Question

All of the following factors encourage the emergence of gray trade EXCEPT

		substantial price differences between national markets.
		stringent localization modifications required for standardized products.
		a limited availability of certain models or versions in one market, and the local demand is high.
		ease of transportation and importation.

Which of the following does not belong to consumer sales promotion?

		Personal selling
		Frequent-user incentives
		Manufacture rebates
		Sweepstakes
		Free samples

Scenario 1: Globe Travel Agency sells Spring Break trips to University of Houston undergraduate
students. The fixed cost of Globe is $100,000 and its variable cost is $400 for every student who takes
the trip Globe offers. The price elasticity of demand is -2.5 at all levels of price. At present, the price of
the trip is $600/student and, at this price, demand is 1200 units. Assume that the number of trips sold
always equals demand.
Please refer to Scenario 1. If the price is decreased to $588/unit, the new demand will be approximately
given by:

		1140 units
		1170 units.
		1230 units.
		1260 units

Scenario 3: Liz Claiborne
Liz Claiborne, Inc. markets several different brands, under their own Claiborne name label, as well as
others. Their primary brands, such as Liz Claiborne, Liz & Co, and DKNY, are sold to wholesalers.
These brands are then available through retail department stores such as Kohl's and Macy's. Their
wholesale-based brands division is positioned as customer-focused and cost-efficient. Their premium
brands division includes labels such as Kate Spade, Juicy Couture, and Mexx. These premium brands are
sold through stores which the Claiborne company owns.
Please refer to Scenario 3: Liz Claiborne. The Liz & Co brand is sold only at J.C. Penneys' stores. This
is an example of ___________ distribution.

		selective
		routine
		horizontal
		intensive
		exclusive

Answer 1

1. Answer: Stringent localization modifications required for standardized products

Rationale: A grey or gray trade refers to the trade of a commodity through distribution channels which are not authorized by the trade mark proprietor or original manufacturer. Factors like huge difference in price of commodities in national market, limited availability of products in a particular market and low cost and easy transportation and importation encourage the gray trade. On the other hand, strict modifications in local products encourage the demand in the local market but don't enhance gray trade.

2. Answer: Personal selling

Rationale: Sales promotion includes a number of communications activities that are attempted to add value or incentives to consumers, retailers, wholesalers, or other organizational customers to stimulate immediate sales. Examples of sales promotion include frequent user incentives, contests, loss leaders, coupons, freebies, prizes, point of purchase displays, premiums, product samples, and rebates.

3. Answer: 1260 units

Rationale:

Initial Price (P1) = $ 600

Initial Quantity (Q1) = 1200 units

Final price (P2) = $ 588

Final Quantity = Q2

Price elasticity (E) = -2.5

Q2 + 1200 = 39.6(Q2) - 47520

Q2 = 1260 units (approximately)

4. Answer: Exclusive

Rationale: Exclusive distribution is referred to when only certain retailers have the exclusivity of carrying a product in its store. Exclusive distribution is an agreement between a retailer and a supplier granting the retailer the exclusive rights within a specific geographical area to carry the product of the supplier.