Chapter 14: Retailing and Wholesaling Retailing: Includes all activities involved in selling, renting, and providing goods,

and services to ultimate consumers for personal, family, or household use. The Value of Retailing: Retailing creates customer value and has a significant impact on the economy. Consumer Utilities Offered by Retailing: The utilities provided by retailers create value for consumers. Time, place, form, and possession utilities are offered by most retailers in varying degrees, but one utility is often emphasized more than others. Some utilities are time utility, place utility, form utility, and possession utility. The Global Economic Impact of Retailing: Four of the 30 largest businesses in the United States are retailers (Wal-Mart, Home Depot, Target, Costco). Wal-Mart had 238 billion dollars in sales in 2004 which surpassed the GDP of Sweden. Wal-Mart, Target, Home Depot, have more than 2.3 Million employees. Classifying Retail Outlets: Form of ownership distinguishes retail outlets based on whether individuals, corporate chains, or contractual systems own the outlet. Second, level of service used to describe the degree of service provided to the customer. Last is type of merchandise line describes how many different types of products a store carries and in what assortment. Form of Ownership o Independent retailer: One of the common forms of retail ownership is the independent business, owned by an individual. The advantage of this form of ownership for the owner is that he or she can be his or her own boss. For customers, the independent store can offer convenience, quality personal service, and lifestyle compatibility. o Corporate Chain: Involves multiple outlets under common ownership. Chain stores have advantages in dealing with manufacturers, particularly as the size of the chain grows. A large chain can bargain with a manufacturer to obtain good service or volume discounts on orders. Consumers also

benefit in dealing with chains because there are multiple outlets with similar merchandise and consistent management policies. o Contractual Systems: Contractual systems involves independently owned stores that band together to act like a chain. Three types are retailer-sponsored cooperatives, wholesaler-sponsored voluntary chains, and franchise. 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. Two general types of franchises: Business Format Franchise, and product distribution franchises. Level of Service: Even though most customers perceive little variation in retail outlets by form of ownership, differences among retailers are more obvious in terms of level of service. o Self-Service: Self-service requires that the customer performs many functions and little is provided by the outlet. o Limited Service: Outlets provide some services, such as credit and merchandise return, but not others, such as clothing alterations. Customers are responsible for most shopping activities, although salespeople are available in departments such as consumer electronics, jewelry, and lawn and garden. Examples are Kmart, Target, and Wal-Mart. o Full- Service: Include most specialty stores and department stores; provide many services to their customers. Neiman Marcus, Nordstorms, and Saks Fifth Avenue. They all relay on better service to sell more distinctive, higher-margin goods. Type of Merchandise Line: Retail outlets also vary by their merchandise lines, the key distinction being the breadth and depth of the items offered to customers. o Depth of Line: Stores that carry a considerable assortment (depth) of a related line of items are limited-line stores. Single-line stores carry a tremendous depth in one primary line of merchandise. Specialty discount outlets focus on one

type of product, such as electronics, office supplies, or books. Are called category killers because they often dominate the market. o Breadth of Line: Stores that carry a broad product line, with limited depth, are referred to as general merchandise store. Scrambled Merchandising: Offering several unrelated product lines in a single retail store. Nonstore Retailing: Most of the retailing examples discussed earlier in the chapter, such as corporate chains, department stores, limited- and single-line specialty stores, involve store retailing. Automatic Vending: Vending machines make it possible to serve customers when and where stores cannot. Machine maintenance, operating costs, and location leases can add to the cost of the products, so prices in vending machines tend to be higher than those in stores. Direct Mail and Catalogs: Are attractive because they eliminate the cost of a store and clerks. Catalogs improve marketing efficiency through segmentation and targeting, and they create customer value by providing a fast and convenient means of making a purchase. A reason for growth in catalog sales is that traditional retailers such as Crate and Barrel, OfficeMax, and Sears are adding catalog operations. As consumers direct-mail purchases have increased, the number of catalogs and the number of products sold through catalogs have increased. Television Home Shopping: Is possible when consumers watch a shopping channel on which products are displayed; orders are then placed over the telephone or the internet. QVC the largest company broadcasts all day. Online Retailing: Allows consumers to search for, evaluate, and order products through the Internet. For many consumers the advantages of this form of retailing are the 240hour access, the ability to comparison shop, in-home privacy, and variety. Telemarketing: Another form of non-store retailing, called telemarketing, involves using the telephone to interact with and sell directly to consumers. Telemarketing is considered to be able

