16 Managing Retailing Wholesaling and Logistics Marketing Management

16 Managing Retailing, Wholesaling, and Logistics Marketing Management, 13 th ed

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? 16 -2

Starbucks Hear Music Coffeehouse 16 -3

What is Retailing? Retailing includes all the activities involved in selling goods or services directly to final consumers for personal, non-business use. 16 -4

Planning a Retailer’s Strategy Convenience Product Selection Key Features Affecting Consumers’ Retail Choice Fairness in Dealings Helpful Information Prices Social Image Shopping Atmosphere

Major Retailer Types • Specialty store—narrow product line • Department store — several product lines • Supermarket—large, lowcost, low-margin, highvolume, 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 16 -6 • • Discount store—standard or specialty merchandise; lowmargin, 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, fastmoving, brand-name goods sold by catalog at discount

Conventional Retailers – Avoid Price Competition Expanded assortment & service Single- & Conventional limited. Offerings line stores Specialty shops & dept. stores Ritz Camera, Coach, Gap, Macy’s Expanded assortment &/or reduced margins & service Supermarkets, disc. houses, mass merch. , super-, club. Stores, + Safeway, IKEA, Home Depot, Costco Added conv. , higher margins, reduced assortment C-stores, vending, doorto-door, phone, mail, some e-tail 7 -11, Pepsi vending, Avon, Lands’ End, QVC Internet e. Bay, Amazon, Zappos, Netflix, Dell Expanded assortment, reduced margins, more information

Retailer Size and Profits § 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

Retailing and the Internet § 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

Mass-Merchandising Concept § Retailers should offer low prices to get faster turnover and greater sales volume—by appealing to larger markets § Started with supermarkets in 1930 s § 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

Examples of Scrambled Merchandising § § 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

An Example of a Large Retail Chain

Levels of Retail Service • Self service—many customers will to locatecompare-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-compareselect process 16 -13

Nonstore Retailing • Direct selling —multilevel selling and network marketing selling door-to-door, or at home sales parties • Direct marketing —direct mail, catalog marketing, 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 16 -14

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 (Mc. Donald’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 16 -15

Department Store Model: The Showcase Store 16 -16

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. 16 -17

Franchise Operations § 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.

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 16 -19

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 16 -20

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 16 -21

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 16 -22

Retailers’ Marketing Decisions (cont. ) • Store atmosphere • Store activities—brick-andmortar and e-commerce • Communications— advertisement, special sale, money-saving coupons, etc. • Locations 16 -23

Store Atmosphere • • Walls Lighting Signage Product placement • Floors • Surface space • Music 16 -24

Retail Category Management Define the category Figure out its role Assess performance Set goals Choose the audience Figure out tactics Implement the plan 16 -25

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 16 -26

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 wellknown retailers—Mc. Donald’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 16 -27

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 16 -28

Indicators of Sales Effectiveness Number of people passing by % who enter store % of those who buy Average amount spent per sale 16 -29

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 16 -30

Some Trends in Retailing § 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)

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 to retailers 16 -32

Private Labels 16 -33

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 16 -34 • • • 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.

Wholesalers’ Marketing Decisions Target market Product assortment Price Promotion Place 16 -35

What a Wholesaler Might Do for Customers § 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 Producer-Suppliers § 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

Manufacturer’s Sales Branches § 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 wholesales • Sales high because they are placed in best markets § True operating costs may be difficult to determine

Types of Wholesalers

U. S. Wholesale Trade by Type of Wholesale Operation

Major Wholesaler Types Merchant Full-service Limited-service Brokers and agents Manufacturers Specialized 16 -41

Merchant Wholesalers § Take title to (own) the products they sell § About 88. 3% of wholesalers are merchant wholesalers § Handle about 61. 2% of total wholesales § Two basic types: • Full-service wholesalers • Limited-function wholesalers

Full-Service Merchant Wholesalers § Provide all of the wholesaling functions § Three major types: • General merchandise wholesalers • Single-line (or general-line) wholesalers • Specialty wholesalers

Some Limited-Function 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

Agent Middlemen Are Strong on Selling Manufacturer’s Agents Brokers Types of Agent Middlemen Auction Companies Selling Agents

Manufacturers’ Agents § 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

Brokers § 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

Agent Middlemen § 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

Trends in Wholesaling § Fewer, but larger, wholesalers § Use of computers to control inventory, order processing § Closer relationships with customers § More selective in picking customers

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 16 -50

What are Integrated Logistics Systems? An integrated logistics system (ILS) includes materials management, material flow systems, and physical distribution, aided by information technology. 16 -51

Market Logistics • Sales forecasting • Distribution scheduling • Production plans • Finished-goods inventory decisions • Packaging 16 -52 • In-plant warehousing • Shipping-room processing • Outbound transportation • Field warehousing • Customer delivery and servicing

Market Logistics Decisions • How should orders be handled? • Where should stock be located? • How much stock should be held? • How should goods be shipped? 16 -53

Determining Optimal Order Quantity 16 -54

Transportation Factors • • Speed Frequency Dependability Capability Availability Traceability Cost 16 -55

Containerization 16 -56