Retailing and Wholesaling PRINCIPLES OF MARKETING Eighth Edition Philip Kotler and Gary Armstrong Chapter 13 Retailing and Wholesaling

What is Retailing? All the activities involved in selling goods or services directly to final consumers for their personal, nonbusiness use. Retailers - businesses whose sales come primarily from retailing. Retailers can be classified as: Store retailers such as Home Depot, Sears, Walmart Nonstore retailers such as the mail, telephone, and Internet.

Classification of Retail Stores Amount of Service Self-Service, Limited-Service and Full-Service Retailers Classification of Retail Stores This CTR relates to the material on pp. 391-398. Classification of Retail Stores Product Line Length and Breadth of the Product Assortment Relative Prices Pricing Structure that is Used by the Retailer Retail Organizations Independent, Corporate, or Contractual Ownership Organization Store Retailing Classifications Retailing includes all the activities in selling goods or services directly to final consumers for their personal, nonbusiness use. Retailers may be divided into two types: store retailing and non store retailing. Store retailing accounts for most retail business. Typical store classifications include: Amount of Service. Self-service retailing is used by convenience goods sellers and most discounters. Limited-service retailers provide sales service to support shopping goods lines carried and may offer additional services such as credit. Full-service retailers are often specialty stores with narrow product lines with deep assortment and knowledgeable salespeople. Product Line Sold. Specialty stores carry narrow product lines. Department stores carry a wide variety of lines. Supermarkets feature low-cost, high-volume, self-service on food, laundry, and household items. Convenience stores are small units that carry a limited line of high turnover items. Superstores, Combination Stores, and Hypermarkets are variations on much larger versions of supermarkets also offering other lines and/ore services. Relative Prices. Discount stores sell standard merchandise at lower prices by accepting lower margins and selling higher volumes. Off-price Retailers buy at lower than regular wholesale and sell under regular retail. The three major off-price retailers are: Factory Outlets that are owned & operated by manufacturers; Independents owned by entrepreneurs or divisions of larger corporations; and Wholesale clubs selling deeply discounted merchandise to paying members. Catalog Showrooms sell high-markup, fast-moving brand names at discount prices. Retail Organization. 80% of retail operations are independents, although larger chains control a much larger share of the market (See following CTR).

Classification By Product Line Store Type Length and Breadth of Product Assortment Specialty Stores Narrow Product Line, Deep Assortment Department Stores Wide Variety of Product Lines i.e. Clothing, Home Furnishings, & Household Items Supermarkets Wide Variety of Food, Laundry, & Household Products Convenience Stores Limited Line of High-Turnover Convenience Goods Superstores Large Assortment of Routinely Purchased Food & Nonfood Products, Plus Services Category Killers Giant Specialty Store that Carries a Very Deep Assortment of a Particular Line Hypermarkets Huge Superstores

Classification By Retail Organization This CTR relates to the discussion on pp. 395-398. Merchandising Conglomerates Corporate Chains Control of Outlets Major forms of categorization of retailers by control of outlets include: Corporate Chains Corporate chains consist of two or more outlets that are commonly owned and controlled, employ central buying, and sell similar lines. Voluntary Chains. These are wholesaler sponsored chains that nominally independent outlets join to save in costs. The wholesaler controls centralized planning, buying, and promotion decisions. Retailer Cooperatives. These are jointly owned wholesale operations controlled by the retail members. Franchise Organizations. A franchise is a contractual association between a manufacturer, wholesaler, or service organization and independent businesspeople. Merchandising Conglomerates. These are corporations that combine several different retailing forms under central ownership and share distribution and management functions. Franchise Organizations Voluntary Chains Retail Organizations Retailer Cooperatives

Characteristics of Direct Marketing This CTR relates to the material on p. 398. Characteristics of Direct Marketing Privacy Targeted Individuals Response Measurement Customized Offer Key Characteristics of Direct Marketing Direct Marketing Benefits to sellers include: Targeted Individuals. Customers can be selected from compiled list by almost any segmentation variable. Customized Offer. Specific characteristics of individual customers can be addressed in the offer. Immediate Orders. It is used to obtain immediate orders from targeted customers. Continuous Customer Relationship. Actual customer patterns of behavior and indicated preferences can be tracked, further narrowing subsequent offers to product known to be wanted by the customer. Higher Response. Direct marketing materials receive higher response rates than other forms of marketing communication. Testing. Variations on the marketing mix can be readily tested. Response Measurement. As customer response is directly related to specific materials, measurement is facilitated. Privacy. Some forms of direct media can be protected from viewing by competitors. Testing Immediate Orders Higher Response Continuous Relationship

