Direct Marketing and Marketing Resellers: Retailers and Wholesalers

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Chapter 14

• Direct Marketing and Marketing Resellers
  Retailers and Wholesalers

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Chapter Objectives

• Explain the wheel of retailing.
• Explain how retailers select target markets.
• Show how the elements of the marketing mix apply
  to retailing strategy.
  
• Explain the concepts of retail convergence and
  scrambled merchandising.
  
• Identify the functions performed by wholesaling
  intermediaries.
  
• Outline the major types of independent
  wholesaling intermediaries and the situations
  appropriate for each.
  
• Compare the basic types of direct marketing and
  non-store retailing.
  
• Explain how much the Internet has altered the
  wholesaling, retailing, and direct marketing
  environments.

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Retailing

• Evolution of Retailing
• Traced to trading posts such as the Hudson Bay
  Company and peddlers
  
• First Retail Institution in the U.S. was the
  General Store
  
• Supermarkets appeared in the early 1930s
• Discount stores arrived in the 1950s
• Convenience food stores emerged in the 1960s
• The 1980s saw the first off-price retailers

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• Wheel of Retailing
• Hypothesis that each new type of retailer gains a
  competitive foothold by offering lower prices
  than current retailers, while maintaining profits
  through reduction of services
• Once established, more services are introduced
  and prices rise
  
• It then becomes vulnerable to new, lower price
  competitors
  

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Wheel of Retailing
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Retailing Strategy

• A retailer develops a marketing strategy based on
  the firms goals and strategic plans
  
• Two fundamental steps
• Selecting a target market
• Developing a retailing mix to satisfy the chosen
  target market
  
• Retail image Consumers perceptions of a store
  and the shopping experience it provides
  

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• Selecting a Target Market
• Retailers analyze demographic, geographic, and
  psychographic profiles to segment and select
  potential markets
  

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• Merchandising Strategy
• Planograms Diagrams of how to exhibit
  selections of merchandise within a store
  
• Category management Retailing strategy which
  views each product category as an individual
  profit center, and the retailer manages the
  performance and growth of the entire category

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• Exclusively designed products are part of
  Targets merchandising strategy

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• The Battle for Shelf Space
• Stockkeeping unit (SKU) specific product
  offering within a product line that is used to
  identify items within the line
  
• Slotting allowances fees paid by manufacturers
  to secure shelf space from retailers for their
  products
  

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• Customer Service Strategy
• Retailers must decide on the variety of services
  they make available for shoppers
  
• Examples include gift wrapping, bridal registry,
  return privileges, electronic shopping, and
  delivery and installation
  
• Objectives are to enhance shopper comfort and
  attract and retain customers

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• Pricing Strategy
• Markup The amount a retailer adds to a
  products cost to determine its selling price
  
• Determined by the services the retailer performs
  and the inventory turnover rate
  
• Markdown The amount by which a retailer reduces
  a products original selling price

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• Marshalls
• Promoting its low price strategy

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• Location/Distribution Strategy
• Planned shopping center A group of retail
  stores planned, coordinated, and marketed as a
  single unit
  
• Four types of planned shopping centers
• Neighborhood strip mall
• Community Washington Square
• Regional Mall of America
• Power stand-alone stores, single trading area
• Lifestyle Bridgeport
• Company Outlets - Woodburn

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• Mall of America
• Combining shopping with entertainment
• Mall of America is one of the most visited
  destinations in the United States, attracting
  more visitors annually than Disney World,
  Graceland and the Grand Canyon combined.

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• Promotional Strategy
• Retailers use a variety of promotional techniques
  to establish store images and communicate
  information about their stores
  
• Selling up retailing selling technique in which
  salespeople try to persuade customers to buy
  higher-priced items than originally intended
  
• Suggestive selling involves salespeople
  attempting to broaden a customers original
  purchase by adding related items, promotional
  products, and/or holiday or seasonal merchandise

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• Store Atmospherics
• Physical characteristics and amenities that
  attract customers and satisfy their shopping
  needs
  
• Disney Stores borrow from their theme parks to
  create a familiar shopping environment.

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Types of Retailers

• Retailers can be categorized by
• Form of ownership
• Shopping effort expended by customer
• Services provided to customers
• Product lines
• Location of retail transactions

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• Classification of Retailers by Form of Ownership
• Chain stores
• Independent Retailers
• Cooperatives
• Ace helps independent retailers compete with
  chains

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• Classification by Shopping Effort
  Classification system based on the reasons why
  consumers shop at particular retail outlets
  
• Retail stores can be classified as
• Convenience retailers 7/11
• Shopping stores REI
• Specialty retailers Nordstrom

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• Pier 1 Imports
• A shopping store

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• The North Face
• A specialty retailer featuring outdoor clothing
  and equipment
  
• Their products are also sold at other specialty
  stores

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• Classifying by Services Provided
• Self-service Store (e.g., Kmart)
• Self-selection Store (e.g., Winn-Dixie or Kroger
  grocery stores)
  
• Full-service Retailers (e.g., Dillards or
  Macys)
  

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• Classifying by Product Lines This
  classification system groups stores by the
  product lines they carry.
  
