Question 1: From the retailer’s perspective, what are the dangers of under stocking a video game during the holiday season? What are the dangers of overstocking? How do direct shipments, like those described for Nintendo’s products, help retailers deal with these dangers? Are the retailers simply trading inventory costs for transportation costs? Explain.

Answer:

The demand for video games jumps in the holiday season and retailers need to be equipped with appropriate levels of inventory to cater for this jump in demand. If retailers are under stocked they have a risk of losing high profits which can be earned off video games. A sudden increase in demand may also cause prices to rise in the holiday season and retailers would have to acquire video games at a higher cost. As demand for several other items also increases significantly there is a high probably that video games which are ordered quite late in the season may arrive late and retailers would not be able to take advantage of the increased demand. The image of a retailer might be tarnished if stocks run out and consumers go back empty handed. There is a very high probability that these consumers will shift to other retailers for any future purchases. Another problem with very low levels of inventory is that if a problem is found in one of the video games sold and the customer wants a replacement the retailer may not be able to replace the video game (Bozarth, 2006).

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