Marketing Channel Strategy 8th Edition

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Marketing Channels, 8e (Palmatier)
Chapter 07 Wholesaling Structures and Strategies

1) A firm that sells physical inputs and products to other businesses is best described as a(n)
________.
A) contractor
B) wholesaler
C) merchant
D) marketer
E) retailer
Answer: B
Difficulty: Easy
Objective: LO1

2) A wholesaler-distributor is LEAST likely to ________.

A) be independently owned
B) operate from a warehouse
C) claim ownership of goods
D) sell products to end users
E) hold inventory for reshipping
Answer: D
Difficulty: Moderate
Objective: LO2

3) According to the author, what has been a significant factor in the large number of
consolidations in the wholesale distributor industry?
A) globalization of retailers
B) shifting channel power
C) federal regulations
D) investments in IT
E) end user demands
Answer: D
Difficulty: Moderate
Objective: LO5
AACSB: Information technology

4) Which term refers to a type of super wholesaler?

A) master distributor
B) cooperative group
C) catalyst organization

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D) channel exporter
E) industrial user
Answer: A
Difficulty: Easy
Objective: LO1

5) Which term refers to the strategic coordination of traditional business functions

systematically across the channel, with the goal of enhancing long-term performance for the
channel overall?
A) value chain analysis
B) channel consolidation
C) supply chain management
D) service output concentration
E) master distribution management
Answer: C
Difficulty: Easy
Objective: LO2

6) Which of the following activities would LEAST likely be handled by a master distributor?
A) delivering products to other distributors
B) consolidating orders from manufacturers
C) providing marketing and advertising support
D) monitoring employee recruitment and training
E) helping manufacturers expand into new channels
Answer: D
Difficulty: Moderate
Objective: LO2

7) A wholesaling operation that is owned and run by a manufacturer and that performs selling
and marketing functions is best known as a(n) ________.
A) retailer
B) service broker
C) master distributor
D) supply chain manager
E) manufacturers’ sales branch
Answer: E
Difficulty: Easy
Objective: LO2

8) An agent or broker most likely ________.

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A) takes ownership of represented products
B) maintains large inventories of products
C) sells tangible products but not services
D) earns a commission for selling products
E) handles delivery and logistical details
Answer: D
Difficulty: Moderate
Objective: LO7

9) A third-party logistics provider most likely ________.

A) takes title to the products being handled
B) charges customers an activity-based fee
C) earns rewards for selling new products
D) resells products at wholesale prices
E) markets product for distributors
Answer: B
Difficulty: Moderate
Objective: LO1

10) A wholesaler adds value by performing all of the following channel functions EXCEPT
________.
A) promoting products to prospects
B) granting credit to suppliers
C) manufacturing new products
D) processing orders and payments
E) negotiating transactions
Answer: C
Difficulty: Moderate
Objective: LO2

11) Which of the following best defines the term picking?

A) taking items from shelves that are needed by customers and assembling the items for
shipment
B) identifying the most efficient method to collect, assemble, and ship products to global
customers
C) maintaining ownership and title to products until another distributor purchases them
D) selecting a master distributor to oversee the logistics and shipment of products
E) choosing the most important service outputs for a particular channel
Answer: A
Difficulty: Moderate

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Objective: LO2

12) According to the text, what was the primary reason for the consolidation of pharmaceutical
wholesalers?
A) closure of small pharmacies
B) automation of picking tasks
C) research into new medications
D) deregulation by the government
E) investments by global organizations
Answer: B
Difficulty: Moderate
Objective: LO2

13) An independent firm located in the exporter’s country that performs channel functions for
multiple manufacturers in noncompeting product categories is most likely a(n) ________.
A) licensed exporter
B) export franchisor
C) wholesale agency
D) master-distributor
E) export trading company
Answer: E
Difficulty: Easy
Objective: LO2

14) Carmen, a manager at Dixon Manufacturing, is seeking an export intermediary to improve

Dixon’s success in foreign markets. Carmen has interviewed managers at multiple export trading
companies and noted the key characteristics of each firm. Which export trading company should
Carmen most likely select?
A) Alpha Exporting is a large firm with hundreds of employees.
B) Beta Exporting employees are either multilingual or foreign born.
C) Calvin Exporting has strong local connections and community ties.
D) Davis Exporting managers are new to the industry and eager to gain business.
E) Ellison Exporting is employed by manufacturers in the same industry as Dixon.
Answer: B
Difficulty: Difficult
Objective: LO2
AACSB: Analytical thinking

15) Pittsfield Fabric, a U.S. manufacturer, is considering the idea of selling fabrics to European
consumers. Which type of intermediary would most likely assist Pittsfield with this plan?

