CHAPTER 14
Retailing, Direct Marketing, and Wholesaling
TEACHING RESOURCES QUICK REFERENCE GUIDE
Resource
Location
Purpose and Perspective
IRM, p. 1
Lecture Outline
IRM, p. 2
Discussion Starters
IRM, p. 12
Class Exercises
IRM, p. 13
Chapter Quiz
IRM, p. 16
Answers to Issues for Discussion and Review
IRM, p. 17
Answers to Developing Your Marketing Plan
IRM, p. 21
Comments on Video Case 14
IRM, p. 23
PowerPoint Slides
Instructor’s website
Note: Additional resources may be found on the accompanying student and instructor websites at
www.cengagebrain.com.
PURPOSE AND PERSPECTIVE
This chapter examines the nature of retailing, direct marketing, and wholesaling and their importance in
supplying consumers with goods and services. First, it discusses the purpose and function of retailers in
the marketing channel. Then it explores the major types of retailers and considers strategic issues in
retailing such as location, retail positioning, store image, and category management. Next, it discusses the
various forms of direct marketing and selling, including catalog marketing, direct response marketing,
telemarketing, television home shopping, online retailing, direct selling, and vending. Then it looks at the
benefits and weaknesses of franchising, a retailing form that continues to grow in popularity. Finally, it
looks at the nature and functions of wholesaling and examines the importance of wholesalers in marketing
channels, including their classifications.
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Chapter 14: Retailing, Direct Marketing, and Wholesaling
LECTURE OUTLINE
I. Retailing
A. Retailing includes all transactions in which the buyer is the ultimate consumer and intends to
consume the product for personal, family, or household use.
B. A retailer is an organization that purchases products for the purpose of reselling them to ultimate
consumers.
C. Although most retailers’ sales are made directly to the consumer, nonretail transactions occur
occasionally when retailers sell products to other businesses.
D. Retailing is important to the national U.S. economy, with an impact of about $2.6 trillion on total
GDP.
E. Retailers add value for customers by providing services and assisting in making product selections.
F. Retailers are the critical link between producers and ultimate consumers because they provide the
environment in which exchanges with ultimate consumers occur.
G. Traditional retailing is being challenged by direct marketing channels which provide home
shopping through catalogs, television, and the Internet.
H. The key to success in retailing is to have a strong customer focus and a retail strategy that provides
the level of service, product quality, and innovation that consumers desire.
1. New store formats, service innovations, and advances in information technology are making
the retail environment highly dynamic and competitive.
I. Retailers are also finding global opportunities.
II. Major Types of Retail Stores
A. One way to classify retail stores is by the breadth of products offered. Two general categories are
general-merchandise retailers and specialty retailers.
B. General-Merchandise Retailers
1. General merchandise retailers offer a variety of product lines, stocked in considerable
depth.
2. Department Stores
a. Department stores are large retail organizations characterized by wide product mixes
with at least 25 employees.
b. To facilitate marketing efforts and internal management, related product lines are
organized into separate departments.
c. Department stores are distinctively service-oriented and often offer credit, delivery,
personal assistance, merchandise returns, and a pleasant atmosphere.
d. Typical department stores obtain a large proportion of their sales from apparel,
accessories, and cosmetics.
3. Discount Stores
a. Discount stores are self-service, general-merchandise outlets that regularly offer
brand-name and private-brand products at low prices.
b. They accept lower profit margins than conventional retailers in exchange for higher
sales volume.
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Chapter 14: Retailing, Direct Marketing, and Wholesaling
c. They carry a wide, carefully-selected assortment of products, including appliances,
housewares, clothes, and toys.
d. Discount retailing developed on a large scale in the early 1950s.
e. Discount stores face growing competition and have responded by improving services,
often blurring the line with department stores.
4. Convenience Stores
a. A convenience store is a small, self-service store that is open long hours and carries a
narrow assortment of products, usually convenience items such as soft drinks and
other beverages, snacks, newspapers, tobacco, and gasoline, as well as services such
as automatic teller machines.
b. The primary product offered by the “corner store” is convenience.
c. Convenience stores are usually small in size and opened 24-hours a day, 7 days a
week, and stock about 500 items.
