Kotler Summary – Chapter 19: Managing Retailing, Wholesaling & Market Logistics

Retailing includes all the activities involved in selling goods or services directly to final customers for their personal, nonbusiness use. A retailer is any business enterprise whose sales volume comes primarily from retailing.

Types of Retailing

Store Retailing: 8 categories

1. Specialty Stores: Carry a narrow product line with a deep assortment within the line. Ex: Athlete’s Foot, Tall Men, The Limited.
2. Department Stores: Carry several product lines. Ex: Sears, J.C. Penney, Bloomingdale’s.
3. Supermarkets: Relatively large, low-cost, low-margin, high-volume, self-service operations designed to serve the consumer’s total needs for food, laundry, & household maintenance products. Ex: Kroger, Safeway, Food Lion.
4. Convenience Stores: Relatively small stores located near residential areas, opened long hours seven days a week. Ex: 7-eleven
5. Discount Stores: Sell standard merchandise at lower prices by accepting lower margins & selling higher volumes. Ex: Wal-Mart, H.E.B., Kmart.
6. Off-Price Retailers: Buy at less than regular wholesale prices & charge consumers less than retail.
   • Factory outlets: Owned & operated by manufacturers & normally carry the manufacturer’s surplus, discontinued or irregular goods. Ex: Ralph Lauren, Liz Claiborne.
   • Independent off-price retailers: Owned & run either by entrepreneurs or by division of larger retail corporations. Ex: TJX Cos.
   • Warehouse clubs: Sell a limited number of brand-name grocery items, appliances, clothing, etc. at deep discounts. Operate in huge, low-overhead, warehouse-like facilities. No credit cards. No deliveries. Ex: Sam’s Club.
7. Superstores: 35,000 square feet selling space. Meets consumer’s total needs. Ex: Petsmart, Home Depot, Staples.
8. Catalog Showrooms: Sell a broad selection of high-markup, fast-moving, brand-name goods at discount. Ex: Service Merchandise.

Retail life cycle: emerges, grows, matures, declines.

Wheel-of-retailing hypothesis:
New store types emerge to challenge old store types.

New store types emerge to meet widely different consumer preferences for service levels & specific services. Retailers can position themselves as offering one of four levels of service:

1. Self-service.
2. Self-selection. Customers can ask for assistance. Higher operating expenses than the previous one.
3. Limited-service. More sales assistance because customers need more info.
4. Full-service. Provides salespeople who are ready to assist in every phase of the locate-compare-select process.

Nonstore Retailing: 4 major categories

1. Direct Selling: Oldest one. 3 types:
• One-to-one selling: A salesperson visits & tries to sell products to a single potential user. Ex: Avon, Electrolux.
• One-to-many: A salesperson goes to the house of a host who has some people in the house. Ex: Tupperware.
• Multilevel: A variant of direct selling in which companies recruit independent businesspeople who act as distributors for their products. These distributors in turn recruit & sell to sub-distributors, who eventually recruit others to sell their products, usually in customer homes. Ex: Amway, NuSkin.
2. Direct Marketing: Includes telemarketing, TV direct response marketing & electronic shopping. Ex: 1-800-FLOWERS, Home Shopping Network.
3. Automatic Vending: Vending machines offer 24 hour selling, self-service & unhandled merchandise. Ex: COKE, Pepsi.
4. Buying Service: A storeless retailer serving specific clienteles- usually the employees of large organizations, such as schools, hospitals, unions, & government agencies. Ex: United Buying Service

Retail Organizations

Achieve many economies of scale, such as greater purchasing power, wider brand recognition, & better trained employees. The major types of retail organizations are:

1. Corporate Chain Stores: Two or more outlets that are commonly owned & controlled, employ central buying & merchandising, & sell similar lines of merchandise. Their size allows them to buy in large quantities. Ex: Tower Records, Pottery Barn.
2. Voluntary Chain: Wholesaler-sponsored group of independent retailers engaged in bulk buying & common merchandising. Ex: Independent Grocers Alliance.
3. Retailer Cooperative: Independent retailers who set up a central buying organization & conduct joint promotion efforts. Ex: Associated Grocers, ACE.
4. Consumer Cooperative: A retail firm owned by its customers. Started by community residents. Ex: local consumer cooperatives.
5. Franchise Organization: Contractual association between a franchiser & franchisees. Normally based on some unique product, service or method of doing business. Prominent in fast foods, video stores, health/fitness centers, auto rentals. Ex: McDonald’s, Pizza Hut, Taco Bell, Burger King.
6. Merchandising Conglomerate: A free-form corporation that combines several diversified retailing lines & forms under central ownership , along with some integration of their distribution-&-management function Ex: F.W. Woolworth, Kids Mart.

