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Chapter 13 - Retailing and Wholesaling
13-1
CHAPTER CONTENTS
PAGE
POWERPOINT RESOURCES TO USE WITH LECTURES .......................................... 13-2
LEARNING OBJECTIVES (LO) ........................................................................................ 13-3
KEY TERMS .......................................................................................................................... 13-3
LECTURE NOTES
• Chapter Opener: Smart Stores are Changing the Customer Journey ........................... 13-4
• The Value of Retailing (LO 13-1) ............................................................................... 13-4
• Classifying Retail Outlets (LO 13-2) .......................................................................... 13-6
APPLYING MARKETING KNOWLEDGE ..................................................................... 13-32
BUILDING YOUR MARKETING PLAN ......................................................................... 13-35
VIDEO CASE (VC)
• VC-13: Mall of America: America’s Biggest Mall Knows the Secret to Successful
Retailing ...................................................................................................................... 13-36
IN-CLASS ACTIVITY (ICA)
• ICA 13-1: Retail Shopping Online: Comparing Prices for 3M’s Ultrathon™ ........... 13-41
CONNECT EXERCISES ……………………………………………….…………………13-46
• Nonstore Retailing Click and Drag*
• Wheel of Retailing Click and Drag*
13-2
Chapter 13 - Retailing and Wholesaling
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POWERPOINT RESOURCES TO USE WITH LECTURES
PowerPoint
Textbook Figures Slide
Figure 13-1 Which retailer best provides which utilities? ............................................................... 13-6
Figure 13-2 Breadth versus depth of store merchandise lines ......................................................... 13-13
Applying Marketing Metrics
Why Apple Stores May Be the Best in the United States!: Sales per Square Foot and
Same Store Sales Growth Percent [See UMD16StoreSalesSqFtGrowth.xls] ................................... 13-27
Marketing Matters, Making Responsible Decisions, and/or Marketing inSite
Making Responsible Decisions—How Green is Your Retailer? ....................................................... 13-9
13-1: Apple Watch Video .................................................................................................................. 13-4
13-3: IKEA Video ............................................................................................................................ 13-16
13-5: Mall of America Video Case ................................................................................................... 13-35
In-Class Activity (ICA)
Chapter 13 - Retailing and Wholesaling
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LEARNING OBJECTIVES (LO)
After reading this chapter students should be able to:
LO 13-1: Identify retailers in terms of the utilities they provide.
LO 13-3: Describe the many methods of nonstore retailing.
LO 13-5: Explain changes in retailing with the wheel of retailing and the retail life cycle
concepts.
LO 13-6: Describe the types of firms that perform wholesaling activities and their functions.
KEY TERMS
brokers
retailing
category management
retailing mix
form of ownership
scrambled merchandising
level of service
shopper experience
manufacturers’ agents
Shopper marketing
merchandise line
telemarketing
merchant wholesalers
wheel of retailing
multichannel retailers
retail life cycle
Chapter 13 - Retailing and Wholesaling
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LECTURE NOTES
SMART STORES ARE CHANGING THE CUSTOMER JOURNEY!
• Combination of technology and retailing is creating a new way to improve the
customer journey – the smart store.
• Smart stores have added point-of-purchase displays that use biometric scanners to
detect when a customer approaches.
• Wearable tech can enhance the customer experience with information about deals,
locations of products, and faster checkout. Some stores send messages about special
offers to smart watch wearers who are near their stores.
• Smartphones also change the checkout experience for shoppers. Valpak has an app
that provides access to coupons for stores within a 25-mile radius of their location.
• Near Field Communication (NFC) products such as Apply Pay and Google Wallet
permit consumers to pay by holding a device near the scanner, initiating a payment
from the shopper’s credit card.
[Video 13-1: Apple Watch Video]
I. THE VALUE OF RETAILING [LO 13-1]
• Retailing:
a. Includes all activities involved in selling, renting, and providing products and
services to ultimate consumers for personal, family, or household use.
b. Is the channel of distribution where the customer meets the product or service
through retailing actions.
Chapter 13 - Retailing and Wholesaling
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c. Is where exchange occurs.
• [Figure 13-1] The value of retailing to consumers is in the utilities provided.
• Retailing’s economic value is represented by:
A. Consumer Utilities Offered by Retailing
• Most retailers offer time, place, form, and possession utilities in varying degrees,
but usually emphasize one utility.
• These retailers provide the following utilities:
[Video 13-2: CarMax Video]
B. The Global Economic Impact of Retailing
• Retailers Walmart, Costco, Home Depot, Target, and Lowes are five of the 40
largest businesses in the U.S., employing more than 3.4 million people.
• In China and Mexico, a combination of local and global retailers is evolving.
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LEARNING REVIEW
13-1. When Ralph Lauren makes shirts to a customer’s exact preferences, what utility is
provided?
13-2. Two measures of the impact of retailing in the global economy are __________ and
__________.
II. CLASSIFYING RETAIL OUTLETS [LO 13-2]
Retail outlets can be classified in several ways:
• Form of ownership distinguishes retail outlets based on whether individuals,
corporate chains, or contractual systems own the outlet.
