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LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. What major types of marketing intermediaries occupy this sector?
2. What major changes are occurring in the modern retail marketing environment with
respect to competitive market structure and technology?
3. What marketing decisions do marketing intermediaries make?
4. What does the future hold for private label brands?
5. What are some of the important issues in wholesaling?
6. What are some important issues in logistics?
CHAPTER SUMMARY
1. Retailing includes all the activities in selling goods or services directly to final
consumers for personal, nonbusiness use. Retailers can be store retailers, nonstore
retailers, and retail organizations.
2. Retailers pass through stages of growth and decline. As existing stores offer more
services to remain competitive, costs and prices go up, which opens the door to new retail
forms that offer merchandise and services at lower prices. The major types of retail stores
are specialty stores, department stores, supermarkets, convenience stores, discount stores,
extreme value or hard-discount store, off-price retailers, superstores, and catalog
showrooms.
3. Nonstore retailing is growing and includes direct selling (one-to-one selling,
one-to-many party selling, and multilevel network marketing), direct marketing (which
includes e-commerce and Internet retailing), automatic vending, and buying services.
4. Retail organizations achieve many economies of scale, greater purchasing power,
wider brand recognition, and better-trained employees. The major types of corporate
retailing are corporate chain stores, voluntary chains, retailer cooperatives, consumer
cooperatives, franchise organizations, and merchandising conglomerates.
5. As new retail forms have emerged, competition between them has increased, the rise
of giant retailers has been matched by the decline of middle-market retailers, investment
in technology has grown, and shopper marketing inside stores has become a priority.
6. Like all marketers, retailers must prepare marketing plans that include decisions about
target markets, channels, product assortment and procurement, prices, services, store
atmosphere, store activities and experiences, communications, and location.
7. Wholesaling includes all the activities in selling goods or services to those who buy
for resale or business use. Wholesalers can perform functions better and more
cost-effectively than the manufacturer can. These functions include selling and
promoting, buying and assortment building, bulk breaking, warehousing, transportation,
C H A P T E
R
MANAGING RETAILING,
WHOLESALING, AND
LOGISTICS
18
financing, risk bearing, dissemination of market information, and provision of
management services and consulting.
8. There are four types of wholesalers: merchant wholesalers; brokers and agents;
manufacturers’ and retailers’ sales branches, sales offices, and purchasing offices; and
miscellaneous wholesalers such as agricultural assemblers and auction companies.
9. Like retailers, wholesalers must decide on target markets, product assortment and
services, price, promotion, and place. The most successful are those that adapt their
services to meet suppliers’ and target customers’ needs.
10. Producers of physical products and services must decide on market logistics—the
best way to store and move goods and services to market destinations and to coordinate
the activities of suppliers, purchasing agents, manufacturers, marketers, channel
members, and customers. Major gains in logistical efficiency have come from advances
in information technology.
OPENING THOUGHT
Most students are familiar with the retailer in which they have bought products. What is
not so obvious to the students is that retailers, wholesalers, and distributors pass through
stages of growth and decline. Students, for the most part, will be familiar with some of
the retailer concepts described in the chapter, but not all. Second, non-store retailing may
not be a familiar concept to some students. Others might have some familiarity with
non-store retailing as in summer or part-time jobs at the mall.
The increasing “power” of retailers, especially mega-retailers, on their manufacturers and
the channels of distribution will not be evident to the students. Wholesalers and
distributors are generally “unseen” by the public and thus the students will probably not
have any previous information about how these channels work or even that they existed.
Guest speakers from the wholesaling or distribution industry can give insights to the
students about the services they perform and the “value” that they add to the end
consumer.
Students will be familiar with such industries as trucking and logistics firms but not about
inventory management or control. The instructor is encouraged to spend some additional
class time on the concepts of the market-logistic formula, order costs, set-up costs,
processing costs, and inventory carrying costs. Accounting and financial textbooks would
be a good source of additional information and explanations of how these costs affect the
overall corporation.
TEACHING STRATEGY AND CLASS ORGANIZATION
PROJECTS
1. At this point in the semester-long project for the “fictional” product or service,
students should be directed to turn in their retailing, wholesaling, and logistical
marketing plans. Those students who are acting in the role of providing a new
“service” should include here their plans for locations, hours of operations, and how
their “service” plans on managing demand and capacity issues.
