Marketing Chapter 15 Following The Organizational Phase Groups Are Now

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15–14 Chapter 15 ♦ Retailing

Purpose: To have students think intentionally about differences in retailing establishments by comparing two stores at

which they have never shopped.

Setting It Up: Because this involves excursions, you may wish to set this up as a paired exercise. Alternatively, you can

This exercise was inspired by the following Great Idea in Teaching Marketing:

Amy R. Hubbert

University of Nebraska at Omaha

DISCOVERY OF STRATEGIC RETAILING FACTORS

The purpose of this assignment is to give students in the Principles of Marketing course an opportunity discover for

themselves the influence of strategic retailing factors (e.g., location, atmospherics, etc.) on consumer perceptions. The

project involves individual, detailed observation at two very different types of retail outlets and a four to five page

summary of the findings. An in-class activity enables groups of students to compare and contrast their findings and

reinforces the understanding of strategic retailing factors.

Each student selects an item categorized as a “shopping product” for which to shop. Students describe the product

A. Location Factors

What is the type of location (traditional business district, community shopping center, etc.)? How congested is this part

of town in general? What influence does the neighborhood have on your impression of the store? Would you travel to

this store under normal circumstances to shop for your product?

B. Exterior Atmospherics

a. How convenient is it to get into the parking lot from the street?

For example, do you have to drive by and make a U–turn or can you turn in at a stoplight?

C. Interior Atmospherics

a. Aesthetics: Discuss aisle width in general and in comparison to the other store. Note the lighting. Is it too

bright or too dim? Is it used to emphasize the merchandise? How crowded does the store seem? Too

deserted? Too crowded? Describe any odors you detect. What is the noise level? Is there background

music? If yes, note the volume, tape quality, and appropriateness of the music.

Chapter 15 ♦ Retailing 15–15

d. Personnel: Are salespeople available to help? If yes, by what clues are the sales staff recognizable? Is a

salesperson willing and/or able to help you right away? Is the salesperson knowledgeable about the

products and services offered?

D. Product

Is your product available at the store? Is there a satisfactory substitute? What are your perceptions of the quality level of

the goods offered? Specifically identify the factors on which you base these perceptions.

E. Price

a. What is the price of the product/brand you would purchase from this store? Is the price prominently

On the due date, an in-class activity offers the opportunity for students to share and compare their findings. Small groups

of four to five students are formed. Each group member names their product and identifies the types of retailers and

ETHICS EXERCISE

1. Should low-cost retailers be required to locate near low-income customers? Why or why not?

It is not unethical for A-Z Grocery to avoid low-income neighborhoods as part of their business strategy.

Requiring low-cost retailers to locate a portion of their stores near low-income customers is not a way to solve

2. Does the AMA Statement of Ethics address this issue? Go to www.marketingpower.com and review the

statement. Then, write a brief paragraph on what the AMA Statement of Ethics contains that relates to

retailing locations.

MARKETING PLAN EXERCISE

15–16 Chapter 15 ♦ Retailing

Chapter 15 is the third and final chapter in Part 4, Distribution Decisions. Once you’ve completed the exercise, complete

CASE STUDY

Nordstrom: How to Succeed by Selling Just One Shoe

1. What type of retailer is Nordstrom? Describe the characteristics it shares with other retailers of this type.

2. How would you describe Nordstrom’s level of service on the continuum from full service to self-service? Why?

Give an example of a store that would be on the opposite end of the continuum and explain their differences.

Nordstrom is famous for offering a high level of service and would therefore be found at the full service end of the

3. Which of the six components of Nordstrom’s retailing mix do you think have been the most important to the

company’s success? Why?

Student answers will vary. Examples of possible answers follow:

1) Price. Nordstrom does not rely on sales promotions. Instead, Eric Nordstrom says, “Our regular pricing has

4. What are the primary challenges Nordstrom faces in the current retail climate? How has the competition

changed in recent years, along with consumer expectations?

In recent years, consumers have become more cost conscious and value oriented. Specialty retailers, discounters,

Chapter 15 ♦ Retailing 15–17

LESSON PLAN FOR VIDEO

Company Clips: Sephora—Retailing for Success

From the beginning, Sephora has carried quality skincare products. Excellent retailing techniques, however, are the real

driving force behind Sephora’s success. The company’s open-sale environment allows consumers to try any product, or

even take home a free sample, before they buy. A great location in the heart of the New York City retail district makes it

easy for Sephora to attract potential buyers. Sephora also invests a lot of time and money into training their sales staff so

that when customers enter the store they gain a total shopping experience in which their every need is met. The

salespeople are not paid on commission so they are free to give honest recommendations of products that would be best

for their customers. As you watch the video, notice what other retailing methods Sephora uses to promote sales.

1. Visit www.Sephora.com and browse the online store. How does Sephora use the online environment to

promote its products without the advantage of letting customers try before they buy?

Sephora.com has a flash banner that promises 3 free samples with every online order plus easy returns. Their online

2. Sephora is working out the details of a new loyalty program and they have asked you to give your input and

advice. What do you tell them? How should they integrate this new program with the retailing mix they have

already adopted?