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MAKING RESPONSIBLE DECISIONS
Sustainability: How Green is Your Retailer? The Rankings are Out!
A recent Nielsen survey of consumers from 60 countries stated that 55% of
respondents said they are willing to pay more for product/services provided by companies
committed to positive social and environmental impact.
• The U.S. Green Retail Association:
• Green practices include:
a. Encouraging the use of reusable shopping bags.
b. Installing LED lighting.
• Most environmental initiatives save retailers money!
A. Form of Ownership
There are three forms of retail ownership:
1. Independent Retailer.
b. The advantage for the owner is being his or her own boss.
c. The independent store can offer customers:
2. Corporate Chain.
a. Involves multiple outlets under common ownership.
Chapter 13 - Retailing and Wholesaling
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b. Is where centralization in decision making and purchasing occurs.
c. Offers the following advantages to consumers:
• Can bargain with manufacturers to obtain good service or volume
discounts on orders.
d. High tech is important to retailers. Retailers have developed a sophisticated
inventory management and cost control systems that allow rapid price changes
for each product in every store.
e. Retailers are using new technologies such as radio frequency identification
(RFID) tags to improve the quality of information available about products.
3. Contractual Systems.
a. Contractual systems involve independently owned stores that band together to
act like a chain.
b. Three kinds of contractual systems are:
c. Both retailer-sponsored cooperatives and wholesaler-sponsored voluntary
chains can:
d. In a franchise system:
• An individual or firm (the franchisee)…
• Contracts with a parent company (the franchisor) to…
• Set up a business or retail outlet.
• The franchisor assists in:
• The franchisee pays:
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• There are two general types of franchises:
– Business-format franchises.
* Examples: McDonald’s and Subway.
– Product-distribution franchises.
• Franchising:
– Is popular in international markets.
• The total investment can be high:
– Franchise fees paid to the franchisor can range from $15,000 for a
• By selling franchises, an organization reduces the cost of expansion but
loses some control.
• A good franchisor will:
– Maintain strong control of the outlets in terms of delivery and
B. Level of Service
Differences in retail outlets are more obvious in terms of level of service.
1. Self-Service.
a. This type of retailer:
• Requires the customer to perform most functions.
b. Today, the trend is toward retailing experiences that make customers
co-creators of the value they receive.
2. Limited Service.
a. This type of retailer:
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• Provides some services, such as credit and merchandise return.
b. Example: Target, Walmart, Kmart.
3. Full-Service.
a. This type of retailer:
• Includes most specialty stores and department stores.
• Provides many services to their customers.
• Relies on better service, including salespeople, to:
b. Example: Nordstrom.
C. Type of Merchandise Line
[Figure 13-2] Retail outlets vary by their merchandise lines based on the breadth and
depth of the items offered to customers.
• Depth of product line. The store carries a large assortment of each product item.
• Breadth of product line. The store carries a variety of different product items.
1. Depth of Line.
a. Two types of stores exist related to the extent of product items carried:
• Limited-line stores. Stores that carry a considerable assortment (depth) of
b. Specialty outlets.
• Focus on one product category, such as electronics (Best Buy).
• Offer very competitive prices.
• Are referred to as category killers because they often dominate the market.
• Interesting trends in this form of retailing include:
Chapter 13 - Retailing and Wholesaling
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2. Breadth of Line.
a. General merchandise stores.
b. Traditionally, outlets carried related lines of goods.
c. Today, some of these retailers use scrambled merchandising:
LEARNING REVIEW
13-3. Centralized decision making and purchasing are an advantage of __________
ownership.
13-4. What are some examples of new forms of self-service retailers?
13-5. Would a shop for big men’s clothes carrying pants in sizes 40 to 60 have a broad
or deep product line?
III. NONSTORE RETAILING [LO 13-3]
• Many retailing activities today are not limited to sales in a store.
• The six forms of nonstore retailing are:
A. Automatic Vending
• Vending machines (or v-commerce) serve customers when and where stores can’t.
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• Product prices tend to be higher than those in stores because of vending machine
maintenance, operating costs, and location leases.
• Vending machine sales consist of small convenience products, such as:
• New types of products are now sold in vending machines, such as:
• The 4.5 million vending machines in use in the U.S. generate more than $20.9
billion in annual sales.
B. Direct Mail and Catalogs
• Direct mail and catalog retailing are attractive because they:
a. Are “the store that comes to the door.”
b. Eliminate the cost of a store and clerks.
• The average U.S. household receives 19 direct-mail items or catalogs each week.
[Video 13-3: IKEA Video]
• Several factors have impacted direct mail and catalog retailing:
a. Traditional retailers have increased the number and variety of products
consumers purchase through direct mail and catalogs.
Chapter 13 - Retailing and Wholesaling
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• Increases in postage rates.
• These factors have caused direct mail and catalog retailers to search for ways to
improve their efficiency and provide additional customer value:
a. Focus on proven rather than prospective customers.
