Marketing Chapter 18 Homework Further There May Opportunity Focus Consumers Who

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LEARNING OBJECTIVES

In this chapter, we will address the following questions:

1. What major types of marketing intermediaries occupy this sector?

2. What major changes are occurring in the modern retail marketing environment with

respect to competitive market structure and technology?

3. What marketing decisions do marketing intermediaries make?

4. What does the future hold for private label brands?

5. What are some of the important issues in wholesaling?

6. What are some important issues in logistics?

CHAPTER SUMMARY

1. Retailing includes all the activities in selling goods or services directly to final

2. Retailers pass through stages of growth and decline. As existing stores offer more

services to remain competitive, costs and prices go up, which opens the door to new retail

3. Nonstore retailing is growing and includes direct selling (one-to-one selling, one-to–

4. Retail organizations achieve many economies of scale, greater purchasing power,

5. As new retail forms have emerged, competition between them has increased, the rise

6. Like all marketers, retailers must prepare marketing plans that include decisions about

7. Wholesaling includes all the activities in selling goods or services to those who buy

for resale or business use. Wholesalers can perform functions better and more cost-

C H A P T E R

MANAGING RETAILING,

WHOLESALING, AND

LOGISTICS

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 and to coordinate

the activities of suppliers, purchasing agents, manufacturers, marketers, channel

members, and customers. Major gains in logistical efficiency have come from advances

in 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

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-

service. Students are to visit at least one of each type of the described retailers. In

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

previous strategic choices, respond to the following questions about wholesaling and

retailing strategy:

• What types of retailers will be most appropriate for distributing Sonic 1000?

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.).

Atmospherics is an important component of store attractiveness. Every store has its own

unique look, feel, and smell. Yet each consumer may react differently to each of these

elements. In groups composed of male and female students, ask the students to visit three

retailers of their own choosing and comment on how the store atmospherics affected

them personally and then group the findings by sex. Why are there such differences?

What can a store do to appeal to both sexes?

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

products—sometimes lower in quality—to be used for private labels. Other marketers,

however, criticize this “if you can’t beat them, join them” strategy, maintaining that these

actions, if revealed, may create confusion or even reinforce a perception by consumers that all

brands in a category are essentially the same.

Take a position: Manufacturers should feel free to sell private labels as a source of revenue

versus national manufacturers should never get involved with private labels.

Pro: Let us begin by defining buyers: Buyers buy products or use services to meet a particular

need or want. Buyers of or for private label products do not act any differently than consumers

of individual products in their buying processes. Manufacturers negatively impacted by the

surge of private label products, actually made changes in consumer buying patterns ignored or

missed by the national brands, have the fiduciary responsibility to their firms to maximize

sales wherever possible. The opportunities to produce private label products may be and often

is the salvation of the branded firm in offset production capacity and cash flow.

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

Marketing Discussion: Retail Customer Loyalty

Think of your favorite stores. What do they do that encourages your loyalty? What do

you like about the in-store experience? What further improvements could these stores

make?

1. Would Zara’s model work for other retailers? Why or why not?

2. What can Zara do to ensure successful growth around the world while maintaining the

same level of speed and instant fashion?

Marketing Excellence: BEST BUY

1. What are the keys to Best Buy’s success? What are the challenges it faces in today’s

retail environment?

2. How else can Best Buy compete against retail competitors like Walmart and Costco as

well as online competitors like Amazon.com?

Suggested Answer: To compete effectively, Best Buy must increase its concentration on

its Customer-Centricity strategy and continue to implement store design, layouts, and

merchandising to maximize customer experience and expectations. Secondly, Best Buy

DETAILED CHAPTER OUTLINE

Opening vignette: Intermediaries also strive for marketing excellence and can reap the

benefits like any other type of company. The more successful intermediaries use strategic

planning, state-of-the-art technology, advanced information systems, and sophisticated

marketing tools. They segment their markets, improve their market targeting and

positioning, and connect with their customers through memorable experiences, relevant

and timely information, and of course the right products and services.

