functions.
Difficulty: 1 Easy
Bloom's: Apply
20
44) Water Tower Place on Michigan Avenue in Chicago has many high-quality boutiques,
amongst office space and residential condominiums. It is an example of a(n)
C) outlet center.
D) off-price center.
E) price-oriented center.
Answer: B
Explanation: Mixed-use developments (MXDs) combine several different uses into one complex
Difficulty: 1 Easy
Bloom's: Apply
45) ________ are centers that often include office spaces, hotels, residential complexes, civic
centers, or convention complexes on top of or attached to a shopping center.
A) Multilevel marketing centers
B) Mixed-use developments
C) Convention centers
D) Marketing complexes
E) Urban shopping arenas
Answer: B
Explanation: Mixed-use developments combine several different uses into one complex
Difficulty: 1 Easy
Bloom's: Remember
21
46) Mixed-use developments (MXDs) are popular with retailers because they
A) have higher security.
B) bring additional shoppers to their stores.
C) offer low rent.
D) offer short-term leasing agreements.
E) provide free storage facilities to attract retailers.
Answer: B
Explanation: Mixed-use developments are pedestrian-oriented and therefore facilitate a live-
work-play environment. In addition, MXDs are popular with retailers because they bring
additional shoppers to their stores.
Difficulty: 1 Easy
Bloom's: Understand
47) Which of the following does not describe mixed-use developments (MXDs)?
A) Retailers like MXDs because they bring additional shoppers to their stores.
B) Developers avoid MXDs because of unproductive use of space.
C) Urban planners like MXDs because they provide a pleasant, pedestrian environment.
D) Residents like MXDs because they offer an all-inclusive environment.
E) Consumers like MXDs because they are pedestrian-oriented.
Answer: B
Explanation: MXDs are popular with governments, urban planners, developers, and
environmentalists because they provide a pleasant, pedestrian environment and are an efficient
use of space.
Difficulty: 1 Easy
Bloom's: Remember
22
48) Which of the following statements best describes outlet centers?
A) They are generally near regional shopping centers.
B) They have no emphasis on entertainment.
C) They are often located in tourist areas.
D) They never offer first-quality, full-line merchandise.
E) They are usually enclosed.
Answer: C
Explanation: Tourism represents a majority of the traffic generated for many outlet centers.
Thus, many are located with convenient interstate access and close to popular tourist attractions.
Difficulty: 1 Easy
Bloom's: Understand
49) The Home Laughlin China Company of West Virginia manufactures Fiesta China in a
variety of colors. The factory has a store where they feature Fiesta products that are discounted
or discontinued. Patrons come in to shop with crates expecting to purchase the Fiesta products in
large quantities. This type of store can be considered as a(n)
C) outlet store.
D) regional center.
E) festival center.
Answer: C
Explanation: Outlet centers contain mostly manufacturers' and retailers' outlet stores.
Difficulty: 1 Easy
Bloom's: Apply
23
50) Which of the following statements about outlet centers is true?
A) It is predicted that the number of outlet centers in the U.S. will double over the next decade.
B) Outlet centers are not found outside of the United States.
C) Outlet centers are in remote locations, located some distance from department and specialty
stores.
D) Outlet centers have the no-frills look of warehouse stores.
E) Outlet centers sell only irregulars and overruns.
Answer: C
Explanation: Outlet centers are shopping centers that contain mostly manufacturers' and
retailers' outlet stores. Typically, outlet centers are in remote locations. These remote locations
offer lower costs and reduce the competition between the outlet stores and department and
specialty stores offering the branded merchandise at full price.
Difficulty: 1 Easy
Bloom's: Understand
51) Ybor Square is a small shopping center located in the part of Tampa known as Ybor City.
The shopping center building used to be a cigar factory that prospered at the turn of the 20th
century when Cuban and Italian immigrants settled in the Tampa Bay area. Now, it houses small
antique stores, bars, and restaurants that have grown to be central to Ybor City's night life. It is
an example of a
A) convenience center.
B) regional center.
C) price-oriented center.
D) specialty center.
E) theme/festival center.
Answer: E
Explanation: Ybor Square is not a specialty center or regional center because there are no large
specialty stores or department stores in it. The old cigar factory has historical interest, making it
an interest to tourists.
Difficulty: 1 Easy
Bloom's: Apply
24
52) ________ can be defined as shopping centers that employ a unifying theme that is carried out
by the individual shops in their architectural design and, to an extent, in their merchandise. They
are typically designed to appeal to tourists.
A) Center replicas
B) Price-oriented centers
C) Regional centers
D) Specialty centers
E) Theme/festival centers
Answer: E
Explanation: This is the definition of theme/festival centers.
Difficulty: 1 Easy
Bloom's: Remember
53) The retail tenants in Underground Atlanta are similar to those found in specialty centers,
except that they are all small. Their goal is to create a unique shopping environment for
customers. What type of shopping center is Underground Atlanta?
A) Power shopping center
B) Regional mall
C) Strip center
D) Theme/festival center
E) Central-business district
Answer: D
Explanation: Underground Atlanta is a unique shopping environment for locals as well as
tourists. In theme/festival centers, a unifying theme generally is reflected in each individual
store, both in their architecture and the merchandise they sell.
Difficulty: 1 Easy
Bloom's: Apply
25
54) Breanne was walking across campus to her chemistry lab when she noticed an area that had
posters displayed and for sale that was not there earlier in the week. This retail format would be
an example of a
A) kiosk.
B) parasite store.
C) store within a store.
D) timed leased agreement.
E) pop-up shop.
Answer: E
Explanation: Retailers and manufacturers sometimes open pop-up stores, which are stores in
temporary locations that focus on new products or a limited group of products.
Difficulty: 1 Easy
Bloom's: Apply
55) While Rebekah was shopping at Target, she noticed a Starbucks near the entrance, which
prompted her to stop for coffee. This is an example of a
A) kiosk.
B) power center.
C) store-within-a-store.
D) timed leased agreement.
E) pop-up shop.
Answer: C
Explanation: Store-within-a-store locations involve an agreement in which a retailer rents a part
of the retail space in a store operated by another independent retailer. The host retailer basically
"sublets" the space to the store-within retailer.
Difficulty: 1 Easy
Bloom's: Apply
26
56) Why would a mall operator be interested in a kiosk?
A) A kiosk can offer more variety than a permanent retailer.
B) Kiosks provide better prices than the competition.
C) Shoppers prefer kiosks because it offers more space to shop avoiding the butt-brush effect.
D) They can fit into prime mall locations.
E) Kiosks are an opportunity to generate rental income in otherwise vacant space.
Answer: A
Explanation: Merchandise kiosks are small selling spaces, typically located in the walkways of
enclosed malls, airports, college campuses, or office building lobbies. For mall operators, kiosks
are an opportunity to generate rental income in otherwise vacant space and offer a broad
assortment of merchandise for visitors.
Difficulty: 1 Easy
Bloom's: Understand
57) Why would a small retailer not be interested in selling at kiosks situated in airports?
A) The location is often convenient for workers.
B) Relatively inexpensive compared to a regular sized store
C) The high foot traffic can be helpful for testing the response to new products.
D) The retailer can offer seasonal merchandise that closes after the season.
E) The rent per square foot is very expensive.
Answer: E
Explanation: Sales per square foot at airport malls are often much higher than at regular mall
stores. However, rents are higher too. Also, costs can be higher—hours are longer, and because
the location is often inconvenient for workers, the businesses have to pay higher wages.
Difficulty: 1 Easy
Bloom's: Understand
27
58) Many companies are capitalizing on people being at the airports longer and not being able to
carry many personal health and beauty aids. A vending machine selling cosmetics and perfume
at an airport is a
A) kiosk.
B) parasite store.
C) store-within-a-store.
D) timed leased agreement store.
E) pop-up shop.
Answer: A
enclosed malls, airports, college campuses, or office building lobbies.
Bloom's: Understand
59) As Chelsea walked through the concourse to her connecting flight to Spain, she walked by a
place selling high-quality audio headphones. She talked with the person standing with the cart.
The cart of merchandise would be described as a
A) kiosk.
B) parasite store.
C) store within a store.
D) timed leased agreement store.
E) pop-up shop.
Answer: A
enclosed malls, airports, college campuses, or office building lobbies.
Difficulty: 1 Easy
Bloom's: Apply
28
60) Which of the following is not a benefit of a store-within-a-store?
A) The host store can grow in a new direction.
B) The store within gets high pedestrian traffic.
C) Consumers can purchase more items in a single trip.
D) The host store and store within may have different brand images.
E) The host store generates increased revenue.
Answer: D
Explanation: Stores-within-a-store can be mutually beneficial to the store within and the host
retailer. However, there are risks associated with this arrangement. Over time, the host or store
within could have conflicting, rather than synergistic, target markets and/or brand images.
Bloom's: Understand
61) Clark was late to work one morning and decided to use the McDonald's drive-through for his
morning cup of coffee. Normally a coffee drinker loyal only to Starbucks, Clark was more
interested in speed due to his tardiness. Which of the following best describes Clark's shopping
situation?
A) Distributive shopping
B) Time-crunch shopping
C) Comparison shopping
D) Convenience shopping
E) Specialty shopping
Answer: D
primarily concerned with minimizing their effort to get the product or service they want. They
are insensitive to price and indifferent about which brands to buy. They don't spend much time
evaluating brands or retailers.
Difficulty: 1 Easy
Bloom's: Apply
29
62) Rhonda rolled her eyes when she realized how much she had to pay for a pack of gum at the
paper stand on her way to reach her departing flight from JFK. With security lines as long as
they were, she knew she needed to hurry and pay the $2.75 for her pack of gum. Her purchase
situation can best be described as
A) distributive shopping.
B) time-crunch shopping.
C) comparison shopping.
D) convenience shopping.
E) specialty shopping.
Answer: D
primarily concerned with minimizing their effort to get the product or service they want. They
are insensitive to price and indifferent about which brands to buy. They don't spend much time
evaluating brands or retailers.
Difficulty: 1 Easy
Bloom's: Apply
63) A critical factor affecting the location that consumers select to visit is the shopping situation
in which they are involved. What type of shopping situation should a retailer such as Walgreen's
consider?
A) Distributive shopping
B) Time-crunch shopping
C) Comparison shopping
D) Convenience shopping
E) Specialty shopping
Answer: D
Explanation: Walgreen stores are plentiful partly because they usually locate their stores close to
where their customers are and make it easy for them to access the location, park, and find what
they want. These customers in the convenience shopping situation are primarily concerned with
minimizing their effort to get the product or service they want and are relatively insensitive to
price and indifferent about which brands to buy.
Difficulty: 1 Easy
Bloom's: Understand
30
64) Which of the following types of retailers does not cater to shoppers who are engaged in
convenient shopping situations?
A) Convenience stores
B) Drugstores
C) Fast-food restaurants
D) Supermarkets
E) Auto dealerships
Answer: E
Explanation: Consumers engage in comparison shopping for purchasing large ticket items such
as vehicles.
Difficulty: 1 Easy
Bloom's: Understand
65) A(n) ________ is one in which the merchandise, selection, presentation, pricing, or other
unique factors attract customers even if it is in an inconvenient location.
A) demand-oriented service-provider
B) ultimate merchandiser
C) destination store
D) ultimate provider
E) supply-oriented service-provider
Answer: C
Explanation: Category specialists are the best example of destination stores, which consumers
will patronize because of the merchandise offerings, price, or other factors, even if it they
inconvenient.
Difficulty: 1 Easy
Bloom's: Remember
31
66) Which type of product will a consumer look for without regard to time, money, or effort?
A) Impulse product
B) Time-crunch product
C) Comparison product
D) Convenience product
E) Specialty product
Answer: E
Explanation: When consumers go specialty shopping, they know what they want and will not
accept a substitute. They are brand and/or retailer loyal and will pay a premium or expend extra
effort, if necessary, to get exactly what they want.
Difficulty: 1 Easy
Bloom's: Remember
67) Diana wanted a German shorthaired pointer after seeing it win the Best in Show Award at
the dog show. She searched on the Westminster Kennel Club website for a breeder and found
one in Greenville, South Carolina. She was sure this was the breed she wanted; she was willing
to pay the expense to travel to Greenville and purchase the puppy. This type of shopping is
A) demand-oriented service-provider.
B) specialty shopping.
C) ultimate provider.
D) internet shopping.
E) supply-oriented service-provider.
Answer: B
Explanation: When a unique item is desired and a substitute will not do, consumers will pay a
premium and expend extra effort to get exactly what they want.
Difficulty: 1 Easy
Bloom's: Apply
32
68) ________ is the increased expansion of residential and shopping center development in
suburban and rural areas outside of their respective urban centers.
A) Rural sprawl
B) Affluenza
C) Urban sprawl
D) Rural flight
E) Microdistrict
Answer: C
Explanation: Urban sprawl is the increased expansion of residential and shopping center
development in suburban and rural areas outside of their respective urban centers.
Difficulty: 1 Easy
Bloom's: Remember
69) Which of the following is a reason for opposing big-box retailers?

A) The low returns on investments
B) Lack of choices between brands
C) Increase in the cost of products
D) The high cost of occupancy
E) It drives local retailers out of business
Answer: E
Explanation: Local retailers oppose big-box retailers as it drives them out of business.
Difficulty: 1 Easy
Bloom's: Remember
33
70) Local governments in the United States use ________ to regulate land uses in specific areas
to prevent any interference with existing uses by residents or businesses, as well as encourage the
preservation of a community's sense of identity.
A) mapping
B) zoning
C) policing
D) branding
E) lining
Answer: B
Explanation: Local governments in the United States use zoning to regulate land uses in specific
areas to prevent any interference with existing uses by residents or businesses, as well as
encourage the preservation of a community's sense of identity.
Difficulty: 1 Easy
Bloom's: Remember
71) Jake, who runs a business on Mint street, wants to open another retail outlet in the business
district. He is unable to because of the ________ laws imposed by the local governments in the
United States.
A) mapping
B) zoning
C) policing
D) branding
E) lining
Answer: B
Explanation: Local governments in the United States use zoning to regulate land uses in specific
areas to prevent any interference with existing uses by residents or businesses, as well as
encourage the preservation of a community's sense of identity.
Difficulty: 1 Easy
Bloom's: Apply
34
72) Which of the following is one of the five categories of activities that are accepted by zoning
ordinances in urban areas?
A) Social
B) Cultural
C) Psychological
D) Industrial
E) Geographical
Answer: D
Explanation: In urban areas, zoning ordinances often specify five categories of activities that are
acceptable in a certain region or on a particular site: residential, commercial, mixed residential
and commercial, industrial, or special.
Difficulty: 1 Easy
Bloom's: Remember
73) Which of the following can restrict the size and style of retail signs?
A) Neighboring retailers
B) Shopping center management
C) Manufacturers
D) Brand stewards
E) Retail managers association
Answer: B
Explanation: Restrictions on the use of signs can affect a particular site's desirability. Sign sizes
and styles may be restricted by building codes, zoning ordinances, or even the shopping center
management group.
Difficulty: 1 Easy
Bloom's: Remember
35
74) Burger King in Mequon, Wisconsin, was not allowed to have a sign taller than 10 ft. and
could not have any neon lights on the outside of the building. This is an example of the use of a
A) building code.
B) blue law.
C) licensing requirement.
D) trading area code.
E) common maintenance code.
Answer: A
and type of parking lot, and so forth, that can be used at a particular location.
Difficulty: 1 Easy
Bloom's: Apply
75) In a town in Georgia, the McDonald's restaurant was required by ________ to have no sign
taller than 8 feet, no arches, and no garish or bright colors on the outside of the building.
A) building codes
B) blue laws
C) licensing requirements
D) trading area codes
E) common maintenance codes
Answer: A
and type of parking lot, and so forth, that can be used at a particular location.
Difficulty: 1 Easy
Bloom's: Apply
36
76) Why is choosing a good location such an important decision for a retailer?
Answer: First, location is typically one of the most influential considerations in a customer's
store-choice decision. Second, location decisions have strategic importance because they can be
used to develop a sustainable competitive advantage. Third, location decisions are risky.
Typically, when retailers select a location, they have to either make a substantial investment to
buy and develop the real estate or must commit to a long-term lease with developers.
Difficulty: 1 Easy
Bloom's: Understand
77) What are the advantages and disadvantages of choosing a freestanding site for your retail
store?
Answer: The advantages of freestanding sites are as follows:

• They are convenient for the customer (easy access and parking);
• High vehicular traffic and visibility to attract customers driving by;
• They have a modest occupancy cost;
• They have fewer restrictions on signs, hours, or merchandise that might be imposed by
management of planned locations.
The disadvantages are as follows:

• They have limited trade area;
• They have no other nearby retailers to attract customers interested in conveniently shopping for
multiple categories of merchandise on one trip;
• They have higher occupancy costs than strip centers;
• They are generally in areas with little pedestrian traffic, limiting the number of customers who
might drop in because they are walking by.
Difficulty: 1 Easy
Bloom's: Understand
37
78) Why have many central business districts (CBD) been declining in the United States and
what are developers doing to revive CBDs?
Answer: Central business districts have been declining for years because of high crime rates
requiring retailers to invest in high security, parking is often limited, urban decay, no control
over the weather, evening and weekend shopping is slow, and many CBDs suffer from lack of
planning. However, developers and cities are reviving their downtown areas as they become
gentrified, bringing in new retailers and residents that want an urban experience and want to be
able to walk to shopping and restaurants.
Difficulty: 1 Easy
Bloom's: Understand
79) What are the advantages and disadvantages of strip shopping centers?
Answer: The advantages of strip shopping centers are that they offer customers convenient
locations, easy parking, and they have relatively low occupancy costs for the retailers. The
primary disadvantage is that smaller centers have a limited trade area due to their size, and they
lack entertainment and restaurants to keep customers in the center for a longer time. In addition,
there is no protection from the weather.
Difficulty: 1 Easy
Bloom's: Understand
80) Describe three advantages that shopping malls have over alternative locations.
Answer: The three advantages that shopping malls have over alternative locations include the
following:
• Shopping malls attract many shoppers and have a large trade area because of the number of
stores and the opportunity to combine shopping with an inexpensive form of entertainment.
• Customers don't have to worry about the weather, and thus malls are appealing places to shop
during cold winters and hot summers.
• Mall management ensures a level of consistency that benefits all the tenants. For instance, most
major malls enforce uniform hours of operation.
Difficulty: 1 Easy
Bloom's: Understand
38
81) There are seven different identifiable disadvantages that shopping malls have as compared to
other locations. Describe at least four of these disadvantages.
Answer: The disadvantages that shopping malls have over alternative locations include the
following:
• Mall occupancy costs are higher than those of strip centers, freestanding sites, and most central
business districts.
• Mall management's control of operations, rules, and restrictions are stringent.
• Competition with retailers who sell similar merchandise in close proximity can be intense.
• They are not as convenient for customers to get in and out.
• Some mall locations are old and have not been updated making them less desirable for
customers to patronize. Some malls are located in undesirable locations because of population
shifts since they were built.
• The anchoring department stores companies have merged and consolidated, which has
decreased the number of potential anchor tenants.
• The growing sales through the Internet channel is cannibalizing sales in the store channel.
Difficulty: 1 Easy
Bloom's: Understand
82) Explain mixed-use developments (MXDs) and how they appeal to consumers, retailers, local
governments, and developers.
Answer: Mixed-use developments (MXDs) combine several uses into one complex, including
shopping centers, office towers, hotels, residential complexes, civic centers, and convention
centers. They are pedestrian-oriented and therefore facilitate a live-work-play environment. They
appeal to people who have had enough of long commutes to work and look for a lifestyle with
more time for the things they enjoy. Retailers like MXDs because they bring additional shoppers
to their stores. They are also popular with governments, urban planners, developers, and
environmentalists because they provide a pleasant, pedestrian environment and are an efficient
use of space.
Difficulty: 1 Easy
Bloom's: Understand
39
83) What is a store-within-a-store?
Answer: Store-within-a-store locations involve an agreement in which a retailer rents a part of

the retail space in a store operated by another independent retailer. The host retailer basically
"sublets" the space to the store-within retailer. The store-within retailer manages the assortment,
inventory, personnel, and systems and delivers a percentage of the sales or profits to the host.
Grocery stores have been experimenting with the store-within-a-store concept for years with
service providers such as coffee bars, banks, film processors, and medical clinics.
Bloom's: Understand
84) Why do category specialists or "category-killer" retailers choose to locate their stores in
freestanding sites or in power centers?
Answer: Category specialists are found freestanding sites or in power centers because (1) these
locations are cheaper than central business districts or malls, (2) easy access to parking is
important because purchases are often large and difficult to carry, (3) category specialists are
destination stores and people will shop there regardless of the location, and (4) they benefit from
multiple retailers that attract more consumers and the resulting potential for cross-shopping.
Difficulty: 1 Easy
Bloom's: Understand
40
85) Retail developers need to take into consideration legal aspects when they are evaluating
different locations. Describe the main legal considerations.
Answer: The legal considerations for retail developers include the following:
• Local governments in the United States use zoning to regulate land uses in specific areas to
prevent any interference with existing uses by residents or businesses, as well as encourage the
preservation of a community's sense of identity. In urban areas, zoning ordinances often specify
five categories of activities that are acceptable in a certain region or on a particular site:
residential, commercial, mixed residential and commercial, industrial, or special.
• Building codes are legal restrictions that specify the type of building, signs, size and type of
parking lot, and so forth, that can be used at a particular location.
• Restrictions on the use of signs can affect a particular site's desirability. Sign sizes and styles
may be restricted by building codes, zoning ordinances, or even the shopping center management
group.
• Licensing requirements could include alcohol and firearms, which can differ from state to state
and city to city.
Difficulty: 1 Easy
Bloom's: Understand
41
Chapter 8 Retail Site Location
1) A metropolitan statistical area (MSA) is a core urban area containing a population of more
than 50,000 inhabitants.
Answer: TRUE
Explanation: A metropolitan statistical area (MSA) is a core urban area containing a population
of more than 50,000 inhabitants.
Topic: Evaluating Retail Sites
Learning Objective: 08-01 Summarize the factors considered in locating a number of stores.
Bloom's: Remember
2) Accessibility is lesser for sites located near major highways, on uncongested highways, and at
streets with traffic lights and lanes that enable turns into the site.
Answer: FALSE
Explanation: Accessibility is greater for sites located near major highways, on uncongested
highways, and at streets with traffic lights and lanes that enable turns into the site.
Difficulty: 1 Easy
Learning Objective: 08-02 Review the characteristics of a particular site.
Bloom's: Remember
3) A food court is an example of utilizing the principle of cumulative attraction.
Answer: TRUE
Explanation: A cluster of similar and complementary retailing activities will generally have
greater drawing power than isolated stores that engage in the same retailing activities.
Difficulty: 1 Easy
Bloom's: Remember
1
4) The secondary trading area is the geographic area from which the shopping center or store site
derives 50 to 70 percent of its customers.
Answer: FALSE
Explanation: The primary trading area is the geographic area from which the shopping center or
store site derives 50 to 70 percent of its customers.
Difficulty: 1 Easy
Topic: Trade Areas and the Site Selection Process
Learning Objective: 08-03 Understand how retailers analyze the trade area for a site.
Bloom's: Remember
5) The best way to define the three trade zones is based on distance rather than driving time.
Answer: FALSE
Explanation: The best way to define the three trade zones is based on driving time rather than
distance.
Difficulty: 1 Easy
Bloom's: Remember
6) Most franchise agreements grant franchisees an exclusive territory to protect them from
another franchisee cannibalizing their sales.
Answer: TRUE
Explanation: To reduce the level of conflict, most franchise agreements grant franchisees an
exclusive territory to protect them from another franchisee cannibalizing their sales.
Difficulty: 1 Easy
Topic: The Importance of Choosing a Store Location
Bloom's: Remember
2
7) When using the analog approach, the retailer finds a site and then describes the desired trade
area characteristics.
Answer: FALSE
Explanation: When using the analog approach, the retailer simply describes the site and trade
area characteristics for its most successful stores and attempts to find a site with similar
characteristics.
Topic: Forecasting Sales for a New Store Location
Learning Objective: 08-04 Determine the forecasted sales for a new store location.
Bloom's: Remember
8) Conducting a competitive analysis is typically the first step in the selection of a site.
Answer: TRUE
Explanation: Conducting a competitive analysis is typically the first step in the selection of a
site.
Difficulty: 1 Easy
Learning Objective: 08-05 Illustrate the site selection process.
Bloom's: Remember
9) In a graduated lease, the rent increases by a fixed amount over a specified period of time.
Answer: TRUE
Explanation: In a graduated lease, the rent increases by a fixed amount over a specified period of
time.
Learning Objective: 08-06 Explain the different types and terms of leases.
Bloom's: Remember
3
10) A cotenancy clause prohibits the shopping center management from leasing to retailers that
sell competing products.
Answer: FALSE
Explanation: An exclusive-use clause prohibits the shopping center management from leasing to
retailers that sell competing products.
Bloom's: Remember
11) In the United States, retailers often focus their analysis on a ________ because consumers
tend to shop within this area.
A) micropolitan statistical area
B) competitive statistical area
C) statistical demographic area
D) metropolitan statistical area
E) trade area
Answer: D
Explanation: In the United States, retailers often focus their analysis on a metropolitan statistical
area because consumers tend to shop within this area.
Bloom's: Remember
4
12) A city of 50,000 or more inhabitants, or an urbanized area of at least 50,000 inhabitants, with
adjacent communities having a high degree of economic and social integration with the core
community is called a
A) metropolitan urban development.
B) competitive statistical area.
C) statistical demographic area.
D) metropolitan statistical area.
E) trade area.
Answer: D
Explanation: A metropolitan statistical area is a core urban area containing a population of more
than 50,000 inhabitants, together with adjacent communities that have a high degree of economic
and social integration with the core community.
Bloom's: Remember
13) Which of the following refers to a town removed from larger U.S. cities, often by up to 100
miles?
A) Micropolitan statistical area
B) Competitive statistical area
C) Statistical demographic area
D) Metropolitan statistical area
E) Trade area
Answer: A
Explanation: A micropolitan statistical area is somewhat removed from larger U.S. cities, often
by up to 100 miles.
Bloom's: Remember
5
14) Which of the following does not affect the long-term profit generated by stores when
evaluating store locations?
A) The economic conditions
B) Competition
C) The strategic fit of the areas' population with the retailer's target market
D) The cost of operating stores
E) The corporate centralization
Answer: E
Explanation: The centralization or decentralization of a company does not affect any
considerations in evaluating store locations.
Bloom's: Remember
15) Which of the following statements is not true when considering and evaluating store
locations?
A) The best areas for locating stores are those that generate the highest return on investment in
the short term.
B) It is important to examine an area's level and growth of population and employment and how
long such growth will continue and how it will affect demand for merchandise sold in its stores.
C) It is important to have the strategic fit of the areas' population with the retailer's target market.
D) It is important to consider local and state legal and regulatory environments affecting
operating costs.
Answer: A
Explanation: Because locations involve a commitment of resources over a long time horizon,
retailers consider the locations that generate the highest long-term profits.
Bloom's: Understand
6
16) Which of the following would not affect the operating costs of a store?
A) Having a large MSA
B) Having a small MSA
C) Proximity of the store to the distribution center
D) State regulatory environment
E) Congestion of people and cars
Answer: E
Explanation: All of these except the congestion of people and cars impact operating costs of a
store.
Bloom's: Understand
17) Retailers must consider the trade-offs between lower operating costs and potential ________
from having multiple stores in an area.
A) economies of scale
B) economies of scope
C) sales cannibalization
D) channel integration
E) vertical integration
Answer: C
Explanation: Retailers must consider the trade-offs between lower operating costs and potential
sales cannibalization from having multiple stores in an area.
Bloom's: Understand
7
18) Although retailers gain economies of scale from opening multiple locations in an area, they
also suffer diminishing returns associated with locating too many additional stores in an area.
This is called
A) channel competition.
B) economies of scope.
C) sales cannibalization.
D) channel integration.
E) operating turnover.
Answer: C
Explanation: Cannibalization is to lose sales from one store to another within the same
company.
Difficulty: 3 Hard
Topic: Evaluating Areas for Locations and Determining the Number of Stores in an Area
Bloom's: Understand
19) The ________ is the number of vehicles and pedestrians that pass by the site.
A) traffic wave
B) traffic flow
C) traffic count
D) traffic stimulator
E) traffic accessibility
Answer: B
Explanation: The traffic flow is the number of vehicles and pedestrians that pass by the site.
Difficulty: 1 Easy
Bloom's: Remember
8
20) Connections to major highways, pedestrian traffic flow, and availability of mass transit are
examples of
A) accessibility.
B) visibility.
C) availability.
D) cost.
E) exclusivity.
Answer: A
Explanation: Access to major highways, pedestrian traffic flow, and availability of mass transit
are examples of traffic flow and accessibility.
Difficulty: 1 Easy
Bloom's: Understand
21) A retailer that is hard to get to, even if the customer can see it, has low
A) compatibility.
B) accessibility.
C) visibility.
D) cumulative attraction.
E) availability.
Answer: B
Explanation: The easier a store location is for consumers to access the better. Poor accessibility
will deter customers from attempting to shop at the retailer.
Difficulty: 1 Easy
Bloom's: Understand
9
22) Retailers study traffic flow, street congestion, and parking space availability when
considering a new store site to determine the potential site's
A) parallel tenants.
B) accessibility.
C) adjacent tenants.
D) availability.
E) visibility.
Answer: B
Explanation: The higher the accessibility of the site the more likely customers will get into and
out of the site, equating to higher foot traffic and more sales.
Difficulty: 1 Easy
Bloom's: Understand
23) Which of the following site characteristics refers to the customer's ability to exit the highway
and enter the parking lot safely?
A) Restrictions and cost
B) Natural barriers
C) Parking
D) Adjacent tenants
E) Traffic flow and accessibility
Answer: E
Explanation: These are the characteristics of traffic flow and accessibility.
Difficulty: 1 Easy
Bloom's: Understand
10
24) Which of the following retailers would be the most dependent on traffic counts?
A) 7-Eleven
B) Macy's
C) Bed, Bath and Beyond
D) Old Navy
E) Bill's Wash-n-Fold
Answer: A
Explanation: Traffic counts are particularly important for retailers offering merchandise and
services bought on impulse or on frequent trips such as grocery and convenience stores, and car
washes.
Difficulty: 1 Easy
Bloom's: Apply
25) Which of the following retailers is the least dependent on traffic counts?
A) 7-Eleven
B) Macy's
C) Home Depot
D) Old Navy
E) Hot Wings
Answer: C
Explanation: Destination stores rely least on traffic flow as they have enough draw to bring
customers to wherever they are located.
Difficulty: 1 Easy
Bloom's: Apply
11
26) Why is traffic count particularly important for convenience stores?
A) Convenience stores offer impulse merchandise.
B) Convenience stores are located only in MSAs that have a target market.
C) Traffic count means more pedestrian traffic.
D) Traffic count determines flow and accessibility.
E) Traffic count determines visibility.
Answer: D
Explanation: Convenience stores rely mostly on traffic flow and accessibility for patronization
of their store.
Difficulty: 1 Easy
Bloom's: Understand
27) Traffic count is less important for

A) convenience stores.
B) destination retailers.
C) grocery stores.
D) car washes.
E) specialty retailers.
Answer: B
Explanation: Traffic counts are particularly important for retailers offering merchandise and
services bought on impulse or on frequent trips such as grocery and convenience stores, and car
washes. In contrast, traffic flow is not as important for destination retailers such as The
Container Store.
Difficulty: 1 Easy
Bloom's: Remember
12
28) The ________ of a site is the ease with which customers can get into and out of the site.
A) traffic flow
B) traffic restriction
C) accessibility
D) vehicular traffic bypass
E) macro analysis
Answer: C
Explanation: The accessibility of the site is the ease with which customers can get into and out
of the site. Accessibility is greater for sites located near major highways, on uncongested
highways, and at streets with traffic lights and lanes that enable turns into the site.
Difficulty: 1 Easy
Bloom's: Remember
29) Lee Ann was overwhelmed by the heavy traffic outside of her local discount retailer. Her
experience in the store was no better. The aisles were packed, and the lines were long. To Lee
Ann, this discounter didn't consider the problem of ________ when choosing the site for the
store.
A) congestion
B) non-shopper access
C) flow of traffic
D) visibility
E) vulnerability
Answer: A
Explanation: Congestion is an excess level of traffic that results in customer delays. There is an
optimal level of congestion for customers. Too much congestion can make shopping slow,
irritate customers, and generally discourage sales.
Difficulty: 1 Easy
Bloom's: Apply
13
30) A store that is easy for potential customers to see has high
A) compatibility.
B) accessibility.
C) store congestion.
D) cumulative attraction.
E) visibility.
Answer: E
Explanation: The easier a store location is for consumers to see the better. Good visibility will
attract customers to shop at the retailer.
Difficulty: 1 Easy
Bloom's: Remember
31) What is the advantage of having your adjacent tenant as a complementary retailer?
A) Shared parking expense
B) Better lease negotiations
C) Visibility
D) Less tenant restrictions
E) Builds customer traffic
Answer: E
Explanation: More consumers will be attracted to an area with similar targeted audiences.
Bloom's: Understand
14
32) Store locations in a mall that are located next to one another are ________ stores.
A) adjacent
B) congestion
C) parasite
D) region
E) tertiary
Answer: A
Explanation: Locations with complementary, as well as competing, adjacent retailers have the
potential to build traffic.
Difficulty: 1 Easy
Bloom's: Remember
33) Which of the following statements is not true when describing adjacent tenants?
A) Complementary, adjacent retailers have the potential to build traffic.
B) Competing adjacent retailers have the potential to build traffic.
C) Complementary retailers target different market segments and have a similar merchandise
offering.
D) The principle of cumulative attraction states a cluster of similar and complementary retailing
activities have greater drawing power than isolated stores.
E) Adjacent tenants cause congestion, which drives customers away.
Answer: C
Explanation: Complementary retailers target the same market segment but have a different,
noncompeting merchandise offering.
Difficulty: 1 Easy
Bloom's: Understand
15
34) At the Mall of America, all of the children's specialty stores are on the ground floor and are
near the Rainforest Café, which also targets adults with children. This would be an example of
the principle of
A) multiple risk.
B) analog approach.
C) cumulative attraction.
D) consumer spotting.
E) diminishing adjacent.
Answer: C
Explanation: This grouped location approach is based on the principle of cumulative attraction,
which states that a cluster of similar and complementary retailing activities will generally have
Difficulty: 1 Easy
Bloom's: Apply
35) A food court in a mall is an example of a(n)

A) multiple risk.
B) analog approach.
C) cumulative attraction.
D) consumer spotting.
E) diminishing adjacent.
Answer: C
Explanation: The grouped location approach is based on the principle of cumulative attraction,
Difficulty: 1 Easy
Bloom's: Understand
16
36) The grouped location approach is based on the principle of ________, which states that a
cluster of similar and complementary retailing activities will generally have greater drawing
power than isolated stores that engage in the same retailing activities.
A) multiple risk
B) analog approach
C) cumulative attraction
D) consumer spotting
E) diminishing adjacent
Answer: C
Difficulty: 1 Easy
Bloom's: Understand
37) Which of the following principles explains the success of a shopping center whose tenants
include Kohl's, Walmart, and Dick's Sporting Goods?
A) Multiple risk
B) Analog approach
C) Cumulative attraction
D) Consumer spotting
E) Diminishing adjacent
Answer: C
Difficulty: 1 Easy
Bloom's: Understand
17
38) When stores such as Bath & Body Works, Victoria's Secret, Express, and Abercrombie &
Fitch all have store sites near each other in a shopping center, what is this an example of?
A) Multiple risks
B) Analog approach
C) Cumulative attraction
D) Consumer spotting
E) Diminishing adjacent
Answer: C
Difficulty: 1 Easy
Bloom's: Understand
39) Locations in a shopping center affect both sales and occupancy costs. Which of the following
statements is not true in describing the relationships?
A) The more expensive locations are closest to the supermarket in a strip shopping center.
B) Shops, like a flower shop, that attract impulse buyers should be close to the supermarket in a
strip shopping center.
C) A destination store, like a shoe repair store, should be located close to the supermarket in a
strip shopping center.
D) Stores that cater to consumers engaging in comparison shopping are benefited from being
located in more expensive locations near the department store anchors.
E) A retailer such as Foot Locker need not be in the most expensive location because customers
are in the market for this type of product before they even go shopping.
Answer: C
Explanation: Destination stores (e.g., a shoe repair store, Foot Locker) could be in lower traffic
locations farther away from the supermarket in a strip shopping center or from department stores
anchors in enclosed malls because customers in need of this service or product will seek out the
store.
Difficulty: 1 Easy
Bloom's: Understand
18
40) Retailers try to locate their stores close to other retailers that appeal to similar target markets.
Which of the following statements is not true in explaining how and why retailers do this?
A) Customers want to shop where they will find a good assortment of merchandise.
B) Retailers consider complementary retailers in location selections.
C) Retailers must avoid locating close to other retailers that compete directly.
D) Retailers such as the Build-a-Bear Workshop selling stuffed animal toys and the Disney Store
try to have locations close to each other.
E) The principle of cumulative attraction states that a cluster of similar and complementary
retailing activities have greater drawing power than isolated stores that engage in the same
retailing activities.
Answer: C
Explanation: Retailers may want to consider locating close to other retailers that compete
directly because the principle of cumulative attraction applies not only to complementary
retailers but also to those that compete directly with one another.
Difficulty: 1 Easy
Bloom's: Understand
41) A contiguous geographic area that accounts for the majority of a store's sales and customers
is called a
A) demographic.
B) metropolitan complex.
C) site location.
D) trade area.
E) target market.
Answer: D
Explanation: A trade area is a contiguous geographic area that accounts for the majority of a
store's sales and customers. Trade areas can be divided into three zones.
Difficulty: 1 Easy
Bloom's: Remember
19
42) Fishing enthusiasts come for miles to shop at Shabby Bill's, a shack that sells limited tackle
and bait on the North Carolina Outer Banks. Bill attracts this crowd because of his expertise in
the Outer Banks and local folklore. The Outer Banks would be considered Shabby Bill's'
A) site location.
B) demographically similar area.
C) target market.
D) metropolitan complex.
E) trade area.
Answer: E
Explanation: Trade areas are contiguous geographic area that accounts for the majority of a
store's sales and customers.
Bloom's: Apply
43) Which of the following statements is false in describing different categories of trade areas?
A) The primary trading area is the geographic area from which the shopping center or store site
attracts 80 percent of its customers.
B) The secondary trading area is the geographic area of secondary importance in terms of
customer sales, generating about 20–30 percent of the site's customers.
C) The tertiary trading area includes the remaining customers who shop at the site but come from
widely dispersed areas.
D) The best way to define the three trade zones is based on driving time rather than distance.
E) The location of competitive stores can also affect the actual trade area configuration.
Answer: A
store site attracts 50 to 70 percent of its customers.
Bloom's: Remember
20
44) In terms of trade areas, the owner of Bubba's Bar and Grille defines his ________ as the
geographic area in which 70 percent of his customers live.
A) primary trading area
B) fundamental market
C) geographic market
D) secondary trading area
E) tertiary trading area
Answer: A
store site attracts 50 to 70 percent of its customers.
Bloom's: Apply
45) Schnuck's Grocery Store is located in St. Louis, Missouri. The owner has taken a map and
has drawn three different sized shapes around the store's location. Those people that are located
in only the largest shape, which is beyond a 15-minute drive radius of the store. are in what's
referred to as the store's
A) geographic market.
B) market trading area.
C) delineated market.
D) tertiary trading area.
E) inclusive trading area.
Answer: D
Explanation: The tertiary trading area, or fringe trading area, includes the remaining customers
who shop at the site but come from widely dispersed areas.
Bloom's: Apply
21
46) Which of the following is not a factor affecting the size of the trade area?
A) Natural and physical barriers
B) Competition
C) Assortment offered
D) Accessibility
E) Type of lease
Answer: E
Explanation: All these factors, except the type of lease, have an impact on the size of the trade
area.
Bloom's: Understand
47) Which of the following statements is not true when describing the size of trade area?
A) Convenience stores' trade areas are relatively small.
B) Category specialists have relatively large trade areas.
C) A retailer like Starbucks has a large trade area.
D) A retailer like IKEA has large trade areas.
E) A retailer like Best Buy has large trade areas.
Answer: C
Explanation: A coffee shop has a relatively small trade area; for example, a Starbucks in a
central district may have a trade area of only two or three blocks.
Bloom's: Understand
22
48) Alyssa needed a new stirrup for her saddle. She had to drive 30 miles to the Western Tack
store in order to make the purchase. To Alyssa, the Western Tack store is an example of a
A) destination store.
B) drawing store.
C) magnet store.
D) country goods store.
E) tertiary-zoned store.
Answer: A
Explanation: Destination stores have a large trade area—people are willing to drive farther to
shop there.
Bloom's: Apply
49) Which of the following examples would customers least likely consider a destination store?
A) A shoe store that will dye shoes to match dresses
B) The drug store with the lowest priced pharmaceuticals
C) The home improvement store
D) A health and organic product store
E) A gas station also selling milk and eggs
Answer: E
shop there for the product offerings.
Difficulty: 3 Hard
Bloom's: Apply
23
50) Which of the following is not a destination store?
A) Bath & Body Works
B) IKEA
C) AMC Movie Theaters
D) The Home Depot
E) Kroger grocery store
Answer: E
shop there.
Bloom's: Apply
51) The Mediterranean Cafe features light cuisine and folk entertainment. It is located in the
middle of an upper-class neighborhood. The owners want to know where the customer base lives
so that they can send direct mail to those areas. For the last several weeks, employees scoped the
parking lot noting license plate numbers so they could have a private research company trace
them to the owners. Which of the following is the Mediterranean Café engaging in?
A) Customer clustering
B) Residential research
C) Financial demographics
D) Geographic research
E) Customer spotting
Answer: E
Explanation: Customer spotting is the process of locating the residences of customers for a store
on a map and displaying their positions relative to the store location.
Bloom's: Apply
24
52) When Benjamin purchased a camera at Best Buy, the cashier asked him for his home zip
code. Which of the following approaches was Best Buy using to identify the trade area for the
store?
A) Customer clustering
B) Residential research
C) Financial demographics
D) Geographic research
E) Customer spotting
Answer: E
Difficulty: 1 Easy
Bloom's: Apply
53) ________ is the process of locating the residences of customers for a store on a map and
displaying their positions relative to the store location.
A) Customer spotting
B) Buying power tracking
C) The analog approach
D) Customer clustering
E) Pirating
Answer: A
Bloom's: Remember
25
54) Which of the following can be used to determine how many people are in a trade area and
where they live?
A) Customer spotting
B) Demographic USA's Buying Power Index
C) Analog approach
D) Customer clustering
E) Centralization
Answer: A
Bloom's: Understand
55) The Village Green, a women's clothing store, took a map of the city and the checks written
by its customers during the last quarter. The store's owner then marked the address of each
customer on the map with a map pin. By looking at where the pins clustered on the map, she
could determine her trade area. She was engaged in
A) geographic research.
B) customer spotting.
C) financial demographics.
D) customer clustering.
E) residential research.
Answer: B
Bloom's: Apply
26
56) What is the drawback of using data from the U.S. Census Bureau?
A) The information in the Census is only for metropolitan areas.
B) The information included is gathered only once every 10 years.
C) It is expensive to purchase and retailers usually find other means for the information.
D) The Census provides only numbers of people in an area, not specifics like household income,
level of education, etc.
E) The information provided requires interpretation by analysts.
Answer: B
Explanation: The data from the U.S. Census Bureau have several limitations. First, because they
are based on information collected every ten years, they are not very current, though the
projections are reasonably accurate. Second, the data are not particularly user-friendly.
Bloom's: Understand
57) What is a census block?

A) An area bounded on all sides by visible and invisible features
B) A block of specific residents sharing similar demographics
C) A specific census used in comparison studies to demonstrate regional changes
D) A block including specific educational and economic status
E) A collection of adjacent blocks that contain between 600 and 3,000 people
Answer: E
Explanation: There are 8 million census blocks in the United States, each containing the
residences of about 40 people. The smallest unit of analysis is the block group, a collection of
adjacent blocks that contain between 600 and 3,000 people.
Bloom's: Understand
27
58) Which of the following is not true about U.S. census data?
A) The census track is the smallest geographic entity for which census data is available.
B) There are 8 million census blocks in the United States, each containing the residences of
about 40 people.
C) The block group is a collection of adjacent blocks that contain between 600 and 3,000 people.
D) Census data are collected every 10 years.
E) The data are not particularly user-friendly.
Answer: A
Explanation: The smallest unit of analysis is the block group, a collection of adjacent blocks that
contain between 600 and 3,000 people.
Bloom's: Understand
59) The key feature of ________ data is that they are identified with a coordinate system
(latitude and longitude) that references a particular place on Earth.
A) geographical information system (GIS)
B) projection map (PM)
C) trade area topographical map (TATM)
D) retail information system (RIF)
E) PRIZM system
Answer: A
Explanation: The key feature of GIS data is that they are identified with a coordinate system
(latitude and longitude) that references a particular place on Earth.
Bloom's: Remember
28
60) Which of the following statements is not true of geographic information systems?
A) They are used by retailers to find locations that maximize their sales and profits.
B) Their use develops a deeper understanding of the trade areas.
C) They combine demographic data, consumer spending patterns, and lifestyles in a geographic
area.
D) They are based only on demographic census data.
E) Examples of GIS suppliers include ESRI, Nielsen, and Pitney Bowes.
Answer: D
Explanation: Many other sources besides the census are incorporated into the data, such as
consumer spending patterns and lifestyles.
Bloom's: Understand
61) ESRI and other GIS suppliers have developed schemes for classifying geographic areas. The
ESRI Tapestry Segmentation scheme classifies neighborhoods into 67 distinctive segments. How
would you classify the following person? Thomas is a recent college graduate who accepted a
merchant training position with Macy's in New York City. After six months, his strong
performance at the company led to a promotion to assistant buyer and a raise. Each evening he
either goes to a yoga class or relaxes at home streaming a movie. He enjoys traveling to
Colorado on long weekends in the winter to go downhill skiing. Which of the following most
accurately describes Thomas?
A) Chic
B) Metro Renter
C) Metropolitans
D) Main Street, USA
E) Laptops and Lattes
Answer: B
Explanation: One of the tapestry segmentation schemes is Metro Renters, who are young well-
educated singles beginning their professional careers in some of the largest U.S. cities such as
New York City, Los Angeles, and Chicago.
Bloom's: Apply
29
62) Which of the following statements is true about the Spending Potential Index?
A) It compares the local average expenditure by product to the national average amount spent.
B) It compares sales predictions based on various retail locations.
C) It is an index that provides retailers who are thinking of expanding into international markets
with data on what consumers spend.
D) It compares what retailers spend on real estate in a given market and compares it to the
national average.
E) It offers retailers information on property values as well as local tax information so they are
better able to compare prior to purchasing.
Answer: A
Explanation: The Spending Potential Index (SPI) compares the local average expenditure by
product to the national average amount spent.
Bloom's: Understand
63) When it became apparent that the drawing power to a particular Walmart store was very
strong, because every day there would be long lines and empty shelves despite all cashier lanes
open and plenty of stockers, Walmart opened another store within 10 miles of that store to try
and reduce the amount of business at the over-demand store. This is an example of utilizing
________, but for the good of the retailer.
A) artificial barriers
B) cannibalization
C) congestion
D) fringe trading
E) drawing power
Answer: B
Difficulty: 3 Hard
Bloom's: Apply
30
64) Which of the following statements does not describe the appropriate use of different
approaches for site selection?
A) Large retailers often use the Huff Gravity Model to estimate potential sales for a store site
before site selection.
B) Regression analysis can consider the effects of wide range of factors affecting sales in stores.
C) The regression analysis is appropriate for small chains to find the best location.
D) Using the analog approach, the retailer describes the site and trade area characteristics for its
most successful stores and attempts to find a site with similar characteristics.
E) The analog approach is not recommended for large chain stores like Walmart.
Answer: C
Explanation: To estimate a regression model to predict sales from a site, a retailer needs data
about the trade area and site characteristics from a large number of stores. Because small chains
cannot use the regression approach, they use the similar but more subjective analog approach.
Bloom's: Remember
65) Which best describes the analog method and regression analysis?
A) Approaches for using information about the trade area to estimate the potential sales for a
store at the location
B) Analyses based on the premise that "birds of a feather flock together"
C) Two ways of analyzing the best lease options
D) Methods that compare the potential of cannibalization
E) Models that compare sustainable competitive advantages of one retailer to another
Answer: A
Explanation: Two approaches for using information about the trade area to estimate the potential
sales for a store at the location are (1) regression analysis and (2) the analog method.
Bloom's: Understand
31
66) What is the difference between multiple regression analysis and the analog approach?
A) The analog approach gathers its information through nationwide customer surveys.
B) Multiple regression analysis uses geo-demographic segmentation systems to determine
potential sales in a new market.
C) The analog approach uses statistics rather than judgment to predict sales.
D) Multiple regression analysis uses statistics rather than judgment to predict sales at existing
store locations.
E) Multiple regression analysis cannot be used to determine potential sales like the analog
approach.
Answer: D
Explanation: When using regression analysis, the retailer employs a technique called multiple
regression to estimate a statistical model that predicts sales at existing store locations.
Bloom's: Remember
67) With regression analysis used in location analysis, predictor variables are selected. Which of
the following predictor variables would be more useful for a retailer who is contemplating
opening a day care center than for a retailer of used books?
A) Number of households with children not attending school
B) Educational level of households
C) Average age of homes in trade area
D) Average age of head of household
E) Average number of cars in each household
Answer: A
Explanation: The number of young children in its potential trade area would be a good predictor
of its potential success.
Bloom's: Understand
32
68) When using the ________, the retailer simply describes the site and trade area characteristics
for its most successful stores and attempts to find a site with similar characteristics.
A) Huff gravity model
B) regression model
C) analog model
D) location model
E) cumulative attraction model
Answer: C
Explanation: When using the analog approach, the retailer simply describes the site and trade
area characteristics for its most successful stores and attempts to find a site with similar
characteristics.
Bloom's: Remember
69) Which of the following is typically the step after conducting a competitive analysis during
site selection?
A) Define present trade area.
B) Analyze trade area characteristics.
C) Conduct a situational analysis.
D) Match characteristics of present trade area with potential sites.
Answer: A
Explanation: Defining the present trade area is typically the step after conducting a competitive
analysis during site selection.
Difficulty: 1 Easy
Bloom's: Remember
33
70) Which of the following is typically the last step in site selection?
A) Define present trade area.
B) Analyze trade area characteristics.
C) Conduct a situational analysis.
D) Match characteristics of present trade area with potential sites.
Answer: D
Explanation: Matching characteristics of present trade area with potential sites is typically the
last step in site selection.
Difficulty: 1 Easy
Bloom's: Remember
71) Which of the following are the two basic types of leases?
A) The service lease and the strip lease
B) The percentage lease and the fixed-rate lease
C) The incentive lease and the parallel lease
D) The development lease and the associated lease
E) The multiplex lease and the single unit lease
Answer: B
Explanation: Once a particular site is chosen, retailers still face a multitude of decisions,
including the types and terms of the lease. There are two basic types of leases: percentage and
fixed rate.
Bloom's: Remember
34
72) Which of the following leases are most commonly used by community and neighborhood
centers?
A) Percentage lease
B) Pro bono lease
C) Sliding scale lease
D) Fixed-rate lease
E) Variable-rate lease
Answer: D
Explanation: The second basic type of lease is a fixed-rate lease, most commonly used by
community and neighborhood centers. A retailer pays a fixed amount per month over the life of
the lease.
Bloom's: Remember
73) Demarkus finally received financial backing from his wealthy aunt in order to open a pawn
shop. He contacted the landlord of a nearby shopping center since he had his eye on a vacant
storefront. To his surprise, his request for a lease was denied. What most likely prevented the
landlord from leasing to Demarkus?
A) A fixed-rate clause
B) An escape clause
C) A licensing clause
D) A prohibited-use clause
E) An exit clause
Answer: D
Explanation: A prohibited-use clause limits the shopping center management from leasing to
certain kinds of tenants. Pawn shops may be viewed as tarnishing the reputation of a shopping
center.
Bloom's: Apply
35
74) A(n) ________ limits the shopping center management from leasing to certain kinds of
tenants.
A) fixed-rate clause
B) cotenancy clause
C) exclusive-use clause
D) common area maintenance clause
E) prohibited-use clause
Answer: E
Explanation: A prohibited-use clause limits the shopping center management from leasing to
certain kinds of tenants.
Bloom's: Remember
75) A shopping center landlord who has the agreement to increase the rent by a fixed amount
over a specified period of time has negotiated a
A) fixed-rate lease.
B) graduated lease.
C) maintenance-increase-recoupment lease.
D) sliding scale lease.
E) percentage increase lease.
Answer: B
Explanation: The graduated lease is a variation of the fixed-rate lease where the rent increases
by a fixed amount over a specified period of time.
Bloom's: Understand
36
76) A(n) ________ prohibits the landlord from leasing to retailers that sell competing products.
A) prohibited-use clause
B) exclusive-use clause
C) escape clause
D) fixed-rate leases
E) inclusive-use clause
Answer: B
Explanation: An exclusive-use clause prohibits the shopping center management from leasing to
retailers that sell competing products.
Bloom's: Remember
77) What factors should be considered in locating stores? Why should retailers consider those
factors?
Answer: Factors that retailers should consider when evaluating an area for locating stores
include the economic conditions, competition, the strategic fit of the area's population with the
retailer's target market, and the costs of operating stores. Because these decisions determine
long-term profits for the retailers and require significant investments in resources, location
decisions well considered with those factors can play as a firm's competitive advantage.
Bloom's: Understand
78) What are the characteristics of a site that affect store sales and thus are considered in
selecting a site?
Answer: Some characteristics of a site that affect store sales and thus are considered in selecting
a site are (1) the traffic flow past the site and accessibility to the site, (2) parking, (3) visibility,
(4) adjacent tenants, and (5) restrictions and costs.
Difficulty: 1 Easy
Bloom's: Understand
37
79) Compare and contrast when it is essential for a retailer to have good visibility and
accessibility, and in which cases these attributes are less important.
Answer: Good visibility is of less importance for stores that are well established with loyal
customers and for stores with limited market area because the customer knows where the store is
and has the store as a destination. Both attributes are very important in an area with highly
transient populations, like a tourist center or a large city, or for non-established retailers.
Difficulty: 1 Easy
Bloom's: Understand
80) Why would Save-A-Lot grocery store choose to be located in the same strip mall as Dollar
General and Walmart?
Answer: Save-A-Lot targets price-sensitive consumers as does Dollar General and Walmart.
Although these stores share the same target market, they offer different non-competing
merchandise. Also based on the principle of the cumulative attraction, a cluster of similar and
complementary retailing provides drawing power.
Difficulty: 1 Easy
Bloom's: Understand
81) Identify the three different trade area zones and indicate for each of the different geographic
area what percentage of customers makes up from each zone.
Answer:
1) Primary trading area pulls in 50–70% of the customers that have the shortest drive within 5
minutes' driving time of the site.
2) Secondary trading area pulls in 20–30% of the customers that have a 10-minute drive.
3) Tertiary trading area or fringe trading area pulls in the remaining number of customers that
come from a widely dispersed area more than 15 minutes away from the site by car.
Difficulty: 1 Easy
Bloom's: Understand
38
82) Mention the factors affecting the size of the trade area.
Answer: The actual boundaries of a trade area are determined by the store's accessibility, natural
and physical barriers, level of competition, nature of the merchandise sold, the assortment
offered, and the location of alternative sources for the merchandise.
Difficulty: 1 Easy
Bloom's: Remember
83) Where can retailers obtain information about the nature of consumers in a trade area?
Answer: Two widely used sources of information about the nature of consumers in a trade area
are (1) data published by the U.S. Census Bureau, based on the Decennial Census of the United
States, and (2) data from geographic information systems, provided by several commercial firms.
Difficulty: 1 Easy
Bloom's: Understand
84) Describe what customer spotting is, its purpose, and the three approaches for obtaining
information by means of customer spotting.
Answer: Customer spotting is the process of locating the residences of customers for a store on a
map and displaying their positions relative to the store location. The addresses for locating the
customers' residences usually are obtained by asking the customers, recording the information
from a check or Internet channel purchase, or collecting the information from customer loyalty
programs. The data collected from customer spotting can be processed in two ways: manually
plotting the location of each customer on a map or using a geographic information system.
Difficulty: 1 Easy
Bloom's: Understand
39
85) Identify and describe the two different approaches used to estimate the potential sales for a
store site.
Answer: 1) Regression Analysis: based on the premise that factors that affect the sales of
existing stores in a chain will have the same impact on stores located at new sites being
considered. The technique can consider the effects of the wide range of factors, including site
characteristics, such as visibility and access, and characteristics of the trade area, such as
demographics and lifestyle segments represented.
2) Analog Approach: used more so for smaller chain stores and is more of a subjective approach
where the retailer describes the site and trade area characteristics for their most successful stores
and tries to find a site with similar characteristics.
Bloom's: Remember
86) Mention the steps undertaken using the analog approach.
Answer: Using the analog approach the following steps needs to be undertaken:
1. Conduct a competitive analysis.
2. Define present trade area.
3. Analyze trade area characteristics.
4. Match characteristics of present trade area with potential sites.
Bloom's: Remember
87) What are two main issues to consider when negotiating a store's lease?
Answer: The two main issues to consider when negotiating a store's lease are
1) Type of lease: There are two basic types of leases: percentage and fixed rate.
2) Terms of the lease: In addition to the rent, some other negotiable aspects of the lease are
cotenancy, prohibited-use, and exclusive-use clauses.
Bloom's: Remember
40
88) List out and define the different terms of leases.
Answer: The different terms of leases are:

