Chapter 16 – Retailing and Wholesaling
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CHAPTER CONTENTS
PAGE
POWERPOINT RESOURCES TO USE WITH LECTURES …………………………………… 16-2
LEARNING OBJECTIVES (LO) ……………………………………………………………………………. 16-3
KEY TERMS ………………………………………………………………………………………………………….. 16-3
LECTURE NOTES
• Chapter Opener: Smart Stores Are Changing the Customer Journey …………………….. 16-4
• The Value of Retailing (LO 16-1) ……………………………………………………………………. 16-5
• Classifying Retail Outlets (LO 16-2) ……………………………………………………………….. 16-7
• Nonstore Retailing (LO 16-3) ………………………………………………………………………… 16-13
• Retailing Strategy (LO 16-4) ………………………………………………………………………….. 16-19
• The Changing Nature of Retailing (LO 16-5) …………………………………………………… 16-28
• Future Changes in Retailing……………………………………………………………………………. 16-30
• Wholesaling (LO 16-6)………………………………………………………………………………….. 16-32
APPLYING MARKETING KNOWLEDGE …………………………………………………………… 16-37
BUILDING YOUR MARKETING PLAN ………………………………………………………………. 16-40
VIDEO CASE (VC)
• VC-16: Mall of America: America’s Biggest Mall Knows the Secret to Successful
Retailing ………………………………………………………………………………………………………. 16-41
APPENDIX D CASE (D)
• D-16: Trader Joe’s: Upscale Value ………………………………………………………………….. 16-47
IN-CLASS ACTIVITY (ICA)
• ICA 16-1: Retail Shopping Online: Comparing Prices for 3M’s Ultrathon™ Insect
Repellent ………………………………………………………………………………………. 16-49
CONNECT APPLICATION EXERCISES ………………………………………………16-54
• Nonstore Retailing Click and Drag*
• Wheel of Retailing Click and Drag*
• Mall of America: The Secret to Successful Retailing Video Case
Chapter 16 – Retailing and Wholesaling
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• Retail Life Cycle Click and Drag*
• iSeeit! Video Case: Retail Strategy Video Case
• Marketing Analytics: Restaurant Performance Analytics Exercise
*Note: An alternate version of each Click and Drag exercise is available in Connect for students with
accessibility needs.
Chapter 16 – Retailing and Wholesaling
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POWERPOINT RESOURCES TO USE WITH LECTURES
PowerPoint
Textbook Figures Slide
Figure 16-1 Which retailer best provides which utilities? ……………………………………………………… 16-6
Figure 16-2 Are you surprised by the relative sales of different types of retailers? ……………………. 16-7
Figure 16-3 The top five franchises in the United States ………………………………………………………. 16-12
Figure 16-4 Breadth versus depth of store merchandise lines ………………………………………………… 16-14
Figure 16-5 Differences between hypermarkets (Europe) and supercenters (U.S.) ………………….. 16-18
Figure 16-6 Many retailing activities do not involve a store …………………………………………………. 16-19
Figure 16-7 Retailing strategy is related to store positioning and the retailing mix …………………… 16-23
Figure 16-8 The four positioning strategies for retailers ………………………………………………………. 16-25
Figure 16-9 The wheel of retailing describes how outlets change over time ……………………………. 16-33
Figure 16-10 The retail life cycle describes the growth and decline for retail outlets …………………. 16-34
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] …………………………….. 16-31
Marketing Matters and Making Responsible Decisions
Making Responsible Decisions—How Green Is Your Retailer? The Rankings Are Out! ……………. 16-9
Marketing Matters—Customer Value: The Multichannel Marketing Multiplier ………………………. 16-35
Excel Spreadsheets
Standard (original) markup on cost [See CH16StandardMarkupCost.xls] ……………………………….. 16-26
Markdown [See CH16Markdown.xls] …………………………..…………………………………………………….. 16-26
Web Links
16-1: Apple Watch Video …………………………………………………………………………………………………… 16-4
16-2: CarMax Video ………………………………………………………………………………………………………….. 16-5
16-3: Walmart Video ………………………………………………………………………………………………………… 16-16
16-4: IKEA Video ……………………………………………………….…………………………………………………… 16-20
16-5: McDonald’s Video …………………………………………………………………………………………………… 16-32
16-6: Mall of America Video Case ……………………………………………………………………………………… 16-40
In-Class Activity (ICA)
ICA 16-1: Retail Shopping Online: Comparing Prices for 3M’s Ultrathon™ Insect Repellent …….. 16-45
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LEARNING OBJECTIVES (LO)
After reading this chapter students should be able to:
LO 16-1: Identify retailers in terms of the utilities they provide.
