978-0134058498 Chapter 18 Lecture Notes

Unlock access to all the studying documents.

View Full Document

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

MANAGING RETAILING,

WHOLESALING, AND

LOGISTICS

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.