Part Four Distribution Decisions 16 Retailing Copyright Houghton

Chapter Learning Objectives • To understand the purpose and function of retailers in the marketing channel • To identify the major types of retailers • To recognize the various forms of nonstore selling • To examine major types of franchising and its benefits and weaknesses • To explore strategic issues in retailing Copyright © Houghton Mifflin Company. All rights reserved. 2

Chapter Outline • The Nature of Retailing • Major Types of Retail Stores •

The Nature of Retailing • Retailing – Transactions in which ultimate consumers are the buyers • Retailers – Organizations that purchase products for the purpose of reselling them to ultimate consumers • Retailers add value—shopping convenience, services, and purchasing assistance to customers • Retailers create utility—time, place, possession, and form – Success in retailing comes from having a strong customer focus coupled with desired levels of service, product quality, and innovation. Copyright © Houghton Mifflin Company. All rights reserved. 4

Copyright © Houghton Mifflin Company. All rights reserved. 5

Major Types of Retail Stores • General-Merchandise Retailers – A retail establishment that offers a variety of product lines – Department stores • Large retail organizations characterized by wide product mixes and organized into separate departments to facilitate marketing efforts and internal management – Discount stores • Self-service, general merchandise stores offering brand name and private brand products at low prices – Supermarkets • Large, self-service stores that carry a complete line of food products, along with some nonfood products Copyright © Houghton Mifflin Company. All rights reserved. 6

Major Types of Retail Stores (cont’d) • General-Merchandise Retailers (cont’d) – Superstores • Giant retail outlets that carry food and nonfood products found in supermarkets, as well as most routinely purchased consumer products – Hypermarkets • Stores that combine supermarket and discount shopping in one location – Warehouse clubs • Large-scale, members-only establishments that combine features of cash-and-carry wholesaling with discount retailing Copyright © Houghton Mifflin Company. All rights reserved. 7

Major Types of Retail Stores (cont’d) • General-Merchandise Retailers (cont’d) – Warehouse showrooms • Retail facilities in large. low-cost buildings with large onpremise inventories and minimal services – Catalog showrooms • A form of warehouse showroom where consumers can shop from a catalog and products are stored out of buyers’ reach Copyright © Houghton Mifflin Company. All rights reserved. 8

Major Types of Retail Stores (cont’d) • Specialty Retailers – Traditional specialty retailers • Also called “limited-line” and “single-line” retailers • Carry a narrow product mix with deep product lines (e. g. , pet supplies) • Have higher costs and higher margins • Provide more product selection (first-line brands), product expertise, and high levels of personal service Copyright © Houghton Mifflin Company. All rights reserved. 9

Major Types of Retail Stores (cont’d) • Specialty Retailers (cont’d) – Off-price retailers • Buy manufacturers’ seconds, overruns, returns, and offseason merchandise for resale to consumers at deep discounts • Charge less than do department stores for comparable merchandise and offer few customer services • Have established long-term relationships with suppliers for continuing supplies of reduced-price goods – Category killers • Concentrate on a major product category and compete on the basis of low prices and product availability Copyright © Houghton Mifflin Company. All rights reserved. 10

Non. Store Retailing • Nonstore Retailing – The selling of products outside the confines of a retail facility – Growth sector of retailing due to • Consumers are less willing to devote personal time to shopping in retail stores. • Poorly trained and informed retail personnel can’t offer needed sales assistance. • Growing population of older shoppers who tend to shop less in large stores. Copyright © Houghton Mifflin Company. All rights reserved. 11

Non. Store Retailing (cont’d) • Direct Selling – The marketing of products to ultimate consumers through face-to-face sales presentations at home or in the workplace • Party plans: hosting groups to view a product demonstration and encouraging participants to purchase the products – Benefits • Personal attention to customer • Convenience of time and place of presentation – Limitations • High costs make it the most expensive form of selling • Negative consumer view of direct selling Copyright © Houghton Mifflin Company. All rights reserved. 12

