Chapter 16: Managing Retailing, Wholesaling, and Logistics

Chapter 16: Managing Retailing, Wholesaling, and Logistics

LEARNING OBJECTIVES

After reading this chapter, students should:

Know what the major types of marketing intermediaries that occupy this sector

Know what marketing decisions these marketing intermediaries make

Know what are the major trends with marketing intermediaries

CHAPTER SUMMARY

Retailing includes all the activities involved in selling goods or services directly to final consumers for personal, non-business use. Retailers can be understood in terms of store retailing, non-store retailing, and retail organizations.

Like products, retail-store types pass through stages of growth and decline. As existing stores offer more services to remain competitive, costs and prices go up that opens the door to new retail forms that offer a mix of merchandise and services at lower prices. The major types of retail stores are specialty stores; department stores; supermarkets; convenience stores; discount stores; off-price retailers (factory outlets, independent off-price retailers, and warehouse clubs); superstores (combination stores and supermarkets); and catalog showrooms.

Although most goods and services are sold through stores, non-store retailing has been growing. The major types of non-store retailing are direct selling (one-to-one selling, one-to-many-party selling, and multilevel network marketing); direct marketing (that includes e-commerce and Internet retailing); automatic vending; and buying services.

Although many retail stores are independently owned, an increasing number are falling under some form of corporate retailing. Retail organizations achieve many economies of scale, such as greater purchasing power, wider brand recognition, and better-trained employees. The major types of corporate retailing are corporate chain stores, voluntary chains, retailer cooperatives, consumer cooperatives, franchise organizations, and merchandising conglomerates.

Like all marketers, retailers must prepare marketing plans that include decisions on target markets, product assortment, and procurement, services and store atmosphere, price, promotion, and place. These decisions must take into account major trends, such as the growth of private labels, new retail forms and combinations, growth of intertype retail competition, competition between store-based and non-store based retailing, growth of giant retailers, decline of middle market retailers, growing investment in technology, and the global presence of major retailers.

Wholesaling includes all the activities in selling goods or services to those who buy for resale or business use. Wholesalers can perform functions better and more cost-effective than the manufacturer can. These functions include selling and promoting, buying and assortment building, bulk breaking, warehousing, transportations, financing, risk bearing, dissemination of market information, and provision of management services and consulting.

There are four types of wholesalers: merchant wholesalers; brokers and agents; manufacturers’ and retailers’ sales branches, sales offices, and purchasing offices; and miscellaneous wholesalers such as agricultural assemblers and auction companies.

Like retailers, wholesalers must decide on target markets, product assortment and services, price, promotion, and place. The most successful wholesalers are those who adapt their services to meet suppliers’ and target customers’ needs.

Producers of physical products and services must decide on market logistics—the best way to store and move goods and services to market destinations, to coordinate the activities of suppliers, purchasing agents, manufacturers, marketers, channel members, and customers. Major gains in logistical efficiency have come from advances in information technology.

OPENING THOUGHT

Most students are familiar with the retailer in which they have bought products. What is not so obvious to the students is that retailers, wholesalers, and distributors pass through stages of growth and decline. Students, for the most part, will be familiar with some of the retailer concepts described in the chapter, but not all. Second, non-store retailing may not be a familiar concept to some students. Others might have some familiarity with non-store retailing as in summer or part-time jobs at the mall.

The increasing “power” of retailers, especially mega-retailers, on their manufacturers and the channels of distribution will not be evident to the students. Wholesalers and distributors are generally “unseen” by the public and thus the students will probably not have any previous information about how these channels work or even that they existed. Guest speakers from the wholesaling or distribution industry can give insights to the students about the services they perform and the “value” that they add to the end consumer.

Students will be familiar with such industries as trucking and logistic firms but not about inventory management or control. The instructor is encouraged to spend some additional class time on the concepts of the market-logistic formula, order costs, set-up costs, processing costs, and inventory carrying costs. Accounting and financial textbooks would be a good source of additional information and explanations of how these costs affect the overall corporation.

TEACHING STRATEGY AND CLASS ORGANIZATION

PROJECTS

1. At this point in the semester long project for the “fictional” product or service, students should be directed to turn in their retailing, wholesaling, and logistical marketing plans. Those students who are acting in the role of providing a new “service” should include here their plans for locations, hours of operations, and how their “service” plan’s on managing demand and capacity issues.

