Chapter 15 Retailers, Wholesalers, and Direct Marketers 431
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CHAPTER 15
RETAILERS, WHOLESALERS, AND DIRECT MARKETERS
CHAPTER OVERVIEW
Chapter 15 is the second of two chapters devoted to distribution strategy as it examines the other players
in the marketing channel: wholesalers, retailers, and direct marketers. In looking at the ways today’s
retailers operate, the chapter gives concrete examples of the many activities involved in selling goods to
ultimate consumers. Then the chapter discusses the role of wholesalers and other intermediaries who
deliver goods from the manufacturers into the hands of retailers or other intermediaries.
Changes in the 17th Edition
The chapter has been updated and revised in several ways:
• The Opening Vignette and Evolution of a Brand discuss how Macy’s uses several strategic
tools to keep its retail edge by focusing on its customers—especially their most loyal customers.
These consumers may not always be the biggest spenders; however, Macy’s utilizes its database
that holds 500 million sales transactions and info about more than 33 million households. Macy’s
cultivates its loyal spenders with personalized outreach such as free lunches and coupons for
specific items that these customers want. Macy’s also keeps very close tabs on its local markets
so it can tailor buying strategies to individual stores. The feature, “Macy’s Multi-Level Plan Yields
Big Rewards,” provides details of Macy’s successful retail and marketing strategies.
• Solving an Ethical Controversy explores the problems posed by piracy, especially the
proliferation of counterfeit electronic goods from Asia. The role of governments in protecting
intellectual property rights is debated in “Who Should Control the Spread of Fake Stores and
Counterfeit Products?”
• Chapter Case 15.1 profiles Costco, an $108-billion warehouse-style chain and the third-largest
retailer in the United States. A successful offline company which has now gone online, Costco
aspires to compete with successful rivals like Walmart. Costco’s attempts at online store retailing
and the problems that it has faced are covered in “Costco Plays Catch-Up in Online Sales.”
432 Part 5 Distribution Decisions
• Collaborative Learning Exercises are provided in several areas related to retailers,
wholesalers, and direct marketers— successful retailing, retailing strategies, promotional strategy,
retail atmospherics, and vending machines.
• Video Case 15.2 includes a feature on GaGa SherBetter, a frozen dessert marketed by a small
company.
LECTURE OUTLINE
The Opening Vignette and Evolution of a Brand discuss how Macy’s has implemented a
marketing strategy that makes the mid-level retailer a recognized brand across many channels.
What makes that strategy successful? How does social media and mobile apps help Macy’s
retain its loyal customer base while attracting new shoppers?
Chapter Objective 1: Explain the wheel of retailing.
Key Terms: retailing, wheel of retailing
PowerPoint Basic: 4
PowerPoint Expanded: 4-6
1. Retailing
a. Retailers are the marketing intermediaries who are in direct
contact with ultimate consumers; retailing describes the
activities involved in selling merchandise to these ultimate
consumers
i. Retail outlets serve as contact points between
channel members and ultimate consumers
ii. Retailers represent the distribution channel to most
consumers because shoppers have little contact with
the manufacturer or the various intermediaries
iii. They determine locations, store hours, number of
2. Evolution of retailing
a. Retailing has adapted over the years to meet and satisfy
changing consumer wants and needs
i. The first instance of retailing in North America is the
establishment of the trading posts in colonial times.
.
v. In the 1960s, convenience stores satisfied the
demand for fast service by offering multiple
locations, and expanded hours of operation
vi. In the 1980s and 1990s, off-price retailers met
consumer demand for brand-name merchandise at
reduce or eliminate services in order to maintain
profits
iii. Once established, this innovator adds more services,
and its prices gradually rise
iv. It then becomes vulnerable to new low-price retailers
that enter with minimum services
c. Major developments in the history of retailing appear to fit
the wheel’s pattern
Assessment check questions
1.1. What is retailing? Retailing refers to the activities involved in selling
1.2. Explain the wheel-of-retailing concept. The wheel of retailing is the
hypothesis that each new type of retailer gains a competitive foothold by
434 Part 5 Distribution Decisions
offering lower prices than current suppliers and maintains profits by
reducing or eliminating services.
Chapter Objective 2: Describe the five key strategies for selecting target markets.
