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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
18
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.
