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Chapter 44Retail Institutions by Ownership
RETAIL
MANAGEMENT:
A STRATEGIC
APPROACH, 9th Edition
ERMAN
ERMAN
EVANS
EVANS
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4-2
Chapter Objectives
To show the ways in which retail
institutions can be classified
To study retailers on the basis of
ownership type and examine the
characteristics of each
To explore the methods used by
manufacturers, wholesalers, andretailers to exert influence in the
distribution channel
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i!ure 4"# $ Classification
%ethod for &etail 'nstitutionsI
Ownership
II
Store-based
Retail Strategy Mix
III
Nonstore-basedRetail Strategy Mix
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Ownership orms
Independent
Chain
Franchise
Leased department
Vertical marketing system
Consumer cooperative
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4-(
'ndependent &etailers
2. million independent !.". retailers
#$% o& these are run by owners and their
&amilies 'ccount &or ($% o& total stores and )% o&
!.". store sales
*hy so many+ ,ase o& entry
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4-)
Competitive *tate of 'ndependents
$dvanta!es
lexibility in formats,locations, and strate!y
Control over investmentcosts and personnelfunctions, strate!ies
+ersonal ima!e
Consistency and
independence *tron! entrepreneurial
leadership
isadvanta!es
ac. of bar!ainin!power
ac. of economies ofscale
abor intensiveoperations
Over-dependence on
owner imited lon!-run
plannin!
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4-/
i!ure 4"2 0seful Online
+ublications for *mall &etailers
http://www.sba.gov/
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*tore-based &etail *trate!y %ix
Convenience store
Conventional
supermar.et
ood-based
superstore
Combination store
ox store
arehouse store
*pecialty store
ariety store
Traditional
department store
ull-line discount
store
Off-price chain
actory outlet
%embership club
lea mar.et
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Chain &etailers
Operates multiple outlets under common
ownership
,ngages in some level o& centrali-ed orcoordinated purchasing and decision
making
In the !.". there are roughly $$$$$ retail
chains operating about /#$$$$
establishments
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4-#6
Competitive *tate of Chains
$dvanta!es
ar!ainin! power
Cost efficiencies
7fficiency fromcomputeri8ation,sharin! warehouseand other functions
efined mana!ement
philosophyConsiderable efforts
in lon!-run plannin!
isadvanta!es
imited flexibility
9i!her investment
costsComplex mana!erial
control
imited
independence amon!personnel
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4-##
i!ure 4"3 Carrefour: The ar!est
orei!n-ased &etailer in the orld
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4-#2
;onstore-based &etail *trate!y
%ix and ;ontraditional &etailin!0irect marketing
0irect selling
Vending machine*orld *ide *eb
Other emerging retail &ormats
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4-#3
i!ure 4"4 %asterCuts: $ ell-efined
%ana!ement +hilosophy
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4-#4
ranchisin!
' contractual agreement between a
&ranchisor and a retail &ranchisee which
allows the &ranchisee to conduct businessunder an established name and according
to a given pattern o& business
Franchisee pays an initial &ee and a monthly
percentage o& gross sales in e1change &orthe e1clusive rights to sell goods and
services in an area
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ranchise ormats
+roduct< Trademar.
franchisee ac=uiresthe identity of a
franchisor by a!reein!to sell products and
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4-#)
i!ure 4"( usiness >ualifications *ou!ht by
%conald?s for +otential ranchisees
Personal Integrity
Willingness to
complete training
inancialreso!rces
Willingness to
de"ote time
#bility to manage
$inances
#bility to moti"ate
and train
Entreprene!rialSpirit
Ideal
Franchisee
http://www.mcdonalds.com/corporate/franchise
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4-#/
i!ure 4") *tructural $rran!ements in
&etail ranchisin!
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4-#1
holesaler-&etailer
*tructural $rran!ementsVoluntary: ' wholesaler sets up a &ranchise
system and grants &ranchises to individual
retailersCooperative: ' group o& retailers sets up a
&ranchise system and shares the ownership
and operations o& a wholesaling
organi-ation
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4-#5
i!ure 4"/ ranchises and
usiness Opportunities
http://www.ftc.gov/
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Competitive *tate of ranchisin!
$dvanta!es
small capital re=uired
ac=uire well-.nown
names operatin!
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4-2#
rom the ranchisor?s +erspective
enefits
national or global
presence possible
uali&ications &or&ranchisee3 operations
are set and en&orced
money obtained at
delivery royalties represent
revenue stream
+otential +roblems potential &or harm to
reputation
lack o& uni&ormity maya&&ect customer loyalty
ine&&ective &ranchisedunits may damageresale value
pro&itability potential limits to
&ranchisor rules
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eased epartments
4 ' leased department is a department in a
retail store that is rented to an outside party
5 6he proprietor is responsible &or allaspects o& its business and pays a
percentage o& sales as rent
5 6he department store sets operating
restrictions to ensure consistency and
coordination
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Competitive *tate of eased
epartmentsenefits
provides one-stop
shoppin! to
customers
lessees handle
mana!ement
reduces store costs
provides a stream of
revenue
+otential +itfalls
lessees may ne!ate
store ima!e
procedures may
conflict with
department store
problems may be
blamed on
department store
rather than lessee
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i!ure 4"1 ertical %ar.etin!
*ystemsIndependent Channel Syste
F!ncti"ns:
Man!$act!ring
WholesalingRetailing
O#nership:
Independent Man!$act!rer
Independent Wholesaler
Independent Retailer
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4-2(
i!ure 4"1 ertical %ar.etin!
*ystemsPartially Inte$rated Channel Syste
F!ncti"ns:
Man!$act!ring
Wholesaling
Retailing
O#nership:
%wo channel members own all $acilities and per$orm all $!nctions
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4-2)
i!ure 4"1 ertical %ar.etin!
*ystemsF!lly Inte$rated Channel Syste
F!ncti"ns:
Man!$act!ring
Wholesaling
Retailing
O#nership:
#ll prod!ction and distrib!tion $!nctionsare per$ormed by one channel member
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i!ure 4"5 *herwin-illiams? ual
ertical %ar.etin! *ystem
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eb-ased 7xercise
"ubway is one o& the largest retail
&ranchisors in the world
7ased on the in&ormation &ound underFranchise Opportunities on the "ubway
website would you be interested in
becoming a "ubway &ranchisee+
http://www.subway.com/