Key Terms: none
PowerPoint Basic: 5-6
PowerPoint Expanded: 7-9
Figure 15.1
Components of
Retail Strategy
1. Retailing strategy
a. Like manufacturers and wholesalers, a retailer develops a
marketing strategy based on the firm’s goals and strategic
plans, referred to as a retailing strategy
b. A retailer bases its key decisions on two fundamental steps
in the marketing strategy process:
i. Selecting a target market
ii. Developing a retailing mix to satisfy the chosen
2. Selecting a target market
a. A retailer starts to define its strategy by selecting a target
market
b. The size and profit potential of a target market and the level
of competition for its business influence this decision
Assessment check questions
2.1. How does a retailer develop a marketing strategy? A retailer develops
a marketing strategy based on its goals and strategic plans.
2.2. How do retailers select target markets? Strategies for selecting target
Chapter 15 Retailers, Wholesalers, and Direct Marketers 435
.
location/distribution, and promotional strategies.
Chapter Objective 3: Describe how the four elements of the marketing mix apply to
retailing strategy.
Key Terms: category management, stock-keeping unit (SKU), slotting allowance, markup,
services performed by the retailer, inventory turnover rate, markdown, planned shopping centers,
neighborhood shopping center, community shopping center, regional shopping center, power
PowerPoint Basic: 7-14
PowerPoint Expanded: 10–35
1. Merchandising strategy
a. A retailer’s merchandising strategy guides decisions
regarding the items it will offer—general merchandise
categories, product lines, specific items within lines, and
depth and width of its assortments
b. To develop a successful merchandise mix, a retailer must
weigh several priorities:
i. The preferences and needs of its previously defined
target market
c. Category management
i. A category manager oversees an entire product line
for both vendors and retailers and is responsible for
its profitability
ii. Category management seeks to improve the
retailer’s product category performance through
more coordinated buying, merchandising, and pricing
d. The battle for shelf space
i. Large-scale retailers are increasingly taking on the
role of channel captain in many distribution networks
ii. The result is a shift in power from manufacturers of
top-selling brands to retailers who sell them to
customers
iii. Adding to the pressure is the increase in the number
of new products and variations of existing products
Solving an Ethical
Controversy—Who
Should Control the
Spread of Fake
Stores and
Counterfeit
for shelf space, such as pricing and promotional
concessions or the requirement to use electronic
data interchange (EDI) and quick-response systems
vii. A slotting allowance is one in a range of
nonrefundable fees that grocery retailers charge
2. Customer service strategy
a. Some stores build their retailing strategy around heightened
customer service for shoppers
i. A retailer needs to decide which services it will offer
3. Pricing strategy
a. Prices reflect a retailer’s marketing objectives and policies
and play a role in consumer perceptions of a retailer
b. Markups and markdowns
i. The markup is the amount that a retailer adds to a
product’s cost to set the final selling price
ii. It usually results from two marketing decisions: the
services performed by the retailer (more services
equal bigger markups) and the inventory turnover
rate (high turnover rate equals smaller markups)
iii. A retailer’s markup (usually a percentage of selling
price or cost) influences its image and its ability to
attract shoppers
.
4. Location/distribution strategy
a. Experts believe that location is one of the most important
factors in determining the success or failure of a retail
business
b. The location decision depends on the type of merchandise,
the retailer’s financial resources, the target market, and site
availability
c. In recent years, many localities have become saturated with
stores, forcing retailers to reconsider their location strategies
d. Locations in planned shopping centers
i. A planned shopping center is a group of retail stores
designed, coordinated, and marketed as a unit to
shoppers in a geographical trade area
ii. Five types of planned shopping centers:
neighborhood shopping centers, community
shopping centers, regional shopping centers, power
centers, and lifestyle centers
iii. Neighborhood shopping centers are the smallest
group providing convenience items and shopping
goods for nearby customers
vi. Power centers, often located near regional or
superregional malls, bring together huge specialty
retailers as stand-alone stores in a single trading
area
vii. Lifestyle centers offer a combination of shopping,
438 Part 5 Distribution Decisions
goods and entertainment are fueling the rapid growth
of lifestyle centers
5. Promotional strategy
a. To establish store images that entice more shoppers,
retailers use a variety of promotional techniques
b. Through its promotional strategy, a retailer communicates
information about its stores—locations, merchandise
selections, hours of operation, and prices
c. Some national retail chains often purchase advertising
space in newspapers, on radio, and on television; others
experiment with promotions over the Internet or through
wireless technology and cell phones
6. Store atmospherics
a. Stores project their personalities through atmospherics—
both exterior and interior physical characteristics and
amenities that attract customers and satisfy their shopping
needs
b. A store’s exterior appearance helps identify the retailer and
attract its target market shoppers
7. Types of retailers
a. New types of retailers continue to evolve due to changes in
consumer demand; so no universal classification system
has yet been devised
b. Certain differences do exist, and there are five common
Chapter 15 Retailers, Wholesalers, and Direct Marketers 439
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iv. Based on product lines
v. Based on location of retail transactions
c. Classification of retailers by form of ownership
i. The easiest method for categorizing retailers is by
ownership structure, distinguishing between chain
stores and independent retailers
ii. Chain stores are groups of retail outlets operating
d. Classification by shopping effort
i. Classifying by shopping effort is based on the
reasons consumers shop at particular retail outlets; it
categorizes stores as convenience, shopping, or
specialty retailers
ii. Convenience retailers—focus on accessible
locations, extended store hours, rapid checkout, and
ample parking
iii. Shopping stores—offer potential customers the
chance to compare pricing, assortment, and quality
levels
classified as a self-selection store.
