LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. What major types of marketing intermediaries occupy this sector?
2. What marketing decisions do these marketing intermediaries make?
3. What are the major trends with marketing intermediaries?
4. What does the future hold for private label brands?
CHAPTER SUMMARY
1. Retailing includes all the activities involved in selling goods or services directly to
2. Like products, retail-store types pass through stages of growth and decline. As existing
stores offer more services to remain competitive, costs and prices go up, which opens the
3. Although most goods and services are sold through stores, nonstore retailing has been
4. Although many retail stores are independently owned, an increasing number are
falling under some form of corporate retailing. Retail organizations achieve many
5. The retail environment has changed considerably in recent years, as new retail forms
have emerged, intertype and store-based vs. non-store-based competition has increased,
C H A P T E R
16
MANAGING RETAILING,
WHOLESALING, AND
LOGISTICS
6. Like all marketers, retailers must prepare marketing plans that include decisions on
7. Wholesaling includes all the activities involved in selling goods or services to those
who buy for resale or business use. Wholesalers can perform functions better and more
8. There are four types of wholesalers: merchant wholesalers; brokers and agents;
9. Like retailers, wholesalers must decide on target markets, product assortment and
10. Producers of physical products and services must decide on market logistics—the
best way to store and move goods and services to market destinations; to coordinate the
information technology.
OPENING THOUGHT
Most students are familiar with the retailer in which they have bought products. What is
not so obvious to the students is that retailers, wholesalers, and distributors pass through
stages of growth and decline. Students, for the most part, will be familiar with some of
the retailer concepts described in the chapter, but not all. Second, non-store retailing may
not be a familiar concept to some students. Others might have some familiarity with non-
store retailing as in summer or part-time jobs at the mall.
TEACHING STRATEGY AND CLASS ORGANIZATION
PROJECTS
1. At this point in the semester-long project for the “fictional” product or service,
students should be directed to turn in their retailing, wholesaling, and logistical
2. This chapter is an appropriate one for out–of-class assignments because many
students will not have to be encouraged to “go shopping.” The chapter identifies four
levels of service in retailing—self-service, self-selection, limited service, and full-
3. Sonic PDA Marketing Plan: Retailers and wholesalers play a critical role in
marketing strategy because of their relationships with the final consumer.
Manufacturers need to manage their connections with these channel intermediaries.
You are responsible for channel management for Sonic’s PDA. Based on your
ASSIGNMENTS
Two models for department store success seem to be emerging—one with a strong retail
brand approach and one as a showcase store. In small groups, students are to investigate
these two differing approaches to department store retailing and comment on the future of
these concepts using the concepts defined in this chapter (target market selection, product
assortment decisions, etc. and Table 16.3 criteria).
New retail forms and combinations is one of the trends in retailing today. Examples
include supermarkets with banks and bookstores featuring coffee shops. After reading the
material in this chapter, ask the students to “speculate” on potential new retail forms or
retail combinations yet undeveloped. In their selection of a “new” form of retailing or
combination of retailers, ask the students to defend their choices using the ideas and
concepts presented in this chapter.
Shop—that is, have students visit as many differing types of retailers (and non-store
retailers) as they can over the course of a week. For each shopping occasion, ask the
students to record their impressions of the store’s atmospherics, location, service levels,
product selections, and others. Then rank their preferences from best to least and be able
to explain why they assigned the ranking to each store in terms of the material covered in
this chapter.
differentiate these products?
END–OF–CHAPTER SUPPORT
MARKETING DEBATE—Should National-Brand Manufacturers Also Supply Private
Label Brands?
One controversial move by some marketers of major brands is to supply private label makers.
For example, Ralston-Purina, Borden, ConAgra, and Heinz have all admitted to supplying
The major issue here is that the national branded firm did not anticipate the changes in
consumers buying patterns in time to produce a national “flanker” brand to meet these
consumer buying pattern changes. In the production and distribution of private labeled
products, there is enough differentiation available to distinguish national brands from private
label brands in quality, variety, size, packaging costs, and others that the consumer should not
be confused or perceive that all brands in a category are essentially the same.
Marketing Excellence: ZARA
1) Would Zara’s model work for other retailers? Why or why not?
Suggested Answer: As the article says, the key to the company’s success comes from
having complete control over all the parts of its business—design, production,
2) How is Zara going to expand successfully all over the world with the same level
of speed and instant fashion?
Suggested Answer: The key to their success as they expand has to be in logistics,
Marketing Excellence: BEST BUY
1) What are the keys to Best Buy’s success? What are the risks going forward?
Suggested Answer: Some of the “keys to success” are its low-pressure sales tactics, its
2) How else can Best Buy compete against new competitors like Walmart and online
companies?
Suggested Answer: To compete effectively, Best Buy must increase its concentration on
its Customer-Centricity strategy and continue to implement store design, layouts, and
DETAILED CHAPTER OUTLINE
In the previous chapter, we examined marketing intermediaries from the viewpoint of
manufacturers who wanted to build and manage marketing channels. In this chapter, we
view these intermediaries—retailers, wholesalers, and logistical organizations—as
requiring and forging their own marketing strategies. Intermediaries also strive for
marketing excellence and can reap the benefits like any other company.