2. This chapter is an appropriate one for out-of-class assignments because many
students will not have to be encouraged to “go shopping.” The chapter identifies four
levels of service in retailing—self-service, self-selection, limited service, and
full-service. Students are to visit at least one of each type of the described retailers. In
their shopping trips, did students experience a dissonance between the service they
received and their initial characterization of the store? In other words, did the student
receive “better” service than they initially expected to receive from a self or limited
service retailer? Did the students experience a “lack” of service from the store they
perceived as “full service”? If either of these conditions occurred, ask the students to
postulate a causal relationship for the occurrence.
3. Sonic PDA Marketing Plan: Retailers and wholesalers play a critical role in marketing
strategy because of their relationships with the final consumer. Manufacturers need to
manage their connections with these channel intermediaries.
You are responsible for channel management for Sonic’s PDA. Based on your
previous strategic choices, respond to the following questions about wholesaling and
retailing strategy:
What types of retailers will be most appropriate for distributing Sonic 1000?
What are advantages and disadvantages of selling through these types of retailers?
What role should wholesalers play in Sonic’s distribution strategy? Why?
What market logistics issues must Sonic consider for the launch of its first PDA?
Summarize your answers in a written marketing plan or type them into the Marketing
Mix and Channels sections of Marketing Plan Pro.
ASSIGNMENTS
Two models for department store success seem to be emerging—one with a strong retail
brand approach and one as a showcase store. In small groups, students are to investigate
these two differing approaches to department store retailing and comment on the future of
these concepts using the concepts defined in this chapter (target market selection, product
assortment decisions, etc.).
Atmospherics is an important component of store attractiveness. Every store has its own
unique look, feel, and smell. Yet each consumer may react differently to each of these
elements. In groups composed of male and female students, ask the students to visit three
retailers of their own choosing and comment on how the store atmospherics affected them
personally and then group the findings by sex. Why are there such differences? What can
a store do to appeal to both sexes?
In his 1999 book entitled, “How we Buy,” Simon & Schuster, New York, 1999, Paco
Underhill examines the shopping phenomena that consumers and retailers alike need to
know. Students should be assigned to read this book and comment on the lessons learned.
New retail forms and combinations is one of the trends in retailing today. Examples
include supermarkets with banks and bookstores featuring coffee shops. After reading the
material in this chapter, ask the students to “speculate” on potential new retail forms or
retail combinations yet undeveloped. In their selection of a “new” form of retailing or
combination of retailers, ask the students to defend their choices using the ideas and
concepts presented in this chapter.
Shop—that is, have students visit as many differing types of retailers (and non-store
retailers) as they can over the course of a week. For each shopping occasion, ask the
students to record their impressions of the store’s atmospherics, location, service levels,
product selections, and others. Then rank their preferences from best to least and be able
to explain why they assigned the ranking to each store in terms of the material covered in
this chapter.
Store brands, or private label brands, account for one of every five items sold in the
United States today. Students should purchase differing store brands/private label items
(ice cream is a favorite choice for this experiment and can be conducted in class), the
national branded product, and do a taste test comparing the store brand and the national
brand. Does the store or private label item meet or exceed the taste and quality of the
national brand? What are the implications for national branded products if store/private
label items meet or exceed the national brand? What should or could marketers’ do to
differentiate these products?
DETAILED CHAPTER OUTLINE
Opening vignette: Intermediaries also strive for marketing excellence and can reap the
benefits like any other type of company. The more successful intermediaries use strategic
planning, state-of-the-art technology, advanced information systems, and sophisticated
marketing tools. They segment their markets, improve their market targeting and
positioning, and connect with their customers through memorable experiences, relevant
and timely information, and of course the right products and services.
I. Retailing
A. Retailing includes all the activities in selling goods or services directly to final
consumers for personal, nonbusiness use.
i. A retailer or retail store is any business enterprise whose sales volume
comes primarily from retailing.
ii. Any organization selling to final consumers—whether it is a
manufacturer, wholesaler, or retailer—is doing retailing.