5. Supermarkets
a. Supermarkets are large, self-service stores that carry a complete line of food products
as well as some nonfood products such as cosmetics and nonprescription drugs.
b. They are arranged by department for maximum efficiency in stocking and handling
products, but have central checkout facilities.
c. They offer lower prices than neighborhood grocery stores and offer convenience perks
like free parking and check cashing.
d. Consumers make the majority of all grocery purchases in supermarkets. However,
supermarkets’ total share of the food market is declining as a result of greater
shopping options.
e. Another type of supermarket that may take back market share from discount stores is
termed the “hard discounter.” These grocery stores maintain a no-frills environment
and have a minimal assortment of goods they sell at incredibly low prices.
6. Superstores
a. Superstores—which originated in Europe—are giant retail outlets that carry not only
the food and nonfood products ordinarily found in supermarkets, but also routinely-
purchased consumer products such as housewares, hardware, small appliances,
clothing, and personal-care products.
b. They combine features of both discount stores and supermarkets.
c. Superstores offer about four times as many items as supermarkets.
d. To cut handling and inventory costs, they use sophisticated operating techniques and
often have tall shelving that displays entire product assortments.
7. Hypermarkets
a. Hypermarkets combine supermarket and discount store shopping in one location.
b. They are larger than superstores and carry more products, with 40–50 percent of their
space allocated to grocery products and the remaining space to general merchandise.
c. Hypermarkets have not been very successful in the United States, although they are
popular in Europe, South America, Mexico, the Middle East, and India.
8. Warehouse Clubs
a. Warehouse clubs are large-scale, members-only operations combining cash-and-
carry wholesaling with discount retailing.
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b. They are popular and are a rapidly expanding form of mass merchandising.
c. Sometimes called buying clubs, warehouse clubs offer the same types of products as
discount stores, but in a limited range of sizes and styles.
d. To keep prices lower than those of supermarkets and discount stores, they provide
very few services, keep advertising to a minimum, lack ambiance, have aisles wide
enough for forklifts, and merchandise is often stacked on pallets or displayed pipe
racks.
e. Warehouse clubs appeal to many price-conscious consumers and small retailers
unable to obtain wholesaling services from large distributors.
9. Warehouse Showrooms
a. Warehouse showrooms are retail facilities that are large, low-cost buildings with
warehouse materials-handling technology, vertical merchandise displays, large on–
premises inventories, and minimal services.
b. These high-volume, low-overhead operations offer fewer personnel and services.
c. Costs are lower because some marketing functions are shifted to consumers.
C. Specialty Retailers
1. Specialty retailers carry a narrow product mix with deep product lines; they do not sell
specialty items unless they complement the overall product mix.
2. Traditional Specialty Retailers
a. Traditional specialty retailers are stores that carry a narrow product mix with deep
product lines. They are sometimes called limited-line retailers.
b. They may be referred to as single-line retailers if they carry unusual depth in one
product category.
c. Because they are usually small, specialty stores may have high costs in proportion to
sales, and satisfying customers may require carrying some products with low
turnover rates.
d. Specialty retailers succeed by knowing their customers and providing what they
want.
3. Category Killers
a. A category killer is a very large specialty store concentrating on a major product
category and competing on the basis of low prices and broad product availability.
b. These stores expand rapidly and gain sizable market shares, taking business away
from smaller, higher-cost retailers.
4. Off-Price Retailers
a. Off-price retailers are stores that buy manufacturers’ seconds, overruns, returns,
and off-season production runs at below-wholesale prices for resale to consumers at
deep discounts.
b. They offer limited lines of national-brand and designer merchandise, usually
clothing, shoes, or housewares.
c. They charge 20 to 50 percent less than department stores for comparable
merchandise, but offer few customer services.
d. To ensure a regular flow of merchandise into their stores, off-price retailers establish
long-term relationships with suppliers that can provide large quantities of goods at
reduced prices.
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Chapter 14: Retailing, Direct Marketing, and Wholesaling
III. Strategic Issues in Retailing
A. Consumer purchases are often the result of social influences and psychological factors.
B. A retailer must make desired products available, create a stimulating shopping environment, and
develop marketing strategies that will increase store patronage.
C. Location of Retail Stores
1. Location is the least flexible and one of the most important issues because it dictates the
limited geographic trading area from which a store draws its customers.
2. Retailers must consider factors such as location of the firm’s target market within the trading
area, kinds of products being sold, availability of public transportation, customer
characteristics, and competitors’ locations. Ease of movement to and from the site is another
important factor.