Cotenancy clause: Some retail leases contain cotenancy clauses. These clauses may require that a
certain percentage of a shopping center be leased or that specified stores be in the center.
Prohibited-use clause: A prohibited-use clause limits the shopping center management from
leasing to certain kinds of tenants.
Exclusive-use clause: An exclusive-use clause prohibits the shopping center management from
leasing to retailers that sell competing products.
Common area maintenance costs: In retail leases, common area maintenance (CAM) clauses
often require the most extensive negotiations. These clauses traditionally assign responsibilities
for taking care of common areas, including sidewalks or parking lots.
Bloom's: Remember
41
Chapter 9 Information Systems and Supply Chain Management
1) Electronic data interchange (EDI) is a set of activities and techniques firms employ to
efficiently and effectively manage the flow of merchandise from the vendors to the retailer's
customers.
Answer: FALSE
Explanation: Supply chain management is a set of activities and techniques firms employ to
customers.
Difficulty: 1 Easy
Topic: Understanding Supply Chains
Learning Objective: 09-02 Describe how information flows in a supply chain.
Bloom's: Remember
2) An advance shipping notice (ASN) is a document that tells the DC what specifically is being
shipped and when it will be delivered.
Answer: TRUE
Explanation: An advance shipping notice (ASN) is a document that tells the DC what
specifically is being shipped and when it will be delivered.
Bloom's: Understand
3) Cross-docking is when vendors ship merchandise prepackaged in the quantity required for
each store; when the products arrive to the distribution center, the products move to the staging
area to be shipped to the designated stores.
Answer: TRUE
Explanation: Cross-docking is when vendors ship merchandise prepackaged in the quantity
required for each store; when the products arrive to the distribution center, the products move to
the staging area to be shipped to the designated stores.
Learning Objective: 09-03 Consider the flow of merchandise through a supply chain.
Bloom's: Understand
1
4) The pick ticket is a document or display on a screen in a forklift truck that indicates how many
cartons to get from specific storage areas.
Answer: TRUE
Explanation: The pick ticket is a document or display on a screen in a forklift truck that
indicates how many cartons to get from specific storage areas.
Difficulty: 1 Easy
Bloom's: Remember
5) In a pull supply chain, there is less likelihood of being overstocked or out of stock because the
store requests for merchandise are based on customer demand.
Answer: TRUE
Explanation: In a pull supply chain, there is less likelihood of being overstocked or out of stock
because the store requests for merchandise are based on customer demand.
Learning Objective: 09-04 Review the considerations and trends in the design of supply chains.
Bloom's: Remember
6) Drop shipping is the process of capturing value from and/or properly disposing of
merchandise returned by customers and/or stores.
Answer: FALSE
Explanation: Reverse logistics is the process of capturing value from and/or properly disposing
of merchandise returned by customers and/or stores.
Difficulty: 1 Easy
Bloom's: Remember
2
7) Overall, effective supply chain management results in higher gross margins and lower
turnover of inventory.
Answer: FALSE
Explanation: Overall, effective supply chain management results in higher turnover and higher
gross margins, along with tailored assortments.
Learning Objective: 09-01 Understand the strategic advantage generated by a supply chain.
Bloom's: Understand
8) Vendor-managed inventory (VMI) is an approach for improving supply chain efficiency in

which the vendor is responsible for maintaining the retailer's inventory levels.
Answer: TRUE
Explanation: Vendor-managed inventory (VMI) is an approach for improving supply chain
efficiency in which the vendor is responsible for maintaining the retailer's inventory levels.
Difficulty: 1 Easy
Bloom's: Remember
9) Radio frequency identification (RFID) is a technology that allows an object or person to be

identified at a distance by means of radio waves.
Answer: TRUE
Explanation: Radio frequency identification (RFID) is a technology that allows an object or
person to be identified at a distance by means of radio waves.
Bloom's: Understand
3
10) Floor-ready merchandise is merchandise that is ready to be placed on the selling floor.
Answer: TRUE
Explanation: Floor-ready merchandise is merchandise that is ready to be placed on the selling
floor; ticketing, marking, and, in the case of some apparel, placing garments on hangers (or
maybe attaching RFID chips) are all things that may need to be done to have a product floor
ready before it reaches a store.
Difficulty: 1 Easy
Bloom's: Understand
11) ________ is a set of activities and techniques firms employ to efficiently and effectively
manage the flow of merchandise from the vendors to the retailer's customers.
A) Enterprise feedback management
B) Supply chain management
C) Total quality management
D) Customer relationship management
E) Employee experience management
Answer: B
Explanation: Supply chain management is a set of activities and techniques firms employ to
customers.
Difficulty: 1 Easy
Bloom's: Remember
4
12) Which of the following is a benefit of efficient supply chain management?
A) Decrease in inventory turnover
B) Increase in product availability
C) Increase in turnaround time
D) Increase in organizational turnover
E) Decrease in cross selling
Answer: B
Explanation: Increase in product availability is a benefit of efficient supply chain management.
Difficulty: 1 Easy
Bloom's: Understand
13) Which of the following is not a benefit of efficient supply chain management?
A) Increase in product availability
B) Decrease in inventory turnover
C) More tailored assortments
D) High return on investments
E) Sustainable competitive advantage
Answer: B
Explanation: All are benefits except decrease in inventory turnover. Inventory is increased by
having better tailored assortments per store, resulting in increased product availability and a
higher ROI, and leading to a sustainable competitive advantage.
Difficulty: 1 Easy
Bloom's: Understand
5
14) Which of the following is not a reason why an efficient supply chain is important to
retailers?
A) Improved product availability
B) Higher return on investment
C) Strategic advantage
D) Trendier merchandise
E) Improved in-stock position
Answer: D
Explanation: Efficient supply chain management is important to retailers because it can provide
a strategic advantage from increases in product availability and inventory turnover, and it
produces a higher return on assets.
Difficulty: 1 Easy
Bloom's: Understand
15) Fewer stockouts and tailored assortments translate into

A) lower sales.
B) higher costs.
C) higher inventory turnover.
D) higher prices for retailers.
E) lower employee productivity.
Answer: C
Explanation: Fewer stockouts and tailored assortments translate into greater sales, lower costs,
higher inventory turnover, and lower prices (markdowns) for retailers.
Bloom's: Understand
6
16) A(n) ________ occurs when an SKU that a customer wants is not available.
A) overstock
B) B-stock
C) obsolescence
D) excess supply
E) stockout
Answer: E
Explanation: A stockout occurs when an SKU that a customer wants is not available.
Difficulty: 1 Easy
Bloom's: Remember
17) Jane visits the local supermarket to purchase caviar for a dinner party. Upon enquiry, she
finds out that caviar is sold out. Which of the following terms best describes this situation?
A) Stockout
B) Excess supply
C) Overstock
D) B-stock
E) Obsolescence
Answer: A
Explanation: A stockout occurs when an SKU that a customer wants is not available.
Difficulty: 1 Easy
Bloom's: Apply
7
18) Which of the following is a typical reaction that customers exhibit when experiencing
multiple stockouts?
A) Switching to another retailer
B) Patronizing the retailer
C) Promoting the retailer on social media
D) Initiating litigation against the retailer
E) Reviewing product attributes
Answer: A
Explanation: When experiencing multiple stockouts, customers typically switch to another
retailer.
Difficulty: 1 Easy
Bloom's: Remember
19) Bloomsberry LLC, a fashion retailer, periodically updates their collection of apparel. Woolen
apparel is stocked during winter, and cotton apparel is stocked during summer. Which of the
following is this an example of?
A) Stockout
B) B-stock
C) Unique merchandise
D) Tailored assortments
E) Clearance sale
Answer: D
Explanation: Most national retail chains adjust assortments in their stores on the basis of climate
—stocking more wool sweaters in northern stores in the winter and cotton apparel in the
summer. This is an example of tailored assortments.
Bloom's: Apply
8
20) An efficient supply chain and information system can improve a retailer's return on assets
(ROA) because the system
A) increases sales and net profit margins, without increasing inventory.
B) increases sales and net profit margins by increasing inventory.
C) reduces sales, but increases net profit margins by increasing inventory.
D) reduces net profit margins, but increases sales by increasing inventory.
E) reduces net profit margins by festering sales, without increasing inventory.
Answer: A
Explanation: An efficient supply chain and information system can improve a retailer's return on
assets (ROA) because the system increases sales and net profit margins, without increasing
inventory.
Difficulty: 1 Easy
Bloom's: Understand
21) In an efficient supply chain and information system, net sales increase because
A) customers are offered heavy discounts on the products.
B) customers are offered tailored assortments that are in stock.
C) retailers get tax benefits for setting up the system.
D) retailers are offered heavy discounts by their suppliers.
E) retailers prohibit customers from window shopping.
Answer: B
Explanation: In an efficient supply chain and information system, net sales increase because
customers are offered more attractive, tailored assortments that are in stock.
Difficulty: 1 Easy
Bloom's: Understand
9
22) Which of the following statements is a method for improving net profit margin?
A) It can be improved by decreasing the gross margin and lowering sales.
B) It can be improved by decreasing the gross margin and increasing expenses.
C) It can be improved by decreasing the net margin and lowering expenses.
D) It can be improved by increasing the gross margin and lowering expenses.
E) It can be improved by increasing the net margin and lowering sales.
Answer: D
Explanation: Net profit margin is improved by increasing the gross margin and lowering
expenses.
Bloom's: Understand
23) When inventory levels, inventory investment, and total assets are low,
A) asset and inventory turnovers are low.
B) asset turnover is high but inventory turnover is low.
C) asset and inventory turnovers are high.
D) asset turnover is low but inventory turnover is high.
E) asset and inventory turnover cannot be predicted.
Answer: C
Explanation: When inventory levels, inventory investment, and total assets are low, asset and
inventory turnovers are high.
Bloom's: Remember
10
24) A(n) ________ is a document that tells the DC what specifically is being shipped and when
it will be delivered.
A) Universal product code (UPC)
B) Radio frequency identification (RFID)
C) Advanced shipping notice (ASN)
D) Shipping document
E) Bill of lading (BOL)
Answer: C
Explanation: An advance shipping notice (ASN) is a document that tells the DC what
specifically is being shipped and when it will be delivered. The DC then makes appointments for
trucks to make the delivery at a specific time, date, and loading dock.
Bloom's: Remember
25) Purchase data collected at the point of sale goes into a huge database known as a
A) spreadsheet.
B) computerized processing unit.
C) electronic data interchange.
D) database chain.
E) data warehouse.
Answer: E
Explanation: Purchase data collected at the point of sale goes into a huge database known as a
data warehouse.
Bloom's: Remember
11
26) When a regular customer calls a well-known pizza delivery restaurant, the order-taker types
in the caller's name. The computer screen shows the customer's address, phone number,
directions to his or her house, his or her usual order, and the date and frequency of orders. If the
customer has not ordered during a two-month period, or the average number of orders has been
down, then the pizza parlor mails them a coupon of their favorite pizza. Which of the following
does the pizza parlor use?
A) Data warehouse
B) Data scrapping
C) Web scrapping
D) Direct marketing
E) Direct account management
Answer: A
Explanation: Data warehouses contain detailed information about customers that is used to
target promotions and group products together in stores.
Bloom's: Apply
27) ________ is the computer-to-computer exchange of business documents from the retailer to
the vendor, and vendor to retailer.
A) Automated replenishment system
B) Universal Product Code (UPC) system
C) Electronic data interchange (EDI) system
D) Point of sale (POS)
E) Collaborative planning, forecasting, and replenishment (CPFR)
Answer: C
Explanation: Electronic data interchange (EDI) is the computer-to-computer exchange of
business documents using a standardized format. To facilitate the adoption of EDI, the retail
industry agreed to use specific symbols to delineate the purchase order number, the vendor's
name, the address the merchandise is being shipped to, and so forth.
Bloom's: Remember
12
28) How do retailers and vendors ensure that the information that passes back and forth between
them is secure?
A) Paper hard copies are sent back and forth for comparison to be certain that the information is
accurate.
B) Suppliers, customers, and new clients all have a form of access to information.
C) With a high level of planning, implementation, and control of the flow of information, the
information will be secure.
D) There is an element of trust that is necessary in doing business with one another.
E) The system ensures that the information received has not been tampered with by ensuring that
the communication is both authentic and authorized.
Answer: E
Explanation: A security policy is the set of rules that apply to activities involving computer and
communication resources that belong to an organization. The security policy is applied to be
certain that there is authentication, authorization, and integrity of the information.
Bloom's: Understand
29) ________ technology is a wireless network and a mobile device that receives demand
notification and enables a speedy response. This solution allows the associate closest to the
ordered item to physically pull it and verify its availability.
A) Mobile task management
B) EDI
C) CPFR
D) VMI
E) Data warehouse
Answer: A
Explanation: Mobile task management technology is a wireless network and a mobile device
that receives demand notification and enables a speedy response. This solution allows the
associate closest to the ordered item to physically pull it and verify its availability. If the retailer
can move a product along its supply chain smoothly, effectively, and efficiently, to ensure that
each order by an individual customer is available in the store on time, it can deliver an
outstanding in-store pickup experience, which likely encourages the customer to return to the
store in the future
Difficulty: 1 Easy
Bloom's: Remember
13
30) Which of the following statements is not a benefit of EDI to retailers and their vendors?
A) EDI reduces cycle time.
B) Information flows quicker, so inventory turnover is higher.
C) It improves overall quality of communications.
D) It is a computer readable format that can be easily analyzed.
E) EDI increases the desirability of the product for the end consumer.
Answer: E
Explanation: EDI increases efficiency and accuracy but does not influence the desirability of the
products.
Bloom's: Understand
31) Which of the following statements is true of a dispatcher's role?

A) Dispatchers are responsible for packaging and quality control.
B) Dispatchers allocate warehouse space to merchants.
C) Dispatchers create pick tickets.
D) Dispatchers make pricing and identification labels and place them on merchandise.
E) Dispatchers coordinate deliveries to the distribution centers.
Answer: E
Explanation: The dispatcher helps to manage the inbound merchandise by booking appointments
for deliveries and notifying the planners of the scheduled delivery dates.
Difficulty: 1 Easy
Bloom's: Understand
14
32) Sara, who works at WorldFly LLC, is responsible for coordinating deliveries to the
distribution center. Which of the following terms best describes Sara's role?
A) Dispatching
B) Receiving
C) Checking
D) Ticketing
E) Marking
Answer: A
Explanation: The dispatcher is the person who coordinates deliveries to the DC.
Difficulty: 1 Easy
Bloom's: Apply
33) Which of the following is not a function of a distribution center?

A) Managing inbound transportation
B) Storing and cross-docking
C) Receiving and checking
D) Getting merchandise floor-ready
E) Negotiating with vendors
Answer: E
Explanation: All of these (plus more) are functions of the DC except the DC does not negotiate
with the vendors (the buyers do that).
Difficulty: 1 Easy
Bloom's: Remember
15
34) Which of the following is a function of a distribution center?
A) Negotiating with vendors
B) Providing technical support for products
C) Providing after-sale service
D) Managing inbound transportation
E) Managing customer support
Answer: D
Explanation: Managing inbound transportation is a function of a distribution center.
Difficulty: 1 Easy
Bloom's: Remember
35) The process where vendors ship the merchandise prepackaged to the distribution center in
the quantities required for each store and then that merchandise is shipped to stores as soon as it
is received is called
A) ticketing.
B) cross-docking.
C) push supply.
D) pull supply
E) reverse logistics.
Answer: B
Explanation: Cross-docked cartons are only in the DC for a few hours before they are shipped to
the stores. Not all the cartons received can be cross-docked.
Difficulty: 1 Easy
Bloom's: Remember
16
36) Ali supervises the conveyor belts in a distribution center. Her job is to make sure the
merchandise moves quickly from the receiving docks to the staging area in order for the trucks to
load and deliver. No merchandise is stored, as the vendors already prepared it specifically for the
stores. Ali handles ________ at the distribution center.
A) ticketing
B) cross-docking
C) cataloging
D) marking
E) reverse logistics
Answer: B
Explanation: Cross-docked cartons are only in the DC for a few hours before they are shipped to
the stores. Not all the cartons received can be cross-docked.
Difficulty: 1 Easy
Bloom's: Apply
37) Which of the following statements about receiving, checking, marking, and ticketing is true?
A) Only receiving and checking involve UPC labels.
B) It is more efficient and less costly to ticket merchandise at the store level.
C) It is more efficient for a retailer to perform ticketing and marking at a DC than in its stores.
D) To perform the checking process correctly, every carton must be opened and its merchandise
examined.
E) The checking process is performed after the merchandise has been ticketed and marked.
Answer: C
Explanation: Ticketing and marking refer to affixing price and identification labels to the
merchandise. It is more efficient for a retailer to perform these activities at a DC than in its
stores.
Difficulty: 1 Easy
Bloom's: Understand
17
38) The retailer's order is transmitted to the distribution system via computers. Then, the
computer at the distribution center creates a ________, a document or display on a screen in the
forklift truck that indicates how many cartons to get from specific storage areas.
A) selection order
B) pick ticket
C) requisition order
D) sorting order
E) selection list
Answer: B
Explanation: The pick ticket is a document or display on a screen in a forklift truck that
indicates how many cartons to get from specific storage areas.
Difficulty: 1 Easy
Bloom's: Remember
39) Retailers can use ________ to arrange for the storage and shipping of their merchandise.
A) dispatchers
B) freight forwarders
C) integrated third-party logistics companies
D) reverse logistic companies
E) public warehouses
Answer: B
Explanation: Retailers can use freight forwarders to arrange for the storage and shipping of their
merchandise. Freight forwarders provide a wide range of services: tracking transportation routes,
preparing export and shipping documentation, booking cargo space (or warehousing items until
the cargo space is needed), negotiating the charges for and consolidating freight, and insuring the
cargo or filing insurance claims as necessary.
Difficulty: 1 Easy
Bloom's: Remember
18
40) Each time a customer makes a purchase at a Walmart store from the health and beauty area,
data is transmitted to the nearest distribution center so the merchandise can be replenished and
sent on the next truck delivery. Which of the following strategies does Walmart utilize?
A) Cross check logistic strategy
B) Pull supply chain
C) Cost-efficient logistic strategy
D) Push supply chain
E) Influential logistic strategy
Answer: B
Explanation: Pull supply chain is a supply chain in which requests for merchandise are
generated at the store level on the basis of sales data captured by POS terminals. Basically, in
this type of supply chain, the demand for an item pulls it through the supply chain.
Difficulty: 1 Easy
Bloom's: Apply
41) A retailer whose orders are generated at the store level on the basis of sales data captured by
point-of-sale terminals is said to employ a(n):
A) cost efficient logistic strategy.
B) pull supply chain.
C) influential logistic strategy.
D) cross check logistic strategy.
E) push supply chain.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
19
42) Which of the following statements does not describe the benefits of a pull strategy?
A) There exists less likelihood of being overstocked or out of stock because the store orders
merchandise as needed on the basis of consumer demand.
B) It increases inventory turnover.
C) It is more responsive to changes in customer demand.
D) It becomes more efficient than a push approach when demand is uncertain and difficult to
forecast.
E) All of these statements are benefits of a pull strategy.
Answer: E
because the store requests for merchandise are based on customer demand. A pull approach
increases inventory turnover and is more responsive to changes in customer demand, and it
becomes even more efficient than a push approach when demand is uncertain and difficult to
forecast.
Difficulty: 1 Easy
Bloom's: Understand
43) In a(n) ________, merchandise is allocated to stores on the basis of forecasted demand.
A) push supply chain
B) cross check logistic strategy
C) influential logistic strategy
D) pull supply chain
E) cost-efficient logistic strategy
Answer: A
Explanation: In a push supply chain, merchandise is allocated to stores on the basis of forecasted
demand. Once a forecast is developed, specified quantities of merchandise are shipped (pushed)
to DCs and stores at predetermined time intervals.
Difficulty: 1 Easy
Bloom's: Remember
20
44) Retailers with less sophisticated forecasting and information systems tend to use a(n)
A) cost efficient logistic strategy.
B) cross check logistic strategy.
C) influential logistic strategy.
D) pull supply chain.
E) push supply chain.
Answer: E
Explanation: The push supply chain system is most efficient for products with steady,
predictable demand and requires less sophistication.
Difficulty: 1 Easy
Bloom's: Remember
45) An inventory planner notes that the inventory she is responsible for would be best managed
by relying on consumer demand. She recommends to her management to implement a(n)
________ that would support being in a better stock position of her managed product by store
location.
A) cross check logistic strategy
B) pull supply chain strategy
C) cost-efficient logistic strategy
D) push supply chain strategy
E) influential logistic strategy
Answer: B
Difficulty: 1 Easy
Bloom's: Understand
21
46) For fashion merchandise where there is only one shipment of the product or collection, the
best supply chain method to use is the
A) cross check logistic strategy.
B) pull supply chain strategy.
C) cost efficient logistic strategy.
D) push supply chain strategy.
E) influential logistic strategy.
Answer: D
Explanation: In a push supply chain, merchandise is allocated to stores on the basis of forecasted
demand. Once a forecast is developed, specified quantities of merchandise are shipped (pushed)
to DCs and stores at predetermined time intervals.
Difficulty: 1 Easy
Bloom's: Understand
47) A vendor that employs sales associates for retailers to visit stores, analyze their business and
inventory, and create displays of their products will most likely also utilize what method of
product delivery?
A) Direct store delivery
B) Consumer direct fulfillment
C) Drop-shipping
D) Cross-docking
E) Reverse logistics
Answer: A
Explanation: Direct store delivery (DSD) is a distribution method that bypasses the retailer's DC
and delivers the merchandise directly to the retailer's stores. Typically, vendors offering DSD
provide additional services such as assessing the store's stock levels and backroom inventory to
determine the right amount needed and then have the store manager approve a replenishment
order. The vendor's representative may also restock the shelves or racks, rearrange merchandise,
and remove dated products.
Difficulty: 1 Easy
Bloom's: Understand
22
48) Which of the following statements describes the benefits of a pull strategy?
A) It does not require advanced systems for implementation.
B) It decreases inventory turnover.
C) There is less likelihood of being overstocked or out of stock at each store.
D) It allows more efficient production and distribution scheduling to increase costs.
E) It forecasts the competitor's demand.
Answer: C
because the store requests for merchandise are based on customer demand. A pull approach
increases inventory turnover and is more responsive to changes in customer demand, and it
becomes even more efficient than a push approach when demand is uncertain and difficult to
forecast.
Difficulty: 1 Easy
Bloom's: Understand
49) Which of the following types of retailers is most likely to benefit from the use of direct store
delivery?
A) A big-box electronics retailer
B) A supermarket
C) A big-box discount store
D) A large department store
E) A mall specialty store
Answer: B
Explanation: Retailers that require frequent replenishment of fresh goods, like supermarkets, are
most likely to benefit from DSD.
Bloom's: Understand
23
50) Which of the following statements is an advantage of using distribution centers over direct
store delivery?
A) Individual stores that forecast and draw from a DC are more cost efficient.
B) The DCs have the advantage of keeping extra merchandise as backup stock in the store.
C) Direct store delivery is always more expensive.
D) The DCs enable the retailer to carry less overall inventory.
E) The DC can always deliver faster than a vendor.
Answer: D
Explanation: Using DCs results in overall lower inventory levels because the amount of backup
stock needed in a centralized DC is less than the amount of backup stock needed in all the stores
served by the center.
Difficulty: 1 Easy
Bloom's: Understand
51) Which of the following statements does not describe the benefits of utilizing distribution
centers over direct store delivery?
A) More accurate sales forecasts are possible when retailers combine forecasts for many stores
serviced by one distribution center rather than doing a forecast for each store.
B) Distribution centers enable the retailer to carry less merchandise in the individual stores.
C) The use of distribution centers increases inventory investment.
D) It is easier to avoid running out of stock or having too much stock in any particular store
because merchandise is ordered from the distribution center as needed.
E) The effects of forecast error for the individual stores are minimized and less backup inventory
is needed to prevent stockouts.
Answer: C
Explanation: Using DCs results in overall lower inventory levels because the amount of backup
stock needed in a centralized DC is less than the amount of backup stock needed in all the stores
served by the center.
Difficulty: 1 Easy
Bloom's: Understand
24
52) Which of the following terms describes the process of moving returned goods from a
customer to a retail store or FC, from a retail store to a DC, or from a DC to a vendor for the
purpose of capturing value or proper disposal?
A) Ticketing
B) Reverse supply chain
C) Marking
D) Cross-docking
E) Exception management logistics
Answer: B
Explanation: A reverse supply chain processes merchandise that is returned because it is
damaged, has been recalled, is no longer sold to customers because its selling season has ended,
was incorrectly sent to a store or directly to a customer, has been discontinued, or there is
excessive inventory in stores or DCs.
Difficulty: 1 Easy
Bloom's: Remember
53) What is the process of moving merchandise through the channel from the customer to the
store to the DC to the vendor?
A) Return flow
B) Reverse supply chain
C) Outbound returns
D) Outbound flow
E) Reverse flow
Answer: B
Explanation: A reverse supply chain is the process of capturing value from and/or properly
disposing of merchandise returned by customers and/or stores.
Difficulty: 1 Easy
Bloom's: Remember
25
54) When the law office of Dewey, Cheatham, and Howe received the case of legal paper it had
ordered from an Internet office supply retailer, the office manager was dismayed to find the
paper was pink even though it was marked white. The office manager packed the paper and sent
it back to the retailer who in turn sent it back to the vendor. This is an example of
A) resourcing.
B) backwards distribution.
C) a reverse supply chain.
D) backwards handling.
E) demarketing.
Answer: C
Explanation: A reverse supply chain processes merchandise that is returned because it is
damaged, has been recalled, is no longer sold to customers because its selling season has ended,
was incorrectly sent to a store or directly to a customer, has been discontinued, or there is
excessive inventory in stores or DCs.
Difficulty: 1 Easy
Bloom's: Apply
55) ________ is a method where retailers receive orders from customers and have the product
shipped directly to the customer from the vendor.
A) Consumer direct fulfillment
B) Reverse logistics
C) Pull supply chain
D) Push supply chain
E) Direct store delivery
Answer: A
Explanation: Consumer direct fulfillment, also known as drop shipping, is a system in which
retailers receive orders from customers and relay these orders to vendors; the vendors then ship
the merchandise ordered directly to the customer.
Difficulty: 1 Easy
Bloom's: Remember
26
56) From the retailer's view, ________ reduces the retailer's supply chain costs and investment
because the vendor assumes the costs and risks of shipping the product to the customer.
A) drop shipping
B) push supply chain
C) pull supply chain
D) reverse logistics
E) direct store delivery
Answer: A
Explanation: Drop shipping, or consumer direct fulfillment, is a system in which retailers
receive orders from customers and relay these orders to vendors; the vendors then ship the
merchandise ordered directly to the customer.
Difficulty: 1 Easy
Bloom's: Remember
57) Matthew made a purchase online of a Fender speaker system from a retailer. When the
shipment of his purchase arrived at his home, he noticed that the product was shipped to him
directly from Fender. The retailer and vendor are utilizing a system of
A) drop shipping.
B) cross-docking.
C) outsourcing.
D) third party logistics.
E) vendor managed inventory.
Answer: A
Explanation: Drop shipping, or consumer direct fulfillment, is a system in which retailers
receive orders from customers and relay these orders to vendors; the vendors then ship the
merchandise ordered directly to the customer.
Difficulty: 1 Easy
Bloom's: Apply
27
58) What happens when retailers and vendors do not coordinate their supply chain management
activities?
A) Prices drop at the negotiation level.
B) Communication improves.
C) The DC shuts down.
D) Excess inventory builds up in the system.
E) Lower inventory leads to sell-outs.
Answer: D
Explanation: When retailers and vendors do not coordinate their supply chain management,
excess inventory builds up in the system even if the retail sales rate for the merchandise is
relatively constant.
Bloom's: Apply
59) Many companies who deliver their own product to their stores through their own trucks are
using ________ as a way to offset expenses by picking up loads to transport on their way back,
rather than traveling with empty trailers.
A) bullwhips
B) dual directionals
C) boomerangs
D) deferred transportation
E) backhauls
Answer: E
Explanation: Backhauls are when trucks are returning to their starting point with a different
load. Overall efficiencies and concern for the environment can be addressed through being
certain that trucks do not travel empty.
Bloom's: Understand
28
60) ________ is a term used for when a retail associate scans the merchandise the customer
intends to purchase.
A) Point of sale
B) Consumer direct fulfillment
C) Quick response
D) Just-in-time delivery
E) Lightening logistics
Answer: A
Explanation: The point of sale is often referred to as "POS." The POS terminal records the
purchase information and electronically relays the information to the data warehouse.
Difficulty: 1 Easy
Bloom's: Knowledge
61) All of the following are reasons why more attention is being directed toward reverse supply
chain systems except
A) the increased rate of returns overall due to the increase of retail sales on the Internet.
B) the government restrictions on how many times a customer can return products to a retailer.
C) the environmental sustainability of excess packaging and shipping materials when returned.
D) consolidating shipments to stores, DCs, and FC to reduce harmful emissions.
E) the environmental impact of shipping direct to customers.
Answer: B
Explanation: More attention is being directed toward reverse supply chain systems for all of the
reasons listed except government restrictions on how many times a customer can return products
to a retailer (this is not a government policy). Green supply chains are becoming a standard
business practice.
Bloom's: Remember
29
62) Which of the following is not a way to reduce the level of inventory in the supply chain and
the number of stockouts in the stores?
A) Using EDI
B) Sharing information
C) Using reverse logistics
D) Using vendor-managed inventory (VMI)
E) Employing collaborative planning, forecasting, and replenishment (CPRF)
Answer: C
Explanation: Vendors and retailers have found that by working together, they can reduce the
level of inventory in the supply chain and the number of stockouts in the stores. Four approaches
for coordinating supply chain activities, in order of the level of collaboration, are (1) using EDI;
(2) sharing information; (3) using vendor-managed inventory; and (4) employing collaborative
planning, forecasting, and replenishment.
Bloom's: Understand
63) ________ is an approach for improving supply chain efficiency in which the vendor is
responsible for maintaining the retailer's inventory levels in each of its stores.
A) Efficient consumer response (ECR)
B) Reverse logistics
C) Quick Response (QR) system
D) Vendor-managed inventory (VMI)
E) Collaborative planning, forecasting, and replenishment (CPRF)
Answer: D
Explanation: Vendor-managed inventory (VMI) is an approach for improving supply chain
efficiency in which the vendor is responsible for maintaining the retailer's inventory levels. The
vendor determines a reorder point—a level of inventory at which more merchandise is ordered.
The retailer shares sales and inventory data with the vendor via EDI. When inventory drops to
the order point, the vendor generates the order and delivers the merchandise.
Bloom's: Understand
30
64) Because of the nature of vendor-managed inventory,
A) retail buyers and planners no longer need to monitor inventory levels and place orders.
B) DCs need to run around the clock as deliveries arrive after hours and on holidays.
C) there are many delays in replenishment as it's not a collaborative approach.
D) third party logistic companies have become necessary.
E) EDI is now obsolete.
Answer: A
Explanation: In addition to better matching retail demand to supply, VMI can reduce the
vendor's and the retailer's costs. Vendor salespeople no longer need to spend time generating
orders on items that are already in the stores, and their role shifts to selling new items and
maintaining relationships. Retail buyers and planners no longer need to monitor inventory levels
and place orders.
Bloom's: Understand
65) Which of the following describes the limitations of vendor-managed inventory that retailers
may encounter?
A) Since the vendor owns the merchandise until it is sold by the retailer, at which time the
retailer pays for the merchandise, a retailer bears a financial risk.
B) Retail buyers and planners need to monitor inventory levels.
C) When the vendor coordinates the supply chain for its specific products, it does not know what
other actions the retailer is taking that might affect the sales of its products in the future.
D) It takes longer for a product to go from design to ordering the product to having the product
on the selling floor.
E) It is an added cost with little benefit for the retailer.
Answer: C
Explanation: While the vendor coordinates the supply chain for its specific products, it does not
know what other actions the retailer is taking that might affect the sales of its products in the
future.
Bloom's: Understand
31
66) ________ is the sharing of forecasts and related business information between retailers and
vendors to improve supply chain efficiency and product replenishment.
A) Automated replenishment system
B) Universal Product Code (UPC) system
C) Electronic data interchange (EDI) system
D) Point-of-sale (POS)
E) Collaborative planning, forecasting, and replenishment (CPFR)
Answer: E
Explanation: Collaborative planning, forecasting, and replenishment (CPFR) is the sharing of
forecasts and related business information and collaborative planning between retailers and
vendors to improve supply chain efficiency and product replenishment.
Bloom's: Remember
67) CPFR partnerships require

A) quick response interaction.
B) trust and commitment.
C) two or more vendors.
D) full responsibility of the vendor.
E) a controlled expense budget.
Answer: B
Explanation: This is the highest form of collaboration between retailers and vendors, where trust
and commitment from both parties is necessary because of the sharing of proprietary information
with one another.
Bloom's: Understand
32
68) ________ are tags that transmit identifying information and are attached to individual items,
shipping cartons, and containers.
A) Vendor-managed inventories
B) Data warehouses
C) Radio frequency identification devices
D) Electronic data interchanges
E) Data stores
Answer: C
Explanation: Radio frequency identification devices are tags that transmit identifying
information and are attached to individual items, shipping cartons, and containers.
Bloom's: Remember
69) Which of the following statements is true of radio frequency identification devices?
A) They facilitate interpersonal communication between vendors and retailers.
B) They transmit data about the objects in which they are embedded.
C) They help in gathering data about the spending habits of customers.
D) They facilitate interpersonal communication between retailers and consumers.
E) They help in gathering data about the preferences of customers.
Answer: B
Explanation: Radio frequency identification devices transmit data about the objects in which
they are embedded.
Bloom's: Understand
33
70) Which of the following is the primary benefit to retailers of utilizing RFID tagging for
individual items?
A) Increased inventory turnover
B) Reduced product prices
C) Reduced inventory turnover
D) Real-time measure of employee productivity
E) Real-time measure of inventory levels
Answer: E
Explanation: The primary benefit of tagging individual items to retailers is to economically
provide an accurate, real-time measure of item inventory levels. With these data, retailers can
dramatically reduce inventory levels and stockouts.
Bloom's: Understand
71) What is an advantage of using RFID over traditional bar codes?

A) RFID eliminates the bullwhip effect.
B) RFID technology is expensive.
C) RFID holds more data stored on the device.
D) RFID makes tagging and pricing at DCs unnecessary.
E) RFID is environmentally friendly.
Answer: C
Explanation: RFID technology has two advantages over traditional bar codes. First, the devices
can hold more data and update the data stored. Second, the data on the devices can be acquired
without a visual line of sight.
Bloom's: Understand
34
72) Which of the following is not a benefit of using RFID over traditional bar codes?
A) Reduced inventory turnover.
B) RFID updates the data stored.
C) RFID holds more data stored on the device.
D) One benefit of item-level RFID is to reduce theft.
E) The data on the devices can be acquired without a visual line of sight.
Answer: A
Explanation: The RFID technology has two advantages over traditional bar codes. First, the
devices can hold more data and update the data stored. Second, the data on the devices can be
acquired without a visual line of sight.
Bloom's: Understand
73) Which of the following statements is a reason why some vendors and retailers chose not to
adopt RFID tagging?
A) They are concerned about the data storage falling into the wrong hands.
B) They are concerned about the potential health risk of radio frequency.
C) They believe the additional costs do not benefit the return on investment.
D) They do not want to replace people with the devices.
E) They are concerned about the environmental impact.
Answer: C
Explanation: RFID is not free for suppliers. Tags are the main cost. They can add 5 to 30 cents
per item shipped, depending on volumes, the type of tag, and services provided by a service
bureau and/or label convertor. In addition, there are one-time costs for readers and
implementation costs, such as retraining staff and IT integration (depending on what the supplier
is trying to accomplish). Thus per-item cost is a problem for low margin items.
Bloom's: Understand
35
74) Explain how managing an efficient supply chain and information system can improve the
company's return on assets.
Answer: Net sales increase because customers are offered more attractive, tailored assortments
that are in stock. Net profit margin is improved by increasing gross margin and lowering
expenses. An information system that coordinates buyers and vendors allows retailers to take
advantage of special buying opportunities and obtain the merchandise at a lower cost, thus
improving their gross margins. Retailers also can lower their operating expenses by coordinating
deliveries, thus reducing transportation expenses. With more efficient DCs, merchandise can be
received, prepared for sale, and shipped to stores with minimum handling, further reducing
expenses. By efficiently managing their supply chains, retailers can carry less backup inventory,
yet still avoid stockouts. Thus, inventory levels are lower, and with a lower inventory
investment, total assets are also lower, so the asset and inventory turnovers are both higher.
Bloom's: Understand
75) What is the purpose of the data warehouse and how do retailers use it?
Answer: Purchase data collected at the point of sale goes into a database known as a data
warehouse. The information stored in the data warehouse is accessible on various dimensions
and levels. Analysts from various levels of the retail operation extract information from the data
warehouse to make a plethora of retailing decisions about developing and replenishing
merchandise assortments. Data warehouses also contain detailed information about customers,
which is used to target promotions and group products together in stores.
Bloom's: Understand
76) What are the activities that take place at a distribution center?
Answer: Coordinating inbound transportation, receiving merchandise, checking the merchandise

for accuracy, storing the merchandise, cross-docking, getting the merchandise "floor-ready," and
coordinating outbound transportation are all activities that take place at a distribution center.
Bloom's: Remember
36
77) What is "floor-ready" merchandise, and what tasks are completed at the distribution center to
prepare merchandise to be "floor ready"?
Answer: Floor-ready merchandise is merchandise that is ready to be placed on the selling floor
in a store. Getting merchandise floor-ready entails ticketing, marking, and, in the case of some
apparel, placing garments on hangers. Ticketing and marking refer to affixing price and
identification labels to the merchandise. It is more efficient for a retailer to perform these
activities at a DC than in its stores. In a DC, an area can be set aside and a process implemented
to efficiently add labels and put apparel on hangers. Conversely, getting merchandise floor-ready
in stores can block aisles and divert sales associates' attention from their customers. An even
better approach from the retailer's perspective is to get vendors to ship floor-ready merchandise,
thus totally eliminating the expensive, time-consuming ticketing and marking process.
Bloom's: Remember
78) Compare and contrast the push and pull supply chain methods.
Answer: Pull supply chain is a supply chain in which requests for merchandise are generated at
the store level on the basis of sales data captured by POS terminals. Basically, in this type of
supply chain, the demand for an item pulls it through the supply chain. An alternative is a push
supply chain, in which merchandise is allocated to stores on the basis of forecasted demand.
Once a forecast is developed, specified quantities of merchandise are shipped (pushed) to DCs
and stores at predetermined time intervals. In a pull supply chain, there is less likelihood of being
overstocked or out of stock because the store requests for merchandise are based on customer
demand.
Bloom's: Understand
37
79) Identify and describe the vendor-managed inventory approach.
Answer: Vendor-managed inventory (VMI) is an approach for improving supply chain

efficiency in which the vendor is responsible for maintaining the retailer's inventory levels. The
vendor determines a reorder point—a level of inventory at which more merchandise is ordered.
The retailer shares sales and inventory data with the vendor via EDI. When inventory drops to
the order point, the vendor generates the order and delivers the merchandise.
Bloom's: Understand
80) What are the benefits of RFID technology over traditional bar codes?
Answer: RFID technology has two advantages over traditional bar codes. First, the devices can
hold more data and update the data stored. For instance, the device can keep track of where an
item has been in the supply chain and even where it is stored in a DC. Second, the data on the
devices can be acquired without a visual line of sight. Thus, RFID enables the accurate, real-time
tracking of every single product, from manufacturer to checkout in the store. It eliminates the
manual point-and-read operations needed to get data from UPC bar codes.
Bloom's: Understand
81) Describe how retailers are utilizing their stores as fulfillment centers along with advantages
and disadvantages of this process.
Answer: Online orders placed by customers can often be fulfilled by a store. An employee at the
store receives the order, goes to the floor or stock room to find the item, packages it up, and ships
it to the customer. The advantage of this process is that retailers can have stores with excess
inventory ship the product out, which helps to deplete inventory that store may not otherwise
sell. If the customer lives closer to the store than a DC or other fulfillment center, the customer
may receive the order sooner due to a short shipping distance, and the retailer may have less
actual shipping cost due to the shorter distance. However, disadvantages could be that to have an
employee at a store do this function may take them away from other duties and be quite time-
consuming, thus potentially costing the retailer for the transaction.
Bloom's: Understand
38
82) Describe what a reverse supply chain is and why more attention as of late is being directed
toward this area.
Answer: Reverse supply chain is the process of capturing value from and/or properly disposing
of merchandise returned by customers and/or stores.
Two reasons more attention is being directed toward reverse supply chain systems are the growth
of sales through Internet channels and the increasing interest in environmental sustainability.
First, the percentage of returned merchandise is much greater for purchases made through the
Internet channel compared to the store channel. Because the percentage of merchandise returns
bought through the Internet channel is as much as four times greater than for merchandise bought
through the store channel, the growth in Internet sales is going to significantly increase the
number of returns and the cost of processing them through the reverse supply chain system.
Second, the efficiency of reverse supply chain systems affects environmental sustainability
because packaging and shipping materials are processed through the reverse logistics system.
When retailers reduce transportation costs by consolidating shipments to stores, DCs, and FCs
and optimize the disposal of returned merchandise, they reduce harmful emissions, energy usage,
and their costs
Bloom's: Understand
83) Describe what a "backhaul" is and why companies would utilize backhauls.
Answer: Backhauls are when trucks are returning to their starting point with a different load.
Many companies who deliver their own product to their stores through their own trucks are using
backhauls as a way to offset expenses by picking up loads to transport on their way back, rather
than traveling with empty trailers. Overall efficiencies and concern for the environment can be
addressed through being certain that trucks do not travel empty.
Bloom's: Understand
39
Chapter 10 Customer Relationship Management
1) Customer loyalty can be enhanced by creating an appealing brand image.
Answer: TRUE
Explanation: Customer loyalty can be enhanced by creating an appealing brand image, offering
exclusive merchandise, establishing convenient locations, and providing an engaging shopping
experience.
Difficulty: 1 Easy
Learning Objective: 10-01 Describe the customer relationship management process.
Bloom's: Understand
AACSB: Analytic
2) Customer loyalty is limited to ensuring satisfaction by offering a wide assortment of products.
Answer: FALSE
Explanation: Customer loyalty is more than having customers satisfied with a retailer and
making repeat visits.
Bloom's: Remember
3) A data warehouse normally contains information on customer preferences.
Answer: TRUE
Explanation: A data warehouse contains the following information: transactions, customer
contacts, customer preferences, and descriptive information.
Difficulty: 1 Easy
Topic: Collecting and Analyzing Customer Shopping Data
Learning Objective: 10-02 Understand how customer shopping data are collected.
Bloom's: Remember
1
4) Cookies are not equipped to track customer interactions on social networking sites.
Answer: FALSE
Explanation: Cookies can enable the collection of data about what pages people have viewed,
other sites the people have visited, how they spend money online, and their interactions on social
networking sites.
Bloom's: Understand
AACSB: Technology
5) The customer lifetime value (CLV) is the expected contribution from the customer to the
retailer's profits over his or her entire relationship with the retailer.
Answer: TRUE
Explanation: Retailers often use information in their data warehouses to determine how valuable
each customer is to their firm. The value of a customer, called customer lifetime value (CLV), is
the expected contribution from the customer to the retailer's profits over their entire relationship
with the retailer.
Learning Objective: 10-03 Explain the methods used to analyze customer data and identify
target customers.
Bloom's: Remember
6) A specific type of data analysis that focuses on the composition of the bundle of merchandise
purchased by a consumer during a single shopping trip is called a market basket analysis.
Answer: TRUE
Explanation: The market basket analysis analyzes what the customer bought during a single
visit. This information is useful to place merchandise in a store.
target customers.
Bloom's: Remember
AACSB: Technology
2
7) Frequent-shopper programs are expensive to implement and manage.
Answer: TRUE
Explanation: Frequent-shopper programs are expensive in most cases.
Topic: Developing Frequent-Shopper Programs
Learning Objective: 10-04 Outline how retailers develop their frequent-shopper programs.
Bloom's: Understand
8) Effective frequent-shopper programs are transparent.
Answer: TRUE
Explanation: Effective programs are transparent in that they make it easy for customers to keep
track of their spending and available rewards.
Bloom's: Remember
9) Customers in the platinum segment place more value on the price of a product.
Answer: FALSE
Explanation: Customers in the platinum quartile buy a lot of the merchandise sold by the retailer
and often place more value on customer service than price.
Learning Objective: 10-05 Explain various ways to implement effective CRM programs.
Bloom's: Understand
10) Developing retail programs for small groups or individual customers is referred to as 1-to-1
retailing.
Answer: TRUE
Explanation: Developing retail programs for small groups or individual customers is referred to
as 1-to-1 retailing. Many small, local retailers have always practiced 1-to-1 retailing.
Bloom's: Remember
AACSB: Analytic
3
11) ________ indicates that customers are committed to purchasing merchandise and services
from the retailer regardless of competing retailers' enticements.
A) Customer commitment
B) Customer loyalty
C) Customer satisfaction
D) Customer attitudes
E) Customer interest
Answer: B
Explanation: Loyal customers have a bond with the retailer, and the bond is based on more than
a positive feeling about the retailer.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
12) What is the primary objective of CRM process?

