Marketing Channels and Retailing Chapter 13 Marketing Channels Marketing Channels and Retailing Chapter 14 Lamb, Hair, McDaniel The term channel is derived from the Latin word, canalis, which means canal. 2013-2014

© 2013 by Cengage Learning Inc. All rights reserved Chapter 13 Marketing Channels 1 Explain what marketing channels and channel intermediaries are describe their functions and activities Describe common channel and strategies, and the factors that influence their choice Describe channel relationship types and roles, and their unique benefits and drawbacks Explain the importance of the retailer within in the channel and within the national economy 2 3 4 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 15 Retailing 5 List and understand the different classifications and types of retailers, as well as their different operational models Explain the major tasks involved in developing a retail marketing strategy Discuss the roles of CRM and customer data in retailer decision making Describe trends in retail and channel management 6 7 8 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 13 Marketing Channels Marketing Channels Explain what marketing channels and channel intermediaries are, and describe their functions and activities 1 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 13 Marketing Channels Marketing Channel a set of interdependent organizations that eases the transfer of ownership as products move from producer to business user or consumer. Channel Members negotiate with one another, buy and sell products, and facilitate the change of ownership between buyer and seller in the course of moving the product from the manufacturer into the hands of the final consumer Notes: A marketing channel can be viewed as a large pipeline through which products, their ownership, communication, financing and payment, and accompanying risk flow to the consumer. Marketing channels facilitate the physical flow of goods through the supply chain, representing “place” or distribution in the marketing mix. 1 © 2013 by Cengage Learning Inc. All rights reserved

Marketing Channel Functions Chapter 13 Marketing Channels Marketing Channel Functions Specialization and division of labor Overcoming discrepancies Providing contact efficiency Notes: As products move through the supply chain, channel members facilitate the distribution process by providing specialization and division of labor, overcoming discrepancies, and providing contact efficiency. 1 © 2013 by Cengage Learning Inc. All rights reserved

Specialization and Division of Labor Chapter 13 Marketing Channels Specialization and Division of Labor Creates greater efficiency Provides lower production costs Create time, place, form, and exchange utility Notes: Specialized expertise of channel members enhances the overall performance of the channel. Time and place utility: created when a transport company moves boxes from the place of manufacture to the store near customers. Form utility: channel members transform raw materials into a consumable form for customers. Exchange utility: channel members (usually retailers) swap the product for money. 1 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Contact Efficiency Retailer Firms in the channel that sell directly to customers Retailers simplify distribution by cutting the number of transactions required by consumers, making an assortment of goods available in one location 1 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 13 Marketing Channels Exhibit 14.1 How Marketing Channels Reduce the Number of Required Transactions Notes: Exhibit 13.1 demonstrates the purchase of a television set by four consumers. Without a retail intermediary like Best Buy, the individual television manufacturers would have to make four contacts to reach the four buyers. With Best Buy as an intermediary, each producer only has to make one contact, and the consumer buys from one retailer instead of five producers. © 2013 by Cengage Learning Inc. All rights reserved

Channel Intermediaries Chapter 13 Marketing Channels Channel Intermediaries Merchant Wholesaler An institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them. Agents and Brokers Wholesaling intermediaries who facilitate the sale of a product by representing channel members. Notes: Intermediaries in a channel negotiate with one another, facilitate the change of ownership between buyers and sellers, and physically move products from the manufacturer to the final consumer. 1 © 2013 by Cengage Learning Inc. All rights reserved

Channel Intermediaries Chapter 13 Marketing Channels Channel Intermediaries Merchant Wholesalers Agents and Brokers Take Title to Goods Do NOT Take Title to Goods Notes: The most prominent difference separating intermediaries is whether or not they take title to the product. Taking title means they own the merchandise and control the terms of the sale. Retailers and merchant wholesalers take title to goods, while agents and brokers do not. 1 © 2013 by Cengage Learning Inc. All rights reserved