Retailer Marketing Decisions

1. Target-market decision: A retailer’s most important decision. Until the target is not defined, the retailer cannot make consistent decisions. Retailers should conduct periodic marketing research to ensure that they are reaching & satisfying their target customers.
2. Product Assortment-&-procurement decision: Must match the target market’s shopping expectations. The retailer has to decide on product-assortment breadth & depth. Another product assortment dimension is the quality of the goods. The real challenge is to develop a product differentiation strategy:
• Feature some exclusive brands not available at competing retailers.
• Feature mostly private branded merchandise.
• Feature blockbuster distinctive merchandise events.
• Feature surprise or ever-changing merchandise
• Feature the latest or newest merchandise first.
• Offer merchandise customizing services.
• Offer a highly targeted assortment

Once the retailer decides on the product-assortment strategy, the retailer must decide on procurement sources, policies, & practices. Retailers are rapidly improving their procurement skills. Stores are learning to measure direct product profitability, which enables them to measure a product’s handling costs from the time it reaches their warehouse until a customer buys it & takes it out.

3. Services-&- store- atmosphere decision: The services mix is one of the key tools for differentiating one store from another. The store’s atmosphere is another element. Ex: Banana Republic stores work on the concept of retail theater.
4. Price Decision: Key positioning factor & must be decided in relation to the target market, the product-&-service-assortment & competition. Retailers must pay attention to pricing tactics. They will plan markdowns on slower-moving merchandise. A growing number of retailers have abandoned “sales pricing” in favor of everyday low pricing (EDLP). This could lead to lower advertising costs, greater pricing stability, a stronger store image of fairness & liability, & higher retail profits.
5. Promotion Decision: Use promotion tools that reinforce image position.
6. Place Decision: Retailers have a choice of locating their stores in:
• Central business districts (downtown). Rents are high.
• Regional shopping centers. Large suburban malls containing 40-200 stores. Malls are attractive because of generous parking, one-stop shopping, restaurants, & recreational facilities.
• Community shopping centers. Smaller malls. Between 20-40 smaller stores.
• Strip malls. Contain a cluster of stores, usually housed in one long building.
• A location within a larger store. Certain well known retailers-McDonald’s, Dunkin Donuts- are locating units in airports, schools, Wal-Marts.

Retailers can assess a particular store’s sales effectiveness by looking at four indicators:

1. Number of people passing by on an average day.
2. % who enter the store.
3. % of those entering who buy.
4. Average amount spent per sale.

Trends in Retailing

Main developments that retailers need to take into account as they plan their competitive advantage:

• New Retail Forms constantly emerge to threaten established retail forms.
• Shortening Retail Life Cycles. Retail forms are rapidly copied.
• Nonstore Retailing due to electronic age.
• Increasing Intertype Competition. Competition between store & nonstore retailers is common.
• Polarity of Retailing.
• Giant Retailers are emerging.
• Changing Definition of One-Stop Shopping. Now specialty stores within malls are becoming increasingly competitive with large department stores in offering one-stop shopping.
• Growth of Vertical Marketing Systems.
• Portfolio Approach. Retail organizations are increasingly designing & launching new store formats targeted to different lifestyle groups.
• Growing Importance of Retail Technology.
• Global Expansion of Major Retailers due to mature & saturated markets at home. Ex: The Gap, Burger King, Tony Romas.
• Retail Stores as Community Centers or Hangouts. Establishments that provide a place for people to congregate (cafes, tea shops, book-shops, etc.).

Wholesaling

All the activities involved in selling goods or services to those who buy for resale or business use.

• Excludes manufacturers, farmers & retailers.
• They are also called distributors.
• Pay less attention to promotion, atmosphere & location.
• Transactions are larger than in retailing.
• They are used whenever they perform one of the following more efficiently: selling & promoting, buying & assortment building, bulk breaking, warehousing, transportation, financing, risk bearing, market info & management services & counseling.

Types of Wholesalers

1. Merchant wholesalers. Independently owned businesses that take title to the merchandise they handle. Two categories:
• Full service wholesalers provide a full line of services. Two types:
• wholesale sell primarily to retailers
• industrial distributors sell to manufacturers.
• Limited-service wholesalers offer fewer services than full-service wholesalers. Several types:
• Cash & carry wholesalers. Limited line of fast moving goods. Sell to small retailers. Do not deliver.
• Truck wholesalers. Limited line of semi-perishable products. Sell & deliver.
• Drop shippers. Operate in bulk industries. Do not carry inventory.
• Rack jobbers. Serve grocery & drug retailers. Bill the retailers only for the goods sold to consumers.
• Producers’ cooperatives. Owned by farmer members & assemble farm produce to sell in local markets.
• Mail-order wholesalers. Send catalogs.
2. Brokers & agents. Do not take title to goods & perform only a few functions.
• Brokers bring buyers & sellers together & assist in negotiation.
• Agents represent either buyers or sellers on a more permanent basis than brokers do. Several types:
• Manufacturers’ agents
• Selling agents
• Purchasing agents
• Commission merchants
3. Manufacturers’ & retailers’ branches & offices. Branches & offices dedicated either to either sales or purchasing.
4. Miscellaneous Wholesalers. A few specialized types of wholesalers are found in certain sectors of the economy.

Market Logistics

Involves planning, implementing & controlling the physical flows of materials & final goods from points of origin to points of use to meet customer requirements at a profit. Info systems plays a critical role in managing market logistics.

Involves several activities: sales forecasting, distribution, production & inventory levels.

Decisions

Order processing: How should orders be handled?
Warehousing: Where should stocks be located?
Inventory: How much stock should be held?
Transportation: How should goods be shipped?