Non. Store Retailing (cont’d) • Direct Marketing – The use of telephone and nonpersonal media to introduce products to consumers, who then can purchase them via mail, telephone, or the Internet Copyright © Houghton Mifflin Company. All rights reserved. 13

Direct Marketing • Catalog Marketing – A type of marketing in which an organization provides a catalog from which customers can make selections and place orders by mail, telephone, or the Internet • Consumer advantages are efficiency and convenience • Marketer advantages are lower location, facility, selling, and operating costs. • Disadvantages are inflexibility and limited selection and local service availability. Copyright © Houghton Mifflin Company. All rights reserved. 14

Direct Marketing (cont’d) • Direct-Response Marketing – A type of marketing that occurs when a retailer advertises a product and makes it available through mail or telephone orders • Telemarketing – The performance of marketing-related activities by telephone Copyright © Houghton Mifflin Company. All rights reserved. 15

Direct Marketing (cont’d) • Television Home Shopping – A form of selling in which products are presented to television viewers, who can buy them by calling a tollfree number and paying with a credit card • Online Retailing – Retailing that makes products available to buyers through computer connections • Automatic Vending – The use of machines to dispense products Copyright © Houghton Mifflin Company. All rights reserved. 16

Franchising • Franchising – An arrangement in which a supplier (franchiser) grants a dealer (franchisee) the right to sell products in exchange for some type of consideration • Franchiser furnishes equipment, buildings, management know-how, and marketing assistance. • Franchisee supplies labor and capital, and operates the business by the provisions of the franchise agreement. Copyright © Houghton Mifflin Company. All rights reserved. 17

Copyright © Houghton Mifflin Company. All rights reserved. 18

Major Types of Retail Franchises • Manufacturer Authorization – Product producer licenses retailers to sell its brand name product(s) • Distributor Authorization – Product producer licenses distributors to sell its brand name product to retailers • Producer Authorization – Franchiser supplies brand names, production techniques, or other services to franchisee while maintaining development and control of marketing strategies Copyright © Houghton Mifflin Company. All rights reserved. 19

Franchising (cont’d) • Advantages – Enables business startup with limited capital – Provides developed and proven business to franchisee – Attracts customers with established brand name – Allows immediate market entry – Motivates franchisee to succeed • Disadvantages – Control over aspects of the business and its operations by franchiser – Expense of continuing franchise royalties and advertising fees – Lack of control of franchisees by franchisor Copyright © Houghton Mifflin Company. All rights reserved. 20

Strategic Issues in Retailing • Retail Store Location – Factors affecting location • • Intended target market Kinds of products Suitability site for customer access Characteristics of existing retail operations • Types of Locations – Free-standing structures • Position relative to competition • Customer access and parking – Traditional business districts • Redevelopment of decaying downtown infrastructure Copyright © Houghton Mifflin Company. All rights reserved. 21

Strategic Issues in Retailing (cont’d) • Traditional Shopping Centers – Neighborhood shopping centers • Usually consist of several small convenience and specialty stores. – Community shopping centers • Include one or more department stores (anchors), some specialty stores, and convenience stores. – Regional shopping centers • Have the largest department stores, the widest product mix, and the deepest product lines of all shopping centers. Copyright © Houghton Mifflin Company. All rights reserved. 22

Strategic Issues in Retailing (cont’d) • Nontraditional Shopping Centers – Factory outlet malls • Shopping centers that feature discount and factory outlet stores carrying traditional brand name products – Miniwarehouse mall • Loosely planned centers that lease space to retailers running retail stores out of warehouse bays – Nonanchored malls • Do not have traditional department store anchors; instead combine off-price and category killer stores in a “power center” format Copyright © Houghton Mifflin Company. All rights reserved. 23

Strategic Issues in Retailing (cont’d) • Retail Positioning – Identifying an unserved or underserved market segment and serving it through a strategy that distinguishes the retailer from others in the minds of consumers in that segment • Store Image – Atmospherics • The physical elements in a store’s design that appeal to consumers’ emotions and encourage buying • Interior layout, colors, furnishings, and lighting • Exterior storefront and entrance design, display windows, and traffic congestion Copyright © Houghton Mifflin Company. All rights reserved. 24

