Deck 4: Make Versus Buy Channel Analysis

Question 1

A manufacturer that performs all functions in a channel is most likely engaged in ________

A) outsourcing
B) relationalism
C) target marketing
D) vertical integration
E) classical market contracting

Answer 1

D

Question 2

Which term refers to a firm's overall knowledge base that cannot be readily redeployed to another principal?

A) general-purpose assets
B) dedicated relationships
C) proprietary skill sets
D) idiosyncratic assets
E) brand equity

Answer 2

D

Question 3

Gordon Industries,a large manufacturer,pays outside firms to perform certain channel functions.What is the most common way for Gordon Industries to express the price of performing channel functions?

A) expenses
B) royalties
C) lump sum payments
D) functional discounts
E) future considerations

Answer 3

B

Question 4

How does a firm with company-specific assets most likely benefit from vertical integration?

A) confirming that external distributors are well trained
B) ensuring that employees are highly capable and skilled
C) providing customized solutions to high-value end-users
D) establishing credibility by showing dedication to the market
E) quantifying brand equity by monitoring all upstream activities

Question 5

A firm should most likely outsource channel functions when the ________.

A) function requires company-specific capabilities
B) firm has resources that cannot be used for other purposes
C) firm cannot afford the set-up costs of creating an internal operation
D) firm has resources that are demanded in a volatile and prosperous market
E) firm's brand equity relies on customer experiences with downstream service providers

Question 6

ElectroInc,an electronics manufacturer,is considering the idea forward vertical integration.ElectroInc employees would make sales and fulfill orders in addition to manufacturing products.What is the primary risk that ElectroInc faces with vertical integration?

A) increasing performance ambiguity
B) reducing its return on investment
C) engaging in product speculation efforts
D) performing redundant channel functions
E) establishing environmental and managerial bounds

Question 7

According to the text,Manoukian experienced poor results with vertical integration because the firm failed to________.

A) recognize the service outputs demanded by most end-users
B) realize the expertise power of independent retailers
C) apply the equity principle to all channel members
D) take control of distribution decisions
E) offer enough product variations

Question 8

All of the following are reasons to outsource channel functions to a third party EXCEPT the third party's ________.

A) motivation
B) specialization
C) market coverage
D) economies of scale
E) dedicated capacities

Question 9

Which of the following statements about outsourcing is most likely true?

A) Third-party distributors are typically motivated by monetary rewards and market discipline.
B) Both wholesalers and manufacturers specialize in cost-effective distribution activities.
C) Distribution usually involves high entry barriers, so it attracts only the best firms.
D) Third-party distributors are limited to selling one brand and product line.
E) Economies of scale are desired by distributors but rarely attained.

Question 10

A(n)________ can most likely be redeployed to benefit another principal without the manufacturer losing productive value.

A) zero salvage know-how
B) proprietary knowledge
C) general-purpose asset
D) idiosyncratic asset
E) brand equity

Question 11

When a firm has highly valuable company-specific capabilities,vertical integration will LEAST likely result in ________.

A) improving revenues
B) lowering overhead
C) reducing opportunism
D) minimizing direct costs
E) increasing net effectiveness

Question 12

Which of the following would most likely lead to relational governance in a channel system?

A) maintaining strong links with channel members
B) promoting channel member services and products
C) basing most channel functions on the equity principle
D) outsourcing costly, time-consuming channel functions
E) creating a significant distance between channel members

Question 13

Alvin Electronics sells televisions,surround sound systems,and stereo components made by firms such as Sony,Bose,and Samsung.By selling a broad range of brands in the home entertainment product category,Alvin Electronics is most likely able to achieve ________.

A) idiosyncratic knowledge
B) zero-based channels
C) economies of scale
D) vertical integration
E) site specificity

Question 14

What is the LEAST likely risk associated with forward vertical integration?

A) reduced ability to meet service output demands
B) fewer employees focused on core activities
C) limited control over value-chain operations
D) insufficient managerial resources
E) lower profits and market share

Question 15

All of the following are the major forms of company-specific distribution capabilities EXCEPT ________.