I. Retailing

A. Retailing includes all the activities in selling goods or services directly to final

consumers for personal, nonbusiness use.

i. A retailer or retail store is any business enterprise whose sales volume

comes primarily from retailing.

ii. Any organization selling to final consumers—whether it is a

manufacturer, wholesaler, or retailer—is doing retailing.

B. Types of Retailers

i. Store Retailers (Department, Specialty, Supermarket, Convenience,

Discount, Drug, Extreme value, Off-price, Superstore, Catalog

showroom)

ii. Levels of Service (Self-service, Self-selection, Limited service, Full

service)

iv. Corporate Retailing and Franchising (corporate chain stores, voluntary

chains, retailer and consumer cooperatives, franchises, and

merchandising conglomerates) achieve economies of scale, greater

purchasing power, wider brand recognition, and better-trained

employees than independent stores can usually gain alone

1. In a franchising system, individual franchisees are a tightly knit

2. Franchises are distinguished by three characteristics:

a. The franchisor owns a trade or service mark and

3. Franchisors gain the motivation and hard work of employees

4. Franchisees benefit from buying into a business with a well–

known and accepted brand name.

C. The Modern Retail Marketing Environment

i. New types of competitors and competition have emerged

2. Growth of Giant Retailers

4. Emergence of Fast Retailing

5. Decline of Middle-market Retailers

ii. Technology is profoundly affecting the way retailers conduct virtually

every facet of their business.

1. Technology used to produce forecasts, control inventory costs,

2. Technology is also directly affecting the consumer shopping

experience inside the store.

a. Where and how a product is displayed and sold can

have a significant effect on sales.

b. Retailers are also using technology to influence

D. Marketing Decisions

i. Target Market: until it defines and profiles the target market, the

retailer cannot make consistent decisions about product assortment,

store decor, advertising messages and media, price, and service levels.

ii. Channels: retailers must decide which channels to employ to reach

their customers

iii. Product Assortment: the retailer’s product assortment must match the

target market’s shopping expectations in breadth and depth

1. Destination categories may play a particularly important role

2. Identifying the right product assortment can be especially

3. Develop a product-differentiation strategy.

a. Feature exclusive national brands

b. Feature mostly private-label merchandise

c. Feature blockbuster distinctive-merchandise events

d. Feature surprise or ever-changing merchandise

iv. Procurement: the retailer must establish merchandise sources, policies,

and practices.

1. Retailers use sophisticated software to track inventory,

2. Some stores are using radio frequency identification (RFID)

3. Stores are using direct product profitability (DPP) to measure a

product’s handling costs (receiving, moving to storage,

v. Prices are a key positioning factor and must be set in relationship to

the target market, product-and-service assortment mix, and

competition.

2. Most retailers fall into the high-markup, lower-volume group

3. All retailers are seeking to cut costs to improve margins.

vi. Another differentiator is unerringly reliable customer service, whether

face to face, across phone lines, or via online chat.

1. Prepurchase services include accepting telephone and mail

2. Postpurchase services include shipping and delivery, gift

3. Ancillary services include general information, check cashing,

vii. Store Atmosphere: Every store has a look and a physical layout that

makes it hard or easy to move around

1. Attract shoppers and keep them in the store.

3. Avoid overdesign

5. Make merchandise available to the reach and touch. It is hard

to overemphasize the importance of customers’ hands.

7. Note that men do not ask questions

9. Make check-out easy

viii. Store Activities and Experiences: in addition to natural advantages,

such as products that shoppers can actually see, touch, and test; real-

ix. Retailers use a wide range of communication tools to generate traffic

and purchases.

x. The three keys to retail success are often said to be “location, location,

and location.” Retailers can place their stores in the following

locations:

1. Central business districts

3. Community shopping centers

5. A location within a larger store

II. Private Label Brands

A. A private-label brand (also called a reseller, store, house, or distributor brand)

is a brand that retailers and wholesalers develop.