Students’ answers may vary widely. Some students may want to advise Sephora to study other successful retail,

Supplemental Exercise: Video

Company Clips

Pre-Class Prep for You:

• Preview the Company Clips video segment for Chapter 15. This exercise reviews concepts for LO1-LO4, LO6, and

LO7.

• Review your lesson plan.

• Make sure you have all of the equipment needed to show the video to the class, including the DVD and a way to

project the video.

Pre-Class Prep for Students:

• Ask students to study Exhibit 15.5 The Retailing Mix in their textbooks.

Video Review Exercise Activity

• Warm-up

o Spark discussion by asking students to respond to this statement from the textbook: “The millions of goods

and services provided by retailers mirror the needs and styles of U.S. society.”

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Examples could include Best Buy, Barnes and Noble, Home Depot, Lowe’s, and Dick’s Sporting Goods.

• Follow-up

o How has Sephora’s approach to inventory control and store organization contributed to its presentation

Chapter 15 ♦ Retailing 15–19

Supplemental Exercise: Class Activity

Retail Location

Objective: This exercise should aid students in understanding the multitude of factors that must be considered when

selecting a site for a store.

Tell the class that the object of this exercise is to find the optimal location for a new retail establishment. Select a store

type that appeals to college students – a bar, bike shop, pizzeria, and so on.

GREAT IDEAS FOR TEACHING CHAPTER 15

David M. Blanchette, Rhode Island College

FRANCHISE EXPO

This exercise has several purposes. Most directly, students have the opportunity to internalize and apply concepts related

to obtaining and operating a retail franchise. Secondarily, students can practice their negotiation and management skills.

Ideally the exercise is done in groups of two to four, but can be easily done with individuals as well. The time devoted to

Franchisors initially need to determine the franchise they have for sale. A common restriction here is that the

franchise cost must be relatively low, as the franchisee groups are recent college graduates and of relatively modest

means. Franchisors can invent franchises or sell existing franchises (if preferred, the instructor may assign or give

available franchises for sale). Depending on the time devoted, franchisors can research these franchises to learn about

their characteristics, or simply make up characteristics that would be logical for the franchise. Specifically, franchisors

obtaining a franchise.

This initial organizational phase can be accomplished in as little as half an hour or take as long as the instructor deems

appropriate (even months). Following the organizational phase, groups are now ready to “attend” the franchise expo,

15–20 Chapter 15 ♦ Retailing

interviews, negotiations, etc. For shorter exercises, the expo can be used for both the preliminary information gathering

as well as the detailed negotiations. Phase two, then, is the initial attraction, contact, and informational portion of the

exercise.

Following this informational phase, groups negotiate (during the expo in short exercises, at later times in

extended exercises) to form franchise contracts. The terms of this contract are completely up to the parties. However,

potential franchisees are only allowed to enter into a single contract, while franchisors can enter into as many contracts

as they choose. Some time limit should be set as the deadline for all contracts to be sealed. (by handshake, signature,

deposit, etc.) Importantly, the terms of the contract should be reduced to writing, even for agreements in principle.

Finally, the negotiated contracts (as well as those negotiations that collapsed) are discussed in class. The

selection criteria for both franchisors and franchisees are first addressed. Terms of negotiated and failed contracts are

then discussed. This tends to be fascinating, entertaining, and illuminating as the implications of contract terms (as well

Chris Pullig, Louisiana State University

RETAIL PROFITS: NO ROOM FOR ERROR

In discussing the small profit margin accomplished by many retail firms, I have found that most students do not stop and

think about what a 3% – 5% profit margin really means. They seem to write the figure down and continue to assume that

if one opens a store and charges a “huge” marked up price that profits automatically follow.

One way to demonstrate how slim retail margins are is to use real money and mock invoices for the expenses normally

encountered. As a former business person, I know there is no better illustration of how delicate and difficult it is to hold

onto cash and profits than to have your own money, your own expenses and then see the process unfold until you are left

with the 3% margin that is near the industry norm.

today. The controller is instructed to present the invoices in the following order to the partners, and of course, payment is

made directly back to me. I use card size documents with large letters noting “Invoice” and the nature of the debt. These

invoices and amounts are presented in order, as follows:

Cost of Merchandise $50

Markdowns on Other Goods $10

Chapter 15 ♦ Retailing 15–21

Shrinkage $2

(The students should be left with $3 at this point)

Each invoice provides an opportunity to discuss a cost issue and possible strategic alternatives. For instance, Cost of

Merchandise indicates only a 50% initial markup, perhaps the students should have tried for a higher markup. The

markdowns on other goods and advertising can be used as an example of the “cost” of having a sale, and also perhaps the

reason for their current customer’s store visit. While the cost of Rent, Salaries and Wages, Insurance, Utilities and

John T. Drea, Western Illinois University

Mandeep Singh, Western Illinois University

ANALYZING RETAILING ON THE WORLD WIDE WEB (WWW)

The World Wide Web (WWW) is an increasingly important marketing tool for a variety of products and services. We

believe students entering marketing careers in the coming years will need to know how the WWW can be used to market

products to target markets across the globe. To prepare our students for this challenge, we developed “Analyzing

Retailing on the World Wide Web” for use in our introductory marketing course.

