Chapter 13 Retailers Wholesalers and Their Strategy Planning

Chapter 13: Retailers, Wholesalers, and Their Strategy Planning For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Examples of Factors that Influence a Consumer's Choice of a Retailer l. Convenience l. Variety of selection l. Quality of products l. Help from salespeople l. Reputation l. Price l. Services offered l… all combine to impact the customer For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Distribution of Stores by Size and Share of Total U. S. Retail Sales $5 m ill or m ion ore Store Size: Less th $50, an 000 $50, 000 $99, to 000 $100 , 0 $249 0 to , 000 $249 , 00 $499 0 to , 999 $500 , $1, 0 000 to 00, 0 00 $1 to $2 millio. 5 n $2. 5 to $ millio 5 n A few large retailers make most of the sales For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Some Trends in Retailing l Growth of Internet merchants and on-line retailing l Electronic retailing (kiosks, TV, etc. ) l In-home shopping (catalogs, etc. ) l More price competition l Vertical integration l More chains and franchises l chains becoming larger, more powerful l More and better information (for example, scanner data) For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Retailer Store Types l Store types extend the idea of product classes l Types are based on the way customers think about the store l Not just on the products they carry! l Convenience Stores—convenient places to shop l Shopping Stores—attract customers with assortments l Specialty Stores—stores for which customers have a strong attraction For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Mass Merchandising Example l Retailer Unit Cost is l $10 each if 1 -99 units are purchased l $9 each if 100 -249 units are purchased l $8 if 250+ are purchased l You think that if your consumer price is $20, you will sell 50 units a year l You think that if your consumer price is $12 you will sell 900 units a year l What is the profits of the $20 and $12 price points? For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Mass Merchandising Example l At the $20 price l 50 ($20 - 10) = $500 profit l At the $12 price l 900 ($12 - 8) = $3, 600 profit l Which is best - key is profits l What is the profit at a consumer price of $7. 50 if you sell 5000 units? For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Mass Merchandising Example l At a consumer price of $7. 50 l 5000 ($7. 5 - 8) = $2, 500 loss l You cannot sell below your unit costs and make a profit! For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Franchise Operations l The franchiser develops a good marketing strategy and the retail franchise holders carry out the strategy in their own units. l Strong legal contracts govern the relationship l Franchisers have been successful with newcomers lespecially popular with service operations l Franchise sales are still growing, but not as fast as in 1980 s For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Franchising l Franchiser - company granting the franchise l Franchisee - person getting the franchise l For Franchisers l Expand more rapidly by lowering capital costs l Lose some degree of control over strategy l They save the best locations for the parent company For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Franchising l For Franchisees l Opportunity to buy business expertise l Opportunity to own their own business l Failure rate is around 5% vs 70% for other new retailers l Significant start-up costs ($100, 00 & location cost is common) l The contract terms are critical (locations, pricing, purchase obligations). For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Internet Retailing l Although Growing Fast - is very small (4%) l Most large internet retailers have 0 profits l Low entry barriers - price competition is very tough l Clear cost advantage if product has little weight - concert tickets l May be no advantage when unit shipping costs are high (groceries) For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Internet Retailing l Allows wide distribution for very narrow retail categories l Allows world-wide distribution - if the customer can find you l Overcoming purchase risk is a real problem l trying the product in advance l is the retailer a con artist? l How good is after sales service - returns? l Consumer can’t get the product immediately l May be very hard for retailers to gain long run profits due to low entry barriers and the ease of price comparisons l Most Common for Business Purchases For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

What a Wholesaler Might Do for Producer. Suppliers l. Provide part of the selling function l. Store inventory (cut producer's warehousing costs) l. Supply capital (by purchasing producer's output before it is sold to final customers) l. Reduce credit risks l. Provide marketing information For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Types of Wholesalers Does wholesaler own the products? Yes (merchant wholesaler) No (agent middleman) How many functions does the wholesaler provide? Some functions All the functions Agent middlemen Limited-function merchant Wholesalers Service merchant wholesalers Exhibit 13 -6 13 -9 For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Types of Merchant Wholesalers General Merchandise Rack Jobbers Catalog Types of Merchant Wholesalers Specialty Cash-and-Carry Truck 13 -10 Single- or General-Line Drop-Shippers For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Types of Agent Middlemen Manufacturers’ Agents Auction Companies Types of Agent Middlemen Other types of Specialists 13 -11 Brokers Selling Agents For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Manufacturers' Agents l. Sell similar products for several noncompeting producers l. Work on a commission basis l. Basically are independent, aggressive sales reps l. Especially helpful to small producers and producers whose customers are very spread out For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill

Manufacturer’s Agents l Advantages: l Work on commission (variable cost basis) l Allow market entry by small or weak firms l Allow coverage in limited markets l No overhead of a company sales force l Disadvantages: l Far less control of personal selling l May have little attention paid to the product l Commission rate l (to the agent) Sometimes used to develop a territory - then fired For use only with Perreault and Mc. Carthy texts. © The Mc. Graw-Hill Companies, Inc. , 1999 Irwin/Mc. Graw-Hill