Retail Strategy Exam 1 Questions: Chapter 2

Questions and Answers

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?

To deal with the perishability of services (correct)

To deal with the incompatibility characteristic of services

To deal with the intangible characteristic of services

To minimize inventory losses

To make sure the service offered is consistent

How can a service retailer best cope with the problems associated with the inconsistency of service?

Use low prices during off-seasons to help match supply and demand

Use mass production

Increase staffing at peak demand times

Emphasize quality control

Train and motivate employees (correct)

Which service characteristic is the doctor trying to handle with her office décor?

Intangibility (correct)

Consumability

Perishability

Inconsistency

Compatibility

A massage parlor that requires its therapists to keep a customer database is trying to cope with which service characteristic?

Inconsistency Signup and view all the answers

What format of ownership combines the advantages of owner-managed businesses with the efficiency of centralized decision making in chain store operations?

Franchise Signup and view all the answers

Which of the following describes an advantage that independent, single-store establishments have over other forms of ownership?

React quickly to market changes Signup and view all the answers

A company that operates multiple retail units under common ownership is called a ________.

retail chain Signup and view all the answers

Typically, large retail chains:

Effectively negotiate lower prices because of their buying power Signup and view all the answers

In a franchise contract, the franchisor ________.

Does all of these things Signup and view all the answers

In a franchise contract, the franchisee pays the franchisor a _______.

Lump sum plus a royalty on all sales Signup and view all the answers

Which of the following is NOT TRUE in describing characteristics of a franchise?

The franchisor is solely responsible for financing advertising, product development, and system development Signup and view all the answers

Differentiate between retailer's breadth of merchandise and depth of merchandise.

Breadth of merchandise refers to the number of different merchandise categories a retailer offers. Depth of merchandise refers to the number of different items in a merchandise category. Signup and view all the answers

Explain strategies that limited assortment supermarkets have used to provide customers with high quality merchandise at low prices.

Limited assortment stores offer one or two brands and sizes to maintain low costs and high quality. They maximize efficiency, hire fewer employees, and reduce rent costs. Signup and view all the answers

How are department stores categorized into tiers? How do the tiers differ? Give examples of each.

Tier 1 includes upscale high-fashion chains like Neiman Marcus. Tier 2 consists of upscale traditional stores like Macy's. Tier 3 is value-oriented stores like Sears and JCPenney. Signup and view all the answers

Discuss the reasons that department stores are losing their market share to discount stores.

Consumers find department stores less convenient than discount stores, with reduced customer service and higher prices. Signup and view all the answers

Discuss what drugstores are doing to remain competitive in the marketplace.

Drugstores are expanding their merchandise assortment, adding drive-up windows, in-store medical clinics, and changing the pharmacist's role to provide health care assistance. Signup and view all the answers

Describe four differences between services and merchandise retailers.

Differences include: (1) Intangibility, (2) Simultaneous production and consumption, (3) Perishability, (4) Inconsistency of the offering. Signup and view all the answers

What does a franchisor offer its franchisees?

Franchisors provide assistance in store setup, product development, management training, and advertising. Signup and view all the answers

Describe the ways supermarkets in the United States have shifted their product offerings to cater to the growing Hispanic population.

Supermarkets have added bilingual staff, fresh food emphasis, and a larger selection of domestic and imported Latin grocery goods. Signup and view all the answers

Discuss how off-price retailers opportunistically obtain their merchandise.

They acquire excess inventory from retailers and manufacturers through close-outs and overruns. Signup and view all the answers

Discuss the practice of manufacturers opening their own specialty stores.

Manufacturers can control brand image and presentation, but face tensions with retailers and higher costs. Signup and view all the answers

Prescription pharmaceuticals account for over half or more of drugstores annual sales.

True Signup and view all the answers

Walmart is classified as an off-price retailer.

False Signup and view all the answers

Supermarkets gain higher profit margins from private-label merchandise than national brands.

True Signup and view all the answers

Hispanics have significantly different shopping and eating patterns from those of the general population in the United States.

True Signup and view all the answers

Subway is a franchise.

True Signup and view all the answers

The biggest difference between services and merchandise retailers is their profits.

False Signup and view all the answers

Discount stores offer both hard and soft goods for sale.

True Signup and view all the answers

Extreme-value retailers have a broad variety but shallow assortment of products offered at very low prices.