Factors Suggesting Type of Wholesaling Intermediary to Use Chapter 13 Marketing Channels Factors Suggesting Type of Wholesaling Intermediary to Use Product characteristics Buyer considerations Market characteristics Notes: Product characteristics, buyer considerations, and market conditions determine the type of intermediary the manufacturer should use. Product Characteristics include such aspects of a product as standardization and customization, complexity, and gross margin. Buyer Considerations include purchase frequency and how long the buyer is willing to wait for a product. Market Characteristics include number of buyers and buyer concentration levels. Each of these will determine which type of intermediary is appropriate for a product. 1 © 2013 by Cengage Learning Inc. All rights reserved

Channel Functions Performed by Intermediaries Chapter 13 Marketing Channels Channel Functions Performed by Intermediaries Contacting/Promotion Negotiating Risk Taking Researching Financing Physically distributing Storing Sorting Facilitating Functions Transactional Functions Logistical Functions Notes: The three basic functions—transactional, logistical, and facilitating—are performed by intermediaries 1 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 13 Marketing Channels Channel Structures Describe common channel and strategies, and the factors that influence their choice 2 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 13 Marketing Channels Exhibit 14.2 Marketing Channels for Consumer Products Notes: Exhibit 14.2 illustrates the four ways manufacturers can route products to consumers. Direct channel is used to sell products directly to consumers. No intermediaries are used. Examples are telemarketing, catalog shopping, on-line shopping, and television shopping networks. At the other end of the spectrum, an agent/broker channel may be used in markets with small manufacturers/retailers that lack the resources to find each other. The agents or brokers bring the manufacturers and wholesalers together for negotiations, but they do not take title to merchandise. Most consumer products are sold through distribution channels similar to the retailer channel and the wholesaler channel. Discussion/Team Activity: Identify various products and discuss the channel for distribution utilized by each. © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 13 Marketing Channels Exhibit 14.3 Channels for Business and Industrial Products Notes: Exhibit 14.3 illustrates the five channel structures common in business and industrial markets. Direct channels are typical in business and industrial markets. Manufacturers buy large quantities of raw materials, major equipment, processed materials, and supplies directly from other manufacturers, particularly if detailed technical specifications are required. The channel from producer to government is also a direct channel. Companies selling standardized items of moderate/low value often rely on industrial distributors. Industrial distributors are wholesalers and channel members that buy and take title to products. © 2013 by Cengage Learning Inc. All rights reserved

Alternative Channel Arrangements Chapter 13 Marketing Channels Alternative Channel Arrangements Multiple or dual distribution Strategic channel alliances Nontraditional channels Notes: Usually a producer employs several different or alternative channels, which includes multiple channels, nontraditional channels, and strategic channel alliances. Multiple channels: Two or more channels selected is called multiple or dual distribution. Nontraditional channels: Nontraditional channels, including the Internet and mail-order channels, help differentiate a firm’s product from the competition. Strategic channel alliances: Producers use another manufacturer’s already-established channel. 2 © 2013 by Cengage Learning Inc. All rights reserved

Factors Affecting Channel Choice Chapter 13 Marketing Channels Factors Affecting Channel Choice Producer Factors Product Factors Market Factors Notes: Before choosing a marketing channel, supply chain managers must analyze several factors, which often interact. These factors can be grouped as market factors, product factors, and producer factors. An explanation follows. 2 © 2013 by Cengage Learning Inc. All rights reserved

Consumer or Industrial Market Factors Chapter 13 Marketing Channels Market Factors That Affect Channel Choices Customer profiles Consumer or Industrial Customer Size of market Geographic location Notes: Market factors include the target customer considerations, such as these questions: Who are the potential customers? What/where/when/how do they buy? Also important to channel selection is the distinction between consumer or industrial customers. Consumers buy in small quantities and don’t require much service, whereas industrial customers purchase in larger quantities and require more customer service. If the target market is concentrated in specific areas, direct selling is appropriate. If widely dispersed, intermediaries would be less expensive. In general, a large market requires more intermediaries. 2 © 2013 by Cengage Learning Inc. All rights reserved

