chapter 16 Flashcards
Retailing
all activities involved in selling, renting, & providing products/servs to ultimate consumers for personal, family, or household use
Consumer Utilities Offered By Retailing
time: provided by stores w/ convenient time-of-day or time-of-year availability
place: provided by the number & location of the stores
form: provided by producing or altering a product to meet the customer’s specifications
possession: provided by making a purchase possible or easier
Retail Functions
(how retailers add value)
Providing Assortments
Breaking Bulk
Holding Inventory
Providing Services
Providing Assortments
need to have products to buy, there needs to be the assortment that you expect from retailer/ that adds value to you
-Provides choices/alternatives
Ex: All the computers Best Buy sells
Breaking Bulk
taking the product out of the bulk package & displaying it neatly on shelves
Holding Inventory
having the product in your store
Providing Services
adding services to add value
Ex: Eye exams at Walmart
Ex: Starbucks in a Target
Ex: Financing/store credit card
Ways To Classify Retail Outlets
-Form of ownership
-Level of service
-The type of merchandise line
Form of Ownership
distinguishes retail outlets based on whether independent retailers, corporate chains, or contractual systems own the outlet
Three Forms of Retail Ownership
- Independent Retailer
- Corporate Chain
- Contractual System
Independent Retailer
independent business owned by an individual
› Adv: The owner is the boss
› Adv for customers: independent store can offer convenience, personal serv, & lifestyle compatibility
Corporate Chain
multiple outlets under common ownership
Ex: Macy’s
› Adv: a large chain can bargain w/a manufacturer to obtain good serv/volume discounts on orders
› Adv for Customers: chains offer lower prices compared w/other types of stores & there are multiple outlets with similar merchandize & consistent management policies
Contractual Systems
involve independently owned stores that band together to act like a chain
Three Contractual Systems
- Retailer-Sponsored Cooperatives
- Wholesaler-Sponsored Voluntary Chains
- Franchise
Retailer-Sponsored Cooperatives
exist when small, independent retailers form an organization that operates a wholesale facility cooperatively
Ex: Associated Grocers, consists of neighborhood grocers that all agree w/ several other independent grocers to buy their goods directly from food manufacturers
Adv: volume discounts & give the impression of being a large chain
Wholesaler-Sponsored Voluntary Chains
involve a wholesaler that develops a contractual relationship with small, independent retailers to standardize and coordinate buying practices, merchandising programs, and inventory management efforts
Ex: Independent Grocers Alliance (IGA) try to achieve similar benefits
Franchise
individual/firm (the franchisee) contracts w/ a parent company (the franchisor) to set up a business or retail outlet
- Franchisor usually assists in selecting the location, setting up the store/facility, advertising, & training personnel
- Franchisee usually pays a one-time franchise fee & an annual royalty, usually tied to the franchise’s sales
Adv: Allows ppl to enter a well-known, established business for which managerial advice is provided. Also, the franchise fee may be less than the cost of setting up an independent business
Level of Service
the degree of service provided to the customer
Three Levels of Service
self service
limited service
full service
Self-Service
requires that customers perform many functions during the purchase process (do it yourself)
Ex: Self checkouts/Redbox kiosks
Limited Service
provide some services, such as credit & merchandise return, but not others, such as clothing alterations
Ex: Walmart/Target
Full Service
provides many services to their customers, most specialty/department stores
Ex: Nordstrom: offers wide variety of servs (on-site alterations/tailoring, free exchanges/easy returns, gift cards, credit cards, customer serv line, live chat , loyalty programs, etc)
Merchandise Line
describes how many different types of products a store carries & in what assortment
-Breadth & Depth
Key Distinction of Merchandise Lines
breadth & depth
Breadth of Product Line
the variety of different items a store carries, such as appliances & books
-Tons of different categories
Ex: Food, health, home, hair, etc categories
Depth of Product Line
the store carries a large assortment of each item
-amount of selection you have within the product category
-different options
Ex: Shoe store that offers running shoes, dress shoes, & children’s shoes
Ex: Costco only offers a 5 pound jar of mayo (shallow selection)
Ex: Publix offers small, medium, large mayos (deep selection)
General Merchandise Retailers
Discount Stores
Department Stores
Specialty Stores
Category Killers (Power Retailers)
Discount Stores
Very low price/low service
Broad/shallow selection
Ex:Walmart/Target
Department Stores
Moderate to high price/service
Broad/average to deep selection
Ex: Macy’s, JcPenny, Belk
Specialty Stores
High price/high service
Narrow, average to deep selection
Ex: Footlocker
Category Killers (Power Retailers)
specialty discount outlets that focus on one type of product at very competitive prices and often dominate the market
-leaders in their category
-Low price/service varies
-Narrow/very deep selection
Ex: Staples is the category killer in office supplies because it dominates the market in that category
Ex: Best Buy/Barnes & Noble
Scrambled Merchandising
offering several unrelated product lines in a single store
Ex: The modern drugstore carries food, cosmetics, magazines, paper products, toys, small hardware items, & pharmaceuticals
Hypermarket
form of scrambled merchandising, which consists of a large store (more than 200,000 square feet) that offers everything under one roof eliminating the need for consumers to shop at more than one location
Supercenter
variation of the hypermarket, combines a typical merchandise store w/ a full-sized grocery store
Ex: Walmart Supercenters/SuperTarget
Intertype Competition
competition b/w very dissimilar types of retail outlets that results from a scrambled merchandising policy
Ex: A local bakery may compete w/ a department store, discount outlet, or even a local gas station
Nonstore Retailing
occurs outside a retail outlet/store through activities that involve varying levels of customer & retailer involvement
Six Forms of Nonstore Retailing
- automatic vending
- direct mail and catalogs
- television home shopping
- online retailing
- telemarketing
- direct selling
Automatic Vending
includes vending machines/v-commerce
› V-commerce: make it possible to serve customers when & where stores cannot
› Prices in vending machines are often higher than those in stores
V-commerce
make it possible to serve customers when & where stores cannot
Direct Mail & Catalogs
store that comes to your door.