C. Television Home Shopping
• Consumers:
a. Watch QVC, HSN, and Evine where products are displayed, reaching 198
• These television home shopping channels offer apparel, jewelry, cooking, home
improvement products, electronics, toys, and even food products.
• To attract a younger audience, these firms:
a. Invite celebrities onto the show. c. Use mobile apps and online chats.
• Channels face competition as YouTube begins to stream live shows.
D. Online Retailing
• Online retailing allows consumers to search for, evaluate, and order products
through the Internet.
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[ICA 13-1: Retail Shopping Online:
Comparing Prices for 3M’s Ultrathon™ Insect Repellent]
• The advantages of online retailing are:
• Initially, men were more likely than women to buy something online.
• There has been a melding of “bricks and clicks”:
c. Create better value and experiences for customers.
• Example: Walmart’s…
a. Store Pickup service allows customers to place an order online and pick it up
at a store.
• Two of the biggest days for online retailing are the Friday after Thanksgiving—
Black Friday and the Monday after Thanksgiving—Cyber Monday.
• Online sales:
• Consumers who make online retail purchases:
a. Can pay dues to become a member of an online discount service.
b. Use a shopping “bot” to search the Internet for a product and report on the
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• One problem online retailers face is that:
a. Only 80 percent of online shoppers make it to “checkout.”
• Some experts suggest that online retailers should think of their websites as
dynamic billboards if they are to attract and retain customers.
• Online websites should be easy to use, customizable, and facilitate interaction to
enhance the online customer experience.
• Online retailing is also evolving to include social shopping options that include:
E. Telemarketing
• Telemarketing:
a. Involves using the telephone to interact with and sell directly to consumers.
• The telemarketing industry has gone through dramatic changes as a result of new
legislation related to telephone solicitations.
a. Issues such as consumer privacy, industry standards, and ethical guidelines
have encouraged discussion among consumers, Congress, the FTC, and
businesses.
b. The National Do-Not-Call registry (www.donotcall.gov):
Chapter 13 - Retailing and Wholesaling
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d. FTC and industry leaders are discussing measures to curb robocalls (auto-
dialers with precorded messages).
F. Direct Selling
• Direct selling:
• Firms in the industry have generated more than $36 billion in the U.S. and $184
billion worldwide.
• In the U.S., there are more than 20 million direct salespeople who work full- and
part-time in a variety of product categories.
• Growth in the direct selling industry is the result of two trends:
a. Direct selling retailers are expanding outside of the U.S. due to the lack of:
b. Many consumers prefer:
• The Direct Selling Association says the number of companies using direct selling
is increasing (ex: Pampered Chef has 60,000 independent sales reps)
Chapter 13 - Retailing and Wholesaling
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LEARNING REVIEW
13-6. Successful catalog retailers often send __________ catalogs to __________ markets
identified in their databases.
13-7. How are retailers increasing consumer interest and involvement in online
retailing?
Answer: Retailers have improved the online retailing experience by adding experiential
or interactive activities to their websites, allowing customers to “build” virtual products
13-8. Where are direct selling retail sales growing? Why?
Answer: Direct selling, sometimes called door-to-door retailing, involves direct sales of
IV. RETAILING STRATEGY
• A retailer develops and implements a retailing strategy by positioning the store and
taking specific retailing mix actions. The retailing strategy [Figure 13-3]:
• Includes activities related to managing the store and the merchandise in the store.
• Includes retail pricing, store location, retail communication, and merchandise.
1. Retail Pricing. In setting prices for merchandise, retailers must decide on:
a. Markup. Refers to how much should be added to the cost the retailer paid for
a product to reach the final selling price.
• Original markup. Is the difference between retailer cost and initial selling
[See CH16StandardMarkupCost.xls]
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b. Markdown. Occurs when the product does not sell at the original price and an
adjustment is necessary. In this case, the product has been discounted.
[See CH16Markdown.xls]
• New models or styles force the price of existing items to be marked down.
• Discounts may be used to increase demand for complementary products.
• The timing of a markdown can be important:
– Many retailers take a markdown:
– Other stores delay markdowns to:
• Frequent promotions increase consumers’ ability to recall regular prices.
c. Many retailers use price discounts as a part of their merchandising policy.
• Everyday low pricing (EDLP).
– Emphasizes consistently low prices and eliminates most markdowns.
• Everyday fair pricing.
d. Consumers often use the prices of benchmark or signpost items to form an
overall impression of the store’s prices.
h. Off-price retailing.
• Involves selling brand-name merchandise at lower than regular prices.
• The difference between the off-price retailer and a discount store is that:
Chapter 13 - Retailing and Wholesaling
– Off-price retailers buy merchandise from manufacturers with excess
inventory at prices below wholesale prices.
2. Store Location.
• Issue #1: Choosing where to locate each store.
• Issue #2: Deciding how many stores to have.
a. Department stores.
• Started downtown in most cities.
b. Central business district.
• Is the oldest retail setting located in the community’s downtown area.
c. Regional shopping centers.
• Consist of 50 to 150 stores.