1. This chapter is an appropriate one for out-of-class assignments because many students will not have to be encouraged to “go shopping.” The chapter identifies four levels of service in retailing—self-service, self-selection, limited service, and full-service. Students are to visit at least one of each type of the described retailers and are to comment vis-à-vis the retailer-positioning map (Figure 16.1). In their shopping trips, did students experience a dissonance between the service they received and their initial characterization of the store? In other words, did the student receive “better” service than they initially expected to receive from a self or limited service retailer? Did the students experience a “lack” of service from the store they perceived as “full service”? If either of these conditions occurred, ask the students to postulate a causal relationship for the occurrence.

1. Sonic PDA Marketing Plan Retailers and wholesalers play a critical role in marketing strategy because of their relationships with the final consumer. Manufacturers need to manage their connections with these channel intermediaries.

You are responsible for channel management for Sonic’s PDA. Based on your previous strategic choices, respond to the following questions about wholesaling and retailing strategy:

• What types of retailers will be most appropriate for distributing Sonic 1000?
• What are advantages and disadvantages of selling through these types of retailers?
• What role should wholesalers play in Sonic’s distribution strategy? Why?
• What market logistics issues must Sonic consider for the launch of its first PDA?

Summarize your answers in a written marketing plan or type them into the Marketing Mix and Channels sections of Marketing Plan Pro.

ASSIGNMENTS

Small Group Assignments

1. Two models for department store success seem to be emerging—one with a strong retail brand approach and one as a showcase store. In small groups, students are to investigate these two differing approaches to department store retailing and comment on the future of these concepts using the concepts defined in this chapter (target market selection, product assortment decisions, etc. and Table 16.3 criteria).
2. Atmospherics is an important component of store attractiveness. Every store has its own unique look, feel, and smell. Yet each consumer may react differently to each of these elements. In groups composed of male and female students, ask the students to visit three retailers of their own choosing and comment on how the store atmospherics affected them personally and then group the findings by sex. Why are there such differences? What can a store do to appeal to both sexes?

Individual Assignments

1. In his 1999 book entitled, “How we Buy,” SimonSchuster, New York, 1999, PacoUnderhill examines the shopping phenomena that consumers and retailers alike need to know. Students should be assigned to read this book and comment on the lessons learned.

1. New retail forms and combinations is one of the trends in retailing today. Examples include supermarkets with banks and bookstores featuring coffee shops. After reading the material in this chapter, ask the students to “speculate” on potential new retail forms or retail combinations yet undeveloped. In their selection of a “new” form of retailing or combination of retailers, ask the students to defend their choices using the ideas and concepts presented in this chapter.

Think-Pair-Share

1. Shop—that is, have students visit as many differing types of retailers (and non-store retailers) as they can over the course of a week. For each shopping occasion, ask the students to record their impressions of the store’s atmospherics, location, service levels, product selections, and others. Then rank their preferences from best to least and be able to explain why they assigned the ranking to each store in terms of the material covered in this chapter.

1. Store brands, or private label brands, account for one of every five items sold in the United States today. Students should purchase differing store brands/private label items (ice cream is a favorite choice for this experiment and can be conducted in class), the national branded product, and do a tastes test comparing the store brands and the national brand. Does the store or private label item meet or exceed the taste and quality of the national brand? What are the implications for national branded products if store/private label items meet or exceed the national brand? What should or could marketers’ do to differentiate these products?

MARKETING TODAY—CLASS DISCUSSION TOPICS

Assume the role of a small record or bookstore owner (similar to Manifest Disc and Tapes in the opening vignette of the chapter). Competition is coming at you from all sides—non-store retailing, the Internet, mega-stores, and others. You have taken a course in marketing management and understand the chapter on retailing covered in the course.

You must differentiate your store from competition in order to survive. Pulling from all of the information contained in this chapter, what options are open to you? What changes can you make to your store that would appeal to consumers? What elements of location, service, selection, purchasing, billing, and others could you implement?

Note to instructor: to complete this assignment, allow students to ignore financial or space limitations in developing their answers. Also, direct the students to the “wheel of retailing” for guidance.

END-OF-CHAPTER SUPPORT

MARKETING DEBATE—Should National Brand Manufacturers Also Supply Private Label Brands?

One controversial move by some marketers of major brands is to supply private label makers. For example, Ralston-Purina, Borden, ConAgra, and Heinz have all admitted to supplying products—sometimes lower in quality—to be used for private labels. Other marketers, however, criticize this “if you can’t beat them, join them” strategy, maintaining that these actions, if revealed, may create confusion or even reinforce a perception by consumers that all brands in a category are essentially the same.

