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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:


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

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.


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?