Product Standardization Chapter 13 Marketing Channels Product Factors Product Factors That Affect Channel Choices Product Complexity Product Standardization Product Life Cycle Product Delicacy Product Price Notes: Products that are more complex, customized, and expensive benefit from shorter and more direct marketing channels and through a direct sales force. Standardized products can be sold through longer distribution channels with greater numbers of intermediaries. The choice of channel may change over the life of the product. As products become more common, producers turn from a direct channel to more alternative channels. Perishable items and fragile products require fairly short marketing channels and a minimum amount of handling. 2 © 2013 by Cengage Learning Inc. All rights reserved

Number of Product Lines Chapter 13 Marketing Channels Producer Factors Producer Factors That Affect Channel Choices Producer Resources Number of Product Lines Desire for Channel Control Notes: Producers with larger financial, managerial, and marketing resources are able to use more direct channels. These producers can maintain their own sales force, warehouse their own goods, and extend credit to customers. Producers with several products in a related area choose channels that are more direct, and sales expenses can be spread over more products. A producer’s desire to control pricing, positioning, brand image, and customer support may avoid channels in which discount retailers are present. Furthermore, manufacturers of upscale products may sell only in expensive stores to maintain an image of exclusivity. 2 © 2013 by Cengage Learning Inc. All rights reserved

Levels of Distribution Intensity Chapter 13 Marketing Channels Intensive A form of distribution aimed at having a product available in every outlet Selective A form of distribution achieved by screening dealers to eliminate all but a few in any single area Exclusive A form of distribution that established one or a few dealers within a given area Notes: Organizations have three options for intensity of distribution: intensive distribution, selective distribution, or exclusive distribution. 2 © 2013 by Cengage Learning Inc. All rights reserved

Levels of Distribution Intensity Chapter 13 Marketing Channels Levels of Distribution Intensity Intensive Achieve mass market selling. Convenience goods. Many Selective Exclusive Work with selected intermediaries. Shopping and some specialty goods. Work with single intermediary. Specialty goods and industrial equipment. Several One Intensity Level Objective Number of Intermediaries Notes: This slide compares the three options for intensity of distribution. Discussion/Team Activity: Discuss product examples in each of the intensity levels, and in which stores the products are stocked. © 2013 by Cengage Learning Inc. All rights reserved

Types of Channel Relationships Chapter 13 Marketing Channels Types of Channel Relationships Describe channel relationship types and roles, and their unique benefits and drawbacks 3 © 2013 by Cengage Learning Inc. All rights reserved

Types of Channel Relationships Chapter 13 Marketing Channels Types of Channel Relationships Benefits Hazards Arm’s Length Relationship Fulfills a one time or unique need; low involvement/risk Parties unable to develop relationship; low trust level Cooperative Relationship Formal contract without capital investment/long-term commitment; “happy medium” Some parties may need more relationship definition Integrated Relationship Closely bonded relationship; explicitly defined relationships High capital investment; any failure could affect every channel member Notes: A marketing channel is more than a set of institutions linked by economic ties. Social relationships play an important role in building unity among channel members. © 2013 by Cengage Learning Inc. All rights reserved

Global Channel Relationships Chapter 13 Marketing Channels Global Channel Relationships Global Channel Development Channel policies differ Gray marketing channels Global channel choices must be made with full understanding of economic and political policies because many countries have policies that regulate channel choices, particularly for foreign distributors. When designing marketing channels for foreign markets, the type of channel structure must be considered. The more highly developed a nation is economically, the more specialized its channel types. Marketers must be aware of “gray” marketing channels, in which products are distributed through unauthorized channel intermediaries. Sales of counterfeit luxury items, for example, is estimated at $2 billion a year. The Internet has proved a way for pirates to circumvent authorized distribution channels. 3 © 2013 by Cengage Learning Inc. All rights reserved

Social Influences in Channels Chapter 13 Marketing Channels Social Influences in Channels Partnering Conflict Leadership Control Power Notes: In addition to considering the multiple different types of channel relationships and their costs and benefits, managers must also be aware of the social dimensions that are constantly impacting their relationships. The basic social dimensions of channels are shown on this slide and defined on the following slides. 3 © 2013 by Cengage Learning Inc. All rights reserved

