1. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Part 5: Distribution Decisions 13.Marketing Channels and Supply Chain Management 14.Direct Marketing and Marketing Resellers: Retailers and Wholesalers

2. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Chapter 14 Direct Marketing and Marketing Resellers: Retailers and Wholesalers

3. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-3 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.Explain the concepts of retail convergence and scrambled merchandising. 5.Identify the functions performed by wholesaling intermediaries. 6.Outline the major types of independent wholesaling intermediaries and the situations appropriate for each. 7.Compare the basic types of direct marketing and nonstore retailing. 8.Explain how much the Internet has altered the wholesaling, retailing, and direct marketing environments.

4. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-4 Retailing Evolution of Retailing Evolution of Retailing Traced to trading posts such as the Hudson Bay Company and peddlers 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 The 1980s saw the first off-price retailers

5. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-5 Wheel of Retailing 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 It then becomes vulnerable to new, lower price competitors

6. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-6 High-end strategy High prices Excellent facilities and services Upscale consumers Low-end strategy Low prices Limited facilities and services Price-sensitive consumers Medium strategy Moderate prices Improved facilities Broader base of value- and service-conscious consumers Wheel of Retailing

7. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-7 Retailing Strategy A retailer develops a marketing strategy based on the firm’s goals and strategic plans Two fundamental steps:  Selecting a target market  Developing a retailing mix to satisfy the chosen target market Retail image: Consumers’ perceptions of a store and the shopping experience it provides

8. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-8

9. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-9 Selecting a Target Market Selecting a Target Market Retailers analyze demographic, geographic, and psychographic profiles to segment and select potential markets

10. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-10 Merchandising Strategy Merchandising Strategy Planograms: Diagrams of how to exhibit selections of merchandise within a store Category management: Retailing strategy which views each product category as an individual profit center, and the retailer manages the performance and growth of the entire category

11. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-11 The Battle for Shelf Space The Battle for Shelf Space Stockkeeping unit (SKU): specific product offering within a product line that is used to identify items within the line Slotting allowances: fees paid by manufacturers to secure shelf space from retailers for their products

12. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-12 Customer Service Strategy Customer Service Strategy Retailers must decide on the variety of services they make available for shoppers  Examples include gift wrapping, bridal registry, return privileges, electronic shopping, and delivery and installation  Objectives are to enhance shopper comfort and attract and retain customers

13. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-13 Pricing Strategy Pricing Strategy Markup: The amount a retailer adds to a product’s cost to determine its selling price  Determined by the services the retailer performs and the inventory turnover rate Markdown: The amount by which a retailer reduces a product’s original selling price

14. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-14 Location/Distribution Strategy Location/Distribution Strategy Planned shopping center: A group of retail stores planned, coordinated, and marketed as a single unit Four types of planned shopping centers:  Neighborhood  Community  Regional  Power

15. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-15 Promotional Strategy Promotional Strategy Retailers use a variety of promotional techniques to establish store images and communicate information about their stores Selling up: retailing selling technique in which salespeople try to persuade customers to buy higher-priced items than originally intended Suggestive selling: involves salespeople attempting to broaden a customer’s original purchase by adding related items, promotional products, and/or holiday or seasonal merchandise

16. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-16 Store Atmospherics Store Atmospherics Physical characteristics and amenities that attract customers and satisfy their shopping needs

17. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-17 Types of Retailers Retailers can be categorized by: Form of ownership Shopping effort expended by customer Services provided to customers Product lines Location of retail transactions

18. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-18

19. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-19 Classification of Retailers by Form of Ownership Classification of Retailers by Form of Ownership Chain stores Independent Retailers Cooperatives

20. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-20 Classification by Shopping Effort Classification by Shopping Effort: Classification system based on the reasons why consumers shop at particular retail outlets Retail stores can be classified as:  Convenience retailers  Shopping stores  Specialty retailers

21. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-21 Classifying by Services Provided Classifying by Services Provided Self-service Store (e.g., Kmart) Self-selection Store (e.g., Winn-Dixie or Kroger grocery stores) Full-service Retailers (e.g., Dillard’s or Macy’s)

22. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-22 Classifying by Product Lines Classifying by Product Lines: This classification system groups stores by the product lines they carry. Specialty store: A retailer that typically handles only part of a single product line Specialty retailers carry their particular products in considerable variety

23. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-23 Limited-line store Limited-line store: A retailer that offers a large assortment within a single product line, or within a few related product lines IKEA home furnishings and Levitz furniture Category killers: retailers that combine huge selection and low prices within a single product line  Home Depot and Office Depot

24. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-24 General merchandise retailers General merchandise retailers carry a wide variety of product lines, and stock them all in some depth Variety store Variety store: retailer that offers an extensive range and assortment of low- priced merchandise Department store Department store: large store that offers a variety of merchandise, such as men’s and women’s clothing, appliances, linens, and furniture

25. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-25 Mass merchandiser Mass merchandiser: store that stocks a wider line of goods than a department store, usually without the same depth of assortment within each line  Discount house  Off-price retailers  Outlet malls  Hypermarket  Supercenters  Showroom and Warehouse Retailers

26. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-26 Classification of Retail Transactions by Location Non-store retailing 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 Scrambled Merchandising: concept in which a retailer combines dissimilar product lines in an attempt to boost sales volume

27. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-27 Wholesaling Intermediaries Includes not only wholesalers who assume title to the goods they handle, but also agents and brokers, who conduct wholesaling activities without taking title of the goods.

28. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-28 Functions of Wholesaling Intermediaries Functions of Wholesaling Intermediaries Creating Utility Creating Utility  Time utility  Place utility  Ownership/possession utility Providing Services Providing Services  Wholesalers commonly provide marketing services that reflect the basic marketing functions of buying, selling, storing, transporting, providing market information, financing, and risk taking

29. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-29 Lowering Costs by Limiting Contacts Lowering Costs by Limiting Contacts Intermediaries that represent multiple suppliers cut buying and selling costs and reduce transaction time Firms can increase transaction efficiency by only having to contact one or two intermediaries, rather than hundreds of individual suppliers

30. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-30

31. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-31 Types of Wholesaling Intermediaries Types of Wholesaling Intermediaries

32. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-32 Manufacturer-Owned Facilities Manufacturer-Owned Facilities Sales branch Sales office Trade fair Merchandise mart

33. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-33 Independent Wholesaling Intermediaries Independent Wholesaling Intermediaries Merchant wholesaler: An independently owned intermediary that takes title to the goods it sells  Rack Jobbers  Cash-and-Carry Wholesalers  Truck Wholesalers  Drop Shippers  Mail Order Wholesalers

34. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-34 Agents and Brokers Agents and Brokers: A second group of independent intermediaries who may or may not take possession of the goods, but never take title. They include: Commission merchants Auction houses Brokers Selling agents Manufacturer’s agents

35. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-35 Retailer-Owned Cooperatives and Buying Offices Retailer-Owned Cooperatives and Buying Offices Retailers sometimes assume numerous wholesaling functions to reduce costs or provide special services Independent retailers sometimes band together to form buying groups to save through quantity purchases Large chains often establish centralized buying offices to negotiate large-scale purchases directly with manufacturers

36. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-36 Direct Marketing and Other Nonstore Retailing Direct Mail Direct Mail is a major component of direct marketing It comes in many forms, ranging from sales letters to video cassettes Direct Selling Direct Selling completely bypasses retailers and wholesalers Manufacturers set up their own channels to sell their products directly to consumers

37. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-37 Direct-Response Retailer Direct-Response Retailer Customers can order merchandise by mail or telephone, by visiting a mail-order desk in a retail store, by computer or by fax The Retailer then ships the merchandise to the customer’s home or to a local store for pickup Telemarketing Telemarketing refers to direct marketing conducted entirely by telephone It is the most frequently used form of direct marketing

38. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-38 Internet Retailing Internet Retailing Many retailers operate from virtual storefronts on the World Wide Web, usually maintaining little or no inventory, ordering directly from vendors to fill customer orders received via E-mail Automatic Merchandising Automatic Merchandising Retailing through vending machines About $25 billion worth of convenience goods are sold to Americans through 4.7 million vending machines