SAMPLE
ANSWERS TO
BSAD 113
SAMPLE FINAL
Part I: Short Answers (Please answer ANY 6 of the following 8 questions. If you answer more than six, only the first six questions will count toward your grade. If you start on an answer and decide to abandon it, please make sure that your answer is crossed out). [20 points per question for a total of 6*20=120 points. Suggested time allocation: 7 minutes per question for a total of 42 minutes for Part I].
1. Sow’s Ear’s Accessories makes purses and other accessories from the ears of pink farm animals. (Despite the old adage, the company insists that it makes good products). Currently, SEA’s products are sold at farmers’ markets, Old McDonald’s Farm, and in numerous specialty stores. However, SEA products are not available in most accessory and upscale department stores. Please discuss how SEA might go about engaging in reciprocal piggy-backing and what the other party would gain from this.
SEA
could attempt to arrange with a manufacturer of hats, and thus does not
directly compete with SEA, to carry SEA purses to the accessory states to which
it has access. SEA can then, in turn,
bring the other manufacturer’s hats to its web site, the specialty stores, and
McDonald’s farms.
2. Please discuss how well balanced you perceive the U.S. retail market for gasoline to be.
Some
gasoline station chains such as Shell and Mobil compete on extra service, and
some stations provide additional services such as selling convenience
goods. Mostly, however, the competition
is on price, so the market is not particularly well balanced.
3. Traitor Joe used to sell Cuban cigars, Libyan figs, Iraqi dates, and Afghan “Tali Sand.” However, based on the excellent efforts made in a “sting” operation by some people on the midterm in this class, Joe is scheduled to reside in a maximum security prison for the foreseeable future. Seeking to get on the good side of the warden, Joe, while working in the prison shop, has suggested that the prison non-violently “eliminate” the middleman by selling the license plate holders manufactured by inmates directly to consumers through direct marketing. The warden has asked you to consult on economic merits of this approach. (Currently, the prison receives $2.00 for each holder that is sold for $6.50 at retail).
This
most likely would not be cost effective since intermediaries add
services and functions that the prison could not accomplish at the $4.50 price
markup.
4. Although Microsoft is mostly in the business of writing software, the company uses a great deal of CD ROMs and diskettes to distribute its software. Please discuss, in this context, the merits of vertical integration.
Vertical integration allows a firm to “usurp”
more functions in the product creation and distribution chain. If Microsoft were to manufacture its own
CDs, the firm would not have to depend on other parties to reliably deliver the
CDs and could better control quality.
However, if Microsoft does not have problems with these issues,
overseeing these operations would take away managerial time and would involve
tasks where the current management is not likely to have experience. With blank CDs being mostly a commodity, it
is unlikely that any real synergy would exist.
5. The Chief Execution Officer (CEO) of Avenging Ammo is intrigued over the rapidly growing phenomenon of “category killer” retailers. Please discuss to her how these stores can be successful and the positive and negative aspects of supplying such stores.
The good news is
that category killers tend to buy merchandise in very large quantities. These stores may also place their orders
well in advance, allowing for planning and ensuring sales. The bad news is that because they buy in
such large quantities, they tend to have a great deal of bargaining power. If AA does not give in to demands for
significant price breaks, Weapons ‘r’ Us and other category killers may give
that business Aggressive Armers or other ammunitions manufacturers.
6.
According to the text, what
are some issues in deciding whether intermediaries should be used at all?
Considerations
include the extent of customer demand for variety (if there is a demand by
consumers to be able to buy boat engines, spark plugs, and flotation devices at
the same time, a manufacturer that does not produce all will need
intermediaries), whether services such as local warehousing and spatial
convenience are needed, the ability to advertise and promote the product, and
the ability to finance inventory.
7.
According to
the text, what are some reasons why retailers have become relatively more
powerful, how does this power manifest itself, and what is its significance?
Since retailers face intense competition from
each other, they are under great pressure to keep costs low. One component here is to get low prices from
manufacturers and wholesalers. Further,
since retail chains have tended to consolidate (merge) in order to respond to
competitive pressures, and these larger units then have increased bargaining
power when they buy in large quantities.
Since a lot of brands compete for limited shelf-space, the
mega-retailers can hold out for significant price breaks.
8. Please discuss sources of channel “gaps.”
Channel gaps
may come about either for environmental or managerial reasons. In terms of environmental gaps, legal
constraints may preclude a particular business offering—e.g., in some
countries, only pharmacies may sell aspirin, so it is not possible to set up a
channel that would allow consumers to more easily obtain the product through
convenience stores. There may also not
be adequate infrastructure to offer the product—e.g., currently, in countries
where homes and small and few consumers have cars, warehouse stores that sell
economy-sized products are not likely to be successful. On the managerial side, one management level
may not be willing to trust another level to set up a service—e.g., a building
supply chain may not be willing to allow local managers to negotiate deals with
local builders since they might optimize local volume sales rather than
chain-wide profitability.
