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Sample Practice Questions Selected from the Dunn & Lusch TextImportant Note: the following guidelines and exercises are pr...
SOLUTION: (369-370) Should a retailer want to employ an above-market pricing policy, that retailer’sretailing mix will nee...
SOLUTION: (374) When leader pricing is used, a high-demand item is priced low and advertised heavilyin an effort to attrac...
Chapter 12                                   Customer Services and Retail SellingEnd-of-chapter Practice Questions (select...
4.       A major discounter was recently quoted as saying that he “no longer worries about dwell time.After all, low price...
7.       Shouldn’t all retailers seek to exceed their competition’s level of customer service? Explain thereasoning behind...
11.      What should retail salespeople know about customer choice criteria?SOLUTION: (461-463) The retail salesperson sho...
Chapter 14                                             Managing People  1.       Explain why a retailer’s investment in ha...
5.      What are the sources that a department store could use to recruit employees? Would the samesources be effective fo...
a movie or to have treatment at a hospital. Screening employees and hiring the right person is veryimportant because, it n...
13.     If you were to go to work for a retailer today, what would be the most important supplementalbenefit the retailer ...
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DC Practice Questions

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  1. 1. Sample Practice Questions Selected from the Dunn & Lusch TextImportant Note: the following guidelines and exercises are provided for your reference as part of yourpreparations for the coming examinations.You are to take note that the listing of the questions and short answers below are NOT meant toindicate a spotting exercise. It is very possible that NONE of these questions may come out as identicallyindicated. But what is important that with your detailed reading FROM THE PRESCRIBED TEXTBOOK ofthe assigned chapters and the practice of the back of chapter questions and even the short case studies,you should be adequately prepared to attempt the examination questions. Chapter 10 Retail Pricing1. How does a store’s location affect the price it can charge?SOLUTION: (360) The location of the retail store has a significant effect on prices that can be charged.The closer the store is to competitors with comparable merchandise and customer service, the lesspricing flexibility the retailer has. The distance between the store and the customer is also important.Generally, if the retailer wants to attract customers from a greater distance, it must either increase itspromotional efforts or lower prices on its merchandise. This is because of the increased travel costs (inboth time and dollars) consumers incur when they are located farther from the store. Travel costs cutinto the amount the customer is able or willing to pay for the merchandise, thus forcing the retailer tolower prices to attract more distant customers.2. Is pricing really an interactive decision? Provide an example of how pricing should interact withthe services offered by the retailer.SOLUTION: (359-363) Decisions regarding pricing objectives should be interactive with other retaildecisions. Specifically, the decision to price an item at a certain level should be related to the retailer’sdecisions on lines of merchandise carried, location, promotion, credit and check cashing, customerservices, the desired store image, and the legal constraints. Merchandise – Retailers should not setprices without carefully analyzing the attributes of the merchandise being priced. Merchandise shouldhave properties that differentiate it from comparable merchandise at competing retailers (when pricingthat merchandise differently). Location – The location of the store and the distance from the customersand competitors affect the price that can be charged. Promotion, Credit and Check cashing also increasedemand and thereby affect the prices that the retailer can charge. Customer Services – Retailers thatoffer many customer services (delivery, gift wrapping, alterations, more pleasant surroundings, salesassistance) tend to have higher prices.3. When should a retailer use the penetration pricing objective?SOLUTION: (365) Penetration is a pricing objective in which price is set at a low level in order topenetrate the market and establish a loyal customer base. For example, a new hair salon may offer verylow prices at first to gain customer interest and business. By using the penetration pricing strategy, thehair salon can get its new customers to become loyal by providing the desired services and after aperiod of time the salon can shift its pricing objective toward sustained profitability.4. If a retailer wants to use an above-market pricing policy, how should that retailer’s retailing mixbe different from the competition? 1