to target your market much more focused. Telemarketing has been regulated at a much more by the Do-Not-Call registry. Telemarketing is used by insurance companies, loan banks, and newspaper companies. Direct Selling: Sometimes called door-to-door retailing, involves direct sales of goods and services to consumers through personal interactions and demonstrations in their home or office. Sales have been declining as retail chains such as Wal-Mart begin to carry similar products at discount prices and as the increasing number of dual-career households reduces the number of potential buyers at home. Direct selling has been entering into international markets. Direct selling is likely to continue to grow in markets where the lack of effective distribution channels increases the importance of door-to-door convenience and where the lack of consumer knowledge about products and brands will increase the need for a person-to-person approach. Retailing Strategy: In developing retailing strategy, managers work with the retailing mix, which includes activities related to managing the store and the merchandise in the store. Retailing mix: The goods and services, physical distribution, and communications tactics chosen by a store. Retail Pricing: Markup refers to how much should be added to the cost the retailer paid for a product to reach the final selling price. Retailers decide on the original markup, but by the time the product is sold, they end up with a maintained markup. When products do not sell quickly, companies can reduce the price as markdowns, to encourage purchases. Timing of markdowns is important. Many retailers take markdown as soon as sales fall off to free up valuable selling space and cash. Some stores delay markdowns to discourage bargain hunters and maintain image of quality. A special issue for retailers trying to keep prices low is shrinkage, or breakage and theft of merchandise by customers and employees. Off-price retailing involves selling brand-name merchandise at lower than regular prices. These retailers buy their products from

wholesalers at below wholesaler prices. An example is Ross department store. These Stores have an unpredictable inventory. Store Location: Another aspect to the retailing mix involves deciding where to locate the store and how many stores to have. o Central business district is the oldest retail setting, the communitys downtown area. Downtown shopping areas are seen to be inconvenient because of lack of parking, high crime rate, and exposure to weather. o Regional shopping centers consist of 50 to 150 stores that typically attract customers who live or work within a 5- to 10-mile range. At these centers there is typically a large anchor department store that will attract consumers. o Strip location is a cluster of stores to serve people who are within a 5- to 10- minute drive. Gas station, hardware, laundry, grocery, and pharmacy outlets are commonly found in a strip location. o Multichannel retailers: use a combination of traditional store formats and nonstore formats such as catalogs, television, and online retailing. Retail Communication: A retailers communication activities can play an important role in positioning a store and creating its image. Pierre Martineau described image as the ways in which the store is defined in the shoppers mind, partly by its functional qualities and partly by the aura of psychological attributes. Function refers to the mix of elements like prices, store layout, and breadth and depth of merchandise lines. The psychological attributes are intangibles such as a sense of belonging, excitement, style, or warmth. Image has been found to include impressions of the corporation that operates the store, the category or type of store, the product categories in the store, the brands in each category, merchandise and service quality, and the marketing activities of the store. Merchandise: Managing the breadth and depth of the product line requires retail buyers who are familiar with the needs of the

