Chapter 11 Retailing and Wholesaling
CHAPTER 11
RETAILING AND WHOLESALING
PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES
1. Explain the role of retailers in the distribution channel and describe the major types of
retailers.
2. Describe the major retailer marketing decisions.
3. Discuss the major trends and developments in retailing.
4. Explain the major types of wholesalers and their marketing decisions.
JUST THE BASICS
CHAPTER OVERVIEW
This chapter is a continuation of the prior chapter on marketing channels; it provides more detail
on retailing and wholesaling, which are two very important concepts in the value delivery
network.
Retailers can be classified according to several characteristics, including the amount of service
they offer, the breadth and depth of their product lines, the relative prices they charge, and how
they are organized.
The major decisions retailers make are centered on their target market and positioning, their
product assortment and services, their price, their promotion strategies, and where they are
located.
The wheel of retailing concept says that many new retailing forms begin as low-margin,
low-price, low-status operations. They challenge established retailers, and then the new retailers’
success leads them to upgrade their facilities and offer more services. In turn, their costs
increase, and eventually they become like the conventional retailers they replaced. The cycle
begins again.
There are many types of wholesalers, including merchant wholesalers, agents and brokers, and
manufacturers’ sales branches and offices.
ANNOTATED CHAPTER NOTES/OUTLINE
FIRST STOP
Walmart: The World’s Largest Retailer – the World’s Largest Company.
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Walmart is almost unimaginably big. Sales last year were $487 billion – more than two times the
sales of Costco, Target, Sears, Kmart, Macy’s, JCPenney, and Kohl’s combined.
What is behind this spectacular success? First and foremost, Walmart is dedicated to its
long-time, low-price value proposition and what its low prices mean to customers.
How does Walmart make money with such low prices? Walmart is a lean, mean, distribution
machine – it has the lowest cost structure in the industry.
Some critics argue that Walmart squeezes its suppliers too hard, driving some out of business.
Despite its incredible success over the past five decades, Walmart faces some tough challenges
ahead. Having grown so big, the company is having difficulty maintaining the rapid growth rates
of years past.
To refresh its positioning relative to trendier competitors such as Target, Walmart has given itself
a modest image face-lift. In search of broader appeal, it has added new, higher-quality products.
So, even as it brushes up its image, Walmart has no intention of giving up on its core low-price
value proposition.
Use Key Terms Retailing, Retailer, and Shopper Marketing here.
Use Chapter Objective 1 here.
RETAILING
Retailing includes all the activities involved in selling products or services directly to final
consumers for their personal, nonbusiness use.
Retailers: Businesses whose sales come primarily from retailing.
Many marketers are embracing the concept of shopper marketing, focusing the entire marketing
process—from product and brand development to logistics, promotion, and merchandising—
toward turning shoppers into buyers as they approach the point of sale.
Today’s consumers are increasingly omni-channel buyers, who make little distinction between
in-store and online shopping and for whom the path to a retail purchase runs across multiple
channels.
Omni-channel retailing is creating a seamless cross-channel buying experience that integrates
in-store, online, and mobile shopping.
Use Marketing at Work 11.1 here.
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Use Key Term Omni-Channel Retailing here.
In recent years, direct and online retailing has been growing much faster than has store retailing.
Types of Retailers (Table 11.1)
Use Table 11.1 here.
Use Discussion Question 11-1 here.
Amount of Service
Self-service retailers serve customers who are willing to perform their own
“locate-compare-select” process to save time or money.
Limited-service retailers provide more sales assistance because they carry more shopping goods
about which customers need information.
Full-service retailers include high-end specialty stores and first-class department stores.
Salespeople assist customers in every phase of the shopping process.
Use Discussion Question 11-2 here.
Product Line
Specialty stores carry narrow product lines with deep assortments within those lines.
Department stores carry a wide variety of product lines.
In recent years, department stores have been squeezed between more focused and flexible
specialty stores on the one hand, and more efficient, lower-priced discounters on the other.