B. Role of Private Labels

i. Brands can be more profitable.

ii. Intermediaries may be able to use manufacturers with excess capacity

that will produce private-label goods at low cost.

iii. Other costs, such as research and development, advertising, sales

iv. Retailers also develop exclusive store brands to differentiate

themselves from competitors.

v. Different from generics, which are unbranded, plainly packaged, less

expensive versions of common products such as spaghetti, paper

towels, and canned peaches.

C. Private-Label Success Factors

i. Retailers typically give more prominent display to their own brands

III. Wholesaling

A. Wholesaling includes all the activities in selling goods or services to those

who buy for resale or business use.

B. Wholesalers (also called distributors) differ from retailers in a number of

ways.

i. Wholesalers pay less attention to promotion, atmosphere, and location

because they are dealing with business customers rather than final

consumers

C. Wholesaler Types

i. Merchant wholesalers

ii. Full-service wholesalers

iii. Limited-service wholesalers

D. Wholesaler functions

i. Selling and promoting

ii. Buying and assortment building

iii. Bulk breaking

iv. Warehousing

E. Trends in Wholesaling: new sources of competition, demanding customers,

new technologies, and more direct-buying programs by large industrial,

institutional, and retail buyers.

i. Manufacturers’ major complaints against wholesalers are:

2. They don’t carry enough inventory and therefore don’t fill

customers’ orders fast enough

4. They don’t attract high-caliber managers to bring down their

ii. Wholesalers have worked to increase asset productivity by better

managing inventories and receivables.

1. They’re also reducing operating costs by investing in more

2. They’re improving their strategic decisions about target

markets, product assortment and services, price,

communications, and distribution.

iii. Four ways industrial distributors strengthened their relationships with

manufacturers

1. Sought a clear agreement with their manufacturers about their

expected functions in the marketing channel

2. Gained insight into the manufacturers’ requirements by visiting

3. Fulfilled their commitments to the manufacturer by meeting the

4. Identified and offered value-added services to help their

suppliers.

iv. Wholesaling industry remains vulnerable to one of the most enduring

trends—fierce resistance to price increases and the winnowing out of

suppliers based on cost and quality.

IV. Market Logistics

A. Physical distribution has now been expanded into the broader concept of

supply chain management (SCM).

i. Supply chain management starts before physical distribution and

B. Market logistics includes 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. Four steps:

i. Deciding on the company’s value proposition to its customers.

C. Integrated Logistics Systems include materials management, material flow

systems, and physical distribution, aided by information technology (IT).

i. Information systems play a critical role in managing market logistics,

especially via computers, point-of-sale terminals, uniform product bar

codes, satellite tracking, electronic data interchange (EDI), and

electronic funds transfer (EFT).

ii. Market logistics encompass several activities.

2. Production plans indicate the materials the purchasing

department must order.

4. Raw materials are converted into finished goods.

6. Customers’ orders draw down the finished-goods inventory

level, and manufacturing activity builds it up.

7. Finished goods flow off the assembly line and pass through

iii. Market logistics “the last frontier for cost economies,” and firms are

determined to wring every unnecessary cost out of the system

1. Firms are embracing lean manufacturing to produce goods with

minimal waste of time, materials, and money

D. Market-Logistics Objectives may involve “getting the right goods to the right

places at the right time for the least cost.”

i. Because of trade-offs, managers must make decisions on a total-

system basis.

ii. The starting point is to study what customers require and what

competitors are offering.

iii. Customers are interested in on-time delivery, help meeting emergency

needs, careful handling of merchandise, and quick return and

E. Market-Logistics Decisions

i. How should we handle orders (order processing)?

ii. Where should we locate our stock (warehousing)?

iii. How much stock should we hold (inventory)?

iv. How should we ship goods (transportation)?

1. Containerization consists of putting the goods in boxes or

2. Piggyback describes the use of rail and trucks; fishyback, water

3. Each coordinated mode offers specific advantages. (e.g.

4. Some firms are putting items into shelf-ready packaging so

they don’t have to unpack them from a box and place them

individually on a shelf.

F. With logistics, every little detail must be reviewed to see how it might be

changed to improve productivity and profitability.