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A) export trading company
B) master distributor
C) commission agent
D) franchiser
E) retailer
Answer: A
Difficulty: Moderate
Objective: LO2
AACSB: Analytical thinking

16) What is the primary reason that the onion industry has failed to be successful in Niger?
A) high amount of local sourcing
B) poor reputation of wholesalers
C) formation of wholesaler co-ops
D) involvement of retailer-sponsored alliances
E) deregulation of food industry by the government
Answer: B
Difficulty: Moderate
Objective: LO2
AACSB: Diverse and multicultural work environment

17) What is an objective of wholesaler federations?

A) sharing title to products and services
B) reducing promotional costs and activities
C) eliminating redundant inventory or service operations
D) providing an alternative to retailer and manufacturer cooperatives
E) assisting manufacturers with their exporting and importing activities
Answer: C
Difficulty: Moderate
Objective: LO3

18) Consortiums, such as Intercore Resources, help distributors to ________.

A) analyze service outputs
B) evaluate master distributors
C) address vertical integration issues
D) provide better service to customers
E) profit from storing unwanted inventory
Answer: D
Difficulty: Moderate
Objective: LO3

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19) How did Volvo Trucks North America solve its parts distribution problem?
A) fragmenting its global service outputs
B) establishing a holding company in Sweden
C) acquiring FedEx to form a new conglomeration
D) establishing multiple warehouses linked electronically
E) building a centralized warehouse near FedEx headquarters
Answer: E
Difficulty: Moderate
Objective: LO3

20) Unlike wholesaler voluntary groups, retailer-sponsored cooperatives require members to

________.
A) conduct a certain amount of business with the co-op
B) adhere to co-op procedures and policies
C) elect a member as co-op chair
D) buy shares in the co-op
E) form a co-op board
Answer: D
Difficulty: Moderate
Objective: LO4

21) Which term best describes Ace Hardware?

A) wholesaler co-op
B) holding company
C) retailer co-op
D) distributor
E) consortium
Answer: C
Difficulty: Moderate
Objective: LO4

22) Which of the following is most likely a true statement about Ace Hardware?
A) Ace dealers pay membership fees and receive stock to ensure a profitable system.
B) The primary competition for independent Ace stores is other dealer cooperatives.
C) Ace eliminated its private-label merchandise because of poor retail sales.
D) Ace focuses on independent dealers rather than operating its own stores.
E) Independent Ace stores are homogeneous, which simplifies distribution.
Answer: A
Difficulty: Difficult

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Objective: LO4

23) The Ace Hardware Corporation was initially formed to ________.

A) establish a vertically integrated firm
B) bypass wholesalers and reduce costs
C) compete with big box hardware stores
D) share marketing and advertising costs
E) provide product variety to consumers
Answer: B
Difficulty: Moderate
Objective: LO4

24) What is the primary benefit of Ace managing the wholesale side of the business?
A) providing better customer service
B) offering a heterogeneous inventory
C) ensuring that dealers are successful
D) keeping procurement costs down
E) customizing store offerings
Answer: D
Difficulty: Moderate
Objective: LO4

25) Why are cooperatives becoming popular in Japan?

A) rising demand for service coordination
B) increasing number of small wholesalers
C) growing need to export goods overseas
D) changing demographics of consumers
E) decreasing length of marketing channels
Answer: E
Difficulty: Moderate
Objective: LO4
AACSB: Diverse and multicultural work environment

26) Land O’Lakes, Sunkist, and Ocean Spray are examples of ________.
A) wholesalers
B) consumer groups
C) farm cooperatives
D) master distributors
E) independent franchisors
Answer: C

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Difficulty: Easy
Objective: LO4

27) Which statement best explains the success of consumer co-ops in the French food sector?
A) Grocery chains in France have historically supported direct selling and local food sourcing.
B) French consumers want intermediaries to conduct more safety inspections of food and wine.
C) Many French shoppers demand regional, organic foods and oppose conventional farming.
D) French shoppers appreciate the lower prices of food purchased directly from farmers.
E) Many French consumers support the government and its food standardization tactics.
Answer: C
Difficulty: Difficult
Objective: LO4
AACSB: Diverse and multicultural work environments

28) What is the LEAST likely reason that some French farmers have stopped direct selling and
started using intermediaries again?
A) being expected to provide credit to buyers
B) having to promote products to build clientele
C) needing to locate where customers want to buy
D) matching crops to product assortment demands
E) complying with significant certification procedures
Answer: E
Difficulty: Moderate
Objective: LO4
AACSB: Diverse and multicultural work environments

29) What is a key reason for the fast pace of wholesaler consolidation in the U.S.?
A) improvements in information technology
B) shifts in channel power and sources
C) increased use of master distributors
D) growth of consumer co-ops
E) opportunities to globalize
Answer: A
Difficulty: Moderate
Objective: LO5
AACSB: Information technology

