Chapter 14Chapter 14

Direct Marketing Direct Marketing and Marketing and Marketing

Resellers: Retailers Resellers: Retailers and Wholesalersand Wholesalers

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Chapter ObjectivesChapter Objectives1. 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 non-

store retailing.8. Explain how much the Internet has altered the

wholesaling, retailing, and direct marketing environments.

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RetailingRetailing

Evolution of RetailingEvolution of RetailingTraced to trading posts such as the Hudson

Bay Company and peddlersFirst Retail Institution in the U.S. was the

General StoreSupermarkets appeared in the early 1930sDiscount stores arrived in the 1950sConvenience food stores emerged in the

1960sThe 1980s saw the first off-price retailers

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Wheel of RetailingWheel of RetailingHypothesis 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

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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 RetailingWheel of Retailing

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Retailing StrategyRetailing Strategy

A retailer develops a marketing strategy based on the firm’s goals and strategic plansTwo fundamental steps:

Selecting a target marketDeveloping a retailing mix to satisfy the

chosen target market

Retail image: Consumers’ perceptions of a store and the shopping experience it provides

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Selecting a Target Selecting a Target MarketMarketRetailers analyze

demographic, geographic, and psychographic profiles to segment and select potential markets

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Merchandising StrategyMerchandising StrategyPlanograms: Diagrams of how to exhibit

selections of merchandise within a storeCategory 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

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Exclusively designed products are part of Target’sTarget’s merchandising strategy

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The Battle for Shelf SpaceThe Battle for Shelf SpaceStockkeeping 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

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Customer Service StrategyCustomer Service StrategyRetailers must decide on the variety of

services they make available for shoppersExamples include gift wrapping, bridal

registry, return privileges, electronic shopping, and delivery and installation

Objectives are to enhance shopper comfort and attract and retain customers

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Pricing StrategyPricing StrategyMarkup: The amount a retailer adds to a

product’s cost to determine its selling priceDetermined by the services the retailer

performs and the inventory turnover rateMarkdown: The amount by which a

retailer reduces a product’s original selling price

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Marshall’sMarshall’sPromoting its

low price strategy

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Location/Distribution StrategyLocation/Distribution StrategyPlanned shopping center: A group of

retail stores planned, coordinated, and marketed as a single unit

Four types of planned shopping centers:Neighborhood – “strip mall”Community – Washington SquareRegional – Mall of AmericaPower – stand-alone stores, single

trading areaLifestyle – BridgeportCompany Outlets - Woodburn

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Mall of AmericaMall of AmericaCombining

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.

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Promotional StrategyPromotional StrategyRetailers 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

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Store Store AtmosphericsAtmosphericsPhysical

characteristics and amenities that attract customers and satisfy their shopping needs

Disney Stores borrow from their theme parks to create a familiar shopping environment.

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Types of RetailersTypes of Retailers

Retailers can be categorized by:Form of ownershipShopping effort expended by customerServices provided to customersProduct linesLocation of retail transactions

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Classification of Classification of Retailers by Form of Retailers by Form of OwnershipOwnershipChain storesIndependent

RetailersCooperatives

Ace helps independent retailers compete with chains

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Classification by Shopping EffortClassification by Shopping Effort: Classification system based on the reasons why consumers shop at particular retail outletsRetail stores can be classified as:

Convenience retailers [7/11]Shopping stores [REI]Specialty retailers [Nordstrom]

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Pier 1 ImportsPier 1 ImportsA shopping

store

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The North FaceThe North FaceA specialty

retailer featuring outdoor clothing and equipment

Their products are also sold at other specialty stores

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Classifying by Services ProvidedClassifying by Services ProvidedSelf-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)

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Classifying by Product LinesClassifying 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 lineSpecialty retailers carry their particular

products in considerable variety

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Lady Foot Locker -- A specialty store

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Limited-line storeLimited-line store: A retailer that offers a large assortment within a single product line, or within a few related product linesIKEA home furnishings and Levitz furnitureCategory killers: retailers that combine

huge selection and low prices within a single product lineHome Depot and Office Depot

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Lowe’sLowe’sA category

killer which competes with the likes of Home Depot

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General merchandise retailersGeneral merchandise retailers carry a wide variety of product lines, and stock them all in some depthVariety storeVariety store: retailer that offers an

extensive range and assortment of low-priced merchandise

Department storeDepartment store: large store that offers a variety of merchandise, such as men’s and women’s clothing, appliances, linens, and furniture

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SearsSearsThe classic

department store offering clothing, appliances, hardware, etc.

