ADM 2320 Chapter Notes - Chapter 5: Marketing Mix, Direct Selling, Retail
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Question 1
With respect to consumer behavior, one's attitudes, learning, and perceptions would be
| impersonal influences | ||
| interpersonal influences | ||
| personal influences | ||
| insitutional influences |
Question 2
In Maslow's hierarchy of needs,
| a physiological need must be met directly before social needs. | ||
| esteem needs are the highest order of needs. | ||
| self-actualization needs are the highest order | ||
| safety needs and esteem are of the same importance. |
Question 3
The most likely product to be purchased in an attempt to satisfy self-esteem needs would be
| "super class" tickets for your next air flight. | ||
| a really fast computer. | ||
| a home security system. | ||
| yogurt and health food. |
Question 4
Which of the following is not a characteristic that distinguishes organizational markets from consumer markets?
| Organizational markets are more geographically concentrated. | ||
| More people exert influence on the organizational buying decision. | ||
| The organizational market tends to have a greater number of buyers. | ||
| Organizations often engage in multiple sourcing and vendor analysis. |
Question 5
Consumers may attempt to reduce postpurchase anxiety in the consumer decision process by
| avoiding favorable information about the selected brand | ||
| seeking reassurance from dissatisfied customers | ||
| seeking information that favors the rejected brands | ||
| ignoring unfavorable reports about the chosen brand |
Question 6
The buying center concept explains how groups of people participate informally in business purchase decisions and
| methods to break through group perceptions. | ||
| the role the group members play in buying decisions. | ||
| how family units operate as buying centers. | ||
| the process of performing vendor analysis. |
Question 7
In the organizational buying process, a triggering event such as announcement of the availability of a new product whose use could improve the company's market performance is referred to as
| need or opportunity recognition | ||
| identification of suppliers | ||
| information search | ||
| word-of-mouth exploration |
Question 8
An undifferentiated marketing strategy
| serves the consumer better because the products offered are designed to meet the needs of a specific group of people | ||
| benefits from the control and efficiency of short production runs | ||
| ignores differences among consumer groups and focuses on the broad market | ||
| is the most common strategy today and is used more now than in the past |
Question 9
Goods purchased by the ultimate consumer for personal use are called
| personal products | ||
| purchased products | ||
| consumer products | ||
| commercial products |
Question 11
A particular purchasing agent might allow some salespeople to see the engineers responsible for developing product specifications but not allow others the same privilege. In the buying center, this purchasing agent is filling the role of
| a "hard" nose | ||
| a gatekeeper | ||
| an influencer | ||
| a decider |
Question 12
"Our prices are the lowest, we guarantee it" is an example of a positioning strategy based on the product's
| competitors | ||
| price | ||
| class | ||
| application |
Question 13
Segmenting the market based on exactly how an industrial purchaser will use products is referred to as
| customer-based segmentation | ||
| benefits segmentation | ||
| end-use application segmentation | ||
| geographic segmentation |
Question 14
The lumber your carpenter purchases to finish out your basement is classified as
| a home improvement product | ||
| a raw material | ||
| a business product | ||
| a consumer good |
Question 15
When consumer demand for personal computers affects computer manufacturers' demand for computer chips, this situation is known as
| volatile demand | ||
| conjoined demand | ||
| derived demand | ||
| joint demand |
Question 16
Which of the following is a personal factor in consumer bahavior?
| a cultural influence | ||
| group membership | ||
| friends' opinions | ||
| a person's attitudes |
Question 17
Cognitive dissonance would be most likely to occur after the purchase of
| sneakers | ||
| groceries | ||
| an automobile | ||
| cosmetics |
Question 18
Which of the following would be most likely to break through a person's perceptual screen?
| a newspaper ad featuring white type on a black background | ||
| a black- and -white classified ad | ||
| reducing the size of the ad | ||
| using fewer colors in the ad |
Question 19
The Fortune 500 list of America's largest firms based on sales revenues and number of employees provides a basis for
| market segmentation based upon customer type | ||
| demographic segmentation based upon geographic location | ||
| end-user segmentation of this market | ||
| demographic segmentation based upon customer size |
Question 20
Straight rebuy behavior by industrial purchasers will probably continue if the supplier provides
| poor service | ||
| poor quality | ||
| shipping delays | ||
| satisfactory performance |
Question 21
A controversial technique of subconscious communication, aimed at circumventing the perceptual screens, is called
| shadowed perception | ||
| leger-de-main | ||
| subliminal perception | ||
| perception incognito |
Question 22
Those products that are actually considered when making a consumer purchase decision are
| customer options | ||
| customer selections | ||
| the evoked set | ||
| the product set |
Question 23
The component of the business market that consists of individuals and firms that acquire goods and services to be used directly, or indirectly, in producing other goods and services is called:
| wholesaling and retailing | ||
| the commercial market | ||
| government | ||
| an institution |
Question 24
The institutional market does not include which of the following?
