Managing Retailing, Wholesaling, and Logistics

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Managing Retailing, Wholesaling, and Logistics
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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?
Retailing includes all the activities involved in
selling goods or services directly to final
consumers for personal, non-business use.
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Planning a Retailers Strategy
Convenience
Product Selection
Key Features Affecting Consumers Retail Choice
Fairness in Dealings
Helpful Information
Prices
Social Image
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Major Retailer Types

• Specialty storenarrow product line
• Department store several product lines
• Supermarketlarge, low-cost, low-margin,
  high-volume, self-service store designed to meet
  total needs for food and household products
• Convenience storesmall store in residential
  area, often open 24/7, limited line of
  high-turnover convenience products plus take out

• Discount storestandard or specialty merchandise
  low-margin, high-volume stores
• Off-price retailerleftover goods, overruns,
  irregular merchandise sold at less than retail
• Superstorehuge 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
Ritz Camera, Coach, Gap, Macys
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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

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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

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Mass-Merchandising Concept

• Retailers should offer low prices to get faster
  turnover and greater sales volumeby 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

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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

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An Example of a Large Retail Chain
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Levels of Retail Service

• Self servicemany customers will to
  locate-compare-select process to save money
• Self selectioncustomers find their own goods,
  although they can ask for assistance
• Limited serviceretailers carry more shopping
  goods and services such as credit and
  merchandise-return privileges
• Full servicesalespeople 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 clienteleusually employees of a large
  organizationwho 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 (McDonalds)
• 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 operations
  franchisor.

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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.

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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 retailerssome 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 Maddens home, bath, and kitchen line in a
  2,500-square-foot Rockefeller Center space for
  one month only.
• Showcase storesSome 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
  stores owner

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Retailers Marketing Decisions

• Target marketprofile of customer
• Product assortmentbreadth and depth
• Procurementmerchandise sources
• Pricesdecided in relation to the target market
• Servicespre-purchase, post-purchase, ancillary

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Retailers Marketing Decisions (cont.)

• Store atmosphere
• Store activitiesbrick-and-mortar and e-commerce
• Communicationsadvertisement, 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
Define the category
Figure out its role
Assess performance
Set goals
Choose the audience
Figure out tactics
Implement the plan
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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 districtsdowntown
• Regional shopping centerslarge 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 centerssmaller malls with one
  anchor store and between 20 and 40 smaller stores
  
• Strip malls stripscluster of stores, usually
  housed in one long building, serving a
  neighborhoods needs for groceries, hardware,
  laundry, shoe repair, and dry cleaning
• Location within a larger storecertain well-known
  retailersMcDonalds, Starbucks, Nathans,
  Dunkin Donutslocate 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
• Dont 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
Number of people passing by
who enter store
of those who buy
Average amount spent per sale
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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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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)

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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

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Private Labels
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Wholesaling Functions

• Transportationprovide quicker delivery to buyers
  because they are closer to the buyers
• Financinggrant credit, and finance suppliers by
  ordering early and paying bills on time
• Risk bearingabsorb some risk by taking title and
  bearing cost of theft, damage, spoilage, and
  obsolescence
• Market informationsupply competitor activities,
  new products, price developments, etc
• Management services and counselingtraining sales
  clerks, helping with store layouts and displays,
  etc.

• Selling and promotingsales force help
  manufacturers reach many small business customers
  at a relatively low cost
• Buying and assortment buildingselect items and
  build the assortment their customers need
• Bulk breakingbuy large carload lots and breaking
  the bulk into smaller units
• Warehousinghold inventories, and reduce
  inventory costs and risks to suppliers and
  customers

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Wholesalers Marketing Decisions
Target market
Product assortment
Price
Promotion
Place
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What a Wholesaler Might Do for Customers

• Regroup productsto provide quantity and
  assortment customers need
• Anticipate customers' needsand buy accordingly
• Carry products in inventorywhich helps reduce
  customers' inventory costs
• Deliver products promptly and economically
• Grant credit
• Provide information and advice
• Provide part of the buying functionmake it easy
  for customers to buy what they want

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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

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Manufacturers 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 wholesale sales
• Sales high because they are placed in best
  markets
• True operating costs may be difficult to determine

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Types of Wholesalers
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U.S. Wholesale Trade by Type of Wholesale
Operation
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Major Wholesaler Types
Merchant
Full-service
Limited-service
Brokers and agents
Manufacturers
Specialized
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Merchant Wholesalers

• 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

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Full-Service Merchant Wholesalers

• Provide all of the wholesaling functions
• Three major types
• General merchandise wholesalers
• Single-line (or general-line) wholesalers
• Specialty wholesalers

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Some Limited-Function Merchant Wholesalers

• Cash and carry wholesalersoperates like service
  customers except must pay cash
• Drop-shipperstake title to products they sell
  but do not stock or deliver them
• Truck wholesalerstypically deliver perishable
  items
• Rack jobbersusually display products on their
  own racks
• Catalog wholesalerssell out of catalogs

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Agent Middlemen Are Strong on Selling
Brokers
Manufacturers Agents
Types of Agent Middlemen
Selling Agents
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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

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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 commissionfrom either the buyer or
  sellerdepending on who hired them
• Especially common with seasonal products and
  products sold infrequently

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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

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Trends in Wholesaling

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

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Market Logistics Planning

• Deciding on the companys 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