Channel Power, Control, and Leadership Chapter 13 Marketing Channels Channel Power, Control, and Leadership Channel Power A channel member’s capacity to control or influence the behavior of other channel members Control A situation that occurs when one marketing channel member intentionally affects another member’s behavior Channel Leader A member of a marketing channel that exercises authority/power over the activities of other members 3 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 13 Marketing Channels Channel Conflict Conflicts may occur if channel members: Have conflicting goals Fail to fulfill expectations of other channel members Have ideological differences Have different perceptions of reality Notes: Inequitable channel relationships often lead to channel conflict. In a broad context, conflict may not be bad: if traditional members refuse to keep pace with the times, removing an outdated intermediary may reduce costs for the entire channel. Conflicts arise because channel members have conflicting goals, or when channel members fail to fulfill expectations of other channel members. Further, different perceptions of reality can cause conflict among members. Conflict within a channel can be either horizontal or vertical. Horizontal conflict occurs among channel members at the same level, such two or more different retailers that handle the same manufacturer’s brands. Vertical conflict occurs between different levels in a marketing channel. 3 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 13 Marketing Channels Channel Partnering the joint effort of all channel members to create a channel that serves customers and creates a competitive advantage. By COOPERATING, channel members can speed up inventory replenishment, improve customer service, and reduce the total costs of the marketing channel. Notes: Channel alliances and partnerships help managers create the parallel flow of materials and information required to leverage the channel’s intellectual, material, and marketing resources. 3 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 13 Marketing Channels The Role of Retailing Explain the importance of the retailer within in the channel and within the national economy 4 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 15 Retailing Retailing All the activities directly related to the sale of goods and services to the ultimate consumer for personal, non-business use. Notes: Retailing has enhanced the quality of our daily lives, with the millions of goods and services provided mirroring the needs and styles of U.S. society. Retailing affects all of us directly or indirectly. The retailing industry is one of the largest employers, as shown on the next slide. Discussion/Team Activity: Poll the class to see how many of the students have worked or are working in the retail industry. How many are pursuing careers in the retail industry? 4 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 15 Retailing The Role of Retailing U.S. retailers employ nearly 15 million people Retailers account for 10.8 percent of U.S. employment Retailing accounts for 10 percent of U.S. businesses Retailers account for two-thirds of the U.S. GDP Industry is dominated by a few giant organizations, such as Walmart Notes: Although most retailers are small, a few giants dominate the industry. Walmart’s annual sales are greater than the next five U.S. retail giants' sales combined. 4 © 2013 by Cengage Learning Inc. All rights reserved

Classification of Retail Operations Chapter 15 Retailing Classification of Retail Operations List and understand the different classifications and types of retailers, as well as their different operational models 5 © 2013 by Cengage Learning Inc. All rights reserved

Classification of Retail Operations Chapter 15 Retailing Classification of Retail Operations Ownership Level of Service Product Assortment Notes: A retail establishment can be classified according to its ownership, level of service, product assortment, and price. Retailers use the latter three variables to position themselves in the competitive marketplace. These variables can be combined in several ways to create distinctly different retail operations. Price 5 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 15 Retailing Exhibit 14.4 Types of Stores and Their Characteristics Assort- ment Price Gross Margin Broad Narrow Med-Narrow Medium Med-Broad Mod-High Moderate Mod High Mod Low Mod Lo-low Low-very low Low Low-High High Type of Retailer Specialty Store Supermarket Convenience Store Drugstore Full-line Discounter Specialty Discounter Warehouse Clubs Off-price Retailer Restaurant Service Level Mod Hi-High Low-Mod Mod-Low Department Store Notes: Exhibit 14.4 lists the major types of retail stores and classifies them by level of service, product assortment, price, and gross margin. © 2013 by Cengage Learning Inc. All rights reserved 36