Strategic Issues in Retailing (cont’d) • Scrambled Merchandising – The addition of unrelated products and product lines to an existing product mix, particularly fast-moving items that can be sold in volume – Intent of scrambled merchandising • • Convert stores into one-stop shopping centers Generate more customer traffic Realize higher profit margins Increase impulse purchases Copyright © Houghton Mifflin Company. All rights reserved. 25

Strategic Issues in Retailing (cont’d) • The Wheel of Retailing – A hypothesis holding that new retailers usually enter the market as low-status, low-margin, low-price operators but eventually evolve into high-cost, high price merchants. ’s y r yb all a M the M at Copyright © Houghton Mifflin Company. All rights reserved. 26

The Wheel of Retailing Source: Adapted from Robert F. Hartley, Retailing: Challenge and Opportunity, 3 rd ed. , p. 42. Copyright © 1984 by Houghton Mifflin Company. Used by permission. Copyright © Houghton Mifflin Company. All rights reserved. FIGURE 16. 1 27

After reviewing this chapter you should: • Understand the purpose and function of retailers in the marketing channel • Be able to identify the major types of retailers • Recognize the various forms of nonstore retailing • Have examined the major types of franchising and franchising’s strengths and weaknesses • Have explored the strategic issues in retailing Copyright © Houghton Mifflin Company. All rights reserved. 28

Chapter 16 Supplemental Slides Copyright © Houghton Mifflin Company. All rights reserved. 16– 29

Key Terms and Concepts • The following slides (a listing of terms and concepts) are intended for use at the instructor’s discretion. • To rearrange the slide order or alter the content of the presentation – select “Slide Sorter” under View on the main menu. – left click on an individual slide to select it; hold and drag the slide to a new position in the slide show. – To delete an individual slide, click on the slide to select, and press the Delete key. – Select “Normal” under View on the main menu to return to normal view. Copyright © Houghton Mifflin Company. All rights reserved. 30

Important Terms • Retailing – Transactions in which ultimate consumers are the buyers • Retailers – Organizations that purchase products for the purpose of reselling them to ultimate consumers • General-Merchandise Retailers – A retail establishment that offers a variety of product lines that are stocked in depth Copyright © Houghton Mifflin Company. All rights reserved. 31

Important Terms • Department stores – Large retail organizations characterized by wide product mixes and organized into separate departments to facilitate marketing efforts and internal management • Discount Stores – Self-service, general merchandise stores offering brand name and private brand products at low prices • Supermarkets – Large, self-service stores that carry a complete line of food products, along with some nonfood products Copyright © Houghton Mifflin Company. All rights reserved. 32

Important Terms • Superstores – Giant retail outlets that carry food and nonfood products found in supermarkets, as well as most routinely purchased consumer products • Hypermarkets – Stores that combine supermarket and discount shopping in one location • Warehouse Clubs – Large-scale, members-only establishments that combine features of cash-and-carry wholesaling with discount retailing Copyright © Houghton Mifflin Company. All rights reserved. 33

Important Terms • Warehouse Showrooms – Retail facilities in large. low-cost buildings with large onpremise inventories and minimal services • Catalog Showrooms – A form of warehouse showroom where consumers can shop from a catalog and products are stored out of buyers’ reach • Traditional Specialty Retailers – Carry a narrow product mix with deep product lines Copyright © Houghton Mifflin Company. All rights reserved. 34

Important Terms • Off-Price Retailers – Buy manufacturers’ seconds, overruns, returns, and offseason merchandise for resale to consumers at deep discounts • Category Killers – Concentrate on a major product category and compete on the basis of low prices and product availability • Nonstore Retailing – The selling of products outside the confines of a retail facility Copyright © Houghton Mifflin Company. All rights reserved. 35

Important Terms • Direct Selling – The marketing of products to ultimate consumers through face-to-face sales presentations at home or in the workplace • Direct Marketing – The use of telephone and nonpersonal media to introduce products to consumers, who then can purchase them via mail, telephone, or the Internet • Catalog Marketing – A type of marketing in which an organization provides a catalog from which customers can make selections and place orders by mail, telephone, or the Internet Copyright © Houghton Mifflin Company. All rights reserved. 36