A) To develop a base of loyal customers who patronize the retailer frequently
B) To satisfy customers by providing discounts and special offers
C) To increase the foot-traffic into retail stores
D) To offer the best prices possible to their target customer
E) To attract customers away from competitors
Answer: A
Explanation: The objective of the customer relationship management process is to develop
loyalty and repeat purchase behavior among a retailer's best customers.
Bloom's: Understand
4
13) Customer loyalty means
A) customers are committed to purchasing from the retailer and will seldom shop at competing
stores.
B) customers have a high frequency of purchasing merchandise from the retailer.
C) customers have most recently shopped and purchased from the retailer.
D) customers make the highest amount of their purchases at one retailer and will be loyal to that
retailer.
E) customers have positive emotions about a retailer and will be loyal to that retailer.
Answer: A
Explanation: Customer loyalty means that customers are committed to purchasing from the
retailer and will resist activities of competitors attempting to attract their patronage. It is more
than having a positive emotion about the retailer or just spending a lot of money.
Bloom's: Understand
14) A business philosophy and set of strategies, programs, and systems that focuses upon
identifying and building loyalty with a retailer's most valued customers is called
A) customer loyalty management.
B) strategic relationship management.
C) most valued customer management.
D) strategic consumer management.
E) customer relationship management.
Answer: E
Explanation: CRM enables retailers to develop a base of loyal customers and increase its share
of wallet—the percentage of the customers' purchases made from that retailer.
Difficulty: 1 Easy
Bloom's: Remember
5
15) The objective of the CRM process is to
A) analyze market trends.
B) expand services.
C) develop loyalty and repeat-purchase behavior.
D) extend hours of operations.
E) monitor customer transactions.
Answer: C
Explanation: The objective of the CRM process is to develop loyalty and repeat purchase
behavior among a retailer's best customers. Customer loyalty is more than having customers
satisfied with a retailer and making repeat visits.
Difficulty: 1 Easy
Bloom's: Understand
16) ________ refers to the percentage of the customers' purchases made from the retailer.
A) 80-20 rule
B) Share of wallet
C) Customer lifetime value
D) Profit sharing
E) 1-to-1 retailing
Answer: B
Explanation: CRM enables retailers to develop a base of loyal customers and increase its share
of wallet—the percentage of the customers' purchases made from the retailer.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
6
17) Which of the following statements is true of customer loyalty?
A) It refers to customers making repeat visits to a retailer and being satisfied with their
experiences.
B) It occurs when customers purchase merchandise and services from a retailer because of its
convenient location.
C) It is an emotional connection between a retailer and a customer.
D) It is the state of accumulated transactions that customers build through repeat purchases
responding to various promotions.
E) It is the sole result of superior customer service.
Answer: C
Explanation: Loyal customers have a bond with the retailer that is based on an emotional
connection, more than just having a positive feeling about the retailer.
Bloom's: Understand
18) Retailers will use all of the following to retain and increase share of wallet from their best
customers except:
A) Frequent-shopper programs
B) Special customer services
C) Personalization
D) Promotions
E) Lower prices
Answer: E
Explanation: Retailers are concentrating on developing customer loyalty and increasing share of
wallet by providing more value to their best customers by using targeted, personalized
merchandise, services, and promotions.
Bloom's: Understand
7
19) Which of the following statements does not describe the customer relationship management
process that retailers implement?
A) The process begins with the collection and analysis of data about a retailer's customers and
the identification of its best customers.
B) CRM is an iterative process that turns customer data into customer loyalty and repeat-
purchase behavior.
C) Retailers concentrate on providing more value to their best customers using targeted
promotions.
D) Loyal customers share a personal bond with retailers.
E) All of these statements describe customer relationship management.
Answer: E
Explanation: The objective of the CRM process is to develop loyalty and repeat purchase
behavior among a retailer's best customers. Customer loyalty is more than having customers
satisfied with a retailer and making repeat visits.
Bloom's: Understand
20) What is the final step in the CRM process?

A) Analyzing data
B) Developing CRM programs
C) Constructing a data warehouse
D) Identifying the target customers
E) Implementing programs
Answer: E
Explanation: CRM is an iterative process that turns customer data into customer loyalty and
repeat purchase behavior through four activities: (1) collecting customer shopping data, (2)
analyzing customer data and identifying target customers, (3) developing CRM through frequent-
shopper programs, and (4) implementing CRM programs.
Bloom's: Remember
8
21) The first step in the CRM process is
A) analyzing data.
B) creating a data warehouse.
C) developing CRM programs.
D) implementing programs.
E) rewarding loyal customers.
Answer: B
Explanation: CRM is an iterative process that turns customer data into customer loyalty and
repeat purchase behavior through four activities: (1) collecting customer shopping data, (2)
analyzing customer data and identifying target customers, (3) developing CRM through frequent-
shopper programs, and (4) implementing CRM programs.
Difficulty: 1 Easy
Bloom's: Remember
22) A(n) ________ forms the foundation for all CRM activities.
A) frequent-shopper program
B) loyalty program
C) 1-to-1 retailing program
D) RFM analysis
E) data warehouse
Answer: E
Explanation: A data warehouse contains all the data the firm has collected about its customers
and is the foundation for subsequent CRM activities.
Bloom's: Remember
AACSB: Analytic
9
23) Which of the following information does not form a part of the data warehouse for a retailer?
A) Details of customer visits to the retailer's site
B) A complete history of the customer's transactions
C) Customer preferences such as brands and fabrics
D) Demographic data for segmentation purposes
E) Details of competitor patronization
Answer: E
Explanation: Ideally, the data warehouse should contain the following information: transactions,
customer contacts, customer preferences, and demographic and psychographic data.
Bloom's: Understand
24) Why is constructing a data warehouse more difficult for in-store transactions than it is for
online shopping?
A) Customer returns to the store confound the data.
B) Store purchases can be made with cash or third-party credit cards.
C) Availability of store assortments is not always similar to website assortments.
D) Store customers are not interested in sharing personal information.
E) Since customers are more likely to buy gifts for others in stores than online, it defeats the
purpose of understanding the end-user.
Answer: B
Explanation: With in-store transactions, it can be difficult to identify customers because
customers can pay with cash, a third-party credit card, or their mobile wallets (e.g., Apple Pay),
making the purchase virtually anonymous.
Bloom's: Understand
10
25) Which of the following is an inherent limitation associated with asking the customer for
identifying information for building a data warehouse?
A) Some customers may feel that the sales associate is violating their privacy.
B) Some identifying information is illegal to use for marketing purposes.
C) If the information provided is inaccurate, the retailer may be held liable.
D) Customer consent is mandatory in the U.S. for using personal information.
E) Customers may give more information than what the sales associate can record.
Answer: A
Explanation: Some consumers may be reluctant to provide the information because they feel that
the sales associates are violating their privacy.
Difficulty: 1 Easy
Bloom's: Understand
AACSB: Ethics
26) When Mary purchased some caulk for her windows at Home Depot, the cashier asked for her
telephone number at the point-of-sale. What was the retailer doing by asking this question?
A) The retailer was determining her level of trust in the store.
B) The retailer was identifying her preference.
C) The retailer was collecting data for the store's database.
D) The retailer was curious as to how many people from that area code shopped the store.
E) The retailer was confirming forecasts for buyers.
Answer: C
Explanation: Some retailers have the sales associates ask customers for identifying information
when they process a sale. This information is then used to link all applicable transactions to the
customer.
Bloom's: Apply
AACSB: Ethics
11
27) At La Rue Fashions, there is a certain customer who makes large purchases every Friday and
returns everything two weeks later. In response, the manager recently created a policy and
published it. It included specifics of the store's terms regarding returned merchandise stating that
all tags must be intact; the clothing must not have been worn; and it must be returned within
seven days to receive credit. Which of the following best describes the retailer's actions?
A) Add-on selling
B) Getting the lead out
C) Data mining
D) RFM analysis
E) Cutting off services
Answer: B
Explanation: In many cases, the bottom tier of customers actually has a negative customer
lifetime value (CLV). Retailers lose money on every sale they make to these customers. The
process of no longer selling to unprofitable customers can be referred to as "getting the lead out,"
in terms of the customer pyramid.
Bloom's: Apply
28) Wilbur uses a Books-A-Million customer card, Kash-N-Karry customer card, Jerry's
Cleaners customer card, and Sandwich Shop customer card when he shops at any of these
retailers. Each time he uses them, he gets rewarded with reduced cost, free merchandise, or a
credit. These cards form a part of
A) assortment planning programs.
B) retail analytic programs.
C) frequent-shopper programs.
D) privacy and CRM programs.
E) market basket analysis.
Answer: C
Explanation: Frequent-shopper programs, also called loyalty programs, are programs that
identify and provide rewards to customers who patronize a retailer. Some retailers issue
customers a frequent-shopper card.
Difficulty: 1 Easy
Bloom's: Apply
12
29) Which of the following statements is not true of frequent-shopper programs?
A) Frequent-shopper programs are programs that identify and provide rewards to customers who
patronize a retailer.
B) Frequent-shopper programs are also commonly called loyalty programs.
C) Frequent-shopper cards are issued on the basis of market basket analysis.
D) Frequent-shopper programs include a private-label credit card offered by a retailer.
E) Frequent-shopper programs can provide customer information automatically to the retailer
when customers have their program card scanned at the time of transaction.
Answer: C
Explanation: Customers are enticed to enroll in these programs and provide some descriptive
information about them by being offered discounts if they use the cards when making purchases
from the retailer.
Bloom's: Understand
30) When customers join the Daily Needs Reward Zone, they receive one point on every
purchase they make at Daily Needs stores and DailyNeeds.com. Reward Zone points are
converted to reward certificates which can be redeemed for merchandise at Daily Needs stores or
on DailyNeeds.com. Reward Zone Members also receive exclusive offers throughout the year
and a "special reward" for their birthday. This strategy by Daily Needs is an example of
A) a tiered reward system.
B) personalization.
C) a customer loyalty program.
D) an exclusive value share program.
E) market basket analysis.
Answer: C
Explanation: Loyalty or frequent-shopper programs provide rewards to customers who patronize
a retailer.
Bloom's: Apply
13
31) ________ identify and provide rewards to customers who patronize a retailer.
A) Retail brand communities
B) Cookies
C) Loyalty programs
D) Customer surveys
E) Store advocates
Answer: C
Explanation: Loyalty or frequent-shopper programs provide rewards to customers who patronize
a retailer.
Bloom's: Remember
32) Airlines and credit cards that offer points for each dollar spent are utilizing ________ for
effective customer relationship management.
A) a loyalty program
B) cookies
C) share of wallet
D) market baskets
E) communities
Answer: A
Explanation: Loyalty programs identify and provide rewards to customers who patronize a
company.
Difficulty: 1 Easy
Bloom's: Apply
14
33) Which of the following describes an approach that is used to deal with unprofitable
customers?
A) Retailers charging a restocking fee for returned merchandise
B) Retailers offering frequent buyer cards
C) Supermarkets giving away free samples of a new product
D) Retailers having special events outside of regular store hours
E) Retailers allowing certain merchandise to be viewed only by qualified customers
Answer: A
Explanation: Approaches for getting the lead out are (1) offering less costly services to satisfy
the needs of lead customers and (2) charging customers for the services they are abusing.
Difficulty: 1 Easy
Bloom's: Apply
34) Although having information about individual customers helps retailers provide better
services to consumers, consumers are concerned about
A) price promotions.
B) loyalty.
C) descriptive information.
D) privacy.
E) data mining.
Answer: D
Explanation: Many customers are concerned that retailers violate their privacy when they collect
detailed personal information. Even if customers trust a retailer, they are concerned that the data
may not be secure and/or may be sold to other businesses.
Difficulty: 1 Easy
Bloom's: Understand
AACSB: Ethics
15
35) Which of the following principles forming the basis of a new legislation on consumer
privacy encourages retailers to treat consumer privacy as their default setting?
A) Simplified consumer choice
B) Data mining
C) Privacy by design
D) Greater transparency
E) Opt-in agreements
Answer: C
Explanation: Privacy by design encourages businesses to treat consumer privacy as their
"default setting," thus shifting the responsibility for privacy protection from consumers to
retailers.
Bloom's: Understand
AACSB: Ethics
36) Which of the following is a reason for consumers to have privacy concerns regarding
cookies?
A) Customers cannot realize the amount of information being collected without their knowledge.
B) The passwords used to access websites reveal a large amount of personal information without
a customer's knowledge.
C) The cookies block the ability to log on to certain sites.
D) Governmental agencies may use cookies to collect extra taxes.
E) The cookies may corrupt the consumers' personal software files.
Answer: A
Explanation: Privacy concerns are particularly acute for customers using an Internet channel
because many of them do not realize the extensive amount of information that can be collected
without their knowledge. This information is easily collected using cookies.
Difficulty: 1 Easy
Bloom's: Understand
AACSB: Ethics
16
37) Electronic retailers can collect transaction data for their data warehouse, but they can also
collect information by placing cookies on a visitor's hard drive. Cookies are
A) viruses.
B) frequent-shopper rewards.
C) text files that identify pirated software.
D) files that identify visitors when they return to a website.
E) text files used exclusively to determine demographic information.
Answer: D
Explanation: Cookies are small files stored on a customer's computer that identify customers
when they return to a website. Because of the data in cookies, customers do not have to identify
themselves or use passwords every time they visit a site.
Bloom's: Remember
AACSB: Technology
38) When Lana went to Bookdreams.com to look for books on health and wellness, she saw a
personalized greeting and book recommendations. The greeting and books recommendations
were based on her previous visits to the site. Which of the following best describes how
Bookdreams.com knew that Lana has accessed their site?
A) Bookdreams.com used retail analytics to create a personalized offer.
B) The site used the 80-20 scheme to analyze her buying behavior.
C) The site used market basket analysis to predict her buying patterns.
D) Another retailer sold her private information to Bookdreams.com.
E) Bookdreams.com placed cookies on her computer to identify her.
Answer: E
Explanation: Cookies are small files stored on a customer's computer that identify customers
when they return to a website.
Bloom's: Apply
AACSB: Technology
17
39) When consumers explicitly agree to share personal information, the agreement is referred to
as
A) participatory knowledge.
B) opt in.
C) the 80-20 rule.
D) a disclosure agreement.
E) opt out.
Answer: B
Explanation: Basically, the EU perspective is that consumers own their personal information, so
retailers must get consumers to agree explicitly to share this personal information. This
agreement is referred to as opt in.
Difficulty: 1 Easy
Bloom's: Remember
40) When consumers explicitly tell the retailer not to use their personal information, they must
A) choosing/consenting.
B) opt in.
C) opt out.
D) declining public domain statutes.
E) notifying consumer information services.
Answer: C
Explanation: American consumers must explicitly tell retailers not to use their personal
information—they must explicitly opt out.
Difficulty: 1 Easy
Bloom's: Remember
18
41) If a U.S. retailer wants to conform to the European policies concerning how customer
information is collected, which type of policy should it adopt?
A) Opt in
B) Opt out
C) Opt private
D) Opt EC
E) 80-20 rule
Answer: A
Explanation: In the United States, personal information is generally viewed as being in the
public domain so in a sense, consumers are automatically "opted in" whether they realize it or
not. In Europe, the perspective is that consumers own their personal information so retailers must
get consumers to agree explicitly to share this personal information, or opt in.
Bloom's: Understand
AACSB: Communication; Diversity
42) Which of the following statements correctly describes the practices regarding customer
privacy in the U.S.?
A) In the U.S., Americans rely upon federal government to protect consumer privacy.
B) Current legislation in the U.S. for consumer privacy forces strict protection of consumer
privacy in retailing.
C) The U.S. has more stringent consumer privacy laws than the European Union.
D) In the U.S., the opt-out policy is applied when consumers' personal information is collected
and used.
E) In the U.S., personal information is generally viewed as being in the public domain, and
retailers can use it in any way they desire.
Answer: E
Explanation: Personal information in the United States is generally viewed as being in the public
domain, and retailers can use it any way they desire. American consumers must explicitly tell
retailers not to use their personal information—they must explicitly opt out.
Bloom's: Understand
AACSB: Ethics
19
43) Which of the following statements best describes a customer lifetime value (CLV)?
A) CLV is the value placed upon a retailer by a consumer.
B) CLV is a numerical value of how much a "best customer" shops.
C) CLV is what a customer contributes to a retailer's profits over his or her entire relationship
with the retailer.
D) CLV is an assessment of how many valued customers shop with a retailer.
E) CLV is what retailers use to rate the value of guaranteed merchandise.
Answer: C
Explanation: The value of a customer, called customer lifetime value (CLV), is the expected
contribution from the customer to the retailer's profits over their entire relationship with the
retailer.
target customers.
Bloom's: Remember
AACSB: Analytic
44) Based on the following customer purchase data, which customer would have a higher
lifetime value to the retailer?
Customer Feb. March April May June July

Marcia $10 $10 $10 $10 $10 $10
Jan $10 $20 $30 $30 $20 $10
Cindy $40 $40
Alice $150
A) Marcia
B) Jan
C) Cindy
D) Alice
Answer: B
Explanation: To estimate CLV, retailers use past behaviors to forecast future purchases. A
customer who spends money each month would have a higher CLV than those who shop
occasionally because of their recency and frequency levels. Both Marcia and Jan have high
recency and frequency levels, however, Jan has the higher monetary level over Marcia.
target customers.
Bloom's: Apply
20
45) Which of the following statements does not describe how retailers use a customer lifetime
value (CLV)?
A) CLV is used to identify and cater to the best and more profitable customers.
B) CLV should be estimated under the assumption that the customer's future purchase behaviors
will be the same as they have been in the past.
C) Sophisticated statistical methods are typically used to estimate the future contributions from
past purchases.
D) An RFM analysis is often used by catalog retailers and direct marketers in estimating their
customers' lifetime value.
E) A customer who spends $800 twice a year has a higher CLV than a customer that spends $100
each month.
Answer: E
Explanation: To estimate CLV, retailers use past behaviors to forecast future purchases. A
customer who spends $100 each month would have a higher CLV because of their recency and
frequency levels. Therefore, there is better potential to build this customer into a more valued
customer than the one who just shops at the retailer twice a year.
target customers.
Bloom's: Understand
46) Which of the following retail analytic applications involves the use of search techniques to
gain insights into customers' buying patterns?
A) Factor analysis
B) Regression analysis
C) Data mining
D) Data scraping
E) Data cloning
Answer: C
Explanation: Data mining is an information processing method that relies on search techniques
to discover new insights into the buying patterns of customers, using large databases.
target customers.
Bloom's: Understand
AACSB: Technology
21
47) Depending on the amount of money you have in Wachovia bank, you will receive a variety
of different services. The lower-tiered customers are charged $7 to use a teller but can receive
the same services for free if they use an ATM. Charging low-tiered customers for using live
tellers is Wachovia's approach to
A) getting the lead out.
B) letting customers opt out.
C) tailoring offers for these customers.
D) soliciting feedback.
E) offering better services.
Answer: A
Explanation: The process of no longer selling to unprofitable customers can be referred to as
"getting the lead out," in terms of the customer pyramid.
Bloom's: Apply
48) ________ are applications of statistical techniques and models that seek to improve retail
decisions through analyses of customer data.
A) Retail analytics
B) Redress analytics
C) Strategic analytics
D) Information drafts
E) Data clones
Answer: A
Explanation: Retail analytics are applications of statistical techniques and models that seek to
improve retail decisions through analyses of customer data.
target customers.
Bloom's: Remember
22
49) ________ help in measuring a customer's CLV by using the data collected about customers.
A) Retail analytics
B) Risk analytics
C) Portfolio analyses
D) Biometrics
E) RFM analyses
Answer: A
Explanation: Retail analytics are applications of statistical techniques and models that seek to
improve retail decisions through analyses of customer data.
target customers.
Bloom's: Remember
AACSB: Technology
50) A way to achieve customer alchemy is through ________, which involves offering and
selling more products and services to existing customers and increasing the retailer's share of
wallet with these customers.
A) 1-to-1 retailing
B) add-on selling
C) personalizing
D) data mining
E) cross retailing
Answer: B
Explanation: A retailer's data warehouse reveals opportunities for add-on selling. Many retailers
use their data on customers' shopping histories to suggest products to them.
Bloom's: Understand
23
51) What is customer alchemy?
A) Converting iron and gold customers into platinum customers
B) Offering more products to existing customers
C) Increasing the data collection from only platinum and gold customers
D) Creating a group of customers bound together by loyalty to a retailer
E) Tailoring loyalty programs to suit customers' needs
Answer: A
Explanation: Increasing the sales made to good customers can be referred to as customer
alchemy—converting iron and gold customers into platinum customers.
Bloom's: Remember
AACSB: Analytic
52) Many products in a supermarket can be found in more than one place throughout the stores.
What type of retail analytics technique is used to decide where to place products in a store?
A) Supermarket analysis
B) Market basket analysis
C) Location analysis
D) Shopping cart analysis
E) Merchandising analysis
Answer: B
shopping trip. This analysis can suggest where stores should place merchandise and which
merchandise to promote together based on merchandise that tends to show up in the same market
basket.
target customers.
Bloom's: Understand
AACSB: Technology
24
53) Which of the following terms best describes the type of data analysis that focuses on the
composition of products purchased by a customer during a single shopping trip?
A) Allotment analysis
B) Market basket analysis
C) Location analysis
D) Shopping cart analysis
E) Merchandising analysis
Answer: B
basket.
target customers.
Bloom's: Remember
AACSB: Technology
54) Since Yolanda used ________ to analyze what her customers often buy together during a
single store visit, she knows to place facial tissues by the cold medicine and Wonder Bread by
the Skippy Peanut Butter in her store.
A) market basket analysis
B) cookies
C) merchandising analysis
D) RFM analysis
E) location analysis
Answer: A
basket.
Difficulty: 1 Easy
target customers.
Bloom's: Apply
AACSB: Technology
25
55) Which of the following statements is true of frequent-shopper programs?
A) They are highly beneficial for building long-term customer loyalty.
B) The discounts offered appeal mostly to price-conscious customers.
C) Customers are able to clearly differentiate the programs offered by different retailers.
D) Competitive advantages gained from these programs are sustainable.
E) Effective frequent-shopper programs are easy to develop.
Answer: B
Explanation: Most programs simply offer customers price discounts that are available to all
customers that register for the programs. These discounts are appealing to price-conscious
shoppers but not necessarily to the high-CLV shoppers.
Bloom's: Understand
56) Millhouse loves books and often shops at a nearby Book Universe store. At the beginning of
the year, he enrolled in a $5 program, and he would get a percentage off on the purchases he
made throughout the year. Which of the following best demonstrates this type of approach
toward customer retention?
A) Community
B) Sales promotion
C) Frequent-shopper program
D) Personalization
E) Special customer service
Answer: C
Explanation: Frequent-shopper programs, or loyalty programs, are marketing efforts that reward
repeat buying behavior.
Difficulty: 1 Easy
Bloom's: Apply
26
57) Which of the following statements is true of frequent-shopper programs?
A) Frequent-shopper programs are inexpensive to implement and manage.
B) It is easy to make changes in CRM programs.
C) It is clear that CRM programs increase customer spending and loyalty.
D) It is hard to gain competitive advantage with CRM as programs can be duplicated.
E) The advantages of frequent-shopper programs are unlimited.
Answer: D
Explanation: Frequent-shopper programs are expensive; it is difficult to make changes in the
programs; the effect of CRM programs are limited and not proven to be successful in obtaining
the goals set forth by retailers; and it is hard to gain an advantage over competitors as programs
can easily be duplicated.
Bloom's: Understand
58) Which of the following statements is true of a tiered reward structure?

A) It provides an incentive for customers to consolidate their purchases with one retailer to reach
the higher tiers.
B) It helps retailers determine which products customer purchases during a single shopping trip.
C) It uses software to discover new insights into the buying patterns of customers using large
databases.
D) Customers belonging to the same tier form a retail brand community.
E) A tiered reward structure charges customers who use services.
Answer: A
Explanation: Many frequent-shopper programs contain cascading tier levels, such as silver,
gold, and platinum. The higher the tier, the better the rewards.
Bloom's: Understand
27
59) What does the 80–20 rule mean?
A) 80% of the buying comes from 20% of the vendors.
B) 80% of the sales come from 20% markdowns.
C) 80% of the customers pay with 20% of their income.
D) 80% of the sales or profits come from 20% of the customers.
E) 80% of the merchandise is sold at 20% off.
Answer: D
Explanation: For most retailers, a relatively small number of customers account for the majority
of their profits. This condition is often called the 80–20 rule—80 percent of the sales or profits
come from 20 percent of the customers.
Bloom's: Remember
AACSB: Analytic
60) Why would the customer pyramid be more appropriate in identifying a customer's lifetime
value than utilizing the traditional 80–20 rule?
A) The 80–20 rule doesn't recognize the behavior of 20 percent of the customers.
B) The 80–20 rule focuses only on the value of 80 percent of the shoppers.
C) Customers can more easily identify where they would be located in the customer pyramid
than within the 80–20 rule.
D) If shoppers only buy 20 percent of the time, retailers have a missed sale 80 percent of the
time.
E) The 80–20 rule does not consider important differences among the 80 percent of customers in
the "rest" segment.
Answer: E
Explanation: The two-segment scheme, "best" and "rest," does not consider important
differences among the 80 percent of customers in the "rest" segment. Many of the customers in
the "rest" category are potentially "best," or at least, good customers.
Bloom's: Understand
28
61) In the customer pyramid, which of the following segments consists of customers with the top
25 percent CLVs?
A) Gold segment
B) Platinum segment
C) Iron segment
D) Lead segment
E) Silver segment
Answer: B
Explanation: The platinum segment is composed of the customers with the top 25 percent CLVs.
Difficulty: 1 Easy
Bloom's: Understand
AACSB: Analytic
62) Which of the following statements is true of the gold segment members in the customer
pyramid?
A) Price plays a greater role in their decision-making process.
B) The gold segment members place more value on customer service.
C) Their spending levels and profitability do not warrant special treatment.
D) They demand a lot of attention but buy very little from retailers.
E) This segment is composed of the customers with the top 25 percent CLVs.
Answer: A
Explanation: The profitability levels of the gold-tier customers are less than those of the
platinum-tier customers because price plays a greater role in their decision making.
Bloom's: Understand
AACSB: Diversity
29
63) Which of the following statements is true of the customer pyramid?
A) Customers in the iron segment need special attention from the retailer to grow their potential
to be better customers.
B) All customers regardless of their segment must receive equitable promotional benefits.
C) Customers in the lead segment buy merchandise on sale or abuse return privileges.
D) Customers in the gold segment are the most profitable and loyal customers.
E) Customers in the platinum segment place little emphasis on customer service.
Answer: C
Explanation: Customers with the lowest CLVs can make a negative contribution to the firm's
income. When they do buy from the retailer, they often buy merchandise on sale or abuse return
privileges.
Bloom's: Understand
64) CRM programs directed toward customers in the high-value segment

A) offer more discounts.
B) are focused on maintaining loyalty.
C) give more importance to frequent-shopper programs.
D) attempt to discourage 20 percent of shoppers.
E) provide online shopping options without processing charges.
Answer: B
Explanation: Some retailers provide unusually high-quality, personalized customer service to
build and maintain the loyalty of their best customers.
Bloom's: Understand
30
65) Which of the following approaches toward retaining customers has retailers offering unique
benefits and targeted messages to individuals?
A) Segmentation
B) Personalization
C) Frequent-shopper programs
D) Add-on selling
E) Community
Answer: B
Explanation: The availability of customer-level data and analysis tools helps retailers offer
unique benefits and targeted messages to individual customers in a cost-effective manner. Some
retailers provide unusually high-quality, personalized customer service to build and maintain the
loyalty of their best customers.
Difficulty: 1 Easy
Bloom's: Remember
66) Which of the following statements does not describe personalization implemented as a CRM
program?
A) It overcomes a limitation of CRM strategies that treat all customers in a platinum segment as
identical.
B) With the availability of customer-level data and analysis tools, retailers can now economically
offer unique benefits and target messages to individual customers.
C) The Internet channel provides an opportunity for retailers to automate personalization and
efficiently develop relationships similar to those that many small local retailers have with
customers.
D) It helps retailers to convert their unprofitable customers in the lead segment in the customer
pyramid to best customers.
E) The effective use of customer information in personalization programs creates the positive
feedback cycle in the CRM process.
Answer: D
Explanation: The lead segment in the customer pyramid tends to abuse retailers' services; it does
not respond to CRM programs in a profitable way. Therefore, the use of personalization for this
segment does not create value for the retailers.
Bloom's: Understand
31
67) Developing retail programs for small groups or individual customers is referred to as
A) cross selling.
B) a loyalty program.
C) a share of wallet program.
D) add-on selling.
E) 1-to-1 retailing.
Answer: E
Explanation: 1-to-1 retailing is developing retail programs for small groups or individual
customers and recommending merchandise to each individual taste.
Bloom's: Remember
68) The Bird of Paradise is one of the world's most attractive tropical flowers. When Josiah, who
owns Joe's Flower Shop, knows he's receiving flowers from Hawaii, he emails all his customers
whom he knows will like the flower and informs them of the expected shipment. Josiah's
program is an example of
A) a frequent-shopper program.
B) a loyalty program.
C) gaining competitive advantage.
D) add-on selling.
E) 1-to-1 retailing.
Answer: E
Explanation: 1-to-1 retailing is developing retail programs for small groups or individual
customers and recommending merchandise to each individual taste.
Bloom's: Apply
32
69) A ________ is a group of customers who are bound together by their loyalty to a retailer and
the activities the retailer sponsors and undertakes.
A) frequent shopper community
B) retail brand community
C) consideration set
D) target market
E) customer pyramid
Answer: B
Explanation: Community members identify themselves with other members and share a
common interest and participation in activities related to the retailer.
Bloom's: Remember
AACSB: Analytic; Diversity
70) The release of the new Harry Potter book brought excitement in Enid's neighborhood. The
local Book Universe store sold thousands of vouchers for the night of the release. The store
invited Harry Potter enthusiasts to come for a party at the store that lasted until midnight when
the book would be available for purchase. Book Universe developed a customer retention
program based on
A) a market basket analysis.
B) creating a sense of community among its customers.
C) 1-to-1 retailing programs.
D) a tiered rewards program.
E) the concept of add-on selling offers for preferred customers.
Answer: B
Explanation: A retail brand community is a group of customers who are bound together by their
loyalty to a retailer and the activities the retailer sponsors and undertakes. Community members
identify themselves with other members and share a common interest and participation in
activities related to the retailer.
Difficulty: 1 Easy
Bloom's: Apply
33
71) How can retailers enhance customer loyalty?
Answer: All elements in the retail mix contribute to the development of customer loyalty and
repeat-purchase behavior. Customer loyalty can be enhanced by creating an appealing brand
image, offering exclusive merchandise, providing convenient locations, and providing an
engaging shopping experience. However, personal attention and customer service is one of the
most effective methods for developing loyalty.
Bloom's: Understand
72) What information does a data warehouse contain?
Answer: The data warehouse should contain the following information: (1) transactions, (2)
customer contacts, (3) customer preferences, and (4) descriptive information.
Bloom's: Remember
73) What are the factors affecting the degree to which consumers feel their privacy concerning
personal information has been violated?
Answer: The degree to which consumers feel their privacy concerning personal information has
been violated depends on: (1) their control over their personal information when engaging in
marketplace transactions and (2) their knowledge of the collection and use of personal
information.
Bloom's: Understand
34
74) What is a customer lifetime value (CLV), and how is it estimated?
Answer: Retailers often use information in their data warehouses to determine how valuable
each customer is to their firm. The value of a customer, called customer lifetime value (CLV), is
the expected contribution from the customer to the retailer's profits over their entire relationship
with the retailer. Retailers typically use past behaviors to forecast their CLV.
target customers.
Bloom's: Remember
75) What is market basket analysis, and when do retailers utilize it?
Answer: In a market basket analysis, the data mining tools determine which products appear in
the market basket that a customer purchases during a single shopping trip. This analysis can
suggest where stores should place merchandise and which merchandise to promote together
based on merchandise that tends to show up in the same market basket.
target customers.
Bloom's: Understand
76) What are the objectives of frequent-shopper programs?
Answer: Two objectives of frequent-shopper programs are to (1) to build a data warehouse that
links customer data to their transactions and (2) to encourage repeat purchase behavior and
loyalty.
Bloom's: Understand
35
77) What are the four factors that limit the effectiveness of frequent-shopping programs?
Answer: The four factors that limit the effectiveness of frequent-shopping programs include the
following:
(1) They can be expensive.

(2) It is difficult to make corrections in the programs if problems arise.
(3) It is not clear that these programs increase customer spending.
(4) It is difficult to gain a competitive advantage based on frequent-shopper programs because
the programs are very visible, so they can be easily duplicated by competitors.
Bloom's: Remember
78) How is the customer pyramid more appropriate than the 80–20 rule when identifying
customers?
Answer: For most retailers, a relatively small number of customers account for the majority of
their profits. This condition is often called the 80–20 rule—80 percent of the sales or profits
come from 20 percent of the customers. Thus, retailers could group their customers into two
categories on the basis of their CLV scores. One group would be the 20 percent of the customers
with the highest CLV scores, and the other group would be the rest. However, this two-segment
scheme, "best" and "rest," does not consider important differences among the 80 percent of
customers in the "rest" segment. Many of the customers in the "rest" category are potentially
"best," or at least, good customers. A commonly used segmentation scheme divides customers
into four segments. This scheme allows retailers to develop more effective strategies for each of
the segments. Different CRM programs are directed toward customers in each of the segments.
Bloom's: Understand
36
79) Describe practices that retailers use to convert good customers into their best customers.
Answer: Increasing the sales made to good customers can be referred to as customer alchemy—
converting iron and gold customers into platinum customers. A way to achieve customer
alchemy is through add-on selling, which involves offering and selling more products and
services to existing customers to increase the retailer's share of wallet with these customers. A
retailer's data warehouse reveals opportunities for add-on selling. Many retailers use their data on
customers' shopping histories to suggest products to them.
Bloom's: Understand
80) Describe approaches that retailers use in dealing with unprofitable customers.
Answer: The bottom tier of customers is unprofitable to retailers and has a negative CLV.
Retailers lose money on every sale they make to these customers. Retailers often choose not to
sell their merchandise or services to these unprofitable customers. This process is referred to as
"getting the lead out," in terms of the customer pyramid. Approaches for getting the lead out are
(1) offering less costly services to satisfy the needs of lead customers and (2) charging customers
for the services they are abusing.
Bloom's: Understand
37
Chapter 11 Managing the Merchandise Planning Process
1) Buyers, divisional merchandise managers, and general merchandise managers are some of
those who undertake the responsibilities of merchandise management.
Answer: TRUE
Explanation: Merchandise management activities are undertaken primarily by buyers and their
superiors, divisional merchandise managers (DMMs), and general merchandise managers
(GMMs).
Difficulty: 1 Easy
Topic: Overview of Merchandise Management
Learning Objective: 11-01 Explain the merchandise management organization and performance
measures.
Bloom's: Remember
AACSB: Analytic
2) The highest classification level in the buying organization is the merchandise category.
Answer: FALSE
Explanation: The highest classification level in the buying organization is the merchandise
group.
Difficulty: 1 Easy
measures.
Bloom's: Remember
AACSB: Analytic
3) Fashion merchandise consists of items that are in continuous demand over an extended time
period.
Answer: FALSE
Explanation: Staple merchandise categories are those categories that are in continuous demand
over an extended time period.
Difficulty: 1 Easy
Learning Objective: 11-02 Contrast the merchandise management processes for staple and
fashion merchandise.
Bloom's: Remember
AACSB: Analytic
1
4) Seasonal merchandise consists of items whose sales fluctuate dramatically depending on the
time of the year.
Answer: TRUE
Explanation: Seasonal merchandise categories consist of items whose sales fluctuate
dramatically depending on the time of year. Some examples of seasonal merchandise are
Halloween candy, Christmas ornaments, swimwear, and snow shovels.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
5) In marketing research, an in-depth interview is an unstructured personal interview in which

the interviewer uses extensive probing to get individual respondents to talk in detail about a
subject.
Answer: TRUE
Explanation: The in-depth interview is an unstructured personal interview in which the
interviewer uses extensive probing to get individual respondents to talk in detail about a subject.
Topic: Merchandise Forecasting and Budgeting
Learning Objective: 11-03 Describe how to predict sales for merchandise categories.
Bloom's: Understand
6) Assortment, or depth, of a merchandise category is the number of different merchandising

subcategories offered.
Answer: FALSE
Explanation: The assortment, or depth, of merchandise is the number of SKUs within a
subcategory.
Difficulty: 1 Easy
Topic: Devising Merchandise Plans
Learning Objective: 11-04 Summarize the trade-offs for developing merchandise assortments.
Bloom's: Remember
AACSB: Analytic
2
7) Buyers need not compromise on breadth or depth of merchandise to increase product
availability.
Answer: FALSE
Explanation: Buyers have a limited budget for the inventory investments they can make in a
category. Thus, they are forced to sacrifice breadth of merchandise if they opt to increase depth,
or they must reduce both depth and breadth to increase product availability.
Difficulty: 1 Easy
Topic: Determining Inventory Levels and Inventory Management
Learning Objective: 11-05 Illustrate how to determine the appropriate inventory levels.
Bloom's: Understand
AACSB: Analytic
8) Shorter lead times result in a higher level of backup stock required to maintain the same level
of product availability.
Answer: FALSE
Explanation: Shorter lead times result in a lower level of backup stock required to maintain the
same level of product availability.
Topic: Merchandise Control Systems
Learning Objective: 11-06 Analyze merchandise control systems.
Bloom's: Understand
9) The quantity of merchandise has a bigger impact on profitability than allocation decisions.
Answer: FALSE
Explanation: Research indicates that allocation decisions have a much bigger impact on
profitability than does the decision about the quantity of merchandise to purchase.
Topic: Steps in the Merchandise Buying, Handling, and Allocating Process
Learning Objective: 11-07 Describe how multistore retailers allocate merchandise to stores.
Bloom's: Understand
3
10) An ABC analysis identifies the performance of individual SKUs in the assortment plan.
Answer: TRUE
Explanation: An ABC analysis identifies the performance of individual SKUs in the assortment
plan. It is used to determine which SKUs should be in the plan and how much backup stock and
resulting product availability are provided for each SKU in the plan.
Difficulty: 1 Easy
Topic: Evaluation of Merchandise Management Systems
Learning Objective: 11-08 Review how retailers evaluate the performance of their merchandise
management decisions.
Bloom's: Remember
AACSB: Analytic
11) Which of the following is the process by which a retailer attempts to offer the appropriate
quantity of the right merchandise, in the right place, and at the right time, while meeting the
company's financial goals?
A) Category management
B) Quick response inventory management
C) Merchandise management
D) Inventory control
E) Materials procurement and handling
Answer: C
Explanation: Merchandise management is the process by which a retailer attempts to offer the
appropriate quantity of the right merchandise, in the right place, and at the right time, so that it
can meet the company's financial goals.
Difficulty: 1 Easy
measures.
Bloom's: Remember
4
12) The highest classification level in a buying organization is the
A) order point.
B) buying group.
C) stock-keeping unit.
D) merchandise group.
E) department.
Answer: D
Explanation: The highest classification level is the merchandise group.
Difficulty: 1 Easy
measures.
Bloom's: Remember
AACSB: Analytic
13) A retailer's merchandise group is managed by a

A) divisional merchandise manager (DMM).
B) general merchandise manager (GMM).
C) buyer.
D) category captain.
E) category manager.
Answer: B
Explanation: A merchandise group is managed by a general merchandise manager, who is often
a senior vice president in the firm. Each of the GMMs is responsible for several departments.
measures.
Bloom's: Remember
AACSB: Analytic
5
14) Which of the following schemes is the correct order describing the levels of the merchandise
classification scheme from the highest level to the lowest level?
A) Department-Merchandise Group-Classification-Category-stock-keeping unit (SKU)
B) Merchandise Group-Classification-Department-Category-SKU
C) Merchandise Group-Department-Classification-Category-SKU
D) Classification-Department-Category-Merchandise Group-SKU
E) Category-Classification-Merchandise Group-Department-SKU
Answer: C
Explanation: The buying organization utilizes a basic hierarchy structure starting more broadly
with the merchandise group, then department, classification, category, and SKU.
measures.
Bloom's: Understand
AACSB: Analytic
15) The second highest level in the merchandise classification structure is the
A) stock-keeping unit.
B) category.
C) department.
D) merchandise group.
E) classification.
Answer: C
Explanation: The second level in the merchandise classification scheme is the department.
Difficulty: 1 Easy
measures.
Bloom's: Remember
AACSB: Analytic
6
16) Which of the following statements is not true of a department in the merchandise
classification scheme?
A) It is the second level in the merchandise classification scheme.
B) It is at a lower level than the merchandise group in the merchandise classification scheme.
C) It is a level higher than classification in the merchandise classification scheme.
D) The DMM, who manages the department, is responsible for several merchandise
classifications.
E) It is managed by a general merchandise manager (GMM).
Answer: E
Explanation: Departments are managed by divisional merchandise managers (DMMs).
measures.
Bloom's: Understand
17) Which of the following statements is not true of the merchandise classification scheme?
A) A stock-keeping unit (SKU) is the smallest unit available for inventory control.
B) In soft goods, a SKU usually means a particular size, color, and style.
C) SKUs are the basic units of analysis for making merchandising management decisions.
D) The highest classification level is the merchandise group.
E) A classification is a group of items targeting the same customer type.
Answer: C
Explanation: The merchandise category is the basic unit of analysis for making merchandising
measures.
Bloom's: Understand
7
18) A ________ is a group of items targeting the same customer type, such as girls' sizes 4 to 6.
A) stock-keeping unit
B) department
C) merchandise group
D) classification
E) merchandise category
Answer: D
Explanation: The classification is the third level for categorizing merchandise and organizing
merchandise management activities. A classification is a group of items targeting the same
customer type, such as girls' sizes 4 to 6.
Difficulty: 1 Easy
measures.
Bloom's: Remember
19) Which of the following products is an example of a classification?

A) Sweaters
B) Infant apparel
C) Polo shirts
D) Shoes
E) Formal shirts
Answer: B
Explanation: The classification is the third level for categorizing merchandise and organizing
merchandise management activities. A classification is a group of items targeting the same
customer type, such as infants.
Difficulty: 1 Easy
measures.
Bloom's: Apply
8
20) Which of the following statements is true of a merchandise category?
A) It is the basic unit of analysis for merchandising decisions.
B) It is the smallest unit available for keeping inventory.
C) It is the unit of inventory least affected by seasonal trends.
D) It is the largest unit available for keeping inventory.
E) It is an assortment of complementary SKUs.
Answer: A
management decisions. A merchandise category is an assortment of items that customers see as
substitutes for one another.
measures.
Bloom's: Understand
AACSB: Analytic
21) Which of the following products is not an example of a stock-keeping unit (SKU)?
A) Size 12, white, full sleeve, Ralph Lauren shirts
B) Teen necklaces with matching bracelets and rings
C) Queen-size Sealy mattress with extra back support and Scotch Guard
D) No-ad sunscreen, SPF 50 in 50-ounce squeeze-top dispenser
E) V-8 vegetable juice in 32-ounce can
Answer: B
Explanation: An SKU is the smallest unit available for keeping inventory control. For example,
a pair of size 5, rinsed wash, blue, straight-legged Levi jeans is an SKU.
measures.
Bloom's: Apply
9
22) A ________ is the basic unit of analysis for making merchandise management decisions.
A) department
B) stock-keeping unit
C) classification
D) merchandise group
E) merchandise category
Answer: E
measures.
Bloom's: Remember
AACSB: Analytic
23) A(n) ________ is the smallest unit available for inventory control.
A) category
B) stock-keeping unit
C) classification
D) merchandise group
E) assortment
Answer: B
Explanation: A stock-keeping unit (SKU) is the smallest unit available for inventory control.
Difficulty: 1 Easy
measures.
Bloom's: Remember
AACSB: Analytic
10
24) Which of the following is not true of category management?
A) Managing merchandise within a category by brand can lead to inefficiencies because it fails
to consider the interdependencies between SKUs in the category.
B) The category management approach to managing breakfast cereals in supermarkets should
have one buyer or category manager who oversees all merchandising activities for the entire
category.
C) A category manager ensures that the store's assortment includes the "best" combination of
sizes and vendors.
D) A category manager chooses vendors that will get the most profit from the allocated space.
E) A category manager is also called a category captain and works with vendors to get the most
profit from collaborative relationships.
Answer: E
Explanation: A category captain is the vendor who works with the retailer to develop a better
understanding of consumer shopping behaviors, create assortments that satisfy consumer needs,
and improve the profitability of the merchandise category.
measures.
Bloom's: Understand
25) Which of the following persons is a vendor who forms an alliance with a retailer to help gain
consumer insight, satisfy customer needs, and improve performance and profit across a category?
A) Assortment supervisor
B) Category captain
C) Category manager
D) Category specialist
E) Consumer advocate
Answer: B
Explanation: A category captain is the vendor who works with the retailer to develop a better
understanding of consumer shopping behaviors, create assortments that satisfy consumer needs,
and improve the profitability of the merchandise category.
Difficulty: 1 Easy
measures.
Bloom's: Remember
AACSB: Analytic
11
26) What is the drawback of utilizing category captains?
A) The vendor category captain could take advantage of their position and maximize their own
sales.
B) Retailers tend to ignore recommendations of the category captain.
C) Retailers take advantage of the information and misuse it.
D) Retailers can take advantage of their position and minimize competing brands.
E) Vendor category captains are not in a good position when compared to retailers to manage a
category.
Answer: A
Explanation: A potential problem with establishing a vendor as a category captain is that the
vendor could take advantage of its position.
measures.
Bloom's: Understand
27) Why are vendors in a better position to manage a category than a smaller retailer?
A) Retailers manage brands more often than categories.
B) Retailers managing merchandise groups have little experience with categories.
C) Vendors have superior information through their focus on a specific category.
D) Vendors work to manage higher sales within their companies.
E) Retailers are traditionally poor category managers.
Answer: C
Explanation: Vendors are often in a better position to manage a category than are retailers
because they have superior information about the specific category. The vendor's entire focus is
on that category; buyers instead are typically responsible for several categories.
measures.
Bloom's: Understand
12
28) Which of the following statements is not a potential problem with appointing vendors as
category captains?
A) Appointing vendors as category captains makes merchandise management tasks difficult for
retailers.
B) Vendors could take advantage of their position by suggesting an assortment plan that includes
most of its SKUs and exclude other SKUs that contribute more so to the retailer's profitability.
C) The vendor category captain could collude with the retailer to fix prices.
D) The vendor category captain could block other brands from access to shelf space.
E) The dependence on the vendor category captain may cause a retailer to miss opportunity for
increasing margins through their private-label SKUs.
Answer: A
Explanation: Selecting vendors as category captains has several advantages for retailers. It
makes merchandise management tasks easier and can increase profits.
measures.
Bloom's: Understand
29) A performance measure which assesses a buyer's contribution to ROA is called the
A) cost plus pricing.
B) gross margin.
C) gross margin return on investment.
D) net profit.
E) break-even point.
Answer: C
Explanation: A financial ratio that assesses a buyer's contribution to ROA is gross margin return
on inventory investment (GMROI). It measures how many gross margin dollars are earned on
every dollar of inventory investment made by the buyer.
measures.
Bloom's: Remember
AACSB: Analytic
13
30) When there is a high inventory turnover, there is an increase in sales because
A) price points are set higher to accommodate for potential sales loss.
B) new merchandise is continually available to customers.
C) the merchandise begins to look shopworn.
D) sales are increased by reducing prices.
E) more money is available to buy new merchandise.
Answer: B
Explanation: Higher inventory turnover increases sales because new merchandise is continually
available to customers. New merchandise attracts customers to visit the store more frequently
because they know they will be seeing different merchandise each time they visit the store.
measures.
Bloom's: Understand
AACSB: Analytic
31) Which of the following is not a benefit of a high inventory turnover?

A) Continuous availability of new merchandise
B) Improved salesperson morale
C) Reduced obsolescence risk and markdowns
D) New buying opportunities
E) Reduced gross margin
Answer: E
Explanation: Increasing inventory turnover can have positive impacts on sales by attracting
more customer visits, improving sales associate morale, and providing more resources to take
advantage of new buying opportunities.
Difficulty: 1 Easy
measures.
Bloom's: Understand
14
32) Which of the following is a result of high inventory turnover?
A) Improved employee morale
B) A decrease in the cost of goods sold
C) An increase in promotions and markdowns
D) Higher risk of product obsolescence
E) A decrease in profits
Answer: A
Explanation: Increasing inventory turnover can have positive impacts on sales by attracting
more customer visits, improving sales associate morale, and providing more resources to take
advantage of new buying opportunities.
measures.
Bloom's: Understand
33) Merchandise like men's crew socks, canned peas, college ruled loose leaf paper, and 60-watt
light bulbs would be considered ________ that are in continuous demand over an extended time
period.
A) expected merchandise
B) sample merchandise
C) staple merchandise
D) seasonal merchandise
E) fashion merchandise
Answer: C
Explanation: Staple merchandise categories are categories that are in continuous demand over
an extended time period.
Difficulty: 1 Easy
Bloom's: Apply
AACSB: Analytic
15
34) Which of the following is an example of staple merchandise?
A) The latest style of denim jeans
B) Luggage
C) Flannel sheets
D) Platform shoes
E) Men's black socks
Answer: E
Explanation: Staple merchandise categories are in continuous demand over an extended time
period.
Difficulty: 1 Easy
Bloom's: Apply
AACSB: Analytic
35) Smart Wash is a popular brand of detergent powder. The stock needs to be continuously
replenished in stores and supermarkets due to its high demand. The detergent powder belongs to
the category of
A) expected merchandise.
B) sample merchandise.
C) staple merchandise.
D) seasonal merchandise.
E) fashion merchandise.
Answer: C
Explanation: Because the demand for staple merchandise is very predictable, merchandise
planning systems for staple categories often involve continuous replenishment.
Bloom's: Apply
16
36) ________ consist of items that are only in demand for a relatively short period of time.
A) Expected merchandise categories
B) Sample merchandise categories
C) Staple merchandise categories
D) General merchandise categories
E) Fashion merchandise categories
Answer: E
Explanation: Fashion merchandise categories are in demand only for a relatively short period of
time.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
37) Which of the following is not true of a fashion merchandise category?

A) It consists of items that are only in demand for a relatively short period of time.
B) New products are continually introduced into these categories.
C) The introduction of new products makes the existing products obsolete.
D) The change of colors and styles can make the basic product fashion merchandise.
E) Forecasting sales for this category is simplistic and predictable.
Answer: E
Explanation: Forecasting the sales for fashion merchandising categories is challenging because
there is less flexibility in correcting forecasting errors.
Difficulty: 1 Easy
Bloom's: Understand
17
38) Which of the following is not true of staple merchandise categories?
A) They consist of items that are in continuous demand over an extended time period.
B) The number of new product introductions in these categories is limited.
C) The demand for these categories is predictable.
D) Because their sales are relatively steady from day-to-day, a periodic inventory system is used.
E) Merchandise planning systems for these categories focus on continuous replenishment.
Answer: D
Bloom's: Understand
39) Which of the following statements holds true for the purchase of staple merchandise?
A) Buyers often do not reorder additional merchandise after placing the first order.
B) Buyers for staple merchandise categories have much less flexibility in correcting forecasting
errors.
C) Staple merchandise is purchased using a continuous replenishment system by monitoring
sales and generating replacement orders.
D) The staple merchandise buying system requires more experienced buyers.
E) The main objective of staple merchandise buying is to be as close to out of stock as possible.
Answer: C
Bloom's: Understand
18
40) ________ categories consist of items whose sales fluctuate dramatically depending on the
time of year.
A) Expected merchandise
B) Sample merchandise
C) Staple merchandise
D) Seasonal merchandise
E) General merchandise
Answer: D
dramatically depending on the time of the year.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
41) Garden rakes, lawn mowers, and sunscreen would be considered part of a(n) ________
category.
A) expected merchandise
B) sample merchandise
C) staple merchandise
D) seasonal merchandise
E) fashion merchandise
Answer: D
dramatically depending on the time of the year.
Difficulty: 1 Easy
Bloom's: Apply
AACSB: Analytic
19
42) Which of the following is not true of fashion merchandise categories?
A) Forecasting the sales for fashion merchandise categories is more challenging than forecasting
for staple goods.
B) Buyers for fashion merchandise categories have a high degree of flexibility in correcting
forecasting errors.
C) They have a short life cycle.
D) Buyers often do not have a chance to reorder additional merchandise after an initial order is
placed.
E) New products are continuously being introduced.
Answer: B
Explanation: Buyers for fashion merchandise categories have less flexibility in correcting
forecasting errors.
Bloom's: Understand
43) Which of the following merchandise systems focuses on staying as close to out of stock as
possible?
A) Fashion merchandise management system
B) Assortment driven management system
C) Historical precedence management system
D) Staple merchandise management system
E) Allocated space management system
Answer: A
Explanation: An important objective of merchandise planning systems for fashion merchandise
categories is to be as close to out of stock as possible at the same time that the SKUs move out of
fashion.
Bloom's: Understand
AACSB: Analytic
20
44) Which of the following merchandise categories is purchased in a manner similar to fashion
merchandise?
A) Promotional merchandise
B) Sample merchandise
C) Staple merchandise
D) Seasonal merchandise
E) Expected merchandise
Answer: D
Explanation: Plans for seasonal merchandise, like fashion merchandise, hope to zero out
inventory at the end of the season.
Bloom's: Understand
AACSB: Analytic
45) What is the first step in merchandise management planning?