Classification of Ownership Chapter 15 Retailing Classification of Ownership Independent Retailers Chain Stores Franchises Owned by a single person or partnership and not part of a larger retail institution Owned and operated as a group by a single organization The right to operate a business or to sell a product Notes: Retailers can be broadly classified by form of ownership. With franchising, the advantages of both independent ownership and the chain store organization are combined. 5 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 15 Retailing Level of Service Full Service Self Service NOTES: The level of service that retailers provide can be classified along a continuum, from full-service to self-service. 5 © 2013 by Cengage Learning Inc. All rights reserved

Chapter 15 Retailing Product Assortment Classification based on BREADTH and DEPTH of product lines. 5 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 15 Retailing Price Gross Margin The amount of money the retailer makes as a percentage of sales after the cost of goods sold is subtracted. Notes: Price is a fourth way to position retail stores. Traditional department stores and specialty stores usually charge the full “suggested retail price.” In contrast, discounters, factory outlets, and off-price retailers use low prices as a lure for shoppers. Refer to the last column of Exhibit 15.1 to see how gross margin and price levels correlate to the various types of stores. 5 © 2013 by Cengage Learning Inc. All rights reserved

Major Types of Retail Operations Chapter 15 Retailing Major Types of Retail Operations Department Stores Specialty Stores Supermarkets Drugstores Convenience Stores Discount Stores Restaurants Notes: With the experimentation with alternative formats of retail stores, classification has become more difficult. 5 © 2013 by Cengage Learning Inc. All rights reserved

Types of Retail Operations Chapter 15 Retailing Types of Retail Operations Department Store A store housing several departments under one roof. Each department is headed by a buyer, or department head who selects merchandise. Specialty A retail store specializing in a given type of merchandise. Notes: Department stores: carries a wide variety of shopping and specialty goods. Purchases are made within each department. Specialty stores: merchandise is tailored to specific target markets. Price is a secondary consideration to consumers. These stores provide a low-risk testing ground for many new products. 5 © 2013 by Cengage Learning Inc. All rights reserved

Types of Retail Operations Chapter 15 Retailing Types of Retail Operations Supermarket Large, departmentalized, self-service retailer. Specializes in food. Some use scrambled merchandising. Drugstore A retail store that stocks pharmacy-related products and services as its main draw. Convenience Store A miniature supermarket, carrying only a limited line of high-turnover convenience goods. Notes: Supermarkets: U.S. consumers spend about a tenth of their disposable income in supermarkets. Drugstores: stock pharmacy-related products and services. Convenience stores: defined as a miniature supermarket, carrying only a limited line of convenience goods. 5 © 2013 by Cengage Learning Inc. All rights reserved

Categories of Discount Stores Chapter 15 Retailing Categories of Discount Stores Full-Line Discounters Specialty Discount Stores Warehouse Clubs Off-Price Retailers Notes: Full-line discount stores offer very limited service and a broad assortment of well-known, nationally branded goods. Walmart is the largest full-line discount store in terms of sales. Supercenters combine groceries and general merchandise with a wide range of services in one location. Specialty discount stores offer a nearly complete selection of single-line merchandise and are often termed category killers because they dominate their merchandise segment. Warehouse membership clubs sell a limited selection of appliances, household items, and groceries, usually in bulk and to members only. Off-price retailers sells at prices 25 percent or more below traditional department stores. Discussion/Team Activity: List discount stores in each of the above categories. 5 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 15 Retailing Restaurants Straddle the line between retail and service establishments Sell tangible products (food, drink) but also services (food prep, food service) Many could be considered specialty retailers NOTES: While barriers to entry are low, the risks to opening a restaurant are great—about 50 percent of all new restaurants fail within the first year of operation. 5 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 15 Retailing Nonstore Retailing Automatic Vending Direct Retailing Direct Marketing Electronic Retailing Notes: Nonstore retailing is shopping without visiting a store. The major forms are shown here. Because consumers demand convenience, nonstore retailing is growing faster than in-store retailing. 5 © 2013 by Cengage Learning Inc. All rights reserved

