Chapter 14 – Managing Retailing, Wholesaling, and Logistics
I………………………………. Chapter Overview/Objectives/Outline
A. Overview
Retailing and wholesaling consists of many organizations designed to bring goods and services
from the point of production to the point of use. Retailing includes all the activities involved in
selling goods or services directly to final consumers for their personal, non-business use.
Retailers can be classified in terms of store retailers, non-store retailing, and retail
organizations.
Store retailers include many types, such as specialty stores, department stores, supermarkets,
convenience stores, superstores, combination stores, hypermarkets, discount stores, warehouse
stores, and catalog showrooms. These store forms have had different longevities and are at
different stages of the retail life cycle. Depending on the wheel-of-retailing, some will go out
of existence because they cannot compete on a quality, service, or price basis.
Non-store retailing is growing more rapidly than store retailing. It includes direct selling
(door-to-door, party selling), direct marketing, automatic vending, and buying services.
Much of retailing is in the hands of large retail organizations such as corporate chains,
voluntary chain and retailer cooperatives, consumer cooperatives, franchise organizations, and
increasing intertype competition, polarity of retailing, new retail technologies, and many
others.
Wholesaling includes all the activities involved in selling goods or services to those who are
buying for the purpose of resale or for business use. Wholesalers help manufacturers deliver
limited-service wholesalers (cash-and-carry wholesalers, truck wholesalers, drop shippers, rack
jobbers, producers’ cooperatives, and mail-order wholesalers). Agents and brokers do not take
possession of the goods but are paid a commission for facilitating buying and selling.
Manufacturers’ and retailers’ branches and offices are wholesaling operations conducted by
14-1
Wholesalers also must make decisions on their target market, product assortment and services,
pricing, promotion, and place. Wholesalers who fail to carry adequate assortments and
inventory and provide satisfactory service are likely to be bypassed by manufacturers.
Progressive wholesalers, on the other hand, adapt marketing concepts and streamline their
costs of doing business.
customer service.
B. Learning Objectives
Learn how to classify marketing intermediaries that occupy this sector.
Identify the major trends with marketing intermediaries.
C. Chapter Outline
I. Introduction – Considering the strategies of the members of the channels, as viewed by
those organizations. Example of Zappos’s focus on superior customer service is the
opening discussion of this chapter. Zappos spends half of the new employee interview
process determining whether the candidate posses the people skills to deal with
customers.
consumers for their personal, non-business use
A. Types of Retailers – Refer to Table 14.1 for Major Types of Store Retailers
1. Four Levels of service
more assistance granted to customer
2. Non-store Retailing has four main categories and is growing faster than
traditional retail
telemarketing, television direct-response, electronic and wireless
shopping
c) Automatic vending
14-2
3. Corporate retailing – economies of scale, greater purchasing power,
wider brand recognition and better-trained employees (refer to table 14.2
for definitions of the following corporate retail types)
a) Corporate Chain store
b) Voluntary chain
c) Retailer cooperative
d) Consumer cooperative
e) Franchise organization
f) Merchandising conglomerate
B. The New Retail Environment
1. Updated ambiance and product lines
2. Brick and mortar retailers adding online component, in-bound
selling
3. Addition of temporary outlets to serve seasonal needs
4. Supermarkets battling superstores by adding specialty products and
consumer focused services
C. Retailer Marketing Decisions
1. Target-market – until the target market is defined, the retailer cannot
have not defined their target markets
ways to integrate multiple channels.
3. Product Assortment
shopping expectations in breadth and depth.
b) Develop product differentiation strategy by offering brands not
product assortments and customized experiences.
4. Procurement – Growing use of Direct Product Profitability (DPP)
the warehouse to customer in-store purchase.
5. Prices
product/service assortment mix and competition
b) Retailers generally fall into one of two groups:
(1) High-markup, lower volume
(2) Low-markup, higher volume
2012 Pearson Education, Inc. publishing as Prentice Hall
14-3
purchase and ancillary services
store.
8. Store Activities and Experiences – brick and mortar entities creating
Experience Marketing”.
9. Communications –
a) Various tools used to generate traffic and support image
positioning
information and create brand communities.
10. Location – location, location, location – central business district, regional
shopping center, community shopping center, shopping strip, or within a
larger store.
consumer preferences for national brands.
A. Role of Private Labels
1. More profitable for retailer
2. Marketing mix cost lower
3. Lower price to consumer
4. Generic brand prices even lower
B. Private Label Success Factors
space
2. Retailers display their own brands more prominently than national
brands
as national brand
4. National brands have price constraints as marketing mix costs command
a higher margin, which creates higher prices
5. Refer to “Marketing Insight: Manufacturers respond to the Private Label
Threat”.
respective definitions.
A. Wholesalers differ from retailers in three major ways.
2012 Pearson Education, Inc. publishing as Prentice Hall
14-4
cover a larger trade area.