True Signup and view all the answers

An advantage of a large retail chain is that it can respond quickly to market changes and customer needs.

False Signup and view all the answers

To be competitive in today's marketplace, supermarkets are focusing on offering perishable products and meal solutions.

True Signup and view all the answers

New retail formats are created and evolve because ____________.

Consumers' needs and competition change Signup and view all the answers

The North American Industry Classification System (NAICS) __________.

Was created to collect data on North America's business activity Signup and view all the answers

Which of the following statements about NAICS codes is TRUE?

Retailers with the same NAICS codes are likely to compete against each other. Signup and view all the answers

__________ refers to the number of different merchandise categories a retailer offers.

Variety Signup and view all the answers

Because the only merchandise categories at the University Futon Shop are double-sized futons, the Futon Shop can be said to have no ____________.

Variety Signup and view all the answers

Each different item of merchandise in a retail store is called a(n) ____________.

Stock keeping unit (SKU) Signup and view all the answers

What does the acronym SKU stand for?

Stock Keeping Unit Signup and view all the answers

What is the word used to describe a retailer's merchandise 'breadth'?

Variety Signup and view all the answers

What is the word used to describe a retailer's merchandise 'depth'?

Assortment Signup and view all the answers

Variety is often referred to as the ____________.

Breadth of merchandise Signup and view all the answers

Assortment is often referred to as the ____________.

Depth of merchandise Signup and view all the answers

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 _________.

Depth of merchandise Signup and view all the answers

Office Depot offers customers a huge selection of office supply merchandise. As a result, inventory investment ____________.

Increases because they have to carry backup stock for each SKU Signup and view all the answers

Which of the following is NOT TRUE in describing retailers who offer a deep and broad assortment?

Discounters and warehouse clubs offer a greater assortment Signup and view all the answers

Stocking a deep and broad assortment is appealing to customers, but costly for retailers. What option does a small specialty store owner have to offset costs and make a profit?

Charge higher prices Signup and view all the answers

How can supermarkets differentiate themselves from other food retailing formats?

All of these Signup and view all the answers

Whereas conventional supermarkets carry about 30,000 SKUs, limited assortment supermarkets or extreme value food retailers only stock 2000 SKUs. Which of the following is NOT the advantage of stocking lesser SKUs?

Lower transportation costs Signup and view all the answers

The outer walls of a supermarket that stocks fresh merchandise such as dairy, bakery, meat, produce, etc., are referred to as the ________.

Power perimeter Signup and view all the answers

Building on their strength, supermarkets are offering fresh meal solutions for _________________ consumers.

Time-pressured Signup and view all the answers

The _____________ focuses on reducing the carbon footprint caused by the transportation of food throughout the world.

Locavore movement Signup and view all the answers

Purchasing from factories that pay workers a living wage (more than the minimum wage) and offer other benefits to the employees is called __________.

Fair trade Signup and view all the answers

What is the challenge big box stores face while developing locations in Europe and Japan?

All of these Signup and view all the answers

Warehouse clubs:

Sell merchandise in a no-frills atmosphere Signup and view all the answers

Which of the following statements about warehouse clubs is TRUE?

Warehouse clubs typically have low inventory holding costs. Signup and view all the answers

Angelo manages a local convenience store that sells gasoline. When gas prices are high, his sales increase, but gas margins are low. So, depending upon gas sales for the success of the business can be a problem for him. What should Angelo do?

Add fresh healthy food and new convenient services to the product mix Signup and view all the answers

Which of the following is the biggest threat to convenience stores?

Supermarket chains also offering gasoline Signup and view all the answers

Why do category specialists call themselves 'category killers'?

By offering a complete assortment in a category at low prices, category specialists can 'kill' a category of merchandise for other retailers. Signup and view all the answers

A retailer that carries a broad variety and deep assortment offers customer services and is organized into separate departments for displaying merchandise is called a _______.

Department store Signup and view all the answers

_________________ offer an inconsistent assortment of brand-name, fashion-oriented soft goods at low prices.

Off-price retailers Signup and view all the answers

What type of store is Kohl's considered?

Department store Signup and view all the answers

What type of store is Target considered?

Full-line discount store Signup and view all the answers

What type of store is Dollar-General considered to be?

Extreme-value retailer Signup and view all the answers

What type of store is T.J.Maxx considered to be?