RETAILING
Retailing includes all the activities involved in selling goods or services directly to final
consumers for personal, nonbusiness use.
1. A retailer or retail store is any business enterprise whose sales volume comes
primarily from retailing.
is doing retailing.
Types of Retailers
Consumers today can shop for goods and services at store retailers, nonstore retailers, and
retail organizations.
Store Retailers
Perhaps the best known type of store retailers is the department store.
6. Discount store: Standard or specialty merchandise; low-price, low-margin, high-
volume stores. Walmart, Kmart.
7. Extreme value or hard-discount store: A more restricted merchandise mix than
discount stores but at even lower prices. Aldi, Lidi, Dollar General, Family
Dollar.
Retailers can position themselves as offering one of four levels of service:
1) Self-service
Nonstore retailing
Although the overwhelming bulk of goods and services—97%—is sold through stores,
nonstore retailing has been growing much faster than store retailing. Nonstore retailing falls
into four major categories:
1. Direct selling
Corporate Retailing and Franchising
Although many retail stores are independently owned, an increasing number are part of
some form of corporate retailing.
The New Retail Environment
With the onset of the recession in 2008, many retailers had to fundamentally reassess
virtually everything they did. Some adopted a cautious, defensive response, cutting stock
levels, slowing expansion, and discounting deeply. Others were more creative about
managing inventory, adjusting product lines, and carefully avoiding over-promoting.
Here are some of the other retail developments that are changing the way consumers buy
and manufacturers and retailers sell:
A) New retail form and combinations
To better satisfy customers’ need for convenience, a variety of new retail
forms have emerged. Bookstores feature coffee shops. Gas stations include
food stores. Loblaw’s Supermarkets have fitness clubs.
C) Competition between store-based and non-store based retailing
Consumers now receive sales offers through direct-mail letters and catalogs,
television, cell phones, and the Internet. The non-store-based retailers making
these offers are taking business away from store-based retailers. Store-based
retailers have responded by increasing their Web presence and finding
different ways to sell online, including through their own Web sites, as well as
creating more involving and engaging experiences in their stores.
We can characterize the retail market today as hourglass or dog-bone shaped:
Growth seems to be centered at the top (with luxury offerings from retailers
such as Nordstrom and Neiman Marcus) and at the bottom (with discount
pricing from retailers such as Target and Walmart). As discount retailers
improve their quality and image, consumers have been willing to trade down.
H) Growth of Shopper Marketing
Buoyed by research suggesting that as much as 70% to 80% of purchase decisions
are made inside the retail store, firms are increasingly recognizing the importance
of influencing consumers at the point-of-purchase.
Marketing Decisions
With this new retail environment as a backdrop, we will examine retailers’ marketing
decisions in the areas of target market, product assortment and procurement, services and store
atmosphere, price, communication, and location.
Target Market
Until the target market is defined and profiled, the retailer cannot make consistent decisions on
product assortment, store décor, advertising messages and media, price, and service levels.
Channels
Based on a target market analysis and other considerations we reviewed in Chapter 15,
Product Assortment
The retailer’s product assortment must match the target market’s shopping expectations in
breadth and depth.
1) Feature exclusive national brands that are not available at competing retailers.
2) Feature mostly private branded merchandise.
Procurement
The retailer must establish merchandise sources, policies, and practices.
A) In the corporate headquarters, specialist buyers (sometimes called merchandise
managers) are responsible for developing brand assortments and listening to
salespersons’ presentations.
Prices
A) Prices are a key positioning factor and must be decided in relation to the target market.
B) Most retailers will put low prices on some items to serve as traffic builders or loss
leaders or to signal their pricing policies.
Services
A) Retailers must decide on the services mix to offer customers:
a) Pre-purchase services
Breakthrough Marketing: Target
Details how, Target, with enhancement of its product selection, cachet, and innovation in its
merchandising model, has been able to achieve financial success.
Store Atmosphere
A) Atmosphere is another element in the store’s arsenal. Every store has a “look” or
“feel” that is influenced by colors, layout, smell, and music.
Marketing Memo: Helping stores to sell
Lists the advice by Paco Underhill to keep shoppers spending: attract shoppers and keep them
Store Activities and Experiences
The growth of e-commerce has forced traditional brick-and-mortar retailers to respond.
A) In addition to the natural advantages over e-commerce:
1) Products that consumers can actually see, touch, and test
1) Calling each customer a “guest”
2) Provide a place for people to congregate
3) Creating in–store entertainment
4) Creating “showcase” stores
Communications
Retailers use a wide range of communication tools to generate traffic and purchases.
Location Decisions
Retailers are accustomed to saying that the three keys to success are “location, location, and
location.”
A) Retailers can locate their stores in the:
1) Central business district
B) In view of the relationship between high traffic and high rents, retailers must decide on
the most advantageous locations for their outlets.
PRIVATE LABELS
A private label (also called reseller, store, house, or distributor brands) is one retailers and
wholesalers develop.
A) In the United States, one out of every four items sold is a private labeled item.