Types of NonStore Retailing This CTR refers to the discussion on pp. 398-399. Direct Marketing Nonstore Retailing Accounts for More Than 14% of All Consumer Purchases, and May Account for 33% of All Sales by 2000. Direct Selling Automatic Vending Catalogs & Direct Mail Direct Marketing Direct Marketing. Direct marketing uses various media to interact with consumers, generally calling for the consumer to make a direct response to the offer being made in real time. Direct marketing offers consumers the benefits of greater convenience and time and place utility. Direct Selling. Door-to-door retailing offers consumers products at their door. Automatic Vending. Automatic vending involves selling directly to customers through machines. This form offers time and place utility. Other forms include: Catalogs and Direct Mail. TV Shopping Shows. Online Shopping. Home and Office Parties. TV Shopping Shows Online Shopping Home & Office Parties

Retailer Marketing Decisions This CTR relates to the material on pp. 400-405. Retailer Marketing Decisions Retailer Marketing Mix Retailer Strategy Product and Service Assortment Prices Promotion Place (Location) Retailer Marketing Decisions Target Market Decision. These decisions require that the retailer carefully consider exactly what kind of customer they want to serve. Store image should support the needs and expectations of the target market in every respect. Product Assortment and Services Decision. These decisions include matching product assortment width and depth and quality levels to shopper expectations. Variations in service mixed offerings can help retailers differentiate. Store atmosphere should be considered an assortment/service mix variable. Price Decision. These decisions revolve around high margin/low volume vs. low margin/high volume approaches. May include traffic builders or loss leader tactics. Promotion Decision. Promotions tools available to retailers include all elements of the promotional mix . Major decisions may include tie-ins with producer promotions. Place . Key place decisions remain three: location, location, location! Target Market Retail Store Positioning

Key Tool of Nonprice Competition for Setting One Store Apart From Product Assortment Decisions Width and Depth of Assortment Quality of Products Product Differentiation Strategies Retailer’s Product Assortment and Services Decisions Click to add title Services Mix Key Tool of Nonprice Competition for Setting One Store Apart From Another. Store’s Atmosphere Physical Layout “Feel” That Suits the Target Market and Moves Customers to Buy

Product & Services Assortment Click to add title Retailer’s Price, Promotion, and Place Decisions Price Decisions Target Market Product & Services Assortment Competition Promotion Decisions Using Advertising, Personal Selling, Sales Promotion and Public Relations to Reach Customers. Place Decisions Shopping Centers, Central Business Districts, Power Centers, or Outlet Malls. Location!

The Wheel of Retailing High Margin High Price High Status 1 3 2 2 3 1 This CTR relates to the discussion on pp. 406. Instructor’s Note: The CTR and Notes contain substantial extra-textual material for expanded in-class discussion. High Margin High Price High Status The Future of Retailing The wheel of retailing concept states that new retailing forms begin as low-margin, low-price, high volume, low status operations that slow evolve and upgrade their facilities over time. The advent of category killers and inventory tracking using high technology may signal a new development whereby value pricing retailers stay on the low-margin, high-volume end of the retailing scale while constantly improving product quality and consumer value. The Wheel of Retailing is a theory that attempts to explain how new retail institutions enter the marketplace and how they tend to evolve and eventually decline. Outlined and summarized briefly, the theory is presented below: Entry. New retail forms emerge on the low-price end of the market. These stores offer low-price, usually supported by poor location related to convenience, and few services. Evolution. As the store form becomes more popular, customer demands increase the pressure to offer more services and better location. As the store form incorporates these needs into their product offerings, costs rise. Decline. Continuing increases in costs eventually make the store form vulnerable to low-price, bare-bones store forms. Each generation of new store form entrants modifies the formula somewhat, so that low-margin store forms continue to innovate . Teaching Tip: Many new upscale store forms do not fit into the wheel of retailing schema. For example, Wal-Mart continues to grow by not allowing costs to rise. You may wish to point out to students the descriptive, rather than predictive, nature of the model. 1 3 2 2 3 Low Margin Low Price Low Status 1 1 = Discount 2 = Superstore 3 = Warehouse Club 4 = Combination Store 1 2 3 4