A) Developing a forecast for sales
B) Executing a merchandise plan
C) Developing a business plan
D) Determining the appropriate inventory levels
E) Penetrating a new market
Answer: A
Explanation: The first step in merchandise management planning is to develop a forecast for
category sales. The approach for forecasting sales of staple merchandise is to project past sales
trends into the future, while making adjustments for any anticipated factors, such as promotions
and weather, that may affect future sales.
Bloom's: Remember
21
46) Which of the following is true of the forecasting approach for staple merchandise categories?
A) Buyers need to find out what customers are going to want in the future.
B) Forecasts are typically based on extrapolating historical sales.
C) Buyers for these categories rely heavily upon forecast services.
D) Buyers for these categories conduct focus group studies to find out consumers' opinions.
E) Buyers for these categories depend upon category sales forecasts which vendors provide.
Answer: B
Explanation: The sales of staple merchandise are relatively constant from year to year. Thus,
forecasts are typically based on extrapolating historical sales.
Bloom's: Understand
47) Which of the following processes is an unstructured form of personal questioning used in
market research and involves extensive probing to get individual respondents to talk in detail
about a subject?
A) Coolhunting
B) Crowd manipulation
C) Focus group interview
D) In-depth interview
E) Showrooming
Answer: D
Explanation: The in-depth interview is an unstructured personal interview in which the
interviewer uses extensive probing to get individual respondents to talk in detail about a subject.
Bloom's: Remember
22
48) A(n) ________ is a small group of respondents interviewed by a moderator using a loosely
structured format in which participants are encouraged to express their views and comment on
the views of others in the group.
A) focus group
B) ethnic group
C) demogroup
D) customer advisory council
E) online research community
Answer: A
Explanation: A focus group is a small group of respondents interviewed by a moderator using a
loosely structured format. Participants are encouraged to express their views and comment on the
views of others in the group.
Bloom's: Remember
AACSB: Analytic
49) Which of the following best describes variety?

A) Product availability
B) Inventory that results from a replenishment process
C) The percentage of demand for a particular SKU that is satisfied
D) The number of SKUs in a store
E) The number of different merchandising subcategories within a store
Answer: E
Explanation: In the context of merchandise planning, the variety, or breadth, of a merchandise
category is the number of different merchandising subcategories offered.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
23
50) Father Christmas is a retail store that sells a unique Santa made from fur, wool, and tapestry.
The store does not sell any other product. Therefore, the store has little
A) category.
B) assortment.
C) medley.
D) merchandise mixtures.
E) variety.
Answer: E
Explanation: Variety is the breadth of a retailer's merchandise and the number of different
merchandising subcategories offered.
Bloom's: Apply
51) ________ of a retailer's merchandise is the number of SKUs within a subcategory.

A) Merchandise breadth
B) Horizontal integration
C) Variety
D) Assortment
E) Merchandise mixture
Answer: D
Explanation: Assortment refers to the depth of merchandise, or the number of SKUs within a
subcategory.
Bloom's: Remember
AACSB: Analytic
24
52) ________ of a merchandise category is the number of different merchandising subcategories
offered.
A) Merchandise depth
B) Classification
C) Variety
D) Assortment
E) Merchandise mixture
Answer: C
Explanation: Variety is the breadth of a retailer's merchandise and the number of different
merchandising subcategories offered.
Bloom's: Remember
AACSB: Analytic
53) Which of the following statements about assortment is not true?

A) The number of SKUs offered in a merchandise category is a strategic decision.
B) The breadth and depth of the assortment in a merchandise category can affect the retailer's
brand image.
C) Offering a large assortment normally simplifies a customer's buying decision.
D) Customer perceptions on assortments are based on the availability of the customer's favorite
SKU and the size of the category's display.
E) Buyers need to consider the degree to which categories in a department complement each
other.
Answer: C
Explanation: Large assortments are particularly appealing to customers who seek variety—those
who want to try new things. However, offering a large assortment can make the purchase
decision more complex and time-consuming and potentially overwhelms the consumer, which
could reduce sales.
Bloom's: Understand
25
54) Which of the following statements does not describe the trade-offs that buyers should
consider for merchandise assortment planning?
A) Increasing sales by offering more breadth and depth can potentially reduce inventory
turnover.
B) Increasing sales by offering more breadth and depth can potentially reduce GMROI by having
more stock-keeping units (SKUs).
C) Increasing breadth and depth can increase the need to put more merchandise on sale and thus
negatively affect the gross margin.
D) SKU rationalization programs can help in increasing inventory turnover without reducing
sales.
E) The more SKUs offered, greater the chance of breaking sizes—running out of a specific size
SKU.
Answer: D
Explanation: Many retailers have initiated SKU rationalization programs in their efforts to
analyze the benefits they might gain from deleting, adding, or keeping certain items in their
assortments. The objective of such a program is to increase inventory turnover by reducing the
number of SKUs without reducing sales.
Bloom's: Understand
55) The ________ is the number of each SKU in the assortment plan that the buyer wants to
have available for purchase in each store.
A) merchandise budget plan
B) order point
C) assortment plan
D) model stock plan
E) stock-to-sales ratio
Answer: D
Explanation: The model stock plan is the number of each SKU in the assortment plan that the
buyer wants to have available for purchase in each store.
Bloom's: Remember
AACSB: Analytic
26
56) Which of the following terms is defined as the percentage of demand for a particular SKU
that is satisfied?
A) Assortment
B) Economic order quantity
C) Merchandise mix
D) Product availability
E) Variety
Answer: D
Explanation: Product availability is defined as the percentage of the demand for a particular
SKU that is satisfied. It is also referred to as the level of support or service level.
Bloom's: Remember
AACSB: Analytic
57) ________ is also referred to as the level of support or service level.

A) Product assortment
B) Product availability
C) Product satisfaction
D) Product depth
E) Product breadth
Answer: B
Explanation: Product availability is also referred to as the level of support or service level.
Bloom's: Remember
AACSB: Analytic
27
58) Father Christmas is a retail store that sells a unique Santa made from fur, wool, and tapestry.
If 150 customers wish to buy a Santa from this store, and it sells 120 before running out of stock,
what is its service level?
A) 15 percent
B) 80 percent
C) 20 percent
D) 85 percent
E) 88 percent
Answer: B
Explanation: Product availability is defined as the percentage of the demand for a particular
SKU that is satisfied. For instance, if 100 people go into a PetSmart store to purchase a small
Great Choice, portable kennel but only 90 people can make the purchase before the kennel stock
is depleted, the product availability for that SKU is 90 percent.
Difficulty: 3 Hard
Bloom's: Apply
59) Which of the following statements does not describe the relationship between product
availability and stock level?
A) The higher the product availability, the greater the amount of backup stock.
B) More backup stock is needed in the model stock plan if a retailer wants to increase product
availability.
C) The quantity of backup stock is fixed by a retailer and is not influenced by product
availability.
D) If the product availability gets too high, scarce financial resources will be wasted on needless
inventory that could be more profitably invested in increasing variety or assortment.
E) A very high level of product availability results in a prohibitively high inventory investment.
Answer: C
Explanation: If the backup stock is too low, the retailer will lose sales and possibly customers as
well when they find that the products they want are not available from the retailer.
Bloom's: Understand
28
60) Which of the following factors does not contribute to the increase of buffer stock levels?
A) The high service level that a retailer tries to achieve
B) High fluctuations in demand
C) Long lead time for delivery from the vendor
D) Fluctuations in vendor lead time
E) Frequent store deliveries
Answer: E
Explanation: Frequent store deliveries require less buffer stocks.
Bloom's: Understand
61) ________ refers to inventory for which the level goes up and down in response to the
replenishment process.
A) Cycle stock
B) Backup stock
C) Basic stock
D) Perpetual inventory
E) Order point
Answer: A
Explanation: Cycle stock or base stock is replenished inventory.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
29
62) Which of the following statements does not describe the approach that deals with cycle
(base) stock?
A) A retailer tries to reduce the base stock to keep its inventory investment low.
B) One approach for reducing the base stock is to reorder and receive merchandise from the
vendor more often.
C) Frequent orderings with smaller quantities will reduce transportation costs.
D) Shorter delivery time from the vendor will reduce the level of base stock.
E) Shorter lead time from the vendor will reduce the level of base stock.
Answer: C
Explanation: Frequent, smaller orders and shipments increase administrative and transportation
costs.
Difficulty: 3 Hard
Bloom's: Understand
AACSB: Analytic
63) Since sales and the arrival of merchandise from vendors can't be predicted with perfect
accuracy, retailers have to carry
A) backup stock.
B) basic merchandise.
C) perpetual inventory.
D) cycle stock.
E) base stock.
Answer: A
Explanation: Because sales of a SKU and receipts of orders from the vendor cannot be predicted
with perfect accuracy, the retailer has to carry backup stock as a cushion so it doesn't run out of
merchandise before the next order arrives.
Bloom's: Understand
AACSB: Analytic
30
64) A catalog retailer of kitchen items observes that during some weeks it sells 40 muffin pans,
and during other weeks it sells none. A reorder takes up to three weeks. The probability of
running out of pans and alienating its customers can be alleviated by maintaining
A) non-ledgered stock.
B) cycle stock.
C) hidden inventory.
D) backup stock.
E) lead stock.
Answer: D
Explanation: Backup stock is merchandise used as a cushion so the retailer will not run out
before the next order arrives.
Bloom's: Apply
65) Which of the following is not a factor that determines the level of required backup stock?
A) The product availability the retailer wishes to provide
B) Fluctuations in demand
C) Lead time for delivery from the vendor
D) Fluctuations in vendor lead time
E) Price of the product
Answer: E
Explanation: All but price of the product impacts the level of required backup inventory.
Bloom's: Understand
31
66) ________ is the amount of time between the recognition that an order needs to be placed and
the point at which the merchandise arrives in the store and is ready for sale.
A) Lead time
B) Order time
C) Fill rate
D) Service level
E) Delivery rate
Answer: A
Explanation: Lead time is the amount of time between the recognition that an order needs to be
placed and the point at which the merchandise arrives in the store and is ready for sale.
Bloom's: Remember
AACSB: Analytic
67) The percentage of SKUs received complete on a particular order from a vendor is called the
A) product availability.
B) order rate.
C) fill rate.
D) service level.
E) delivery rate.
Answer: C
Explanation: The percentage of SKUs received complete on a particular order from a vendor is
called the fill rate.
Bloom's: Remember
AACSB: Analytic
32
68) The retailer's information system determines the ________ by comparing the sales made
through the POS terminals with the shipments received by the store.
A) perpetual inventory
B) order point
C) buffer stock
D) cycle stock
E) fill rate
Answer: A
Explanation: The retailer's information system determines the inventory level at each point in
time, the perpetual inventory, by comparing the sales made through the POS terminals with the
shipments received by the store.
Bloom's: Remember
AACSB: Analytic
69) A(n) ________ indicates the decision variables set by the buyer, such as product availability,
the backup stock needed to provide the product availability, and the order points and quantities.
A) inventory management report
B) sell-through analysis
C) periodic inventory control system
D) perpetual inventory control system
E) automatic ordering report
Answer: A
Explanation: The inventory management report indicates the decision variables set by the buyer,
such as product availability, the backup stock needed to provide the product availability, the
order points, and quantities plus performance measures such as planned and actual inventory
turnover, the current sales rate or velocity, sales forecasts, inventory availability, and the amount
on order.
Bloom's: Remember
33
70) In staple merchandise management systems, the ________ is the amount of inventory below
which the quantity available shouldn't go or the item will be out of stock before the next order
arrives.
A) service level
B) order point
C) base stock
D) perpetual inventory
E) average inventory
Answer: B
Explanation: The order point is the amount of inventory below which the quantity available
shouldn't go or the item will be out of stock before the next order arrives.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
71) The merchandise budget plan

A) is used to keep track of the actual merchandise flows.
B) specifies the level of inventory needed to support the sales.
C) compares actual and planned sales to determine whether more merchandise is needed.
D) identifies the performance of individual SKUs in the assortment plan.
E) uses a weighted-average score for each vendor.
Answer: B
Explanation: The merchandise budget plan specifies the amount of merchandise in dollars (not
units) that needs to be delivered during each month, based on the sales forecast, the planned
discounts to employees and customers, and the level of inventory needed to support the sales and
achieve the desired GMROI objectives.
Bloom's: Understand
34
72) A(n) ________ is used to keep track of the actual merchandise flows—what the present
inventory level is, when purchased merchandise is scheduled for delivery, and how much has
been sold to customers.
A) model stock plan
B) fashion-oriented bookkeeping
C) open-to-buy system
D) order point
E) perpetual inventory
Answer: C
Explanation: The open-to-buy system is used to keep track of the actual merchandise flows—
what the present inventory level is, when purchased merchandise is scheduled for delivery, and
how much has been sold to customers.
Bloom's: Remember
AACSB: Analytic
73) An open-to-buy system compares

A) a store's perpetual inventory and order point quantity.
B) the amount of merchandise in dollars and the sales forecast.
C) the planned and actual end-of-month inventory.
D) annual sales and backup stock required for merchandise categories.
E) the assortment plan and the projected sales volume.
Answer: C
Explanation: The open-to-buy system compares the planned end-of-month inventory to the
actual end-of-month inventory. Differences between actual and planned levels may arise because
an order was shipped late or sales deviated from the forecast.
Bloom's: Understand
AACSB: Analytic
35
74) After developing a plan for managing merchandise within a category, the next step in the
merchandise management process is to
A) allocate the merchandise to the stores.
B) make the purchase.
C) order through vendors.
D) re-evaluate the plan using last year's plan.
E) penetrate new markets.
Answer: A
Explanation: After developing a plan for managing merchandise inventory in a category, the
next step in the merchandise management process is to allocate the merchandise purchased and
received to the retailer's stores. Research indicates that these allocation decisions have a much
bigger impact on profitability than does the decision about the quantity of merchandise to
purchase.
Difficulty: 1 Easy
Bloom's: Remember
75) Retail chains typically classify each of their stores on the basis of annual sales. According to
this classification,
A) A stores would have the largest sales volume.
B) C stores would receive the highest inventory.
C) B items represent 65 percent of SKUs in a category.
D) C items contribute to 20 percent of sales.
E) B items require the highest amount of backup stock.
Answer: A
Explanation: Based on the classification according to annual sales, A stores would have the
largest sales volume and typically receive the most inventory, while C stores would have the
lowest sales volume and receive the least inventory for a category.
Bloom's: Understand
AACSB: Analytic
36
76) Which of the following factors is considered by retailers in making merchandise allocation
and promotion decisions specific to difficult economic times?
A) Shrinkage
B) Paycheck cycle
C) Buffer stock
D) Backup stock
E) Fill rate
Answer: B
Explanation: Retailers also consider the "paycheck cycle" when making merchandise allocation
and promotion decisions, particularly in difficult economic times.
Bloom's: Understand
AACSB: Analytic
77) After developing a plan and allocating the merchandise, the next step in the merchandise
planning process involves
A) replenishing the inventory levels.
B) planning for the following season.
C) analyzing the performance and making adjustments.
D) discussing buybacks with the vendors.
E) penetration of new markets.
Answer: C
Explanation: After developing a plan and allocating the merchandise, the next step in the
merchandise planning process involves analyzing the performance of the process and making
adjustments.
Bloom's: Understand
37
78) Which of the following analysis techniques compares actual and planned sales to determine
whether more merchandise is needed to satisfy demand or whether price reductions are required?
A) Sell-through analysis
B) GMROI
C) ABC analysis
D) Inventory turnover analysis
E) Multiattribute analysis
Answer: A
Explanation: A sell-through analysis compares actual and planned sales to determine whether
more merchandise is needed to satisfy demand or whether price reductions are required.
Bloom's: Remember
AACSB: Analytic
79) A(n) ________ identifies the performance of individual SKUs in the assortment plan.
A) product rating system
B) sell-through analysis
C) inventory turnover ranking
D) GMROI
E) ABC analysis
Answer: E
Explanation: An ABC analysis identifies the performance of individual SKUs in the assortment
plan. It is used to determine which SKUs should be in the plan and how much backup stock and
resulting product availability are provided for each SKU in the plan.
Bloom's: Remember
AACSB: Analytic
38
80) Retailers often find the 80–20 principle evident within the ABC analysis. What does the 80–
20 principle imply?
A) About 20 percent of a retailer's sales promotion sells 80 percent of its inventory.
B) Approximately 20 percent of a retailer's sales come from 80 percent of its products.
C) Approximately 80 percent of a retailer's inventory was sold, and 20 percent was wasted.
D) 80 percent of the retailer's customers are repeat customers and only 20 percent are new.
E) Approximately 80 percent of a retailer's sales come from 20 percent of its products.
Answer: E
Explanation: The 80–20 principle implies that approximately 80 percent of a retailer's sales or
profits come from 20 percent of the products.
Bloom's: Understand
81) Which of the following statements is true of the ABC analysis?

A) It compares actual and planned sales to determine the quantity of merchandise needed.
B) It uses a weighted-average score for each vendor.
C) The A items account for 10 percent of the SKUs and 20 percent of sales.
D) The SKUs in a merchandise category are rank-ordered by several performance measures.
E) The C items account for 65 percent of SKUs and contribute to 70 percent of sales.
Answer: D
Explanation: In an ABC analysis, the SKUs in a merchandise category are rank-ordered by
several performance measures, such as sales, gross margin, inventory turnover, and GMROI.
Bloom's: Understand
AACSB: Analytic
39
82) The ________ method for evaluating vendors uses a weighted-average score for each
vendor.
A) sell-through analysis
B) GMROI
C) ABC analysis
D) inventory turnover analysis
E) multiattribute analysis
Answer: E
Explanation: The multiattribute analysis method uses a weighted-average score to evaluate
vendors. The score is based on the importance of various issues and the vendor's performance on
those issues.
Bloom's: Remember
AACSB: Analytic
83) In terms of merchandise, what is the difference between a classification and a category?
Answer: A classification is a group of items targeting the same customer type, such as girls'
sizes 4 to 6. Categories are the next lower level in the classification scheme. Each buyer manages
several merchandise categories. For example, the girls' sizes 4 to 6 buyer manages the
sportswear, dresses, swimwear, and outerwear categories for girls who wear sizes 4 to 6.
measures.
Bloom's: Understand
84) How are vendors in a better position to manage a category than a retailer?
Answer: Vendors have superior information based on their focus on a specific category and
have insights from working with different retailers. A category captain is the vendor who works
with the retailer to develop a better understanding of customer behavior, create assortments that
satisfy consumer needs, and improve the profitability of the merchandise category. The vendor's
entire focus is on a specific category, while buyers are typically responsible for several
categories.
measures.
Bloom's: Understand
40
85) What can a retailer do to increase inventory turnover, and what are the drawbacks to these
approaches?
Answer: To increase inventory turnover, a retailer can reduce the number of SKUs in a category
or the number of items within a SKU. The problem with these is that if customers cannot find the
size or color they seek, patronage and sales can decrease. A second approach for reducing the
level of inventory is to keep the same number of SKUs but reduce the backup stock for each
SKU. This approach has the same problem as reducing the number of SKUs. Less backup stock
increases the chances that customers will not find the size and color they want when visiting a
store or website. A third approach is to buy merchandise more often but in smaller quantities
which would reduce the average inventory without reducing sales. The problem with this
approach is that because buyers are buying smaller quantities, gross margin decreases because
they can't take advantage of quantity discounts and transportation economies of scale. It also
requires the buying staff to spend more time placing orders and monitoring deliveries. A fourth
approach is to increase sales and not increase inventory proportionally. For example, buyers
could increase sales by reducing prices. While inventory turnover would increase in this
situation, gross margin would also decrease, which could have a negative impact on GMROI.
measures.
Bloom's: Understand
86) Describe both the staple merchandise and fashion merchandise categories.
Answer: Staple merchandise consists of items which are in continuous demand over an extended
time period; the number of new product introductions in these categories is limited; the demand
for these categories is predictable; merchandise planning systems for these categories focus on
continuous replenishment.
Fashion merchandising consists of items which are in demand only for a relatively short period
of time; new products are continually introduced; the introduction of new products makes the
existing products obsolete; the change of colors and styles can make a basic product become
Difficulty: 1 Easy
Bloom's: Understand
41
87) What are the sources of information for retailers to develop forecasts for fashion
merchandise categories?
Answer: Some sources of information that retailers use to develop forecasts for fashion
merchandise categories are (1) previous sales data, (2) market research, (3) fashion and trend
services, and (4) vendors.
Bloom's: Remember
88) What is the difference between variety and assortment?
Answer: In the context of merchandise planning, variety, or breadth, of a merchandise category

is the number of different merchandising subcategories offered, and the assortment, or depth, of
merchandise is the number of SKUs within a subcategory.
Difficulty: 1 Easy
Bloom's: Remember
89) How can having a high backup stock adversely affect a retailer?
Answer: By having a high backup stock, scarce financial resources will be wasted on needless
inventory that could be more profitably invested in increasing variety or assortment.
Bloom's: Understand
42
90) What are the factors that determine the level of required backup stock?
Answer: Several factors determine the level of backup stock needed for a SKU.
(1) The level depends on the product availability the retailer wishes to provide.
(2) The greater the fluctuation in demand, the more backup stock is needed.
(3) The amount of backup stock needed is affected by the lead time from the vendor.
(4) Fluctuations in lead time also affect the amount of backup stock needed.
(5) The vendor's fill rate affects the retailer's backup stock requirements.
Bloom's: Understand
91) What are the decisions influencing the allocation of merchandise to stores?
Answer: Allocating merchandise to stores involves three decisions: (1) how much merchandise
to allocate to each store, (2) what type of merchandise to allocate, and (3) when to allocate the
merchandise to different stores.
Bloom's: Remember
92) Explain briefly the ABC analysis method for analyzing merchandise management
performance.
Answer: An ABC analysis identifies the performance of individual SKUs in the assortment plan.
It is used to determine which SKUs should be in the plan and how much backup stock and
resulting product availability are provided for each SKU in the plan. In an ABC analysis, the
SKUs in a merchandise category are rank-ordered by several performance measures, such as
sales, gross margin, inventory turnover, and GMROI. Typically, this rank order reveals the
general 80–20 principle; namely, approximately 80 percent of a retailer's sales or profits come
from 20 percent of the products. This principle suggests that retailers should concentrate on the
products that provide the biggest returns.
Bloom's: Understand
43
Chapter 12 Buying Merchandise
1) Copycat brands imitate the manufacturer's brand in appearance and packing, generally are
perceived as lower quality, and are offered at lower prices.
Answer: TRUE
Explanation: Copycat brands are private-label products produced by the retailer that imitate the
national brand in both appearance and packaging, but are priced cheaper. Copycat brands abound
in drugstores and grocery stores.
Difficulty: 1 Easy
Topic: Brand Alternatives and Options
Learning Objective: 12-01 Identify the branding options available to retailers.
Bloom's: Remember
AACSB: Analytic
2) The availability of national brands can affect a customer's image of the retailer.
Answer: TRUE
Explanation: Many customers have developed loyalty to specific national brands. They only
patronize retailers selling these national-brand merchandise. In addition, the availability of
national brands can affect a customer's image of the retailer.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
3) Wholesale markets for retail buyers include only annual trade shows.
Answer: FALSE
Explanation: Wholesale markets may be permanent wholesale market centers, annual trade
shows, or trade fairs.
Topic: Trade Shows
Learning Objective: 12-02 Describe how retailers buy national brands.
Bloom's: Remember
AACSB: Analytic
1
4) Due to an increase in the production of private-label brands, resident buying offices have
become increasingly more significant and important.
Answer: FALSE
Explanation: As retailers have become larger and more sophisticated, they have set up their own
buying offices and staff in other countries making the use of resident buying offices less needed.
Learning Objective: 12-03 List the issues retailers consider when developing and sourcing store-
branded merchandise internationally.
Bloom's: Understand
5) In a Dutch auction, the retail buyer provides a specification for what they would like to be
produced for their private-label products, and then manufacturers bid on the opportunity to be the
supplier.
Answer: FALSE
Explanation: In a reverse auction, the retail buyer provides a specification for what it wants to a
group of potential vendors.
Difficulty: 1 Easy
Bloom's: Remember
6) Bonuses are funds vendors give retailers to cover lost gross margin dollars due to markdowns
needed to sell unpopular merchandise.
Answer: FALSE
Explanation: Markdown money refers to funds vendors give retailers to cover lost gross margin
dollars due to the markdowns needed to sell unpopular merchandise.
Difficulty: 1 Easy
Topic: Negotiating with Vendors
Learning Objective: 12-04 Understand how retailers prepare for and conduct negotiations with
their vendors.
Bloom's: Remember
AACSB: Analytic
2
7) Slotting allowances are charges imposed by a retailer to stock a new item.
Answer: TRUE
Explanation: Supermarket buyers often negotiate slotting fees. Slotting fees, or slotting
allowances, are charges imposed by a retailer to stock a new item.
Difficulty: 1 Easy
their vendors.
Bloom's: Remember
8) Credible commitments are tangible investments in the strategic relationship and involve
spending money to improve the supplier's products or services provided to the customer.
Answer: TRUE
Explanation: When both parties continue to find the relationship mutually beneficial, the
relationship moves into the commitment stage where they continue to make significant
investments in the relationship. Credible commitments are tangible investments in the strategic
relationship and involve spending money to improve the supplier's products or services provided
to the customer.
Topic: Strategic Relationships Between Retailers and Vendors
Learning Objective: 12-05 Determine why retailers build strategic relationships with their
vendors.
Bloom's: Remember
AACSB: Analytic
9) Diverted and gray-market goods go through distribution channels that are not authorized or
intended by the manufacturer.
Answer: TRUE
Explanation: Gray-market goods, also known as parallel imports, involve the flow of
merchandise through distribution channels, usually across international borders, other than those
authorized or intended by the manufacturer or producer. Diverted merchandise is similar to gray-
market merchandise except there need not be distribution across international borders.
Topic: Legal, Ethical, And Social Responsibility Issues for Buying Merchandise
Learning Objective: 12-06 Indicate the legal, ethical, and social responsibility issues involved in
buying merchandise.
Bloom's: Remember
3
10) A buyer asking or receiving something of value that influences purchasing decisions occurs
in the black market.
Answer: FALSE
Explanation: Commercial bribery occurs when a vendor or its agent offers or a buyer asks for
"something of value" to influence purchase decisions. The offering of gifts and entertainment can
sometimes be commercial bribery. Retailers want their buyers to decide on purchases solely on
the basis of what is best for the retailer.
buying merchandise.
Bloom's: Remember
11) National brands are also called

A) generic brands.
B) private-label brands.
C) exclusive brands.
D) manufacturer's brands.
E) distributor's brands.
Answer: D
Explanation: National or manufacturer's brands are designed, produced, and marketed by a
vendor and sold to many different retailers.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
4
12) Techno Comp is a well-known national brand of computer and electronic products and
accessories. Their tablet would be considered a(n)
A) premium brand.
B) copycat brand.
C) umbrella brand.
D) exclusive brand.
E) subbrand.
Answer: E
Explanation: A subbrand is a brand of products that is under a family or umbrella brand.
Difficulty: 1 Easy
Bloom's: Apply
AACSB: Analytic
13) Spring Clean, Sparkle Glass, and Dazzle Floor are various cleaning liquids marketed under
the brand name Clean Homes. Therefore, Clean Homes is a(n)
A) premium brand.
B) copycat brand.
C) umbrella brand.
D) exclusive brand.
E) subbrand.
Answer: C
Explanation: In some cases, vendors use an umbrella or family brand associated with their
company and a subbrand associated with the product, such as Kellogg's (family brand) Raisin
Brand (subbrand) or Ford (family brand) F-Series trucks (subbrand).
Difficulty: 1 Easy
Bloom's: Apply
AACSB: Analytic
5
14) Tide detergent, Ralph Lauren polo shirts, and Hewlett-Packard printers are all examples of
A) private-label brands.
B) national brands.
C) general brands.
D) generic brands.
E) licensed brands.
Answer: B
Explanation: National or manufacturer's brands are designed, produced, and marketed by a
vendor and sold to many different retailers.
Difficulty: 1 Easy
Bloom's: Apply
AACSB: Analytic
15) All of the following are terms for products developed by retailers except
A) store brands.
B) private-label brands.
C) house brands.
D) own brands.
E) manufacturer's brands.
Answer: E
Explanation: Manufacturer's brands are designed, produced, and marketed by a vendor and sold
to many different retailers.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
6
16) ________ are products developed by retailers.
A) Copycat brands
B) National brands
C) Exclusive brands
D) Store brands
E) Parallel imports
Answer: D
Explanation: In many cases, retailers develop the design and specifications for their store-brand
products, and then contract with manufacturers to produce those products.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
17) Which of the following is true of store brands?

A) Store brands are limited in variety when compared to national brands.
B) These products are sold to competing retailers.
C) They are labeled only with the commodity name and have no distinguishing brand names.
D) Retailers develop the design for these products in most cases.
E) National brand vendors are not involved in the development of these products.
Answer: D
Explanation: In many cases, retailers develop the design and specifications for their store-brand
products and then contract with manufacturers to produce those products.
Bloom's: Understand
AACSB: Analytic
7
18) When identifying national brands, vendors use a(n) ________ associated with their company.
A) premium brand
B) copycat brand
C) umbrella brand
D) exclusive brand
E) subbrand
Answer: C
Explanation: Vendors use an umbrella or family brand associated with their company and a
subbrand associated with the product.
Difficulty: 1 Easy
Bloom's: Remember
19) A(n) ________ developed by a retailer is comparable with national brands on quality rather
than price.
A) premium brand
B) copycat brand
C) umbrella brand
D) exclusive brand
E) subbrand
Answer: A
Explanation: Premium store brands offer the consumer a product that is comparable to a
manufacturer's brand quality, sometimes with modest price savings.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
8
20) Home Day is a large supermarket. It recently launched its own brand of cereals called Fast
Bites, equivalent to most national brands and also priced slightly lower. Therefore, Fast Bites is
an example of a(n)
A) premium store brand.
B) generic brand.
C) copycat brand.
D) parallel import.
E) licensed brand.
Answer: A
Difficulty: 1 Easy
Bloom's: Apply
21) A(n) ________ is a brand that is developed by a national-brand vendor, often in conjunction
with a retailer, and sold solely by the retailer.
A) premium brand
B) generic brand
C) copycat brand
D) exclusive brand
E) subbrand
Answer: D
Explanation: An exclusive brand is a brand that is made by a national-brand vendor, often in
conjunction with a retailer, and sold exclusively by the retailer. The simplest form of an
exclusive brand occurs when a national-brand manufacturer assigns different model numbers and
has different exterior features for the same basic product sold by different retailers, but the
product is still marketed under the manufacturer's brand.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
9
22) ________ are private-label products produced by the retailer that imitate the national brand
in both appearance and packaging, but are often offered at a lower price.
A) Premium brands
B) Generic brands
C) Copycat brands
D) Exclusive brands
E) Licensed brands
Answer: C
national brand in both appearance and packaging, but are often retailed at a lesser price.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
23) When a grocery retailer develops its own high-quality private-label organic food product,
this would be a(n)
A) premium brand.
B) copycat brand.
C) umbrella brand.
D) exploratory brand.
E) superbrand.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
10
24) The only retailer that offers Fresh Sun organic food products is Daily Needs. Therefore,
Fresh Sun is an example of a(n)
A) generic brand.
B) private-label brand.
C) exclusive brand.
D) premium private label.
E) copycat brand.
Answer: C
Explanation: An exclusive brand is a brand that is developed by a national-brand vendor, often
in conjunction with a retailer, and sold exclusively by the retailer.
Difficulty: 1 Easy
Bloom's: Apply
AACSB: Analytic
25) Popular national brands are placed next to a manufacturer's brands in a store and look like
them. This kind of brand is called a(n)
A) premium brand.
B) generic brand.
C) copycat brand.
D) exclusive brand.
E) licensed brand.
Answer: C
national brand in both appearance and packaging, but are often retailed at a lesser price.
Difficulty: 1 Easy
Bloom's: Understand
AACSB: Analytic
11
26) ________ target a price-sensitive segment by offering a no-frills product at a discount price.
A) Generic brands
B) Store brands
C) National brands
D) Family brands
E) Diverted merchandise
Answer: A
Explanation: Generic brands are labeled with the name of the commodity and thus actually have
no brand name distinguishing them. These products target a price-sensitive segment by offering a
no-frills product at a discount price.
Bloom's: Understand
AACSB: Analytic
27) Which of the following is neither a store brand nor a national brand?
A) Premium brand
B) Exclusive brand
C) Generic brand
D) Copycat brand
E) Private-label brand
Answer: C
Explanation: A generic brand isn't actually a brand at all and, as such, is neither a store nor a
national brand. Generic brands are labeled with the name of the commodity and thus actually
have no brand name distinguishing them.
Bloom's: Understand
12
28) How does a national retailer benefit from selling private-label brands?
A) The retailer spends less on advertising private-label brands and therefore saves money.
B) Since the retailer carries the cost of advertising of a private-label brand, the costs are covered
by the consumer.
C) Since nationwide stores carry the private-label brands, it gives little choice to the consumer
about assortments.
D) Since it is a national retailer, customers will naturally know the private-label brand.
E) By selling private-label brands, a national retailer can differentiate its assortments.
Answer: E
Explanation: Retailers examine their assortments to make sure they are providing what their
customers want. They may introduce an innovative new store-branded product that isn't being
offered by their national-brand vendors or a product that can be offered at a better value—or
both.
Bloom's: Understand
29) The premium option in the multiple price tiers created for store brands offers
A) a reduced risk of uncertain sales.
B) retailers a large number of alternatives for getting rid of excess inventory.
C) consumers a substantial saving without compromising on quality.
D) consumers quality that is comparable to that of national brands.
E) consumers a higher quality than national brands at a higher price.
Answer: D
Explanation: Many store brands today extend assortments by creating multiple price tiers, often
referred to as low cost, value, and premium. The low-cost and value tiers have long been in
place; the premium option is relatively newer. Such premium options offer consumers quality
that is comparable to that of national brands, sometimes (but not always) at a modest price
savings.
Bloom's: Understand
AACSB: Analytic
13
30) National brands
A) offer no alternatives for getting rid of excess inventory.
B) offer a higher profitability potential than store brands.
C) can limit a retailer's flexibility.
D) are specific to a retailer.
E) pose a risk in the form of uncertain sales.
Answer: C
Explanation: National brands can limit a retailer's flexibility. Vendors of strong brands can
dictate how their products are displayed, advertised, and priced.
Bloom's: Understand
AACSB: Analytic
31) If there are so many advantages to selling national brands, why do retailers still carry private-
label brands?
A) Private-label brands yield higher profits to retailers.
B) Private-label brands require less investment for a retailer from design to display.
C) Customers have loyalty to national brands.
D) National brands have better quality overall than private-label brands.
E) National brands offer a retailer more flexibility on how merchandise is displayed and
advertised.
Answer: A
Explanation: The potential profitability for exclusive store brands is stronger. Customers can't
compare prices for these products because they are, in fact, exclusive to one retailer.
Bloom's: Understand
14
32) What is an advantage of selling private-label brands for a national retailer?
A) There are fewer steps and supply chain resources needed to develop private-label products.
B) The retailer saves costs as it does not need to market private-label products.
C) There is less risk involved with selling private-label brands.
D) Private-label brands have more clout than national brands.
E) Customers can't compare prices for private-label products because of their exclusivity.
Answer: E
Explanation: The potential profitability for exclusive store brands is stronger. Customers can't
compare prices for these products because they are, in fact, exclusive to one retailer.
Bloom's: Understand
AACSB: Analytic
33) Which of the following is a drawback for a retailer offering national brands?
A) Retailers view national brands as a threat to private-label brands.
B) Retailers have to discount some national brands in order to attract customers to their stores
because customers compare prices for these brands across stores.
C) Significant investment is needed to develop relationships with national brands' vendors.
D) Retailers have to work to market national brands to make them better known and desired by
customers.
E) Many customers will only patronize retailers that sell particular national brands.
Answer: B
Explanation: The same national brands offered by competing retailers can only be differentiated
on price, which means retailers often have to offer significant discounts on some national brands
to attract customers to their stores, further reducing their profitability.
Bloom's: Understand
15
34) Which of the following is a drawback of selling private-label merchandise?
A) National brands are far superior to private-label brands.
B) National brands are produced with better quality.
C) Significant investment is needed to develop, manage, and market private-label brands.
D) Gross margins are lower with private-label brands than with national brands.
E) Designing private-label merchandise is only possible for department store retailers.
Answer: C
Explanation: While store brands or private-label brands offer an opportunity for retailers to
differentiate their products and reduce price competition, the retailer incurs additional costs
designing and marketing store brands, which reduces its profitability.
Bloom's: Understand
35) A ________ for retail buyers is a concentration of vendors within a specific geographic
location, perhaps even under one roof or over the Internet.
A) distribution center
B) wholesale market
C) gray market
D) black market
E) resident buying office
Answer: B
Explanation: A wholesale market for retail buyers is a concentration of vendors within a specific
geographic location, perhaps even under one roof or over the Internet. Wholesale markets may
be permanent wholesale market centers, annual trade shows, or trade fairs. Retailers also interact
with vendors at their corporate headquarters.
Bloom's: Remember
AACSB: Analytic
16
36) One way for a buyer to become familiar with products and styles is to
A) interact with retail exchanges.
B) attend trade shows.
C) become acquainted with diverted merchandise.
D) insist on objective information.
E) have and maintain a common goal with vendors.
Answer: B
Explanation: At a trade show, vendors display their merchandise in designated areas at a
convention center and have sales representatives available to talk with buyers as they walk
through the exhibit area.
Topic: Trade Shows
Bloom's: Understand
AACSB: Analytic
37) Which of the following is not descriptive of a trade show?

A) Buyers meet with manufacturer executives to discuss strategies to grow their business.
B) Buyers review performance of the vendor during the previous season.
C) Vendors have celebrities at their booth to promote their merchandise and attract buyers.
D) Trade shows are often associated with wholesale market centers.
E) Buyers see the latest products and styles being offered by vendors.
Answer: D
Explanation: At a tradeshow, vendors display their merchandise in designated areas at a
through the exhibit area. The vendors will often have celebrities at their booths to attract buyers
to their area and to endorse the product. Trade shows are typically staged at convention centers
not associated with wholesale market centers.
Topic: Trade Shows
Bloom's: Understand
17
38) At FN Platform, vendors display their fashion footwear in designated areas at the Las Vegas
Convention Center and have sales representatives available to talk with buyers as they walk
through the exhibit area. This exhibition is an example of a
A) retail exchange.
B) trade show.
C) diverted merchandise sale.
D) gray-market sale.
E) reverse auction.
Answer: B
Explanation: At a trade show, vendors display their merchandise in designated areas at a
through the exhibit area.
Topic: Trade Shows
Bloom's: Apply
AACSB: Analytic
39) ________ are taxes collected by a government on imported merchandise.

A) Chargebacks
B) Country of origin costs
C) Slotting fees
D) Duties
E) Obligation fees
Answer: D
Explanation: Duties are taxes collected by a government on imports.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
18
40) When contemplating sourcing products internationally, which of the following would not be
an additional cost associated with global sourcing?
A) Foreign currency fluctuations
B) Tariffs
C) Reduced lead times
D) Larger inventory carrying costs
E) Increased transportation costs
Answer: C
Explanation: Lead times are usually longer with sourcing products internationally.
Bloom's: Understand
AACSB: Analytic
41) ________ are imposed by governments to shield domestic manufacturers from foreign
competition.
A) Chargebacks
B) Country of origin costs
C) Slotting fees
D) Import tariffs
E) Obligation fees
Answer: D
Explanation: Tariffs, also known as duties, are taxes collected by a government on imports.
Import tariffs have been used to shield domestic manufacturers from foreign competition.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
19
42) Which of the following is a subjective issue associated with global sourcing?
A) Transportation costs
B) Tariffs
C) Longer lead times
D) Relative value of foreign currencies
E) Quality control
Answer: E
Explanation: Subjective issues include quality control, time to market, and sociopolitical risks.
Bloom's: Understand
43) Why are inventory carrying costs higher for retailers who source internationally?
A) Lead times are longer, and there is a need to maintain higher levels of safety stocks.
B) There is no way to predict the extra tariffs that will be levied by importing countries.
C) Labels of origin are typically put on products and need to be removed upon arrival.
D) Changes in fixed costs result in additional inventory.
E) Foreign distribution centers charge higher storage fees.
Answer: A
Explanation: Because lead times are longer and more uncertain, retailers using foreign sources
must maintain larger inventories to ensure that the merchandise is available when the customer
wants it.
Bloom's: Understand
20
44) Linda is a fashion designer who sourced out to a manufacturer in India in order to assemble
her fall line. She assumed the patterns for the clothes were simple, and she deemed it
unnecessary to personally visit the factory and supervise the workers sewing her clothes. Months
later, the shipment arrived in New York and, the seams on all of the blouses were sewn
incorrectly. This mishap is an issue of
A) quality control.
B) tariff ramifications.
C) poor strategy.
D) global market satiation.
E) global trends.
Answer: A
Explanation: When sourcing globally, it is harder to maintain consistent quality standards than it
is when sourcing domestically. Quality control problems can cause delays in shipment and
adversely affect a retailer's image.
Bloom's: Apply
45) Which of the following is true of collaborative supply chain management?

A) It is difficult to implement these strategies when sourcing globally.
B) These systems are based on large inventories.
C) Collaborative systems are based on child labor laws and regulations.
D) Lead times are long when using these systems.
E) Interactions between the vendor and retailer are minimal.
Answer: A
Explanation: Collaborative systems are based on short and consistent lead times. Vendors
provide frequent deliveries of smaller quantities. These activities are more difficult to perform
globally than domestically.
Bloom's: Understand
21
46) Violations of human rights are avoided by
A) only sourcing products in third-world countries.
B) only sourcing products from Asia.
C) observing core labor standards.
D) having a collaborative system.
E) having a willingness to pay more for the products.
Answer: C
Explanation: Among other things, observing core labor standards ensures that each supplier pays
minimum wages and benefits; limits overtime to local industry standards; does not use prisoners,
forced labor, or child labor; and provides a healthy and safe environment.
Bloom's: Understand
AACSB: Ethics
47) Retailers proactively engage in enforcing the labor practices of their suppliers because
A) they want to maintain their reputations of providing quality merchandise.
B) they want to build strategic partnerships with developing countries.
C) they want to work toward collaborative merchandising.
D) they require smaller shipments at frequent intervals.
E) they want to ensure a safe and healthy work environment for laborers.
Answer: E
Explanation: Many retailers have had to publicly defend themselves against allegations of
human rights, child labor, or other abuses involving the factories and countries in which their
goods are made. Observing core labor standards ensures that each supplier pays minimum wages
and benefits; limits overtime to local industry standards; does not use prisoners, forced labor, or
child labor; and provides a healthy and safe environment.
Bloom's: Understand
AACSB: Ethics
22
48) Yves, an English-speaking Frenchman, meets with buyers from the United States when they
visit Paris. Once in Paris, the buyers rely on Yves to make appointments with French vendors to
save time and penetrate the market. Yves works to help interpret and negotiate during the buyer-
vendor meetings. Therefore, Yves works for a
A) black market.
B) resident buying office.
C) reverse auction office.
D) cohort exchange office.
E) stock market.
Answer: B
Explanation: Resident buying offices provide services to help retailers buy merchandise. Many
retailers purchasing private-label merchandise use resident buying offices, which are
organizations located in major market centers that provide services to help retailers buy
merchandise.
Bloom's: Apply
49) Louise runs a successful shop in Chicago featuring unique dolls from Western Europe.
Louise speaks German and a little Dutch, but no Italian, French, or Spanish. Which of the
following is the best way for Louise to procure dolls from all Western European countries?
A) She can visit wholesale market centers throughout the year.
B) She can attend trade shows in the United States and meet vendors there.
C) She can establish a time for vendors to visit her in her own office.
D) She can buy from local artists of European descent.
E) She can utilize a resident buying office when she visits Europe to buy.
Answer: E
Explanation: Resident buying offices provide services to help retailers buy merchandise. Many
retailers purchasing private-label merchandise use resident buying offices, which are
organizations located in major market centers that provide services to help retailers buy
merchandise.
Bloom's: Apply
AACSB: Diversity
23
50) Which of the following does not describe an approach for buying national brand
merchandise?
A) Buyers meeting national brand vendors in wholesale market centers
B) Buyers attending trade shows to see the latest products and styles
C) Buyers using reverse auctions to procure seasonal merchandise
D) Buyers discussing the performance of the vendor's merchandise during the previous season
E) Vendors meeting with buyers at their offices to review and reorder last week's best sellers
Answer: C
Explanation: Retailers use reverse auctions to get bids for private-label merchandise.
Bloom's: Understand
51) Which of the following is not true of reverse auctions?

A) Retail buyers provide a group of potential vendors with a specification for what they want.
B) There is one buyer, the retailer, and many potential sellers, the manufacturing firms.
C) Retailers participate to get quality private-label merchandise at low prices.
D) Reverse auctions are common among commodities and seasonal products.
E) The retailer chooses the lowest bidder regardless of other factors.
Answer: E
Explanation: The retailer can choose to place an order at the offered price from whichever
vendor the retailer feels will provide the merchandise in a timely manner and with the specified
quality.
Bloom's: Understand
24
52) Retailers use ________ to get quality private-label merchandise at low prices.
A) chargebacks
B) buybacks
C) reverse auctions
D) commercial bribery
E) markdown money
Answer: C
Explanation: Auctions conducted by retailer buyers of private-label merchandise are called
reverse auctions because there is one buyer (the retailer) and many potential sellers (the
manufacturing firms).
Bloom's: Remember
AACSB: Analytic
53) As a vendor, Melissa works well with a buyer she's known for years at Dream Toys. This
year, Melissa's line of toys had a few products that sold poorly, and it is now time to show the
Dream Toys' buyer the next holiday season's product line. Melissa knows the Dream Toys' buyer
will be a hard negotiator. What should Melissa be prepared to do?
A) Provide markdown money.
B) Suggest pulling out of Dream Toys for a season to strategize and reinvent.
C) Suggest selling the toys for another season giving consumers time to acclimate to the
products.
D) Advise that Dream Toys can sell the products at lower prices, but maintain the original prices
at other retailers.
E) Provide the Dream Toys buyer with a vacation package.
Answer: A
Explanation: Markdown money are funds vendors give retailers to cover lost gross margin
their vendors.
Bloom's: Apply
25
54) ________ refers to funds vendors give retailers to cover lost gross margin dollars.
A) Markdown money
B) Slotting allowance
C) Chargeback
D) Tariff
E) Buyback
Answer: A
Explanation: Markdown money are funds vendors give retailers to cover lost gross margin
Difficulty: 1 Easy
their vendors.
Bloom's: Remember
AACSB: Analytic
55) ________ are charges imposed by a retailer to stock a new item.

A) Chargebacks
B) Slotting allowances
C) Additional markup dollars
D) Advertising allowances
E) Markdown allowances
Answer: B
Explanation: Slotting fees, or slotting allowances, are charges imposed by a retailer to stock a
new item. When a vendor agrees to pay that fee, the retailer will stock the product for a period of
time, assess its sales and margin, and, if it is successful, continue to offer the product after the
trial period.
Difficulty: 1 Easy
their vendors.
Bloom's: Remember
AACSB: Analytic
26
56) Fantasy and Stanley's are popular apparel stores. A Fantasy vendor has offered a Stanley's
buyer an attractive discount on merchandise that had been returned to Fantasy by a different
retailer. The Stanley's buyer realizes the high gross margin opportunity but refuses the offer
nevertheless. Why?
A) The buyer wants to preserve Stanley's image as a fashion leader by not selling returned
merchandise that could be out of season.
B) By accepting additional merchandise, Stanley's would be paying the additional costs of
carrying the merchandise.
C) Stanley's would be accepting unknown merchandise and could risk the purchase as becoming
more problems than it is worth.
D) Accepting the excess merchandise could alter the terms of the purchase as well as delivery
dates.
E) Transportation costs would increase.
Answer: A
Explanation: Buyers need to consider many different facets when dealing with additional
markup opportunities.
their vendors.
Bloom's: Apply
57) When a swimwear buyer negotiates for delivery and exclusivity with a vendor, what would a
buyer typically want?
A) A buyer would want the swimwear to arrive late in the season to avoid markdowns.
B) A buyer would ask to have merchandise at competing stores so the only competition factor is
price.
C) A buyer would want unique swimwear to arrive early in the season to get the most sales at the
original price.
D) A buyer would ask for last season's swimwear as well as the latest swimwear to be able to
offer a price differentiation.
E) A buyer would ask for parallel merchandise to be able to offer more variety in assortments.
Answer: C
Explanation: Retailers often negotiate with vendors for an exclusive arrangement so that no
other retailer can sell the same item or brand.
their vendors.
Bloom's: Apply
27
58) Which of the following is a negotiation issue that is often used in fashion merchandise
categories?
A) Slotting allowances
B) Additional markup dollars
C) Advertising allowances
D) Exclusivity arrangement
E) Co-op (cooperative) advertising
Answer: D
Explanation: In fashion merchandise categories, being the first retailer in a market to carry
certain products helps that retailer hold a fashion-leader image and achieve a differential
advantage. Retailers often negotiate with vendors for an exclusive arrangement so that no other
retailer can sell the same item or brand.
their vendors.
Bloom's: Understand
AACSB: Analytic
59) When negotiating with a vendor, the best outcome for a retailer would be to
A) dismiss the negotiation if there's no agreement and ultimately cancel the vendor relationship.
B) leave the negotiations with an advantage over the vendor.
C) have mutual gain.
D) give the vendor the advantage in the negotiation only to use it in the retailer's favor for the
following season.
E) agree to disagree on performance thresholds.
Answer: C
Explanation: Inventing multiple options is part of the planning process, but knowing when and
how much to give, or give up, requires quick thinking at the bargaining table. It is essential to
invent options that are mutually beneficial.
their vendors.
Bloom's: Understand
28
60) Isabel works as a senior jewelry buyer for a department store chain. On a recent visit to a
trade show, she noticed a new vendor selling unique earrings, necklaces, and bracelets made of
glass. She had seen such pieces in trade magazines, but initially ignored them because of the
exorbitant price. She thought her affluent customers would appreciate the look, so she decided to
talk with the sales representative to learn more about the possibility of a trial in only a few of her
top stores. Isabel is in the ________ phase of building strategic relationships.
A) expansion
B) consideration
C) commitment
D) exploration
E) awareness
Answer: D
Explanation: During the exploration stage, the buyer and vendor begin to explore the potential
benefits and costs of a partnership.
vendors.
Bloom's: Apply
AACSB: Analytic
61) Randolph is the divisional merchandise manager for home products for Daisy's, a
supermarket. At a recent trade show, he noticed small kitchen appliances being shown in retro
colors like pistachio, eggplant, and cotton candy. Knowing the kitchen designs were moving in
this direction, he decided to discuss it with his senior buyers to see if these retro colors would
suit the Daisy's market. Randolph is in the ________ phase of building strategic relationships.
A) awareness
B) consideration
C) exploration
D) expansion
E) commitment
Answer: A
Explanation: In the awareness stage, no transactions have taken place. This phase might begin
with the buyer seeing some interesting merchandise at a retail market or an ad in a trade
magazine.
vendors.
Bloom's: Apply
AACSB: Analytic
29
62) What is the best reason for retailers to develop and maintain relationships with multiple and
sometimes competing suppliers?
A) A more efficient supply chain occurs when multiple vendors are involved.
B) A function of retailers is to provide assortments, so they must deal with a variety of suppliers.
C) By working with multiple suppliers, retailers tend to make better negotiators.
D) A variety of vendors assures more profit.
E) It would be unethical for a buyer to solely work with one supplier.
Answer: B
Explanation: It is difficult for retailer-vendor relationships to be as committed as some supplier-
manufacturer relationships. However, an important function of retailers is to provide an
assortment of merchandise for their customers. Thus, they must always deal with multiple,
sometimes competing suppliers.
vendors.
Bloom's: Understand
63) When Whitney took over her father's sporting goods store, she evaluated some of her father's
vendor relationships. She found that Rodney's Exercise Wear wasn't particularly profitable for
the store. Although committed, his products were expensive, and he seemed inflexible. Whitney
tried to work out a more amicable relationship with him by discussing her sales goals and new
ideas for the coming year, but Rodney seemed uninterested. Which of the following elements
crucial for maintaining strategic relationships is absent in the given example?
A) Long-term gains
B) Poor leadership
C) Fulfilled obligations
D) Open communication
E) Credible commitments
Answer: D
Explanation: Open, honest communication is a key to developing successful and profitable
relationships. Buyers and vendors in a relationship need to understand what is driving each
other's business, their roles in the relationship, each firm's strategies, and any problems that arise
over the course of the relationship.
vendors.
Bloom's: Apply
30
64) By sharing common goals, buyers and vendors
A) can avoid sharing each firm's most strategic information.
B) can pool their strengths and abilities to exploit potential opportunities.
C) can conclude that the long-term results of the relationship are insignificant.
D) do not have to coordinate systems for the partnership to succeed.
E) commonly miscalculate the cost of merchandise.
Answer: B
Explanation: Shared goals give both members of the relationship an incentive to pool their
strengths and abilities and exploit potential opportunities between them. They also create an
assurance that the other partner will not do anything to hinder goal achievement within the
relationship.
vendors.
Bloom's: Understand
65) What is the outcome when a retailer sells counterfeit merchandise?