3. They comply with different legal regulations and taxes
B. Wholesaler functions
2. Buying and assortment building
3. Bulk breaking
4. Warehousing
5. Transportation
6. Financing: finance customers
7. Risk bearing: share risk by taking title and bearing some costs
8. Market information provided for retailers and customers
9. Management services and consulting (e.g. training, planning, technical
services)
C. Trends in Wholesaling
1. Wholesalers facing increased pressures from competition, demanding
customers, new technology and more direct-buying programs by large
buyers
2. Manufacturers pressuring wholesalers to do a better job pushing their
products
3. Wholesalers are revisiting 4P decisions, increasing asset productivity by
better managing inventory and receivables and investing more in
technology and information systems
4. Strengthening Channel Relationships
a) Seek clear agreement with manufacturers about their expected
functions in the channel
b) Visit manufacturers’ facilities and attend industry events to gain
insights
c) Fulfill requirements reliably and provide customer feedback to
manufacturers
d) Offer value-added services to manufacturers
V. Market Logistics – The process of getting goods to customers, use of supply chain
management (SCM), demand chain planning and integrated logistics systems. Involves
planning, implementing and controlling the physical flows of materials and final goods
from points of origin to points of use to meet customer requirements at a profit
A. Market logistics planning steps
2012 Pearson Education, Inc. publishing as Prentice Hall
14-5
1. Decide on value proposition to customers
2. Select best channel design and network strategy for reaching customers
3. Develop operational excellence in sales forecasting, warehouse,
transportation and materials management
4. Optimize solution with best IT systems, equipment, policies and
procedures
B. Integrated Logistics Systems (ILS)
1. Utilize information technology to enhance efforts in linking materials
management, material flow systems, and physical distribution
2. Market logistics increasing in costs which can amount to 30% – 40% of
the product’s cost. There is much room for cost reduction efforts
C. Market-logistics objectives –
cost.
2. Make decisions on a total-system basis. M =T+FW+VW+S
a) T = total freight cost of proposed system
b) FW = total fixed warehouse cost of proposed system
c) VW = total variable costs (including inventory) of proposed
system
proposed system
D. Market-Logistics Decisions
1. Order Processing – goal is to shorten order-to-payment cycle
2. Warehousing – storage of finished goods. Distribution warehouses
receive goods from various company plants and suppliers and move
them out as soon as possible
costs of carrying inventory
a) Inventory cost increases at an accelerating rate as the
customer-service level approaches 100%
b) Identify optimal level of inventory with promise of faster order
fulfillment times. Figure 14.1 is an illustration of Determining
Optimal Order Quantity
point.
d) Balance order processing costs and inventory-carrying costs
(1) Order-processing costs – setup costs and running costs
(2) Inventory-carrying costs – storage charges,
cost-of-capital, taxes and insurance, depreciation and
obsolescence
2012 Pearson Education, Inc. publishing as Prentice Hall
14-6
e) Reduce inventory costs by distinguishing between:
(1) Bottleneck items – high-risk, low-opportunity
(2) Critical items – high-risk, high-opportunity
(3) Commodities – low-risk, high-opportunity
c) Combining transportation modes via containerization – goods in
boxes or trailers that are easy to transfer between two
transportation modes.
(1) Piggyback – use of rail and trucks
(2) Fishyback – use of water and trucks
d) Carrier types:
(1) Private – shipper owns own vehicle of transportation
(2) Contract – independent organization selling
(3) Common – provides services between predetermined
points on a scheduled basis and available to al shippers at
standard rates
E. Organizational Lessons – experience with market logistics has taught executives
many lessons regarding the value of good logistics
significant parties
3. Set logistic goals to match or exceed competitors’’ service standards and
should involve members of all relevant teams in the planning process
VI. Executive Summary
II. Lectures:
D. “Retailing Versus e-Tailing”
Teaching Objectives
To stimulate students to think about the important retailing issues.
Points to consider in analyzing the changes in retail pricing strategy.
2012 Pearson Education, Inc. publishing as Prentice Hall
14-7
Discussion
INTRODUCTION
The key changes in the retailing field are a result of, or a by-product of, the changes in our
population, in where and how people live, work, and buy. During the next decades the trends
will continue, but most changes will come via the technological revolution (handling
systems.
Take advantage of the trend to service-oriented society by offering new and
more profitable services (the boutique concept, etc.), and also store image
management and creativity.
Department stores will have to face up to the increase in competition from
(shuffling the merchandise mix).
ECONOMIC FORCES
Economic forces are changing the way retailers must react. While many retailers expect
volume to grow despite the birth rate decline and the fact that the total population will not
decline, there are some pros and cons to consider. Real family income is not increasing, but
area of retailing. This viewpoint indicates the general optimism held by most retailers as
sales-oriented marketers.
SOCIAL FORCES
There is some optimism, a minority view, that there will be a solution to urban ghettos and a
increase (example: household cleaning products, etc.).
EMPLOYMENT PATTERNS
There is a continuing trend toward a four-day workweek, more part-timers, and 365 day, 24
hour per day openings, but retailers apparently do not see the need to plan for this
development. There will be more women in the labor market, more Sunday openings, more late
2012 Pearson Education, Inc. publishing as Prentice Hall
14-8
TECHNOLOGICAL INNOVATIONS
Cable TV has had a tremendous impact on non-store promotion and sales methods. The
Internet, interactive TV, and broadband will continue to be a wave of the future. Cable opened
up the arena of in-home shopping, and in-store computerized information (via scanners, etc.)
brought an end to the centralization of decision-making in the large retail chains.
important wave of the future.
2012 Pearson Education, Inc. publishing as Prentice Hall
14-9