Automatic Vending Is the use of machines to offer goods for sale. Chapter 15 Retailing Automatic Vending Is the use of machines to offer goods for sale. Vending is the most pervasive retail business in the United States, with 11.5 MILLION vending machines selling billions or dollars worth of goods annually. 5 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 15 Retailing Direct Retailing Door-to-Door Office-to-Office Home Sales Parties Notes: The sales of direct retailers, such as Avon and Tupperware, have suffered as more women have entered the workforce. Direct retailers are turning to direct mail, telephone, traditional retailing venues, and the Internet to reach more buyers. Direct retailers are also exploring opportunities in other countries. 5 © 2013 by Cengage Learning Inc. All rights reserved

Types of Direct Marketing Chapter 15 Retailing Types of Direct Marketing Catalogs and Mail Order Direct Mail Telemarketing Electronic Retailing Notes: Direct marketing refers to the techniques used to get consumers to make a purchase from home, office, or other non-retail setting. These include direct mail, catalogs and mail order, telemarketing, and electronic retailing. Examples of electronic retailing include shop-at-home networks and on-line retailing. Rising postage rates and decreasing long-distance phone rates have made outbound telemarketing into an attractive direct marketing technique. Direct mail can be the most efficient or the least efficient retailing method, depending on the quality of the mailing list and the effectiveness of the mailing piece. Successful catalogs usually are created and designed for highly segmented markets. Electronic retailing includes online retailing and the 24-hour, shop-at-home television networks. Shop-At-home Networks show products and the retail price to home viewers. The viewers then phone in and purchase items with a credit card. Home shopping networks appeal to a wide variety of shoppers, and have recently begun adding high-end products that appeal to affluent shoppers. Shop-at-Home Networks 5 © 2013 by Cengage Learning Inc. All rights reserved

Top E-Tailers by Sales Volume Chapter 15 Retailing Top E-Tailers by Sales Volume America's Top Ten Retail Businesses Rank Company Web Sales Volume (in billions) 1 Amazon.com Inc. $48.08 2 Staples Inc. $10.6 3 Apple Inc. $6.66 4 Walmart.com $4.9 5 Dell Inc. $4.6 6 Office Depot Inc. $4.1 7 Liberty Media (owns QVC) $3.76 8 Sears $3.6 9 Netflix Inc. $3.2 10 CDW $3.0 Source: “Top 500 Guide,” internet Retailer, 2012, www.internetretailer.com/top500/list/ (accessed August 13, 2012). Notes: You can see by studying the table that most successful online retailers don’t follow a single model to achieve that success. Retailers with freestanding stores, Web sites, and catalogs have successfully implemented a multichannel solution, where customers can shop the catalog or site, and go to the store to try the product on before purchasing it. The number one challenge e-tailers have to meet is keeping the shopping experience consistent across channels. Beyond the Book

The Basic Forms of Franchising Chapter 15 Retailing The Basic Forms of Franchising Product and Trade Name Franchising Dealer agrees to sell in products provided by a manufacturer or wholesaler. Business Format Franchising An ongoing business relationship between a franchiser and a franchisee. Notes: A franchise is a continuing relationship in which a franchiser grants to a franchisee the business rights to operate or sell a product. The franchisor originates the trade name, product, operation methods, etc. The franchisee pays the franchiser for the right to use its name, product, or methods. The initial franchise fee generally ranges from $50,000 to $250,000 and higher, and royalty fees paid weekly/monthly are in the range of 3 to 7 percent of gross revenues. For example, a McDonald’s franchise’s start-up costs for equipment and expenses range from $506,000 to over $1.6 million. 5 © 2013 by Cengage Learning Inc. All rights reserved

Top 10 Franchisors 1. Hampton Hotels 2. Subway 3. 7-Eleven 4. ServPro Chapter 15 Retailing Top 10 Franchisors 1. Hampton Hotels 2. Subway 3. 7-Eleven 4. ServPro 5. Days Inn 6. McDonald’s 7. Denny’s 8. H&R Block 9. Pizza Hut 10. Dunkin Donuts Source: Jason Daley, “The Top 10 Franchises for 2012,” Entrepreneur, December 4, 2011, www.entrepreneur.com/slideshow/222422 (Accessed July 23, 2012). 5

