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Retail Institution: Week 2 and 3
Retail Institution: Week 2 and 3
Week 2 and 3
Learning Objectives
When you complete this
chapter you should be able to:
Categorized retail institution by
1. Ownership
2. Store-based
3. Web, Nonstore-based, and other
forms of nontraditional retailing
LO 1: OWNERSHIP
1. INDEPENDENT
2. CHAIN
3. FRANCHISING
4. LEASED DEPARTMENT
5. VERTICAL MARKETING
SYSTEM
6. CONSUMER COOPERATIVE
1. Independent Retailers
An independent retailer owns one retail
unit
2.2 million independent U.S. retailers
70% of independents operated by owners
and their families
Why so many? Ease of entry
Capitalize on a very targeted customer
base and please shoppers in a friendly,
folksy way. WOM communication is very
important
Competitive State of
Independents
Advantages
Flexibility in formats,
locations, and
strategy
Control over
investment costs,
personnel functions,
and strategies
Personal image
Consistency and
independence
Strong
entrepreneurial
leadership
Disadvantages
Lack of bargaining
power
Lack of economies
of scale
Labor intensive
operations
Over-dependence
on owner
Limited long-run
planning
Chain Retailers
Operate multiple outlets under common
ownership
Engage in some level of centralized or
coordinated purchasing and decision making
In the U.S., there are roughly 110,000 retail
chains operating about 900,000 establishments
Benefit from their widely known image and from
economies of scales and mass promotion
possibilities.
4-7
Disadvantages
Limited flexibility
Higher
investment costs
Complex
managerial
control
Limited
independence
among personnel
7
Franchising
A contractual agreement between a franchisor
and a retail franchisee that allows the franchisee
to conduct business under an established name
and according to a given pattern of business
Franchisee pays an initial fee and a monthly
percentage of gross sales in exchange for the
exclusive rights to sell goods and services in an
area
Franchisors have strong geographic coverage-due
to franchisee investments- and the motivation of
franchisees as owner operators
Retail Mgt. 11e (c) 2010
Pearson Education, Inc.
publishing as Prentice
4-8
Franchise Formats
Product/ Trademark
franchisee acquires
the identity of a
franchisor by
agreeing to sell
products and/or
operate under the
franchisor name
franchisee operates
autonomously
2/3 of retail
franchising sales
4-9
Business Format
franchisee
receives
assistance:
location, quality
control,
accounting
systems, startup
practices,
management
training
common for
restaurants, real9
estate
4-10
Disadvantages
over-saturation
could occur
franchisors may
overstate
potential
contractual
confinement
agreements may
be cancelled or
voided
royalties are
based on sales,
not profits
10
4-11
Potential Problems
potential for harm to
reputation
lack of uniformity
may affect customer
loyalty
ineffective
franchised units
may damage resale
value, profitability
potential limits to
franchisor rules
11
Leased Departments
A leased department is a department
in a retail store that is rented to an
outside party
The proprietor is responsible for all
aspects of its business and pays a
percentage of sales as rent
The department store sets operating
restrictions to ensure consistency and
coordination
Exe: department, discount, or specialty
Retail Mgt. 11e (c) 2010 Pearson
4-12
Education, Inc. publishing as
store
Prentice Hall
12
4-13
Potential Pitfalls
lessees may
negate store
image
procedures may
conflict with
department store
problems may be
blamed on
department store
rather than lessee
13
Financial resources
Growth capability
Planning ability
Strong credit
Ideal
Franchisee
Ability to manage
finances
Customer and
employee focus
Willingness to
complete training
Full-time
commitment
14
15
4-16
is used if manufacturers,
wholesalers or retailers
are
small, intensive
distribution is
sought, customers are
widely
dispersed, unit sales are
high,
company resources are
low,
channel members seek
to share
costs and risks, and task
specialization is
desirable.
Exe: stationary stores,
16
gift shops
17
4-18
18
Consumer Cooperative
It is a retail firm owned by its
customer members.
A group of consumers invests, elects
officers, manages operations, and
shares the profits or savings that
accrue.
Most popular in food retailing.
WHY Consumer
Cooperative?
They feel they can operate stores as well
as or better than traditional retailers
They think existing retailers
inadequately fulfill customer needs for
healthful, environmentally safe products
They assume existing retailers make
excessive profits and that they can sell
merchandise for lower price
QUESTIONS FOR
DISCUSSION
What are the characteristics of each of the ownership forms?
Why does the concept of ease of entry usually have a greater
impact on independent retailers than on chain retailers?
What are the similarities and differences between chains and
franchising?
Why would a department store want to lease space to an
outside operator rather than run a business, such as shoes,
itself?
How could a small independent restaurant increase its
channel power?
Why have consumer cooperatives not expanded much?