30) Which term refers to a large, full-line, versatile wholesaler that is able to serve many
environments well?
A) progressive firm

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B) extreme generalist
C) fragmented firm
D) extreme specialist
E) catalyst firm
Answer: B
Difficulty: Easy
Objective: LO5

31) A manufacturer that invests in fragmentation when faced with wholesale consolidation is
most likely ________.
A) focusing on forward vertical integration
B) creating partnerships with large distributors
C) increasing its attractiveness to channel members
D) forming alliances with small wholesaler-distributors
E) developing additional channel power through outsourcing
Answer: D
Difficulty: Moderate
Objective: LO5

32) According to the text, why will most wholesalers never be truly global?
A) Increasing trade barriers discourage wholesalers from globalizing.
B) Cross-border shipping costs for wholesalers are expected to rise.
C) Wholesaling involves meeting the varied needs of local markets.
D) Global wholesaling channels are too standardized to be profitable.
E) Wholesaler consolidation prevents manufacturers from outsourcing.
Answer: C
Difficulty: Difficult
Objective: LO2

33) How has e-commerce most likely benefitted wholesalers?

A) Wholesalers with an online presence can globalize the supply chain.
B) Independent electronic exchanges allow wholesalers to promote services.
C) The risk of defective goods sold by fake e-merchants has been eliminated.
D) Reverse online auctions enable wholesalers to improve customer relationships.
E) Wholesalers gain more customer knowledge which leads to better service and value.
Answer: E
Difficulty: Difficult
Objective: LO6
AACSB: Information technology

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34) A(n) ________enables buyers of similar products to source and purchase items from
multiple suppliers from a single location.
A) independent electronic exchange
B) online distribution center
C) electronic auction house
D) book-and-ship website
E) online reverse auction
Answer: A
Difficulty: Easy
Objective: LO6
AACSB: Information technology

35) What was the most likely reason for the failure of B2B online exchanges?
A) Buyers were unable to purchase similar products from one site.
B) Exchanges overlooked the value provided by wholesalers.
C) Wholesaler consolidation eliminated most e-distributors.
D) Exchanges added an unnecessary and costly intermediary.
E) Grey market pricing was unexpected by the exchanges.
Answer: B
Difficulty: Difficult
Objective: LO6
AACSB: Information technology

36) Buyers attracted to online reverse auctions most likely want to ________.
A) analyze a product’s lifetime cost of ownership
B) form relationships with major wholesalers
C) evaluate overall procurement costs
D) focus on low product prices
E) eliminate buying risks
Answer: D
Difficulty: Moderate
Objective: LO6
AACSB: Information technology

37) Watson Wholesalers typically charges customers slightly higher product prices with the
explanation that the services the firm provides are free. Which term best describes the strategy of
Watson Wholesalers?
A) activity-based costing
B) value-added pricing
C) fragmentation

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D) consolidation
E) bundling
Answer: E
Difficulty: Moderate
Objective: LO2
AACSB: Analytical thinking

38) An ABC analysis is most likely used by wholesalers to ________.

A) strengthen a business portfolio with key customers
B) compare outsourcing with vertical integration
C) estimate the service costs of customers
D) separate product and service costs
E) measure direct selling effects
Answer: C
Difficulty: Moderate
Objective: LO2

39) Wilson Wholesalers, an electrical component distributor, charges customers separate

amounts for various services, such as inspecting components prior to packaging, using priority
shipping, and sorting components by part number. Which term best describes the strategy used
by Wilson Wholesalers?
A) fee for service model
B) activity-based costing
C) service consolidation
D) fragmentation
E) bundling
Answer: A
Difficulty: Moderate
Objective: LO2
AACSB: Analytical thinking

40) Which statement about power retailers is most likely FALSE?

A) Power retailers usually buy in large quantities in select product categories.
B) Power retailers usually adopt a buy direct approach due to purchasing volume.
C) Power retailers typically rely heavily on small, regional wholesaler-distributors.
D) Power retailers tend to reduce channel costs by creating in-house distribution systems.
E) Power retailers in Europe, Japan, and the U.S. are bypassing independent wholesaler-
distributors
Answer: C
Difficulty: Difficult

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Objective: LO7

41) Wholesalers are business establishments that sell products primarily to end-users but also to
other businesses.
Answer: FALSE
Difficulty: Easy
Objective: LO1

42) Agents, brokers, and commission agents buy or sell products, earn commissions or fees, and
take ownership of the products they represent.
Answer: FALSE
Difficulty: Easy
Objective: LO7

43) Collaborative filtering software enables wholesalers to use customer information to identify
and suggest appropriate products for prospects.
Answer: TRUE
Difficulty: Easy
Objective: LO3
AACSB: Information technology