A) It can be heavily fined through the rulings of the Robinson-Patman Act.
B) The retailer will lose money once the customers discover the truth.
C) It can destroy the relationship with the vendor of the legitimate brand.
D) The retailer gains a low profit margin by selling counterfeit goods.
E) It is known as the gray market.
Answer: C
Explanation: Selling counterfeit merchandised can negatively affect a retailer's image and its
relationship with the vendor of the legitimate brand.
buying merchandise.
Bloom's: Understand
31
66) ________ involve the flow of merchandise through distribution channels, usually across
international borders, other than those authorized or intended by the manufacturer or producer.
A) Reverse auctions
B) Chargebacks
C) Lift-outs
D) Gray-market goods
E) Exclusive dealing arrangements
Answer: D
Explanation: Gray-market goods, also known as parallel imports, involve the flow of
merchandise through distribution channels, usually across international borders, other than those
authorized or intended by the manufacturer or producer.
Difficulty: 1 Easy
buying merchandise.
Bloom's: Remember
67) Which of the following prohibits vendors offering different retailers different prices and
purchase order terms for the same merchandise and quantity?
A) Tying contracts
B) Robinson-Patman Act
C) Resale price maintenance
D) Buybacks
E) Copyright infringement Act
Answer: B
Explanation: The Robinson-Patman Act potentially restricts the prices and terms that vendors
can offer to retailers. The act makes it illegal for vendors to offer different terms and conditions
to different retailers for the same merchandise and quantity. Sometimes called the Anti-Chain-
Store Act, it was passed to protect independent retailers from chain-store competition.
Difficulty: 1 Easy
buying merchandise.
Bloom's: Remember
AACSB: Analytic
32
68) Janine buys swimwear for a chain of apparel stores. At a recent trade show, she took the
opportunity to meet with a few vendors. During a meeting with the vendor that she normally
purchased from each season, he proposed a weekend in the Cayman Islands to view the
swimwear that European tourists were wearing. Janine knows that it would be beneficial to see
what European tourists are wearing and then translate what she is seeing into her assortment for
her target customers. Before continuing her discussions with the vendor, what should she do?
A) She should ensure that all her work is completed before she leaves for an extended weekend.
B) She must inform her divisional merchandise manager of the proposal.
C) She should look at her budget to see how much product she would be able to purchase from
this vendor this season.
D) She should see what other vendors might be offering.
E) She should check to see if there might be a better place than the Cayman Islands to scope out
swimwear trends.
Answer: B
Explanation: Such offers by vendors could be construed as bribes or kickbacks, which are illegal
unless the buyer's manager is informed of them. Commercial bribery occurs when a vendor or its
agent offers or a buyer asks for "something of value" to influence purchase decisions.
buying merchandise.
Bloom's: Apply
AACSB: Ethics; Reflective Thinking
33
69) Steve buys men's dress shirts for Martin's, a clothing retailer. At a recent trade show, he took
the opportunity to see a few new vendors. During one meeting, a vendor proposed a ticket to a
high-profile college football game. Steve graciously declined because he was concerned he
would be engaging in
A) commercial bribery.
B) free-riding.
C) greenwashing.
D) an exclusive dealing.
E) a tying contract.
Answer: A
Explanation: Commercial bribery is when a vendor or its agent offers a buyer "something of
value" to influence their buying decisions. In this situation, attending a college football game had
nothing to do with buying dress shirts. Therefore, it appears as if it could be an attempt to
influence the buyer's decision.
buying merchandise.
Bloom's: Apply
70) ________, also known as stocklifts or lift-outs, are activities engaged in by vendors with
retailers to get their products into retail stores.
A) Charge backs
B) Buybacks
C) Greenwashing
D) Co-op advertising
E) Reverse auctions
Answer: B
Explanation: In a buyback situation, either a retailer allows a vendor to create space for its
merchandise by "buying back" a competitor's inventory and removing it from the retailer's
system, or the retailer forces a vendor to buy back slow-moving merchandise.
buying merchandise.
Bloom's: Remember
34
71) A(n) ________ exists when a vendor and a retailer enter into an agreement that requires the
retailer to take a product it doesn't necessarily desire to ensure that it can buy a product that it
does desire.
A) exclusive dealing agreement
B) functional discount
C) competition
D) buyback
E) tying contract
Answer: E
Explanation: A tying contract exists when a vendor requires that a retailer take a product it
doesn't necessarily desire (the tied product) to ensure that it can buy a product it does desire (the
typing product).
Difficulty: 1 Easy
buying merchandise.
Bloom's: Remember
72) A vendor's recent shipment at the retailer's distribution center was on time, but the boxes
were mislabeled along with other infractions against the retailer's mandated shipment policies.
What should the retailer do?
A) Pay the vendor invoice immediately to assure deliveries are still on time in the future.
B) Initiate legal proceedings against the vendor.
C) Accept the vendor's gifts to repay the inconvenience infractions.
D) Issue a chargeback.
E) Send the shipment back.
Answer: D
Explanation: Retailers often use a chargeback when a vendor did not meet the agreed-on terms,
for example, if it improperly applied labels to shipping containers or merchandise or sent
shipments that had missing items or were late.
buying merchandise.
Bloom's: Apply
35
73) ________ is a socially responsible movement that ensures that producers receive adequate
prices for their products.
A) Green sheen
B) Whitewashing
C) Black marketing
D) Fair trade
E) Licensed branding
Answer: D
Explanation: Fair trade is a movement that ensures producers of products receive fair prices for
their products.
Difficulty: 1 Easy
buying merchandise.
Bloom's: Remember
74) Companies are practicing ________, which is the practice of marketing products or services
as being environmentally friendly with the purpose of gaining public approval and sales rather
than actually improving the environment.
A) green sheen
B) whitewashing
C) black marketing
D) fair trade
E) unlicensed branding
Answer: A
Explanation: Green sheen, or greenwashing, is the disingenuous practice of marketing products
or services as being environmentally friendly with the purpose of gaining public approval and
sales rather than actually improving the environment.
buying merchandise.
Bloom's: Remember
36
75) What are some of the benefits of offering store brands?
Answer: (1) They boost store loyalty because of the labels' exclusivity. (2) They enhance store
image if the brands are of high quality and fashionable. (3) They can draw customers into the
store. (4) Retailers do not have restrictions on display, promotions, or price that are common
with manufacturer brands. (5) Assortments sell for less yet are of comparable quality to national
brands. (6) Gross margin opportunities are greater. (7) They can fill assortment voids not covered
by national brands.
Bloom's: Understand
76) If there are so many advantages to carrying private brands, why do retailers even bother to
sell national brands?
Answer: Many customers have developed loyalty to specific national brands. They only
patronize retailers selling this national-brand merchandise. This loyalty toward the national brand
develops because customers know what to expect from the products and like them. If a retailer
does not offer the national brands, customers might view its assortment as lower in quality, with
a resulting loss of profits.
Bloom's: Understand
77) Why do national brands often generate lower gross margins for retailers than private-label
brands?
Answer: The same national brands offered by competing retailers can only be differentiated on
price, which means retailers often have to offer significant discounts on some national brands to
attract customers to their stores, further reducing their profitability. The potential profitability for
exclusive store brands is stronger. Customers can't compare prices for these products because
they are, in fact, exclusive to one retailer. Because the retailers are less likely to compete on price
when selling exclusive brands, the profitability potential for exclusive store brands is higher and
they are motivated to devote more resources toward selling them than they would for similar
national brands.
Bloom's: Understand
37
78) What are some of the drawbacks of using store brands?
Answer: While store brands offer an opportunity for retailers to differentiate their products and
reduce price competition, the retailer incurs additional costs designing and marketing store
brands, which reduces its profitability. In addition, the retailers assume the risk associated with
uncertain sales. If, for instance, a product doesn't sell, the retailer can negotiate to either send the
merchandise back to the vendor, have the vendor pay for the difference in lost gross margin if the
merchandise has to be marked down, or sell the inventory to an off-price retailer. Retailers have
no such cushions for their store brands. Because private-label products are specific to the store,
there are few alternative options for getting rid of excess inventory.
Bloom's: Understand
79) Identify and describe the different options that retail buyers of national brands have to see
new products and meet with vendors.
Answer: Buyers have the following options to see new products and meet vendors:
1) Wholesale markets: These are buildings with many vendors that have showrooms to show
their products and meet with potential buyers. At specific times of the year, they will have
"market week" where buyers will make appointments to visit the vendor showrooms.
2) Trade shows: These are events usually at convention centers or a similar format where
vendors have booths to display their merchandise and to meet with potential buyers.
3) The buyer's offices at corporate headquarters or the vendor's corporate offices (these options
are not discussed in the text but could be an option).
Topic: Trade Shows
Bloom's: Understand
38
80) What are some of the costs associated with sourcing merchandise globally?
Answer: The costs associated with sourcing merchandise globally include the relative value of
foreign currencies, tariffs, longer lead times, and increased transportation costs. Import tariffs
have been used to shield domestic manufacturers from foreign competition. In the longer term,
the relative value of foreign currencies can have a strong influence on the cost of imported
merchandise. Because lead times are longer and more uncertain, retailers using foreign sources
must maintain larger inventories to ensure that the merchandise is available when the customer
wants it. Larger inventories mean larger inventory carrying costs. Finally, transportation costs
are higher when merchandise is produced in foreign countries.
Bloom's: Understand
81) What are the major issues that a buyer discusses during a meeting with a vendor?
Answer: (1) Buyers will discuss price and gross margin where they will want the lowest price so
they can have the higher gross margin. (2) The buyer will discuss additional markup
opportunities where the buyer will need to consider taking excess merchandise, but will also
need to consider the image of the store. (3) Terms of the purchase are discussed where the buyer
will prefer a long time period in which to pay for the merchandise to assist the company's cash
flow, accounts payable, and its interest expense. (4) The buyer will discuss delivery and
exclusivity where the buyer will want to be the only retailer in a market carrying the
merchandise, and the buyer will also want the merchandise as early as possible in the season. (5)
The buyer might ask for sharing the cost of advertising. (6) The buyer will want to discuss the
costs of transporting the merchandise as this can be a large expense.
their vendors.
Bloom's: Understand
39
82) Describe the four phases in the development of strategic partnering relationships that are
characterized by increasing levels of involvement.
Answer: (1) The first phase is the awareness phase where no transactions take place. The buyer
may observe new merchandise at a trade show or a trade magazine and seek information about
the vendor's reputation or image. (2) During the exploration stage, the buyer and vendor begin to
explore the potential benefits and costs. The buyer may make a purchase to test demand for the
product in stores and begin to learn about the working relationship. (3) In the expansion phase,
the buyer has collected enough information about the vendor to consider developing a long-term
relationship. Together, they work on joint promotional programs and sales increases. (4) When
both parties continue to find the relationship mutually beneficial, the relationship moves into the
commitment stage where they continue to make significant investments in the relationship.
vendors.
Bloom's: Understand
83) What is counterfeit merchandise? How can it negatively impact the market, and what are the
ethical aspects?
Answer: Counterfeit merchandise refers to goods that are made and sold without the permission
of the owner of a trademark or copyright. It is fake merchandise, unethically posing to be the real
trademarked merchandise. Selling counterfeit merchandise can negatively affect a retailer's
image and its relationship with the vendor of the legitimate brand.
buying merchandise.
Bloom's: Understand
AACSB: Analytic; Communication; Ethics
40
84) When is a gift or favor considered to be commercial bribery?
Answer: Commercial bribery occurs when a vendor or its agent offers or a buyer asks for
"something of value" to influence purchase decisions. These gifts could be construed as bribes or
kickbacks, which are illegal unless the buyer's manager is informed of them. To avoid such
problems, many retailers forbid employees to accept any gifts from vendors. Other retailers have
a policy that it is fine to accept limited entertainment or token gifts, such as flowers or wine for
the holidays.
buying merchandise.
Bloom's: Understand
AACSB: Communication; Ethics; Reflective Thinking
41
Chapter 13 Retail Pricing
1) The high/low pricing strategy helps sell slow-moving merchandise.
Answer: TRUE
Explanation: Sales allow retailers to get rid of slow-moving merchandise by discounting the
price.
Topic: Pricing Strategies
Learning Objective: 13-01 Explain the difference between a high/low pricing strategy and an
everyday low-pricing strategy.
Bloom's: Remember
AACSB: Analytic
2) Generally, as the price of a product increases, sales for the product will increase.
Answer: FALSE
Explanation: As the price of a product increases, the sales for the product will usually decrease
because fewer and fewer customers feel the product is a good value.
Difficulty: 1 Easy
Topic: Considerations in Setting Retail Prices
Learning Objective: 13-02 Identify the factors retailers consider when pricing their merchandise.
Bloom's: Understand
3) Price elasticity is the percentage change in quantity sold divided by the percentage change in
price.
Answer: TRUE
Explanation: A commonly used measure of price sensitivity is price elasticity, or the percentage
change in quantity sold divided by the percentage change in price.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
1
4) Initial markup is the actual sales realized for the merchandise minus its costs.
Answer: FALSE
Explanation: The initial markup is the retail selling price initially set for the merchandise minus
the cost of the merchandise.
Bloom's: Remember
AACSB: Analytic
5) The break-even point quantity is the quantity at which total revenue equals total cost, beyond
which profit occurs.
Answer: TRUE
Explanation: The break-even point quantity is the quantity at which total revenue equals total
cost, and then profit occurs for additional sales.
Difficulty: 1 Easy
Bloom's: Remember
6) Buyers generally do not plan for markdowns.
Answer: FALSE
Explanation: Markdowns are part of the cost of doing business, and thus buyers plan for them.
Difficulty: 1 Easy
Topic: Markdowns
Learning Objective: 13-03 Examine how and why retailers take markdowns.
Bloom's: Remember
2
7) Retailers frequently offer a limited number of predetermined price points within a
merchandise category, a practice known as zone pricing.
Answer: FALSE
Explanation: Price lining is when retailers offer a limited number of predetermined price points
within a merchandise category.
Topic: Pricing Techniques for Increasing Sales and Profits
Learning Objective: 13-04 Identify the pricing techniques retailers use to increase sales and
profits.
Bloom's: Remember
AACSB: Analytic
8) Markdown money is funds a vendor gives the retailer to cover lost gross margin dollars that
result from markdowns and other merchandising issues.
Answer: TRUE
Explanation: Buyers can often obtain markdown money—funds a vendor gives the retailer to
cover lost gross margin dollars that result from markdowns and other merchandising issues.
Topic: Markdowns
Bloom's: Remember
AACSB: Analytic
9) Predatory pricing arises when a dominant retailer sets prices below its costs to drive
competitive retailers out of business.
Answer: TRUE
Explanation: The predator hopes to raise prices when the competition is eliminated and earn
back enough profits to compensate for its losses.
Difficulty: 1 Easy
Topic: Legal and Ethical Pricing Issues
Learning Objective: 13-05 Indicate the legal and ethical issues retailers should consider when
setting prices.
Bloom's: Remember
AACSB: Ethics
3
10) Vertical price fixing involves agreements between competing retailers to illegally set the
same prices.
Answer: FALSE
Explanation: Horizontal price fixing involves agreements between retailers that are in direct
competition with each other to set the same prices.
Difficulty: 1 Easy
setting prices.
Bloom's: Remember
AACSB: Ethics
11) What is value?

A) It refers to inexpensive merchandise.
B) It is the relationship between what consumers have and what they want.
C) It is the relationship between desires and needs.
D) It is the relationship between what consumers receive and what they have to pay for it.
E) It refers to the lowest price and the lowest quality merchandise or service.
Answer: D
Explanation: Value is the ratio of what customers receive (the perceived benefit of the products
and services offered by the retailer) to what they have to pay for it.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
4
12) Retailers using a(n) ________ strategy frequently—often weekly—discount the initial prices
for merchandise through sales promotions.
A) disintermediated pricing
B) penetration pricing
C) high/low pricing
D) price skimming
E) everyday low-pricing
Answer: C
Explanation: Retailers using a high/low pricing strategy frequently—often weekly—discount the
initial prices for merchandise through sales promotions.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
13) A(n) ________ strategy emphasizes the continuity of retail prices at a level somewhere
between the regular nonsale price and the deep-discount sale price of high/low retailers.
A) leader pricing
B) keystoning
C) high/low pricing
D) price skimming
E) everyday low-pricing
Answer: E
Explanation: Many retailers, particularly supermarkets, home improvement centers, and
discount stores, have adopted an everyday low-pricing (EDLP) strategy. The EDLP strategy
emphasizes the continuity of retail prices at a level somewhere between the regular nonsale price
and the deep-discount sale price of high/low retailers.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
5
14) Which of the following is not a benefit typically ascribed to an everyday low-pricing (EDLP)
strategy?
A) Increased profit margin
B) Improved customer loyalty
C) Improved inventory management
D) Increased sale advertising
E) Stockout reduction
Answer: D
Explanation: The stable prices caused by EDLP limit the need for the weekly sale advertising
used in the high/low strategy.
Difficulty: 1 Easy
Bloom's: Understand
15) How does an improved inventory management through the use of an everyday low-pricing
(EDLP) strategy benefit retailers?
A) It increases the total sales.
B) It increases the number of rain checks.
C) It leads to more frequent sales and markdowns.
D) It results in a need for more backup stock.
E) It increases the sales of slow-moving merchandise.
Answer: A
Explanation: The EDLP approach reduces the large variations in demand caused by frequent
sales with large markdowns. As a result, retailers can manage their inventories with more
certainty. Fewer stockouts mean more satisfied customers, resulting in higher sales. In addition, a
more predictable customer demand pattern enables the retailer to improve inventory turnover by
reducing the average inventory needed for special promotions and backup stock.
Difficulty: 1 Easy
Bloom's: Understand
6
16) Which of the following statements holds true for an everyday low-pricing (EDLP) strategy?
A) Slow-selling merchandise can be sold by discounting the price.
B) It allows retailers to charge higher prices to customers who are not price sensitive.
C) Customers need to wait for items to go on sale.
D) The use of EDLP increases the need for advertising.
E) EDLP retailers do not have to incur the labor costs of changing price tags.
Answer: E
Explanation: The stable prices caused by EDLP limit the need for the weekly sale advertising
used in the high/low strategy. In addition, EDLP retailers do not have to incur the labor costs of
changing price tags and signs and putting up sale signs.
Bloom's: Understand
17) How can a retailer that wants to use an EDLP strategy persuade customers away from
high/low strategy competitors?
A) By using price lining
B) By using a demand-oriented method for setting retail prices
C) By assuring customers of low prices
D) By refusing to accept manufacturers' coupons
E) By increasing advertising
Answer: C
Explanation: The EDLP strategy lets customers know that they will get the same low prices
every time they patronize the EDLP retailer. Customers do not have to read the ads and wait for
items they want to go on sale.
Bloom's: Understand
7
18) Which of the following is not a factor that retailers consider in setting prices?
A) Price sensitivity of consumers
B) The cost of the merchandise and services
C) Competition
D) Legal restrictions
E) Language barriers
Answer: E
Explanation: Five factors that retailers consider in setting retail prices are the price sensitivity of
consumers; competition; the pricing of services; analytical factors such as cost, break-even
points, pricing software, and Internet, mobile, and social; and legal and ethical issues.
Difficulty: 1 Easy
Bloom's: Understand
AACSB: Analytic
19) A price experiment

A) can be used to measure the price sensitivity of customers.
B) cannot be performed if the retailer uses POS terminals.
C) is a less accurate method of determining buyer response to price changes than a consumer
panel.
D) is useful for obtaining data for a cost-oriented pricing strategy.
E) is a risky procedure when competition is a factor.
Answer: A
Explanation: One approach that can be used to measure the price sensitivity of customers is a
price experiment.
Bloom's: Remember
AACSB: Analytic
8
20) A price experiment
A) is a method of determining the most profitable price for a product.
B) cannot be performed if the retailer uses POS terminals.
C) is a less accurate method of determining buyer response to price changes than a consumer
panel.
D) is useful for obtaining data for a cost-oriented pricing strategy.
E) is a quick and efficient method to decide on a price for a product.
Answer: A
Explanation: A pricing experiment is a process that can be used to measure the price sensitivity
of customers on products. It helps to determine the most profitable price for a product.
Bloom's: Remember
AACSB: Analytic
21) Cliff is struggling with the price of produce at his well-established produce markets. The
reputation of the markets attracts repeat customers from a 50-mile radius. Recently, local farmers
started increasing produce prices for him due to the upsurge in gas prices. Now, Cliff feels it is
time to pass the costs onto his customers. Which of the following should Cliff estimate to
determine the effect of price changes?
A) Price elasticity
B) Break-even point quantity
C) Fixed costs
D) Reference price
E) Markup percentage
Answer: A
Explanation: The price elasticity for a product can be estimated by using statistical techniques to
analyze how sales have changed in the past when prices changed. Price elasticity is the
percentage change in quantity sold divided by the percentage change in price.
Bloom's: Apply
9
22) A commonly used measure of price sensitivity is
A) price variation.
B) price elasticity.
C) price velocity.
D) price adaptability.
E) price adjustment.
Answer: B
Explanation: A commonly used measure of price sensitivity is price elasticity, or the percentage
change in quantity sold divided by the percentage change in price.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
23) A retailer originally priced an e-reader at $99 and sold 1,200 units per week. After raising the
price to $120, sales dropped to 1,000 units per week. What would the item's price elasticity be?
A) -2.4005
B) 2.4005
C) -3
D) 3.33
E) -.7855
Answer: E
Explanation:
A commonly used measure of price sensitivity is price elasticity, or the percentage change in
quantity sold divided by the percentage change in price.
Bloom's: Apply
10
24) Which of the following items has the most price elasticity?
A) Fast food
B) Branded luxury goods
C) Prescription medication
D) Movie tickets
E) Gasoline
Answer: A
Explanation: The more substitutes a product or service has, the more likely it is to be price-
elastic. Fast-food prices are typically price-elastic, but branded luxury goods have almost no
substitutes and are price-inelastic.
Bloom's: Understand
AACSB: Analytic
25) Smith's Electronics originally priced a private-label portable DVD player at $90, and then
sold 1,500 units per week. After raising the price to $100, sales dropped to 1,000 units per week.
First, determine the price elasticity, and then determine the profit-maximizing price if the
private-label portable DVD player costs $50.
A) $90
B) $85.70
C) $75
D) $70.25
E) $70
Answer: C
Explanation:
For products with price elasticities less than 1, the price that maximizes profits can be
determined by the following formula:
Profit-maximizing price = (Price elasticity × Cost)/(Price elasticity + 1).
Bloom's: Apply
11
26) When pricing products, retailers must
A) consider the company's overall strategy when choosing a pricing policy.
B) observe the competition to offer the same price by price fixing.
C) reduce stockouts by keeping prices higher than the competition.
D) risk supply chain mishaps by keeping process low.
E) price consistently throughout the chain.
Answer: A
Explanation: The chosen pricing policy must be consistent with the retailer's overall strategy and
its relative market position.
Bloom's: Understand
27) Retailers collect price data about their competitors to

A) see if they need to adjust their prices.
B) match supply and demand.
C) maximize their sales and profits by means of yield management.
D) assess the quality of services provided.
E) determine service quality.
Answer: A
Explanation: Most retailers routinely collect price data about their competitors to see if they
need to adjust their prices to remain competitive.
Bloom's: Understand
12
28) ________ is the concept of offering customers localized promotions of retailers in close
proximity of their mobile phones.
A) Geofencing
B) Geotagging
C) Geocaching
D) Price lining
E) Leader pricing
Answer: A
Explanation: The latest generation of price promotional offers takes into account the consumers'
geographical location that is accessed from their phone location or locational coding via certain
sites and offers them localized promotions for retailers who are in close proximity. This concept
is called geofencing.
Bloom's: Remember
AACSB: Analytic
29) ________ are customers who go from one store to another, buying only items that are on
special.
A) Innovators
B) Laggards
C) Cherry pickers
D) Whistleblowers
E) Early adapters
Answer: C
Explanation: One problem with leader pricing is that it might attract shoppers referred to as
cherry pickers, who go from one store to another, buying only items that are on special. These
shoppers are clearly unprofitable for retailers.
profits.
Bloom's: Remember
AACSB: Analytic
13
30) A drugstore purchases hand cream at $2 per jar and sells the jars for $15. What is the markup
percentage?
A) 60%
B) 87%
C) 40%
D) 5%
E) 22%
Answer: B
Explanation: Markup percentage = (Retail price - Cost of merchandise)/Retail price = (15 -
2)/15 = 13/15 = 0.8666 = 87%
Bloom's: Apply
31) The ________ is the difference between the retail price and the cost of an item.
A) markup
B) markdown
C) break-even point
D) variable cost
E) fixed cost
Answer: A
Explanation: The markup is the difference between the retail price and the cost of an item. Thus,
if a sporting goods retailer buys a tennis racket for $75 and sets the retail price at $125, the
markup is $50.
Bloom's: Remember
AACSB: Analytic
14
32) Frankie is a buyer for a department store and is buying some handbags at a cost of $30 from
a vendor. He desires to have a 60 percent markup to meet the financial goals of this category.
What will be the retail price of these handbags?
A) $75
B) $40
C) $50
D) $60
E) $95
Answer: A
Explanation: Retail price = cost/(1 - markup percentage) = 30/(1 - 0.6) = 30/0.4 = 75
Bloom's: Apply
33) Which of the following factors influences reductions?

A) The cost of alterations
B) The amount subtracted from the gross margin
C) Theft and accounting errors
D) Tax write-off for corporate volunteer hours
E) Format of saving for low profit quarters
Answer: C
Explanation: Discounts are given to employees, and some merchandise is lost to theft and
accounting errors (inventory shrinkage). These factors that reduce the actual selling price from
the initial sales price are called reductions.
Bloom's: Understand
AACSB: Analytic
15
34) The approach of using a 50 percent markup is known as ________ and would result in the
retail price being double the cost.
A) activity costing
B) keystoning
C) budget costing
D) cost plus costing
E) regular costing
Answer: B
Explanation: If an apparel retailer used a 50 percent markup, an approach referred to as
keystoning, the retail price would be double the cost.
Bloom's: Remember
AACSB: Analytic
35) Joe keystones every product's price in his skateboard store. Therefore, the initial mark-up
percent that Joe uses is
A) 25 percent.
B) 50 percent.
C) 100 percent.
D) 10 percent.
E) 200 percent.
Answer: B
Explanation: If an apparel retailer used a 50 percent markup, an approach referred to as
keystoning, the retail price would be double the cost.
Bloom's: Understand
AACSB: Analytic
16
36) ________ is the actual sales realized for the merchandise minus its costs of the merchandise
sold.
A) Total profit
B) Net profit margin
C) Fixed price
D) Maintained markup
E) Initial markup
Answer: D
Explanation: The maintained markup is the actual sales realized for the merchandise minus its
costs. It is the amount of profit realized from merchandising decisions.
Bloom's: Remember
AACSB: Analytic
37) The Bow Shop caters to archery enthusiasts. It sells bows starting at $300. The maintained
markup used by the store is 60 percent. Reductions are estimated to be 12 percent. Calculate the
store's planned initial markup percentage.
A) 55.55 percent
B) 48 percent
C) 60 percent
D) 64.29 percent
E) 72 percent
Answer: D
Explanation: The relationship between the initial and maintained markup percentages is:
The initial markup is the retail selling price initially set for the merchandise minus the cost of the
merchandise.
Bloom's: Apply
17
38) Mattie owns a clock shop featuring vintage clocks from the 1950s. Mattie plans to achieve a
40% maintained markup, and her reductions are planned at 4%. What is her planned initial
markup percentage?
A) 42.3%
B) 44%
C) 36%
D) 34.6%
E) 30.6%
Answer: A
Explanation: The relationship between the initial and maintained markup percentages is:
The initial markup is the retail selling price initially set for the merchandise minus the cost of the
merchandise.
Bloom's: Apply
39) Left Lanta is a small retailer in Underground Atlanta, a historical retail district in that city.
Here, the Lanta family sells items for left-handed people. Since the store is located in a kiosk
near one of the entrances to the underground, it is often the target of shoplifters. Therefore, the
store is forced to reduce the actual selling price of its products. The factors such as theft that
cause the reduction in the selling price are called
A) loss margins.
B) amortized losses.
C) reductions.
D) markdowns.
E) net losses.
Answer: C
Explanation: Discounts are given to employees, and some merchandise is lost to theft and
accounting errors (inventory shrinkage). These factors that reduce the actual selling price from
the initial sales price are called reductions.
Bloom's: Apply
18
40) A bookstore is considering stocking a limited edition of Alice in Wonderland dolls at a cost
of $125 each. The manager calculated the retail price with an initial markup percentage of 48
percent and plans to ticket the product with a ".00" ending. What would be the initial retail price
on the doll?
A) $180
B) $190
C) $240
D) $280
E) $63
Answer: C
Explanation: Retail price = Cost of merchandise/(1 - Markup percentage) = $125/.52 = $240
Bloom's: Apply
41) The retail price of a sweater is $75, and the initial markup is 51 percent. Calculate the cost of
the product.
A) $33.75
B) $25.71
C) $28.50
D) $36.75
E) $42.85
Answer: D
Explanation: Cost of merchandise = Retail price * (1 - initial markup percentage) = $75 * .49 =
$36.75.
Bloom's: Apply
19
42) The merchandise cost from the vendor for an MP3 player is $82.50, and the retailer who is
selling the device wants to use an initial markup percentage of 67 percent. Calculate the initial
retail price.
A) $149.50
B) $272
C) $55
D) $123
E) $250
Answer: E
Explanation: Retail price = Cost/(1 - Markup percentage) = $82.50/.33 = $250
Bloom's: Apply
43) Because of markdowns, discounts to employees and customers, and merchandise reductions,
A) the actual selling price is lower than the initial sales price.
B) the maintained markup is always less than the gross margin.
C) the total revenue becomes equal to the total cost.
D) the value of average inventory at cost is less than its receipt value.
E) the initial markup is always lower than the maintained markup.
Answer: A
Explanation: Retailers rarely sell all items at the initial price. They frequently reduce the price of
items for special promotions or to get rid of excess inventory at the end of a season. In addition,
discounts are given to employees, and some merchandise is lost to theft and accounting errors
(inventory shrinkage). These factors that reduce the actual selling price from the initial sales
price are called reductions. Thus, there is a difference between the initial markup and the
maintained markup.
Bloom's: Understand
20
44) ________ is an analytical tool that enables retailers to know the number of units they need to
sell to begin making a profit.
A) Yield management
B) Break-even analysis
C) Keystoning
D) Price lining
E) Cost-plus pricing
Answer: B
Explanation: Break-even analysis determines, on the basis of fixed and variable costs, how
much merchandise needs to be sold to achieve a break-even (zero) profit. The break-even point
quantity is the quantity at which total revenue equals total cost, and then profit occurs for
additional sales.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
45) Which of the following is an example of a fixed cost for a bridal gown shop?
A) The services of the seamstress to fit each gown
B) The cost associated with dying the shoes to match the bridesmaids' dresses
C) The cost associated with the layaway of variously priced gowns
D) The cost of the mannequin used to display current gowns
E) The cost associated with a generous return policy
Answer: D
Explanation: A fixed cost is the cost that does not change with the quantity of product purchased
or sold. The mannequin was purchased and requires no further expense no matter how many
gowns it models.
Bloom's: Apply
AACSB: Analytic
21
46) Eunice buys a worm farm. She plans to sell a small carton of worms to people who want to
fish for $3. Her fixed costs are $1,201, and her variable cost for each carton sold is $.75. How
many cartons of worms does Eunice need to sell to reach her break-even quantity?
A) 2712
B) 321
C) 400
D) 534
E) 888
Answer: D
Explanation: Break-even quantity = Total fixed costs/(actual unit sales price - unit variable cost)
= 1201/(3 - .75) = 1201/2.25 = 533.78 = 534 cartons. The break-even point quantity is the
quantity at which total revenue equals total cost, and then profit occurs for additional sales.
Bloom's: Apply
47) Ferdinand runs a pie shop in a busy metropolis. He sells his fresh pies for $7, but it costs him
$2.50 to make them. The cooking equipment in his shop cost him $46,000. How many pies does
Ferdinand need to sell to make $50,000 annually?
A) 33,000 pies
B) 16,000 pies
C) 8,500 pies
D) 21,333 pies
E) 12,645 pies
Answer: D
Explanation: Break-even quantity = Fixed cost/(Actual unit sales price - Unit variable cost) =
($46,000 + $50,000)/($7 - $2.5) = 21,333 pies. The break-even point quantity is the quantity at
which total revenue equals total cost, and then profit occurs for additional sales.
Bloom's: Apply
22
48) Which of the following is an example of a variable cost for a retailer of electronic
equipment?
A) The display tables for mounting the computer, monitor, and printer
B) The cost associated with the free pack of paper for every computer printer sold
C) The store rent charged by the mall
D) The cost of obtaining the licenses required by the local government
E) The cost of manufacturing the electronic equipment
Answer: B
Explanation: The variable cost is the retailer's expenses that vary directly with the quantity of
product produced and sold. Variable costs often include direct labor and materials used in
producing the product.
Bloom's: Apply
49) Reductions in the initial retail prices are known as

A) rain checks.
B) fixed costs.
C) markdowns.
D) variable costs.
E) keystoning prices.
Answer: C
Explanation: Markdowns are the reductions in the initial retail prices. Retailers' reasons for
taking markdowns can be classified as either clearance (to dispose of merchandise) or
promotional (to generate sales).
Difficulty: 1 Easy
Topic: Markdowns
Bloom's: Remember
AACSB: Analytic
23
50) Which of the following statements describes a situation in which markdowns would not be
appropriate?
A) Markdowns would be appropriate on a pair of pillows that had been part of a display and
were showing light wear.
B) Markdowns would be an appropriate pricing strategy for winter parkas that are still in stock in
March.
C) Markdowns would be appropriate for licensed merchandise supporting a movie that was not
as popular as predicted.
D) Markdowns would be appropriate for national brand merchandise that was priced 15 percent
lower in a neighboring competing store.
E) Markdowns would be appropriate for a group of T-shirts that have a higher turnover than
other T-shirts in the department.
Answer: E
Explanation: Markdowns are applicable for slow-selling merchandise that decreases inventory
turnover.
Topic: Markdowns
Bloom's: Apply
51) Which of the following statements is not true of markdowns?

A) Markdowns are part of the cost of doing business, and thus buyers plan for them.
B) A buyer's objective is to minimize markdowns.
C) Retailers have a set of arbitrary rules for taking markdowns.
D) Buyers employ markdowns to promote merchandise and increase sales.
E) Markdowns can increase customer traffic flow.
Answer: B
Explanation: A buyer's objective isn't to minimize markdown, but rather to manage the
markdowns. If markdowns are too low, the buyer is probably pricing the merchandise too low,
not purchasing enough merchandise, or not taking enough risks with the merchandise being
purchased.
Topic: Markdowns
Bloom's: Understand
24
52) Which of the following statements on markdowns is false?
A) Markdowns are an unnecessary part of business if planned correctly.
B) Markdowns are an opportunity to increase sales.
C) Promotional markdowns increase customer flow.
D) If markdowns are too low, the buyer may be not purchasing enough merchandise.
E) If markdowns are too low, the buyer may be pricing their merchandise too low.
Answer: A
Explanation: Markdowns are part of the cost of doing business, and thus buyers plan for them.
They tend to order more fashion merchandise than they forecast actually selling because they are
more concerned about underordering and stocking out of a popular item before the end of the
season than about overordering and having to discount excess merchandise at the end of the
season.
Topic: Markdowns
Bloom's: Understand
53) Which of the following statements is a limitation of the rule-based approach to taking
markdowns?
A) The rule-based approach is based upon gross margin.
B) The approach prohibits input from the vendor.
C) The approach does not follow a fixed schedule.
D) It does not consider the demand for merchandise at different price points.
E) The approach assumes that items in a category do not exhibit the same behavior.
Answer: D
Explanation: The rule-based approach does not consider the demand for the merchandise at
different price points or in different locations and thus produces less-than-optimal profits.
Topic: Markdowns
Bloom's: Understand
25
54) How does optimization software help retailers in taking markdowns?
A) It gives retailers the point at which it is optimal to job-out and consolidate.
B) It updates pricing based upon actual sales and factors in differences in price sensitivities.
C) It continually updates buyers on sales by price beginning at the point of sale.
D) It dictates markdown merchandise into one percentage markdown per week in the store.
E) It indicates markdowns based on how long the merchandise has been in the store.
Answer: B
Explanation: Optimization software works by continually updating its pricing forecasts on the
basis of actual sales throughout the season and factoring in differences in price sensitivities. Each
week, as new sales data become available, it readjusts the forecasts to include the latest
information.
Topic: Markdowns
Bloom's: Understand
AACSB: Analytic
55) When making a good markdown decision, a retailer should

A) work closely with its vendors and share the financial burden of the markdowns.
B) only trust its own tastes and intuitions when stocking merchandise.
C) rely exclusively on computer software designed for optimal pricing.
D) consider only the rules-based approach because it has proven its reliability.
E) look to limit markdowns as they hinder customer loyalty.
Answer: A
Explanation: Vendors have a partnering relationship with their retailers and thus a vested
interest in their success. Vendors that are knowledgeable about the market and competition can
help with stock selections.
Topic: Markdowns
Bloom's: Understand
26
56) Some retailers liquidate end-of-season merchandise to retailers like TJ Maxx, who in return
sell it at a deep discount. What is the benefit to the retailer who liquidates merchandise using this
strategy?
A) The retailer is able to replace the merchandise with other markdowns.
B) It helps retailers recoup a percentage of the merchandise cost.
C) It is a profitable way for retailers to get rid of undesirable merchandise.
D) The retailer can consolidate the merchandise.
E) It lowers the reputation of the company who purchases the liquidated merchandise.
Answer: B
Explanation: This approach for liquidating unsold merchandise only enables retailers to recoup a
small percentage of the merchandise's cost—often a mere 10 percent.
Topic: Markdowns
Bloom's: Understand
AACSB: Analytic
57) Which of the following statements does not describe a benefit of markdowns for a retailer?
A) Markdowns generate cash flow to pay for new merchandise.
B) It is a way to make room for new merchandise.
C) It rids the store of obsolete merchandise.
D) It increases customer traffic.
E) It is a way to gain a higher gross margin.
Answer: E
Explanation: Markdowns result in a low gross margin. Markdown money refers to funds a
vendor gives the retailer to cover lost gross margin dollars that result from markdowns and other
merchandising issues.
Topic: Markdowns
Bloom's: Understand
27
58) Jenny runs a produce stand in an inner-city neighborhood. With the recent layoffs, she has
become popular because she gives her day-old produce to the local charity. Which of the
following benefits does Jenny gain by donating produce to the local charity?
A) It requires extra record keeping and transportation costs.
B) It offers her strong public relations benefits.
C) She needs to allocate separate space for her clearance merchandise.
D) She can recover a small percentage of the merchandise's cost.
E) The keystone price can be deducted from her income.
Answer: B
Explanation: Charitable giving is always a good corporate practice. It is a way of giving back to
the community and has strong public relations benefits.
Topic: Markdowns
Bloom's: Apply
59) Which of the following is not a viable strategy for liquidating markdown merchandise?
A) Sell to another retailer.
B) Consolidate unsold merchandise.
C) Adopt a keystoning strategy.
D) Sell at Internet auction.
E) Return to vendor.
Answer: C
Explanation: There are many strategies to liquidate unsold merchandise, including consolidating
to a single location, selling the merchandise to an off-price retailer, donating the merchandise to
charity, returning it to the vendor, selling at Internet auctions, or carrying merchandise over to
the next season.
Difficulty: 1 Easy
Topic: Markdowns
Bloom's: Understand
28
60) Which of the following is the least profitable method of liquidating markdown merchandise?
A) Sell the merchandise to another retailer.
B) Consolidate the unsold merchandise.
C) Place the remaining merchandise on an Internet auction site.
D) Give the merchandise to charity.
E) Carry the merchandise over to the next season.
Answer: E
Explanation: It is not profitable to carry over merchandise because of excessive inventory
carrying costs and the potential of having the merchandise look "shopworn" or outdated.
Topic: Markdowns
Bloom's: Understand
61) Manuel's vacation to Chicago for $1,000 for three nights in a four-star hotel on Michigan
Avenue included airfare and accommodation. If these services were availed individually, it
would have been more expensive. This form of pricing is referred to as
A) odd pricing.
B) zone pricing.
C) leader pricing.
D) price bundling.
E) variable bundling.
Answer: D
Explanation: Price bundling is the practice of offering two or more different products or services
for sale at one price. For instance, McDonald's offers a bundle of a sandwich, French fries, and a
soft drink in an Extra Value Meal at a discount compared with buying the items individually.
Difficulty: 1 Easy
profits.
Bloom's: Apply
AACSB: Analytic
29
62) ________ is the practice of offering two or more different products or services for sale at one
price.
A) Price bundling
B) Psychological pricing
C) Price grouping
D) Conjoint bundling
E) Price lining
Answer: A
Difficulty: 1 Easy
profits.
Bloom's: Remember
AACSB: Analytic
63) A travel brochure shows that a couple can buy a round trip ticket to Orlando, a three-day
pass to Disney World, car rental for four days, and hotel accommodations for 5 nights for $1200
per person. These services are more expensive when availed individually. This offer is an
example of
A) price lining.
B) psychological pricing.
C) bait and switch bundling.
D) price bundling.
E) conjoint pricing.
Answer: D
Difficulty: 1 Easy
profits.
Bloom's: Apply
AACSB: Analytic
30
64) What is the potential byproduct of promotional markdowns?
A) It is a way of achieving a break-even point.
B) Promotional markdowns benefit customers because they are charged according to their
willingness to pay.
C) Retailers aim to get rid of unwanted merchandise through promotional markdowns.
D) The increased in-store traffic can lead to the purchase of other products at regular prices.
E) Buyers are benefitted because they are charged according to the market segment to which
they belong.
Answer: D
Explanation: Markdowns can increase customer traffic flow. Retailers plan promotions in which
they take markdowns for holidays, for special events, and as part of their overall promotional
program. Retailers hope that customers will purchase other products at regular prices while
they're in the store.
profits.
Bloom's: Understand
65) Giant, a retail store, is offering two 6-packs of beer for $14.50. The price for a single 6-pack
is $8.69. What pricing strategy is Giant using?
A) Price lining
B) Multiple-unit pricing
C) Psychological pricing
D) Price bundling
E) Conjoint pricing
Answer: B
Explanation: The term multiple-unit pricing, or quantity discounts, refers to the practice of
offering two or more similar products or services for sale at one lower total price. For example, a
convenience store may sell three one-liter bottles of soda for $2.39 when the price for a single
one-liter is 99 cents—a saving of 58 cents.
profits.
Bloom's: Apply
AACSB: Analytic
31
66) ________ refers to charging different prices for different stores, markets, or regions.
A) Zone pricing
B) Geofencing
C) Price lining
D) Price optimization
E) Odd pricing
Answer: A
Explanation: Zone pricing is the practice of charging different prices in different stores, markets,
regions, or zones. Retailers generally use zone pricing to address different competitive situations
in their various markets.
Difficulty: 1 Easy
profits.
Bloom's: Remember
AACSB: Analytic
67) ________ is the practice of pricing certain items lower than normal to increase customers'
traffic flow or boost sales of complementary products.
A) Stimulus pricing
B) Leader pricing
C) Follow-up pricing
D) Price lining
E) Odd pricing
Answer: B
Explanation: Leader pricing is pricing certain items lower than normal to increase customers'
traffic flow or boost sales of complementary products. The best items for leader pricing are
frequently purchased products like white bread, milk, and eggs or well-known brand names like
Coca-Cola and Kellogg's Corn Flakes.
profits.
Bloom's: Remember
AACSB: Analytic
32
68) Dream Homes is an appliance store. It recently launched its own brand of freezers in order to
build customer loyalty. The store launched three different models to cater to low-, middle-, and
high-income groups. The freezers are also priced accordingly. These freezers are exclusive to
Dream Homes and cater to all customer segments. This pricing strategy involving price points
within a merchandise category is known as
A) price lining.
B) price bundling.
C) odd pricing,
D) zone pricing.
E) leader pricing.
Answer: A
Explanation: Retailers frequently offer a limited number of predetermined price points within a
merchandise category, a practice known as price lining. For instance, because Kroger's vision for
its store brands is to build loyalty among customers, with strong store brands that are exclusive
to the retailer, it pursues a price lining store-brand strategy to provide Kroger products to all
customer segments.
profits.
Bloom's: Apply
69) Why was odd pricing used in the early twentieth century?
A) Odd pricing saved on distribution costs.
B) It was used to increase traffic flow into stores.
C) It offered a limited number of predetermined price points making pricing easier.
D) It eliminated confusion when a customer shopped in different locations.
E) It reduced losses due to employee theft.
Answer: E
Explanation: Odd pricing was initially used to reduce losses due to employee theft. Because
merchandise had an odd price, salespeople typically had to go to the cash register to give the
customer change and record the sale, making it more difficult for salespeople to keep the
customer's money.
profits.
Bloom's: Understand
AACSB: Analytic
33
70) At the new toy store that opened near his home, Ryan noticed all the products were priced at
$.49, $.79, or $.99 endings. What type of pricing is the store following?
A) Odd pricing
B) Unit pricing
C) Horizontal pricing
D) Mixed pricing
E) Promotional pricing
Answer: A
Explanation: Odd pricing refers to the practice of using a price that ends in an odd number,
typically a 9.
Difficulty: 1 Easy
profits.
Bloom's: Apply
AACSB: Analytic
71) Which of the following is set by vendors by withholding benefits such as cooperative
advertising or even refusing to deliver merchandise to noncomplying retailers?
A) Predatory pricing
B) Horizontal pricing
C) Bait and switch
D) Vertical pricing
E) MSRP pricing
Answer: E
Explanation: Vendors set MSRPs to reduce retail price competition among retailers and
stimulate retailers to provide complimentary services. Vendors enforce MSRPs by withholding
benefits such as cooperative advertising or even refusing to deliver merchandise to
noncomplying retailers.
Difficulty: 1 Easy
setting prices.
Bloom's: Remember
AACSB: Analytic
34
72) ________ is an unlawful, deceptive practice that lures customers into a store by advertising a
product at a lower-than-normal price and then, once they are in the store, induces them to
purchase a higher-priced model.
A) Predatory pricing
B) Horizontal price fixing
C) Bait and switch
D) Scanned pricing
E) Dynamic pricing
Answer: C
Explanation: Bait and switch is an unlawful, deceptive practice that lures customers into a store
by advertising a product at a lower-than-normal price (the bait) and then, once they are in the
store, induces them to purchase a higher-priced model (the switch). Bait and switch usually
involves the store either having inadequate inventory for the advertised product or pushing
salespeople to disparage the quality of the advertised model and emphasize the superior
performance of a higher-priced model.
Difficulty: 1 Easy
setting prices.
Bloom's: Remember
AACSB: Ethics
73) Why do vendors encourage retailers to sell at MSRP?