Retail Marketing Strategy Chapter 15 Retailing Retail Marketing Strategy List the major tasks involved in developing a retail marketing strategy 6 © 2013 by Cengage Learning Inc. All rights reserved

Retail Marketing Strategy Chapter 15 Retailing Retail Marketing Strategy Define & Select a Target Market Develop a Retailing Mix Notes: Retailers develop marketing strategies based on overall goals and strategic plans. The key tasks in strategic retailing are defining and selecting a target market and developing the retailing mix to meet the needs of the chosen target market. 6 © 2013 by Cengage Learning Inc. All rights reserved

Defining a Target Market Chapter 15 Retailing Defining a Target Market STEP 1: Segment the Market Demographics Geographics Psychographics Notes: The first task in developing a retail strategy is to define the target market. Defining the target market begins with market segmentation. Successful retailing is based on knowing the customer. Target markets are defined by demographics, geographics, and psychographics. 6 © 2013 by Cengage Learning Inc. All rights reserved

Choosing the Retailing Mix Chapter 15 Retailing Choosing the Retailing Mix STEP 2: Choose the Retailing Mix Product Promotion Personnel Place Price Presentation Notes: The retailing mix consists of six P’s: the four P’s of the marketing mix (product, price, promotion, and place), plus presentation and personnel. The combination of the 6 P’s projects a store image, which influences consumers’ perceptions. Retail stores can be positioned on the three dimensions: service, product assortment, and price. Everything else—place, presentation, and promotion—should be used to fine-tune the basic positioning of the store. 6 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 15 Retailing Exhibit 14.6 The Retailing Mix Notes: Exhibit 14.6 shows the retailing mix. © 2013 by Cengage Learning Inc. All rights reserved

Choosing the Retailing Mix Chapter 15 Retailing Choosing the Retailing Mix Product Offering The mix of products offered to the consumer by the retailer; also called the product assortment or merchandise mix. 6 © 2013 by Cengage Learning Inc. All rights reserved

Retail Promotion Strategy Chapter 15 Retailing Retail Promotion Strategy Advertising Public Relations Publicity Notes: The goal of retail promotion strategy is to position the store in consumers’ minds. Ads, special events, promotions, even grand openings are an orchestrated blend of advertising, merchandising, goodwill, and glitter. Retailers’ advertising is carried out mostly at the local level, providing store information, such as location, merchandise, hours, prices, and sales. In contrast, national retail advertising focuses on image. Sales Promotion 6 © 2013 by Cengage Learning Inc. All rights reserved

Economic growth potential Chapter 15 Retailing The Proper Location Choosing a Community Economic growth potential Competition Geography Notes: The retailing axiom “location, location, location” has long emphasized the importance of place to the retail mix. The retailer is making a large commitment of resources that reduces future flexibility, and the location will affect the store’s future growth and profitability. Factors to consider in site selection are the area’s economic growth potential, the amount of competition, and geography. 6 © 2013 by Cengage Learning Inc. All rights reserved

The Proper Location Choosing a Specific Site Choosing the Type of Site Chapter 15 Retailing The Proper Location Choosing a Specific Site Choosing the Type of Site Socioeconomic characteristics Freestanding Store Traffic flows Shopping Center Land costs NOTES: A particular site’s visibility, parking, entrance and exit locations, accessibility, and safety and security issues are also important considerations. Additionally, a retailer should consider how its store will fit into the surrounding environment. 2. One final decision about location is whether to have a freestanding unit or to become a tenant in a shopping center or mall. Mall Zoning Regulations Public Transportation 6 © 2013 by Cengage Learning Inc. All rights reserved

Good Value Single Price Point Chapter 15 Retailing Retail Prices Low Price High Price Notes: The retailer’s ultimate goal is to sell products to consumers at a price that ensures profits. Price is a key element in a store’s positioning strategy. Higher prices often indicate quality and prestige, while discounters and off-price retailers offer a good value for the money. Quality Image Good Value Single Price Point 6 © 2013 by Cengage Learning Inc. All rights reserved