44) Cooperatives are increasingly popular among small and medium-sized Japanese wholesalers
that want to gain economies of scale and compete more effectively with large wholesalers.
Answer: TRUE
Difficulty: Easy
Objective: LO4
AACSB: Diverse and multicultural work environment

45) Independent electronic exchanges rely on specialized software that allows bidders to submit
progressively declining bids to win a customer’s business.
Answer: FALSE
Difficulty: Easy
Objective: LO6
AACSB: Information technology

46) What have been the causes and effects of consolidation in the wholesale sector?
Answer: The wholesale sector has been subject to a massive, decades-long wave of
consolidation. Consolidation strengthens wholesaler-distributors even as it reduces their
number—and some inefficiencies in the industry. Consolidation was largely sparked by IT. That
is, actors performing the distribution function experience intense pressures to invest in IT. The

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customer-facing elements of the business in particular are increasingly expected to be Internet-
enabled and sophisticated. Concurrently, operations benefit from IT system investments that
allow the distributors to participate in the supply chain management revolution. Such
competitive demands encourage wholesaler-distributors to consolidate so that they can achieve
the scale economies that justify massive investments in automation.
Difficulty: Difficult
Objective: LO5; LO8
AACSB: Analytical thinking

47) What is a master distributor? What functions do master distributors perform?

Answer: A master distributor is a sort of super wholesaler. Master distributors consolidate
orders from all their manufacturers, so their customers avoid minimum order requirements
established by the manufacturer. Individual distributors can buy a variety of products from a
multitude of vendors, but still enjoy the quantity discount and lower transportation costs obtained
by the master distributor. Master distributors’ roles sometimes mirror those of a franchisor. They
help their customers (i.e., other distributors) improve their business processes, demonstrate best
practices, and shoulder some of their channel functions, such as advertising and holding
inventory. Essentially, master distributors give distributors economies of scope and scale and
help them resolve their logistic and support problems.
Difficulty: Difficult
Objective: LO1; LO2
AACSB: Analytical thinking

48) How do channel members benefit from joining federations?

Answer: In federations, the goal is to enter into progressive, cooperative arrangements with
other channel members, in which all elements—the nature of assistance, the procedures for
providing it, and the appropriate compensation—have been defined in advance. Such
arrangements could cut costs substantially, improve service, and open new business
opportunities. By cooperating, the members of the federation eliminate redundant inventory or
service operations.
Difficulty: Difficult
Objective: LO3
AACSB: Analytical thinking

49) What have been the positive and negative effects of e-commerce on wholesalers? How might
online reverse auctions impact wholesalers?
Answer: E-commerce has changed but will not likely replace wholesalers. Wholesalers thrive by
gaining customer knowledge and combining it with their knowledge of producers to solve the
problems of both ends. The Internet creates new problems (e.g., heightened risk of defective
goods, fraudulent “merchants,” credit card theft, release of private information). It also creates

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new ways to solve problems (e.g., collaborative filtering to help the customer spend less time
while still making better choices). Early indications suggest that wholesalers actually are
benefiting from e-commerce as they co-opt the Internet for their own uses, to bring in new
business and improve how they perform their work. With online bidding by reverse auction,
prequalified suppliers seek to win a customer’s business. Using specialized software, bidders
submit progressively declining bids, and the winner submits the lowest bid before time runs out.
Reverse auctions tend to focus on the lowest product prices, rather than the lowest procurement
costs or lowest cost of ownership over the product’s lifetime. These broader cost concepts
involve intangible factors, but considerations of warranties, delivery time, switching costs, and
capabilities tend to get lost in bidding wars. The long-run danger of reverse auctions is that
suppliers use them to extract excessive concessions, driving suppliers right out of business. This
forced supply consolidation puts buyers into negotiations with just a few, large wholesalers and
producers. In the long run, this scenario may not be the route to sustainable competitive
advantages for buyers.
Difficulty: Difficult
Objective: LO6; LO8
AACSB: Information technology

50) How do wholesaler voluntary groups differ from cooperative groups? What are the benefits
of cooperative groups?
Answer: In both wholesaler voluntary groups and cooperative groups, members agree to do a
certain amount of business with the consortium and follow some of its procedures. In a
cooperative group, the members must buy shares in the co-op, such that they are owners as well
as members. And as owners, they receive shares of the profits generated by their co-op (as stock
dividends) and end-of-year rebates on their purchases. Thus, the goals of the co-op and the
interests of its members align closely. Unlike wholesaler voluntary groups, retailer co-ops thus
have a more formalized structure, run by dedicated professional managers whose jobs have fairly
elaborate role descriptions. They also are better able to influence the marketing efforts of their
owner/members, who must adhere to the co-op’s advertising, signage, and brands if they hope to
stay. In short, their marketing coordination is stronger.
Difficulty: Difficult
Objective: LO4
AACSB: Analytical thinking

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