Off-price retailer Signup and view all the answers

Which of the following is a first tier department store?

Nordstrom Signup and view all the answers

Which of the following is a second tier department store?

Macy's Signup and view all the answers

Which of the following is a third tier department store?

None of these Signup and view all the answers

What can department stores do to differentiate their merchandise offering AND strengthen their image?

Seek exclusive arrangements with nationally recognized brands Signup and view all the answers

Attempting to combat losing market share, department stores are ____________.

All of these Signup and view all the answers

Department stores have placed an emphasis on their own private branded merchandise to _______________.

Differentiate their product offerings Signup and view all the answers

To respond to a competitive discount environment, Walmart is fighting back by __.

Opening supercenters while closing full-line discount stores Signup and view all the answers

Which of the following statements about full-line discount stores is TRUE?

None of the above statements about full-line discount stores are true. Signup and view all the answers

Specialty stores that focus on specific market segments are vulnerable to _____.

Shifts in customer tastes and preferences Signup and view all the answers

Why are category specialists sometimes called category killers?

Because they can dominate a category of merchandise making it difficult for other retailers to compete. Signup and view all the answers

Best Buy is a category specialist for the electronics industry. This means the stores ___________.

Offer a narrow but deep assortment of merchandise Signup and view all the answers

Off-price retailers ________.

Sell brand-name merchandise at reduced prices Signup and view all the answers

Specialty stores have recently seen a trend of cheap and chic 'fast fashion'. The fast-fashion concept introduces new products in a store _________.

2-3 times per week Signup and view all the answers

Walgreens, CVS and Rite Aid see the largest portion of their sales results from ____.

Prescription drugs Signup and view all the answers

The drugstore industry has seen a decrease in their annual sales mainly due to ____.

Pharmacies in full-line discount stores Signup and view all the answers

Off-price retailers will often sell merchandise less than the MSRP which means:

The merchandise is sold below the suggested retail price. Signup and view all the answers

An off-price store that is owned by manufacturers or retailers is called a/an _______.

Outlet Signup and view all the answers

______________ are products that have minor blemishes to the fabric or errors in the construction.

Irregulars Signup and view all the answers

_____________ are end of season merchandise that will NOT be in the manufacturer's offerings going forward.

Close-outs Signup and view all the answers

What do Delta, Marriott, and Century 21 have in common?

They are all examples of service retailers. Signup and view all the answers

Services are difficult to be evaluated before customers buy, or even after they buy and consume them. What characteristic of service causes this challenge for service retailers?

Intangibility Signup and view all the answers

How can a service retailer best cope with the problems associated with the intangibility of service?

Solicit customer evaluations and complaints. Signup and view all the answers

Due to the perishability of services, service retailers like Universal Studios Theme Parks, Delta and Applebee's restaurants sometimes find it difficult to match supply and demand.

True Signup and view all the answers

Study Notes

Retail Strategy Key Concepts

Prescription pharmaceuticals represent over 50% of annual sales in drugstores.
Walmart is classified as a traditional retailer, not an off-price retailer.
Supermarkets tend to achieve higher profit margins with private-label goods compared to national brands.
Shopping habits among Hispanics differ significantly from the general U.S. population.
Subway operates as a franchise business model.
The primary distinction between service and merchandise retailers is not solely based on profits.
Discount stores sell a mix of hard and soft goods.
Extreme-value retailers provide a wide range of products at very low prices, though selection may be limited.

Retail Formats and Strategies

Large retail chains may struggle to adapt quickly to market changes due to bureaucratic structures.
Supermarkets increasingly focus on perishables and meal solutions to stay competitive.
New retail formats emerge due to changing consumer needs and heightened competition.

Industry Classification Systems

The North American Industry Classification System (NAICS) is developed to organize data on business activities in North America and employs an 8-digit classification scheme.
Retailers in the same NAICS category often compete against each other.

Merchandise Concepts

Variety in retail refers to the number of different product categories offered; ‘depth’ describes the number of items within a single category.
A retailer with limited categories, such as the University Futon Shop, may lack variety.
Each unique item of merchandise is referred to as a Stock Keeping Unit (SKU).
Inventory management is critical; extensive product assortments increase holding costs.

Challenges and Market Trends

Supermarkets face the challenge of differentiating through fresh perishables, health-focused items, and better shopping experiences.
Warehouse clubs operate with a no-frills approach and typically have low inventory holding costs.
Specialty stores can be vulnerable to shifts in consumer preferences and strong competition.

