978-0134492513 Chapter 13 Lecture Notes Part 1

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Chapter 13

RETAILING AND WHOLESALING

MARKETING STARTER: CHAPTER 13

WALMART: The World’s Largest Retailer—the World’s Largest Company

Synopsis

Walmart’s phenomenal success has resulted from an unrelenting focus on bringing value to its customers. Day in and

day out, Walmart lives up to its promise: “Save money. Live better.” It rang up an incredible $482 billion in sales

last year—more than double the sales of competitors Costco, Target, Sears, Kmart, Macy’s, JCPenney, and Kohl’s

combined. Walmart isn’t just out to deliver customer value. Its mission is to lower the cost of living for the world. To

accomplish this mission, Walmart offers a broad selection of carefully selected goods at “unbeatable low prices.”

Just how does Walmart make money with such low prices? Walmart is a lean, mean, distribution machine. Superior

management, sophisticated technology, and bargaining power that come with its size have all contributed to the

lowest cost structure in the retail world. Walmart’s growth has slowed as it has reached such an enormous size. But it

isn’t taking its eye off the ball. To reignite growth, Walmart is pushing into new, faster-growing product and service

lines, including organic foods, store brands, in-store health clinics, and consumer financial services. It’s also pushing

its expansion into international markets and online sales. Based on its obsession with customer value, Walmart is

determined to keep making its slogan, “Save money. Live better.” a reality for as many people as possible.

Discussion Objective

A brief, focused discussion of the Walmart story will clarify students’ understanding of the strategy that has made

this unimaginably large retailer the world’s largest company. It’s easy to take Walmart for granted, but make sure

that students consider the fact that it’s the world’s largest company. Walmart’s obsession with delivering customer

value is well summarized by its promise: “Save money. Live better.”

Starting the Discussion

To get the discussion rolling on Walmart’s strong positioning and how it’s led to such amazing success, head to

Walmart’s YouTube channel (www.youtube.com/walmart). Here, you’ll find an extensive selection of video clips,

from current advertisements that emphasize the “Save money. Live better.” slogan as well as customer testimonials

addressing Walmart’s sustainability efforts. You can also find an assortment of recent Walmart ads, testimonials, and

other information at www.walmart.com. Both sites contain enough material to last for hours. So, you’ll need to pare

it down to selected pages and clips that facilitate discussion based on the questions below. This short discussion will

reveal that Walmart stands for much more than just low prices. Although some students will turn up their noses at

Walmart, many customers feel strongly about how the retailer really does help them live better. Use the following

questions to help guide the discussion.

Discussion Questions

1. What is Walmart’s “Save Money. Live Better.” slogan all about? (Have students quickly lay out the basics

of Walmart’s strategy. Open the Walmart YouTube channel or www.walmart.com. Everyone gets the

everyday low prices part of Walmart’s positioning. But make sure that the discussion brings out how that

“low price” strategy makes people’s lives better. Perhaps show some of the ads from the Walmart YouTube

channel and discuss how “low price” translates into “living better.” And, be sure to explore how much

Walmart has saved American families.

2. Does Walmart’s message work for you? Do people feel as strongly about Walmart as they do about, say,

Target? (Many students will perceive that people shop at Walmart only for functional reasons such as

one-stop shopping and low prices. But some of the “Dear Walmart” clips under the “Our Stories” tab on

Walmart’s YouTube channel reflect the strong emotional connections people have with Walmart because of

its “Save Money. Live Better.” strategy. People don’t go to Walmart only because it’s cheap. Regular

customers are really into Walmart and its unique shopping experience.)

3. How does Walmart do it? (Pull out the operations model by which Walmart delivers on its promise. Smart

buying and a world-class IT system create operational excellence and a low cost structure. Walmart passes

the savings on to customers. But, it’s what these low costs mean to customers that really matters—lower

prices that let them live better.)

4. Why did the authors choose Walmart to introduce the chapter on retailing? (What better example than the

world’s largest retailer for illustrating the breadth of retailing concepts discussed in the chapter. Walmart’s

extraordinarily strong targeting, positioning, and marketing mix have provided it with an unbeatable

competitive advantage. It’s not just about low prices. The giant retailer really does help people to save

money so that they can live better.)

CHAPTER OVERVIEW

Use Power Point Slide 13-1 here

This chapter is a continuation of the prior chapter on marketing channels; it provides more detail

on retailing and wholesaling, 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 target market and positioning, product

assortment and services, price, 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.

CHAPTER OBJECTIVES

Use Power Point Slide 13-2 here

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.

CHAPTER OUTLINE

p. 366 INTRODUCTION

Day in and day out, giant Walmart lives up to its promise:

“Save money. Live better.” Its obsession with customer

value has made Walmart not only the world’s largest

retailer but also the world’s largest company.

Walmart is the number-one seller in several categories of

consumer products, including groceries, clothing, toys,

CDs, and pet care products.

What’s behind this spectacular success? First and foremost,

Walmart is passionately dedicated to its long-time,

low-price value proposition and what its low prices mean

to customers: “Save money. Live better.”