A) site specificity
B) dedicated capacity
C) idiosyncratic knowledge
D) customized physical facilities
E) upstream brand strategy and equity

Question 16

Return on investment is best defined as the ________.

A) percentage of equity in the firm
B) ratio of expenses to direct costs
C) revenues that accrue under integration
D) ratio of net effectiveness to overhead
E) variable costs incurred after integration

Question 17

Todd,an independent sales agent in the medical device industry,sells products made by six different manufacturers.Previously,Todd worked as a salesperson for only one medical device manufacturer.Since becoming a manufacturers' representative for multiple firms,Todd's sales have increased dramatically.What is the LEAST likely reason for Todd's current success?

A) Todd relies on an efficiency template to monitor prices.
B) Todd offers a wide variety of medical devices to end-users.
C) Todd's portfolio of medical products supports one-stop shopping.
D) Todd's deep customer knowledge leads to repeat purchases and referrals.
E) Todd sells only the best medical devices produced by each manufacturer.

Question 18

Which of the following best describes classical market contracting?

A) distributing benefits to channel members
B) delegating channel functions to third parties
C) taking responsibility for all channel functions
D) sharing channel function risks with third parties
E) merging with a third party to meet channel demands

Question 19

A marketing channel system in which the channels have some properties of both owned and independent channels is most likely engaged in ________.

A) offshoring
B) vertical integration
C) horizontal integration
D) quasi-vertical integration
E) classical market contracting

Question 20

According to the text,the best reason for vertical integration is ________.

A) monitoring reverse logistics
B) owning a larger enterprise
C) obtaining new resources
D) sharing channel control
E) improving profit margins

Question 21

A manufacturer of a discontinuous innovation would most likely vertically integrate forward because of ________.

A) idiosyncratic knowledge
B) performance ambiguity
C) limited infrastructures
D) unreliable outputs
E) market demands

Question 22

Consolidation among manufacturers most likely leads to ________.

A) fewer monopolies
B) more outsourcing
C) niche marketing
D) thinner markets
E) broken alliances

Question 23

What is most likely essential to just-in-time supply arrangements?

A) strong brand equity for consumers and downstream channel members
B) close relationships between manufacturers and channel members
C) use of two-way communication between end-users and retailers
D) management of general-purpose and idiosyncratic assets
E) knowledge of site specific capabilities and facilities

Question 24

Which term refers to the concentration of market share in the hands of a few players?

A) distribution
B) adaptation
C) specialization
D) integration
E) consolidation

Question 25

According to the text,the make-or-buy decision begins with the base case that ________.

A) outsourcing is more attractive than vertical integration
B) vertical integration offers higher ROI than outsourcing
C) idiosyncratic assets decrease with environmental uncertainty
D) backward integration is more profitable than forward integration
E) outsourcing is best when company-specific capabilities are tangible

Question 26

The primary reason that Coca-Cola and PepsiCo initially outsourced product assembly to independent bottlers was to _________.

A) share promotional expenses
B) reduce transportation costs
C) facilitate brand building
D) comply with regulations
E) expand product lines

Question 27

ACE Clothing Company makes and sells trendy clothes that appeal to teenagers.If ACE is vertically integrated,which of the following statements is most likely true?

A) ACE clothing is sold through department stores that carry many brands.
B) Independent wholesalers manage ACE product distribution efforts.
C) ACE clothing is sold exclusively through company-owned stores.
D) Manufacturers' representatives sell most ACE products.
E) ACE clothing is promoted through social media tools.

Question 28

Customized physical facilities,dedicated capacity levels,and site specificities are firm-specific assets that all have ________.

A) low values for alternative uses
B) generic channel functions
C) intangible service outputs
D) low distribution costs
E) high cost gaps

Question 29

Coca-Cola and PepsiCo most likely shifted from outsourcing to vertical integration for the purpose of ________.

