Sample Answers

University of California, Riverside
A. Gary Anderson Graduate School of Management

BSAD 113		Marketing Institutions
Lars Perner, Instructor		Fall, 2001

SAMPLE MIDTERM

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.)

Please discuss the significance of the concept of "market balance." How well balanced do you perceive the U.S. market for fast food to be, and what are the implications of this?

Market balance exists when different firms that offer products in the same category compete on different variables--e.g., some offer low prices, some offer speed, some offer specialized products, and some offer premium quality. If market balance does not exist, competition is likely to disintegrate into price competition since price is the only way you can then differentiate yourself from competitors.

The fast food industry appears to have a medium level of balance. Although many of the hamburger chains such as McDonald's and Burger King offer very similar foods and services, leading to intense price competition, a number of other restaurants and chains offer different kinds of food (e.g., KFC) and some, such as Boston Markets, offer somewhat higher quality food at higher prices. Given this modest level of balance, there is likely to be significant competition among many of the restaurants, as evidenced by the fact that one can get a complete meal and drink for $3.00-4.00 many places.

2. According to the text, what are some interesting characteristics of mail order shoppers identified in a study?

More women than men shop by mail as are married individuals, more affluent consumers, and individuals with children. About 90% of respondents found catalog at least as enjoyable as traditional shopping. Women's apparel is one product that is bought by a large number of catalog shoppers.

3.Many stores claim that they save money and pass on these savings to customers by "eliminating the middleman." Please discuss this claim.

Manufacturers usually cannot save money by eliminating intermediaries because these intermediaries are often more efficient in performing services that the manufacturer would have to perform otherwise. Costs of selling the merchandise in stores can be split among several different products, and distributing to the end stores can be reduced by having a wholesaler combine products from several manufacturers, where the wholesaler will break bulk.

4. According to the text, what are some defenses against charges of price discrimination by sellers?

	Liquidation of perishable inventory;
	Demonstrable differences in costs of serving the different customers (e.g., Wal-Mart takes care of much of the distribution of the goods, while smaller stores order in smaller quantities and expect delivery to their door);
	Good faith effort to meet competition from an equally low priced competitor; and
	Availability: All buyers were offered a deal, but not all took it (e.g., the lower price might have been contingent on offering premium shelf space).

5. Please discuss which kinds of distribution objectives would be appropriate for Mars Candy (makers of Snickers and various other candies and candy bars).

For a manufacturer of candy bars, intense (rather than exclusive) distribution is essential since these represent a convenience good, often purchased without planning, where consumers are not willing to go to a less convenient outlet to get their preferred brand. Point-of-purchase promotion, such as displays and preferred shelf-placement, are also important.

6. Within the context of service outputs, please discuss why segmentation is essential, illustrating with the case of the television set (TVs, not programming) industry.

One firm generally cannot successfully be "all things to all people." If it attempted to do this, it would not satisfy anyone, so instead, the firm must choose to serve some customers well according to criteria that are important to thee customers. In the television set industry, some consumers will prefer the lowest price possible, and will accept a lower quality product with few features. These consumers are likely to shop in discount stores such as K-Mart, and will not want to pay extra for a salesperson's advice. Some customers, in contrast, will want premium sets with many features and may event want the store to come and install the set, and will pay extra for these features and services. Some tech-savvy consumers will want a lot of features but will want to get the set at the lowest price available with those features. Such individuals may shop at warehouse clubs such as Costco.

7. According to the text, What kind of service does Peapod.com aim to offer? Specifically, what kinds of benefits does it believe that its customers are willing to trade off against each other?

Peapod is mostly in the business of providing its customers convenience. These consumers pay higher prices, and delivery fees on top of this, for the privilege of being able to order their goods online and have them delivered to their homes quickly.

8. Under which circumstances is electronic commerce (e.g., Internet sales) likely to be most successful?

Electronic commerce is likely to be most successful when

	A great degree of customization is required (e.g., plane tickets for specific times and destinations or personalized stationery) where the consumer can actually enter much of the required information;
	There is a large gross margin to cover costs of operation;
	Buyers are dispersed over large areas, making local stores more difficult;
	Very large assortments of goods require large inventories (e.g., technical books, certain software, and rare audio recordings);
	The firm has required experience to maintain efficiency; and
	Consumers do research on the Internet and can be directed toward sites through banners.

9. Please discuss issues in optimizing web sites for better ranking on search engines.

Web sites should contain a great deal of text which looks like legitimate information, and this text should contain relevant keywords repeated a great deal. In addition, it is helpful to maintain several different web sites that each link to the central one since different search engines use different criteria in rankings. It is also useful to get other web sites to provide links to one's site since many search engines weight links heavily in rankings.

10. Please discuss characteristics for products that are better suited for sale by electronic commerce.

Products tend to be more suited if:

	Absolute margins on the product is high--e.g., a $100 margin on a computer rather than a $10 margin on a shirt
	The product has a high value to bulk ratio
	The product requires a great deal of customization (e.g., insurance policy)
	Buyers of the product are geographically scattered
	A very large inventory of different products is needed (e.g., specialized software).