3. Important characteristics of a site include types of surrounding stores, size and shape of
buildings, and terms of rent, lease, or ownership.
4. Retailers can choose from among several types of shopping centers.
a. Neighborhood shopping centers consist of several small convenience and specialty
stores.
(1) These retailers consider their target market to be consumers who live within 2-3
miles or a few minutes driving time.
(2) There is usually little coordination of selling efforts within a neighborhood
shopping center.
(3) Product mixes are essential products, and the depth of product lines is limited.
b. Community shopping centers include one or two department stores and some
specialty and convenience stores.
(1) They serve a larger geographic area and draw customers who want specialty
products not found in neighborhood shopping centers.
(2) They include a wide range of product mixes and deep product lines.
c. Regional shopping centers usually have the largest department stores, extensive
product mixes, and deep product lines.
(1) They have 150,000 or more consumers in their target markets, including
consumers traveling from a distance to find products and prices not available in
their hometown.
(2) Shopping center tenants are more likely to be national chains.
(3) Superregional shopping centers are the largest of regional shopping centers
and have the widest and deepest product mixes and attract customers from many
miles away.
(a) They often have special attractions such as skating rinks, amusement
centers, or upscale restaurants.
d. A lifestyle shopping center is typically an open-air shopping center that features
upscale specialty stores, dining, and entertainment stores, all usually owned by
national chains.
(1) Appealing architectural design is an important aspect. Some lifestyle centers are
designed to resemble traditional “Main Street” shopping centers or may have a
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central theme underscored by the architecture of the area.
e. Power shopping centers combine off-price stores and small stores with category
killers.
(1) Some shopping centers may not include a traditional anchor department store.
(2) The number of power shopping centers is growing, resulting in a variety of
formats vying for the same retail dollar.
f. Factory outlet malls feature discount and factory outlet stores carrying manufacturer
brands.
(1) They are owned by manufacturers, who make a special effort to avoid conflict
with traditional retailers of their products.
(2) Factory outlet centers attract value-conscious customers seeking quality and
major brand names.
(3) They operate like regional shopping centers, but draw customers from a larger
radius.
D. Retail Positioning
1. Retail positioning involves identifying an unserved or underserved market segment and
reaching it through a strategy that distinguishes the retailer from others in the minds of those
consumers.
2. A number of discount and specialty store chains have positioned themselves to appeal to
time- and cash-strapped consumers with convenient locations and layouts as well as low
prices. This strategy has helped them gain market share at the expense of large department
stores.
E. Store Image
1. To attract customers, a retail store must project an image—a functional and psychological
picture in the consumer’s mind—that appeals to its target market.
2. Atmospherics, the physical elements in a store’s design that appeal to consumers’ emotions
and encourage buying, help to create an image and position a retailer.
3. Exterior atmospheric elements include the appearance of the storefront, display windows,
store entrances, and degree of traffic congestion.
4. Interior elements include aesthetic considerations such as lighting, wall and floor coverings,
dressing facilities, store fixtures, and sensory elements, such as color, sound, and even scent.
F. Category Management
1. Category management is a retail strategy of managing groups of similar, often substitutable
products produced by different manufacturers.
2. Category management is part of developing a collaborative supply chain, which enhances
value for customers.
a. Successful category management involves collecting and analyzing data on sales and
consumers and sharing the information between the retailer and manufacturer.
b. The key is cooperative interaction between the manufacturers of category products and
the retailer to create maximum success for all parties in the supply chain.
IV. Direct Marketing, Direct Selling, and Vending
A. Many products are sold outside the confines of a retail stores.
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Chapter 14: Retailing, Direct Marketing, and Wholesaling
B. Direct selling and direct marketing account for an increasing proportion of total product sales.
Automatic vending machines account for a small minority of retail sales.
C. Direct Marketing
1. Direct marketing is the use of the telephone, Internet, and nonpersonal media to
communicate product and organizational information to customers, who can then purchase
products by mail, telephone, or the Internet.
2. Direct marketing is one type of nonstore retailing. Nonstore retailing is the selling of
products outside the confines of a retail facility.
3. Catalog Marketing
a. Catalog marketing occurs when an organization provides a catalog from which
customers make selections and place orders via mail, telephone, or the Internet.
b. Some catalog marketers sell products spread over multiple product lines, while others
are more specialized; some offer considerable product depth for just a few lines of
products; still some specialize in products from a single product line.
c. Customers benefit from efficiency and convenience because they do not have to visit a
store.
d. The retailer benefits by being able to locate in remote, low-cost areas, save on
expensive store fixtures, and reduce both personal selling and store operating
expenses.
e. Catalog retailing is inflexible, provides limited service, and is most effective only for a
selected set of products.