B. Types of Retailers
i. Store Retailers (Department, Specialty, Supermarket, Convenience,
Discount, Drug, Extreme value, Off-price, Superstore, Catalog
showroom)
ii. Levels of Service (Self-service, Self-selection, Limited service, Full
service)
iii. Nonstore Retailers (Direct marketing (which includes telemarketing
and online selling), direct selling, automatic vending, and buying
services)
iv. Corporate Retailing and Franchising (corporate chain stores, voluntary
chains, retailer and consumer cooperatives, franchises, and
merchandising conglomerates) achieve economies of scale, greater
purchasing power, wider brand recognition, and better-trained
employees than independent stores can usually gain alone
1. In a franchising system, individual franchisees are a tightly knit
group of enterprises whose systematic operations are planned,
directed, and controlled by the operation’s innovator, called a
franchisor.
2. Franchises are distinguished by three characteristics:
a. The franchisor owns a trade or service mark and
licenses it to franchisees in return for royalty payments.
b. The franchisee pays for the right to be part of the
system
c. The franchisor provides its franchisees with a system
for doing business
3. Franchisors gain the motivation and hard work of employees
who are entrepreneurs rather than “hired hands,” the
franchisees’ familiarity with local communities and conditions,
and the enormous purchasing power of being a franchisor.
4. Franchisees benefit from buying into a business with a
well-known and accepted brand name.
C. The Modern Retail Marketing Environment
i. New types of competitors and competition have emerged
1. New Retail Forms and Combinations
2. Growth of Giant Retailers
3. Growth of Intertype Competition
4. Emergence of Fast Retailing
5. Decline of Middle-market Retailers
ii. Technology is profoundly affecting the way retailers conduct virtually
every facet of their business.
1. Technology used to produce forecasts, control inventory costs,
and order from suppliers, reducing the need to discount and run
sales to clear out languishing products.
2. Technology is also directly affecting the consumer shopping
experience inside the store.
a. Where and how a product is displayed and sold can
have a significant effect on sales.
b. Retailers are also using technology to influence
customers as they shop.
c. Technology is also playing a crucial research role in the
design of shopper marketing programs.
d. Retailers are also developing fully integrated digital
communication strategies with well-designed Web sites,
e-mails, search strategies, and social media campaigns.
D. Marketing Decisions
i. Target Market: until it defines and profiles the target market, the
retailer cannot make consistent decisions about product assortment,
store decor, advertising messages and media, price, and service levels.
ii. Channels: retailers must decide which channels to employ to reach
their customers
iii. Product Assortment: the retailer’s product assortment must match the
target market’s shopping expectations in breadth and depth
1. Destination categories may play a particularly important role
because they have the greatest impact on where households
choose to shop and how they view a particular retailer.
2. Identifying the right product assortment can be especially
challenging in fast-moving industries such as technology or
fashion.
3. Develop a product-differentiation strategy.
a. Feature exclusive national brands
b. Feature mostly private-label merchandise
c. Feature blockbuster distinctive-merchandise events
d. Feature surprise or ever-changing merchandise
e. Feature the latest or newest merchandise first
f. Offer merchandise-customizing services
g. Offer a highly targeted assortment
h. Merchandise may also vary by geographical market.
iv. Procurement: the retailer must establish merchandise sources, policies,
and practices.
1. Retailers use sophisticated software to track inventory,
compute economic order quantities, order goods, and analyze
dollars spent on vendors and products.
2. Some stores are using radio frequency identification (RFID)
systems made up of “smart” tags—microchips attached to tiny
radio antennas—and electronic readers to facilitate inventory
control and product replenishment.
3. Stores are using direct product profitability (DPP) to measure a
product’s handling costs (receiving, moving to storage,
paperwork, selecting, checking, loading, and space cost) from
the time it reaches the warehouse until a customer buys it in the
retail store.
v. Prices are a key positioning factor and must be set in relationship to
the target market, product-and-service assortment mix, and
competition.
1. All retailers would like high turns earns (high volumes and
high gross margins), but the two don’t usually go together.
2. Most retailers fall into the high-markup, lower-volume group
(fine specialty stores) or the low-markup, higher-volume group
(mass merchandisers and discount stores).