The Future of Retailing New Retail Forms and Shortening Retail Lifecycles Growth of Nonstore Retailing Increasing Intertype Competition The Future of Retailing Rise of Megaretailers Growing Importance of Retail Technology Global Expansion of Major Retailers Retail Stores as “Communities” or “Hangouts”

What is Wholesaling? All the activities involved in selling goods and services to those buying for resale or business use. Wholesaler - those firms engaged primarily in wholesaling activity.

Why are Wholesalers Used? Wholesaling This CTR relates to the material on p. 446-447. Why are Wholesalers Used? Wholesalers are Often Better at Performing One or More of the Following Channel Functions: Wholesaler Functions Management Services & Advice Selling and Promoting Market Information Buying and Assortment Building Risk Bearing Bulk Breaking Transporting Financing Warehousing Wholesaling Wholesaling includes all activities involved in selling goods and services to those buying for resale or business use. Wholesaler Functions Selling and Promoting. Contacts and small retailer connections help wholesalers reach more buyers than distant manufacturers. Buying and Assortment Building. Wholesalers can select items and build assortments needed by their customers better than manufacturers. Bulk-Breaking. Wholesalers save customers money by buying large quantities and lots and breaking them into smaller lots. Warehousing. Wholesalers hold inventories, reducing inventory costs and risks to suppliers and customers. Transportation. Wholesalers provide quicker transport of orders to customers than do producers. Financing. Wholesalers extend credit. Risk Bearing. Wholesalers take title and absorb risks for loss, damage, or theft. Market Information. Wholesalers provide information to suppliers and customers about competitors, new products, and price developments. Management Services and Advice. Wholesalers provide training to retailers on sales, improved store layouts, displays, and accounting and inventory control procedures.

They Don’t Take Title to Wholesaling by Sellers Types of Wholesalers Brokers/ Agents They Don’t Take Title to the Goods, and They Perform Only a Few Functions. Merchant Wholesaler Independently Owned Business that Takes Title to the Merchandise it Handles. Manufacturers’ Sales Branches and Offices Wholesaling by Sellers or Buyers Themselves Rather Than Through Independent Wholesalers.

Product and Service Assortment Retail Store Positioning Wholesaler Marketing Decisions Wholesaler Marketing Decisions This CTR relates to the discussion on pp. 411-414. Wholesaler Marketing Mix Wholesaler Strategy Product and Service Assortment Prices Promotion Place (Location) Wholesaler Marketing Decisions There are important differences among the marketing decisions made by wholesalers, retailers, and manufacturers, although each element of the marketing system addresses the five key decision areas: Target Market Decision. Like all marketing operations, wholesaling needs focus. Wholesalers may target by size of customer, need for service, or other factors. Product Assortment and Services Decision. Assortment is the product of the wholesaler. Still immediate availability of items made possible through large inventory is giving way to better stocking of faster-moving items. Inventory costs are balanced against the profitability of each line. Price Decision. Traditionally, wholesalers markup products by a fixed percentage. Costs are deducted from this markup, leaving low single digit profits. Volume is the key. Discussion Note: The Sam’s Club membership wholesaler chain aims that pricing to exactly cover costs. Profit is to come from the sale of memberships alone. Promotion Decision. In general, wholesalers are not promotion-minded. But as competition increases and the wholesale market becomes more fragmented, more attention to promotion tools, especially nonpersonal ones, is likely. Place Decision. Traditional place decisions were made on low cost factors, with little investment in facilities. Modern inventory tracking, loading, and routing systems are making place locations more strategic than simply finding large, empty, low-cost buildings. Target Market Retail Store Positioning

Trends in Wholesaling Wholesaling Developments to Consider Must Learn to Compete Effectively Over Wider and More Diverse Areas Trends in Wholesaling Increasing Consolidations Will Reduce Number of Wholesalers Wholesaling Developments to Consider Surviving Wholesalers Will Grow Larger Through Acquisitions and Mergers Vertical Integration Will Remain Strong Global Expansion