iv. Full-service stores—sell a wide selection of goods
backed by a complete array of customer services for
example Macy’s
f. Classification by product lines
within one line or a few related lines (including
category killer, a store that offer huge selections and
low prices in single product lines)
iv. General-merchandise retailers—carry a wide variety
of products all stocked in some depth with no
iii. Mass merchandisers—emphasize lower prices for
well-known brands, high product turnover, and
limited services; they often stock a wider line of items
than a department store but usually without the same
depth of assortment within each line
iii. Off-price retailers—a form of discount house that
stocks only designer labels and well-known brands,
often located in outlet malls, those shopping centers
that house only off-price retailers
iv. Hypermarkets—giant one-stop shopping facilities
that offer a huge selection of grocery and general
merchandise at discount prices, often occupying
almost 200,000 square feet
i. Classification of retail transactions by location
i. Direct marketing is a broad concept including direct
mail, direct selling, direct-response retailing,
telemarketing, Internet retailing, and automatic
merchandising (discussed later in the chapter)
Chapter 15 Retailers, Wholesalers, and Direct Marketers 441
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Assessment check questions
3.1. What is an SKU? An SKU, or stock-keeping unit is a specific product
3.2. What are the two components of a markup? A markup consists of the
3.3. What are store atmospherics? Store atmospherics are physical
characteristics and amenities that attract customers and satisfy their
shopping needs.
Chapter Objective 4: Explain the concepts of retail convergence and scrambled
merchandising.
Key Terms: retail convergence, scrambled merchandising
PowerPoint Basic: 15
PowerPoint Expanded: 36
Career Readiness:
1. Retail convergence and scrambled merchandising
a. Many traditional differences no longer distinguish familiar
types of retailers, rendering any set of classifications less
useful
2. Scrambled merchandising
a. Scrambled merchandising refers to retailers that combine
Assessment check questions
4.1. How do we classify retailers by form of ownership? There are two
4.2. Categorize retailers by shopping effort and by services provided.
4.3. List several ways to classify retailers by product line. Retailers
classified by product line include specialty stores, limited-line retailers, and
general merchandise retailers. General merchandise retailers include
442 Part 5 Distribution Decisions
Chapter Objective 5: Describe the three functions performed by wholesaling
intermediaries.
Key Terms: wholesalers, wholesaling intermediaries
PowerPoint Basic: 16
PowerPoint Expanded: 37–40
Table 15.1
Figure 15.3
1. Wholesaling intermediaries
a. Wholesalers take title to the goods they handle and sell
those products to retailers, business users, or other
2. Functions of wholesaling intermediaries
a. As marketing specialists, wholesaling intermediaries can
efficiently handle activities involving three areas—the utility
they create, the services they provide, and the cost
reductions they allow
b. Creating utility
i. Wholesaling intermediaries create three types of
utilities for consumers—related to time, place, and
ownership (or possession)
ii. They create time utility by making products available
for sale when consumers want them
c. Providing services
i. Wholesaling intermediaries offer a number of the
services that clearly reflect the utilities of time, place,
and ownership
d. Lowering costs by limiting contacts
i. Wholesaling intermediaries often reduce the costs of
buying and selling
Chapter 15 Retailers, Wholesalers, and Direct Marketers 443
.
Assessment check questions
5.1. What is a wholesaler? How does it differ from a wholesaling
intermediary? A wholesaler is a channel intermediary that takes title to
5.2. How do wholesaling intermediaries help sellers lower costs?
Chapter Objective 6: Describe the two major types of independent wholesaling
intermediaries and the appropriate situations for using each.
