Managing Retailing, Wholesaling, and Logistics

Marketing Management, 13th ed

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Chapter Questions

• What major types of marketing intermediaries occupy this sector?

• What marketing decisions do these marketing intermediaries make?

• What are the major trends with marketing intermediaries?

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Starbucks Hear Music Coffeehouse

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What is Retailing?

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Retailing includes all the activities involved in selling goods or services directly to final

consumers for personal, non-business use.

ConvenienceConvenience

Product SelectionProduct Selection

Fairness in DealingsFairness in Dealings

Helpful InformationHelpful Information

PricesPrices

Social ImageSocial Image

ConvenienceConvenience

Product SelectionProduct Selection

Fairness in DealingsFairness in Dealings

Helpful InformationHelpful Information

PricesPrices

Social ImageSocial Image

Planning a Retailer’s Strategy

Key Features Affecting Consumers’ Retail Choice

Shopping AtmosphereShopping Atmosphere

Major Retailer Types

• Specialty store—narrow product line

• Department store —several product lines

• Supermarket—large, low-cost, low-margin, high-volume, self-service store designed to meet total needs for food and household products

• Convenience store—small store in residential area, often open 24/7, limited line of high-turnover convenience products plus take out

• Discount store—standard or specialty merchandise; low-margin, high-volume stores

• Off-price retailer—leftover goods, overruns, irregular merchandise sold at less than retail

• Superstore—huge selling space, routinely purchase food and household items, plus services (laundry, shoe repair, dry cleaning, check cashing; category killer)

• Catalog showroom— broad selection of high-markup, fast-moving, brand-name goods sold by catalog at discount

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Conventional Retailers – Avoid Price Competition

ConventionalOfferings

Single- &limited-line stores

Expandedassortment&/or reducedmargins & service

Supermarkets,disc. houses,mass merch., super-, club-Stores, +

Safeway, Safeway, IKEA, Home IKEA, Home Depot, Depot, CostcoCostco

Added conv., higher margins,reduced assortment

C-stores, vending, door-to-door, phone,mail, some e-tail

7-11, Pepsi 7-11, Pepsi vending, vending, Avon, Lands’ Avon, Lands’ End, QVCEnd, QVC

Expandedassortment,reducedmargins, moreinformation

Internet

eBay, eBay, Amazon, Amazon, Zappos, Zappos, Netflix, DellNetflix, Dell

Expandedassortment& service

Specialtyshops &dept. stores

RitzRitz Camera, Coach, Gap, Macy’s

Large retail stores do most of the business• Only about 11% of stores sell over $5 million annually but they

account for almost 70% of retail sales• Yet, some small retailers control "their" market

Larger stores enjoy economies of scale Corporate chain stores also enjoy economies of scale

• Account for about half of all retail sales (and much higher in some product categories)

• Continuing to grow Independent retailers form chains

• Cooperative chains are retailer sponsored• Voluntary chains are wholesaler sponsored

Retailer Size and Profits

Growing fast, but still in very early stages Convenience not defined by location of product

assortment More information of some types but not others

• More technical detail• Less touch and feel

Generally requires more advance planning• Delivery takes time and adds costs

Competitive effects impact other retailers New types of specialists and intermediaries will

continue to develop

Retailing and the Internet

Retailers should offer low prices to get faster turnover and greater sales volume—by appealing to larger markets

Started with supermarkets in 1930s Really caught on with mass-merchandisers

• large stores• self-service oriented• Examples: Wal-Mart, Target

Competition among mass-merchandisers has heated up

Limited-line mass-merchandisers (“category killers”) grew rapidly, but growth has subsided

Mass-Merchandising Concept

Videotapes and DVDs at grocery stores Microwave popcorn at video rental stores Computer software at bookstores Clothing and fashion accessories at a

motorcycle dealership One-hour prints from digital pictures at

drugstores

Examples of Scrambled Merchandising

An Example of a Large Retail Chain

Levels of Retail Service

• Self service—many customers will to locate-compare-select process to save money

• Self selection—customers find their own goods, although they can ask for assistance

• Limited service—retailers carry more shopping goods and services such as credit and merchandise-return privileges

• Full service—salespeople are ready to assist in every phase of the locate-compare-select process

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Nonstore Retailing

• Direct selling —multilevel selling and network marketing selling door-to-door, or at home sales parties

• Direct marketing —direct mail, catalog marketing, telemarketing, television direct-response marketing, electronic shopping

• Automatic vending —variety of merchandise, impulse goods, hosiery, cosmetics, hot food, etc.