• Specialty store A retailer that typically
  handles only part of a single product line
  
• Specialty retailers carry their particular
  products in considerable variety
  

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• Lady Foot Locker -- A specialty store

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• Limited-line store A retailer that offers a
  large assortment within a single product line, or
  within a few related product lines
  
• IKEA home furnishings and Levitz furniture
• Category killers retailers that combine huge
  selection and low prices within a single product
  line
  
• Home Depot and Office Depot

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• Lowes
• A category killer which competes with the likes
  of Home Depot

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• General merchandise retailers carry a wide
  variety of product lines, and stock them all in
  some depth
  
• Variety store retailer that offers an
  extensive range and assortment of low-priced
  merchandise
  
• Department store large store that offers a
  variety of merchandise, such as mens and womens
  clothing, appliances, linens, and furniture
  

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• Sears
• The classic department store offering clothing,
  appliances, hardware, etc.

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• Mass merchandiser store that stocks a wider
  line of goods than a department store, usually
  without the same depth of assortment within each
  line
• Discount house
• Off-price retailers
• Outlet malls
• Hypermarket
• Supercenters
• Showroom and Warehouse Retailers

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• Kmart
• Discount mass merchandiser selling prestigious
  brand names

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• T.J. Maxx
• An off-price retailer

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• Classification of Retail Transactions by
  Location
  
• Non-store retailing Amazon.com, 800 sales
• Retail Convergence The coming together of
  shoppers, goods, and prices, resulting in the
  blurring of distinctions between types of
  retailer and the merchandise mix they offer.
  Similar merchandise available from multiple
  types of retail outlets.
• Scrambled Merchandising concept in which a
  retailer combines dissimilar product lines in an
  attempt to boost sales volume. Walgreens sells
  groceries, develops photos, sells Hallmark cards
  and gift items

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Wholesaling Intermediaries

• Includes not only wholesalers who assume title to
  the goods they handle, but also agents and
  brokers, who conduct wholesaling activities
  without taking title of the goods.
• Functions of Wholesaling Intermediaries
• Creating Utility
• Time utility
• Place utility
• Ownership/possession utility

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• Providing Services
• Wholesalers commonly provide marketing services
  that reflect the basic marketing functions of
  buying, selling, storing, transporting, providing
  market information, financing, and risk taking
• Plumbing wholesaler providing selling service

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• Lowering Costs by Limiting Contacts
• Intermediaries that represent multiple suppliers
  cut buying and selling costs and reduce
  transaction time
  
• Firms can increase transaction efficiency by only
  having to contact one or two intermediaries,
  rather than hundreds of individual suppliers

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• Types of Wholesaling Intermediaries

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• Manufacturer-Owned Facilities
• Sales branch carries inventory and takes
  customer orders
  
• Sales office no inventory, manages sales reps
• Trade fair Trade Show, in food industry, FMI,
  NRA
  
• Merchandise mart- large grouping of permanent
  showrooms, mainly wholesaling, Chicago
  Merchandise Mart

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• Independent Wholesaling Intermediaries
• Merchant wholesaler An independently owned
  intermediary that takes title to the goods it
  sells
  
• Rack Jobbers specialized lines of merchandise
  MM Mars
  
• Cash-and-Carry Wholesalers Cash Carry in
  Portland
  
• Truck Wholesalers Frito Lay
• Drop Shippers take title, dont handle coal
  and lumber
  
• Mail Order Wholesalers McMaster Carr

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• Table 14.2 P.466
• Comparison of the Types of Merchant Wholesalers
  and Their Services

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• Agents and Brokers A second group of
  independent intermediaries who may or may not
  take possession of the goods, but never take
  title. They include
• Commission merchants producers agents
  agriculture
  
• Auction houses used cars
• Brokers dont control pricing or promotional
  funding, operate in specific territories - food
  industry
  
• Selling agents controls total marketing
  programs, textile industry
  
• Manufacturers agents independent reps, sell
  non-competing products, may have marketing
  responsibilities, paid commission

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• Table 14.3
• Services Provided by Agents and Brokers

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• Retailer-Owned Cooperatives and Buying Offices
• Retailers sometimes assume numerous wholesaling
  functions to reduce costs or provide special
  services
  
• Independent retailers sometimes band together to
  form buying groups to save through quantity
  purchases
  
• Large chains often establish centralized buying
  offices to negotiate large-scale purchases
  directly with manufacturers
  

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Direct Marketing and Other Nonstore Retailing

• Direct Mail is a major component of direct
  marketing
  
• It comes in many forms, ranging from sales
  letters to video cassettes
  
• Direct Selling completely bypasses retailers and
  wholesalers
  
• Manufacturers set up their own channels to sell
  their products directly to consumers
  

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• Direct-Response Retailer Customers can order
  merchandise by mail or telephone, by visiting a
  mail-order desk in a retail store, by computer or
  by fax
• The Retailer then ships the merchandise to the
  customers home or to a local store for pickup
  
• Telemarketing refers to direct marketing
  conducted entirely by telephone
  
• It is the most frequently used form of direct
  marketing

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• Internet Retailing
• Many retailers operate from virtual storefronts
  on the World Wide Web, usually maintaining little
  or no inventory, ordering directly from vendors
  to fill customer orders received via E-mail
• Automatic Merchandising
• Retailing through vending machines
• About 25 billion worth of convenience goods are
  sold to Americans through 4.7 million vending
  machines

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End of Chapter Fourteen