A) To secure a profit
B) To reduce retail price competition among retailers
C) To avoid markdowns
D) To promote national brands as quality brands
E) To drive competitive retailers out of business
Answer: B
Explanation: Vendor set MSRPs to reduce price competition in the market and to encourage
retailers to differentiate themselves on service and other attributes rather than price.
setting prices.
Bloom's: Understand
AACSB: Ethics
35
74) A ________ is a promise to customers to sell currently out-of-stock merchandise at the
advertised price when it arrives.
A) rain check
B) price audit
C) bona fide reference price
D) maintained markup
E) dynamic pricing policy
Answer: A
Explanation: To avoid disappointing customers and risking problems with the Federal Trade
Commission (FTC), the retailer should have sufficient inventory of advertised items and offer
customers rain checks if stockouts occur. A rain check is a promise to customers to sell currently
out-of-stock merchandise at the advertised price when it arrives.
setting prices.
Bloom's: Remember
AACSB: Analytic
75) Which of the following pricing practices employs tactics such as inadequate inventory for
advertised products?
A) Bait and switch
B) Deceptive reference pricing
C) MSRP pricing
D) Predatory pricing
E) Horizontal price fixing
Answer: A
Explanation: Bait and switch usually involves the store either having inadequate inventory for
the advertised product or pushing salespeople to disparage the quality of the advertised model
and emphasize the superior performance of a higher-priced model.
setting prices.
Bloom's: Remember
36
76) An agreement between retailers that are in direct competition with each other to set the same
prices is called
A) horizontal price fixing.
B) vertical price fixing.
C) MSRP pricing.
D) predatory pricing.
E) price elasticity.
Answer: A
Explanation: Horizontal price fixing involves agreements between retailers that are in direct
competition with each other to set the same prices. This practice clearly reduces competition and
is illegal.
Difficulty: 1 Easy
setting prices.
Bloom's: Remember
AACSB: Ethics
77) A ________ is the price against which buyers compare the actual selling price of the product,
and thus it facilitates their evaluation process.
A) MSRP price
B) break-even price
C) markup price
D) reference price
E) maintained markup
Answer: D
Explanation: A reference price is the price against which buyers compare the actual selling price
of the product, and thus it facilitates their evaluation process. Typically, the retailer labels the
reference price as the "regular price" or "original price."
setting prices.
Bloom's: Remember
AACSB: Analytic
37
78) Periodic price audits are completed at retail stores to ensure that the
A) prices are high enough to cover costs.
B) prices are lower than the competition.
C) extent and cause of scanning errors are identified.
D) product is priced consistent with the company's pricing policy.
E) retailer is not engaging in horizontal price fixing.
Answer: C
Explanation: Periodic price audits are an essential component of good pricing practices to be
certain that the posted prices are the same when scanned at the register. Price audits of a random
sample of items should be done periodically to identify the extent and cause of scanning errors
and develop procedures to minimize errors.
setting prices.
Bloom's: Understand
AACSB: Analytic
79) What are the strengths of operating with a high/low pricing strategy?
Answer: The high/low pricing strategy has the following advantages:

(1) Increases profits.
(2) Creates excitement.
(3) Sells slow-moving merchandise.
Bloom's: Understand
80) What are five factors retailers consider in setting retail prices?
Answer: Five factors that retailers must consider when setting prices are: (1) the price sensitivity
of consumers; (2) competition; (3) the pricing of services; (4) analytical factors such as cost,
break-even points, pricing software, and Internet, mobile, and social; and (5) legal and ethical
issues.
Bloom's: Understand
38
81) Describe the difference between initial markup and maintained markup.
Answer: The initial markup is the retail selling price initially set for the merchandise minus the
cost of the merchandise. The maintained markup is the actual sales realized for the merchandise
minus its costs.
Bloom's: Understand
82) What are the limits of the rule-based approach of taking markdowns?
Answer: The rule-based approach of taking markdowns is limiting because it does not consider
the demand for the merchandise at different price points or in different locations and thus
produces less-than-optimal profits.
Topic: Markdowns
Bloom's: Understand
83) How can working with vendors reduce the number of markdowns?
Answer: Vendors have a partnering relationship with their retailers and thus a vested interest in
their success. Vendors are knowledgeable of the market and competition and can help with stock
selection. Retailers also work closely with vendors to coordinate deliveries and help share the
financial burden of taking markdowns.
Topic: Markdowns
Bloom's: Understand
39
84) What are the ways markdown merchandise can be consolidated?
Answer: Markdown merchandise can be consolidated in a number of ways. (1) The

consolidation can be made into one or a few of the retailer's regular locations. (2) The markdown
merchandise can be consolidated into another retail chain or an outlet store under the same
ownership. (3) Markdown merchandise can be shipped to a distribution center or a rented space
such as a convention center for final sale.
Difficulty: 1 Easy
Topic: Markdowns
Bloom's: Understand
85) Describe geofencing.
Answer: Today, growing numbers of consumers are opting into services provided by various
mobile firms and their applications to receive mobile offers. The latest generation of price
promotional offers takes into account the consumers' geographical location that is accessed from
their phone location or locational coding via certain sites and offers them localized promotions
for retailers who are in close proximity. This concept is called geofencing.
Bloom's: Understand
86) What legal and ethical pricing issues need to be considered when retailers set their prices?
Answer: Retailers consider certain legal and ethical issues when setting prices. Issues include
resale price maintenance, horizontal price fixing, predatory pricing, bait-and-switch tactics,
scanned versus posted prices, and deceptive reference prices.
setting prices.
Bloom's: Understand
AACSB: Ethics; Communication
40
87) How are retailers affected by scanning errors? What are the measures taken to minimize
these errors?
Answer: In general, retailers lose money from scanning errors because the scanned price is
below the posted price. However, consumer groups and state's attorney generals' offices do find
and pursue price discrepancies in retailers' favor. Periodic price audits are an essential
component of good pricing practices. Price audits of a random sample of items should be done
periodically to identify the extent and cause of scanning errors and develop procedures to
minimize errors.
Difficulty: 1 Easy
setting prices.
Bloom's: Understand
41
Chapter 14 Retail Communication Mix
1) In TV advertising, "spots" have relatively large audiences, but they are expensive for local
retailers.
Answer: FALSE
Explanation: Spots have relatively small audiences, but they may be economical for local
retailers.
Difficulty: 1 Easy
Topic: Traditional Media Elements
Learning Objective: 14-02 Identify the traditional media elements.
Bloom's: Remember
2) A premium offers an item for free or at a bargain price to reward some type of behavior, such
as buying, sampling, or testing.
Answer: TRUE
Explanation: A premium offers an item for free or at a bargain price to reward some type of
behavior, such as buying, sampling, or testing.
Difficulty: 1 Easy
Bloom's: Remember
3) M-commerce is the buying and selling of goods and services through wireless handheld
devices.
Answer: TRUE
Explanation: Mobile marketing, also called m-commerce, is marketing through wireless
handheld devices such as cellular telephones, and m-commerce or mobile commerce involves
completing a transaction via the cell phone.
Difficulty: 1 Easy
Topic: New Media Elements
Learning Objective: 14-01 Identify the new media elements.
Bloom's: Remember
1
4) Sentiment analysis is the process of analyzing social media to assess people's overall attitudes
and preferences for products, brands, and marketing.
Answer: TRUE
Explanation: Sentiment analysis is the process of analyzing data posted on social media sites to
assess customers' overall valence (positive, neutral and negative) and their intensity of their
sentiments and can be used to understand overall attitudes and preferences for products and
advertising campaigns.
Difficulty: 1 Easy
Bloom's: Remember
5) On a blog, an individual blogger or a group of users regularly post their opinions and various
topical information on a web page.
Answer: TRUE
Explanation: On a blog (weblog), an individual blogger or a group of users regularly post their
opinions and various topical information on a web page.
Difficulty: 1 Easy
Bloom's: Remember
6) When retailers and vendors use product placement, they pay to have their product included in
nontraditional situations, such as in a scene in a movie or television program.
Answer: TRUE
Explanation: When retailers and vendors use product placement, they pay to have their product
included in nontraditional situations, such as in a scene in a movie or television program.
Difficulty: 1 Easy
Bloom's: Remember
2
7) Marketers can use search engine marketing to improve the visibility of their websites in
customers' searches online.
Answer: TRUE
Explanation: Retailers are actively using search engine marketing (SEM) to improve the
visibility of their websites in searches.
Difficulty: 1 Easy
Bloom's: Remember
8) Communication objectives are specific goals related to the retail communication mix's effect
on the customer's decision-making process.
Answer: TRUE
Explanation: Communication objectives are specific goals related to the retail communication
mix's effect on the customer's decision-making process.
Difficulty: 1 Easy
Topic: Planning the Retail Communication Program
Learning Objective: 14-03 List the steps involved in developing a communication program.
Bloom's: Remember
9) A cooperative (co-op) program is a promotional program undertaken by a vendor and a

retailer working together.
Answer: TRUE
Explanation: A cooperative (co-op) program is a promotional program undertaken by a vendor
and a retailer working together.
Difficulty: 1 Easy
Bloom's: Understand
3
10) The objective-and-task method uses past sales and communication activities to determine the
present communication budget.
Answer: FALSE
Explanation: The objective-and-task method determines the budget required to undertake
specific tasks to accomplish communication objectives. To use this method, the retailer first
establishes a set of communication objectives and then determines the necessary tasks and their
costs. The total of all costs incurred to undertake the tasks is the communication budget.
Difficulty: 1 Easy
Bloom's: Understand
11) What can a retailer do to keep customers from being confused about the retailer's image?
A) Develop an integrated marketing communication program to deliver a consistent message.
B) Standardize pricing across all geographic locations.
C) Change the offerings based on the current fads to stay contemporary.
D) Re-design stores to suit contemporary tastes.
E) Be consistent in competitiveness as it clearly defines top performers in the market.
Answer: A
Explanation: Retailers need to develop an integrated marketing communication program that is
consistent across all channels.
Difficulty: 1 Easy
Bloom's: Understand
4
12) A retailer's magazine advertising campaign builds an image of elegance and high fashion, yet
the store's sales promotions emphasize low prices. Because of the inconsistencies, consumers are
left confused about the retailer's image and tend to shop elsewhere. What should the store
manager do to resolve the problem of inconsistency with the communication mix?
A) The manager should re-train associates to support the image of elegance and fashion.
B) The manager should re-examine the elements of the mix that can be eliminated.
C) The manager should imitate the communication programs of successful competitors.
D) The manager should reduce the prices of the products across all categories.
E) The manager should develop an integrated marketing communication program.
Answer: E
Explanation: Integrated marketing communication programs that are comprehensive and
consistent are most effective.
Difficulty: 1 Easy
Bloom's: Apply
13) ________ entails the placement of announcements and persuasive messages purchased by
retailers and other organizations that seek to inform and/or persuade members of a particular
target market or audience about their products, services, organizations, or ideas.
A) Market research
B) Coolhunting
C) Advertising
D) Market overhang
E) Journalism
Answer: C
Explanation: Advertising entails the placement of announcements and persuasive messages
purchased by retailers and other organizations that seek to inform and/or persuade members of a
particular target market or audience about their products, services, organizations, or ideas.
Difficulty: 1 Easy
Bloom's: Remember
5
14) Which among the following is the largest group of national advertisers in the United States?
A) Real estate industry
B) Retail industry
C) Consumer electronics industry
D) Health care industry
E) Automobile industry
Answer: E
Explanation: Automobile manufacturers are the largest group of national advertisers in the
United States.
Difficulty: 1 Easy
Bloom's: Remember
15) Retailers are the ________ group of national advertisers in the United States.
A) third-largest
B) second-largest
C) sixth-largest
D) fourth-largest
E) fifth-largest
Answer: B
Explanation: After automobile manufacturers, retailers are the second-largest group of national
advertisers, spending more than $15 billion annually.
Difficulty: 1 Easy
Bloom's: Remember
6
16) Which of the following is a reason for the decline in the growth of newspaper advertising by
retailers?
A) The retailers have begun using other media
B) The increasing cost of developing an advertisement for newspapers
C) The decreasing market penetration of the newspaper industry
D) The time taken to develop an advertisement for newspapers
E) The depleting credibility of newspaper organizations
Answer: A
Explanation: Retailing and newspaper advertising grew up together over the past century. But
the growth in newspaper advertising by retailers has slowed recently as retailers have begun
using other media.
Difficulty: 1 Easy
Bloom's: Understand
17) A freestanding insert (FSI) is also called a(n)

A) preprint.
B) cogprint.
C) reprint.
D) postprint.
E) eprint.
Answer: A
Explanation: A freestanding insert (FSI) is also called a preprint.
Difficulty: 1 Easy
Bloom's: Remember
7
18) ________ are advertisements printed at the retailer's expense and distributed as an insert in
the newspaper.
A) Cogprints
B) Preprints
C) Reprints
D) Postprints
E) Eprints
Answer: B
Explanation: Preprints, also called freestanding inserts, are advertisements printed at the
retailer's expense and distributed as an insert in the newspaper.
Difficulty: 1 Easy
Bloom's: Remember
19) Which of the following is a reason why retailers tend to use magazines for image
advertising?
A) Wider target audience
B) Extended shelf life
C) High readership
D) Low cost of advertising
E) High reproduction quality
Answer: E
Explanation: Retailers tend to use magazines for image advertising because the reproduction
quality is high.
Difficulty: 1 Easy
Bloom's: Remember
8
20) Which of the following has enabled retailers to personalize their direct mail to all customers?
A) Customer relationship management programs
B) Employee experience management programs
C) Employee feedback management programs
D) Partner relationship management programs
E) Sales force management programs
Answer: A
Explanation: Customer relationship management programs have enabled retailers to personalize
their direct mail to all customers.
Difficulty: 1 Easy
Bloom's: Understand
21) Janessa prefers high-end cosmetics, but she also likes a good deal. She only purchases her
make-up at department stores when they have a gift with purchase. Today she saw at Macy's that
if she buys $35 worth of Lancôme cosmetics she would receive a gift with purchase. This gift
with purchase is a form of which kind of sales promotion?
A) Premium
B) Rebate
C) Sample
D) Pop-up
E) Special event
Answer: A
Bloom's: Apply
9
22) A ________ offers an item for free or at a bargain price to reward some type of behavior,
such as buying, sampling, or testing.
A) rebate
B) premium
C) coupon
D) sample
E) cross sale
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
23) Which of the following is classified as in-store marketing?

A) Coupon
B) Rebate
C) Discount
D) Premium
E) Sample
Answer: E
Explanation: In-store marketing includes point-of-purchase displays, samples, and special
events.
Difficulty: 1 Easy
Bloom's: Remember
10
24) David visits a supermarket to buy milk and eggs. At the checkout counter, waiting to pay, he
impulsively picks up a magazine from one of the display shelves. Which of the following terms
best reflects the supermarket's strategy?
A) Rebate
B) Point-of-purchase display
C) Premium
D) Sample
E) Special event
Answer: B
Explanation: Point-of-purchase (POP) displays are merchandise displays located at the point of
purchase, such as at the checkout counter in a supermarket.
Difficulty: 1 Easy
Bloom's: Apply
25) Peter visits a local supermarket to buy groceries. While shopping, a sales executive
approaches him and enquires if he would be willing to try out a new brand of cookies. Which of
the following terms best reflects the supermarket's strategy?
A) Special event
B) Premium
C) Point-of-purchase display
D) Sample
E) Rebate
Answer: D
Explanation: Samples offer potential customers the opportunity to try a product or service before
they make a buying decision.
Difficulty: 1 Easy
Bloom's: Apply
11
26) The famous designer Isaac Mizrahi made a scheduled appearance at a to sign copies of his
book How to Have Style. This is an example of which type of communication method?
A) Special event
B) Samples
C) Rebates
D) Coupons
E) Premiums
Answer: A
Explanation: A special event can be a sales promotion built around a celebrity appearance with
the purpose to generate excitement and foot traffic to the store.
Difficulty: 1 Easy
Bloom's: Apply
27) The Macy's Thanksgiving Day Parade is an example of

A) samples.
B) event sponsorship.
C) rebates.
D) premiums.
E) point-of-purchase display.
Answer: B
Explanation: Event sponsorship occurs when companies support various activities (financially
or otherwise), usually in the cultural or sports and entertainment sectors.
Difficulty: 1 Easy
Bloom's: Apply
12
28) Target Field in Minneapolis, Minnesota, "Home of the Twins" baseball team, is an example
of which type of communication method?
A) Coupons
B) Event sponsorship
C) Rebates
D) Premiums
E) Point-of-purchase displays
Answer: B
Explanation: Event sponsorship occurs when companies support various activities (financially
or otherwise), usually in the cultural or sports and entertainment sectors.
Difficulty: 1 Easy
Bloom's: Apply
29) ________ is a communication process in which sales associates help customers satisfy their
needs through face-to-face exchanges of information.
A) Cold calling
B) Price-based selling
C) Target account selling
D) Solution selling
E) Personal selling
Answer: E
Explanation: Personal selling is a communication process in which sales associates help
customers satisfy their needs through face-to-face exchanges of information.
Difficulty: 1 Easy
Bloom's: Remember
13
30) Which of the following forms of communication is the most expensive?
A) Publicity
B) Salespeople
C) Advertising
D) Magazine
E) Newspaper
Answer: B
Explanation: The cost of personal selling is quite high compared to other forms of
communication.
Difficulty: 1 Easy
Bloom's: Understand
31) When a retailer makes a generous contribution to a charity and the event is covered on the
evening news, it would be a method of communicating through
A) public relations.
B) store atmospherics.
C) cooperative advertising.
D) product placement.
E) product premiums.
Answer: A
Explanation: Public relations (PR) involves managing communications and relationships to
achieve various objectives, such as building and maintaining a positive image of the retailer.
Bloom's: Apply
14
32) Target Corporation gives many millions of dollars to support education. Since 1962, Target
has committed 5 percent of its income to support local communities. Target uses ________ to
communicate their continued commitment to local communities.
A) public relations
B) brand awareness
C) cooperative advertising
D) brand placement
E) brand associations
Answer: A
Explanation: Public relations (PR) involves managing communications and relationships to
achieve various objectives, such as building and maintaining a positive image of the retailer.
Bloom's: Apply
33) Michael, an actor, plays the protagonist in a sitcom. As per his contractual obligations, he is
required to be seen drinking Fizzy Cola, a brand of soda pop, at least once in every episode.
Which of the following terms best reflects this situation?
A) Product placement
B) Sample
C) Rebate
D) Public relations
E) Personal selling
Answer: A
Explanation: When retailers and vendors use product placement, they pay to have their product
included in nontraditional situations, such as in a scene in a movie or television program.
Bloom's: Apply
15
34) A retailer has to confirm the receipt of an online shipping order to its customer. Which of the
following mediums is best suited for this purpose?
A) Blog
B) E-mail
C) Twitter
D) YouTube
E) Facebook
Answer: B
Explanation: Retailers use e-mail to inform customers of new merchandise and special
promotions, confirm the receipt of an order, and indicate when an order has been shipped.
Difficulty: 1 Easy
Bloom's: Apply
35) Target uses a Shopkick app to award points to customers who walk around a store and scan
products; they can redeem these points for various rewards. Which of the following technologies
will best suit this sales promotion?
A) M-commerce
B) Blog
C) Twitter
D) Facebook
E) LinkedIn
Answer: A
Explanation: Mobile communications are delivered through wireless handheld devices, such as
cellular telephones, and m-commerce or mobile commerce can involve completing a transaction
via the cell phone.
Difficulty: 1 Easy
Bloom's: Apply
16
36) A retailer has developed a promotional video for his business. Which of the following new
media platforms is best suited to host this video on the internet?
A) Facebook
B) Twitter
C) LinkedIn
D) YouTube
E) Gmail
Answer: D
Explanation: YouTube is a video-sharing social media platform. Users upload, share, view, and
comment on videos.
Difficulty: 1 Easy
Bloom's: Apply
37) Which of the following is classified as a microblog?

A) Facebook
B) Twitter
C) LinkedIn
D) Gmail
E) YouTube
Answer: B
Explanation: Twitter is a microblog—a short version of a blog—in which users are limited to
140-character messages.
Difficulty: 1 Easy
Bloom's: Remember
17
38) A retailer wants to announce up-to-date and fast-changing information to excite customers.
Which of the following platforms will best suit the retailer's needs?
A) Gmail
B) YouTube
C) LinkedIn
D) Facebook
E) Twitter
Answer: E
Explanation: Where a retailer may use Facebook to encourage discussions of their brand,
promotions, or even ask their "friends" to post videos, they are more likely to use Twitter to
announce up-to-date or fast-changing information to excite consumers.
Bloom's: Understand
39) Which of the following is typically the first step in developing a retail communication
program?
A) Determine a budget.
B) Implement programs.
C) Allocate the budget.
D) Establish objectives.
E) Evaluate programs.
Answer: D
Explanation: Establishing objectives is typically the first step in developing a retail
communication program.
Bloom's: Remember
18
40) Which of the following is typically the last step in developing a retail communication
program?
A) Implement and evaluate programs.
B) Establish objectives.
C) Determine a budget.
D) Allocate the budget.
E) Develop social media campaigns.
Answer: A
Explanation: Implementing and evaluating programs is typically the last step in developing a
retail communication program.
Bloom's: Remember
41) When developing a retail communication program, sales goals are set when the
A) objectives are established.
B) budget is determined.
C) budget is allocated.
D) program is implemented and evaluated.
E) program is proposed.
Answer: A
Explanation: When developing a retail communication program, sales goals are set when the
objectives are established.
Bloom's: Remember
19
42) When developing a retail communication program, communication objectives are set when
the
A) program is implemented and evaluated.
B) budget is determined.
C) objectives are established.
D) budget is allocated.
E) program is finished.
Answer: C
Explanation: When developing a retail communication program, communication objectives are
set when the objectives are established.
Bloom's: Remember
43) Which of the following is a well-stated communication program objective?

A) Increase sales over 12 months.
B) Increase awareness in our target market.
C) Reduce customer complaints.
D) Increase brand awareness by 15% in the next 6 months.
E) Communicate our customer service commitment to our customers.
Answer: D
Explanation: Communication objectives must be clearly stated in quantitative terms to be
effective in implementation and evaluation.
Bloom's: Understand
20
44) A(n) ________ is a promotional program undertaken by a vendor and a retailer working
together.
A) cooperative program
B) customer relationship management program
C) employee feedback management program
D) employee assistance program
E) work-life balance program
Answer: A
Explanation: A cooperative program is a promotional program undertaken by a vendor and a
Difficulty: 1 Easy
Bloom's: Remember
45) In a national print advertisement, Levi's was showcasing its new line of denim jackets. At the
bottom of the ad, the Macy's logo was found as a place where the new jackets could be
purchased by customers. This is an example of
A) co-op advertising.
B) partnering promotions.
C) a double truck.
D) a double pocket promotion.
E) a spot promotion.
Answer: A
Explanation: Cooperative advertising is a promotional program undertaken by a vendor and a
Difficulty: 3 Hard
Bloom's: Apply
21
46) A sporting goods retailer anticipates running a print advertisement campaign during the
beginning of the year in support of customers' anticipated New Year's resolutions to get in
physical shape. The sporting goods retailer asks its key vendors to partner with it in covering the
expenses of the ad campaign. Vendors agree to support the ________ as long as they are certain
that their products will be featured in the advertisements.
A) co-op advertising
B) partnering promotions
C) double truck
D) double pocket promotion
E) spot promotion
Answer: A
Explanation: Cooperative advertising is a promotional program undertaken by a vendor and a
Difficulty: 3 Hard
Bloom's: Apply
47) ________ is based on the economic principle that firms should increase communication
expenditures as long as each additional dollar spent generates more than a dollar of additional
contribution.
A) Objective-and-task analysis
B) Rule-of-thumb analysis
C) Marginal analysis
D) Affordable budgeting analysis
E) Percentage-of-sales analysis
Answer: C
Explanation: Marginal analysis is based on the economic principle that firms should increase
communication expenditures as long as each additional dollar spent generates more than a dollar
of additional contribution.
Bloom's: Remember
22
48) When developing a retail communication program, a marginal analysis takes place when
A) the budget is allocated.
B) the program is implemented and evaluated.
C) the objective is determined.
D) the budget is determined.
E) the budget is proposed.
Answer: D
Explanation: When developing a retail communication program, a marginal analysis takes place
when the budget is determined.
Bloom's: Remember
49) In most cases, which of the following is a reason why it is very hard to perform a marginal
analysis?
A) It causes a brain drain within the organization.
B) It is a very expensive and time-consuming process.
C) It is hard to acquire accurate sales data from within the organization.
D) It is hard to acquire accurate information on communication expenditure.
E) Managers don't know the relationship between communication and sales.
Answer: E
Explanation: In most cases, it's very hard to perform a marginal analysis because managers don't
know the relationship between communication expenses and sales.
Difficulty: 3 Hard
Bloom's: Understand
23
50) The ________ determines the budget required to undertake specific tasks to accomplish
communication objectives.
A) competitive parity method
B) percentage-of-sales method
C) affordable budgeting method
D) rule-of-thumb method
E) objective-and-task method
Answer: E
specific tasks to accomplish communication objectives.
Difficulty: 1 Easy
Bloom's: Remember
51) Luke was interested in developing a communication budget for the holistic vitamin shop he
will be opening in 30 days. He is planning a few promotional sales and will advertise through
local newspapers. With the available information, what method would be best for Luke to pursue
to develop his communication program?
A) Affordable method
B) Objective-and-task method
C) Percentage-of-sales method
D) Competitive-parity method
E) Developmental method
Answer: B
specific tasks to accomplish communication objectives.
Difficulty: 3 Hard
Bloom's: Apply
24
52) The ________ uses past sales and communication activities to determine the present
communication budget.
A) percentage-of-sales method
B) rule-of-thumb method
C) gross margin percent
D) percentage-of-profit
E) break even method
Answer: B
Explanation: The rule-of-thumb method uses past sales and communication activities to
determine the present communication budget.
Bloom's: Remember
53) When retailers use the ________ method, it is easiest to cut communication program
expenses if retail sales fail to meet the sales plan rather than increasing the communication
expenses to try and generate additional sales.
A) affordable budgeting
B) objective-and-task
C) percentage-of-sales
D) competitive parity
E) marginal analysis
Answer: A
Explanation: Because the affordable method sets the communication budget by determining
what money is available after operating costs and profits are subtracted, when sales decrease,
then communication program expenses would also decrease.
Difficulty: 3 Hard
Bloom's: Understand
25
54) The ________ method uses the difference between the forecasted sales and the expenses plus
the desired profit for the communication budget.
Answer: A
Explanation: The affordable method sets the communication budget by determining what money
is available after operating costs and profits are subtracted.
Bloom's: Remember
55) The ________ method assumes that communication expenses are just a cost of business and
do not promote sales and profit.
Answer: A
Explanation: The affordable method sets the communication budget by determining what money
is available after operating costs and profits are subtracted.
Difficulty: 3 Hard
Bloom's: Understand
26
56) Retailers use ________ to determine the communication budget by forecasting sales during
the budget period and then applying a predetermined percentage to set the budget.
A) percentage-of-profit
B) competitive parity method
C) marginal analysis method
D) percentage-of-sales method
E) affordable budgeting method
Answer: D
Explanation: Retailers use percentage-of-sales method to determine the communication budget
by forecasting sales during the budget period and then applying a predetermined percentage to
set the budget.
Bloom's: Understand
57) For a multi-chain's new store location, the most inappropriate communication program
budget method would be
A) affordable budgeting.
B) objective-and-task.
C) percentage-of-sales.
D) competitive parity.
E) marginal analysis.
Answer: C
Explanation: A percentage-of-sales may not be appropriate for all stores including the new store
location. A new store location needs extra funding to spend on generating customer awareness.
Difficulty: 3 Hard
Bloom's: Understand
27
58) Which method for determining a communication method helps to ensure that the retailer will
not spend beyond its means?
A) Break-even analysis method
B) Objective-and-task method
C) Percentage-of-sales method
D) Competitive parity method
E) Marginal analysis method
Answer: C
Explanation: Because the level of spending is determined by sales, the budget will go up only
when sales go up and the retailer then generates more sales to pay for the additional
communication expenses.
Bloom's: Understand
59) Under the competitive parity method, the communication budget is set so that
A) sales forecasts will not affect the budget.
B) it resembles a fixed percentage of sales.
C) surplus cannot be allocated to other categories.
D) it is equal to the communication expenditure of competitor(s).
E) retailers can exploit opportunities they confront in the market.
Answer: D
Explanation: Under the comparative parity method, the communication budget is set so that it is
equal to the communication expenditure of the firm's most significant competitor(s). It is based
on an absolute dollar amount used by a competitor, rather than a percentage.
Bloom's: Understand
28
60) Similar to the other rule-of-thumb methods, the ________ doesn't allow retailers to exploit
the unique opportunities or problems they confront in the market.
A) percentage-of-sales method
B) competitive parity method
C) objective-and-task method
D) marginal analysis method
E) affordable budgeting method
Answer: B
Explanation: Similar to the other rule-of-thumb methods, the competitive parity method doesn't
allow retailers to exploit the unique opportunities or problems they confront in the market.
Bloom's: Understand
61) The owner of a jewelry retail chain estimated advertising at $4,000 for the year and
estimated the downtown store location's market share at 35 percent. By using the competitive
parity method, what is the jewelry downtown store location's communication budget?
A) $6,600
B) $5,400
C) $600
D) $2,600
E) $1,400
Answer: E
Explanation: The competitive parity method utilizes the market share the store has to the total
company to determine the amount of communication budget for that location. $4000 * .35 =
$1400
Difficulty: 3 Hard
Bloom's: Apply
29
62) The retailer allocates the budget to areas that will yield the greatest return. This approach for
allocating a budget is referred to as the
A) high-margin principle.
B) high-assay principle.
C) contribution principle.
D) attraction principle.
E) break-even principle.
Answer: B
Explanation: Allocation decisions, like budget-setting decisions, should use the principles of
marginal analysis. The retailer should allocate the budget to areas that will yield the greatest
returns. This approach is referred to as the high-assay principle.
Bloom's: Remember
63) In the late 90s, Sears spent much of its communication budget advertising the "Softer Side of
Sears" campaign since it felt the customer knew very little of Sears' apparel assortments and thus
there would be a substantial return from advertising apparel versus advertising the more known
appliances. What principle for budget allocation was Sears potentially using?
A) Percentage of sales method
B) Rule of thumb method
C) Asset principle
D) High-assay principle
E) Affordable method
Answer: D
Explanation: Allocation decisions, like budget-setting decisions, should use the principles of
marginal analysis. The retailer should allocate the budget to areas that will yield the greatest
returns. This approach is referred to as the high-assay principle.
Difficulty: 3 Hard
Bloom's: Apply
30
64) In new media, ________ refer to the number of times an ad appears in front of the user.
A) impressions
B) view rates
C) air rates
D) true views
E) expressions
Answer: A
Explanation: In new media, impressions refer to the number of times an ad appears in front of
the user.
Difficulty: 1 Easy
Bloom's: Remember
65) Which of the following is the formula for calculating click-through rate?
A) Number of impressions + The number of times a user clicks on ad
B) The number of times a user clicks on an ad - Number of impressions
C) The number of times a user clicks on ad * Number of impressions
D) The number of times a user clicks on an ad/Number of impressions
E) Number of impressions - The number of times a user clicks on ad
Answer: D
Explanation: The formula for calculating click-through rate = The number of times a user clicks
on an ad/Number of impressions
Bloom's: Remember
31
66) A sponsored link was delivered 100 times, and 10 people clicked on it. Calculate the click-
through rate.
A) 125
B) -115
C) 600
D) 115
E) 10
Answer: E
Explanation: The formula for calculating click-through rate = The number of times a user clicks
on an ad/Number of impressions. Hence, 10/100 = 10%
Difficulty: 3 Hard
Bloom's: Apply
67) Which of the following is the formula to determine the return on investment for an
advertisement?
A) (Net sales + Advertising cost)/Advertising cost
B) (Net sales - Advertising cost)/Advertising cost
C) Advertising cost/(Net sales + Advertising cost)
D) Advertising cost/(Net sales - Advertising cost)
E) (Advertising cost - Net sales)/Advertising cost
Answer: B
Explanation: The formula for calculating an advertisement's return on investment = (Net sales -
Advertising cost)/Advertising cost
Difficulty: 3 Hard
Bloom's: Remember
32
68) Calculate the return on investment for an advertisement from the given data. Net sales is
$1,000, and advertising cost is $50.
A) 18
B) 19
C) 21
D) 23
E) 25
Answer: A
Explanation: ROAI = (Net sales - Advertising cost)/Advertising cost. Hence, (1000 - 50)/50 =
19
Difficulty: 3 Hard
Bloom's: Apply
69) Why is it necessary for retailers to develop and implement an integrated communication
program?
Answer: It is necessary for retailers to develop and implement a communication program that is
both comprehensive and consistent throughout all elements of their retail mix and across all
delivery channels. Through this they can build appealing brand images, attract customers to
stores and Internet sites, encourage them to buy merchandise, and develop customer loyalty.
Without a coordinated and integrated effort, there may be mixed messages to the customers,
causing customers to become confused about the retailer's image and therefore not patronize the
store.
Difficulty: 1 Easy
Bloom's: Remember
33
70) List the four steps involved in developing a retail communication program.
Answer: The four steps involved in developing a retail communication program are
(1) Setting communication objectives that are specific and related to the retail communication
mix's effect on the customer's decision-making process
(2) Determining a budget through a method, the best method being the marginal analysis method
(3) Allocating the budget, deciding how much of the budget should go into what communication
element, merchandise category, geographic regions, etc.
(4) Implementing and evaluating (then planning again for the next period)
Bloom's: Remember
71) Why is marginal analysis the most economically correct method for setting communication
budgets? Why is it still a challenge for retailers to use this method?
Answer: Marginal analysis is based on the economic principle that firms should increase
communication expenditures so long as each additional dollar spent generates more than a dollar
of additional contribution. Marginal analysis is not widely used because managers do not know
the precise relationship between communication expenses and sales.
Bloom's: Understand
72) What are the disadvantages associated with using the percentage-of-sales method for
establishing a retail communication budget?
Answer: The problem with the percentage-of-sales method is that it assumes that the same
percentage used in the past, or used by competitors, is appropriate for the future. Also, it assumes
that communication expenses don't stimulate sales and profit.
Bloom's: Remember
34
73) What is the major disadvantage associated with using the competitive parity method of
determining a retail communication budget?
Answer: The method does not allow retailers to exploit the unique opportunities or problems
they confront in a market.
Bloom's: Remember
74) Why is it problematic for retailers to spend about the same on communication programs for
each geographic region?
Answer: An easy way to make allocation decisions is to spend about the same in each
geographic region or for each merchandise category. But this allocation rule probably won't
maximize profits, because it ignores the possibility that communication programs might be more
effective for some merchandise categories or for some regions than for others.
Bloom's: Remember
75) Explain how sentiment analysis can be used by retailers and brands.
Answer: Sentiment analysis is the process of analyzing data posted on social media sites to
assess customers' overall valence (positive, neutral and negative) and their intensity of their
sentiments and can be used to understand overall attitudes and preferences for products and
advertising campaigns.
Bloom's: Knowledge
35
Chapter 15 Human Resources and Managing the Store
1) Employee productivity is retail sales or profit multiplied by the number of employees.
Answer: FALSE
Explanation: Employee productivity is net sales divided by the number of full-time equivalent
employees, which gives an average of how much retail sales or profit is generated per employee.
Employee productivity can be improved by increasing the sales generated by employees,
reducing the number of employees, or both.
Difficulty: 1 Easy
Topic: Recruiting, Socialization, and Training of Store Employees
Learning Objective: 15-01 Describe how to acquire and retain employees.
Bloom's: Remember
2) The job description identifies essential activities to be undertaken and is used to determine the
qualifications of potential employees.
Answer: TRUE
Explanation: The job description identifies essential activities to be undertaken and is used to
determine the qualifications of potential employees.
Difficulty: 1 Easy
Bloom's: Remember
3) During a behavioral interview, the interviewer asks the candidates how they handled actual
situations they have encountered in the past.
Answer: TRUE
Explanation: During a behavioral interview, the interviewer asks the candidates how they
handled actual situations they have encountered in the past.
Difficulty: 1 Easy
Bloom's: Understand
1
4) Rewards provided by either the employee's manager or the firm such as compensation,
promotion, and recognition are called intrinsic rewards.
Answer: FALSE
Explanation: Intrinsic rewards are rewards employees get personally from doing their job well.
For example, salespeople often like to sell because they think it's challenging and fun.
Difficulty: 1 Easy
Topic: Motivating, Evaluating, Rewarding, and Compensating Store Employees
Bloom's: Remember
5) The Fair Labor Standards Act prohibits unequal pay for men and women who perform equal
work or work of comparable worth.
Answer: FALSE
Explanation: The Equal Pay Act, now enforced by the EEOC (Equal Employment Opportunity
Commission), prohibits unequal pay for men and women who perform equal work or work of
comparable worth.
Difficulty: 1 Easy
Topic: Objectives, Principles, and Practices of Human Resource Management for the Retail
Environment
Learning Objective: 15-05 Identify the legal issues involved with human resource management.
Bloom's: Remember
6) Autocratic leaders seek information and opinions from employees and base decisions on this
information.
Answer: FALSE
Explanation: Autocratic leaders make all decisions on their own and then announce them to
employees.
Difficulty: 1 Easy
Topic: Leadership
Learning Objective: 15-02 Illustrate effective leadership strategies of a retail manager.
Bloom's: Remember
2
7) Democratic leaders make all the decisions on their own and then announce them to
employees.
Answer: FALSE
Explanation: Democratic leaders seek information and opinions from employees and base their
decisions on this information.
Difficulty: 1 Easy
Topic: Leadership
Bloom's: Remember
8) Transformational leaders get people to transcend their personal needs for the sake of the group
or organization.
Answer: TRUE
Explanation: Transformational leaders get people to transcend their personal needs for the sake
of the group or organization.
Difficulty: 1 Easy
Topic: Leadership
Bloom's: Remember
9) Shrinkage is the inventory loss due to employee theft, shoplifting, mistakes, inaccurate
records, and vendor errors.
Answer: TRUE
Explanation: Shrinkage is the inventory loss due to employee theft, shoplifting, mistakes,
inaccurate records, and vendor errors.
Difficulty: 1 Easy
Topic: Controlling Costs
Learning Objective: 15-03 Explore the various strategies retail managers can undertake to
control costs.
Bloom's: Remember
3
10) The most effective approach for reducing employee theft and shoplifting is to create a
trusting, supportive work environment.
Answer: TRUE
Explanation: The most effective approach for reducing employee theft and shoplifting is to
create a trusting, supportive work environment.
Difficulty: 1 Easy
control costs.
Bloom's: Remember
11) ________ is expressed as a retailer's sales or profits divided by the number of employees.
A) Human resource management
B) Employee turnover
C) Employee productivity
D) Operation management
E) Organizational management
Answer: C
Explanation: Employee productivity is expressed as a retailer's sales or profits divided by the
number of employees.
Bloom's: Remember
12) Which of the following is typically the first step in the employee management process?
A) Recruiting employees
B) Training employees
C) Motivating employees
D) Evaluating employees
E) Socializing employees
Answer: A
Explanation: Recruiting employees is typically the first step in the employee management
process.
Difficulty: 1 Easy
Bloom's: Remember
4
13) Lee just signed a lease for her lunch delivery business and is now ready to become involved
in the employee management process of her business plan. What should Lee do first?
A) Train employees.
B) Motivate employees.
C) Recruit employees.
D) Evaluate employees.
E) Socialize employees.
Answer: C
Explanation: There are many responsibilities of a manager, and the first step in the management
process is recruiting and selecting effective people to work for the firm.
Bloom's: Apply
14) The ________ identifies essential activities to be undertaken and is used to determine the
qualifications of potential employees.
A) job description
B) job analysis
C) job rotation
D) job enrichment
E) job enlargement
Answer: A
Explanation: The job description identifies essential activities to be undertaken and is used to
determine the qualifications of potential employees.
Bloom's: Remember
5
15) Donna is the sales manager at a store that sells musical instruments. She has developed a job
description for each of her employees. These job descriptions will be used for all of the
following except
A) recruiting employees.
B) selecting employees.
C) training employees.
D) evaluating employees.
E) compensating employees.
Answer: E
Explanation: The job description is a guideline for recruiting, selecting, training, and eventually
evaluating employees.
Bloom's: Apply
16) Which of the following contains information about the applicant's employment history,
previous compensation, reasons for leaving previous employment, education and training, and
references?
A) Job preview
B) Job description
C) Job application
D) Job analysis
E) Job enrichment
Answer: C
Explanation: Job application forms contain information about the applicant's employment
history, previous compensation, reasons for leaving his or her previous employment, education
and training, and references.
Bloom's: Understand
6
17) A typical application form would be least likely to provide information about the applicant's
A) educational qualification.
B) previous compensation.
C) employment history.
D) character.
E) reasons for leaving previous employment.
Answer: D
Explanation: Job application forms contain information about the applicant's employment
history, previous compensation, reasons for leaving his or her previous employment, education
and training, and references.
Bloom's: Understand
18) Which of the following statements is true of references?

A) References help in screening up to 15% of applicants that have applied for a vacancy.
B) References provide an insight about how hard potential employees will work.
C) References provide information about the employee's history and personal health.
D) References are a good way to verify information given on an application form.
E) References involve detailed interviews with the applicant.
Answer: D
Explanation: Most retailers verify the information given on an application form by contacting
the applicant's references and doing an online search.
Bloom's: Remember
7
19) Which of the following statements is true about the use of testing?
A) It is legal to use tests that discriminate against specific groups.
B) It is illegal for employers to give applicants drug tests.
C) Tests must be scientifically and legally valid.
D) Tests are of no help in developing training programs.
E) It is legal to use tests that assess factors that are not job-related.
Answer: C
Explanation: Tests must be scientifically and legally valid.
Bloom's: Understand
20) Which of the following is a benefit of using realistic job previews to screen job applicants?
A) Decrease in employee turnover
B) Increase in employee turnover
C) Tax benefits from the state government to the employer
D) Tax benefits from the federal government to the employer
E) Tax benefits from the federal government to the employees
Answer: A
Explanation: Using job previews typically screens out many applicants who would most likely
have quit due to the job requirements within three months if hired.
Bloom's: Understand
8
21) Randy applied for a position as a butcher's assistant at a nearby supermarket. After he
completed his application, the manager showed him a video reviewing the responsibilities of an
assistant to the butcher. After viewing that the video, Randy felt sick and told the manager he
didn't want the job. This screening technique is called
A) testing.
B) scaling.
C) job analysis.
D) job preview.
E) job enrichment.
Answer: D
Explanation: Using job previews typically screens out many applicants who would most likely
have quit due to the job requirements within three months if hired.
Bloom's: Apply
22) The employee turnover for the custodial host position at the local department store was high,
and the department managers were beginning to complain to Gina, the store manager. There was
no lack of applications, and the pay was comparable to other stores, yet those who took the
position stayed no longer than a week. Exit interviews revealed that employees felt the job's
responsibilities were not what they expected. Which of the following is the best method Gina
could use to reduce turnover?
A) Accept more applications by reducing required standards.
B) Insist that each applicant takes a drug test within 48 hours of applying.
C) Check the employment history and references of applicants.
D) Show a video to applicants about the responsibilities of the job.
E) Require applicants to take intelligence quotient and emotional quotient tests.
Answer: D
Explanation: Showing a video about the responsibilities of the custodial host is an example of a
realistic job preview so applicants can learn what will be expected of them. Using job previews
like this typically screens out many applicants who would most likely have quit due to the job
requirements within three months if hired.
Bloom's: Apply
9
23) After screening applicants, the selection process typically involves a(n)
A) IQ test.
B) EQ test.
C) training module.
D) orientation module.
E) personal interview.
Answer: E
Explanation: After screening applicants, the selection process typically involves a personal
interview.
Bloom's: Remember
24) Which of the following is the most widely used interview technique?
A) Panel interview
B) Telephonic interview
C) Case interview
D) Behavioral interview
E) Stress interview
Answer: D
Explanation: Behavioral interviews are the most widely used interview technique.
Bloom's: Remember
10
25) A(n) ________ helps new employees acquire the basic skills and knowledge they need to be
able to do their jobs.
A) on-the-job training program
B) structured training program
C) job preview program
D) behavioral interview
E) employee engagement program
Answer: B
Explanation: A structured training program helps new employees acquire the basic skills and
knowledge they need to be able to do their jobs.
Difficulty: 1 Easy
Bloom's: Understand
26) Sasha is a 22-year-old who has just started a job at a clothing store. She finds that her ideal
working environment is different than that of her older coworkers. Sasha likely values all of the
following except
A) meaningful job duties.
B) a strict dress code.
C) professional freedom.
D) work-life balance.
E) flexible hours.
Answer: B
Explanation: Retailers have realized that what young employees want out of their jobs and work
environments is quite different from what their older supervisors want. As a result, different
goals and approaches are necessary to manage and motivate younger employees. Specifically,
they want more flexibility, meaningful jobs, professional freedom, and a better work–life balance
than older employees.
Bloom's: Understand
11
27) On payday, June received her weekly salary plus 2% of each sale she made during the pay
period. Which of the following is this an example of?
A) Superannuation
B) 401(k)
C) Gratuity
D) Stock option
E) Commission
Answer: E
Explanation: A commission is an incentive based on a percentage of their sales made or margin
generated by the employee. Many retailers base at least part of salespeople's compensation on
commissions.
Bloom's: Apply
28) ________ prohibits discrimination on the basis of race, national origin, gender, or religion in
company personnel practices.
A) Title I of the Civil Rights Act
B) Title II of the Civil Rights Act
C) Title IV of the Civil Rights Act
D) Title V of the Civil Rights Act
E) Title VII of the Civil Rights Act
Answer: E
Explanation: Title VII of the Civil Rights Act prohibits discrimination on the basis of race,
national origin, gender, or religion in company personnel practices.
Environment
Bloom's: Remember
12
29) The ________ allows employees to sue employers that violate employment laws.
A) Equal Employment Opportunity Commission
B) United States Chamber of Commerce
C) Center for Capital Markets Competitiveness
D) Institute for a Competitive Workforce
E) National Chamber Foundation
Answer: A
Explanation: The Equal Employment Opportunity Commission allows employees to sue
employers that violate employment laws.
Environment
Bloom's: Remember
30) Which of the following is the formula for calculating employee turnover?
A) Number of employees voluntarily leaving their jobs during the year/Number of positions
B) Number of employees fired from their jobs during the year/Total number of employees
C) Number of employees voluntarily leaving their jobs during the year/Total number of
employees
D) Number of employees fired from their jobs during the year/Number of positions
E) Number of positions/Total number of employees
Answer: A
Explanation: The formula for calculating employee turnover = Number of employees voluntarily
leaving their jobs during the year/Number of positions.
Bloom's: Remember
13
31) What would the employee turnover be if the store had ten positions for management trainees
and four employees voluntarily left their jobs during the year?
A) 60%
B) 40%
C) 140%
D) 160%
E) There is not enough data to determine a correct percentage
Answer: B
Explanation: The formula for calculating employee turnover is = Number of employees
voluntarily leaving their jobs during the year/Number of positions.
Bloom's: Apply
32) Which of the following is a result of hiring inexperienced, low-wage employees?

A) Sales increase
B) Better customer loyalty
C) Extensive employee feedback
D) Higher labor expenses
E) High employee turnover
Answer: E
Explanation: Younger employees readily switch jobs if their expectations aren't met, making
employee turnover high.
Bloom's: Understand
14
33) Craig works for a retailer deciding what merchandise will be in the assortments, setting
prices, negotiating with vendors, and planning advertising and marketing for accessories. He
attends fashion trade shows and travels to market in New York City nearly every month. What
position in the organizational structure of a retailing firm does Craig have?
A) Merchandise planner
B) Divisional merchandise manager
C) Store manager
D) Buyer
E) Department manager
Answer: D
Explanation: Buyers are responsible for determining the merchandise assortment, pricing, and
managing relationships and negotiating with vendors
Topic: Designing the Organizational Structure for the Retail Firm
Learning Objective: 15-04 Summarize how retailers are typically organized.
Bloom's: Apply
34) Tiana works for a national retailer planning what merchandise will be sent to the different
geographical areas of the country and manages the budget of the department. What position in
the organizational structure of a retailing firm does Tiana have?
A) Merchandise planner
B) Divisional merchandise manager
C) Store manager
D) Buyer
E) Department manager
Answer: A
Explanation: The merchandising planners are responsible for allocating merchandise and
tailoring the assortment of several categories for specific stores in a geographic area.
Bloom's: Apply
15
35) Which of the following statements is a drawback of incentives?
A) Most employees dislike incentives.
B) It decreases organizational commitment.
C) It may cause employees to ignore other work tasks and obligations.
D) Incentives work when standard pay is low.
E) Most employees believe that incentives are mere tokens from the management, not really an
appreciation of their performance.
Answer: C
Explanation: Incentives may cause employees to ignore other activities. Excessive use of
incentives to motivate employees can reduce employee commitment. Company loyalty falls
because employees feel that the firm hasn't made a commitment to them (because it is unwilling
to guarantee their compensation). Thus, if a competitor offers to pay a higher commission rate,
they'll feel free to leave.
Bloom's: Understand
36) During a management trainee orientation, the HR Manager showed a chart that illustrated
who the CEO, CMO, and CFO were, what their responsibilities were, and who reported up to
them. This chart illustrated the
A) corporate procedures.
B) corporate structure.
C) organization structure.
D) pricing policy.
E) human resource planning.
Answer: C
Explanation: The organization structure identifies the activities to be performed by specific
employees and determines the lines of authority and responsibility in the firm.
Bloom's: Apply
16
37) As a new employee of an office supply superstore, Kevin has been told he will receive
structured training. What does this mean?
A) Kevin will learn from his mistakes by performing his job in a store.
B) Kevin will be fired if he makes a mistake once he is at the job site.
C) Kevin will be in the initial training process for at least one year.
D) Kevin will acquire basic skills and knowledge needed to do his job.
E) Kevin will take a written test to determine if he has the skills needed to do the job.
Answer: D
Explanation: Structured training provides a consistent way of teaching new employees about
company policies and skills needed to perform their jobs.
Bloom's: Apply
38) On the first day of his new job, Mackey learned the company policies, basic selling skills,
and stockroom procedures with the use of videos, audio-visual presentations, and manuals. What
type of training is Mackey receiving in this scenario?
A) Blended approach
B) Socialization training
C) Structured training program
D) On-the-job training
E) Etiquette training
Answer: C
Explanation: Structured training provides a consistent way of teaching new employees about
company policies and skills needed to perform their jobs. A structured training program helps
new employees acquire basic skills and knowledge, which they need to be able to do their jobs.
Difficulty: 1 Easy
Bloom's: Apply
17
39) In ________, new employees work in specific jobs under the direct supervision of their
managers.
A) the blended approach
B) a structured training program
C) on-the-job training
D) an orientation program
E) etiquette training
Answer: C
Explanation: In on-the-job training, new employees work in specific jobs under the direct
supervision of their managers.
Difficulty: 1 Easy
Bloom's: Apply
40) A retailer can reduce employee turnover by

A) increasing its dollar sales.
B) reducing its fixed costs.
C) paying all employees the same.
D) building an atmosphere of mutual commitment.
E) implementing a straight salary compensation plan.
Answer: D
Explanation: Neither an increase in sales dollars nor a reduction in fixed costs will lessen
employee turnover. To reduce turnover and engage employees, retailers need to build an
atmosphere of mutual commitment in their firms. When a retailer demonstrates its commitment,
employees respond by developing loyalty to the company.
Bloom's: Understand
18
41) Sales are poor at the Kirt's Bathing Suit Store in Alaska, and Kirt's sales team is suffering
from low morale. Which of the following will best help Kirt to increase his sales team's morale?
A) Reduce the quantity of incoming merchandise.
B) Fire non-performing sales people.
C) Recruit an efficiency consultant to identify the problem.
D) Reward performing sales people.
E) Tweak the marketing tactics.
Answer: D
Explanation: Managers can motivate employees by setting realistic goals and offering rewards
that employees want.
Bloom's: Apply
42) Employment discrimination on which of the following basis is legal in the United States?
A) Gender
B) Age
C) Educational qualification
D) Religious beliefs
E) Sexual orientation
Answer: C
Explanation: Companies cannot treat employees differently simply on the basis of their race,
color, religion, sex, national origin, age, or disability status. There is a very limited set of
circumstances in which employees can be treated differently.
Difficulty: 1 Easy
Environment
Bloom's: Remember
19
43) Which of the following statements is true of laws relating to compensation?
A) They require that firms pay the same work pay for men and women.
B) They require that firms pay the same work pay for all employees of a department.
C) They protect the organization's investment on its employees.
D) They place restrictions on the salaries drawn by the top management.
E) They monitor the financial investments made by the top management of the organization.
Answer: A
Explanation: Laws relating to compensation define the workweek, the pay rate for working
overtime, and the minimum wage, and they protect employee investments in their pensions. In
addition, they require that firms provide the same pay for men and women who are doing equal
work.
Environment
Bloom's: Remember
44) Nina's office was made up of a mostly all male staff. All worked well together and no one
really even noticed the skewed ratio until one day when one of the men downloaded a lewd
screensaver for all to see when they arrived in the office. Nina was infuriated. This situation can
be considered
A) a violation of employee privacy.
B) political individualism.
C) an instance of sexual harassment.
D) an unethical hiring practice.
E) an unethical instance of distributive justice.
Answer: C
Explanation: Simply creating a hostile work environment can be considered sexual harassment.
For example, actions considered sexual harassment include lewd comments, joking, and graffiti,
as well as showing obscene photographs, staring at a coworker in a sexual manner, alleging that
an employee got rewards by engaging in sexual acts, and commenting on an employee's moral
reputation.
Environment
Bloom's: Apply
20
45) Norman was recognized as the best Albertons' employee of the year. His name, along with
the names of other winners, is engraved on a plaque that is prominently displayed in the store.
This is an example of
A) job enrichment.
B) an intrinsic reward.
C) management by objective.
D) an extrinsic reward.
E) management by exception.
Answer: D
Explanation: Extrinsic rewards are provided by an employee's manager and include recognition.
Bloom's: Apply
46) Which of the following is an example of extrinsic reward?

