Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Chapter 16 Retailing: Bricks and Clicks

16-2 Chapter Objectives 1.Explain the wheel of retailing. 2.Explain how retailers select target markets. 3.Show how the elements of the marketing mix apply to retailing strategy. 4.Discuss the different types of retailers. 5.Compare the basic types of nonstore retailing. 6.Describe B2C e-commerce and its benefits, limitations, and future promise

16-3 Retailing Overview Retailing - the activities involved in selling goods and services to ultimate consumers  The retailer adds or subtracts value from the offering with its image, inventory, service quality, location, and pricing policy  Retailing is big business:  2007 U.S. sales totaled $4.5 trillion  More than one of every ten U.S. workers are employed in retailing

16-4 Retailing Overview Evolution of Retailing First Retailers were trading posts such as the Hudson Bay Company First Retail Institution in the U.S. was the General Store Supermarkets appeared in the early 1930s Discount stores arrived in the 1950s Convenience food stores emerged in the 1960s 1990’s saw the birth of E-tailing

16-5 Wheel of Retailing Hypothesis that each new type of retailer gains a competitive foothold by offering lower prices than current retailers, while maintaining profits through reduction of services Once established, more services are introduced and prices rise That type becomes vulnerable to new, lower price types of retailing General Stores  Department Stores  Discount Stores  Superstores  E-tailers Q. What’s next????

16-6 Retailing Strategy 1.Select a target market - analyze demographic, geographic, and psychographic profiles to segment and select potential markets 2.Position the store - Carve out a Retail image - consumers’ perceptions of a store and the shopping experience it provides 3.Develop a retailing mix to satisfy the chosen target market: A.Merchandising Strategy (Product) B.Customer Service Strategy (Product) C.Pricing Strategy D.Location Strategy & Atmospherics (Distribution) E.Promotional Strategy

16-7 A. Merchandising Strategy – deciding what items a store will offer Category management: Retailing strategy which views each product category as an individual profit center. Retailers stock those categories that make the most profit per square foot. The Battle for Shelf Space Slotting allowances: fees paid by manufacturers to secure shelf space from retailers for their products

16-8 – B. Customer Service Strategy – deciding on the variety of services made available for shoppers (such as return policy & delivery), depending on: Store size and location Merchandise assortment Competitive offerings Customer expectations Financial resources Objectives are to enhance the shopping experience and attract & retain customers Q. What services should an upscale restaurant provide? A furniture store? A rental car business?

16-9 Tiffany & Co. Distinctive blue box gift wrapping is part of Tiffany’s customer service strategy

16-10 C. Pricing Strategy Markup: The amount a retailer adds to a product’s cost to determine its selling price. Determined by: Services the retailer performs Product life cycle Supply/demand Inventory turnover rate Markdown: The amount by which a retailer reduces a product’s original selling price

16-11 Marshall’s Promoting its low price strategy

16-12 D. Location-Distribution Strategy Planned shopping center (mall): A group of retail stores planned, coordinated, and marketed as a single unit. Types include: Neighborhood – 5 to 15 stores serving locals Community – stores with an anchor. May have a bank, offices, and a theatre Regional – Needs 250k people within 30 minutes. Has at least 400k square feet Power Center – Usually near a Regional mall with stand alone stores Lifestyle center – combination of shopping, entertainment, and restaurants (looks good)

16-13 Mall of America Combining shopping with entertainment Mall of America is one of the most visited destinations in the United States, attracting more visitors annually than Disney World, Graceland and the Grand Canyon combined.

16-14 West Edmonton Mall Promoted as the world’s largest mall. Over 800 stores spanning 48 city blocks! There are 110 eating establishments. Seven world class attractions.

16-15 Store Atmospherics The use of color, lighting, scents, furnishings, sounds, and other design elements to create a desired store image The store’s “personality” Disney Stores borrow from their theme parks to create a familiar shopping environment.

Copyri ght 2009 Pearso n Educat ion, Inc. Publis hing as Prentic e Hall Figure 16.2 Mapping a Store’s Personality

Copyri ght 2009 Pearso n Educat ion, Inc. Publis hing as Prentic e Hall Store Layout Store layout: Arrangement of merchandise in the store that determines traffic flow (grid layout vs. free-flow layout) Q. Why are grocery stores laid out with straight aisles? Q. Why are many retail stores (ex: Gap) laid out like a maze?