| hospitals | ||
| museums | ||
| motion pictures theatres | ||
| universities |
Question 25
Advertising for smoke alarms, air bags and life insurance typically uses which of Maslow's levels of needs to appeal to consumers?
| self-esteem needs | ||
| safety and security needs | ||
| physiological needs | ||
| protection needs |
Question 26
One type of buying center role is that of the
| influencer who supplies information for evaluation. | ||
| authority figure who decides who, what, where, when, and how. | ||
| disseminator who function is to get advertisements to prospects. | ||
| specifier who needs on the specifications of products |
Question 27
Manufacturing firms that convert to automated factory systems must purchase equipment that they have never bought before, such as robots and computers. This buying situation is called
| a straight rebuy | ||
| a modified rebuy | ||
| a contract purchase | ||
| new-task buying |
Question 29
A commonly used basis for segmenting consumer markets is
| product-related characteristics | ||
| health-related matters | ||
| information-related concepts | ||
| performance-related criteria |
1 points
Question 30
The business market is also known as the
| wholesale market | ||
| corporate market | ||
| organizational market | ||
| distribution market |
Question 31
Which of the following consumer problem-solving behaviors requires the least effort?
| extended problem solving | ||
| limited problem solving | ||
| impulsive buying | ||
| routine response behavior |
Question 32
The relationship between the demand for silk cloth and consumer demand for silk blouses and neckties is known as
| joint demand | ||
| demand volatility | ||
| derived demand | ||
| consumer demand |
Question 33
Examples of business market items that would usually be purchased as a straight rebuy are
| high quality raw materials | ||
| heavy-duty machinery | ||
| paper clips and pencils | ||
| high-tech components |
Question 34
The person who joins a local bowling league for the social interaction, even if he or she is a novice bowler, is probably trying to satisfy his or her
| esteem needs | ||
| self-actualization needs | ||
| physiological needs | ||
| belongingness/social needs |
Question 35
Campbell's "Soup for One" is an example of a product that is targeted to
| large families with high product usage of certain things but different preferences | ||
| dual-income couples with no kids | ||
| well-off older families | ||
| non-traditional households such as nonfamily, single-person or single-parent situations |
Question 36
Red Ryder Industries markets rodeo and horse riding supplies specifically to women. This is an example of
| market stratification | ||
| market segmentation | ||
| non-traditional marketing | ||
| multi-gender marketing |
Question 37
Purchases made by choosing a preferred brand or one of a limited group of acceptable brands are called
| extended problem solving | ||
| routinized response behavior | ||
| limited problem solving | ||
| selective problem solving |
Question 38
The slogan "the graying of America" describes the trend
| toward people retiring later in life | ||
| of the word force to contain a disproportionate number of older Americans | ||
| for gray hair to develop from years of high-stress urban work | ||
| upward in the elderly population as Americans tend to live longer |
Question 39
People or institutions must have sufficient purchasing power and the authority and willingness to buy to be considered a
| market | ||
| buyer | ||
| player | ||
| segment |
Question 40
Reference group influences would be most likely to be significant in the decision to buy
| a loaf of bread | ||
| a Mercedes Benz | ||
| a clock radio | ||
| cellophane tape |
Question 41
Internal search in the consumer decision process may include
| subscribing to consumer magazines to evaluate alternatives | ||
| talking to family members | ||
| reviewing past purchases | ||
| surveying coworkers for buying options |
Question 42
The process of dividing the total market into several smaller, homogeneous groups is called
| market penetration | ||
| market segmentation | ||
| market mixing | ||
| market division |
In early January 2009, David Johnstone received the draft 2008 financial statements for Strong Tie and began to question the companyâs performance when compared to previous years. How were profits holding up, given the intense price competition in the industry? Were attempts to lower costs through more automation paying off? Were the current problems in the U.S. housing market going to continue to reduce demand for connectors? How would lenders react to this poor performance? Was the companyâs financing in danger?After discussing the matter with company accountant Audrey Johnstone, it was decided that an outside consultant should be hired to provide an independent analysis of the companyâs recent performance and to provide suggestions for future action.