Presentation of the Retail Store Chapter 15 Retailing Presentation of the Retail Store Employee type and density Fixture type and density Sound Odors Visual factors Merchandise type and density Notes: The presentation of a retail store helps determine the store’s image and positioning in consumers’ minds. For example, positioning as an upscale store would use a lavish or sophisticated presentation. The main element of presentation is atmosphere (The overall impression conveyed by a store’s physical layout, décor, and surroundings), with the most influential factors shown on this slide. Employee type and density: an employee’s general characteristics such as friendly and knowledgeable, and the number of employees in the selling space. Merchandise type and density: the type of merchandise carried (best brands) and how it is displayed (neat uncluttered, crowded). Fixture type and density: elegant, trendy, uncluttered. Fixtures should be consistent with the general atmosphere. Sound: sound can be pleasant or unpleasant for a customer. Odors: smell can either stimulate or detract from sales. Visual factors: colors can create a mood or focus attention. 6 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 15 Retailing Personnel Suggestion Selling Trading Up Two Common Selling Techniques Notes: Retail salespeople persuade shoppers to buy. They are trained in two common selling techniques. Trading up: persuading customers to buy a higher-priced item. Suggestion selling: seeks to broaden customers’ original purchases with related items. 6 © 2013 by Cengage Learning Inc. All rights reserved

Channel and Retailing Decisions for Services Prioritize customer service by focusing on four areas: Minimizing wait times Managing service capacity Improving service delivery Establishing channel-wide network coherence 6 © 2013 by Cengage Learning Inc. All rights reserved

The Relationship between Retailer Decision Making and Customer Data Discuss the roles of CRM and customer data in retailer decision making 7 © 2013 by Cengage Learning Inc. All Rights Reserved.

Retailing and CRM Data 7 CRM Database Chapter 13 Marketing Channels Retailing and CRM Data CRM Database Retailers gather data through Data mining, the process of discovering patterns in large data sets for the purposes of extracting knowledge and understanding human behavior, and populate databases with it. These databases are the foundation of a CRM system that allows retailers to gain insights to people who purchase their products. By using that information to interact with the customers on social media or Web sites, retailers can build lasting relationships with their customers. Retailers gain insight to who purchases product Build stronger relationships with customers 7 © 2013 by Cengage Learning Inc. All Rights Reserved.

Describe trends in retail and channel management Chapter 15 Retailing New Developments in Retailing Describe trends in retail and channel management 8 © 2013 by Cengage Learning Inc. All rights reserved

New Developments in Retailing Chapter 15 Retailing New Developments in Retailing M-commerce Purchasing goods through mobile devices. Notes: Retailers are adopting new strategies to better serve customers. Two recent developments are: M-Commerce: enables consumers using wireless mobile devices to connect to the Internet and shop. Examples: Coca-Cola and PepsiCo. Online retailers offer greater variety of options for delivery, including one-use package delivery boxes. 8 © 2013 by Cengage Learning Inc. All rights reserved

© 2013 by Cengage Learning Inc. All rights reserved Chapter 15 Retailing Chapter 14 Video New Balance Hubway New Balance Hubway is a bike sharing system in the Boston area that uses automated stations to provide a bike service to people looking to go short distances. In this clip, employees discuss how the retailing model works for Hubway, and how the difference between brick and mortar and e-business models allowed them to succeed in the Boston area. CLICK TO PLAY VIDEO © 2013 by Cengage Learning Inc. All rights reserved

Scripps Networks Interactive Chapter 15 Retailing Part 4 Video Scripps Networks Interactive Distribution Decisions Scripps Networks Interactive owns the content on popular networks such as Food Network, DIY, and the Cooking Channel. Deciding how to best get their content (both digital and solid products) into different locations takes some careful thought, and various decision makers discuss the process in this video clip. CLICK TO PLAY VIDEO © 2013 by Cengage Learning Inc. All rights reserved