CHAPTER 16
Retailing, Direct Marketing and Wholesaling
TEACHING RESOURCES QUICK REFERENCE GUIDE
Resource
Location
Purpose and Perspective
IRM, p. 350
Lecture Outline
IRM, p. 351
Discussion Starters
IRM, p. 361
Class Exercises
IRM, p. 362
Chapter Quiz
IRM, p. 365
Answers to Discussion and Review Questions
IRM, p. 366
Notes About Application Questions
IRM, p. 369
Answers to Internet Questions
IRM, p. 370
Answers to Developing Your Marketing Plan
IRM, p. 371
Comments on the Cases
IRM, p. 372
Case 16.1
IRM, p. 372
Strategic Case 6
IRM, p. 374
Examination Questions: Essay
Testing CD
Examination Questions: True-False
Testing CD
PURPOSE AND PERSPECTIVE
In this chapter we examine the nature of retailing, direct marketing, and wholesaling and their importance
in supplying consumers with goods and services. First, we discuss the purpose and function of retailers in
the marketing channel. We then explore the major types of retailers and consider strategic issues in
Chapter 16: Retailing, Direct Marketing and Wholesaling 351
LECTURE OUTLINE
I. Retailing
A. Retailing includes all transactions in which the buyer intends to consume the product through
personal, family, or household use.
E. Retailers are the critical link between producers and ultimate consumers because they provide the
environment in which exchanges with ultimate consumers occur.
F. Traditional retailing is being challenged by direct marketing channels which provide home
shopping through catalogs, television, and the Internet.
II. Major Types of Retail Stores
A. One way to classify retail stores is by the breadth of products offered. Two general categories are
general-merchandise retailers and specialty retailers.
B. General-Merchandise Retailers
1. General merchandise retailers offer a variety of product lines, stocked in considerable
depth.
2. Department Stores
a. Department stores are large retail organizations characterized by wide product mixes
3. Discount Stores
a. Discount stores are self-service, general merchandise outlets that regularly offer brand
name and private brand products at low prices.
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4. Convenience Stores
a. A convenience store is a small self-service store which is open long hours and carries a
narrow assortment of products, usually convenience items such as soft drinks and other
5. Supermarkets
a. Supermarkets are large, self-service stores which carry a complete line of food products
as well as some nonfood products.
6. Superstores
a. Superstores—which originated in Europe—are giant retail outlets which carry food and
7. Hypermarkets
a. Hypermarkets combine supermarket and discount store shopping in one location.
8. Warehouse Clubs
a. Warehouse clubs are large-scale, members-only selling operations combining cash-and-
carry wholesaling and discount retailing. They are popular and are a rapidly expanding
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9. Warehouse Showrooms
a. Warehouse showrooms are retail facilities in large, low-cost buildings with warehouse
C. Specialty Retailers
1. Specialty retailers carry a narrow product mix with deep product lines; they do not sell
specialty items unless they complement the overall product mix.
2. Traditional Specialty Retailers
a. Traditional specialty retailers are stores that carry a narrow product mix with deep
3. Category Killers
a. A category killer is a very large specialty store concentrating on a major product
category and competing on the basis of low prices and product availability. These stores
expand rapidly and take business away from smaller retailers.
4. Off-Price Retailers
a. Off-price retailers are stores that buy manufacturers’ seconds, overruns, returns, and off–
season production runs at below-wholesale prices for resale to consumers at deep
discounts.
III. Strategic Issues in Retailing
A. Consumer purchases are often the result of social influences and psychological factors. A retailer
must make desired products available, create a stimulating shopping environment, and develop
marketing strategies which will increase store patronage.
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B. Location of Retail Stores
1. Location is the least flexible and one of the most important issues because it dictates the
limited geographic trading area from which a store draws its customers.
4. Retailers can choose from among several types of shopping centers.
a. Neighborhood shopping centers consist of small convenience and specialty stores.
(1) These retailers consider their target market to be consumers who live within 2-3
miles or 10 minutes driving time.
c. Regional shopping centers usually have the largest department stores, extensive product
mixes, and deep product lines.
(1) They have 150,000 or more consumers in their target markets, including consumers
traveling from a distance to find products and prices not available in their hometown.
e. Power shopping centers combine off-price stores and small stores with category killers.
(1) Some shopping centers may not include a traditional anchor department store.
(2) The number of power shopping centers is growing, resulting in a variety of formats
vying for the same retail dollar.
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f. Factory outlet malls feature discount and factory outlet stores carrying manufacturer
brands.
C. Retail Positioning
1. Retail positioning involves identifying an unserved or underserved market segment and
serving it through a strategy that distinguishes the retailer from others in the minds of those
D. Store Image
1. To attract customers a retail store must project an image, which is a functional and
psychological picture in the consumer’s mind, which appeals to its target market.
2. Atmospherics, the physical elements in a store’s design that appeal to consumers’ emotions
and encourage buying, helps to create an image and position a retailer.
E. Category Management
1. Category management is a retail strategy of managing groups of similar, often substitutable
products produced by different manufacturers.
IV. Direct Marketing and Direct Selling
A. Many products are sold outside of bricks-and-mortar retail stores. Direct selling and direct
marketing account for an increasing percentage of total product sales.