• Buying service —storeless retailer servicing a specific clientele—usually employees of a large organization—who are entitled to buy from a list of retailers that have agreed to give discounts in return for membership

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Major Types of Corporate Retail Organizations

• Corporate chain store —two or more outlets owned and controlled, employing central buying and merchandising, and selling similar lines of merchandise (GAP)

• Voluntary chain —wholesaler-sponsored group of independent retailers engaged in bulk buying and common merchandising (Independent Grocers Alliance)

• Retailer cooperative —independent retailers using a central buying organization and joint promotion efforts (ACE Hardware)

• Consumer cooperative —retail firm owned by its customers. Members contribute money to open their own store, vote on its policies, elect a group to manage it, and receive dividends

• Franchise organization —contractual association between a franchisor and franchisees (McDonald’s)

• Merchandising conglomerate —corporation that combines several diversified retailing lines and forms under central ownership, with some integration of distribution and management (Allied Domeq PLC with Dunkin’ Donuts and Baskin-Robbins, plus a number of British retailers and a wine and spirits group

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Department Store Model: The Showcase Store

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What is a Franchising System?

A franchising system is a system of individual franchisees, a tightly knit

group of enterprises whose systematic operations are planned, directed, and

controlled by the operation’s franchisor.

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The franchiser develops a good marketing strategy and the retail franchise holders carry out the strategy in their own units.

Strong legal contracts govern the relationship.

Franchisers have been successful with newcomers.• especially popular with service operations

Franchise sales account for about half of all retail sales.

Franchise Operations

Characteristics of Franchises

• The franchisor owns a trade or service mark and licenses it to franchisees in return for royalty payments

• The franchisee pays for the right to be part of the system

• The franchisor provides its franchisees with a system for doing business

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Changes in the Retail Environment

• New retail forms and combinations• Growth of intertype competition• Competition between store-based and

non-store-based retailing• Growth of giant retailers• Decline of middle market retailers• Growing investment in technology• Global profile of major retailers

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New Retail Forms and Combinations

• Combination retailers—some supermarkets includes bank branches; bookstore feature coffee shops, etc.

• Pop-ups —lt retailers promote brands, reach seasonal shoppers for a few weeks in busy areas and create buzz (JC Penney unveiled designer Chris Madden’s home, bath, and kitchen line in a 2,500-square-foot Rockefeller Center space for one month only.

• Showcase stores—Some stores not only sell other companies’ brands but get the vendors of the brands to take responsibility for stock, staff, and even the selling space. The vendors then hand over a percentage of the sales to the store’s owner

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Retailers’ Marketing Decisions

• Target market—profile of customer

• Product assortment—breadth and depth

• Procurement—merchandise sources

• Prices—decided in relation to the target market

• Services—pre-purchase, post-purchase, ancillary

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Retailers’ Marketing Decisions (cont.)

• Store atmosphere • Store activities—brick-and-

mortar and e-commerce• Communications—

advertisement, special sale, money-saving coupons, etc.

• Locations

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Store Atmosphere

• Walls

• Lighting

• Signage

• Product placement

• Floors

• Surface space

• Music

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Retail Category Management

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Define the category

Figure out its role

Set goals

Choose the audience

Implement the plan

Figure out tactics

Assess performance

Retailer Services Mix

• Pre-purchase services —accepting telephone and mail orders, advertising, window and interior display, fitting rooms, shopping hours, fashion shows, and trade-ins

• Post-purchase services —shipping and delivery, gift wrapping, adjustments and returns, alterations and tailoring, installations

• Ancillary services —general information, check cashing, parking, restaurants, repairs, interior decorating, credit, rest rooms, and baby-attendant service

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Location Decision

• General business districts—downtown• Regional shopping centers—large suburban

malls containing 40 to 200 stores, typically featuring one or two nationally known anchor store, such as JC Penney or Lord & Taylor

• Community shopping centers—smaller malls with one anchor store and between 20 and 40 smaller stores

• Strip malls strips—cluster of stores, usually housed in one long building, serving a neighborhood’s needs for groceries, hardware, laundry, shoe repair, and dry cleaning

• Location within a larger store—certain well-known retailers—McDonald’s, Starbucks, Nathan’s, Dunkin’ Donuts—locate new, smaller units as concession space within larger stores or operations, such as airports, schools, or department stores

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Tips for Increasing Sales in Retail Space

• Keep shoppers in the store• Don’t make them hunt• Make merchandise available to the

reach and touch• Note that men do not ask questions• Remember women need space• Make checkout easy

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Indicators of Sales Effectiveness

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Number of people passing by

% who enter store

% of those who buy

Average amount spent per sale

Trends in Retailing

• New retail forms and combinations

• Competition between store-based and non-store-based retailing

• Growth of giant retailers

• Decline of middle market retailers

• Growing investment in technology

• Global presence of major retailers

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Growth of Internet merchants and online retailing

Electronic retailing (kiosks, TV, etc.) In-home shopping (catalogs, etc.) More price competition Vertical integration More chains and franchises

• chains becoming larger, more powerful More and better information (for example,

scanner data)

Some Trends in Retailing

Private Label Brands

• Private labels (reseller, store, house, or distributor brand) is a brand that retailers and wholesalers develop are ubiquitous