  2. 2. SOLUTION: (369-370) Should a retailer want to employ an above-market pricing policy, that retailer’sretailing mix will need to vary from competitors on factors other than price. The merchandise offeredmay include specialty items, unusual items, or prestigious brands. The services provided may be of abroader range and higher quality than competitors. The location may be more convenient or the storemay be open when other stores are closed. Whichever retailing mix elements are different, retailerswho choose to compete using an above-market pricing policy, will need to appeal to sectors that valuenon-price factors more than price it.5. What is the difference between variable and flexible pricing? Does the demand for the itembeing sold affect either of these strategies?SOLUTION: (370-371) Variable pricing is used when differences in demand and cost force the retailer tochange prices in a fairly predictable manner. Prices charged are higher during peak sales period. Forexample, flowers prices increase during Valentine’s Day. Similarly, prices are lowered in times of bleaksales periods like Tuesday and Wednesday nights in restaurants. It is mainly used with products orservices which have seasonality.Flexible pricing is the practice of offering the same products and quantities to different customers atdifferent prices. Retailers generally use flexible pricing in situations calling for personal selling. Theadvantage of using flexible pricing is that the salesperson can make price adjustments based on thecustomer’s interest, a competitor’s price, and a past relationship with the customer, or the customer’sbargaining ability. Flexible pricing seeks to match levels of supply and demand. The disadvantagesinclude increase in costs and decrease in revenues, as customers begin to bargain for everything.Similarly, the risk of losing customers is higher in flexible pricing because customers feel irritated if theyknow about the difference in prices and tend to shift to a store which offers one-price policy.6. Despite the lack of supportive research, odd-numbered pricing is still used in retailing today.Shouldn’t gas stations drop those 0.9 cents from their posted prices and round them to the nearestpenny?SOLUTION: (372-373) Odd pricing is the practice of setting retail prices that end in the digits 5, 8, or 9.The intent is to psychologically lower, in the shopper’s mind, the price of the item. This happens becauseconsumers tend to notice the digits left of the decimal and overlook the ones after it. Whether or notthis is true is debatable because the research on this topic is inconclusive. However, odd pricing can beprofitable to the retailer. It can reduce employee theft by forcing clerks to ring-up sales in order to givechange to customers. Students may also point out the highly price-conscious nature of consumers whenshopping for gasoline. If only one station changed its pricing strategy by dropping the 0.9 cents fromtheir posted price it could damage sales if competitors opt not to. Thus, some students may view oddpricing as effective while others view it as ineffective.7. Would you prefer to buy a car from a dealer using a flexible or a one-price policy? Why?SOLUTION: (370-371) Flexible pricing means offering the same products and quantities to differentcustomers at different prices. Some customers who like to negotiate might prefer this type of policy.Most customers prefer a one-price policy. This is not true in countries where a flexible pricing policy isprevalent. In the United States, flexible pricing is widely used in the sale of automobiles and jewelry. Butfor most items one-price policy is followed so as to avoid loss of customers to competitors. As this is apreference question, either a flexible or one-price preference is acceptable.8. What type of retailer is most likely to use leader pricing? 2
  3. 3. SOLUTION: (374) When leader pricing is used, a high-demand item is priced low and advertised heavilyin an effort to attract consumers into a store. The items selected for leader pricing should be widelyknown and purchased frequently. In addition, information should be available that will permitconsumers to make price comparisons. Generally retailers who want to increase store traffic using theselow priced items or loss leaders, those items priced below their cost, use leader pricing. Nowadays,some retailers such as supermarkets regularly feature leader items. Convenience stores and nationaldiscount retailers also follow leader pricing.9. In the United States, a loss leader is generally accepted as legal. Yet in other countries such apolicy is illegal. What should it be?SOLUTION: (374) Loss leader strategy is considered illegal in several countries and economicallydamaging for various reasons. First a loss leader strategy is basically predatory in nature, designed toultimately force competitors out of business. In the United States, antitrust and trade regulationstatutes are designed to protect competition, not individual competitors. Also, legitimate marketplacecompetition inevitably results in economic winners and losers. Secondly, small businesses geteconomically damaged due to the pricing strategy adopted by larger competitors, who are willing totake losses or razor-thin profit margins on some products in order to expand their customer bases.Thirdly, suppliers sometimes object to loss leader pricing, despite the greater volume of sales that thepractice often spurs within a given store. These increases may be offset by drops in sales at other storeswhere the brand is still priced high. As this question is opinion based, students could argue that it is amarketing strategy to increase competitiveness or that it should be considered illegal.CALCULATION QUESTIONS :NOTE THAT CHAPTER 10 HAS MANY COMPUTION QUESTIONSYOU ARE NOW REQUIRED TO REFER TO MY POWERPOINT LECTURE NOTESYOU MUST PRACTICE EVERY QUESTION AND STUDY THE ANSWERS – COVERING MARK-UPS,MAINTAINED MARKUPS AND MARKDOWNSYOU NEED TO MEMORIZE ALL THE FORMULA IN CHAPTER 10AND BE SURE TO BRING IN A CALCULATOR FOR THIS EXAM ! 3