Supermarkets are the most frequently shopped type of retail store.
Supermarkets also have been hit hard by the rapid growth of out-of-home eating.
Supermarkets’ share of the groceries and consumables market slipped from 53 percent in 1998 to
37 percent in 2012.
Convenience stores are small stores that carry a limited line of high-turnover convenience
goods.
Superstores are much larger than regular supermarkets and offer a large assortment of routinely
purchased food products, nonfood items, and services.
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Supercenters are very large combination food and discount stores.
Category killers are superstores that are actually giant specialty stores. (Best Buy and Petco are
examples.)
Service retailers include hotels and motels, banks, airlines, colleges, hospitals, movie theaters,
tennis clubs, bowling alleys, restaurants, repair services, hair salons, and dry cleaners.
Service retailers in the United States are growing faster than product retailers.
Use Critical Thinking Exercise 11-8 here.
Use Key Terms Specialty Store, Department Store, Supermarket, Convenience Store,
Superstore, Category Killer and Service Retailer here.
Relative Prices
Discount stores sell standard merchandise at lower prices by accepting lower margins and
selling higher volume.
Off-price retailers offer products to fill the ultralow-price, high-volume gap by pricing lower
than discount stores.
The three main types of off-price retailers are:
1. Independent off-price retailers are either independently owned and run or are
divisions of larger retail corporations.
2. Factory outlets—manufacturer-owned and operated stores—sometimes group together
in factory outlet malls and value-retail centers.
3. Warehouse clubs (or wholesale clubs or membership warehouses) operate in huge,
drafty, warehouse-like facilities and offer few frills.
Use Discussion Question 11-3 here.
Use Key Terms Discount Store, Off-Price Retailer, Independent Off-Price Retailers, Factory
Outlet, and Warehouse Club here.
Organizational Approach (Table 11.2)
Corporate chains are two or more outlets that are commonly owned and controlled.
They have many advantages over independents.
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Their size allows them to buy in large quantities at lower prices and gain promotional
economies.
They can hire specialists to deal with pricing, promotion, merchandising, inventory
control, and sales forecasting.
There are three forms of contractual associations:
1. Voluntary chain—a wholesaler-sponsored group of independent retailers that engages in
group buying and common merchandising.
2. Retailer cooperative—a group of independent retailers that bands together to set up a
jointly owned, central wholesale operation and conducts joint merchandising and
promotion efforts.
3. Franchise— The main difference between franchise organizations and other contractual
systems is that franchise systems are normally based on some unique product or service
or on a method of doing business.
Franchises command 40 percent of all retail sales in the United States.
Use Key Terms Corporate Chains and Franchise here.
Use Linking the Concepts here.
Use Table 11.2 here.
Retailer Marketing Decisions (Figure 11.1)
Use Chapter Objective 2 here.
Use Figure 11.1 here.
Segmentation, Targeting, Differentiation, and Positioning Decisions
Too many retailers fail to define their target markets and positions clearly.
In contrast, successful retailers define their target markets well and position themselves strongly.
Product Assortment and Services Decision
Retailers must decide on three major product variables:
1. Product assortment should differentiate the retailer while matching target shoppers’
expectations.
2. Services mix can help set one retailer apart from another.
3. Store atmosphere is another important element in the reseller’s product arsenal.
Use Critical Thinking Exercise 11-7 here.
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Price Decision
Most retailers seek either:
High markups on lower volume (most specialty stores)
Low markups on higher volume (mass merchandisers and discount stores).
Other pricing decisions:
Everyday low pricing (EDLP)—charging constant, everyday low prices with few sales or
discounts.
High-low pricing—charging higher prices on an everyday basis, coupled with frequent
sales and other price promotions to increase store traffic, clear out unsold merchandise,
create a low-price image, or attract customers who will buy other goods at full prices.
Use Marketing by the Numbers here.
Promotion Decision
Retailers use any or all of the promotion tools—advertising, personal selling, sales promotion,
public relations, and direct marketing—to reach consumers.
