Part Six Distribution Decisions 17 Retailing and Direct Marketing

Copyright © Houghton Mifflin Company. All rights reserved.17 | 2 Objectives 1.To understand the purpose and function of retailers in the marketing channel 2.To identify the major types of retailers 3.To understand direct marketing and two other forms of nonstore retailing 4.To examine major types of franchising and the benefits and weaknesses of franchising 5.To explore strategic issues in retailing

Copyright © Houghton Mifflin Company. All rights reserved.17 | 3 Chapter Outline The Nature of Retailing Major Types of Retail Stores Direct Marketing Other Types of Nonstore Retailing Franchising Strategic Issues in Retailing

Copyright © Houghton Mifflin Company. All rights reserved.17 | 4 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.

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Copyright © Houghton Mifflin Company. All rights reserved.17 | 6 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

Copyright © Houghton Mifflin Company. All rights reserved.17 | 7 Major Types of Retail Stores (cont’d) General-Merchandise Retailers (cont’d) –Supermarkets Large, self-service stores that carry a complete line of food products, along with some nonfood products –Superstores Giant retail outlets that carry food and nonfood products found in supermarkets, as well as most routinely purchased consumer products

Copyright © Houghton Mifflin Company. All rights reserved.17 | 8 Major Types of Retail Stores (cont’d) General-Merchandise Retailers (cont’d) –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.17 | 9 Major Types of Retail Stores (cont’d) General-Merchandise Retailers (cont’d) –Warehouse showrooms Retail facilities in large, low-cost buildings with large on-premise 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.17 | 10 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.17 | 11 Major Types of Retail Stores (cont’d) Specialty Retailers (cont’d) –Off-price retailers Buy manufacturers’ seconds, overruns, returns, and off- season merchandise for resale to consumers at deep discounts Charge less than 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.17 | 12 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 –A type of nonstore retailing Nonstore Retailing –The selling of products outside the confines of a retail facility

Copyright © Houghton Mifflin Company. All rights reserved.17 | 13 Direct Marketing (cont’d) 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.17 | 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.17 | 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 toll-free number and paying with a credit card Online Retailing –Retailing that makes products available to buyers through computer connections

Copyright © Houghton Mifflin Company. All rights reserved.17 | 16 Other Types of Nonstore Retailing 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.17 | 17 Other Types of Nonstore Retailing (cont’d) Automatic Vending –The use of machines to dispense products –Can include items such as candy, chewing gum, soft drinks, cigarettes, newspapers, and coffee Advantages: small amount of space needed and no sales personnel Disadvantages: high costs of equipment and frequent servicing

Copyright © Houghton Mifflin Company. All rights reserved.17 | 18 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.

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Copyright © Houghton Mifflin Company. All rights reserved.17 | 21 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.17 | 22 Franchising (cont’d) Advantages –Enables 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.17 | 23 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 –Traditional business districts

Copyright © Houghton Mifflin Company. All rights reserved.17 | 24 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.17 | 25 Strategic Issues in Retailing (cont’d) Nontraditional Shopping Centers –Factory outlet malls Feature discount and factory outlet stores carrying traditional brand name products –Miniwarehouse mall Loosely planned; lease space to retailers running retail stores out of warehouse bays –Nonanchored malls Do not have traditional department store anchors; combine off-price and category killer stores in a “power center” format

Copyright © Houghton Mifflin Company. All rights reserved.17 | 26 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.17 | 27 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.17 | 28 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. Maybry’s at the Mall

Copyright © Houghton Mifflin Company. All rights reserved.17 | 29 The Wheel of Retailing FIGURE 17.1 Source: Adapted from Robert F. Hartley, Retailing: Challenge and Opportunity, 3rd ed., p. 42. Copyright © 1984 by Houghton Mifflin Company. Used by permission.

Copyright © Houghton Mifflin Company. All rights reserved.17 | 30 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 the strengths and weaknesses of franchising. Have explored strategic issues in retailing.