LO 2: STORE-BASED
1. FOOD-ORIENTED
RETAILERS
2. GENERAL MERCHANDISE
RETAILERS
General
Merchandise
Convenience store
Conventional supermarket
Specialty store
Food-based superstore Traditional
Combination store
department
Box (limited-line) store Full-line discount
Warehouse store
store
5-23
Variety store
Off-price chain
Factory outlet
Membership club
Flea market
23
Merchandise:
Medium width
and low depth
of assortment;
average quality
5-24
Prices:
Average to
Above average
Atmosphere and
Services:
Average
Promotion:
Moderate
24
Conventional Supermarket
Strategy Mix
Location:
Neighborhood
Merchandise:
Extensive width
and depth
of assortment;
average quality;
manufacturer,
private, & generic brands
5-25
Prices:
Competitive
Atmosphere and
Services:
Average
Promotion:
Heavy use of
newspapers, flyers,
and coupons
25
Merchandise:
Full assortment plus
health and beauty aids
and general
merchandise
5-26
Prices:
Competitive
Atmosphere and
Services:
Average
Promotion:
Heavy use of
newspapers, flyers
26
Merchandise:
Full assortment plus
health and beauty aids
and general merchandise
5-27
Prices:
Competitive
Atmosphere and
Services:
Average
Promotion:
Heavy use of
newspapers, flyers
27
Merchandise:
Low width and depth of
assortment; few
perishables; few national
brands
5-28
Prices:
Very low
Atmosphere and
Services:
Low
Promotion:
Little or none
28
Merchandise:
Moderate width and
low depth of
assortment; emphasis on
manufacturer brands
bought at discount
5-29
Prices:
Very low
Atmosphere and
Services:
Low
Promotion:
Little or none
29
Merchandise:
Very narrow width and
extensive depth of
assortment; average to
good quality
5-30
Prices:
Competitive to
Above average
Atmosphere and
Services:
Average to excellent
Promotion:
Heavy use of displays
Extensive sales force
30
Merchandise:
Extensive width and
depth of
assortment; average to
good quality
5-31
Prices:
Average to
Above average
Atmosphere and
Services:
Good to excellent
Promotion:
Heavy ad and catalog
use; direct mail;
personal selling
31
Merchandise:
Extensive width and
depth of
assortment; average to
good quality
5-32
Prices:
Competitive
Atmosphere/Services:
Slightly below
average to average
Promotion:
Heavy on newspapers;
price-oriented; selling
32
Merchandise:
Good width and
some depth of
assortment;
below-average
to average quality
5-33
Prices:
Average
Atmosphere/Services:
Below average
Promotion:
Use of newspapers
33
Merchandise:
Moderate width and
poor depth of
assortment;
average to good quality;
low continuity
5-34
Prices:
Low
Atmosphere/Services:
Below average
Promotion:
Use of newspapers;
brands not advertised;
limited selling
34
Merchandise:
Moderate width and
poor depth of
assortment;
low continuity
5-35
Prices:
Very Low
Atmosphere/Services:
Very low
Promotion:
Little
35
Merchandise:
Moderate width and
poor depth of
assortment;
low continuity
5-36
Prices:
Very Low
Atmosphere/Services:
Very low
Promotion:
Little;
some direct mail
36
Merchandise:
Extensive width and
poor depth of
assortment;
low continuity;
variable quality
5-37
Prices:
Very Low
Atmosphere/Services:
Very low
Promotion:
Limited
37
1. DIRECT MARKETING
2. DIRECT SELLING
3. VENDING MACHINES
4. ELECTRONIC RETAILING
5. OTHER NONTRADITIONAL
FORMS OF RETALING
Characteristics of Direct
Marketing Customers
To whom
Married
Upper middle class
35-50 years old
Desire convenience, unique
items, good prices
Retail Mgt. 11e (c) 2010 Pearson
Education, Inc. publishing as
Prentice Hall
6-39
Selection Factors by
Customers
Company reputation and image
Ability to shop whenever consumer wants
Types of goods and services
Availability of toll-free phone number or
Web site for ordering
Credit card acceptance
Speed of promised delivery time
Competitive prices
Satisfaction with past purchases and good
return policy
6-40
40
Media Selection
HOW
Printed catalogs
Freestanding
displays
Direct-mail ads and
brochures
Inserts with monthly
credit card and other
bills (statement
stuffers)
6-41
Ads or programs
in mass media
Banner ads or hot
links on the Web
Video kiosks
41
6-42
42
43
Direct Selling
Direct selling includes
personal contact with
consumers in their homes
(and other nonstore locations
such as offices) and phone
solicitations initiated by
retailer.
Retail Mgt. 11e (c) 2010
Pearson Education, Inc.
publishing as Prentice
6-44
44
Vending Machines
Vending machines are a cash- or
card-operated retailing format
that sells goods and services.
Eliminates the use of sales
personnel and allows 24-hour
sales.
Machines placed wherever
convenient for consumers.
Retail Mgt. 11e (c) 2010
Pearson Education, Inc.
publishing as Prentice
6-45
45
6-46
46
6-47
47
6-48
48
Figure 2.5:
Five Stages of
Developing a
Retail Web
Presence
6-49
49
Web Strengths
Using the Web
Shopping Online
information
entertainment
interactive
communications
6-50
selection
prices
convenience
fun
50
Lack of trust
Fear
Lack of security
Lack of personal communication
6-51
51
Recommendations for
Web Retailers
Develop or exploit a well-known,
trustworthy retailer name
Tailor the product assortment
for Web shoppers
Enable the shopper to click as
little as possible
Provide a solid search engine
Use customer information
Retail Mgt. 11e (c) 2010
Pearson Education, Inc.
publishing as Prentice
6-52
52
Video Kiosks
A video kiosk is a freestanding,
interactive, electronic computer
terminal that displays products
and related information.
Some kiosks are located in
stores to enhance customer
service; others let consumers
place orders.
Retail Mgt. 11e (c) 2010
Pearson Education, Inc.
publishing as Prentice
6-53
53
Airport Retailing
Large group of prospective
shoppers
Captive audience
Strong sales-per-square-foot of
retail space
Strong sales of gift and travel items
Difficulty in replenishment
Longer operating hours
Duty-free shopping possible
Retail Mgt. 11e (c) 2010
Pearson Education, Inc.
publishing as Prentice
6-54
54