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Mass merchandiserMass merchandiser: store that stocks a wider line of goods than a department store, usually without the same depth of assortment within each lineDiscount houseDiscount houseOff-price retailersOff-price retailersOutlet mallsOutlet mallsHypermarketHypermarketSupercentersSupercentersShowroom and Warehouse Showroom and Warehouse

RetailersRetailers

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KmartKmartDiscount mass

merchandiser selling prestigious brand names

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T.J. MaxxT.J. MaxxAn off-price

retailer

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Classification of Retail Transactions by LocationNon-store retailing – Amazon.com, 800# sales

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. [Similar merchandise available from multiple types of retail outlets.]

Scrambled MerchandisingScrambled Merchandising: concept in which a retailer combines dissimilar product lines in an attempt to boost sales volume. [Walgreens sells groceries, develops photos, sells Hallmark cards and gift items]

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Wholesaling IntermediariesWholesaling 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.

Functions of Wholesaling IntermediariesFunctions of Wholesaling Intermediaries

Creating UtilityCreating UtilityTime utilityPlace utilityOwnership/possession utility

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Providing ServicesProviding ServicesWholesalers

commonly provide marketing services that reflect the basic marketing functions of buying, selling, storing, transporting, providing market information, financing, and risk taking

Plumbing wholesaler providing selling service

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Lowering Costs by Limiting ContactsLowering Costs by Limiting ContactsIntermediaries 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

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Types of Wholesaling IntermediariesTypes of Wholesaling Intermediaries

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Manufacturer-Owned FacilitiesManufacturer-Owned FacilitiesSales branch – carries inventory and

takes customer ordersSales office – no inventory, manages

sales repsTrade fair – “Trade Show”, in food

industry, FMI, NRAMerchandise mart- large grouping of

permanent showrooms, mainly wholesaling, Chicago Merchandise Mart

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Independent Wholesaling IntermediariesIndependent Wholesaling IntermediariesMerchant wholesaler: An independently owned

intermediary that takes title to the goods it sellsRack Jobbers – specialized lines of

merchandise [M&M Mars]Cash-and-Carry Wholesalers [“Cash & Carry in

Portland]Truck Wholesalers [Frito Lay]Drop Shippers – take title, don’t handle [coal

and lumber]Mail Order Wholesalers [McMaster Carr]

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Table 14.2 – P.466Table 14.2 – P.466Comparison of the Types of Merchant

Wholesalers and Their Services

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Agents and BrokersAgents 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 [producers’ agents –

agriculture]Auction houses [used cars]Brokers [don’t control pricing or promotional

funding, operate in specific territories - food industry]

Selling agents [controls total marketing programs, textile industry]

Manufacturer’s agents [independent reps, sell non-competing products, may have marketing responsibilities, paid commission]

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Table 14.3Table 14.3Services Provided by Agents and Brokers

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Retailer-Owned Cooperatives and Buying Retailer-Owned Cooperatives and Buying OfficesOfficesRetailers 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

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Direct Marketing and Other Direct Marketing and Other Nonstore RetailingNonstore Retailing

Direct MailDirect Mail is a major component of direct marketingIt comes in many forms, ranging from sales

letters to video cassettes

Direct SellingDirect Selling completely bypasses retailers and wholesalersManufacturers set up their own channels to

sell their products directly to consumers

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Direct-Response RetailerDirect-Response Retailer Customers can order merchandise by mail or telephone, by visiting a mail-order desk in a retail store, by computer or by faxThe Retailer then ships the merchandise to

the customer’s home or to a local store for pickup

TelemarketingTelemarketing refers to direct marketing conducted entirely by telephoneIt is the most frequently used form of direct

marketing

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Internet RetailingInternet RetailingMany 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 MerchandisingAutomatic MerchandisingRetailing through vending machinesAbout $25 billion worth of convenience

goods are sold to Americans through 4.7 million vending machines

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End of Chapter FourteenEnd of Chapter Fourteen