  4. 4. Chapter 12 Customer Services and Retail SellingEnd-of-chapter Practice Questions (selected)1. Your store manager just told you that since profits have been falling over the past year, he hasrecommended to the owners that they could increase profits by cutting back further on customerservices. After all, customers don’t really expect service anymore. Agree or disagree with this statementand explain your reasoning.SOLUTION: (434-438) As the chapter points out, high-quality service must be a fact of life for all retailers.In recent years, however, the intense competition from discounters caused many retailers to lowercustomer service levels as a means of staying price competitive. These retailers felt that reduced servicelevels would lower their operating costs. As a result, many shopping trips do not meet the expectationsof consumers and result in unsatisfying experiences. So, it appears that today’s customers still expectservice.Successful retailers view customer services as a way to gain an advantage over the competition. Evendiscounters are beginning to empower employees to do whatever is reasonable to take care of thecustomer.2. Should the level of service offered by a retailer be directly proportional to the gross marginobtained from the sale of the merchandise? In other words, the more profitable the item, the greaterthe service level that should be extended. Explain the reasoning behind your answer.SOLUTION: (437-438) The chapter argues that the second and most important task is converting thecustomer from your trading area who has decided to try your store into a loyal (and thus profitable)customer. Due to significant cost cutting following the recent period of retailer consolidation andretrenchment, this is even more difficult. While this implies that the first task – getting customers fromyour trading area into your store, is the easier task of the two. Nonetheless, merely getting consumersinto your store will not be cost-effective if they are not converted into paying customers. Retailersshould design their customer service program around pretransaction, transaction, and posttransactionelements of the sale in order to obtain a differential competitive advantage. Serving the customerbefore, during, and after the transaction can help create new customers and strengthen the loyalty ofpresent customers. Customer service can play a significant role in building a retailer’s sales volume.Thus, the first task in retailing may be easier than the second, but they steps must be done collectivelyto be cost-effective. The level of customer service offered does not have to depend on the gross marginobtained from the sale of the merchandise. There are various other factors which decide the level ofservice to be provided. They include retailer’s characteristics, serviced offered by competition, type ofmerchandise sold, price image, income of target market and cost of providing these services.3. Should online customers expect the same type of service that bricks-and-mortar customers getfrom retailers selling similar merchandise? Explain the reasoning behind your answer.SOLUTION: (434-441) Customers of different retail formats demand different levels of service. As thetext indicates, customer service levels, and resulting satisfaction, are based upon customerexpectations. Service is one attribute a retailer uses to position itself within the market. As such,consumers set their expectations based upon retail format. The consumer that opts for shopping onlinemay not expect the same type of personal selling and product availability that the consumer of the samegoods and services purchased at a bricks-and-mortar retailer might. Likewise, a customer that shops at abricks-and-mortar retailer might prefer the convenience of getting a product now, rather than waitingfor it to be shipped. 4
  5. 5. 4. A major discounter was recently quoted as saying that he “no longer worries about dwell time.After all, low price is the only factor that drives sales.” Do you agree or disagree with this statement?What is your reasoning?SOLUTION: (447) Dwell time refers to the amount of time a consumer must spend waiting to complete apurchase. This time greatly influences the customer’s expectations and evaluations of the retailer.Customers understand that certain waiting periods are required, especially for services, which cannot beproduced ahead of demand. However, they must perceive that the line or waiting time is shortening. Inrecent years, the frustration of waiting to complete the transaction – the dwell time – has become athreat to retailers. Long waits can cause customers to stop patronizing a retailer. Thus, concern aboutdwell time is warranted for price may drive customers in, but it is only one of many factors that willcause them to return.5. Some discounters not only have a “no layaway” policy but also will only accept cash. They don’taccept checks or credit and debit cards. Will this hinder these stores in the marketplace? Because of theslowing economy and the high fees banks charge on the cards, as well as bad checks, is the trend movingaway from accepting these forms of payment? What would you suggest retailers do? Explain yourreasoning.SOLUTION: (444-445) Nowadays, due to the economic slowdown, most stores are not offering layawayservices or credit. These stores will definitely face a reduction in number of customers, who were usedto credit payments. But in a sense it is reducing the economic risks of the retailer. The retailer could limitthe credit services to the most loyal and high income customers. But this might lead to dissatisfactionamong other customers. Otherwise, the retailers could come to an agreement with the banks for lesserfees. But in the present situation, most banks will be unlikely to take such risks. Retailers could providediscounts or combination offers for non-credit purchase ad focus on promoting these offers as value-for-money. In times of cash crunch, people are bound to flock to such stores.6. How does the type of customer affect the level of customer service a retailer should offer?SOLUTION: (455-458) The type of customer will have an influence on the type and level of services that aretailer will provide. Six factors to be considered in this regard are: 1. cost of providing the service - the retailer should be aware of the cost of providing aservice and how much sales will have to be generated to provide that service. 