LO 16-2: Explain the alternative ways to classify retail outlets.
LO 16-3: Describe the many methods of nonstore retailing.
LO 16-4: Classify retailers in terms of the retail positioning matrix, and specify retailing mix
actions.
LO 16-5: Explain changes in retailing with the wheel of retailing and the retail life-cycle
concepts.
LO 16-6: Describe the types of firms that perform wholesaling activities and their functions.
KEY TERMS
breadth of product line
multichannel retailers
brokers
off-price retailing
category management
power center
central business district
regional shopping centers
community shopping center
retail life cycle
depth of product line
retail positioning matrix
form of ownership
retailing
hypermarket
retailing mix
intertype competition
scrambled merchandising
level of service
shopper marketing
manufacturers’ agents
strip mall
merchandise line
telemarketing
merchant wholesalers
wheel of retailing
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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.
• Virtual reality and 3-D modeling tools allow customers to see visuals of products.
• Benefits include better inventory, faster decision making, and higher customer
satisfaction.
• Wearable technology can completely change the way we shop, and the way retailers
sell. (Ex: Wristbands that track activity, smart watches, and connected glasses.)
• 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.
• Smart glasses been adopted by retail clerks, salespeople, and techs to check manuals
for technical info, verify stock, place orders, and check out customers from anywhere
in the store.
• In the future, smart contact lenses have the potential to create an augmented reality
that overlays the physical environment with stored images or graphics.
[Video 16-1: Apple Watch Video]
I. THE VALUE OF RETAILING [LO 16-1]
• 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.
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c. Is where exchange occurs.
• [Figure 16-1] 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:
a. Wells Fargo: Offers mini-banks in supermarkets and worldwide network of
13,000 ATMs (place utility).
[Video 16-2: 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., which together employ over 3.4 million people.
• [Figure 16-2] Many other retailers, including automobile dealers, food stores, and
general merchandise outlets are also significant contributors to the U.S. economy.
• Other large global retailers include Aeon in Japan, Carrefour in France, Metro
Group in Germany, and Tesco in Britain.
• In China and Mexico, a combination of local and global retailers is evolving.
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LEARNING REVIEW
16-1. When Ralph Lauren makes shirts to a customer’s exact preferences, what utility is
provided?
16-2. Two measures of the impact of retailing in the global economy are __________ and
__________.
II. CLASSIFYING RETAIL OUTLETS [LO 16-2]
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.
• Level of service describes the degree of service provided to the customer from three
types of retailers: self-, limited-, and full-service.
• Merchandise line describes how many different types of products a store carries and
in what assortment.
• Today, many consumers view each type of retail outlet in terms of its “green” or
environmentally friendly activities.
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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 percent 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:
a. Offers retailers guidance on “green” practices.
b. Provides a third-party certification that recognizes a commitment to green values.
• Green practices include:
a. Encouraging the use of reusable shopping bags.
b. Installing LED lighting.
• Most environmental initiatives save retailers money!
Shopping malls are adopting the practices also.
A. Form of Ownership
There are three forms of retail ownership:
1. Independent Retailer.
a. Most retailers are owned by individuals, who account for most of the
1.1 million retail establishments in the U.S.
b. The advantage for the owner is being his or her own boss.
c. The independent store can offer customers:
• Convenience. • Lifestyle compatibility.
• Quality personal service.
2. Corporate Chain.
a. Involves multiple outlets under common ownership.
Chapter 16 – 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. 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:
• Retailer-sponsored cooperatives. • Franchises.
• Wholesaler-sponsored voluntary chains.
c. Both retailer-sponsored cooperatives and wholesaler-sponsored voluntary
chains can:
• Take advantage of volume discounts commonly available to chains.
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:
– Selecting the location. – Advertising.
• The franchisee pays:
– A onetime franchise fee.
– An annual royalty tied to franchise’s sales.
• There are two general types of franchises:
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– Business-format franchises.
* The franchisor provides precise procedures and guidelines for the
decisions a franchisee will face.
* Examples: McDonald’s and Subway.
– Product-distribution franchises.
• Franchising is attractive because:
– It offers an opportunity for people to enter a well-known, established
business for which managerial advice is provided.
– The franchise fee may be less than the cost of setting up an
independent business.
• The International Franchise Association recently reported that:
– There are 769,782 franchised businesses in the United States.