4. Direct-Response Marketing
a. Direct-response marketing occurs when a retailer advertises a product and makes it
available through mail, telephone, or online orders.
b. Direct response marketing through television remains a multi-billion dollar industry,
although it now competes with the Internet for customers’ attention.
c. Direct-response marketing is also conducted by sending letters, samples, brochures, or
booklets to prospects on a mailing list and asking that they order the advertised
products by mail or telephone.
5. Telemarketing
a. Telemarketing is the performance of marketing-related activities by telephone.
b. Telemarketing can help generate sales leads, improve customer service, accelerate
payments on past-due accounts, raise funds for nonprofit organizations, and gather
marketing data.
c. The laws and regulations regarding telemarketing have become more restrictive,
making it a less appealing marketing method.
d. U.S. Congress implemented a national do–not-call registry of customers who do not
want to receive telemarketing calls from companies operating in their state.
(1) Companies are subject to fines of up to $16,000 for each call made to numbers
on the list.
6. Television Home Shopping
a. Television home shopping presents products to television viewers, encouraging them
to order through toll-free numbers and pay with credit cards.
b. The television home shopping format offers several benefits.
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A. Franchising is an arrangement in which a supplier, or franchiser, grants a dealer, or franchisee, the
right to sell products in exchange for some type of consideration.
1. The franchiser may receive some percentage of total sales in exchange for furnishing
equipment, buildings, management know-how, and marketing assistance to the franchisee.
2. The franchisee supplies labor and capital, operates the franchised business, and agrees to
abide by the provisions of the franchise agreement.
B. Franchising offers several advantages to both the franchisee and the franchiser.
1. Franchising enables a franchisee to start a business with limited capital and to benefit from
the business experience of others.
2. Franchised outlets are generally more successful than independently-owned businesses.
3. The franchiser gains fast and selective product distribution through franchise arrangements
without incurring the high cost of construction and operating its own outlets.
C. Franchise arrangements also have several drawbacks.
1. The franchiser can dictate many aspects of the business: decor, menu, design of employees’
uniforms, types of signs, etc.
2. The franchisee must pay to use the franchiser’s name, products, and assistance. Not all
franchise agreements are uniform, meaning one franchisee may pay more than another for
the same services.
3. The franchiser gives up control when entering into a franchise agreement.
VI. Wholesaling
A. Wholesaling refers to all transactions in which products are bought for resale, for making other
products, or for general business operations.
B. A wholesaler is an individual or organization that sells products that are bought for resale, for
making other products, or for general business operations.
C. Services Provided by Wholesalers
1. Wholesalers provide essential services to both producers and retailers. By initiating sales
contacts with a producer and by selling diverse products to retailers, wholesalers serve as an
extension of the producer’s sales force.
2. Wholesalers often pay for transporting goods; they reduce a producer’s warehousing
expenses and inventory investment by holding goods in inventory; they extend credit and
assume losses from buyers who turn out to be poor credit risks; and when they buy a
producer’s entire output and pay promptly or in cash, they are a source of working capital.
3. Wholesalers serve as conduits for information within the marketing channel, keeping
producers up-to-date on market developments and passing along the manufacturers’
promotional plans to other intermediaries.
4. Wholesalers support retailers by assisting with marketing strategy, especially the distribution
component.
a. They help retailers select inventory.
b. They are often specialists on market conditions and experts at negotiating final
purchases.
c. They can reduce a retailer’s burden of looking for and coordinating supply sources.
5. If the wholesaler purchases for several different buyers, expenses can be shared by all
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customers.
6. The distinction between services performed by wholesalers and those performed by other
businesses has blurred in recent years because of changes in the competitive nature of
business and technological innovations.
D. Types of Wholesalers
1. A wholesaler is classified according to several criteria, including:
a. Whether it is independently-owned or owned by a producer
b. Whether it takes title to (owns) the products it handles,
c. The range of services provided
d. According to the breadth and depth of its product lines
2. Merchant Wholesalers
a. Merchant wholesalers are independently-owned businesses that take title to goods,
assume risks associated with ownership, and generally buy and resell products to other
wholesalers, business customers, or retailers.
b. A producer is likely to rely on merchant wholesalers when selling directly to
customers would be economically unfeasible.
c. Merchant wholesalers go by various names, including wholesaler, jobber, distributor,
assembler, exporter, and importer. They fall into two broad categories: full service
and limited service.