3. All retailers are seeking to cut costs to improve margins.
vi. Another differentiator is unerringly reliable customer service, whether
face to face, across phone lines, or via online chat.
1. Prepurchase services include accepting telephone and mail
orders, advertising, window and interior display, fitting rooms,
shopping hours, fashion shows, and trade-ins.
2. Postpurchase services include shipping and delivery, gift
wrapping, adjustments and returns, alterations and tailoring,
installations, and engraving.
3. Ancillary services include general information, check cashing,
parking, restaurants, repairs, interior decorating, credit, rest
rooms, and baby-attendant service.
vii. Store Atmosphere: Every store has a look and a physical layout that
makes it hard or easy to move around
1. Attract shoppers and keep them in the store.
2. Honor the “transition zone.”
3. Avoid overdesign
4. Don’t make them hunt
5. Make merchandise available to the reach and touch. It is hard
to overemphasize the importance of customers’ hands.
6. Make kids welcome
7. Note that men do not ask questions
8. Women need space
9. Make check-out easy
viii. Store Activities and Experiences: in addition to natural advantages,
such as products that shoppers can actually see, touch, and test;
real-life customer service; and no delivery lag time for most purchases,
stores also provide a shopping experience as a strong differentiator.
ix. Retailers use a wide range of communication tools to generate traffic
and purchases.
x. The three keys to retail success are often said to be “location, location,
and location.” Retailers can place their stores in the following
locations:
1. Central business districts
2. Regional shopping centers
3. Community shopping centers
4. Shopping strips
5. A location within a larger store
6. Stand-alone stores
II. Private Label Brands
A. A private-label brand (also called a reseller, store, house, or distributor brand)
is a brand that retailers and wholesalers develop.
i. For many manufacturers, retailers are both collaborators and
competitors.
ii. Private labels are rapidly gaining ground in a way that has many
manufacturers of name brands running scared.
B. Role of Private Labels
i. Brands can be more profitable.
ii. Intermediaries may be able to use manufacturers with excess capacity
that will produce private-label goods at low cost.
iii. Other costs, such as research and development, advertising, sales
promotion, and physical distribution, are also much lower, so private
labels can generate a higher profit margin
iv. Retailers also develop exclusive store brands to differentiate
themselves from competitors.
v. Different from generics, which are unbranded, plainly packaged, less
expensive versions of common products such as spaghetti, paper
towels, and canned peaches.
C. Private-Label Success Factors
i. Retailers typically give more prominent display to their own brands
and make sure they are well stocked.
ii. Retailers are building better quality into their store brands and
emphasizing attractive, innovative packaging.
iii. Supermarket retailers are adding premium store-brand items.
III. Wholesaling
A. Wholesaling includes all the activities in selling goods or services to those
who buy for resale or business use.
B. Wholesalers (also called distributors) differ from retailers in a number of
ways.
i. Wholesalers pay less attention to promotion, atmosphere, and location
because they are dealing with business customers rather than final
consumers
ii. Wholesale transactions are usually larger than retail transactions, and
wholesalers usually cover a larger trade area than retailers.
iii. Wholesalers and retailers are subject to different legal regulations and
taxes.
C. Wholesaler Types
i. Merchant wholesalers
ii. Full-service wholesalers
iii. Limited-service wholesalers
iv. Brokers and agents
v. Manufacturers’ and retailers’ branches and offices
vi. Specialized wholesaling
D. Wholesaler functions
i. Selling and promoting
ii. Buying and assortment building
iii. Bulk breaking
iv. Warehousing
v. Transportation
vi. Financing
vii. Risk bearing
viii. Market information
ix. Management services and counseling
E. Trends in Wholesaling: new sources of competition, demanding customers,
new technologies, and more direct-buying programs by large industrial,
institutional, and retail buyers.
i. Manufacturers’ major complaints against wholesalers are:
1. They don’t aggressively promote the manufacturer’s product
line/they act more like order takers
2. They don’t carry enough inventory and therefore don’t fill
customers’ orders fast enough
3. They don’t supply the manufacturer with up-to-date market,
customer, and competitive information
4. They don’t attract high-caliber managers to bring down their
ii. Wholesalers have worked to increase asset productivity by better
managing inventories and receivables.