– Franchises:
• Franchising:
– Is popular in international markets.
– Over half of all U.S. franchisors have operations in other countries.
• The total investment can be high:
– Franchise fees paid to the franchisor can range from $15,000 for a
Subway franchise to $75,000 for a Hampton hotel franchise.
• [Figure 16-3] Top five franchises in the U.S. vary from convenience
stores to business support centers.
• 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
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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:
• Provides some services, such as credit and merchandise return.
• Requires customers to be responsible for most shopping activities,
although salespeople are available for assistance.
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 16-4] 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
a related line of items (Dick’s Sporting Goods).
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• Single-line stores. Stores that carry tremendous depth in one primary line
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:
– A shift to smaller stores, such as Best Buy Mobile stores.
– The use of price-matching to compete with online retailers.
2. Breadth of Line.
a. General merchandise stores.
• Carry a broad product line with limited depth.
• Example: Department stores like Macy’s.
b. Traditionally, outlets carried related lines of goods.
c. Today, some of these retailers use scrambled merchandising:
d. Hypermarket.
• [Figure 16-5] Is a form of scrambled merchandising, which:
– Consists of a large store—more than 200,000 square feet.
– Offers everything in a single outlet.
– Eliminates the need for consumers to shop at more than one location.
• Provides variety, quality, and low prices for groceries and general
merchandise.
• Is growing more slowly in Europe due to consumers’ increased interest in
smaller stores and more convenient locations.
e. Supercenters.
• Combine a merchandise store with a full-size grocery.
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• Arose because U.S. shoppers were uncomfortable with the huge size of
hypermarkets.
• Examples: Walmart Supercenters and SuperTargets.
• Due to the increasing popularity of online retailers, however, the large size
of these supercenters is no longer a certain advantage:
– Amazon.com is able to offer an even larger selection than these stores.
• Retailers are modifying the supercenter concept to accommodate
consumers’ interest in smaller, more convenient stores. Example:
Walmart Express.
[Video 16-3: Walmart Video]
f. Scrambled merchandising is convenient for consumers because it reduces the
number of stops in a shopping trip.
• [Figure 16-A] Intertype competition.
– Involves competition between dissimilar types of retail outlets.
• Scrambled merchandising and intertype competition make it more difficult
to be a retailer.
LEARNING REVIEW
16-3. Centralized decision making and purchasing are an advantage of __________
ownership.
16-4. What are some examples of new forms of self-service retailers?
16-5. Would a shop for big men’s clothes carrying pants in sizes 40 to 60 have a broad
or deep product line?
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III. NONSTORE RETAILING [LO 16-3]
• Many retailing activities today are not limited to sales in a store.
• Nonstore retailing occurs outside a retail outlet through activities that involve varying
levels of customer and retailer involvement.
• [Figure 16-6] Shows the six forms of nonstore retailing.
A. Automatic Vending
• Vending machines (or v-commerce) serve customers when and where stores can’t.
• 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:
a. Cold beverages (40 percent). c. Other food (7 percent).
b. Candy and snacks, (38 percent).
• New types of products are now sold in vending machines, such as:
a. Consumer electronics (mobile phones, flash drives, etc.).
b. Health food snack in schools, health clubs, and hospitals.
• The 4.5 million vending machines in use in the U.S. generate more than $20.9
billion in annual sales.
• New technology makes the machines easy to use and reduces the need for cash:
a. Many now have touch screens to select and pay for products.
b. Many accept credit cards for payment.
c. Some allow consumers to charge purchases via their mobile phones.
d. Vending firms use wireless technology to monitor sales and manage inventory
restocking.
• Vending machines are becoming “greener,” consuming less energy through more
efficient compressors, lighting, and insulation.
• Recent research indicates that 82 percent of consumers believe purchasing from a
vending machine is equal to or superior to a store purchase.
B. Direct Mail and Catalogs
• Direct mail and catalog retailing are attractive because they:
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a. Are “the store that comes to the door.”
b. Eliminate the cost of a store and clerks.
c. Improve marketing efficiency through segmentation and targeting.
d. Provide a fast and convenient means to make purchases, which creates
customer value.
e. Serve to encourage consumers to visit a website, social media page, or store.
• The average U.S. household receives 19 direct-mail items or catalogs each week.
[Video 16-4: 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.
b. Several factors have negatively impacted direct mail and catalog retailing:
• Higher paper costs.
• 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.
• New, creative forms of direct-mail and catalog retailing are also being developed:
a. Retailers are creating digital versions of catalogs, which can be accessed
through catalog-aggregating apps such as Google Catalogs.