(1) Full-service wholesalers perform the widest possible range of wholesaling
functions.
(2) Customers rely on full-service wholesalers for product availability, suitable
assortments, breaking large quantities into smaller ones, financial assistance,
and technical advice and service.
(3) Full-service wholesalers are categorized as general-merchandise, limited-line,
and specialty-line wholesalers.
(a) General-line wholesalers carry a wide product mix, but offer limited
depth within product lines.
(b) Limited-line wholesalers carry only a few product lines, such as
groceries, lighting fixtures, or oil-well drilling equipment, but offer an
extensive assortment of products within those lines.
(c) Specialty-line wholesalers offer the narrowest range of products,
usually a single product line or a few items within a product line.
(d) Rack jobbers are full-service, specialty-line wholesalers that own and
maintain display racks in supermarkets, drugstores, and discount and
variety stores.
3. Limited-service wholesalers provide fewer marketing services than do full-service
wholesalers and specialize in just a few functions; producers perform the remaining
functions or pass them on to customers or other intermediaries.
a. Limited-service wholesalers take title to merchandise but often do not deliver
merchandise, grant credit, provide marketing information, store inventory, or plan
ahead for customers’ future needs.
b. The services provided by four typical limited-service wholesalers are: cash-and-carry
wholesalers, truck wholesalers, drop shippers, and mail-order wholesalers.
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Chapter 14: Retailing, Direct Marketing, and Wholesaling
(1) Cash-and-carry wholesalers are intermediaries whose customers—usually
small businesses—pay cash and furnish transportation.
(2) Truck wholesalers, sometimes called truck jobbers, transport a limited line of
products directly to customers for on-the-spot inspection and selection.
(3) Drop shippers, also known as desk jobbers, take title to goods and negotiate
sales but never take actual possession of products.
(4) Mail-order wholesalers use catalogs instead of sales forces to sell products to
retail and business customers.
4. Agents and Brokers
a. Agents and brokers negotiate purchases and expedite sales but do not take title to
products. They are sometimes called functional middlemen.
b. Agents represent either buyers or sellers on a permanent basis.
c. Brokers are intermediaries temporarily employed by buyers or sellers.
d. Although agents and brokers perform even fewer functions than limited-service
wholesalers, they are usually specialists in particular products or types of customers
and can provide valuable sales expertise.
e. Manufacturers’ agents, which account for more than half of all agent wholesalers,
are independent intermediaries who represent two or more sellers and usually offer
customers complete product lines.
f. Selling agents market either all of a specified product line or a manufacturer’s entire
output.
g. Commission merchants receive goods on consignment from local sellers and
negotiate sales in large, central markets. Sometimes called factor merchants, these
agents have broad powers regarding prices and terms of sale.
h. A broker’s primary purpose is to bring buyers and sellers together. Thus, brokers
perform fewer functions than other intermediaries.
5. Manufacturers’ Sales Branches and Offices
a. Sometimes called manufacturers’ wholesalers, manufacturers’ sales branches and
offices resemble merchant wholesalers’ operations.
(1) Sales branches are manufacturer-owned intermediaries that sell products and
provide support to the manufacturer’s sales force.
(2) Sales offices are manufacturer-owned operations that provide services
normally associated with agents.
b. Manufacturers may set up these branches or offices to reach their customers more
effectively by performing wholesaling functions themselves.
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Chapter 14: Retailing, Direct Marketing, and Wholesaling
DISCUSSION STARTERS
Discussion Starter 1: RFID and the Future of Retailing
ASK: Can you name one physical location within a retail setting that incurs significant cost and creates
consumer frustration?
One cost center for all types of retailing is the checkout area. Speedy and efficient checkout depends on
http://www.youtube.com/watch?v=US-GcgHL2HM
Discussion Starter 2: Mall of America
ASK: How many of you have heard of the Mall of America? How many of you have been there?
Located in Bloomington, Minnesota, the Mall of America is already the second-largest mall in North
Discussion Starter 3: Where do you shop and why?
ASK: Where are some of your favorite places to shop for clothes and groceries?