Walmart is a lean, mean, distribution machine; it has the

lowest cost structure in the industry. Low costs let the giant

retailer charge lower prices but still reap high profits.

Even as it brushes up its image, in no way will Walmart

ever give up its core low price value proposition. After all,

Walmart is and always will be a discount store.

p. 367

Photo: Walmart

Opening Vignette Questions

1. Do you believe that Walmart engages fairly

with its competitors in the marketplace? Defend

your answer.

2. What specific advantages does Walmart’s

distribution system provide the company?

3. Do you believe that the company’s mission

really is to “lower the world’s cost of living”?

Explain.

4. Besides offering low prices, what does Walmart

do better than its competitors to attract

customers?

p. 368

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Explain the role of retailers in the distribution channel

and describe the major types of retailers.

RETAILING

Retailing includes all the activities involved in selling

products or services directly to final consumers for their

personal, nonbusiness use.

Retailers are businesses whose sales come primarily from

Learning Objective

p. 368

Key Terms:

Retailing, Retailer

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p. 369

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p. 369

retailing.

Many marketers are now embracing the concept of

shopper marketing, the idea that the retail store itself is an

important marketing medium.

The “First Moment of Truth” is the critical three to seven

seconds that a shopper considers a product on a store shelf.

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

involves creating a seamless cross-channel buying

experience that integrates in-store, online, and mobile

chopping.

Types of Retailers

Retailers can be classified in terms of 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.

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.

Product Line Classifications

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

p. 368

Key Term:

Shopper Marketing

p. 369

Photo: Shopper

marketing

p. 369

Key Term:

Omni-channel

retailing

p. 369

Key Term:

Specialty store,

Department store

p. 370

Table 13.1: Major

Store Retailer

Types

p. 370

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 visited type of retail

store.

Supermarkets are facing slow sales growth because of

slower population growth and an increase in competition

from discounters and specialty food stores. They also have

been hit hard by the rapid growth of out-of-home eating in

the past 20 years.

Supermarkets’ share of the packaged foods sales plunged

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.

Supercenters (called hypermarkets in some countries) are

very large combination food and discount stores.

Category killers are superstores that are actually giant

specialty stores like Best Buy and Home Depot.

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.

p. 370

Key Term:

Supermarket

p. 371

Key Terms:

Convenience store,

Superstore,

Category killer,

Service retailer

Assignments, Resources

Use Discussion Questions 13-1 here

Use Think-Pair-Share 1 here

Use Outside Example 1 here

Troubleshooting Tip

Retailing is generally not a difficult concept for

students. However, the different types of retailers

should be thoroughly explained to the students to

ensure their understanding. Table 13.1 is an

excellent resource in this regard.

p. 371

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p. 373

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p. 373

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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.

There are three main types of off-price retailers.

1. Independent off-price retailers are either

independently owned and run or divisions of larger

retail corporations.

2. Factory outlets are manufacturer-owned and

operated stores—sometimes grouped 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.

Organizational Approach

Corporate chains are two or more outlets that are

commonly owned and controlled.

They have many advantages over independents.

Their size allows them to buy in large quantities at

lower prices and gain promotional economies.

They can hire specialists to deal with areas such as

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

p. 371

Key Term:

Discount store

p. 372

Photo: Dollar

General

p. 372

Key Terms:

Off-price retailer,

Independent

off-price retailer,

Factory outlet,

Warehouse club

p. 373

Key Term:

Corporate Chains

p. 373

Table 13.2: Major

Types of Retail

Organizations

p. 373

Key Term:

Franchise

p. 374

Photo: Costco

p. 375

Photo: Franchising,

H&R Block

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unique product or service; on a method of doing

business; or the trade name or goodwill the

franchisor has developed.

Franchises now command approximately 45 percent of all

retail sales in the United States.

Review Learning Objective 1: Explain the role of

retailers in the distribution channel and describe the major

types of retailers.

Assignments, Resources

Use Discussion Question 13-3 here

Use Real Marketing 13.1 here

Use Small Group Project 1 here

Use Think-Pair-Share 2 here

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p. 376

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p. 377

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p. 378

Describe the major retailer marketing decisions.

Retailer Marketing Decisions

Segmentation, Targeting, Differentiation, and

Positioning Decisions

Retailers must first segment and define their target markets

and then decide how they will differentiate and position

themselves in these markets. 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.

Price Decision

Learning Objective

p. 376

Figure 13.1:

Retailer Marketing

Strategies

p. 377

Photo: In-N-Out

Burger

p. 378

Photo: Restoration

Hardware

p. 379

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p. 379

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Most retailers seek either:

High markups on lower volume (most specialty

stores); or

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.

Troubleshooting Tip

The decisions retailers need to make will be easily

understood with a review of Figure 13.1. It is very

clear in this figure that the marketing mix elements

studied earlier in the text are being applied in a

retail environment. Explain how the type of retail

organization chosen affects the marketing mix, and

vice versa.