2. store characteristics - store size, store type (e.g., discounter, department store), andstore location 3. type of merchandise handled - a men’s clothing store will probably have to provide analteration service; a large purchase in dollars usually requires the retailer to offer credit terms or theretailer should take MasterCard or Visa charge cards 4. price image of the store- customers will expect more services from a store with a highstatus or high quality image than what would be expected from a discounter or warehouse store 5. income of target market customers - generally, as income rises in the target market,more services can and should be offered 6. services offered by competition- generally, offer a comparable set of services (orsuitable substitutes) of competition. If this can not be done, lower pricesIt is the task of the retailer to study these factors and to arrive at a service mix that will keep presentcustomers happy and secure new customers, while at the same time increasing long-term profits. 5
  6. 6. 7. Shouldn’t all retailers seek to exceed their competition’s level of customer service? Explain thereasoning behind your answer.SOLUTION: (456-457) The retailer does not always have to meet or exceed a competitor’s level ofservice. On the other hand, the services offered by competition will influence the level and variety ofservices a retailer will offer. The retailer has to make a basic decision: compete directly by offeringcomparable services or offer consumers lower prices. Even, a convenient location may be considered aservice.8. Develop a list of predictor variables you would use to screen applicants for a sales position in (a)a jewelry department in a high-prestige department store, (b) a used-car dealership, (c) a health club,and (d) an antique shop.SOLUTION: (459-460) The most commonly used predictors in selecting retail salespeople aredemographics, personality, knowledge and intelligence, and prior work experience. There are a numberof demographic predictors that would be important for these different positions. For the jewelrydepartment in a high-prestige department store we would want middle class to upper class employees.For the health club we would want employees that look healthy and young for their age. For the antiqueshop and used-car dealership demographics would probably not be critical. For all the salespeople wewould want them to have a friendly, confident, stable and empathetic personality. Collectively, thesalespeople would find it helpful if they had knowledge of the product or service being sold. Also,employees with experience in a particular position and retail sector can prove to be a valuable asset, ifthey are available in the candidate pool.9. A men’s clothing store chain has analyzed the annual sales per salesperson in 10 of its storesnationwide. The sales per salesperson range from a low of $121,000 to a high of $248,000. Develop thelist of factors that might help to explain this wide variation. SOLUTION: (entire chapter) Here are some potential hypotheses. 1. The smaller the store, in terms of square feet of selling space, the lower the sales peremployee. 2. Stores located on communities with a lower per capita income have lower sales peremployee. 3. Discount department stores located in communities with heavy competition fromconventional department stores will have lower sales per employee. 4. One store has a far less seasoned and experienced staff than the other store. 5. The training available at one location is far less developed and robust than that found atthe alternate location.Regardless of the hypothesis, the retailer needs good data to further analyze the annual sales persalesperson. Measuring a number of factors, including information regarding the hypotheses above, willassist in truly explaining the wide variation between these two stores.10. When you are shopping for yourself, do you appreciate it when the salesperson uses suggestion-selling techniques? Does the type of merchandise make a difference in your answer?SOLUTION: (470) The chapter discusses the alternate perspectives on suggestion selling. Manycustomers appreciate suggestion selling because it often eliminates a second shopping trip. However, itmay also decrease a consumer’s satisfaction with the retailer as some customers view suggestion sellingas an annoyance. 6