Place Decision
Retailers often point to three critical factors in retailing success: location, location, and location!
It’s very important that retailers select locations that are accessible to the target market in areas
that are consistent with the retailer’s positioning.
Location options include:
Central business districts which were the main form of retail cluster until the 1950s.
Shopping centers which are a group of retail businesses planned, developed, owned,
and managed as a unit.
oRegional shopping centers, or regional shopping malls, are the largest and most
dramatic shopping centers and contain from 50 to over 100 stores, including two
or more full-line department stores.
oCommunity shopping centers contain between 15 and 50 retail stores. It normally
contains a branch of a department store or variety store, a supermarket, specialty
stores, professional offices, and sometimes a bank.
oNeighborhood shopping centers or strip malls that generally contain between 5
and 15 stores. They are close and convenient for consumers.
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Power centers are huge unenclosed shopping centers consisting of a long strip of retail
stores, including large, freestanding anchors. This is the current trend.
Lifestyle centers are smaller malls with upscale stores, convenient locations, and
non-retail activities such as dining and a movie theater.
Use Key Term Shopping Center here.
Use Discussion Question 11-4 here.
Retailing Trends and Developments
Tighter Consumer Spending
Following years of good economic times for retailers, the Great Recession of 2008-2009 turned
many retailers’ fortunes from boom to bust.
Some retailers actually benefit from a down economy (for example, Costco and Dollar General).
Beyond cost-cutting and price promotions, many retailers added new value pitches to their
positioning. For example: Home Depot replaced their old theme (You can do it. We can help.)
with a thriftier one (More saving. More doing.)
In times of economic difficulty, retailers must be careful that their short-run actions do not
damage their long-run images and positions.
New Retail Forms, Shortening Retail Life Cycles, and Retail Convergence
New retail forms continue to emerge to meet new situations and consumer needs, but the life
cycle of new retail forms is getting shorter.
Use Online, Mobile, and Social Media Marketing here.
Use Chapter Objective 3 here.
New retail forms are always emerging. Many retailers now are experimenting with limited-time
pop-up stores that let them promote their brands to seasonal shoppers and create buzz in busy
areas.
The online and mobile equivalent of the pop-up store is the flash sale site.
The merging of consumers, products, prices, and retailers is called retail convergence.
Such convergence means greater competition for retailers and greater difficulty in differentiating
offerings.
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The Rise of Megaretailers
The megaretailers are shifting the balance of power between retailers and producers. A relative
handful of retailers now control access to enormous numbers of consumers, giving them the
upper hand in their dealings with manufacturers.
Growth of Direct, Online, Mobile, and Social Media Retailing
Although it currently accounts for only about 7 percent of total US retail sales, online buying is
growing at a much faster pace than retail sales as a whole.
Retailer online sites, mobile apps, and online social media also influence a large amount of
in-store buying.
Showrooming is the process of shoppers checking out merchandise at brick-and-mortar store
showrooms and then buying it online.
All types of retailers now employ direct and online channels.
Use Key Term Showrooming here.
Use Critical Thinking Exercise 11-9 here.
Use Marketing at Work 11.2 here.
Use Marketing Ethics here.
Growing Importance of Retail Technology
Many retailers now routinely use technologies such as touch-screen kiosks, customer-loyalty
cards, electronic shelf labels and signs, handheld shopping assistants, smart cards, and
self-scanning checkout systems.
Green Retailing
Today’s retailers are increasingly adopting environmentally sustainable practices.
At the most basic level, most large retailers are making their stores more environmentally
friendly through sustainable building design, construction, and operations.
Retailers are also greening up their product assortments.
Many retailers have launched programs that help consumers make more environmentally
responsible decisions.
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Global Expansion of Major Retailers
Retailers with unique formats and strong brand positioning are increasingly moving into other
countries.
Many are expanding internationally to escape mature and saturated home markets. Most U.S
retailers are still significantly behind Europe and Asia when it comes to global expansion.
Use Linking the Concepts here.
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