PLEASE BE SURE THAT YOU HAVE EITHER
COMPLETELY SKIPPED OR CROSSED OUT ANSWERS TO YOUR TWO LEAST PREFERRED SHORT
ANSWER QUESTIONS!
·
the significance to the firm of the issues that you identify (you must
decide which issues are applicable and are genuinely important for the specific
firm);
·
how well you relate the ideas to
the specific situation of the firm in
question (merely regurgitating class notes in the abstract will yield no
credit);
·
the extent to which in-depth
knowledge of the ideas applied is expressed (note that your reasoning must be
evident and explicit); and
·
the extent to which the answer
is well organized.
There will be no
credit for:
· “No
brainer” observations, such as the need for the firm to take culture into
consideration (you must discuss likely cultural influences in context of the firm situation) or the need to do research (you
must justify the issues and methods that you explicitly indicate);
· Outside
knowledge (what you happen to
know about this particular firm, beyond what was covered in class, readings, or
in the case);
· Ideas which
are too vague to be meaningful;
· Ideas not related to issues
discussed in this course
(e.g., issues that do not significantly relate to distribution);
· “Buzz” words
whose meaning is not discussed;
or
· General ideas
not tailored to the needs of the
specific firm.
A. Dell Computer is a leading manufacturer
and direct-to-customer seller of microcomputers and accessories. There is generally a great deal of price
competition in the microcomputer market, but some customers—particularly
businesses and professionals—are willing to pay a higher price for high
quality, extra service, and support.
One option that Dell offers is a plan for “on your site” service and
support within 24 hours of the customer’s call. This plan typically sells for about $250.00 per year. An obvious problem, however, is that
customers are spread out through the United States and those other countries in
which the plan is offered, so having close-by dispatch facilities would entail
a large investment. More recently, a
number of businesses have expressed an interest in a plan with a guarantee of
service within two hours.
Traditionally, Dell has bought most of its parts from others and has
focused on the assembly and marketing of the computers. Now, however, some board members have asked
about the possibility of Dell manufacturing its own hard drives and other
components.
There is currently
a great deal of price competition in the computer market, so Dell needs to
decide whether to emphasize price, customization, quality, or other
variables. Since most other
manufacturers compete heavily on price, Dell may be better off stressing
differentiation rather than aggressively competing price-wise with retail
stores carrying other brands.
Dell has noticed a
gap in existing computer sales and service—businesses that need even faster
on-site service than is currently being offered. A problem, however, is whether the desired service level can be
offered at a price that matches customer demand. While Dell probably would not want to invest itself in providing
such service nation-wide, it is possible that Dell could outsource such jobs in
high volume geographic areas (e.g., major cities). Dell also can consider the option of whether to perform its
existing service within the company or outsourcing this.
Dell can consider whether to vertically integrate
and manufacture its own computer components.
Doing so might allow additional opportunities for profit, give Dell more
control over its supply and product design, and to leverage the Dell brand by
extending it to other components. On
the negative side, this would take the firm into an area where it does not have
experience and would take away managerial attention from existing business
units.
B. Decibeletics is a manufacturer of
premium quality car stereo systems.
While Decibeletics’ systems are among the very best in the business—and
are recognized among many audiophiles as such—they are also extremely
expensive, with a radio-CD unit starting at around $1,200 retail. Since only a small segment of consumers
will pay such high prices, Decibeletics’ products are available in only a small
number of outlets. Much of the costs of
the products go into research and development, so the variable cost of
production for a $1,200 unit is only about $350. Therefore, Decibeletics’ management has thought about offering
some units at a lower price through Costco.
It has also been felt that many buyers of new luxury cars might want to
have a Decibeletics installed at the time of purchase, but even though
customers here might be willing to pay full retail price, Decibeletics’ current
distribution system does not reach the dealers and selling directly to the
dealerships would add a great deal of cost due to small volumes.
Decibeletics is
offers a premium product. While sales
could be increased by making units available through channels such as Costco,
this would likely create significant channel conflict with full service
retailers who might then drop or deemphasize the brand. Decibeletics instead probably should
emphasize exclusive distribution and make sure that its dealers maintain
attractive margins by not selling to retailers that would discount too
much. Exclusive territories may be an
option so that only one dealer might be allowed to carry the product, for
example, in the Riverside-San Bernadino area.
Because of the quality associations with the Decibeletics name, the firm
may have a fair amount of referent power, which can help Decibeletics enforce
service and pricing requirements.
Because
Decibeletics manufactures in relatively small quantities, it may be useful for
the firm to outsource functions such as packaging and the manufacturing of
parts that can be produced with sufficient quality by someone else who has
economies of scale.
In order to reach auto dealerships, Decibeletics
might be able to “piggy-back” with some other manufacturer that makes other
products that are installed by dealers—e.g., burglar alarms or satellite
navigation systems.