Key Terms: sales branch, sales office, trade fair, merchandise mart, merchant wholesaler,
industrial distributor, jack robber, cash-and-carry wholesaler, truck wholesaler, or truck jobber,
drop shipper, mail-order wholesaler, commission merchant, auction house, broker, selling agent,
manufacturers’ representative
PowerPoint Basic: 17
PowerPoint Expanded: 41– 43
Figure 15.4 Major
Types of
Wholesaling
Intermediaries
1. Types of wholesaling intermediaries
a. Wholesaling intermediaries can be classified by two
characteristics:
i. Ownership (by manufacturer, retailer, or independent
entity)
2. Manufacturer-owned facilities
a. Often involves perishable goods, complex installations or
servicing, aggressive promotion, or high unit values
b. They include four types of facilities: sales branches, sales
Table 15.2
Comparison of the
Types of Merchant
Wholesalers and
by Agents and
Brokers
3. Independent wholesaling intermediaries
a. Two types of independent intermediaries exist: merchant
location, maintain a sales force to call on retailers, make
deliveries, and extend credit to qualified buyers
i. Full-function merchant wholesalers can be classified
depending on the services they provide
d. Limited-function merchant wholesalers provide fewer
services, and take several forms:
i. A cash-and-carry wholesaler performs most
wholesaling functions except for financing and
delivery, feasible for small stores but unworkable for
large-scale grocers
e. Agents and brokers
i. Agents and brokers, forming the second group of
independent wholesaling intermediaries; they may or
may not take possession of goods they handle, but
never take title
.
promotions and may provide financial assistance, at
times contracting for exclusive rights to market a
product; this group has declined in importance as
manufacturers have gained control over their own
marketing
4. Retailer-owned cooperatives and buying offices
a. Retailers may assume numerous wholesaling functions to
reduce costs or provide special services
b. Independent retailers sometimes band together to form
buying groups that can achieve cost savings through
Assessment check questions
6.1. What is the difference between a merchant wholesaler and a rack
jobber? A merchant wholesaler takes title to the goods it handles. A rack
6.2. Differentiate between agents and brokers. Agents and brokers may or
may not take possession of the goods they handle but they never take title.
Brokers work mainly to bring together buyers and sellers. A selling agent
typically exerts full authority over pricing decisions and promotional outlays
and often provides financial assistance for the manufacturer.
Chapter Objective 7: Describe the six basic types of direct marketing and non-store
retailing.
Key Terms: direct marketing, infomercial
PowerPoint Basic: 18–20
PowerPoint Expanded: 44–49
1. Direct marketing and other non-store retailing
a. Non-store retailing is an important marketing channel for
many products
2. Direct mail
a. Direct mail refers to printed promotional materials (now
including video and audio formats) issued by both for-profit
and not–for-profit firms, representing a major component of
direct marketing
b. Direct mail offers several advantages:
i. Allows segmenting of a narrow target market
ii. Provides intensive coverage
c. Direct mail has some disadvantages:
i. Involves a per-reader cost that is quite high
ii. Effectiveness is tied to the quality of the mailing list,
relying heavily on accurate database technology
iii. Its reputation as “junk mail” causes many consumers
to ignore it
d. Catalogs are a popular form of direct mail
i. More than 20,000 consumer specialty catalogs are
mailed annually throughout the U.S., plus thousands
more for B2B sales
ii. Mail-order catalogs about 12 billion in number
3. Direct selling
a. Through direct selling, manufacturers completely bypass
4. Direct-response retailing
a. Customers of direct-response retailing can order
merchandise by mail or telephone, by visiting a mail-order
.
5. Telemarketing
a. Telemarketing refers to direct marketing conducted entirely
by telephone
Assessment check questions
7.1. What is direct marketing? Direct marketing is a distribution channel
7.2. What is direct mail? Direct mail is a form of direct marketing that
includes sales letters, postcards, brochures, booklets, catalogs, house
organs, and DVDs and CDs.
Chapter Objective 8: Explain how the Internet has altered the retailing, wholesaling, and
direct marketing environments.
Key Term: brick–and-click retailers
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PowerPoint Expanded: 50–51
1. Internet retailing
a. Internet retailing allows sales directly to customers via virtual
2. Automatic merchandising
a. Automatic merchandising involves sales through coin–
operated vending machines