COMPANY BACKGROUND:Strong Tie Ltd., located in Winnipeg, Manitoba, designed and manufactured the standardized and customized structural connectors used to reinforce wood joints in the construction of decks, fences, houses and other structures. Strong Tie was a family-owned corporation founded in 1946 by Bill Johnstone to capitalize on the high demand for housing as returning World War II veterans married and began families. Bill Johnstone died in 1975 but passed the business on to his son David, who continued to operate the business along with his three daughters, Ellen, Elizabeth and Audrey. David served as CEO, while Ellen Johnstone, P.Eng, was responsible for product design and production; Elizabeth Johnstone, CSP, managed marketing, sales and distribution; and Audrey Johnstone, CA, managed the companyâs finances. The Johnstone family was a pillar of the Winnipeg business community, making sizeable donations to local charities and sport teams.
The standardized connectors were designed in Winnipeg based on input from architects, draftsmen and builders. The production process was highly automated with metal cutting, stamping and drilling machines completing most of the tasks. Human intervention was required to transfer work-in-process between stations, to feed machines and to pack, store and distribute the end products. This automation had allowed production to remain in Canada to date despite fierce competition from low-wage countries, particularly China. Customized connectors were produced based on specifications provided by the customer.
Production of these units was more labour-intensive, but margins were still significantly higher as contractors were prepared to pay a premium to have their special needs met.
Strong Tie prided itself on its product design capabilities. Designers in Winnipeg consistently generated an array of new standardized connectors that improved on existing products or addressed newly identified industry needs. These products were described in detail in terms of dimension, strength (load-bearing weights and steel gauge) and installation on the companyâs website or in a paper catalogue located in stores â both were of very high quality. Strong Tie also had a reputation among construction professionals as providing innovative solutions to unique design requests and being able to produce customized products in a timely manner at a reasonable price.
Standardized products were distributed through all national home improvement chains in North America including Home Depot, Loweâs, Rona, Home Hardware, Eagle and Sears. Most local chains catering to contractors also carried the standardized products and accepted requests for customized connectors, which they then forwarded to Strong Tie. Strong Tie was estimated to have a 60 per cent market share, which had fallen from 70 per cent in recent years. Universal Connector, a U.S. firm based in Ohio, was estimated to have a 30 per cent and growing share; it offered a similar array of standardized products and customized design services. The remainder of the market was served by five Chinese producers whose market share had grown considerably in the last five years, although they had yet to enter the customized product segment. Universal Connector had closed a number of its U.S. manufacturing facilities in recent years and replaced them with new facilities in China, which put considerable downward pressure on industry prices. Currently, Strong Tie priced its products at a premium to its competitors because of its industry leadership.
All sales were on terms Net 60. Large accounts such as Home Depot had a reputation of stretching their payments past the due date because of their buying power, while contractors frequently delayed payments due to cash flow problems. All purchases, which were primarily steel, were on terms 2/10, Net 60. Metal prices varied considerably, and the trend over 2006 to 2008 was for these prices to rise due to increasing demand from emerging market countries, particularly Brazil, Russia, India and China. Strong Tie had attempted to adopt just-in-time inventory practices to help reduce its raw material, work-in-process and finished goods inventory levels.
The Johnstone family maintained excellent relations with its unionized workforce, which was represented by the United Steel Workers of America. They prided themselves on paying generous wages and providing their workers with excellent health care, disability and pension benefits. The company had never had a strike and was currently negotiating a new collective agreement to take effect in three months on April 1, 2009.
In recent years, Strong Tie had been investing heavily in factory automation to improve its competitiveness. Automatic feeders and packaging equipment had been purchased to further reduce labour costs, and new computers and software had helped to speed up the design of high-margin customized connectors. A new, more automated warehouse had also been constructed.
FINANCIAL STATEMENTS: Exhibits 1 and 2 contain the income statements and balance sheets for Strong Tie for the last three years.
FINANCIAL BENCHMARKS: Reliable industry average information was not available for Strong Tieâs Chinese competitors, but comparable ratios were available for Universal Connector, a public company, in 2008. These ratios are contained in Exhibit 3.
FINANCING: Strong Tie had a $2,000,000, five-year, revolving credit agreement with the Bank of Nova Scotia, which was used to finance the companyâs working capital requirements as well as a number of individual term loans to finance fixed assets.
The revolving credit agreement was committed, so as long as the loan conditions were met, financing was guaranteed. The loan had to be secured 100 per cent by accounts receivable and inventory. The receivables were primarily with large retail chains that were in good financial health, so the Bank of Nova Scotia was prepared to lend 90 per cent of their value. They were also willing to lend 60 per cent of the value of the finished goods and work-in-process inventory because of a strong re-sale market and the short production process. The bank would only lend 40 per cent of the value of raw materials inventory due to general instability in the commodities market. The revolving credit agreement had to be paid down to zero at least once per year.