Pricing and Profitability Strategies

Off-price retailers sell brand-name products at reduced prices while maintaining volume through larger inventory.
Discounts and pricing strategies help retailers manage competition and customer demand.

Department Store Dynamics

Tier classification among department stores ranges from first tier (high-end) to third tier (low-end), allowing for market segmentation strategies.
Exclusive arrangements with vendors can strengthen a department store's market image and differentiate product offerings.

Service Retails and Characteristics

Services are inherently intangible and difficult to evaluate, leading retailers to utilize strategies like quality control and customer feedback.
Service perishability involves the challenge of matching supply with fluctuating demand.
Movie theaters use differential pricing to manage the perishable nature of their offerings.

Ownership Models and Their Implications

Franchising combines independent management with centralized decision-making efficiency, offering distinct advantages over some other retail formats.
Independent stores maintain advantages in customer service and niche marketing despite lacking the economies of scale of larger chains.### Market Adaptability and Business Models
Companies must react quickly to market changes to remain competitive.
Bureaucratic operations can hinder agility and quick decision-making processes.
Very low set-up costs can attract new retailers and increase competition.
Distribution efficiency is crucial for optimizing supply chains and reducing costs.

Retail Structures

Retail chains operate multiple stores under common ownership with centralized decision-making.
Common types of retail structures include franchises, retail chains, full-line discount stores, single-store establishments, and wholesale-sponsored voluntary cooperative chains.

Characteristics of Large Retail Chains

Large retail chains are typically centralized and leverage their buying power to negotiate lower prices.
They may not be as flexible in responding to local market needs compared to smaller businesses.

Franchise Agreements

Franchisors are responsible for ensuring consistency in service quality across franchise outlets.
Franchisees pay a lump sum plus royalties to franchisors, incentivizing both parties' success.

Retail Merchandise Breadth and Depth

Breadth of merchandise: The variety of different merchandise categories offered by a retailer.
Depth of merchandise: The quantity of different items available within a specific category.

Limited Assortment Supermarkets

Limited assortment supermarkets focus on a select few brands and sizes, typically including a store brand.
For cost efficiency, these stores operate in lower-rent areas and aim to keep fewer employees.
Examples include Save-a-Lot and ALDI, offering high-quality products at lower prices than traditional supermarkets.

Department Store Tiers

Department stores are categorized into three tiers based on luxury and pricing strategies:
- First tier: Upscale high-fashion stores (e.g., Neiman Marcus, Nordstrom).
- Second tier: Traditional mid-range stores (e.g., Macy’s, Dillard's).
- Third tier: Value-oriented stores for budget-conscious consumers (e.g., Sears, JCPenney).

Department Store Challenges and Adaptations

Challenges include decreased convenience, diminished customer service, and struggles to reduce costs compared to discount stores.
Strategies for regaining customers include hosting special events, opening in non-mall locations, enhancing exclusive merchandise, and improving the omnichannel shopping experience.

Drugstore Competitiveness

Drugstores remain competitive by diversifying offerings to include food items, providing drive-up windows, incorporating in-store medical clinics, and expanding pharmacist roles to provide health care advice.

Service vs. Merchandise Retailing

Key differences include intangibility, simultaneous production and consumption, perishability, and inconsistency in service delivery.
Service retailers use tangible symbols, investment in training, pricing strategies during low demand, and standard procedures to overcome challenges.

Supermarkets and Ethnic Demographics

Supermarkets are adapting to the growing Hispanic population by hiring bilingual staff, emphasizing fresh food items, and expanding Latin American product offerings.

Off-Price Retailing

Off-price retailers obtain merchandise from retailers with excess inventory and manufacturers with overproduction or close-outs.
Types of merchandise include irregulars, which are items with minor manufacturing faults.

Manufacturer-Owned Specialty Stores

Manufacturers are increasingly opening their own specialty stores to control branding and presentation of their products.
Benefits include better product display, full assortments, and pricing control but may create tensions with traditional retailers who sell their products.

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Test your knowledge of retail strategies with this quiz focused on Chapter 2. Answer true or false questions about drugstore sales, retailer classifications, and profit margins in supermarkets. Perfect for exam preparation and understanding key concepts in retail management.