A) building brand equity
B) lowering bottling costs
C) negotiating with bottlers
D) meeting global demands
E) controlling fountain sales

Question 30

Which term refers to the revenues that accrue under vertical integration minus the direct costs incurred after integrating?

A) overhead
B) variable costs
C) fixed costs
D) net effectiveness
E) return on investment

Question 31

According to the author,which of the following best explains the lack of multinational business activity in sub-Saharan Africa?

A) non-standard market practices and procedures
B) nonexistent distribution infrastructures
C) uneducated, unskilled labor pools
D) low economic development
E) significant political risk

Question 32

Which of the following is most likely a characteristic of relational governance?

A) employees monitored and motivated completely by a third party
B) major decisions formed and implemented by a third party
C) costs and benefits shared by a third party and the principal
D) brand equity established and maintained by a third party
E) risks and responsibilities controlled by the principal

Question 33

Company X,which has substantial specificities,is facing a highly volatile but very promising market.What is the best option for Company X?

A) engaging in forward vertical integration
B) increasing performance ambiguity
C) redefining channel functions
D) relying on local wholesalers
E) outsourcing distribution

Question 34

Which statement about vertical integration in an uncertain environment is most likely true?

A) Backward vertical integration is best for all firms.
B) Vertical integration is best for multinational corporations.
C) Outsourcing is best for firms with significant specificities.
D) Outsourcing will lead to far less performance ambiguities.
E) Outsourcing is best for firms without significant specificities.

Question 35

The LEAST likely reason that manufacturers vertically integrate is to ________.

A) handle thin markets
B) learn from customers
C) achieve economies of scale
D) reduce performance ambiguity
E) cope with environmental uncertainty

Question 36

Charlton Manufacturing relies on manufacturers' representatives,independent wholesalers,and third-party retailers to perform channel functions.Charlton Manufacturing is most likely engaged in _________.

A) quasi-vertical integration
B) classical market contracting
C) backward integration
D) forward integration
E) relational governance

Question 37

Which of the following would most likely be best for a manufacturer with low specificity in a highly volatile market?

A) engaging in forward vertical integration
B) customizing physical facilities
C) acquiring competitors
D) expanding globally
E) outsourcing

Question 38

Intermarché best serves as an example of a firm that has engaged in ________.

A) localization
B) global outsourcing
C) forward integration
D) mass merchandising
E) backward integration

Question 39

Downstream vertical integration is LEAST necessary when ________.

A) sales teams are important in creating a strong brand image
B) channel members lack financial incentives to implement brand strategies
C) brand equity among consumers is independent of channel member actions
D) after-sales support of the branded product is necessary to ensure customer satisfaction
E) brand strategy requires a level of cooperation that overrides the decision-making discretion of channel members

Question 40

According to the text,the purchase of Lens Crafters by Luxottica provided the manufacturer with an "observatory" to ________.

A) monitor distribution
B) establish brand equity
C) motivate salespeople
D) learn from customers
E) cover the market

Question 41

Overhead refers to the revenues that accrue under vertical integration minus the direct costs incurred after integrating.

Question 42

What is performance ambiguity? What are the potential causes and effects of performance ambiguity?

Question 43

Why are third-party distributors typically able to provide better market coverage than vertically integrated manufacturers?

Question 44

Franchising exhibits characteristics of a quasi-vertical integration.

Question 45

What is relational governance? What are the most likely causes and effects of relational governance?

Question 46

What conditions support a firm's decision to outsource channel functions? How does a firm benefit from outsourcing distribution activities?

Question 47

Briefly describe the two main circumstances in which vertical integration would be more appropriate than outsourcing.

Question 48

The greater the value of company-specific capabilities,the greater the economic rationale for the manufacturer to vertically integrate.

Question 49

Since upstream and downstream channel activities are so similar and conform to the same financial models,many firms decide to engage in vertical integration.

Question 50

Research indicates that under normal circumstances in developed economies,vertical integration is more efficient than outsourcing and should be viewed as the default option for most firms.