A) Meaningful work
B) Promotion
C) Team spirit
D) Positive environment
E) Open communication
Answer: B
Explanation: Extrinsic rewards are rewards provided by either the employee's manager or the
firm, such as compensation, promotion, and recognition.
Bloom's: Understand
21
47) Which of the following is an intrinsic reward?
A) Employee of the year award
B) Bonus
C) Promotion
D) Meaningful work
E) Commission
Answer: D
Explanation: Intrinsic rewards are rewards employees get personally from doing their job well.
Bloom's: Understand
48) Mercer was getting bored with his job as a sales clerk in the home department until his
manager gave him responsibility for training a new salesperson in his area, which he likes to do.
This is an example of
A) management by objective.
B) the unity of command principle.
C) an intrinsic reward.
D) an extrinsic reward.
E) management by exception.
Answer: C
Explanation: Intrinsic rewards are rewards employees get personally from doing their jobs well.
Job enrichment is one way to provide intrinsic rewards.
Bloom's: Apply
22
49) ________ is the redesign of a job to include a greater range of tasks and responsibilities.
A) Intrinsic rewards
B) Extrinsic rewards
C) Job enrichment
D) Job description
E) Job engagement
Answer: C
Explanation: Job enrichment is the redesign of a job to include a greater range of tasks and
responsibilities, including skill variety, task significance, autonomy, and job feedback.
Bloom's: Remember
50) Angel's oldest associate, Betty, complained that she was bored and was thinking of looking
for a different job. Instead of letting her go, Angel decided to utilize her life experience and
asked Betty if she would be responsible for organizing departmental social events and the weekly
visual displays. This suggestion, giving Betty a task she would enjoy doing, would be an
example of
A) intrinsic rewards.
B) extrinsic rewards.
C) job enrichment.
D) job description.
E) job engagement.
Answer: C
Explanation: Job enrichment is the redesign of a job to include a greater range of tasks and
responsibilities, including skill variety, task significance, autonomy, and job feedback
Bloom's: Apply
23
51) Which of the following is the major disadvantage of a straight salary plan?
A) It is expensive to administer.
B) It increases a retailer's variable costs.
C) Many employees have trouble understanding a straight salary plan.
D) It makes it very difficult for a retailer to assign employees to activities.
E) It does not directly relate pay incentives to productivity.
Answer: E
Explanation: The major disadvantage of the straight salary plan is employees' lack of immediate
incentives to improve their productivity.
Bloom's: Understand
52) Nick works for an electronics store. His entire compensation is based on an 8 percent
commission he is paid on all the sales he makes minus merchandise returns. This is an example
of a(n)
A) straight salary plan.
B) quota-bonus plan.
C) equity-based compensation.
D) incentive compensation plan.
E) cafeteria plan.
Answer: D
Explanation: Incentive compensation plans reward employees on the basis of their productivity.
Difficulty: 1 Easy
Bloom's: Apply
24
53) Which of the following is a disadvantage of incentive compensation plans?
A) Employees know that a rise in productivity will have no impact on their compensation.
B) Employees are taxed heavily on their income from incentive plans.
C) Employers are taxed heavily on their expenditure incurred through incentive plans.
D) Employees don't develop loyalty to their employers when incentive plans are practiced.
E) Employers are unable to increase employee productivity while following incentive plans.
Answer: D
Explanation: Salespeople compensated primarily by incentives don't develop loyalty to their
employer. The employer doesn't guarantee them an income, so they feel no obligation to the
firm.
Bloom's: Understand
54) Which of the following statements is true of drawing accounts?

A) It is used to provide a steadier income for salespeople who work on commission.
B) It is used to motivate employees who receive a straight salary.
C) It is used to attract salespeople who are willing to sell low-margin items.
D) It is used to provide an additional income for full-time sales people.
E) It is used to pay employees for delivering good customer service.
Answer: A
Explanation: To provide a more steady income for salespeople who are paid by high-incentive
plans, some retailers offer a drawing account.
Bloom's: Remember
25
55) A ________ is a target level used to motivate and evaluate performance.
A) quota
B) straight commission
C) compensation plan
D) group goal
E) draw
Answer: A
Explanation: Quotas are often used with compensation plans.
Difficulty: 1 Easy
Bloom's: Remember
56) In order to motivate its employees, Dillards department store has set performance goals for
its employees. If an employee exceeds his or her daily performance goals, he or she will receive
a bonus. This compensation method is called a
A) straight bonus plan.
B) straight salary plan.
C) task-oriented plan.
D) equity-based plan.
E) quota-bonus plan.
Answer: E
Explanation: A quota-bonus plan provides sales associates with a bonus when their performance
exceeds their quota.
Bloom's: Apply
26
57) A quota-bonus plan is applicable when
A) employee performance exceeds the quota.
B) performance management is outsourced.
C) an employee has a salary plan based solely upon performance.
D) productivity is poor.
E) there are no other incentives.
Answer: A
Explanation: A quota-bonus plan provides sales associates with a bonus when their performance
exceeds their quota.
Bloom's: Understand
58) The Fair Labor Standards Act of 1938 does all of the following except
A) limit maximum work hours.
B) set child labor standards.
C) set overtime-pay provisions.
D) establish minimum wages.
E) prohibit discrimination.
Answer: E
Explanation: The Fair Labor Standards Act of 1938 set minimum wages, maximum hours, child
labor standards, and overtime-pay provisions.
Environment
Bloom's: Remember
27
59) The ________, now enforced by the Equal Employment Opportunity Commission (EEOC),
prohibits unequal pay for men and women who perform equal work or work of comparable
work.
A) Fair Labor Standards Act
B) Equal Pay Act
C) Disparate Impact
D) Discrimination and Employment Act
E) Americans with Disabilities Act
Answer: B
Explanation: The Equal Pay Act, now enforced by the EEOC (Equal Employment Opportunity
Commission), prohibits unequal pay for men and women who perform equal work or work of
comparable worth.
Environment
Bloom's: Remember
60) ________ is the process by which a person attempts to influence others to accomplish a
common goal or task.
A) Idiosyncrasy credit
B) Multipolarity
C) Leadership
D) Post hegemony
E) Tripolarity
Answer: C
Explanation: Leadership is the process by which a person attempts to influence others to
accomplish a common goal or task.
Topic: Leadership
Bloom's: Remember
28
61) ________ leaders make all decisions on their own and then announce them to employees.
A) Chaotic
B) Autocratic
C) Democratic
D) Persuasive
E) Transformational
Answer: B
Explanation: Autocratic leaders make all decisions on their own and then announce it to their
employees.
Difficulty: 1 Easy
Topic: Leadership
Bloom's: Remember
62) Anita is a store manager who wants no employee input when she is making decisions about
how the store should be operated. She prefers to make all the decisions by herself. What kind of
a manager is Anita?
A) Chaotic manager
B) Democratic manager
C) Autocratic manager
D) Persuasive manager
E) Transformational manager
Answer: C
employees.
Difficulty: 1 Easy
Topic: Leadership
Bloom's: Apply
29
63) An autocratic manager would be most likely to
A) ask employees if anyone wanted to volunteer to work overtime.
B) ask employees for their opinions on store design.
C) consult employees before scheduling a storewide sale.
D) ask employees which department they would like to work in.
E) tell employees they will have to work late Friday night.
Answer: E
employees.
Topic: Leadership
Bloom's: Understand
64) As a(n) ________ store manager, Dina treats her employees as equals and asks for their input
when she is making a decision about whether to stay open late during the Memorial Day
weekend, stock extra inventory for Valentine's Day, or any other decision that will directly affect
her employees.
A) chaotic
B) democratic
C) autocratic
D) persuasive
E) transformational
Answer: B
Explanation: Democratic leaders seek information and opinions from employees and base their
Topic: Leadership
Bloom's: Apply
30
65) Which of the following types of leaders gets people to transcend their personal needs for the
sake of the group or the organization?
A) Transformational leaders
B) Democratic leaders
C) Autocratic leaders
D) Chaotic leaders
E) Persuasive leaders
Answer: A
Explanation: Transformational leaders get people to transcend their personal needs for the sake
of the group or organization.
Difficulty: 1 Easy
Topic: Leadership
Bloom's: Remember
66) ________ create enthusiasm in their employees through their personal charisma.
A) Chaotic leaders
B) Democratic leaders
C) Transformational leaders
D) Autocratic leaders
E) Persuasive leaders
Answer: C
Explanation: Transformational leaders create enthusiasm in their employees through their
personal charisma.
Difficulty: 1 Easy
Topic: Leadership
Bloom's: Remember
31
67) ________ delegate challenging work to subordinates, have free and open communication
with them, and provide personal mentoring to develop subordinates.
A) Chaotic leaders
B) Autocratic leaders
C) Persuasive leaders
D) Transformational leaders
E) Democratic leaders
Answer: D
Explanation: Transformational leaders delegate challenging work to subordinates, have free and
open communication with them, and provide personal mentoring to develop subordinates.
Difficulty: 1 Easy
Topic: Leadership
Bloom's: Remember
68) Mindy manages 300 employees at a Walmart Supercenter. Each day, she leads the
employees in the Walmart cheer, creates excitement, and "goes the extra mile" with her
employees and customers. Shopping in her store is always an enjoyable experience with
enthusiastic sales help, contests, and demonstrations. Mindy is a ________ leader.
A) persuasive
B) autocratic
C) democratic
D) chaotic
E) transformational
Answer: E
Explanation: Transformational leaders create enthusiasm for their employees and revitalize the
organization.
Difficulty: 1 Easy
Topic: Leadership
Bloom's: Apply
32
69) Connor knew a popular celebrity was planning a shopping spree in his store that day and
needed a personal shopper to accompany her. Normally, Connor plays this role, but he trusted a
reliable store associate to manage the visit. Connor would be available in the store should there
be a problem, but the exciting opportunity was to be handled by the associate. Which of the
following terms best describes Connor?
A) Persuasive leader
B) Autocratic leader
C) Democratic leader
D) Transformational leader
E) Chaotic leader
Answer: D
Explanation: Transformational leaders create enthusiasm for their employees and revitalize the
organization.
Topic: Leadership
Bloom's: Apply
70) Which of the following statements is true of the use of computer software scheduling
systems?
A) The software analyses sales, transactions, and customer traffic for each time period.
B) The software often recommends the use of regular and predictable work hours.
C) The system benefits the employees but has an adverse effect on retailers and customers.
D) The burden of unpredictable scheduling of sales associates is eliminated.
E) The software often recommends the use of full-time employees.
Answer: A
Explanation: Computer software scheduling systems analyses sales, transactions, and customer
traffic for each time period.
control costs.
Bloom's: Understand
33
71) ________ entails the activities involved with managing the exterior and interior physical
facilities associated with the store.
A) Inventory maintenance
B) Store turnover
C) Portfolio management
D) Store maintenance
E) Inventory turnover
Answer: D
Explanation: Store maintenance entails the activities involved with managing the exterior and
interior physical facilities associated with the store.
control costs.
Bloom's: Remember
72) ________ is the inventory loss due to employee theft, shoplifting, mistakes, inaccurate
records, and vendor errors.
A) Obsolescence
B) Profit margin
C) Loss margin
D) Shrinkage
E) Break-even point
Answer: D
Explanation: Shrinkage is the inventory loss due to employee theft, shoplifting, mistakes,
inaccurate records, and vendor errors.
control costs.
Bloom's: Remember
34
73) ________ is the difference between the recorded value of inventory based on merchandise
bought and received and the value of the actual merchandise in stores and distribution centers
divided by retail sales during the period.
A) Loss margin
B) Shrinkage
C) Obsolescence
D) Break-even point
E) Profit margin
Answer: B
Explanation: Inventory shrinkage is the difference between the recorded value of inventory (at
retail prices) based on merchandise bought and received and the value of the actual inventory (at
retail prices) in stores and distribution centers, divided by retail sales during the period.
control costs.
Bloom's: Understand
74) The accounting records for Sports-R-Us, a superstore targeted at armchair athletes, showed
that it had bought and received $1,830,000 worth of merchandise. An actual count of the
merchandise in the store showed only $1,644,000 worth of merchandise in stock. What other
information is needed to calculate inventory shrinkage?
A) The store's annual profit
B) The store's profit margin
C) The store's current assets
D) The store's inventory turnover rate
E) The store's retail sales during the period
Answer: E
Explanation: Inventory shrinkage is the difference between the recorded value of inventory (at
retail prices) based on merchandise bought and received and the value of the actual inventory (at
retail prices) in stores and distribution centers, divided by retail sales during the period.
Difficulty: 3 Hard
control costs.
Bloom's: Understand
35
75) Which among the following accounts the most for a retailer's inventory loss?
A) Shoplifting
B) Employee theft
C) Inaccurate records
D) Vendor fraud
E) Logistical gaps
Answer: B
Explanation: Although shoplifting receives the most publicity, employee theft accounts for more
inventory loss.
control costs.
Bloom's: Remember
76) What is a retailer's most effective tool against shoplifting?

B) Employees
C) Prosecution policies
D) Cash wraps
E) EAS tags
Answer: B
Explanation: The most effective approach for reducing employee theft and shoplifting is to
create a trusting, supportive work environment. When employees feel they're respected members
of a team, they identify their goals with the retailer's goals.
control costs.
Bloom's: Understand
36
77) What is a job description?
Answer: The job description identifies essential activities to be undertaken and is used to
determine the qualifications of potential employees. It includes specific activities the employee
needs to perform and the performance expectations expressed in quantitative terms. The job
description is a guideline for recruiting, selecting, training, and eventually evaluating employees.
Difficulty: 1 Easy
Bloom's: Remember
78) What is a behavioral interview?
Answer: The most widely used interview technique, called the behavioral interview, asks
candidates how they have handled actual situations they have encountered in the past, especially
situations requiring the skills outlined in the job description.
Difficulty: 1 Easy
Bloom's: Remember
79) What is the difference between structured program training and on-the-job training?
Answer: A structured training program helps new employees acquire basic skills and
knowledge, which they need to be able to do their jobs. In on-the-job training, new employees
work in specific jobs under the direct supervision of their managers.
Difficulty: 1 Easy
Bloom's: Understand
80) What are extrinsic rewards?
Answer: Extrinsic rewards are rewards provided by either the employee's manager or the firm,
such as compensation, promotion, and recognition.
Difficulty: 1 Easy
Bloom's: Remember
37
81) What is a quota-bonus plan?
Answer: A quota-bonus plan provides sales associates with a bonus when their performance
exceeds their quota. A quota-bonus plan's effectiveness depends on setting reasonable, fair
quotas, but this can be hard to do. Usually, quotas are set at the same level for everyone in a
department, yet salespeople in the same department may have different abilities or face different
selling environments.
Difficulty: 1 Easy
Bloom's: Remember
82) Discuss the legal aspects retailers must abide by when hiring and employing people fairly.
Answer: The Fair Labor Standards Act sets minimum wages, maximum hours, child labor
standards and overtime-pay provisions. The Equal Pay Act prohibits unequal pay for men and
women who perform equal work or work of comparable worth.
Difficulty: 1 Easy
Environment
Bloom's: Understand
83) Explain the differences between an autocratic leader and a democratic leader.
Answer: An autocratic leader makes all decisions on their own and then announces them to the
employees. A democratic leader seeks information and opinions from employees and bases
Difficulty: 1 Easy
Topic: Leadership
Bloom's: Remember
38
84) Describe EEOC's guidelines on sexual harassment.
Answer: The EEOC guidelines define sexual harassment as a form of gender discrimination, as
follows: Unwelcome sexual advances, requests for sexual favors, and other verbal or physical
conduct of a sexual nature constitutes sexual harassment when . . . submission to or rejection of
such conduct by an individual is used as a basis for employment decisions affecting such
individual, or . . . such conduct has the purpose or effect of unreasonably interfering with an
individual's work performance or creating an intimidating, hostile, or offensive working
environment.
Difficulty: 1 Easy
Environment
Bloom's: Remember
85) What are the approaches a retailer can consider when working to reduce employee theft?
Answer: The most effective approach for reducing employee theft is to create a trusting and
supportive work environment. Employees will feel they are part of a team and be unlikely to
steal from the team as they will be stealing from themselves. Another method is to screen
prospective employees with testing and reference checks to screen out potential employee theft
problems. Retailers can engage in security policies and control systems like searching trash bins
where stolen merchandise can be stored or requiring employees to enter and exit through
designated entrances.
control costs.
Bloom's: Understand
86) Define organization structure.
Answer: The organization structure identifies the activities to be performed by specific

employees and determines the lines of authority and responsibility in the firm.
Difficulty: 1 Easy
Bloom's: Understand
39
87) What are some of the major legal and regulatory issues in human resource management in
the retail industry?
Answer: Some of the major legal and regulatory issues in human resource management in the
retail industry are:
1) Equal employment opportunity
2) Compensation
3) Labor relations
4) Employee safety and health
5) Sexual harassment
6) Employee privacy
Environment
Bloom's: Understand
40
Chapter 16 Store Layout, Design, and Visual Merchandising
1) The primary objective of a store design is in implementing the retailer's strategy.
Answer: TRUE
Explanation: The primary objective for store design is to implement the retailer's strategy. The
design must be consistent with and reinforce the retailer's strategy by meeting the needs of the
target market and building a sustainable competitive advantage.
Difficulty: 1 Easy
Topic: Store Design Objectives
Learning Objective: 16-01 Identify the critical issues retailers need to consider when designing a
store.
Bloom's: Understand
AACSB: Analytic
2) Stores design provides hedonic benefits by enabling customers to locate and purchase
products in an efficient and timely manner with minimum hassle.
Answer: FALSE
Explanation: Store design provides hedonic benefits by offering customers an entertaining and
enjoyable shopping experience. They then want to spend more time in the store or on the website
because the visit itself is rewarding.
store.
Bloom's: Remember
AACSB: Analytic
3) The grid layout is well suited for customers who are primarily interested in the hedonic
benefits offered by a store.
Answer: FALSE
Explanation: The grid layout is well suited for customers who are primarily interested in the
utilitarian benefits offered by the store.
Difficulty: 1 Easy
Topic: Store Design Elements
Learning Objective: 16-02 List the advantages and disadvantages of alternative store layouts.
Bloom's: Understand
AACSB: Analytic
1
4) The store design that provides a major aisle to facilitate customer traffic with access to the
store's multiple entrances is called the racetrack layout.
Answer: TRUE
Explanation: The racetrack layout is also referred to as the loop layout because it has a major
aisle that loops around the store to guide customer traffic around different departments within the
store.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
5) The best place for store planners to position a "destination" department or item is the front
right-hand side of the store.
Answer: FALSE
Explanation: By strategically placing impulse and demand/destination merchandise throughout
the store, retailers increase the chances that customers will shop the entire store and that their
attention will be focused on the merchandise that the retailer is most interested in selling.
Demand merchandise and promotional merchandise are often placed in the back left-hand corner
of the store.
Difficulty: 1 Easy
Learning Objective: 16-03 Describe how to assign store floor space to merchandise departments
and categories.
Bloom's: Understand
AACSB: Analytic
6) Impulse products are products that are purchased without prior plans, like fragrances and
cosmetics in department stores and magazines in supermarkets.
Answer: TRUE
Explanation: Impulse products, or products that are purchased without planning, such as
fragrances and cosmetics in department stores and magazines in supermarkets, are almost always
located near the front of the store, where they're seen by everyone and may actually draw people
into the store.
and categories.
Bloom's: Remember
AACSB: Analytic
2
7) Apparel retailers mostly utilize gondola fixtures.
Answer: FALSE
Explanation: Apparel retailers utilize the straight-rack, rounder, and four-way fixtures, while the
principal fixture for most other retailers is the gondola.
Difficulty: 1 Easy
Learning Objective: 16-04 Illustrate the best techniques for merchandise presentation.
Bloom's: Remember
AACSB: Analytic
8) Tonnage merchandising is a display technique in which large quantities of merchandise are

displayed together.
Answer: TRUE
Explanation: As the name implies, tonnage merchandising is a display technique in which large
quantities of merchandise are displayed together. Customers have come to equate tonnage with
low price, following the retail adage "Stock it high and let it fly."
Bloom's: Remember
9) Atmospherics refers to the design of an environment via visual communications, lighting,

colors, music, and scent to stimulate customers' perceptual and emotional responses that affect
their purchase behavior.
Answer: TRUE
Explanation: Atmospherics is the design of an environment by stimulation of the five senses.
Difficulty: 1 Easy
Topic: Creating an Appealing Store Atmosphere
Learning Objective: 16-05 Understand how retailers can create a more appealing shopping
experience.
Bloom's: Remember
AACSB: Analytic
3
10) The two benefits customers seek when shopping are customer satisfaction and customer
service.
Answer: FALSE
Explanation: Customers seek two types of benefits when shopping: utilitarian and hedonic
benefits
store.
Bloom's: Understand
11) Which of the following is not an objective for store design?

A) Implement the retailer's strategy.
B) Build loyalty by providing a rewarding shopping experience.
C) Increase sales on a visit.
D) Meet legal requirements.
E) Cut costs.
Answer: E
Explanation: Some store design objectives are to (1) implement the retailer's strategy, (2) build
loyalty by providing a rewarding shopping experience, (3) increase sales on a visit, (4) control
costs (but not as cheap as possible, as sometimes the extra expense has benefits), and (5) meet
legal requirements.
store.
Bloom's: Understand
4
12) Store design provides ________ by offering customers an entertaining and enjoyable
shopping experience.
A) altruistic experiences
B) emotional stability
C) tonnage merchandise
D) hedonic benefits
E) utilitarian benefits
Answer: D
Explanation: Store design provides hedonic benefits by offering customers an entertaining and
enjoyable shopping experience. They then want to spend more time in the store or on the website
because the visit itself is rewarding.
Difficulty: 1 Easy
store.
Bloom's: Remember
AACSB: Analytic
13) Why is it important for stores to be designed with flexibility in mind?

A) It is less expensive for retailers to build several different types of flexible fixtures than to
build one inflexible fixture.
B) Retailing is a dynamic business, and retailers need to keep changing the merchandise mix
offered.
C) Customers find it hard to locate merchandise if fixtures are rigid.
D) Department managers never know what to expect from the planner's allocations and require
the ability to display more merchandise at a moment's notice.
E) Environmental legalities require stores to have flexible designs to reduce waste.
Answer: B
Explanation: Retailing is a very dynamic business. Competitors enter a market and cause
existing retailers to change the mix of merchandise offered. As the merchandise mix changes, so
must the space allocated to merchandise categories and the layout of the store change. Thus,
store designers attempt to design stores with maximum flexibility.
store.
Bloom's: Understand
5
14) Star Tax Services opens many offices around the country to accommodate the tax season.
The company has the ability to piece together new offices, expand existing offices, or alter the
design for a unique space in a matter of hours. Which of the following design considerations
related to controlling costs can be seen in this example?
A) Inventory shrinkage
B) Flexibility
C) Utilitarian benefits
D) Atmospherics
E) Vertical merchandising
Answer: B
Explanation: A design consideration related to controlling cost is flexibility. As the merchandise
mix changes, so must the space allocated to merchandise categories and the layout of the store.
Thus, store designers attempt to design stores with maximum flexibility.
Difficulty: 1 Easy
store.
Bloom's: Apply
15) A retailer considering LED lighting versus florescent lighting, solar power versus standard
electricity, and local grasses versus typical grasses for landscaping would mostly be considering
________ as the objective for store design.
A) legal requirements
B) retail strategy
C) controlling costs
D) flexibility
E) buying behavior
Answer: C
Explanation: One of the objectives for store design is to control the cost of implementing the
store design and maintaining the store's appearance. Many retailers have also embraced the
notion of gaining efficiency in their energy use.
store.
Bloom's: Apply
AACSB: Analytic
6
16) The Americans with Disabilities Act
A) states that stores built before 1990 must be fully accessible for the disabled.
B) states that it is illegal to discriminate in hiring and termination decisions concerning people
between the ages of 40 and 70.
C) prohibits unequal pay for men and women who perform equal work or work of comparable
worth.
D) protects people with disabilities from discrimination in employment, transportation, public
accommodations, telecommunications, and the activities of government.
Answer: D
Explanation: This law protects people with disabilities from discrimination in employment,
transportation, public accommodations, telecommunications, and activities of state and local
governments. The ADA affects store design because the act calls for "reasonable access" to
merchandise and services in retail stores built before 1993; stores built after 1993 must be fully
accessible.
store.
Bloom's: Remember
AACSB: Diversity
17) Retailers are required to provide all of the following for disabled customers except
A) accessible dressing rooms.
B) accessible checkout aisles.
C) fully accessible bathrooms.
D) a lower checkout station.
E) a courtesy discount.
Answer: E
Explanation: Retailers are typically required to (1) provide 32-inch-wide pathways in the main
aisle, to bathrooms, dressing rooms, and elevators, and around most fixtures; (2) lower most cash
wraps (checkout stations) and fixtures so that they can be reached by a person in a wheelchair;
(3) create disability-accessible checkout aisles; (4) provide bathrooms with handrails or grab
bars; and (5) make dressing rooms fully accessible.
store.
Bloom's: Understand
AACSB: Analytic
7
18) Since a store design cannot achieve all objectives, managers need to make trade-offs among
them. Which of the following does not describes such trade-offs?
A) A supermarket's traditional design can efficiently store and display a lot of merchandise with
long rows of floor-to-ceiling racks; however, this design is not good for a pleasant shopping
experience.
B) Retailers often make trade-offs between stimulating impulse purchases and making it easy to
buy products.
C) The trade-off between the ease of finding merchandise and providing an interesting shopping
experience is determined by the customer's shopping needs.
D) Specialty store retailers encourage the ease of finding merchandise rather than exploration.
E) Giving customers adequate space in which to shop has to be balanced with the use of scarce
resource for merchandise.
Answer: D
Explanation: Customers shopping for specialty goods like a computer, a home entertainment
center, or furniture are more likely to spend time in the store browsing, comparing, and talking
with the salesperson. Thus, specialty store retailers that offer this type of merchandise place more
emphasis on providing hedonic benefits and encouraging exploration than on making it easy to
find merchandise.
store.
Bloom's: Understand
19) The trade-off between ease of finding merchandise and providing a varied and interesting
layout is determined by
A) how often there is a shipment from the distribution center.
B) the simplicity of the merchandise.
C) well-trained, design-oriented managers.
D) the needs of the customers shopping at the store.
E) legal requirements.
Answer: D
Explanation: The trade-off between making it easy to find merchandise and providing an
interesting shopping experience is determined by the customer's shopping needs.
store.
Bloom's: Understand
AACSB: Analytic
8
20) The ________ is the phenomenon that occurs when a store is extremely cramped.
A) closing time effect
B) bystander effect
C) butt-brush effect
D) boomerang effect
E) conspicuous consumption effect
Answer: C
Explanation: Shoppers do not like it when a store is so cramped that they touch one another, a
phenomenon known as the "butt-brush effect."
store.
Bloom's: Remember
AACSB: Analytic
21) Which of the following is not an element considered in the design of a store?
A) Layout
B) Signage
C) Graphics
D) Attention getting feature areas
E) Recruitment
Answer: E
Explanation: All are elements considered in the design of the store except for recruitment.
Difficulty: 1 Easy
Bloom's: Understand
9
22) Which of the following store designs contains parallel aisles with merchandise on shelves on
both sides of the aisles?
A) Boutique layout
B) Free-form layout
C) Loop
D) Racetrack
E) Grid layout
Answer: E
Explanation: The grid layout has parallel aisles with merchandise on shelves on both sides of the
aisles. Cash registers are located at the entrances/exits of the stores.
Bloom's: Remember
AACSB: Analytic
23) When Raisa walked into the local convenience store, she saw it had parallel aisles with
shelves on either side. Immediately, she knew the retailer had used a ________ as a design for its
store.
A) racetrack layout
B) grid layout
C) loop
D) free-form layout
E) boutique layout
Answer: B
Explanation: The grid layout has parallel aisles with merchandise on shelves on both sides of the
aisles. Cash registers are located at the entrances/exits of the stores.
Difficulty: 1 Easy
Bloom's: Apply
AACSB: Analytic
10
24) Which of the following statements about a grid store layout is not true?
A) The amount of merchandise on the floor with a grid layout can be significantly greater than
with other types of layouts.
B) The grid layout is suitable for customers with hedonic needs.
C) There is little wasted space with a grid layout.
D) The grid layout is very cost-efficient.
E) The grid layout satisfies utilitarian needs of customers.
Answer: B
Explanation: A grid layout is suitable for customers with utilitarian needs who are not interested
in the hedonic benefits offered by visually exciting designs.
Bloom's: Understand
AACSB: Analytic
25) Which of the following statements does not describes the features of a grid layout?
A) It provides a visually exciting design.
B) It is well suited for shopping trips in which customers need to move throughout the entire
store and quickly locate products they want to buy.
C) It is well suited for grocery retailers.
D) It is cost efficient.
E) It efficiently utilizes vertical space.
Answer: A
Explanation: The grid layout is well suited for customers who are primarily interested in the
utilitarian benefits offered by the store. They are not interested in the hedonic benefits provided
by a visually exciting design.
Bloom's: Understand
AACSB: Analytic
11
26) Grid store layouts
A) encourage impulse purchasing.
B) are cost-efficient.
C) are also called loop layouts.
D) are one of the most aesthetically pleasing designs.
E) are used by specialty stores.
Answer: B
Explanation: A grid layout is very cost-efficient and is primarily used by grocery and discount
stores.
Difficulty: 1 Easy
Bloom's: Understand
AACSB: Analytic
27) Which store layout is used primarily by supermarkets and full-line discount stores?
A) Race track layout
B) Grid layout
C) Free form layout
D) Boutique layout
E) Gondola layout
Answer: B
Explanation: Most supermarkets and full-line discount stores use the grid layout, because this
design enables their customers to easily find the product they are looking for and minimizes the
time spent on a shopping task that most don't enjoy.
Difficulty: 1 Easy
Bloom's: Understand
AACSB: Analytic
12
28) Which of the following retailers is likely to use a grid store layout?
A) Essentials Supermarket
B) Janet's Boutique
C) Radiant Shoe Store
D) Linda's Beauty Salon
E) Zen's Coffee Shop
Answer: A
Explanation: Most supermarkets and full-line discount stores use the grid layout, because this
design enables their customers to easily find the product they are looking for and minimizes the
time spent on a shopping task that most don't enjoy.
Bloom's: Understand
29) Which of the following is a disadvantage to the grid layout?

A) It is costly to design.
B) Shrinkage is more likely to occur.
C) Customers typically aren't exposed to merchandise in the center store.
D) Wide aisles utilize expensive merchandise space.
E) Products are difficult for customers to find.
Answer: C
Explanation: One limitation of the grid layout, from the retailer's perspective, is that customers
typically aren't exposed to a lot of the merchandise in the center store, which limits unplanned
purchases.
Bloom's: Understand
AACSB: Analytic
13
30) A racetrack layout is also called a
A) loop layout.
B) fixture layout.
C) boutique layout.
D) gondola layout.
E) free-form layout.
Answer: A
Explanation: The racetrack layout, also known as a loop layout, is a store layout that provides a
major aisle that loops around the store to guide customer traffic around different departments
within the store.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
31) Which of the following retail stores is most likely to have a racetrack layout?
A) Star Tax Service
B) Essential supermarket
C) Ted's department store
D) Claire's Boutique
E) Linda's Beauty Salon
Answer: C
Explanation: The racetrack layout facilitates the goal of getting customers to see the
merchandise available in multiple departments and thus encourages unplanned purchasing.
Difficulty: 1 Easy
Bloom's: Apply
14
32) Which of the following statements is true about the racetrack layout?
A) It is also called the free-form layout.
B) It cannot be used in department stores because it makes large stores look cluttered.
C) It encourages unplanned purchasing.
D) It is not as aesthetically pleasing as the grid layout.
E) It is very cost-efficient.
Answer: C
Explanation: The racetrack layout facilitates the goal of getting customers to see the
merchandise available in multiple departments and thus encourages unplanned purchasing.
Difficulty: 1 Easy
Bloom's: Understand
AACSB: Analytic
33) Which of the following store designs has a point-of-sale terminal in each department?
A) Racetrack layout
B) Gondola layout
C) Grid layout
D) Boutique layout
E) Horsetrack layout
Answer: A
Explanation: Point-of-sale terminals are typically located in each department bordering the
racetrack.
Difficulty: 1 Easy
Bloom's: Understand
AACSB: Analytic
15
34) The ________ arranges fixtures and aisles asymmetrically.
A) racetrack layout
B) gondola layout
C) grid layout
D) loop layout
E) free-form layout
Answer: E
Explanation: The free-form layout arranges fixtures and aisles an asymmetric pattern to provide
an intimate, relaxing environment.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
35) Which of the following best describes the free-form layout?

A) It is very cost-efficient.
B) It uses repetitive, symmetrical patterns.
C) It enhances the utility of a store's selling space by its tight arrangements.
D) It is the least aesthetically pleasing of all the store layouts.
E) It is an aesthetically pleasing design and displays limited merchandise.
Answer: E
Explanation: A free-form layout, also known as boutique layout, arranges fixtures and aisles in
an asymmetric pattern. The shopping environment is aesthetically pleasing. In addition, the
layout reduces the amount of merchandise that can be displayed.
Bloom's: Understand
AACSB: Analytic
16
36) The free-form layout is also known as the
A) specialty layout.
B) boutique layout.
C) freedom layout.
D) loop layout.
E) format layout.
Answer: B
Explanation: A free-form layout, also known as boutique layout, arranges fixtures and aisles in
an asymmetric pattern.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
37) What is the advantage of the free-form layout to the consumer?

A) Customers are exposed to a large quantity of merchandise.
B) Customers can easily find merchandise in the store with this type of layout.
C) Customers feel they are in an intimate and relaxed environment and are more likely to buy.
D) The layout guides the customer through the store.
E) Customers can purchase merchandise at a lower price in this type of layout.
Answer: C
Explanation: The free-form layout provides an intimate, relaxing environment that facilitates
shopping and browsing.
Difficulty: 1 Easy
Bloom's: Understand
17
38) Reese designed his gift shop specializing in teen room decoration in a free-form layout. He
used music, lighting, and color to suit the teen tastes. What could Reese add to help customers
locate specific products and departments?
A) Discounts
B) Signage
C) Longer hours
D) Frequent sales
E) Advertisement in local teen hangouts
Answer: B
Explanation: Signage and graphics inside the store help customers locate specific products and
departments, provide product information, and suggest items or special purchases.
Difficulty: 1 Easy
Bloom's: Apply
39) Willa is the manager of a pet store and wants to display an advertisement for dog food on
sale in the store window. What type of signage should she use?
A) Promotional signage
B) Category signage
C) Locational signage
D) Point-of-sale signage
E) Lifestyle signage
Answer: A
Explanation: Promotional signage describes special offers and is found within the store or
displayed in windows to entice the customer into the store.
Difficulty: 1 Easy
Bloom's: Apply
18
40) William is always looking for a bargain and frequently visits the meat department to see the
markdowns for meat dated to be sold that day. He finds a signage stating a half-price sale. This
signage is an example of a
A) promotional signage.
B) category signage.
C) locational signage.
D) point-of-sale signage.
E) lifestyle signage.
Answer: D
Explanation: Point-of-sale signs are placed near the merchandise they refer to so that customers
know its price and other information.
Difficulty: 1 Easy
Bloom's: Apply
41) While shopping in the electronics department in Giantz, Sasha noticed an advertisement
about lay-away on the Giantz network broadcasted on a nearby television. Therefore, the store is
using ________ to deliver visual content.
A) digital imagery
B) digital signage
C) point-of-sale signage
D) sampling
E) corporate display advertising
Answer: B
Explanation: Digital signage includes signs whose visual content is delivered electronically
through a centrally managed and controlled network, distributed to servers in stores, and
displayed on flat-panel screens.
Difficulty: 1 Easy
Bloom's: Apply
19
42) Digital signage is visual content that is displayed on a monitor delivering video clips or price
of merchandise. Which of the following is not a benefit of digital signage?
A) The enhancement of the store environment
B) The displays of complex graphics and videos
C) The atmosphere it provides
D) The time to message hurdle
E) The cost of the display and devices
Answer: E
Explanation: The initial cost of the display devices and the system that supports the delivery of
signage can be quite high.
Difficulty: 1 Easy
Bloom's: Remember
43) When Joe visited Decors, he was surprised to see tea cups displayed up a wall almost to the
ceiling. The wall is an example of a
A) feature area.
B) digital signage.
C) planogram.
D) bulk fixture.
E) point-of-purchase.
Answer: A
Explanation: Feature areas are the areas within a store that are designed to get customers'
attention. They include freestanding displays, mannequins, end caps, promotional aisles or areas,
walls, dressing rooms, and cash wraps.
Bloom's: Apply
AACSB: Analytic
20
44) In Sid's Surf Shop, there is a 10-foot-long surf board on legs with swimwear on it near the
entrance to the department where surfing merchandise is sold. The surfboard attracts many
customers into that department. This is an example of a(n)
A) bulk fixture.
B) gondola display.
C) freestanding display.
D) cash wrap.
E) end cap.
Answer: C
Explanation: Freestanding displays are fixtures that are located on aisles and designed primarily
to attract customers' attention and bring them into a department.
Difficulty: 1 Easy
Bloom's: Apply
AACSB: Analytic
45) Which of the following does not describe an end cap?

A) They are displays located at the end of an aisle.
B) They have high visibility.
C) Product sales increase dramatically when merchandise is featured on an end cap.
D) Retailers use end caps for higher-margin, impulse, and sale merchandise.
E) They are most often used with a free-form layout.
Answer: E
Explanation: End caps are displays located at the end of an aisle in stores using a grid layout.
Bloom's: Understand
21
46) Bonnie wanted to buy a wreath for her home for Christmas. She found the wreaths at the
back of the local department store with other holiday cards, candy, and decorations. This special
section at the store is an example of a
A) bulk fixture.
B) freestanding fixture.
C) gondola display.
D) feature fixture.
E) promotional area.
Answer: E
Explanation: A promotional aisle or promotional area is a space used to display merchandise
that is being promoted. Drugstores, for instance, use promotional aisles to sell seasonal
merchandise, such as lawn and garden products in the summer and Christmas decorations in the
fall.
Difficulty: 1 Easy
Bloom's: Apply
AACSB: Analytic
47) End caps are used for

A) higher-margin, impulse, and sale merchandise.
B) displaying merchandise that is being promoted.
C) housing mannequins to display apparel.
D) supporting freestanding displays that attract customers.
E) supporting shelves and racks to be mounted on walls.
Answer: A
Explanation: End caps are displays located at the end of an aisle in stores using a grid layout.
Due to the high visibility of end caps, sales of a product increase dramatically when that
merchandise is featured on an end cap. Thus, retailers use end caps for higher-margin, impulse,
and sale merchandise.
Bloom's: Understand
AACSB: Analytic
22
48) At the home improvement store Home Fits, there is an area at the back that has one of three
categories of merchandise throughout the year. From January through March, the area has
organization and garage storage merchandise; from April through September, it has lawn,
garden, and patio merchandise; and from October through December, it has Christmas
merchandise. This special section at the store is an example of a(n)
A) consumer motivator.
B) freestanding fixture.
C) gondola display.
D) impulse product center.
E) promotional area.
Answer: E
Explanation: A promotional aisle or promotional area is a space used to display merchandise
that is being promoted. Drugstores, for instance, use promotional aisles to sell seasonal
merchandise, such as lawn and garden products in the summer and Christmas decorations in the
fall.
Difficulty: 1 Easy
Bloom's: Apply
AACSB: Analytic
49) As Garry was waiting to pay for a bottle of aspirin at a pharmacy, he added a copy of Us
Weekly, a Snickers bar, and a pack of cheese crackers to his purchases. The area where Garry
made his Us Weekly and Snickers selections is called a(n)
A) end cap.
B) cash wrap.
C) gondola display.
D) promotional area.
E) freestanding fixture.
Answer: B
Explanation: Cash wraps, also known as point-of-purchase (POP) counters or checkout areas,
are places in the store where customers can purchase merchandise. Because many customers go
to these areas and wait in line to make a purchase, retailers often use them to display impulse
purchase items.
Bloom's: Apply
AACSB: Analytic
23
50) Which of the following has the least consideration when a retailer is deciding how much
floor or shelf space to allocate to merchandise categories and brands?
A) The productivity of the allocated space
B) The impact on overall store sales
C) The display needs for the merchandise
D) The merchandise's inventory turnover
E) The color of the merchandise
Answer: E
Explanation: Some factors that retailers consider when deciding how much floor or shelf space
to allocate to merchandise categories and brands are (1) the productivity of the allocated space,
(2) the merchandise's inventory turnover, and (3) the display needs for the merchandise.
Although color could have an impact, it is certainly the very least of all of these.
Difficulty: 3 Hard
and categories.
Bloom's: Understand
51) ________ is a measure of space productivity used by retailers.

A) Price lining
B) Sales per square foot
C) Inventory turnover
D) Tonnage merchandising
E) Asset turnover
Answer: B
Explanation: Two commonly used measures of space productivity are sales per square foot and
sales per linear foot. Apparel retailers that display most of their merchandise on freestanding
fixtures typically measure space productivity as sales per square foot.
Difficulty: 1 Easy
and categories.
Bloom's: Remember
AACSB: Analytic
24
52) Apparel retailers that display most of their merchandise on freestanding fixtures typically
measure space productivity in terms of
A) sales per linear foot.
B) sales per square foot.
C) inventory turnover.
D) retained earnings.
E) asset turnover.
Answer: B
Explanation: Two commonly used measures of space productivity are sales per square foot and
sales per linear foot. Apparel retailers that display most of their merchandise on freestanding
fixtures typically measure space productivity as sales per square foot.
and categories.
Bloom's: Remember
AACSB: Analytic
53) Which of the following does not describe appropriate space management?
A) Merchandise categories with high GMROI merit more space than merchandise categories
with lower GMROI do.
B) Less space is allocated to fast-selling merchandise to allow more shelf space to encourage
sales of slower-moving items.
C) A retailer overallocates space to categories purchased by their platinum customers, the
customers with the highest lifetime value.
D) A retailer overallocates space to some low-productivity categories such as milk because an
extensive assortment in these categories attracts customers to the store and positively affects the
sales of categories with higher GMROIs.
E) High turnover items need to be restocked more frequently to avoid stockouts.
Answer: B
Explanation: Merchandise displayed on the shelf is depleted more quickly for items with high
inventory turnover. Thus, more space needs to be allocated to this fast-selling merchandise to
minimize the need to restock the shelf frequently and reduce stockouts.
and categories.
Bloom's: Apply
25
54) A(n) ________ creates the customer's first impression of the store's offering and is the area
where retailers place their most compelling merchandise.
A) strike zone
B) decompression zone
C) end cap
D) planogram
E) gondola
Answer: A
Explanation: Once through the decompression zone, customers often turn right (in Western
cultures) and observe the prices and quality of the first items they encounter. This area, referred
to as the strike zone, is critical, because it creates the customer's first impression of the store's
offering. Thus, retailers display some of their most compelling merchandise in the strike zone.
Difficulty: 1 Easy
and categories.
Bloom's: Remember
AACSB: Analytic
55) ________ refers to products that customers decided to buy before entering the store.
A) Impulse merchandise
B) Demand/destination merchandise
C) Special merchandise
D) Complementary merchandise
E) Promotion merchandise
Answer: B
Explanation: Demand/destination merchandise refers to products that customers have decided to
buy before entering the store.
Difficulty: 1 Easy
and categories.
Bloom's: Remember
AACSB: Analytic
26
56) Donna entered Bob's department store and went directly to the children's apparel department.
Therefore, the merchandise to be bought by Donna in the children's department is referred to as
A) promotional merchandise.
B) impulse merchandise.
C) special merchandise.
D) destination merchandise.
E) complementary merchandise.
Answer: D
Explanation: Demand/destination merchandise refers to products that customers have decided to
buy before entering the store.
Difficulty: 1 Easy
and categories.
Bloom's: Apply
AACSB: Analytic
57) Which of the following is not recommended as a merchandise location practice?

A) Retailers should strategically place impulse and demand/destination merchandise throughout
the store, so they can increase the chances that a customer will shop the entire store and focus on
the merchandise with a high GMROI.
B) Retailers should place merchandise with a high GMROI at or close to the store entrance to
attract customers' attentions and sell fast.
C) Retailers should display some of their most compelling merchandise in the strike zone to
create a desirable first impression of the store.
D) Retailers should display high GMROI products at the right-hand side of the store.
E) A retailer should strategically cluster complementary products together to facilitate multiple
purchases.
Answer: B
Explanation: The most heavily trafficked and viewed area is the right-hand side of the store
because most people turn right when they come into a store. By this point in their journey
through the store, customers have become accustomed to the environment, have developed a first
impression, and are ready to make purchase decisions. Thus the right-hand side is a prime area
for displaying high-GMROI merchandise.
and categories.
Bloom's: Understand
27
58) Which of the following locations in a store is the most appropriate to place high-margin
products?
A) The store entrance
B) Center aisles
C) End caps
D) Right-hand side
E) Left-hand side
Answer: D
Explanation: Most customers in Western cultures will turn right after entering a store and then
begin to notice merchandise. Thus the right-hand side of the store can be the most profitable area
of the store.
and categories.
Bloom's: Understand
AACSB: Analytic
59) Which of the following locations is the most appropriate to place impulse products?
A) Near the front of the store
B) Center aisles
C) Left-hand size of the store
D) Right-hand side of the store
E) Strike zone
Answer: A
Explanation: Impulse products, or products that are purchased without planning, such as
fragrances and cosmetics in department stores and magazines in supermarkets, are almost always
located near the front of the store where they're seen by everyone and may actually draw people
into the store.
Difficulty: 1 Easy
and categories.
Bloom's: Understand
AACSB: Analytic
28
60) Which of the following statements on the location of departments within retail department
and discount stores is true?
A) Most customers are drawn into the center of a store by the use of a free-form design.
B) In a multilevel store, a space's value increases the farther it is from the entry-level floor.
C) Impulse products are mostly located at the back of the store.
D) Because many customers turn left when entering a store, the left side is especially desirable
floor space.
E) The best locations on any floor are those that are closest to the store's entrances, main aisles,
escalators, and elevators.
Answer: E
Explanation: The prime store locations for selling merchandise are heavily trafficked areas such
as 10 feet beyond the entrance on the right side of the store and areas near escalators and cash
wraps. In multilevel stores, a space's value decreases the farther it is from the entry-level floor.
and categories.
Bloom's: Understand
61) A diagram that shows how and where specific products should be placed on retail shelves or
displays to increase customer purchases is called a(n)
A) hologram.
B) allocation plan.
C) placement plan.
D) planogram.
E) assortment plan.
Answer: D
Explanation: A planogram is a diagram that shows how and where specific SKUs should be
placed on retail shelves or displays to increase customer purchases.
Difficulty: 1 Easy
and categories.
Bloom's: Remember
29
62) On the basis of the analysis of historical sales, gross margins, turnover, the sizes of product
packaging for each SKU, and the retailer's design criteria, a software can determine the optimal
shelf space and location for each SKU. This describes the process of creating an effective
A) merchandise plan.
B) allocation plan.
C) placement plan.
D) planogram.
E) assortment plan.
Answer: D
Explanation: A planogram is a diagram that shows how and where specific SKUs should be
placed on retail shelves or displays to increase customer purchases.
Difficulty: 1 Easy
and categories.
Bloom's: Remember
63) In which of the following stores would you be most likely to encounter a straight rack?
A) Fresh Ones, a florist
B) Ted's department store
C) Dream Toys
D) Dailies supermarkets
E) Jenny's Hair Salon
Answer: B
Explanation: The straight rack consists of a long pipe balanced between supports in the floor or
attached to a wall. Although the straight rack can hold a lot of apparel, it cannot effectively
feature specific styles or colors. Straight racks are often found in discount and off-price apparel
stores.
Bloom's: Apply
AACSB: Analytic
30
64) A(n) ________ has two crossbars that sit perpendicularly on a pedestal.
A) end cap
B) rounder
C) straight rack
D) feature fixture
E) gondola
Answer: D
Explanation: A four-way fixture, also known as a feature fixture, has two crossbars that sit
perpendicularly on a pedestal. This fixture holds a large amount of merchandise and allows the
customer to view the entire garment.
Bloom's: Remember
AACSB: Analytic
65) In which of the following stores would you be most likely to encounter a rounder as a
common fixture?
A) Penny's, an off-price clothing retailer
B) Sherlock, a store for mystery-book lovers
C) The Beer House, a store that sells everything you need to brew your own beer
D) Simon's drugstores
E) Rose Antique Mall
Answer: A
Explanation: Because they are easy to move and efficiently store apparel, rounders are found in
most types of apparel stores.
Bloom's: Apply
AACSB: Analytic
31
66) In which of the following stores would you be most likely to encounter a four-way fixture?
A) Dazzle, a fashion apparel store
B) Pet Mall, a pet store
C) Farm Foods, an organic produce store
D) Harris Music Store, retailer of musical instruments
E) Globes, a retailer of antique atlases, maps, and globes
Answer: A
Explanation: A four-way fixture holds a large amount of merchandise and allows the customer
to view the entire garment. Due to their superior display properties, four-way fixtures are
commonly utilized by fashion-oriented apparel retailers.
Bloom's: Apply
AACSB: Analytic
67) Dana is planning on renovating her kitchen. When she went into a home improvement store,
she admired the various model kitchens the store had set up. Each kitchen used a different style
and color scheme and allowed Dana to consider the possible themes she could use. Which
merchandise presentation technique is the store utilizing?
A) Store-oriented presentation
B) Vertical merchandising
C) Idea-oriented presentation
D) Tonnage merchandizing
E) Item and size presentation
Answer: C
Explanation: Some retailers use an idea-oriented presentation—a method of presenting
merchandise based on a specific idea or the image of the store. Individual items are grouped to
show customers how the items could be used and combined.
Bloom's: Apply
AACSB: Analytic
32
68) ________ is used to present products when retailers offer a limited number of predetermined
price points within a product classification category.
A) Flexible pricing
B) Competitive pricing
C) Price presentation
D) Price lining
E) Vertical merchandising
Answer: D
Explanation: Price lining occurs when retailers offer a limited number of predetermined price
points and/or price categories within another classification that are merchandised together.
Bloom's: Remember
AACSB: Analytic
69) When Lena went to buy walking shorts, she first noticed the store had three racks of shorts.
Then, she noticed all the shorts on one rack were $14.99, all the shorts on the second rack were
priced at $19.99, and all the shorts on the third rack were priced at $24.99. What type of
merchandise presentation did Lena see?
A) Price lining
B) Idea-oriented presentation
C) Tonnage merchandising
D) Frontal presentation
E) Gondola presentation
Answer: A
Explanation: Price lining occurs when retailers offer a limited number of predetermined price
points in order to help customer easily find merchandise at the price they wish to pay.
Difficulty: 1 Easy
Bloom's: Apply
AACSB: Analytic
33
70) By using ________, stores can effectively organize merchandise to follow the eye's natural
movement.
A) vertical merchandising
B) diagonal organization
C) purchase visibility
D) rounder displays
E) a page format
Answer: A
Explanation: In vertical merchandising, merchandise is presented vertically using walls and high
gondolas. Costumers shop much as they read a newspaper, from left to right, going down each
column, top to bottom. Stores can effectively organize merchandise to follow the eye's natural
movements.
Bloom's: Remember
AACSB: Analytic
71) ________ is a display technique in which large quantities of merchandise are displayed
together.
A) Price lining
B) Merchandise highlighting
C) Frontal presentation
D) Tonnage merchandising
E) Style/item presentation
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
34
72) Sam's merchandise is sold in large quantities and stacked high on metal shelving. This
merchandising gives the customer a message of low prices. Which of the following
merchandising techniques is Sam's using?
A) Tonnage merchandising
B) Price lining
C) Color presentation
D) Frontage presentation
E) Atmospherics
Answer: A
Difficulty: 1 Easy
Bloom's: Apply
73) ________ is in the middle of each aisle of a grid layout where less compelling or exciting
products are displayed.
A) Tonnage merchandising
B) Vertical merchandising
C) Mass marketing
D) Product visibility
E) The center store
Answer: E
Explanation: The center store refers to the middle of each aisle, where most grocers and other
retailers using a grid layout stock seemingly less compelling or exciting products, though ones
that consumers still require.
Difficulty: 1 Easy
Bloom's: Remember
35
74) ________ refers to the design of an environment by stimulation of the five senses.
A) Atmospherics
B) Ecoscaping
C) Terraforming
D) Arboriculture
E) Showrooming
Answer: A
Explanation: Atmospherics refers to the design of an environment by stimulation of the five
senses. Many retailers have discovered the subtle benefits of developing atmospherics that
complement other aspects of the store design and the merchandise.
experience.
Bloom's: Remember
AACSB: Analytic
75) As you enter Yesteryear, a vintage clothing boutique, you're aware of how inviting the store
is for browsers. The entire lighting is from floor and table lamps. The music plays Benny
Goodman serenades, and the air smells like powder. The walls are covered in vintage floral
wallpaper. This design that stimulates customers' senses is called
A) ecoscaping.
B) terraforming.
C) arboriculture.
D) atmospherics.
E) showrooming.
Answer: D
Explanation: Atmospherics refers to the design of an environment by stimulation of the five
senses. Many retailers have discovered the subtle benefits of developing atmospherics that
complement other aspects of the store design and the merchandise.
Difficulty: 1 Easy
experience.
Bloom's: Apply
AACSB: Analytic
36
76) Which of the following statements is true of lighting when creating an appealing store
atmosphere?
A) It captures a mood or feeling that enhances the store's image.
B) Good lighting is limited to illumination of a store's space.
C) A store's lighting generally does not have an impact on customers.
D) Focusing lights on the store's architecture strategically draws customers through the store.
E) All of these.
Answer: A
Explanation: Lighting can highlight merchandise and capture a mood or feeling that enhances
the store's image.
Difficulty: 1 Easy
experience.
Bloom's: Understand
AACSB: Analytic
77) Which colors would be best suited to produce emotional, vibrant, hot, and active responses
from customers?
A) Blue and green tones
B) All the colors of the rainbow
C) White, eggshell, ecru, and other white hues
D) Red, gold, and yellow tones
E) Pink, red, and magenta tones
Answer: D
Explanation: Warm colors (red, gold, and yellow) produce emotional, vibrant, hot, and active
responses.
Difficulty: 1 Easy
experience.
Bloom's: Remember
37
78) Customers shopping in a scented store
A) feel no significance difference in the shopping experience.
B) tend to spend less time in the store.
C) think they spent less time in shopping.
D) feel they wait a long time for checking out.
E) always make impulsive purchases.
Answer: C
Explanation: Scent has a large impact on customer's mood and emotions. Customers in scented
stores think they spent less time in the store than do those in unscented stores. Scents thus can
improve customers' subjective shopping experience by making them feel that they are spending
less time examining merchandise, waiting for sales help, or checking out.
experience.
Bloom's: Understand
79) Which of the following statements about the use of scent to change or augment the
atmospherics in a store is true?
A) The methods used to introduce scent into a store are relatively expensive.
B) Scents can improve customers' subjective shopping experience.
C) The age of the target market does not affect the way scents are received and decoded.
D) There are no ethnic differences in the way scents are received and decoded.
E) Scents can make customers think they spent a longer time in a store.
Answer: B
Explanation: Scents can improve customers' subjective shopping experience by making them
feel that they are spending less time examining merchandise, waiting for sales help, or checking
out.
experience.
Bloom's: Understand
38
80) What are the basic shopping goals of a customer that depend on a store's environment?
A) Task completion and recreation
B) Sale shopping and bargain hunting
C) Customer satisfaction and customer service
D) Bulk purchasing and bulk breaking
E) Entertainment and exercise
Answer: A
Explanation: Customers have two goals; a utilitarian goal of task completion and a hedonic goal
of recreation.
experience.
Bloom's: Understand
AACSB: Analytic
81) What are the objectives that must be met when managers are designing or redesigning a
store?
Answer: Some store design objectives are to (1) implement the retailer's strategy, (2) build
loyalty by providing a rewarding shopping experience, (3) increase sales on a visit, (4) control
costs, and (5) meet legal requirements.
store.
Bloom's: Understand
82) How does flexibility become an important aspect when controlling costs?
Answer: An important design consideration related to controlling cost is flexibility. Retailing is