Role of Private labels
Why do intermediaries bother to sponsor their own brands?
A) They are more profitable than national brands.
B) Retailers develop exclusive store brands to differentiate themselves from competitors.
The Private-Label Success Factors
In the confrontation between manufacturers’ and private label brands, retailers have many
advantages and increasing market power.
A) Many supermarkets charge a slotting fee for accepting a new brand.
B) Retailers are building better quality into their store brands.
C) The growing power of store brands is not the only factor weakening national brands:
1) Consumers are more price-sensitive.
Marketing Memo: How to compete against store brands
Strategies to compete against store brands: fight selectively; partner effectively; innovate
brilliantly; create winning value propositions.
WHOLESALING
Wholesaling includes all the activities involved in selling goods and services to those who buy
for resale or business use.
A) Wholesaling excludes farmers, manufacturers, and retailers.
Major Wholesaler Types
I. Merchant wholesalers
II. Full–service wholesalers
B) Wholesalers (also called distributors) differ from retailers in:
2) Wholesale transactions are usually larger than retail transactions.
4) The government deals with wholesalers and retailers differently in terms of legal
regulations and taxes.
B) Wholesalers are more efficient in performing the following functions:
1) Selling and promoting
Trends in Wholesaling
Wholesaler-distributors have faced mounting pressures in recent years from new sources
of competition.
A) One major response has been to increase asset productivity by managing inventories
and receivables better.
MARKET LOGISTICS
Physical distribution starts at the factory.
Managers choose a set of warehouses (stocking points) and transportation carriers that will
deliver the goods to final destinations in the desired time or at the lowest total cost.
Physical distribution has now been expanded into the broader concept of supply chain
management (SCM).
A) Supply chain management starts before the physical distribution:
1) Procuring the right products
B) The supply chain perspective can help a company identify superior suppliers and
distributors and help them improve productivity.
C) Market logistics involves planning the infrastructure to meet demand, then
implementing and controlling the physical flows of materials and final goods from
points of origin to points of use, to meet customer requirements at a profit.
E) Market logistics leads to an examination of the most efficient way to deliver value.
Integrated Logistics Systems
The market logistics task calls for integrated logistics systems (ILS), involving:
A) Materials management
1) Sales forecasting
2) The company schedules distribution, production, and inventory levels
3) Production plans
4) Materials to order
H) Many firms are embracing lean manufacturing, to produce goods with minimal waste
of time, materials, and money.
Market-Logistics Objectives
Many companies state their market–logistics objective as “getting the right goods to the right
places at the right time for the least cost.” Given that market logistics involve strong tradeoffs,
decisions must be made on a total system basis.
A) Given that market-logistics activities require strong tradeoffs, managers must make
decisions on a total-system basis. The company must research the relative importance
of each of their service outputs.
profits, not sales. Company ultimately has to establish some promise to the market.
D) The company ultimately must establish some promise it makes to the market.
E) Given the market-logistic objectives, the company must design a system that will
minimize the cost of achieving these objectives.
b. Where T = total freight cost of proposed system.
c. Where FW = total fixed warehouse cost of proposed system.
system.
Market-Logistics Decisions
Four major decisions must be made with regard to market logistics:
A) How should orders be handled (order processing)?
B) Where should stocks be located (warehousing)?
C) How much stock should be held (inventory)?
D) How should goods be shipped (transportation)?
Order Processing
Most companies today are trying to shorten the order–to-payment cycle.
A) That is the elapsed time between an order’s receipt, delivery, and payment.
Warehousing
Every company has to store finished goods until they are sold, because production and
consumption cycles rarely match.
A) The storage function helps smooth discrepancies between production and quantities
desired by the market.
B) The company must decide on the number of inventory stocking locations:
1) More locations means that goods can be delivered to customers more quickly.
Inventory
Salespeople would like their companies to carry enough stock to fill all customer orders
immediately. However, this is not cost-effective.
Inventory cost increases at an accelerating rate as the customer-service level approaches
100%. Management needs to know how much sales and profits would increase as a result
of carrying larger inventories and promising faster order fulfillment times, and then make
a decision.
A) Inventory decision making involves knowing when to order and how much to order.
B) As inventory draws down, management must know at what stock level to place a new
order.
1) This stock level is called the order (reorder) point.
C) Order–processing costs must be compared with inventory-carrying costs.
1) The larger the average stock carried, the higher the inventory–carrying costs.
2) Carrying costs include:
Transportation
Transportation choices will affect product pricing, on-time delivery performance, and the
conditions of the goods upon arrival, all of which affects customer satisfaction.
A) Shippers are increasingly combining two or more transportation modes, thanks to
containerization.
B) Containerization consists of putting the goods in boxes or trailers that are easy to
transfer between two transportation modes.
1) Piggyback describes the use of rail and trucks.
C) In deciding on transportation modes, shippers can choose from:
1) Private
2) Contract
3) Common carriers
Organizational Lessons
Market-logistics strategies must be derived from business strategies, rather than solely
from cost considerations.
A) The company should set its logistics goals to match or exceed competitors’
service standards and should involve members of all relevant teams in the
planning process.