• Consumer accepts private labels• Private-label buyers come from all

socioeconomic strata• Private labels are not a recessionary

phenomenon• Consumer loyalty shifts from manufacturers

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Private Labels

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Wholesaling Functions

• Selling and promoting—sales force help manufacturers reach many small business customers at a relatively low cost

• Buying and assortment building—select items and build the assortment their customers need

• Bulk breaking—buy large carload lots and breaking the bulk into smaller units

• Warehousing—hold inventories, and reduce inventory costs and risks to suppliers and customers

• Transportation—provide quicker delivery to buyers because they are closer to the buyers

• Financing—grant credit, and finance suppliers by ordering early and paying bills on time

• Risk bearing—absorb some risk by taking title and bearing cost of theft, damage, spoilage, and obsolescence

• Market information—supply competitor activities, new products, price developments, etc

• Management services and counseling—training sales clerks, helping with store layouts and displays, etc.

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Wholesalers’ Marketing Decisions

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Target market

Product assortment

Price

Promotion

Place

Regroup products—to provide quantity and assortment customers need

Anticipate customers' needs—and buy accordingly

Carry products in inventory—which helps reduce customers' inventory costs

Deliver products promptly and economically Grant credit Provide information and advice Provide part of the buying function—make it

easy for customers to buy what they want

What a Wholesaler Might Do for Customers

Provide part of the selling function Store inventory (cut producer's

warehousing costs) Supply capital (by purchasing producer's

output before it is sold to final customers) Reduce credit risks Provide marketing information

What a Wholesaler Might Do for Producer-Suppliers

Separate business that producers set up away from their factories to handle wholesaling functions.

Represent only about 4.3 percent of all wholesalers

Handle 28.4 percent of total wholesale sales• Sales high because they are placed in best

markets True operating costs may be difficult to

determine

Manufacturer’s Sales Branches

Types of Wholesalers

U.S. Wholesale Trade by Type of Wholesale Operation

Major Wholesaler Types

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Merchant

Full-service

Limited-service

Brokers and agents

Manufacturers

Specialized

Take title to (own) the products they sell About 88.3% of wholesalers are merchant

wholesalers Handle about 61.2% of total wholesale

sales Two basic types:

• Full-service wholesalers• Limited-function wholesalers

Merchant Wholesalers

Provide all of the wholesaling functions Three major types:

• General merchandise wholesalers• Single-line (or general-line) wholesalers• Specialty wholesalers

Full-Service Merchant Wholesalers

Cash and carry wholesalers—operates like service customers except must pay cash

Drop-shippers—take title to products they sell but do not stock or deliver them

Truck wholesalers—typically deliver perishable items

Rack jobbers—usually display products on their own racks

Catalog wholesalers—sell out of catalogs

Some Limited-Function Merchant Wholesalers

Manufacturer’s AgentsManufacturer’s Agents BrokersBrokers

Selling AgentsSelling AgentsSelling AgentsSelling Agents

BrokersBrokersManufacturer’s AgentsManufacturer’s Agents

Agent Middlemen Are Strong on Selling

Auction CompaniesAuction Companies

Types of Agent Middlemen

Types of Agent Middlemen

Sell similar products for several noncompeting producers

Work on a commission basis Basically are independent, aggressive

sales reps Especially helpful to small producers and

producers whose customers are very spread out

Manufacturers’ Agents

Main purpose is to bring buyers and sellers together

Usually have a temporary relationship with buyer and seller while the deal is negotiated

Earn a commission—from either the buyer or seller—depending on who hired them

Especially common with seasonal products and products sold infrequently

Brokers

Wholesalers who do not own the products they sell

Main purpose is to help with buying and selling

Usually operate at relatively low cost Usually provide fewer functions than

merchant wholesalers Often specialize not only by product-type,

but also by customer type

Agent Middlemen

Fewer, but larger, wholesalers Use of computers to control inventory,

order processing Closer relationships with customers More selective in picking customers

Trends in Wholesaling

Market Logistics Planning

• Deciding on the company’s value proposition to its customers

• Deciding on the best channel design and network strategy

• Developing operational excellence

• Implementing the solution

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What are Integrated Logistics Systems?

An integrated logistics system (ILS) includes materials management,

material flow systems, and physical distribution, aided by information

technology.

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Market Logistics

• Sales forecasting• Distribution

scheduling• Production plans• Finished-goods

inventory decisions• Packaging

• In-plant warehousing

• Shipping-room processing

• Outbound transportation

• Field warehousing• Customer delivery

and servicing

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Market Logistics Decisions

• How should orders be handled?

• Where should stock be located?

• How much stock should be held?

• How should goods be shipped?

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Determining Optimal Order Quantity

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Transportation Factors

• Speed• Frequency• Dependability• Capability• Availability• Traceability• Cost

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Containerization

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