All loans required that the company maintain a Current Ratio of 1.5 or higher, a Cash Flow Coverage Ratio of 1.0 or higher and a Long-term Debt to Total Capitalization Ratio of 40 per cent or less. Audited quarterly and annual financial statements also had to be provided to the bank each quarter.
As the sole owner of the corporation, David Johnstone did not take a salary, but his three daughters received over $1,000,000 in salary and bonuses each year. Preferred dividends of $500,000 were paid out to Mr. Johnstoneâs sister Katherine, who chose not to participate in the management of the business but was promised a regular income by her late father in lieu of receiving a share of the business. These dividends had to be paid unless the company entered bankruptcy.
| exhibit 1 | |||
| income statement | |||
| 2006 | 2007 | 2008 | |
| net sales | 16,200.00 | 17,450.00 | 16,500.00 |
| cost of good sold | 10,445.00 | 11,956.00 | 11,950.00 |
| gross profit | 5,755.00 | 5,494.00 | 4,550.00 |
| selling and admin | 3,054.00 | 3,130.00 | 3,379.00 |
| depreciation | 396.00 | 720.00 | 756.00 |
| operating income | 2,305.00 | 1,644.00 | 415.00 |
| other income | |||
| interest income | 21.00 | 10.00 | 2.00 |
| other exp. | |||
| interest exp. | 246.00 | 291.00 | 407.00 |
| income before taxes | 2,080.00 | 1,363.00 | 10.00 |
| income taxes | 624.00 | 409.00 | 3.00 |
| net income | 1,456.00 | 954.00 | 7.00 |
| Exhibit 2 | Balance Sheet | ||
| 2006 | 2007 | 2008 | |
| current assets | |||
| cash | 234.00 | 122.00 | 61.00 |
| temporaru inve. | 1,034.00 | 488.00 | 99.00 |
| accounts receivable | 3,250.00 | 3,450.00 | 2,854.00 |
| raw materials inventory | 1,025.00 | 1,350.00 | 1,395.00 |
| WIP inventory | 200.00 | 38.00 | 42.00 |
| finished goods inventory | 2,030.00 | 1,700.00 | 1,200.00 |
| prepaid exp. | 182.00 | 143.00 | 188.00 |
| total current assets | 7,955.00 | 7,391.00 | 5,839.00 |
| fixed assets | |||
| land plant and equip. | 4,893.00 | 7,076.00 | 9,590.00 |
| Less: accum Dep. | 1,380.00 | 2,100.00 | 2,856.00 |
| net land plant and equo | 3,513.00 | 4,976.00 | 6,734.00 |
| total assets | 11,468.00 | 12,367.00 | 12,573.00 |
| current liabilities | |||
| account payable | 534.00 | 543.00 | 500.00 |
| income taxes payable | 54.00 | 35.00 | 23.00 |
| current portion of long term debt | 1,000.00 | 1,145.00 | 1,340.00 |
| total current liabilities | 1,588.00 | 1,723.00 | 1,863.00 |
| long-term Liabilities | 3,190.00 | 3,500.00 | 4,059.00 |
| shareholdrs equity | |||
| common share | 1,350.00 | 1,350.00 | 1,350.00 |
| retained earnings | 5,340.00 | 5,794.00 | 5,301.00 |
| total shreholders equity | 6,690.00 | 7,144.00 | 6,651.00 |
| total liabilities and shareholcers equity | 11,648.00 | 12,367.00 | 12,573.00 |
| exhibit 3 | benchmark ratios | |
| curernt ratio | 4.00 | |
| cash ratio | 0.50 | |
| raw material turnover in days | 31 days | |
| WIP turnover in days | 3 days | |
| finished goods turnover in days | 51 days | |
| a/r turnover in days | 63 days | |
| a/p turnover in days | 11 days | |
| cash converseion cycle | 137 days | |
| fixed asset turnover | 4.10 | |
| total asset turnover | 1.70 | |
| long-term debt to total capitalization | 35% | |
| cash flow coverage | 2.00 | |
| gross profit margin | 32% | |
| operating profit margin | 16% | |
| net profit margin | 10% | |
| ROA | 17% | |
| ROE | 28% | |
THE REQUIREMENT QUESTION
How were profits holding up, given the intense price competition in the industry? Were attempts to lower costs through more automation paying off? Were the current problems in the U.S. housing market going to continue to reduce demand for connectors? How would lenders react to this poor performance? Was the companyâs financing in danger?