Take a position:Manufacturers should feel free to sell private labels, as a source of revenue versus national manufacturers should never get involved with private labels.

Pro: Let us begin by defining buyers: Buyers buy products or use services to meet a particular need or want. Buyers of or for private label products do not act any differently than consumers of individual products in their buying processes. Manufacturers negatively impacted by the surge of private label products, actually made changes in consumer buying patterns ignored or missed by the national brands, have the fiduciary responsibility to their firms to maximize sales wherever possible. The opportunities to produce private label products may be and often is the salvation of the branded firm in offset production capacity and cash flow.

The major issue here is that the national branded firm did not anticipate the changes in consumers buying patterns in time to produce a national “flanker” brand to meet these consumer buying pattern changes. In the production and distribution of private labeled products, there is enough differentiation available to distinguish national brands from private label brands in quality, variety, sizes, packaging costs, and others that the consumer should not be confused or perceive that all brands in a category are essentially the same.

Con: Branded products are the lifeblood of the firm. In fact, branded products contribute to the company’s overall financial health by commanding a premium to stock prices due to consumer loyalty and familiarity with the brands. When a manufacturer partakes on the path of producing private labeled products, for whatever, the short-term gains, they begin the degradation of their branded products. If manufacturers feel the pressures of lost sales—lost market shares to the private labeled products— the solution would be to undergo the development of “superior branded products” offering the consumer increased value, convenience, convenient packaging, and more to increase the loyalty and value of their branded products to the consumer. The manufacturer always has the “option” of introducing “flanker” brands to compete against private labels thereby maintaining production capacities and cash flows.

MARKETING DISCUSSION

Think of your favorite stores. What is it that they do that encourages your loyalty? What do you like about the in-store experience?

Student answers will differ depending upon their favorite stores. However, all answers should include the definition of retailers:

1)Levels of service: self-service, self-selection, limited service, and full service.

2)Strong retail brand approach, showcase store.

3)Feature exclusive national brands; private label brands; blockbuster distinctive merchandising events; surprise or ever-changing merchandise; newest merchandise first; offer merchandise customizing services; and offer a highly targeted assortment.

4)Services mix: pre-purchase or post-purchase services, ancillary services.

5)Store atmosphere—“look,” or “feel.”

6)Store activities and experiences: place to congregate, “guests,” in-store entertainment.

MARKETING SPOTLIGHT—Wal-Mart

Discussion Questions:

1)What have been the key success factors for Wal-Mart?

1. The strategic concept—offer low prices to everyone; low prices, vast selection, and superior services.
2. Unrivaled logistics.
3. “Hub-and-spoke” network of distribution centers.
4. Advanced information systems: icon of just-in-time inventory control.
5. IT systems that work together.
6. Suppliers that tie-in to Wal-Mart’s Inventory Management System to analyze customers’ regional buying habits.

2)Where is Wal-Mart vulnerable?

1. Competitors duplicating or improving upon Wal-Mart’s strategic concept—low prices, vast selection and superior services.
2. Changes in consumer buying patterns—technology (the Internet).
3. Increases in private label products to more than 50 percent of selection.

3)What should Wal-Mart watch out for?

1. Community backlashes to the concept of superstores, “big-box retailers.”
2. Internal cannibalization caused by too many stores located too close to each other.

4)What recommendations would you make to senior marketing executives going forward?

1. Do not rest on past successes—continue your strategic direction.
2. Monitor changes in your target market’s definition of “service” and adapt to those changes.
3. Resist opportunities to expand your market (width and breath) that you begin to “lose” your “identity” with the consumer as to what your company means to them.

5)What should the company be sure to do with their marketing?

a.Emphasize your strengths in variety, selection, service, price, and convenience.

DETAILED CHAPTER OUTLINE

Intermediaries, retailers, wholesalers, and logistical organizations, must forge marketing strategies and strive for marketing excellence like any company or suffer the consequences.

Some intermediaries dominate the manufacturers who deal with them. Many use strategic planning, advanced information systems, and sophisticated marketing tools. They measure performance more on a return-on-investment than on a profit-margin basis. They segment their markets, improve their market targeting and positioning, and aggressively pursue market expansion and diversification strategies.

RETAILING

Retailing includes all the activities involved in selling goods or services directly to final consumers for personal, nonbusiness use.

A)A retailer or retail store is any business enterprise whose sales volume comes primarily from retailing.