Part 5: Distribution Decisions
13. Marketing Channels and Supply
Chain Management
14. Direct Marketing and Marketing
Resellers: Retailers and
Wholesalers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Chapter 14
Direct Marketing
and Marketing
Resellers: Retailers
and Wholesalers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Chapter Objectives
1. Explain the wheel of retailing.
2. Explain how retailers select target markets.
3. Show how the elements of the marketing mix apply to
retailing strategy.
4. Explain the concepts of retail convergence and
scrambled merchandising.
5. Identify the functions performed by wholesaling
intermediaries.
6. Outline the major types of independent wholesaling
intermediaries and the situations appropriate for each.
7. Compare the basic types of direct marketing and
nonstore retailing.
8. Explain how much the Internet has altered the
wholesaling, retailing, and direct marketing
environments.
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-3
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
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-4
 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
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-5
Wheel of Retailing
Low-end strategy
• Low prices
• Limited facilities and
services
• Price-sensitive
consumers
High-end strategy
• High prices
• Excellent facilities and
services
• Upscale consumers
Medium strategy
• Moderate prices
• Improved facilities
• Broader base of valueand service-conscious
consumers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-6
Retailing Strategy
 A retailer develops a marketing strategy
based on the firm’s 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
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-7
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-8
 Selecting a Target Market
Retailers analyze demographic,
geographic, and psychographic
profiles to segment and select
potential markets
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-9
 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
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-10
 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
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-11
 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
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-12
 Pricing Strategy
Markup: The amount a retailer adds to a
product’s 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 product’s original selling
price
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-13
 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
Community
Regional
Power
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-14
 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 customer’s original
purchase by adding related items,
promotional products, and/or holiday or
seasonal merchandise
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-15
 Store Atmospherics
Physical characteristics and amenities
that attract customers and satisfy their
shopping needs
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-16
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
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-17
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-18
 Classification of Retailers by Form
of Ownership
Chain stores
Independent Retailers
Cooperatives
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-19
 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
Shopping stores
Specialty retailers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-20
 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., Dillard’s or
Macy’s)
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-21
 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
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-22
 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
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-23
 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 lowpriced merchandise
Department store: large store that offers
a variety of merchandise, such as men’s
and women’s clothing, appliances, linens,
and furniture
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-24
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
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-25
 Classification of Retail Transactions by
Location
Non-store retailing
 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.
 Scrambled Merchandising: concept in
which a retailer combines dissimilar product
lines in an attempt to boost sales volume
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-26
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.
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-27
 Functions of Wholesaling
Intermediaries
Creating Utility
Time utility
Place utility
Ownership/possession utility
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
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-28
 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
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-29
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-30
 Types of Wholesaling Intermediaries
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-31
 Manufacturer-Owned Facilities
Sales branch
Sales office
Trade fair
Merchandise mart
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-32
 Independent Wholesaling Intermediaries
Merchant wholesaler: An independently
owned intermediary that takes title to the
goods it sells
Rack Jobbers
Cash-and-Carry Wholesalers
Truck Wholesalers
Drop Shippers
Mail Order Wholesalers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-33
 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
Auction houses
Brokers
Selling agents
Manufacturer’s agents
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-34
 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
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-35
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
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-36
 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 customer’s 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
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-37
 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
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
14-38