Retailing and Direct Marketing 17 Retailing and Direct Marketing

The Nature of Retailing Major Types of Retail Stores Direct Marketing Agenda 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.

The Nature of 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.

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.

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.

Major Types of Retail Stores (cont’d) General-Merchandise Retailers (cont’d) 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.

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.

Traditional Specialty Retailer © Carol Lundeen Copyright © Houghton Mifflin Company. All rights reserved.

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 (“big box”) Concentrate on a major product category and compete on the basis of low prices and product availability Copyright © Houghton Mifflin Company. All rights reserved.

Examples of Category Killers Toys ‘R’ Us Home Depot Best Buy Office Depot PETsMart Barnes & Noble Copyright © Houghton Mifflin Company. All rights reserved.

Direct Marketing Nonstore Retailing Direct Marketing The selling of products outside the confines of a retail facility 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.

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.

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.

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.

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.

Satisfaction Scores for Online Retailers American Customer Satisfaction Index Year-to-Year Comparison E-Retail Online Brand 2002 2003 % Change Amazon.com 88 0% Barnesandnoble.com 87 86 -1.1% Buy.com 80 1-800-Flowers.com 78 76 -2.6% All others 82 83 1.2% Average e-tailer 84 Source: ACSI as reported in American Demographics, April 2004, p.16. Copyright © Houghton Mifflin Company. All rights reserved.

Satisfaction Scores for Online Retailers (cont’d) American Customer Satisfaction Index Year-to-Year Comparison E-Travel Online Brand 2002 2003 % Change Expedia 80 78 -2.5% Orbitz 76 77 1.3% Travelocity.com 0% All others Average e-travel score Source: ACSI as reported in American Demographics, April 2004, p.16. Copyright © Houghton Mifflin Company. All rights reserved.

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 “Door-to-door” 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.

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.

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.

Copyright © Houghton Mifflin Company. All rights reserved.

Franchising (cont’d) Advantages Disadvantages 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.

If You Had the Financial Resources to Purchase a Franchise, Which Company Would You Select? Why? Reprinted with permission of Papa John’s International, Inc. Copyright © Houghton Mifflin Company. All rights reserved.

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.

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.

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.

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.

How to Succeed in Retailing as a Small Business 1. Differentiate your product from that of the other stores (avoid direct competition). 2. Determine your specific niche…you can’t please everyone. 3. Select a location with easy access and high visibility. 4. Offer products with selling features. 5. Train your employees to develop strong employee/customer relationships. 6. Plan store-related events to create excitement. 7. Focus your ad dollars on one medium versus inadequately buying many media. Source: Reprinted with permission from Arthur Andersen Retailing Issues Letter, July 1995, Vol. 7, No. 4, p. 5. Used with permission. Copyright © Houghton Mifflin Company. All rights reserved.