  7. 7. 11. What should retail salespeople know about customer choice criteria?SOLUTION: (461-463) The retail salesperson should also learn how to identify the customer’s choicecriteria and how to respond to them. There are four choice criteria situations: 1. No Active Product Choice Criteria - The best sales strategy when the customer does nothave a prior criteria set is to educate the customer on the best choice criteria and how to weigh them. 2. Inadequate Or Vague Choice Criteria - When the criteria are inadequate or vague, therange of products that will satisfy them is often wide. The easiest option for the salesperson is to show aparticular product that fits a customer’s choice criteria. With a little emphasis there would not be anytrouble selling the product. However, the customer may have trouble believing that the product thesalesperson selected is the best one to meet his or her needs. The customer may therefore choose toshop around at other locations. If the salesperson is interested in building repeat business and customergoodwill and has a wide range of products to sell, then the salesperson should help the customer definethe problem and help refine the choice criteria. Thus the customer and the salesperson should worktogether in defining the criteria of a good product and then select the product that best fits the criteria. 3. Choice Criteria In Conflict – Sometimes, a customer has conflicting criteria because oftwo reasons: wanting two or more mutually exclusive attributes in the same product; the salespersonshould downplay one of the attributes and emphasize the other. The next case is if a single attributepossesses both positive and negative aspects. The best selling strategy is to enhance the positive aspectsand downplay the negative aspects. 4. Explicit Choice Criteria - When the customer has well-defined, explicit choice criteria,the best selling strategy is for the salesperson to illustrate how a specific product fits these criteria.12. Why is selling so much more important for retailers of services than it is for retailers sellingphysical products?SOLUTION: (467-470) Selling is more important in the retailing of services. First of all, it is difficult forretailers of services to attract new customers since they cannot try the product, inspect it, or test it.Second, once customers have purchased the service, they only know if it didn’t satisfy them or solvetheir problem. This makes it important that a retailer of services understands what benefit (not theproduct) that the customer is buying. Third, not only is it important to know what benefit is sought, butthe service provider must consider how to help the customer achieve that benefit - a different task fromsimply providing the service.Fourth, the salesperson must determine how to change the service so as to produce positive customersatisfaction. Finally, the retail salesperson must remember that with services the goal is to precludedissatisfaction, since that is the best-remembered aspect of a service purchase.Consumers never forget a poor service job. Research suggests that future sales opportunities dependmostly on the trust and satisfaction established. The ability to convert these opportunities into saleshinges more strongly on conventional salesperson characteristics, such as expertise and similarity.13. Why is it so important that a retailer’s sales personnel be taught that each customer must becontacted by a sales associate each time the customer enters the store? Don’t some customers justwant to be left alone to look around?SOLUTION: (471) First, in stores that purport to offer service, there can be no sale if the shopper has nocontact with a salesperson or a cashier. Increasing the number of shoppers who are approachedincreases the number of shoppers who are likely to buy. Second, there are times when shoppers are justlooking around. However, if these shoppers are looking around for a salesperson, a motivatedsalesperson can prevent walkouts and generate more sales by approaching the customers first. 7
  8. 8. Chapter 14 Managing People 1. Explain why a retailer’s investment in having the inventory desired by its target market is not sufficient by itself to offer a sustainable competitive advantage over the competition.SOLUTION: (527,531) It is relatively easy for competing retailers to duplicate the tangible resources ofeach other. People, however, are more difficult to replicate and thus become a source of differentialcompetitive advantage. People add value either by reducing costs or by increased level of customerinteraction. Thus to be successful, a retailer should be able keep his operating costs as low as possible bykeeping labor expenses (which is the retailer’s greatest expense other than the cost of merchandise) andturnover low. Also the way the customer is treated while making the transaction decides if thetransaction is going to take place or not. So the retailer needs employees who love their work. Thus it isof utmost importance to build good customer and employee relationships as they can have a synergisticas well as a multiplying effect.2. Should a retailer view its employees as a “cost” or as an “investment?” Support your reasoning.SOLUTION: (527) To be successful, retailers must view labor costs, as well as the expenses of attractingand retaining customers, not as costs but as investments in obtaining a sustainable competitiveadvantage. Investments in tangible assets will not produce a profitable return unless the retailer iswilling to invest in recruiting, motivating, and retaining the right people. These people are the retailer’semployees and customers because a store without employees and customers can not generate sales.Retailers often fail to give the same care to their investments in intangible assets, such as employeesand customers that they do to their tangible investments. Land, buildings, technology, equipment andfixtures, and merchandise are all easy to buy and sell in the marketplace, so in the end, retailers gainlittle relative advantage by their tangible presence.3. In retailing, customers and employees are distinct groups and have little in common. Agree ordisagree and explain your answer.SOLUTION: (528-529) As pointed out in the chapter, customers and employees both perform retail tasksand they both service the other. It