What is Retailing?

Costs of Channel Activities

• Value-creating activities increase the costs of products and services.
• The costs in the supply chain can be almost as much as the cost to make the
product.

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What is Retailing? 4

Retailers Perform Wholesaling and Production Activities

Vertical Integration – firm performs more than one set of activities in the
channel
•Eg: retailer invests in wholesaling or manufacturing
Backward Integration – retailer performs some distribution and
manufacturing activities
•Eg: KFC owns chicken farm
Forward Integration – manufacturers undertake retailing activities
•Eg: Nike owns retail stores

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Economic and Social Significance of Retailing 1
Role in Developed Economies
Consumer spending plays a critical role in the economies of the
United States and other developed economies.
When consumers spend more money buying goods and services
from retailers, a country’s economy flourishes.
• Merchandise flies off the shelves, and retailers place orders
for replacement merchandise.
• Manufacturers hire more employees, place orders for raw
materials, and make more products.
However, if consumers feel uncertain about their financial future
and decide to refrain from buying nonessential goods and
services, the economy slows down.

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Economic and Social Significance of Retailing 2

Role in Developing Economies – The Base of the Pyramid

• 9% of world population lives on under $2 a day.
• Consumers in this low-income consumer segment, referred to as the base of the
pyramid (BoP), still have significant spending power.
• Undertaking retailing activities for BoP markets is challenging.
• Difficult to communicate and complete transactions.
• Lack access to mass media, the Internet, or credit cards.
• Rural, remote: high cost of transporting goods.

• Engagement in BoP markets requires innovative approaches for doing business.

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Economic and Social Significance of Retailing 3

Role in Society
• Stakeholders:
• Prospective customers.
• Supply chain partners.
• Employees.
• Shareholders.
• Government agencies.
• Members of the firm’s communities.

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Economic and Social Significance of Retailing 4

Role in Society continued

• Corporate social responsibility (CSR).
• Voluntary. Meets or exceeds the ethical and legal expectations of stakeholders.
Conscious retailing.
• Recognition of the retailer’s greater purpose. Eg: TOMS, Eye Mitra
• Consideration of stakeholders and their interdependence. Ie: Giving up on maximizing profits.
• The presence of conscious leadership, creating a conscious corporate culture. Eg: Founder of
Patagonia
• The understanding that decisions are ethically based. Eg: should retail salespeople use hard selling
approach when they know the product is not the best for customer’s needs?
• A commitment to social issues. Eg: Ben&Jerry was among the first corporations to voice vigorous
support of the Black Lives Matter movement. https://businesschief.com/leadership-and-strategy/9-
companies-taking-a-stance-on-political-or-social-issues