B. Direct Marketing
1. Direct marketing is the use of the telephone and non-personal media to communicate
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2. Direct marketing is one type of non-store retailing, the selling of products outside the
confines of a retail facility.
3. Catalog Marketing
a. Catalog marketing occurs when an organization provides a catalog from which
customers make selections and place orders via mail, telephone, or the Internet.
4. Direct-Response Marketing
a. Direct-response marketing occurs when a retailer advertises a product and makes it
5. Telemarketing
a. Telemarketing is the performance of marketing-related activities by telephone.
6. Television Home Shopping
a. Television home shopping presents products to television viewers who can purchase
7. Online Retailing
a. Online retailing makes products available through computer connections.
b. The phenomenal growth and expansion of the Internet has created new retail
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d. Security remains a serious issue, with most consumers concerned about online security.
C. Direct Selling
1. Direct selling, or “door–to–door selling,” is the marketing of products to ultimate consumers
through face-to-face sales presentations at home or in the workplace.
2. Most direct selling is on a one-to–one basis, although the “party plan” is sometimes used in
direct selling and can occur in homes or in the workplace.
3. Benefits of direct selling include:
4. Limitations of direct selling include:
a. Direct selling is the most expensive form of retailing.
D. Automatic Vending
1. Automatic vending is the use of machines to dispense products selected by customers.
V. Franchising
A. Franchising is an arrangement in which a supplier, or franchiser, grants a dealer, or franchisee,
the right to sell products in exchange for some type of consideration.
E. Major Types of Retail Franchises
1. A manufacturer authorizes a number of retail stores to sell a certain brand-name item (e.g.,
automobiles).
F. Advantages and Disadvantages of Franchising
1. Franchising enables a franchisee to start a business with limited capital and to benefit from
the business experience of others.
2. Franchised outlets are generally more successful than independently owned outlets.
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VI. Wholesaling
A. Wholesaling refers to all transactions in which products are bought for resale, for making other
products, or for general business operations. A wholesaler is an individual or organization that
B. Services Provided by Wholesalers
1. Wholesalers provide essential services to both producers and retailers.
2. Services Provided to Producers
a. By initiating sales contacts with a producer and by selling diverse products to retailers,
wholesalers serve as an extension of the producer’s sales force.
3. Services Provided to Retailers
a. Wholesalers support retailers by assisting with marketing strategy, especially the
4. The distinction between services performed by wholesalers and those performed by other
C. Types of Wholesalers
1. Merchant Wholesalers
a. Merchant wholesalers are independently owned businesses that take title to goods,
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c. Full-Service Wholesalers
(1) Full-service wholesalers perform the widest possible range of wholesaling
functions.
(2) Customers rely on full-service wholesalers for product availability, suitable
assortments, breaking large quantities into smaller ones, financial assistance, and
technical advice and service.
(3) Types of Full-Service Wholesalers
(a) General-merchandise wholesalers carry a wide product mix but offer limited
depth within product lines.
d. Limited-Service Wholesalers
(1) Limited-service wholesalers provide fewer marketing services than full-service
wholesalers and specialize in just a few functions, passing on the rest of the functions
(3) Types of limited-service wholesalers:
(a) Cash-and-carry wholesalers are intermediaries whose customers—usually
small businesses—pay cash and furnish transportation.
2. Agents and Brokers
a. Agents and brokers negotiate purchases and expedite sales but do not take title to
products. They are sometimes called “functional middlemen.”
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e. Types of Agents
(1) Manufacturers’ agents are independent intermediaries who represent two or more
sellers and usually offer customers complete product lines.
3. Manufacturers’ Sales Branches and Offices
a. Sales branches are manufacturer-owned intermediaries that sell products and provide
support to the manufacturer’s sales force.
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DISCUSSION STARTERS
Discussion Starter 1: RFID and the Future of Retailing
ASK: Can you name one physical location within a retail setting that incurs significant cost and creates
consumer frustration?
One cost center for all types of retailing is the checkout area. Speedy and efficient checkout depends on
Discussion Starter 2: Mall of America
ASK: How many of you have heard of the Mall of America? How many of you have been there?
Located in Bloomington, Minnesota, the Mall of America is already the second-largest mall in North
Discussion Starter 3: Where do you shop and why
ASK: Where are some of your favorite places to shop for clothes and groceries?
Have students give a couple of reasons as to why they shop at particular stores. Some of the factors may
362 Chapter 16: Retailing, Direct Marketing and Wholesaling
CLASS EXERCISES
Class Exercise 1: Strategic Issues in Retailing
The objective of this class exercise is to help students understand strategic issues in retailing by
developing an original retail store concept.
Prompt for students:
Assume that you have been given ample funds to invest in a new retail venture. Be as creative as possible.
1. Determine the type of retail store you want to open. Be specific about the characteristics of the store
type. Include product assortment, target market(s), service level, and price level.
2. Where will you locate?
a. Be sure to consider
• Ease of movement in, around, and out of the location
3. Describe your product assortment in terms of depth, width, and quality. Which products will be the
most important to consumers? Will consumers want other complementary products when they shop?
Answers:
1. Students will typically develop specialty store ideas, since they recognize the difficulty of going head
to head with larger chain stores. You may also want your students to think in terms of atypical