1. They’re also reducing operating costs by investing in more
advanced materials-handling technology, information systems,
and the Internet.
2. They’re improving their strategic decisions about target
markets, product assortment and services, price,
communications, and distribution.
iii. Four ways industrial distributors strengthened their relationships with
manufacturers
1. Sought a clear agreement with their manufacturers about their
expected functions in the marketing channel
2. Gained insight into the manufacturers’ requirements by visiting
their plants and attending manufacturer association conventions
and trade shows
3. Fulfilled their commitments to the manufacturer by meeting the
volume targets, paying bills promptly, and feeding back
customer information to their manufacturers
4. Identified and offered value-added services to help their
suppliers.
iv. Wholesaling industry remains vulnerable to one of the most enduring
trends—fierce resistance to price increases and the winnowing out of
suppliers based on cost and quality.
IV. Market Logistics
A. Physical distribution has now been expanded into the broader concept of
supply chain management (SCM).
i. Supply chain management starts before physical distribution and
includes strategically procuring the right inputs (raw materials,
components, and capital equipment), converting them efficiently into
finished products, and dispatching them to the final destinations.
ii. Supply chain perspective can help a company identify superior
suppliers and distributors and then help it improve productivity and
reduce costs.
B. Market logistics includes planning the infrastructure to meet demand, then
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. Four steps:
i. Deciding on the company’s value proposition to its customers.
ii. Selecting the best channel design and network strategy for reaching the
customers.
iii. Developing operational excellence in sales forecasting, warehouse
management, transportation management, and materials management
iv. Implementing the solution with the best information systems,
equipment, policies, and procedures
C. Integrated Logistics Systems include materials management, material flow
systems, and physical distribution, aided by information technology (IT).
i. Information systems play a critical role in managing market logistics,
especially via computers, point-of-sale terminals, uniform product bar
codes, satellite tracking, electronic data interchange (EDI), and
electronic funds transfer (EFT).
ii. Market logistics encompass several activities.
1. Sales forecasting, on the basis of which the company schedules
distribution, production, and inventory levels.
2. Production plans indicate the materials the purchasing
department must order.
3. These materials arrive through inbound transportation, enter
the receiving area, and are stored in raw-material inventory.
4. Raw materials are converted into finished goods.
5. Finished-goods inventory is the link between customer orders
and manufacturing activity.
6. Customers’ orders draw down the finished-goods inventory
level, and manufacturing activity builds it up.
7. Finished goods flow off the assembly line and pass through
packaging, in-plant warehousing, shipping-room processing,
outbound transportation, field warehousing, and delivery and
service.
iii. Market logistics “the last frontier for cost economies,” and firms are
determined to wring every unnecessary cost out of the system
1. Firms are embracing lean manufacturing to produce goods with
minimal waste of time, materials, and money
D. Market-Logistics Objectives may involve “getting the right goods to the right
places at the right time for the least cost.”
i. Because of trade-offs, managers must make decisions on a
total-system basis.
ii. The starting point is to study what customers require and what
competitors are offering.
iii. Customers are interested in on-time delivery, help meeting emergency
needs, careful handling of merchandise, and quick return and
replacement of defective goods.
iv. The wholesaler must then research the relative importance of these
service outputs.
v. The company must also consider competitors’ service standards.
vi. The company ultimately must establish some promise it makes to the
market.
E. Market-Logistics Decisions
i. How should we handle orders (order processing)?
ii. Where should we locate our stock (warehousing)?
iii. How much stock should we hold (inventory)?
iv. How should we ship goods (transportation)?
1. Containerization consists of putting the goods in boxes or
trailers that are easy to transfer between two transportation
modes.
2. Piggyback describes the use of rail and trucks; fishyback, water
and trucks; trainship, water and rail; and airtruck, air and
trucks.
3. Each coordinated mode offers specific advantages. (e.g.
piggyback is cheaper than trucking alone yet provides
flexibility and convenience).
4. Some firms are putting items into shelf-ready packaging so
they don’t have to unpack them from a box and place them
individually on a shelf.
F. With logistics, every little detail must be reviewed to see how it might be
changed to improve productivity and profitability.