Important Terms • Direct-Response Marketing – A type of marketing that occurs when a retailer advertises a product and makes it available through mail or telephone orders • Telemarketing – The performance of marketing-related activities by telephone • Television Home Shopping – A form of selling in which products are presented to television viewers, who can buy them by calling a tollfree number and paying with a credit card Copyright © Houghton Mifflin Company. All rights reserved. 37

Important Terms • Online Retailing – Retailing that makes products available to buyers through computer connections • Automatic Vending – The use of machines to dispense products • Franchising – An arrangement in which a supplier (franchiser) grants a dealer (franchisee) the right to sell products in exchange for some type of consideration Copyright © Houghton Mifflin Company. All rights reserved. 38

Important Terms • Manufacturer Authorization – Product producer licenses retailers to sell its brand name product(s) • Distributor Authorization – Product producer licenses distributors to sell its brand name product to retailers • Producer Authorization – Franchiser supplies brand names, production techniques, or other services to franchisee while maintaining development and control of marketing strategies Copyright © Houghton Mifflin Company. All rights reserved. 39

Important Terms • Neighborhood Shopping Centers – Usually consist of several small convenience and specialty stores. • Community Shopping Centers – Include one or more department stores (anchors), some specialty stores, and convenience stores. • Regional Shopping Centers • Have the largest department stores, the widest product mix, and the deepest product lines of all shopping centers. Copyright © Houghton Mifflin Company. All rights reserved. 40

Important Terms • Factory outlet malls – Shopping centers that feature discount and factory outlet stores carrying traditional brand name products • Miniwarehouse mall – Loosely planned centers that lease space to retailers running retail stores out of warehouse bays • Nonanchored malls – Do not have traditional department store anchors; instead combine off-price and category killer stores in a “power center” format Copyright © Houghton Mifflin Company. All rights reserved. 41

Important Terms • Retail Positioning – Identifying an unserved or underserved market segment and serving it through a strategy that distinguishes the retailer from others in the minds of consumers in that segment • Atmospherics – The physical elements in a store’s design that appeal to consumers’ emotions and encourage buying • Scrambled Merchandising – The addition of unrelated products and product lines to an existing product mix, particularly fast-moving items that can be sold in volume Copyright © Houghton Mifflin Company. All rights reserved. 42

Important Terms • The Wheel of Retailing – A hypothesis holding that new retailers usually enter the market as low-status, low-margin, low-price operators but eventually evolve into high-cost, high price merchants. Copyright © Houghton Mifflin Company. All rights reserved. 43

Transparency Figure 16 C General Merchandise Retailers Type of Retailer Department store Examples Foleys, Lord &Taylor, Sears Discount store Wal-Mart, Kmart, Target Supermarket Food Lion, A&P, Ralph’s, Safeway, Krogers Superstore Wal-Mart Supercenter Hypermarket Carrefour’s Warehouse club SAM’s, Price-Costco Warehouse showroom lkea Furniture Catalog showroom Service. Merchandise Copyright © Houghton Mifflin Company. All rights reserved. 44

Transparency Figure 16 E Examples of Category Killers • Toys “R” Us • Home Depot • Best Buy • Office Depot • PETs. Mart • Barnes & Noble Can you think of others? Copyright © Houghton Mifflin Company. All rights reserved. 45

Transparency Figure 16 G Customers’ Reactions to Telemarketing Calls How can telemarketers be more effective in reaching customers? Source: “Do Not Disturb, ” American Demographics, May 2001, p. 28. Adapted with permission. Copyright © Houghton Mifflin Company. All rights reserved. 46

Transparency Table 16 H Percentage of Online Shoppers Who Have Experienced Problems Sometimes or Frequently Source: “Houston, We Have A Problem, ” American Demographics, The Marketing Tools Directory, 2002, p. D 60. Adapted with permission. Copyright © Houghton Mifflin Company. All rights reserved. 47