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C. Television Home Shopping
• Consumers:
a. Watch QVC, HSN, and Evine where products are displayed, reaching 198
million cable and satellite homes worldwide.
b. Place orders via the telephone or Internet live 24 hours/day, 364 days/year.
• These television home shopping channels offer apparel, jewelry, cooking, home
improvement products, electronics, toys, and even food products.
• Television home shopping had attracted mostly 40- to 60-year old women.
• To attract a younger audience, these firms:
a. Invite celebrities onto the show. c. Use mobile apps and online chats.
• Television home shopping is becoming a version of door-to-door retailing that
combines elements of reality TV programs, talk shows, and infomercials.
D. Online Retailing
• Online retailing allows consumers to search for, evaluate, and order products
through the Internet.
[ICA 16-1: Retail Shopping Online:
Comparing Prices for 3M’s Ultrathon™ Insect Repellent]
• The advantages of online retailing are:
a. 24-hour access. c. In-home privacy.
• Initially, men were more likely than women to buy something online.
• However, as the number of online households increased, the profile of online
shoppers changed to include both men and women shoppers.
• There has been a melding of “bricks and clicks”:
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a. Traditional and online retailers that…
• 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:
a. Account for approximately 8.5 percent of all retail 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
locations for the best prices available.
c. Use online malls, apparel retailers, bookstores, computer manufacturers,
• One problem online retailers face is that:
a. Only two-thirds of online shoppers make it to “checkout.”
b. Some leave the website to compare shipping costs and prices on other sites.
• Some experts suggest that online retailers should think of their websites as
dynamic billboards if they are to attract and retain customers.
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• 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:
a. Intermediaries, such as Groupon, that match consumers with merchants.
E. Telemarketing
• Telemarketing:
a. Involves using the telephone to interact with and sell directly to consumers.
b. Is often viewed as a more efficient means of targeting consumers compared to
direct mail.
c. More than 40 percent of businesses use telemarketing to reach 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.
c. Companies that use telemarketing have already adapted by adding compliance
software to ensure that numbers on the list are not called.
d. FTC and industry leaders are discussing measures to curb robocalls (auto-
dialers with precorded messages).
F. Direct Selling
• Direct selling:
a. Is sometimes called door-to-door retailing.
b. Involves direct sales of products and services to consumers through personal
interactions and demonstrations in their homes or offices.
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• 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:
• Effective distribution channels, which increases the importance of door-to–
door convenience.
• Consumer knowledge about products and brands, which increases the need
for a person-to-person approach.
b. Many consumers prefer:
• One-on-one customer service.
• A social shopping experience over shopping online or at discount stores.
• The Direct Selling Association says the number of companies using direct selling
is increasing (ex: Pampered Chef has 60,000 independent sales reps)
LEARNING REVIEW
16-6. Successful catalog retailers often send __________ catalogs to __________ markets
identified in their databases.
16-7. How are retailers increasing consumer interest and involvement in online
retailing?
Answer: Retailers have improved the online retailing experience by adding experiential
16-8. Where are direct selling retail sales growing? Why?
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IV. RETAILING STRATEGY
• A retailer develops and implements a retailing strategy by positioning the store and
taking specific retailing mix actions.
• Market and competitor characteristics may influence strategic retailing choices.
• [Figure 16-7] shows the link between strategy, positioning, and the retailing mix.
A. Positioning a Retail Store [LO 16-4]
• The classification options affect a retail store’s position relative to its competitors.
• The retail positioning matrix positions retail outlets on two dimensions:
a. Breadth of product line. Is the range of products sold through each outlet.
b. Value added. Includes elements such as location, reliability, or prestige.
• [Figure 16-8] The retail positioning matrix:
a. Shows four possible positions.
b. Posits that an organization can be successful in any position, but unique
strategies are required within each quadrant.
• Consider the four stores shown in the retail positioning matrix:
a. Bloomingdale’s. High value added; broad product line.
• Retailers pay great attention to store design and product lines.
• Merchandise often:
– Has a high margin of profit.
– Is of high quality.
• The stores in this position typically provide high levels of service.
b. Walmart. Low value added; broad product line.
• Firms trade a lower price for increased volume in sales.
• Retailers focus on:
– Price with low service levels.
– An image of being a place for obtaining bargains.
c. Tiffany & Co. High value added; narrow product line.
• Retailers sell a very restricted range of high-status, high quality products.
• Customers are provided with high levels of service.