16-18 E. Promotional Strategy Retailers use a variety of promotional techniques to establish store images and communicate information about their stores Traditional advertising Circulars Internet Sponsorships

16-19 One of Nordstrom’s promotional strategies related to store image: “Reinvent Yourself”

16-20 Types of Retailers Retailers can be categorized by: 1.Form of ownership 2.Shopping effort by customer 3.Services provided to customers

Classification of Retailers by Form of Ownership Chain stores: Groups of stores that operate under central ownership and management and sell essentially the same product lines Chain stores have the advantages of purchasing and advertising economies of scale Independent Retailers: Advantage of friendly, personalized service Co-operatives (“Co-ops”) are groups of independent retailers who band together to increase buying and advertising power

16-22 Ace Hardware  Co-operatives like Ace help independent retailers compete with chains

Classification of Retailers by Shopping Effort: Classification system based on the reasons why consumers shop at particular retail outlets Retail stores can be classified as: Convenience – close by, long hours, fast checkout, and adequate parking Shopping – consumers compare prices, assortment, and quality before purchasing Specialty – special product lines, excellent service, and strong reputation Q. Can you think of examples that meet the criteria for each of these types?

16-24 Pier 1 Imports  A shopping store

16-25 The North Face  A specialty retailer featuring outdoor clothing and equipment

Classification of Retailers by Services Provided: Self-service (e.g., Citgo Gas Station) Self-selection (e.g., Winn-Dixie grocery store) Full-service (e.g., Belk or Macy’s)

16-27 It’s nearly Impossible to Categorize any more… Retail Convergence: The coming together of shoppers, goods, and prices, resulting in the blurring of distinctions between types of retailer and the merchandise mix they offer. Scrambled Merchandising: retailers combine dissimilar product lines in an attempt to boost sales volume Q. Can you think of some examples of Retail Convergence and Scrambled Merchandising?

Copyri ght 2009 Pearso n Educat ion, Inc. Publis hing as Prentic e Hall Nonstore Retailing Nonstore retailing: Any method used to make an exchange with a product end user that does not require a customer visit to a store

16-29 Nonstore Retailing 1.Direct Mail 2.Direct Selling – door-to-door / “party plan” / multi-level 3.Direct Response Selling – merchandise is ordered by mail, phone, computer, etc in response to a catalog, direct mail, or TV 4.Telemarketing – sales over the phone 5.Internet Retailing – best when clicks and brick are combined 6.Automatic Merchandising – Vending machines

Copyri ght 2009 Pearso n Educat ion, Inc. Publis hing as Prentic e Hall Vending Machines Modern vending machines are capable of selling a broad range of products, from cigars to live bait (as shown at left).

Copyri ght 2009 Pearso n Educat ion, Inc. Publis hing as Prentic e Hall B2C E-Commerce Business-to-consumer (B2C) e-commerce: Online exchange between companies and individual consumers Benefits to firm of B2C e-commerce Market to customers world-wide, 24/7/365 Cost reductions associated with Bricks Allows specialized businesses to succeed Can rapidly update pricing & promotions

Copyri ght 2009 Pearso n Educat ion, Inc. Publis hing as Prentic e Hall B2C E-Commerce Negatives to the firm: Security challenges and constant site maintenance Certain demographic groups are tougher to reach (age, country) Online sales may cannibalize major retailer store sales Price competition is intense and prices are transparent

Copyri ght 2009 Pearso n Educat ion, Inc. Publis hing as Prentic e Hall B2C E-Commerce Benefits to customers: Increases convenience for consumers  24/7 shopping, less traveling Greater product access and choice Greater, faster access to information including pricing and product specs Lower prices (often) Fast, hassle-free delivery Some people just hate to shop!

Copyri ght 2009 Pearso n Educat ion, Inc. Publis hing as Prentic e Hall B2C E-Commerce Negatives to customers: Must wait for delivery Lack of security and potential for fraud No chance to “touch-and-feel” goods Poor color reproduction on the Internet Expensive to return items Potential exists for a breakdown in human relationships

Copyri ght 2009 Pearso n Educat ion, Inc. Publis hing as Prentic e Hall B2C’s Effect on Retailing’s Future Virtual channels are unlikely to replace traditional ones Stores must continue to evolve to lure shoppers away from computers In destination retailing, consumers will visit stores for the total entertainment experience