1. Consider a sales business, such as financial securities, in which customers are much more likely to buy, and buy in larger volume, from salespeople with whom they have long-standing relationships. Suppose that there are many firms in this industry and that these firms sell similar and substitutable products.

Question: What can a firm in this industry do to reduce the threat that its salespeople will appropriate profits that would otherwise go to the firm?

a) Give annual awards to salespeople who are the most productive and most profitable for the company.

b) Organize salespeople into sales teams in which all members interact regularly with all customers assigned to the team.

c) Pay salespeople a negotiated percentage of the sales they complete.

d) Allocate new customers to salespeople using a rule that the customers who are likely to be the most valuable customers go to the highest volume, most profitable salespeople.

2. The World's Largest Laundromat is a laundromat in Berwyn, Illinois, a working-class suburb of Chicago. (Laundromats are facilities where people who do not have washers and dryers in their homes or apartments can go to wash their clothes. A typical laundromat is self-service, with banks of coin-operated washers and dryers.)

Unlike its competitors, this massive (13,000 square foot) laundromat provides a number of free amenities for families to use while they wait: pizza every Wednesday night; classes on immigration and other topics; coffee and donuts; and activities for children. While it is privately owned and does not disclose its profits, the World's Largest Laundromat appears to be substantially more profitable than other laundromats in its market.

Which of the following, if true, poses the biggest threat to The World's Largest Laundromat's long-term profits?

a. Berwyn, Illinois is rapidly gentrifying, i.e. transitioning from a lower- to a higher-income area. In the last several years, aging houses and apartments have been torn down and replaced with newly-renovated condos that have attracted an influx of young, dual-income, professional couples.

b. The World's Largest Laundromat invests a lot in its hiring practices, which are designed to attract employees who get along well with children and bring a lot of energy to the classes and other programs run by the World's Largest Laundromat. These are not employee characteristics that are sought by competing laundromats.

c. Some customers are willing to travel in order to go to a laundromat with these extra amenities, but other customers prefer just to go to the closest laundromat.

d. The World's Largest Laundromat frequently pilots new programs to attract more customers, but the majority of these programs end up costing more money than they generate and so are eventually discontinued.