is important to remember that employees must not only servecustomers, but also other employees. These points support the interdependency of customers andemployees. However, it may also prove useful for discussion to highlight the differences between thegroups and how they interact with each other. The student could focus on treating the customers likeemployees in terms of recruitment, motivation and compensation. Similarly the treatment of employeeas an internal customer should also be mentioned.4. What does it mean to “empower” a retail employee? Give examples from your personalexperience of situations where you felt a retail employee was not properly empowered.SOLUTION: (528-529) Empowerment simply means giving the employee the “power to make things rightfor the customer.” An empowered retail employee 1) Seeks to understand the customer’s problem, 2)Desires to develop a relationship with the customer, 3) Understands the value of customer loyalty, and4) Is allowed or encouraged by management to solve the customer’s problems. Student examples willvary, but may include a time when a waiter or waitress provided another entrée when the first did notmeet expectations (without delay or management consultation) or when an airline representative gaveout free drink coupons to customers that needed to be re-routed, etc. 8
  9. 9. 5. What are the sources that a department store could use to recruit employees? Would the samesources be effective for use by a cell phone retailer such as a Sprint store?.SOLUTION: (534) Sources of employees include competitors, walk-ins (both in person at the store andonline at the retailer’s website), employment agencies (including online at websites such asmonster.com), schools and colleges, former employees, advertisements, recommendations, andcustomer referrals. A Sprint store could source its employees from almost all of the same sources.However, the possibilities of finding employees for Sprint at schools and colleges would be limited topart-time employees and less in number.6. Develop a list of predictor variables you would use to screen applicants for a sales position in (a)a jewelry department in a high-prestige department store, (b) a used-car dealership, (c) a health club,and (d) a fast-food chain.SOLUTION: (537-540) Answers can vary but should focus on listing effective criteria for screening andselecting candidates.To hire an effective salesperson, one could look at the application form or the resume for details such asdemographics, prior work experience, language skills, achievements with regard to sales, education andscreen them for a personal interview. At the interview, certain personality traits such as honesty,intelligence, work ethic, pleasantness, ability to handle pressure, ability to handle different types ofcustomers, interests, passion to work as a salesperson could be checked. Irrespective of the industry ortype of retailer, a salesperson needs certain basic skills like ability to sell, to convince customers,customer service ability, knowledge on product and store policies, etc.(a) For a salesperson at a jewelry department, in a high-prestige department store, middle class or uppermiddle class individuals with high integrity, pleasing personality, ability to do suggestion selling, andknowledge on jewelry, latest trends should be the ideal candidate.(b) For a salesperson at a used-car dealership, depth of technical knowledge on cars, maintenance andrepairing, personal experience with driving used cars, financial knowledge to convince the customerabout the best buying options are some specific skills the interviewer should analyze.(c) For a salesperson at a health club, pleasing personality, youthful appearance, knowledge on theservices offered are the predictor variables to be used to screen applicants.(d) For a salesperson at a fast food chain, finger dexterity, ability to catch up things on a fast pace, abilityto serve customers in times of need, multi language skills are some traits to use for screeningcandidates.7. Do a search on Google using your name and school (or hometown). Did you find anything thatmight embarrass you? What can you do about it? Now do the same on myspace.com. SOLUTION: (Reference 539-540) Answers will vary.8 Why might each of the following retailers—movie theater, hospital, amusement, theme park,and health club—desire to screen out certain customers? Employees?SOLUTION: (535-536,541) When retailers screen or select customers, they must be sure not to violateany equal opportunity or discrimination laws. However, reasons for screening and selecting customersinclude:1. the inability to adequately service certain customers2. the deterioration of a retailer’s atmosphere if customers of a certain type are admitted3. the inability to profitably service customers.For instance, people who behave in a rude manner would spoil the moods of those who come to watch 9