target market and the alternative products available from the many manufacturers that might be interested in having a product available in the store. A popular approach to managing the assortment of merchandise today is called category management. This approach assigns a manager with the responsibility for selecting all products that consumers in a market segment might view as substitutes for each other, with the objective of maximizing sales and profits in the category. Many retailers are developing an advanced form of category management called consumer marketing at retail. Retailers are conducting research, analyzing the data to identify shopper problems, translating the data into retailing mix actions, executing shopper friendly in-store programs, and monitoring the performance of the merchandise. Changing Nature of Retailing: Retailing is the most dynamic aspect of channel of distribution. Stores such as factory outlets show that new retailers are always entering the market, searching for a new position that will attract customers. The Wheel of Retailing: The wheel of retailing describes how new forms of retail outlets enter the market. o 1. Outlets start with low prices, low margins, low status o 2. Outlet now has higher prices, higher margins, higher status o 3. Outlet now has still higher prices, still higher margins, still higher margins o 4. New form of outlet enter retailing environment with characteristics of outlet in box 1 The Retail Life Cycle: The process of growth and decline that retail outlets, like products, experience is described by the retail life cycle. Early growth is the stage of emergence of a retail outlet, with a sharp departure from existing competition. Market share rises gradually, although profits may be low because of start-up costs. The next stage is accelerated development; both market share and profit achieve their greatest growth rates. More competitors may enter. The battle for market share is usually fought before the maturity stage, and some competitors drop out of

the market. New retail forms enter in maturity stage, stores try to maintain their market share, and price discounting occurs. Wholesaling: Many retailers depend on intermediaries that engage in wholesaling activities selling products and services for the purposes of resale or business use. Merchant Wholesalers: are independently owned firms that take title to that is they own merchandise they handle. They go by various names described in detail below. Merchant wholesalers are classified as either full-service or limited-service wholesalers, depending on the number of functions performed. Full service General merchandise (or full-line) wholesalers carry a broad assortment of merchandise and perform all channel functions. This type of wholesaler is most prevalent in the hardware, drug, and clothing industries.Specialty merchandise (or limitedline) wholesalers offer a relatively narrow range of products but have an extensive assortment within the product lines carried. Limited service Rack jobbers furnish the racks or shelves that display merchandise in retail stores, perform all channel functions, and sell on consignment to retailers, which means they retain the title to the products displayed and bill retailers only for the merchandise sold. Cash and carry wholesalers take title to merchandise but sell only to buyers who call on them, pay cash for merchandise, and furnish their own transportation for merchandise. They carry a limited product assortment and do not make deliveries, extend credit, or supply market information. Drop shippers, or desk jobbers, are wholesalers that own the merchandise they sell but do not physically handle, stock, or deliver it. They simply solicit orders from retailers and other wholesalers and have the merchandise shipped directly from a producer to a buyer. Truck jobbers are small wholesalers that have a small warehouse from which they stock their trucks for distribution to retailers. They usually handle limited assortments of fast-moving or perishable

items that are sold for cash directly from trucks in their original packages. Agents and Brokers: Unlike merchant wholesalers, agents and brokers do not take title to merchandise and typically provide fewer channel functions. They make profit from commissions or fees paid for their services, whereas wholesalers make their profit from the sale of the merchandise they own. Manufacturers agents: work for several producers and carry non competitive, complementary merchandise in an exclusive territory. Brokers: Independent firms or individuals whose main function is to bring buyers and sellers together to make sales. Manufacturers branches and offices: Unlike merchant wholesalers, agents and brokers, manufacturers branches and sales offices are wholly owned extensions of the producer that perform wholesaling activates. Producers assume wholesaling functions when there are no intermediaries to perform these activates, customers are few in number and geographically concentrated, or orders are large or require significant attention. Vertical Marketing Systems involve suppliers and intermediaries working closely together instead of against each other. They plan production and delivery schedules, quality levels,promotions and sometimes prices. Resources, like information, equipment and expertise, are shared. The system is usually managed by a dominant member, or 'channel captain'. VMS is more flexible than vertical integration where the manufacturer actually owns the distribution channel, for example, Doctor Martens boot manufacturers own their own retail store. Horizontal Marketing Systems occur where organisations operating on the same channel level (e.g. two suppliers or two retailers) co-operate. They then share their distribution expertise and distribution channels. This can speed up the time taken to penetrate the market. There is room for creative

alliances here. See Southwestern Bell's alliance with Granada TV Shops in the Hall Of Fame