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

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

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Distribution of Stores by Size and Share of Total U.S. Retail Sales $5 million or more Less than $50,000 $50,000 to $99,000 $100,00 to $249,000 $500,000 to $1,000,000 $1 to $2.5 million $2.5 to $5 million $249,000 to $499,999 Store Size: A few large retailers make most of the sales

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

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

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

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Mass Merchandising Example At the $20 price 50 ($ ) = $500 profit At the $12 price 900 ($12 - 8) = $3,600 profit key Which is best - key is profits What is the profit at a consumer price of $7.50 if you sell 5000 units?

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Mass Merchandising Example At a consumer price of $7.50 loss 5000 ($ ) = $2,500 loss You cannot sell below your unit costs and make a profit!

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

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

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

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

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

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

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

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

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

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

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