Part 1: Students are instructed to use one of the search engines available through Netscape (Lycos, Infoseek, etc.) to

locate and compile a list of as many retailers as they can find who sell their assigned product category on the web. (We

provide brief tutorials for any students who do not have experience using the Web.) Only WWW retailers in the assigned

category who sell products/services directly on-line may be included in the list (i.e., no mailing or faxing order forms).

Students compile and submit a list of these sites and the corresponding URL addresses.

Assignments are graded according to the number of correct sites found relative to each product category (i.e., we don’t

expect a student assigned to “furniture” to find as many sites as one assigned to “travel”), and the completeness of the

descriptions in parts 2 and 3. We also spot-check addresses to see if they are accurate — students lose points for each

incorrect URL.

The Results

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even though it was worth less than 6% of the course grade. The assignment grade was positively correlated with the

Mark B. Houston, Bowling Green State University

Beth A. Walker, Arizona State University

BRINGING THE RETAIL MIX TO LIFE

When students are first introduced to the Retail Mix (store location, pricing, merchandise variety and assortment,

promotion and layout, and customer service and personal selling) in a Retail Management course, they may not

recognize the degree to which the competitiveness of a business depends on these elements. “Oh yeah, this is kind of like

that Marketing Mix we saw in Principles. What was that fourth P, anyway?”

What distinguishes . . .

. . . Gap from Wal-Mart?

. . . Kroger from Barney’s (a local convenience store chain)?

. . . the Union Cafeteria from Kaufman’s (a local sit-down restaurant) ?

. . . McDonald’s from Rally’s (a drive-through hamburger chain)?

. . . Finders from Madhatters (two popular, local music retailers)?

Why would anyone buy a Sunbeam toaster from Elder Beerman (a regional department store chain) when they could buy

the same thing at Wal-Mart at a lower price? Why doesn’t Wal-Mart sell all the Sunbeam toasters sold in America?

After 10 minutes, or so, I ask the class for their responses. Since most students have frequented all of the retailers

chosen, they have incorporated their personal insights into identifying the differences in each set of retailers. A large

number of students get involved in providing responses and giving examples. I list on the board the key differences

identified, highlighting those responses that are mentioned frequently. The list usually grows to 15-20 items, containing

things like “different types of merchandise,” “big differences in quality,” “they provide a lot more personal attention,”

This type of activity is also very useful for introducing the marketing mix (the four Ps) in a Principles of Marketing class.

Reference

Chapter 15 ♦ Retailing 15–23

Karen L. Stewart, Richard Stockton College

RETAIL STORE CLASSIFICATIONS

I have typically found it quite tedious to lecture on the various types of retail stores. This term I decided to try a different

approach. (I alerted the students prior to starting the retailing chapter that it was important to read the chapter prior to

coming to class since we would be doing an in-class exercise.) I made a chart for the students for work on during class.

The chart had 7 headings across the top of the page: (1) name of store;

(2) ownership (chain, independent, franchise); (3) level of service (limited/moderate/extensive); (4) product assortment

(narrow/wide);

(5) depth of assortment (shallow/deep); (6) price (low/moderate/high) and (7) major type of store

The other pages consisted of the following questions:

1. List anything you have purchased in the last few years from a direct mail offer. This would include items

purchased from so-called “junk” mail.

2. Lists items purchased via catalogs over the last few years.

3. Have you purchased anything on-line? If so, what? Have you considered purchasing anything on-line, even if

you didn’t follow through? If so, what?

7. What reasonable explanations account for vending machine prices being so high? Or is this just marketers

taking advantage of your hunger, thirst,. . .?

8. Name a successful retail business in your area. What marketing strategy has led to its success?

Part 4 – Solutions

MARKETING MISCUES

Microsoft Implies Distribution of Angry Birds on Windows Phone 7

1. Describe the channel of distribution for Angry Birds.

• Rovio creates an Angry Birds version for various platforms

2. Who has the channel power in the distribution of online games?

The popularity of Angry Birds has clearly given Rovio the channel power, regardless of provider/middleman.

CRITICAL THINKING CASE

CUTCO Cutlery Corporation: Direct to Consumer for over 60 Years!

1. Why would a company such as CUTCO Cutlery opt for the direct channel instead of the retailer

channel for its consumer products?

Direct selling is a method of marketing and retailing products and services directly to the consumer via person-

to-person or party plan selling and away from permanent retail locations. Direct selling offers customers the

2. What other companies are similar to CUTCO Cutlery in its approach to direct retailing?

Direct sales representatives are generally independent, self-employed individuals. They earn commissions and

pay their own expenses and taxes. Other companies that use a direct selling sales force for retailing are found

easily on the Direct Selling Association’s website (www.dsa.org). Examples of large and well-known direct

selling companies are:

• Amway