a very dynamic business. Competitors enter a market and cause existing retailers to change the
mix of merchandise offered. As the merchandise mix changes, so must the space allocated to
merchandise categories and the layout of the store change. Thus, store designers attempt to
design stores with maximum flexibility.
store.
Bloom's: Understand
39
40
83) What are the advantages and disadvantages of a grid layout?
Answer: The grid layout is cost-efficient. There's less wasted space with the grid layout than
with other layouts because the aisles are all the same width and designed to be just wide enough
to accommodate shoppers and their carts. The use of high shelves for merchandise enables more
merchandise to be on the sales floor compared with other layouts. Finally, because the fixtures
are generally standardized, the cost of the fixtures is low.
One limitation of the grid layout, from the retailer's perspective, is that customers typically aren't
exposed to a lot of the merchandise in the center store, which limits unplanned purchases. The
center store refers to the middle of each aisle, where most grocers and other retailers using a grid
layout stock seemingly less compelling or exciting products, though ones that consumers still
require.
Bloom's: Understand
84) How is an end cap an effective display?
Answer: End caps are displays located at the end of an aisle in stores using a grid layout. End
caps have high visibility. Retailers use end caps to merchandise seasonal, temporary, or
promotional items as well as high-margin items. Product sales increase dramatically when
merchandise is featured on an end cap.
Bloom's: Understand
85) What is the rationale behind placing destination merchandise throughout the store?
Answer: By strategically placing impulse and demand/destination merchandise throughout the

store, retailers increase the chances that customers will shop the entire store and that their
attention will be focused on the merchandise that the retailer is most interested in selling—
merchandise with a high GMROI. Demand/destination merchandise refers to products that
customers have decided to buy before entering the store.
Difficulty: 1 Easy
and categories.
Bloom's: Understand
41
86) Why are demand and promotional merchandise placed in the back left-hand corner of the
store?
Answer: Demand merchandise and promotional merchandise are often placed in the back left-
hand corner of the store. Placing high-demand merchandise in this location pulls customers
through the store, increasing the visibility of other products along the way. So supermarkets
typically put items almost everyone buys—milk, eggs, butter, and bread—in the back left-hand
corner.
and categories.
Bloom's: Understand
87) Explain the use of a gondola as a fixture.
Answer: A gondola is an island type of self-service counter with tiers of shelves, bins, or pegs.
Because they are extremely versatile, they are used extensively, but not exclusively, in grocery
and discount stores to display everything from canned foods to baseball gloves. Gondolas are
also found displaying towels, sheets, and housewares in department stores. Folded apparel can be
efficiently displayed on gondolas as well, but because the items are folded, it's even harder for
customers to view apparel on gondolas than it is on straight racks.
Bloom's: Understand
88) Explain the concept of vertical merchandising.
Answer: In vertical merchandising, merchandise is presented vertically using walls and high
gondolas. Customers shop much as they read a newspaper—from left to right, going down each
column, top to bottom. Stores can effectively organize merchandise to follow the eye's natural
movement. Retailers take advantage of this tendency in several ways. Many grocery stores put
national brands at eye level and store brands on lower shelves because customers scan from eye
level down. In addition, retailers often display merchandise in bold vertical bands of an item.
Bloom's: Understand
42
89) How does smell impact customers' mood and emotions?
Answer: Smell has a large impact on customer's mood and emotions. In conjunction with music,
it can increase customers' excitement and satisfaction with the shopping experience. Customers
in scented stores think they spent less time in the store than do those in unscented stores. Scents
thus can improve customers' subjective shopping experience by making them feel that they are
spending less time examining merchandise, waiting for sales help, or checking out.
experience.
Bloom's: Understand
90) What are the two basic shopping goals and how can the impact of a store's environment
influence the customer's shopping goals?
Answer: The impact of the store's environment depends on the customer's shopping goals. The
two basic shopping goals are task completion and recreation. In task completion, the shopper
wants the environment to be soothing and simple as they already view the outing as unrewarding.
When shopping for recreation, the environment can be exciting, complex with fast music, bright
lighting, and red-yellow colors.
experience.
Bloom's: Understand
43
Chapter 17 Customer Service
1) A standardized service approach requires that service providers tailor their services to meet
each customer's personal needs.
Answer: FALSE
Explanation: Personalized service requires that service providers tailor their services to meet
Difficulty: 1 Easy
Topic: Strategic Advantage through Customer Service
Learning Objective: 17-01 Identify how retailers balance customer service through
personalization versus standardization.
Bloom's: Remember
AACSB: Analytic
2) McDonald's, with its use of specific policies and procedures to provide an acceptable,
consistent service quality, would best be described as using the personalized approach for
customer service.
Answer: FALSE
Explanation: Standardized services are based on establishing a set of rules and procedures and
being sure that they are implemented consistently. McDonald's and other quick-service
restaurants standardize the service they offer by developing a set of policies and procedures to
provide an acceptable, consistent service quality.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
3) Customers are satisfied when their expectations exceed the perceived service.
Answer: FALSE
Explanation: Customers are satisfied when the perceived service meets or exceeds their
expectations. Customers' perceptions of a retailer's customer service depend on the actual service
delivered.
Difficulty: 1 Easy
Topic: Customer Evaluations of Service Quality
Learning Objective: 17-02 Explain how customers evaluate a retailer's customer service.
Bloom's: Remember
1
2
4) Customer expectations are based on a customer's knowledge and experiences.
Answer: TRUE
Explanation: Customer expectations are based on a customer's knowledge and experiences. For
example, on the basis of past experiences, customers have different expectations for the quality
of service offered by different types of retailers.
Difficulty: 1 Easy
Bloom's: Remember
5) Empathy refers to the caring, individualized attention provided to customers.
Answer: TRUE
Explanation: Empathy is the caring individualized attention given to customers. Sales
representatives often proactively call customers to alert them to new shipments of their favorite
brands.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
6) Retailers can reduce the knowledge gap and develop a better understanding of customer
expectations by undertaking customer research.
Answer: TRUE
Explanation: Retailers can reduce the knowledge gap and develop a better understanding of
customer expectations by undertaking customer research, increasing interactions between retail
managers and customers, and improving communication between managers and the employees
who provide customer service.
Difficulty: 1 Easy
Topic: Improving Retail Customer Service Quality
Learning Objective: 17-03 Indicate the activities a retailer can undertake to provide high-quality
customer service.
Bloom's: Remember
AACSB: Analytic
3
7) To reduce the delivery gap and provide a consistent service, retailers should ensure that
employees get approval from their managers before making any decisions regarding customer
service.
Answer: FALSE
Explanation: To reduce the delivery gap and provide service that exceeds standards, retailers
must give service providers the necessary information and training and empower employees to
act in the customers' and firm's best interests.
customer service.
Bloom's: Understand
8) Empowerment means allowing employees at a firm's lowest levels to make important

decisions regarding how service will be provided to customers.
Answer: TRUE
Explanation: Empowerment means allowing employees at the firm's lowest levels to make
important decisions regarding how service will be provided to customers. When the employees
responsible for providing service are authorized to make important decisions, service quality
improves.
customer service.
Bloom's: Remember
AACSB: Analytic
9) The steps in effective service recovery are listening to the customer, providing a fair solution,
and resolving the problem quickly.
Answer: TRUE
Explanation: The steps in effective service recovery are (1) listen to the customer, (2) provide a
fair solution, and (3) resolve the problem quickly.
Topic: Service Recovery
Learning Objective: 17-04 Articulate retailers' service failure strategies.
Bloom's: Remember
4
10) Procedural fairness is a customer's perception of the benefits received compared with his or
her costs in terms of inconvenience or monetary loss.
Answer: FALSE
Explanation: Distributive fairness is a customer's perception of the benefits received compared
with his or her costs in terms of inconvenience or monetary loss.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
11) Which of the following statements is true of customer service?

A) The retail offerings of a company are not influenced by customer service.
B) It is relatively easy for a company to duplicate the services offered by a competitor.
C) It does not provide major strategic advantages for a company.
D) It increases the value customers receive from the merchandise they buy.
E) Customer service perceptions are developed mostly by interacting with top management.
Answer: D
Explanation: Customer service describes the set of activities and programs undertaken by
retailers to make the shopping experience more rewarding. These activities increase the value
customers receive from the merchandise and services they purchase. Many stores differentiate
their retail offerings, build customer loyalty, and develop sustainable competitive advantages by
providing excellent customer service.
Difficulty: 1 Easy
Bloom's: Understand
5
12) Providing high-quality service is difficult for a retailer because
A) competitors often easily duplicate the services.
B) services availed by customers are generally tangible.
C) most employees show a similar performance level.
D) the quality of service can vary dramatically across stores.
E) all employees are not involved in activities that increase customer value.
Answer: D
Explanation: The quality of retail service can vary dramatically from store to store and from
sales associate to sales associate within a store. For retailers, it becomes difficult to control the
performance of employees who provide service because they are not machines that can be
programmed. Sales associates have good days and bad days and, thus, may provide great service
to one customer and poor service to the next.
Bloom's: Understand
AACSB: Analytic
13) Richard purchased a coffee maker from Amazon. As he was completing his purchase, the
site suggested some brands of coffee for him to purchase. This is an example of
A) standardization.
B) information overload.
C) mobile marketing.
D) sales promotion.
E) personalization.
Answer: E
Explanation: Another version of personalization relies on the combination of recommendation
engines with a database of customer transactions. At the appropriate moment—generally when
you're about to make a retail purchase—the engine subtly makes a product suggestion. Amazon
was the pioneer of automated recommendations, but the service has now been adopted by other
retailers.
Difficulty: 1 Easy
Bloom's: Understand
AACSB: Analytic
6
14) ________ makes it hard to provide and maintain high-quality service because retailers
cannot easily measure or check the service before it gets delivered to customers.
A) Intangibility
B) Flexibility
C) Assurance
D) Empathy
E) Instrumental support
Answer: A
Explanation: Intangibility makes it hard to provide and maintain high-quality service because
retailers cannot easily measure or check the service before it gets delivered to customers.
Bloom's: Understand
AACSB: Analytic
15) Catherine visited American Eagle, an apparel store, to browse through the new spring
collection. The sales associate greeted her when she entered the store, showed her the new
collection, and stayed with her throughout her shopping experience, bringing her additional items
while Catherine was in the dressing room. This sales service can best be described as
A) a standardized service.
B) wardrobing.
C) micromanagement.
D) a personalized service.
E) a perceived service.
Answer: D
each customer's personal needs. Successful implementation of the personalized service relies on
sales associates or the "personalization" offered by the retailer's electronic channel.
Bloom's: Apply
AACSB: Analytic
7
16) Personalized service
A) does not require trained employees.
B) is more consistent than standardized service.
C) increases the consistency of service quality.
D) is based on establishing a set of rules for providing service.
E) depends on the judgment and capability of service providers.
Answer: E
Explanation: The delivery of personalized service depends on the judgment and capabilities of
each service provider. Some service providers are better than others, and even the best service
providers can have a bad day. In addition, providing consistent, high-quality personalized service
is costly because well-trained service providers or sophisticated computer software generally are
needed to implement the service.
Bloom's: Understand
AACSB: Analytic
17) A shopper is most likely to receive standardized customer service in

A) McDonald's.
B) Nordstrom.
C) Ritz Carlton Hotel.
D) Bass Pro Shops.
E) Marriott Hotel.
Answer: A
Explanation: Standardized service is based on establishing a set of rules and procedures for
providing high-quality service and ensuring that they get implemented consistently. For example,
McDonald's and other quick-service restaurants develop and strictly enforce a set of policies and
procedures to provide an acceptable, consistent service quality.
Bloom's: Understand
AACSB: Analytic
8
18) Glamour Looks is a beauty salon. It offers various skin and hair treatment packages based on
customer requests. Which of the following types of services is Glamour Looks offering?
A) Standardized service
B) Wardrobing
C) Micromanagement
D) Perceived service
E) Personalized service
Answer: E
Bloom's: Apply
AACSB: Analytic
19) Bronson has shopped at several toy stores. However, he really likes The Toy Corner because
of the broad assortment offered for different age groups. Moreover, if a particular toy is not
available at the store, Bronson can place an order and have it delivered directly to his home at a
discounted price. Hence, Bronson feels that the service offered by The Toy Corner
A) is poor due to lack of instrumental support.
B) does not conform to promised delivery dates.
C) exceeds customer expectations.
D) does not provide value to customers.
E) is limited to specific customers.
Answer: C
Explanation: Customers are satisfied when the perceived service meets or exceeds their
expectations.
Bloom's: Apply
9
20) Which of the following statements is true of perceived service?
A) Retailers need to consider only the actual customer service delivered in order to build a
reputation.
B) Employees providing the service do not have an impact on customer satisfaction.
C) Customers' perceptions of a retailer's customer service depend on the actual service delivered.
D) Customers are influenced solely by the outcome of the service.
E) The store design and policies do not impact the service.
Answer: C
Explanation: Customers' perceptions of a retailer's customer service depend on the actual service
delivered. Customers are often influenced by the manner in which employees provide the
service, not just the outcome.
Difficulty: 1 Easy
Bloom's: Understand
21) Which of the following factors does not affect customers' perceptions of service quality?
A) Reliability
B) Assurance
C) Tangibility
D) Responsiveness
E) Triviality
Answer: E
Explanation: Five customer service characteristics that affect perceptions of service quality are
reliability, assurance, tangibility, empathy, and responsiveness.
Bloom's: Remember
10
22) ________ is the ability to perform the service dependably, accurately, and as promised.
A) Reliability
B) Assurance
C) Tangibility
D) Empathy
E) Responsiveness
Answer: A
Explanation: Reliability is the ability to perform the service dependably and accurately, such as
performing the service as promised or contracted or meeting promised delivery dates.
Difficulty: 1 Easy
Bloom's: Remember
23) ________ is the knowledge and courtesy of employees and their ability to convey trust and
confidence.
A) Reliability
B) Assurance
C) Tangibility
D) Empathy
E) Responsiveness
Answer: B
Explanation: Assurance is the knowledge and courtesy of employees and their ability to convey
trust and confidence. Looking out for what is best for the customer is the best strategy for long-
term customer retention.
Bloom's: Remember
11
24) Karen ordered four books from Book Your Choice.com. She was informed that her order
would be processed in two working days and she would receive the books three days from the
date of ordering. The books were promptly delivered on the third day. Karen was immensely
satisfied with the service provided by the website. Which customer service characteristic
affecting perceptions of service quality is seen in the given scenario?
A) Instrumental support
B) Empathy
C) Tangibility
D) Reliability
E) Distributive fairness
Answer: D
Explanation: Reliability is the ability to perform the service dependably and accurately, such as
performing the service as promised or contracted or meeting promised delivery dates.
Bloom's: Apply
25) ________ helps in the prompt resolution of service issues.

A) Procedural rigidity
B) Intangibility
C) Employee empowerment
D) Knowledge gap
E) Service gap
Answer: C
Explanation: One way to promptly solve service issues is to empower employees.
Difficulty: 1 Easy
Bloom's: Understand
AACSB: Analytic
12
26) ________ means to provide customer service personnel and sales associates that really want
to help customers and provide prompt service.
A) Reliability
B) Assurance
C) Tangibility
D) Empathy
E) Responsiveness
Answer: E
Explanation: Responsiveness is to provide customer service personnel and sales associates that
really want to help customers and provide prompt service.
Difficulty: 1 Easy
Bloom's: Remember
27) Dust-free, clean, and organized stores with updated dressing rooms and kiosks are examples
of a retailer's commitment to customer service through
A) reliability.
B) assurance.
C) tangibility.
D) empathy.
E) responsiveness.
Answer: C
Explanation: Tangibility is associated with the appearances of physical facilities, equipment,
personnel, and communication materials.
Difficulty: 1 Easy
Bloom's: Apply
AACSB: Analytic
13
28) When the customer's perception of the service delivered by a retailer fails to meet the
customer's expectations, a(n) ________ results.
A) standardized service
B) service gap
C) personalized service
D) procedural fairness
E) assurance
Answer: B
Explanation: When the customer's perception of the service delivered by a retailer fails to meet
the customer's expectations, a service gap results.
Difficulty: 1 Easy
customer service.
Bloom's: Remember
29) When Donna ordered a refrigerator, she expected the people who delivered it to install the
refrigerator. However, the refrigerator was left at her door, and Donna's expectations were not
met. Which of the following terms best describes the given scenario?
A) Procedural fairness
B) Distributive fairness
C) Learned response
D) Service gap
E) Services cape
Answer: D
Explanation: A service gap occurs when the customer's perception of the service delivered by a
retailer fails to meet the customer's expectations.
customer service.
Bloom's: Apply
14
30) Autumn calls the most reputable plumber in the community to repair the faucet in her
kitchen. She pays the plumber for his work. However, the next day, Autumn sees the faucet
leaking again and is stunned to see the repair was done with a strip of duct tape. This reaction
from Autumn can be attributed to a(n)
A) faulty service agreement.
B) procedural fairness.
C) services cape.
D) service gap.
E) motivational guide.
Answer: D
Explanation: A service gap refers to the difference between the customer's expectations and the
customer's perception of customer service.
customer service.
Bloom's: Apply
31) Which of the following terms is not one of the gaps that contributes to the service gap?
A) Knowledge gap
B) Standards gap
C) Performance gap
D) Communication gap
E) Delivery gap
Answer: C
Explanation: A service gap refers to the difference between the customer's expectations and the
customer's perception of customer service. There are four gaps which contribute to the service
gap: knowledge gap, standards gap, communication gap, and delivery gap.
Difficulty: 1 Easy
customer service.
Bloom's: Remember
AACSB: Analytic
15
32) A retailer would be reducing the ________ by developing a better understanding of customer
expectations and perceptions.
A) communications gap
B) standards gap
C) performance gap
D) knowledge gap
E) delivery gap
Answer: D
Explanation: The knowledge gap reflects the difference between customers' expectations and the
retailer's perception of those customer expectations. Retailers can close this gap by developing a
better understanding of customer expectations and perceptions.
Difficulty: 1 Easy
customer service.
Bloom's: Remember
33) When Amir opened his seafood market in Alabama, he was amazed at the number of
customers who asked him to clean and prepare the fresh lobster, shrimp, and crawfish they had
just purchased. When setting up his store, he had not set aside a place for performing this service.
Therefore, a ________ resulted which could have been overcome by Amir through customer
research.
A) brand gap
B) knowledge gap
C) delivery gap
D) standards gap
E) communication gap
Answer: B
Explanation: Retailers can reduce the knowledge gap and develop a better understanding of
who provide customer service.
customer service.
Bloom's: Apply
16
34) An electronic retailer surveys its customers to understand the factors that they consider
before making a purchase decision. The retailer is trying to bridge the ________ by using
customer research.
A) delivery gap
B) standards gap
C) performance gap
D) knowledge gap
E) communication gap
Answer: D
retailer's perception of those customer expectations. Retailers can reduce the knowledge gap and
develop a better understanding of customer expectations by undertaking customer research.
customer service.
Bloom's: Apply
35) When Peridot, a department store, centralized all its buying activities, the store and
department managers were able to spend more time working with sales associates and talking
with customers. As a result, the company was able to better understand the expectations of the
customers. Which of the following gaps was reduced as a result of the centralization process?
A) Knowledge gap
B) Communication gap
C) Delivery gap
D) Standards gap
E) Research gap
Answer: A
retailer's perception of those customer expectations. Retailers can reduce the knowledge gap and
develop a better understanding of customer expectations by undertaking customer research,
increasing interactions between retail managers and customers, and improving communication
between managers and the employees who provide customer service.
customer service.
Bloom's: Apply
17
36) Six weeks after Samuel purchased six portable computers for his realty business, he was
called by the retailer who sold him the computers and asked if he was satisfied with the purchase
and if there was anything that he would change about the way the store does business. In this
scenario, the retailer is trying to reduce its
A) delivery gap.
B) standards gap.
C) production gap.
D) knowledge gap.
E) communication gap.
Answer: D
Explanation: The knowledge gap can be reduced by interacting with customers. Some retailers
call customers and ask them what they liked or did not like about the store.
customer service.
Bloom's: Apply
37) The ________ can be closed by developing specific guidelines and systems for delivering
high-quality service.
A) communication gap
B) standards gap
C) research gap
D) knowledge gap
E) delivery gap
Answer: B
Explanation: A standards gap refers to the difference between the retailer's knowledge of
customers' perceptions and expectations and the service standards it sets. To close the standards
gap, retailers need to commit to providing high-quality service, define the role of service
providers, set service goals, and measure service performance.
customer service.
Bloom's: Remember
AACSB: Analytic
18
38) Customers at Chapter One Bookstore complained about how long they had to wait while the
sales clerk manually checked the books to see which ones were available in the store's inventory.
The owner, therefore, decided to install a computer and database management program to
manage the store's inventory. Implementing customers' feedback and using technology reduced
the store's
A) communication gap.
B) standards gap.
C) research gap.
D) brand gap.
E) knowledge gap.
Answer: B
customers' perceptions and expectations and the service standards it sets. After retailers gather
information about customer service expectations and perceptions, the next step is to use this
information to set standards and develop systems for delivering high-quality service.
customer service.
Bloom's: Apply
39) Jane, the manager of a bookstore at Warren Wilson College, hires additional employees
during the first few weeks of each semester but does not clearly define their responsibilities.
Hence, during busy times, the students end up waiting for more than ten minutes to check out
because there are not enough clerks ringing up sales. Some students get frustrated and leave
without buying. This situation indicates a
A) standards gap.
B) communication gap.
C) brand gap.
D) research gap.
E) delivery gap.
Answer: A
customers' perceptions and expectations and the service standards it sets. To close the standards
gap, retailers need to be committed to providing high-quality service, define the role of service
providers, set service goals, and measure service performance.
customer service.
Bloom's: Apply
AACSB: Analytic
19
40) Service excellence will occur only when the
A) top management provides leadership and demonstrates commitment.
B) top management refrains from empowering front-line service providers.
C) top management centralizes its decision-making activities.
D) retailer sets service standards based on internal operations rather than customers' perceptions.
E) retailer provides standardized services rather than personalized services when purchase
decisions involve high risks.
Answer: A
Explanation: Service excellence is achieved only when top management provides leadership and
demonstrates commitment. Top management must be willing to accept the temporary difficulties
and even the increased costs associated with improving service quality.
customer service.
Bloom's: Understand
41) Who among the following would be the best person to make sure that high-quality customer
service standards are achieved by retailers?
A) Human resources manager
B) Marketing manager
C) Store manager
D) Advertising manager
E) Financial manager
Answer: C
Explanation: Top management's commitment sets service quality standards, but store managers
are the key to achieving those standards.
customer service.
Bloom's: Understand
AACSB: Analytic
20
42) At the Sonic Drive-In restaurant, employees are timed to measure how quickly an order is
taken and delivered to customers. When employees' performance consistently meets or exceeds
the norms, the restaurant manager gives them a $10.00 bonus check. The purpose of this
incentive is to reduce the
A) communication gap.
B) research gap.
C) standards gap.
D) knowledge gap.
E) brand gap.
Answer: C
Explanation: Top management's commitment sets service quality standards, but store managers
are the key to achieving those standards. Providing incentives based on service quality makes
service an important personal goal.
customer service.
Bloom's: Apply
AACSB: Analytic
43) Retailers reduce their ________ by utilizing mystery shoppers to assess service quality.
A) standards gap
B) knowledge gap
C) responsiveness
D) reliability
E) tangibility
Answer: A
Explanation: Standards gap can be reduced by measuring service performance. Mystery
shoppers are professional shoppers who visit stores to assess the service provided by store
employees and the presentation of the merchandise. Retailers assess the service quality to ensure
that the set service goals are being achieved.
customer service.
Bloom's: Understand
AACSB: Analytic
21
44) Which of the following is the best example of a service goal for a retailer that is sincere
about reducing the standards gap?
A) "Straighten and organize the merchandise when necessary."
B) "Greet all customers when they enter the selling area."
C) "Respond to e-mails as soon as possible."
D) "Display merchandise on racks within 24 hours of delivery."
E) "Respond positively to all customer complaints."
Answer: D
Explanation: The service goal "Display merchandise on racks within 24 hours of delivery" is
both specific and measurable. To deliver consistent, high-quality service, retailers need to
establish goals or standards to guide employees. These goals should be based on their beliefs
about the proper operation of the business rather than the customers' needs and expectations.
customer service.
Bloom's: Apply
45) Mystery shoppers give importance to all of the following aspects except
A) the attitude of the sales associate toward the shopper.
B) the manner in which merchandise was displayed in the store.
C) the knowledge of the sales associate about merchandise he or she was selling.
D) the responsiveness of the sales associate to the shopper's complaints.
E) the price of the merchandise offered at the store.
Answer: E
Explanation: Mystery shoppers are professional shoppers who visit stores to assess the service
provided by store employees and the presentation of the merchandise. Retailers can then assess
the service quality to ensure that the set service goals are being achieved. The price of the
merchandise is not a consideration in determining the service level.
Difficulty: 1 Easy
customer service.
Bloom's: Understand
AACSB: Analytic
22
46) Natalie is a senior executive of a department store chain. Every week, she visits one of the
stores and pretends to be a customer. She records her observations on the service provided by the
store's sales associates and the manner in which her queries were handled. Sales associates who
meet the service standards are awarded a small bonus. Therefore, Natalie is a(n)
A) store advocate.
B) retail inspector.
C) early adopter.
D) mystery shopper.
E) innovator.
Answer: D
Explanation: Mystery shoppers are professional shoppers who visit stores to assess the service
provided by store employees and the presentation of the merchandise. Some retailers use their
own employees as mystery shoppers, but most contract with an outside firm to provide the
assessment.
customer service.
Bloom's: Apply
AACSB: Analytic
47) Retailers can reduce the delivery gap by

A) setting service standards based on internal operations rather than customers' perceptions.
B) providing employees the necessary skills and knowledge.
C) dwelling primarily on the negative aspects of customer problems.
D) providing standardized rather than personalized services for purchases involving high risk.
E) setting service goals that are broad and intangible.
Answer: B
must give service providers the necessary information and training, empower employees to act in
the customers' and firm's best interests, provide instrumental and emotional support, provide
appropriate incentives, improving internal communication, and use technology.
customer service.
Bloom's: Understand
23
48) Training employees to effectively deal with customers, providing better assistance to
customers, and explaining the use of complex products to potential customers reduces the
A) production gap.
B) research gap.
C) communication gap.
D) delivery gap.
E) knowledge gap.
Answer: D
Explanation: The delivery gap can be reduced by training employees. Service providers need to
know about the retailer's service standards and the merchandise it offers, as well as the
customers' needs. With this information, employees can answer customers' questions and suggest
products.
Difficulty: 1 Easy
customer service.
Bloom's: Remember
49) Marcel works in the linen department of a large department store. When a customer arrives
to collect a tablecloth that she had specially ordered, she is disappointed to know that the
delivery of the ordered merchandise has been delayed. Marcel is able to use empowerment to
bridge the ________ by offering to deliver the product to the customer's residence.
A) knowledge gap
B) delivery gap
C) communication gap
D) research gap
E) brand gap
Answer: B
appropriate incentives, improving internal communications, and use technology.
customer service.
Bloom's: Apply
24
50) Customer satisfaction is affected by the amount of time it takes to get a question answered or
a problem resolved. Retailers can minimize this time taken using all of the following steps except
A) providing customers with clear and precise information.
B) requiring store employees to get their manager's approval for all customer service decisions.
C) reducing the number of employees that customers must contact to resolve their issues.
D) not assuming they know what the customers are complaining about or what solution the
customers are seeking.
E) not interrupting the customers when they air their complaints.
Answer: B
Explanation: When employees responsible for providing services are authorized to make
important decisions through empowerment, service quality improves, which in turn reduces the
delivery gap.
customer service.
Bloom's: Understand
51) Which of the following actions is a way to reduce the delivery gap?
A) Reducing instrumental support
B) Empowering employees at the firm's lowest level
C) Assuming what the customer is about complain
D) Interrupting customers when they explain their problem
E) Adopting an antagonistic approach toward customers
Answer: B
appropriate incentives, improve internal communications, and use technology.
customer service.
Bloom's: Understand
25
52) Douglas decided to order a Deluxe Werewolf mask from a catalog and called the toll-free
number. Although the call was answered immediately, the operator took Douglas's information
and transferred the call twice to different departments. What bothered Douglas was that he had to
repeat his contact information and customer ID number to different operators. The first operator
was not trained to handle customer queries. What type of service gap did Douglas encounter?
A) Knowledge gap
B) Standards gap
C) Research gap
D) Communication gap
E) Delivery gap
Answer: E
customer service.
Bloom's: Apply
53) A customer returned a textbook to a bookstore because she decided to drop the class after a
few weeks. The sales clerk refunded the customer's money immediately because the store had a
"no questions asked" refund policy. Which of the following service gaps was reduced because of
the clearly defined guideline?
A) Procurement gap
B) Knowledge gap
C) Communication gap
D) Research gap
E) Delivery gap
Answer: E
customer service.
Bloom's: Apply
26
54) To reduce the delivery gap, retailers need to
A) avoid empowering their front-line employees.
B) always assume they know what the customer is complaining about.
C) encourage store employees to have an antagonistic attitude toward customer complaints.
D) provide instrumental and emotional support to employees.
E) set service standards based on internal operations rather than customers' perceptions.
Answer: D
customer service.
Bloom's: Understand
55) Neil works as a customer service executive in a call center. He handles customer queries and
is often hampered by network and telephone problems. Hence, he is unable to effectively address
customers' problems. The poor quality of customer service in the given scenario can be attributed
to
A) lack of instrumental support.
B) poor internal communication.
C) distributive fairness.
D) procedural fairness.
E) unrealistic customer expectations.
Answer: A
Explanation: Service providers need to have instrumental support (appropriate systems and
equipment) to deliver the service desired by customers.
customer service.
Bloom's: Apply
27
56) The Hometown Dog Groomer offered a free flea dip to its regular customers. The owner had
extra employees to deal with the crowd but provided only one dip tank, which slowed down the
process. What could the owner do to deliver the desired service level?
A) Plan for a better resource-to-yield output.
B) Provide instrumental support.
C) Offer incentives to customers.
D) Assure the customers of better service in future.
E) Adopt an antagonistic attitude toward customers.
Answer: B
Explanation: Instrumental support refers to the appropriate systems and equipment required to
carry out a service. Providing instrumental support will help retailers reduce the delivery gap.
customer service.
Bloom's: Apply
57) A radio advertisement announced that Dan's Ice Cream would be open until 10:00 p.m. on
Friday evenings. Norm reached the store by 9:45 p.m. to buy an ice cream cone. The store was
locked and a sign on the door said that the store closes at 9:00 p.m. This scenario is an example
of a
A) communications gap.
B) market gap.
C) delivery gap.
D) knowledge gap.
E) research gap.
Answer: A
Explanation: The communication gap is the difference between the actual service provided to
customers and the service that the retailer's promotion program promises. Overstating the service
offered raises customer expectations. Then, if the retailer fails to follow through by improving
actual customer service, expectations exceed perceived service, and customers are dissatisfied.
Difficulty: 1 Easy
customer service.
Bloom's: Apply
28
58) Hector ordered a model fighter jet at a discounted price of $22 from a hobby catalog.
However, he was charged an extra $10 for shipping charges that were not mentioned anywhere
on the catalog. He decided never to buy anything from that catalog again. Due to a ________, the
catalog retailer lost a customer.
A) delivery gap
B) communications gap
C) market gap
D) knowledge gap
E) research gap
Answer: B
Explanation: The communications gap is the difference between the service promised by the
retailer and the service actually delivered. Overstating the service offered raises customer
expectations. Then, if the retailer fails to follow through by improving actual customer service,
expectations exceed perceived service, and customers are dissatisfied.
customer service.
Bloom's: Apply
59) An electronic retailer advertised that returns would be quick and easy if customers were
dissatisfied with a product. However, customers were unable to find any detailed information
about the retailer's return policies on its website and on the purchase invoice. This lack of
information is an example of a
A) market gap.
B) delivery gap.
C) communications gap.
D) research gap.
E) knowledge gap.
Answer: C
Explanation: The communications gap is the difference between the service promised by the
retailer and the service actually delivered. Overstating the service offered raises customer
expectations.
customer service.
Bloom's: Apply
29
60) The difference between the service promised by a retailer and the service actually delivered
is known as the
A) communications gap.
B) delivery gap.
C) research gap.
D) market gap.
E) knowledge gap.
Answer: A
Explanation: The communications gap is the difference between the service promised and the
service actually delivered. Overstating the service offered raises customer expectations.
Difficulty: 1 Easy
customer service.
Bloom's: Remember
AACSB: Analytic
61) Thelma goes to collect her clothes from a dry-cleaning store at 8 p.m. The store guarantees a
24-hour pick-up service in all of its advertisements. However, she is disappointed to find that the
pick-up service is available only between 11 a.m. and 7 p.m. This is an example of a
A) market gap.
B) delivery gap.
C) knowledge gap.
D) communications gap.
E) research gap.
Answer: D
customer service.
Bloom's: Apply
30
62) Tyson orders pizzas at a take-out restaurant and is told that the order would be ready in
twenty minutes. After waiting for almost half an hour, he is told that his order was taken up just
five minutes ago and that the pizzas would be ready in 45 minutes. Which of the following
service gaps is exemplified in this scenario?
A) Market gap
B) Communications gap
C) Knowledge gap
D) Delivery gap
E) Research gap
Answer: B
customer service.
Bloom's: Apply
63) Moe's Restaurant recently advertised that it offered unlimited pasta and burritos for $15 on
Friday nights. However, when customers tried to avail the offer, they were told that enrolling for
a membership was mandatory for the offer. The membership fee turned out to be $10. The
membership condition was not mentioned in Moe's advertisement. Which form of service gap
can be seen in the given example?
A) Market gap
B) Communications gap
C) Knowledge gap
D) Delivery gap
E) Research gap
Answer: B
Explanation: A communications gap refers to the difference between the service promised by
the retailer and the service actually delivered. Overstating the service offered raises customer
expectations.
customer service.
Bloom's: Apply
31
64) Roselle was upset with the service she received when she was trying to purchase a handbag
at a store. First, the salesperson seemed preoccupied with a conversation with another associate.
When she finally acknowledged Roselle's presence, the salesperson offered no assistance to
Roselle and had minimal information about merchandise. Roselle plans to make a formal
complaint to the management. What should the store manager do to recover from this service
failure?
A) Motivate sales associates to have an antagonistic attitude while dealing with the customer
complaint.
B) Encourage the customer to complain without interruption and then give a sympathetic
response.
C) Instruct sales associates to always assume they know what the customer is complaining about.
D) Ensure that the customer is referred to several different store employees to get the issue
resolved.
E) Tell the customer to leave feedback on the store's website.
Answer: B
Explanation: Store employees should allow customers to air their complaints without
interruption. Interruptions can further irritate customers who may already be emotionally upset.
Bloom's: Apply
65) Which of the following is an excellent source of information about a retailer's offering that
helps in increasing customer satisfaction?
A) Discount coupons
B) Employee handbook
C) External environmental assessments
D) Customers' complaints
E) Competitors' financial performance
Answer: D
Explanation: Service problems and complaints are an excellent source of information about the
retailer's offering. Armed with this information, retailers can make changes to increase their
customers' satisfaction.
Bloom's: Remember
AACSB: Analytic
32
66) Which of the following approaches would not be effective in service recovery?
A) Listening to the customer
B) Providing a fair solution
C) Resolving the problem quickly
D) Interrupting the customer
E) Responding sympathetically
Answer: D
Difficulty: 1 Easy
Bloom's: Understand
67) From a retailer's perspective, which of the following is a good rule for resolving customer
complaints?
A) Motivate store employees to assume they know what the customer is complaining about.
B) Interrupt customers when they are airing their complaints.
C) Allow the customers to complain if they feel they have not been treated properly.
D) Instruct store employees to assume what solution the customer is seeking.
E) Encourage store employees to have an antagonistic attitude when handling customer
complaints.
Answer: C
Store employees should never assume they know what the customer is complaining about or
what solution the customer is seeking.
Bloom's: Understand
33
68) A sales associate who is confronted by a customer whose newly purchased smartphone does
not function should
A) refer the customer to several different store employees to get the issue resolved.
B) always assume he or she knows what the customer is complaining about.
C) allow the customer to air the complaint without any interruption.
D) have an antagonistic attitude toward the customer.
E) offer the customer a discount on the next item he or she purchases.
Answer: C
Difficulty: 1 Easy
Bloom's: Apply
69) Distributive fairness is

A) customers' perceived fairness of the process used to resolve service complaints.
B) customers' perception of a retailer's customer service on the basis of reliability, assurance,
tangibility, empathy, and responsiveness.
C) customers' perception of the benefits received compared with their costs in terms of
inconvenience or monetary loss.
D) the retailer's rigid adherence to the set guidelines in order to reduce variability in handling
customer complaints.
E) the standard approach used by a retailer to deal with all customer complaints.
Answer: C
with his or her costs in terms of inconvenience or monetary loss.
Difficulty: 1 Easy
Bloom's: Remember
34
70) Kevin is a salesperson selling electronic goods. A customer complains about problems with
the music player purchased by him the previous week. He requests a replacement. Kevin
explains the store's exchange policies and asks the customer to fill out a complaint form.
Therefore, Kevin is dealing with the customer's problems with
A) service equity.
B) consistent fairness.
C) perceptual equity.
D) distributive fairness.
E) procedural fairness.
Answer: E
Explanation: This is an example of procedural fairness which is the perceived fairness of the
process used to resolve complaints. Customers typically feel they have been dealt with fairly
when store employees follow company guidelines. Guidelines reduce variability in handling
complaints and lead customers to believe that they are being treated like everyone else.
Bloom's: Apply
71) Loretta went to a store to buy thermal underwear. The underwear had been featured in an
advertisement for $24.99 a pair. She was disappointed to learn that the underwear sold out within
two days and complained to the sales associate. The sales associate offered to deliver the
merchandise directly to Loretta's home. Loretta was satisfied with how her complaint was
handled. Jane, another customer, also came to the store with the intention of buying the thermal
underwear and complained about the merchandise being out-of-stock. In addition to offering to
deliver the merchandise to her home, the sales associate offered Jane the product at a discounted
price of $21.99. In trying to resolve both customers' problems, the sales associate was dealing
with
A) distributive fairness.
B) consistent fairness.
C) procedural fairness.
D) service equity.
E) perceptual equity.
Answer: A
with his or her costs in terms of inconvenience or monetary loss. What seems to be fair
compensation for a service failure for one customer may not be adequate for another.
Bloom's: Apply
35
72) ________ is the perceived fairness of the process used to resolve complaints.
A) Variable fairness
B) Perceptual equity
C) Procedural fairness
D) Service equity
E) Distributive fairness
Answer: C
Explanation: Procedural fairness is the perceived fairness of the process used to resolve
complaints. Customers typically feel they have been dealt with fairly when store employees
follow company guidelines.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
73) Procedural fairness

A) significantly increases the variability in handling customer complaints.
B) is achieved when store employees have an antagonistic attitude when handling complaints.
C) is customers' perceptions of the benefits received compared with their costs in terms of
inconvenience or monetary loss.
D) makes customers feel they have been dealt with fairly when store employees follow company
guidelines.
E) empowers store employees and gives them more flexibility to resolve complaints than
distributive fairness.
Answer: D
Explanation: Procedural fairness is the perceived fairness of the process used to resolve
complaints. Customers typically feel they have been dealt with fairly when store employees
follow company guidelines.
Difficulty: 1 Easy
Bloom's: Remember
AACSB: Analytic
36
74) Jack went to a bakery and ordered a dozen bagels for work. When he got to work, he
discovered that the bagels were stale. The next morning he stopped by the bakery to complain.
All of the following would be appropriate ways to deal with Jack's complaint except
A) giving him a coupon for free coffee.
B) giving him a $5.00 discount on his next purchase.
C) offering him a free replacement.
D) referring him to other employees at the bakery.
E) providing him with a coupon for a free breakfast.
Answer: D
Explanation: Customer satisfaction is affected by the time it takes to get an issue resolved. So,
empowering the first contact employee to move quickly to solve a problem increases customer
satisfaction. When customers get referred to several different employees, they waste a lot of time
repeating their story. Also, the chance of conflicting responses by store employees increases.
Bloom's: Apply
75) Retailers can minimize the time taken to get a problem resolved and increase customer
satisfaction by
A) assuming what the customer is complaining about or what solution the customer is seeking.
B) minimizing the personal attention given to the customer and resolving the problem abruptly.
C) empowering the first contact employee to act quickly to solve the problem.
D) referring the customer to several different employees to get the problem resolved.
E) directing customers to leave feedback on the store's website.
Answer: C
Explanation: Empowering the first contact employee to move quickly to solve a problem
increases customer satisfaction. When customers get referred to several different employees,
they waste a lot of time repeating their story. Also, the chance of conflicting responses by store
employees increases.
Bloom's: Understand
AACSB: Analytic
37
76) How do all employees of a retail firm and the elements of a retail mix contribute to services
that increase the value of the merchandise to customers?
Answer: All employees of a retail firm and all elements of the retailing mix can provide services
that increase the value of merchandise to customers. For example, employees in the distribution
center contribute to customer service by making sure the merchandise is in stock at the retailer's
stores. The employees who choose store locations and design their interiors contribute by
increasing customer convenience, both in terms of getting to the store and finding merchandise
once they are in the store. Services such as personal shoppers, layaway plans, online blogs, and
online chat furnish information about the retailer's offering and make it easier for customers to
locate and buy its products and services. Services such as alterations and assembly of
merchandise actually adapt the merchandise to fit the needs of specific customers.
Difficulty: 1 Easy
Bloom's: Understand
77) What is the difference between personalized services and standardized services?
Answer: Personalized service requires that service providers tailor their services to meet each
customer's personal needs. Successful implementation of the personalized service relies on sales
associates or the "personalization" offered by the retailer's electronic channel. Standardized
service is based on establishing a set of rules and procedures for providing high quality service
and ensuring that they get implemented consistently. The effectiveness of standardized services
relies mainly on the quality of the retailer's policy, procedures, and store, as well as its website
design and layout. Personalized customer service is less consistent than standardized service. The
delivery of personalized service depends on the judgment and capabilities of each service
provider. In addition, providing consistent, high-quality personalized service is costly because
well-trained service providers or sophisticated computer software generally are needed to
implement the service.
Bloom's: Understand
AACSB: Analytic
38
78) What are the five customer service characteristics that affect customer's opinions of service
quality and what constitutes customer satisfaction?
Answer: When customers evaluate customer service, they compare their perceptions of the
service they receive with their expectations. Customers are satisfied when the perceived service
meets or exceeds their expectations. They are dissatisfied when they feel that the service falls
below their expectations. Five customer service characteristics that affect perceptions of service
quality are reliability, assurance, tangibility, empathy, and responsiveness. Reliability is the
ability to perform the service dependably and accurately, such as performing the service as
promised or contracted or meeting promised delivery dates. Assurance is the knowledge and
courtesy of employees and their ability to convey trust and confidence. Tangibility is associated
with the appearances of physical facilities, equipment, personnel, and communication materials.
Empathy refers to the caring, individualized attention provided to customers. Responsiveness is
to provide customer service personnel and sales associates that really want to help customers and
provide prompt service.
Bloom's: Remember
AACSB: Analytic
79) How has technology changed customer expectations with regard to retailers?
Answer: Customers expect to be able to interact with companies through automated voice
response systems and place orders and check on delivery status through the Internet. Retailers
that do not offer these multichannel services are not favorably viewed. Customers still expect
good service, which is defined by companies' responsiveness, flexibility, dependability, ease of
access, apologies, or compensation when necessary. But now they expect this level of service
even when people are not involved.
Bloom's: Understand
39
80) How can retailers reduce the knowledge gap?
Answer: Retailers can reduce the knowledge gap and develop a better understanding of
who provide customer service. They can use social media, blogs, surveys, panels, contests,
customer complaints, and feedback from store employees to understand what the customers
want, need, and expect.
customer service.
Bloom's: Understand
81) What is the standards gap and how can retailers effectively decrease this gap?
Answer: A standards gap refers to the difference between the retailer's knowledge of customers'
perceptions and expectations and the service standards it sets. Service standards should be based
on customers' perceptions rather than internal operations. To close the standards gap, retailers
need to (1) commit their firms to providing high-quality service, (2) define the role of service
providers, (3) set service goals, and (4) measure service performance.
customer service.
Bloom's: Understand
AACSB: Analytic
40
82) What are the ways in which the use of technology is reducing the delivery gap?
Answer: Retailers have been actively engaged in implementing a vast variety of technology
tools in their stores and websites to help their customers. These technologies include self-scan
checkout stations, web-linked kiosks, service personnel equipped with iPads, various types of
apps, digital displays, online agents, and QR codes. These technologies help customers find and
learn more about products and services offered. They also enable faster and more efficient
payment. For the service personnel, these technologies improve their ability to offer good service
to customers, including up-to-date product information and access to merchandise available from
an online channel if it is not in stock at the store.
customer service.
Bloom's: Understand
AACSB: Technology
83) Define communications gap. What can be done by a retailer to reduce this gap?
Answer: A communications gap refers to the difference between the actual service provided to
customers and the service promised by the retailer. The communications gap can be reduced by
making realistic commitments and managing customer expectations. Information presented at the
point of sale can be used to manage expectations. Providing accurate information can increase
customer satisfaction, even when customers must wait longer than desired. Sometimes service
problems are caused by customers. Communication programs can inform customers about their
role and responsibility in getting good service and give tips on how to get better service, such as
the best times of the day to shop and the retailer's policies and procedures for handling problems.
Difficulty: 1 Easy
customer service.
Bloom's: Understand
AACSB: Analytic
84) What are the steps involved in effective service recovery?
Answer: The steps in effective service recovery are (1) listen to the customer, (2) provide a fair
solution, and (3) resolve the problem quickly.
Bloom's: Understand
41
85) Why is it important to empower employees for quick resolution of customer problems?
Answer: Customer satisfaction is affected by the time it takes to get an issue resolved. So,
empowering the first contact employee to move quickly to solve a problem increases customer
satisfaction. When customers get referred to several different employees, they waste a lot of time
repeating their story. Also, the chance of conflicting responses by store employees increases.
Bloom's: Understand
AACSB: Analytic
42

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3) The retail sector plays a key role in developed economies.

6) More retail transactions take place online now than in stores.

8) Retailing offers entrepreneurial opportunities.

11) All of the following businesses would be considered retailers except

15) A retailer's role in a supply chain is to

31) A retailer that is vertically integrated

35) Retailers function as wholesalers when

37) The U.S. retail industry

59) A retailer's primary competitors are other retailers that

61) Which of the following is not an example of intertype competition?

71) A retail mix refers to

73) A retail mix is developed to

77) Which of the following statements is true of ethical principles?

79) What are the major value-creating activities performed by retailers?

Answer: The value-creating activities undertaken by retailers include (1) providing an

80) Explain the importance of breaking bulk.

Answer: Corporate social responsibility (CSR) involves an organization voluntarily engaging in

83) How do retailers use customer transaction data?

85) How does scrambled merchandising impact retail competition?

Answer: Scrambled merchandising increases intertype competition, or competition among

2) Walmart is classified as an off-price retailer.

3) To be competitive in today's marketplace, supermarkets are focusing on offering fresh

5) Private-label brands benefit retailers but not customers.

15) Which of the following best defines a stock-keeping unit?

17) With respect to retailing, assortment is often referred to as the

19) Limited-assortment supermarkets are referred to as

25) Which of the following is a similarity between hypermarkets and supercenters?

27) What type of retail store is Costco considered to be?

29) Which of the following statements best defines a warehouse club?

31) Which of the following statements is true about warehouse clubs?

35) Which of the following is a first-tier department store?

37) Which of the following is a third-tier department store?

43) To respond to a competitive environment, one thing that Walmart is doing is

45) Why are category specialists sometimes called category killers?

47) What type of retail store is Victoria's Secret considered to be?

53) What type of retail store is Dollar General considered to be?

55) ________ offer an inconsistent assortment of brand-name merchandise at a significant

57) Which of the following is true of off-price retailers?

61) ________ are off-price retailers owned by manufacturers or retailers.

63) A special type of off-price retailer owned by manufacturers is called a

73) Which of the following is a drawback of the franchise ownership?

74) Differentiate between variety and assortment of merchandise offered by a retailer.

1) Omnichannel retailing is a coordinated multichannel retail offering that provides a seamless

3) Automated retailing is a retail channel in which merchandise or services are stored in a

5) Stores offer immediate gratification to customers.

11) A multichannel retailer is one that

15) The highest percentage of retail sales is through what channel?

17) An example of s-retailing is when

19) Avon, a cosmetics company, primarily uses which form of retailing?

21) Automated retailing

33) Which of the following benefits is offered by the Internet channel?

39) Retailers can use multiple channels synergistically by

41) Multichannel and omnichannel retailers struggle to provide an integrated shopping

47) Retailers can reduce showrooming by

49) Which of the following strategies aids in reducing channel migration?

51) What is m-commerce, and how is it different from e-commerce?

55) Explain the perceived risks involved in Internet shopping.

6) Making an unplanned purchase is an example of limited problem solving.

11) Which of the following is not a stage in the buying process?