  10. 10. a movie or to have treatment at a hospital. Screening employees and hiring the right person is veryimportant because, it not only leads to loss of customers but also other employees at times. And in aretailer offering services rather than goods or merchandise it becomes even more significant since theservice level is entirely at the hands of the employee. Also, in service oriented retailing, the customeremployee interaction decides the image of the retailer.9. Explain why turnover is costly in retailing regardless of whether it is employee turnover orcustomer turnover.SOLUTION: (542-543) A critical job for retailers is to retain its current employees. In an economy with alow unemployment rate, if an employee does not like something about the job, its training, or even hisor her co-workers, then that employee can easily go elsewhere. New employees are costly to train andrisky to hire because they may not perform as expected. With the median retention rate of hourlysupermarket employees being 97 days and the cost of replacing was $4,291 for a union store and $3,372for a nonunion store.. Turnover is a problem and a major cost not only in the realm of retail employees;a similar problem exists regarding customers. It costs a retailer five times as much to recruit a newcustomer as it does to retain an existing one.10. Why must training be an ongoing operation?SOLUTION: (543) Training must be ongoing because employees will not enjoy their jobs without thenecessary knowledge to perform their assigned tasks. When employees aren’t happy at work, theyswitch jobs. Therefore, retailers today must view training as a process of continuing education.11. How can a retailer expect consumes to buy its products when its own employees shopelsewhere? As a result of this question, some clothing retailers have considered requiring that theiremployees only wear store brands when working. Disregarding any possible legal issues, what wouldthis do to employee motivation? How would you handle this problem?SOLUTION: (547-548) Student answers will vary, but the responses should focus on the application ofmotivation. It is good to mention about economic incentives and noneconomic motivators of employeesThe noneconomic motivators that the student needs to focus are team spirit or esprit de corps, voice,scheduling, feedback, etc.12. What is customer relationship management and how can it be used to develop more profitablecustomer relationships?SOLUTION: (532, 546) Customer relationship management (CRM) is comprised of an integratedinformation system where the fundamental unit of data collection is the customer, supplemented byrelevant information about the customer, including purchasing behavior. CRM is allowing the retailer toevaluate the profitability of each of its customers by linking the identification of the customer to actualpurchase data. This information gives retailers the ability to decide which customers should be offeredspecial services or special prices. The frequent shoppers who form the 20 percent of customers, butgenerate the 80 percent of revenues are those who the retailer should build strong relationships with byusing affinity programs, loyalty card, send birthday cards, coupons, special offers to loyal customers etc.For them, price shopping is a decision made in the store about what brand to buy and not a decisionabout where to shop. They really wish the retailer would use its CRM-developed loyalty program tomake them feel special. And they focus on people, relating to store employees far more than othershoppers do. Therefore, the critical building blocks for CRM include some type of customer identificationprocess coupled to product or service identification codes. 10
  11. 11. 13. If you were to go to work for a retailer today, what would be the most important supplementalbenefit the retailer could offer you? Would this benefit change as your lifestyle changed?SOLUTION: (553-554) Students can give any number of responses. Benefits such as tuitionreimbursement, PMs, and employee discounts could be mentioned. As a student ages, and their lifestylechanges, benefits such as medical insurance and retirement benefits become more important. Theinstructor should get students to indicate the types of supplemental benefits they would desire whenthey enter the workplace.14. What factors in the retailer’s control have a positive effect on employee productivity?SOLUTION: (555) Retailers have long recognized that paying attention to job characteristics anddescriptions, work scheduling, job sharing, and employee input programs will have a positive effect onemployee productivity and satisfaction. In specific, job enrichment programs, which are intended toincrease employee productivity, are done. Job enrichment involves increasing skill variety, task identity,task significance, autonomy and job feedback. Job-enrichment programs have their base in motivationtheory, which suggests that job factors themselves - job challenge, independence, and responsibility -are powerful motivators. Retailers using the job enrichment program must be careful in presenting it tothe employees; otherwise the employees may feel that they are being asked to do too many taskswithout being compensated for the extra workload. Some other factors within a retailer’s control thatare not mentioned but the students may suggest: work scheduling, job sharing, and employee inputprograms.15. What is a “value proposition?” How does a retailer’s value proposition relate to customerretention and building profitable long-term relationships?SOLUTION: (555) A value proposition is the promised benefits a retailer offers in relation to the cost theconsumer incurs. The attributes of price, merchandise, physical characteristics, sales promotions,advertising, convenience, services, and store personnel are part of the value proposition. If the valueproposition is not sufficiently high, customers will patronage other retailers where they can get a betteroverall deal. The relationship between the value proposition and the level of work customers are askedto perform will also determine the pricing power that a retailer has. Thus, the value proposition willassist in determining the type and health of relationships that a customer has with a retailer and thelevel of profits earned. 11

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