Direct Mail & Catalogs Are Attractive for Three Reasons:
- Can eliminate the cost of a store & clerks
Ex: Dell Technologies doesn’t have any stores - Improves marketing efficiency through segmentation & targeting, and creates customer value by providing a fast/convenient means of making a purchase
- Many catalogs now serve as an element of a multichannel strategy designed to encourage consumers to visit a website, social media page, or store
Ex: Williams Sonoma offers catalog, online, & in-store shopping
Television Home Shopping
possible when consumers watch a shopping channel on which products are displayed; orders are then placed over the telephone/internet
Ex: QVC, HSN, ShopHQ
Online Retailing
allows consumers to search for, evaluate, & order products through the internet
› Advs for Consumers: 24hr access, the ability to comparison shop, in-home privacy, and variety
Online Retail Approaches
- Consumers can pay dues to become members of an online discount service
Ex: Netmarket.com offers thousands of products/brand names at very low prices to its subscribers - Use a shopping “bot”
Ex: Mysimon.com searches the internet for a product specified by the consumer & provides a report listing retailers with the best prices - Use internet to go directly to online malls, apparel retailers, bookstores, computer manufacturers, grocery stores, & travel agencies
Ex: GAP, Barnes & Noble, Dell, Travelocity websites - Online auction: Ebay
- Flash Sales featured at sites which send text messages announcing limited-time offers at big discounts
Telemarketing
using the telephone to interact with & sell directly to consumers
› Compared with direct mail, telemarketing is more efficient in means of targeting consumers
› Insurance comps, brokerage firms, newspapers use this to cut costs but still maintain access to their customers
Direct Selling
direct sales of products/servs to consumers through personal interactions & demonstrations in their home or office
› Sometimes called door-to-door retailing
› Ex: Avon/Mary Kay Cosmetics
Two Developments That Are Responsible for the Growth of Direct Selling
- Many direct-selling retailers have expanded into markets outside the U.S.
- Growth in the number of companies that are using direct selling to reach consumers who prefer one-on-one customer serv & a social shopping experience rather than online shopping/big discount stores
Retail Strategy
- Positioning (Retail Positioning Matrix & Price/Service)
- Location
- Image/Atmospherics
Retail Positioning Matrix
positions retail outlets on two dimensions: (1) breadth of product line & (2) value added (services)
Breadth of Product Line
the range of products sold through each outlet
Value Added
includes elements such as convenient location, consistent product reliability, prestige, or customer service
› Ex: Ulta positions itself as a high value added, broad product line
Retailing Mix
activities related to managing the store & merchandise in the store
› Includes retail pricing, store location, retail communication, & merchandise
Retail Pricing
retailers must decide on the markup, markdown, & timing for markdowns
Markup
how much should be added to the cost the retailer paid for a product to reach the final selling price
› Retailers decide on the original markup, but by the time the product is sold, they end up with a maintained markup
Original Markup
the difference b/w retailer cost & initial selling price
Gross Margin (Maintained Markup)
the difference b/w the final selling price & retailer cost
Markdown
when the product does not sell at the original price & an adjustment is necessary
Timing
the timing of a markdown is important & must consider how it can affect future sales
Everyday Low Pricing (EDLP)
emphasize constantly low prices & eliminate most markdowns
Ex: Walmart/Home Depot
Off-Price Retailing
selling brand-name merchandise at lower than regular prices
Ex: TJ Maxx/Ross
Three Variations of Off-Price Retailing
Warehouse Club
Outlet Store
Single-Price or Extreme Value Retailers
Warehouse Club
large stores that are stark outlets & typically lack elaborate displays, customer serv, or home delivery. Require an annual membership fee.
Ex: Walmart, Sam’s Club, Costco, Amazon Prime
Outlet Store
factory outlets that offer products for 25 to 75% off the suggested retail price
Ex: Nordstrom Rack, Gap Factory Store, Bloomindale’s
Single-Price or Extreme Value Retailers
attract customers who want value & a corner store environment rather than a large supercenter experience
Ex: Family Dollar, Dollar General, Dollar Tree
Location
involves choosing a location & deciding how many stores to operate
Five Settings Where Stores Are Near Other Stores
- Central Business District
- Regional Shopping Centers
- Community Shopping Center
- Strip Mall
- Power Center
Central Business District
community’s downtown area (oldest retail setting)
Regional Shopping Centers
consist of 50 to 150 stores that typically attract customers who live or work within a 5-to10-mile range
- Often contain two or three anchor stores
- Anchor Stores: well-known national or regional stores such as Nordstrom, Saks Fifth Avenue, Bloomingdale’s
Anchor Stores
well-known national or regional stores
Ex: Nordstrom, Saks Fifth Avenue, Bloomingdale’s
Community Shopping Center
has one primary store (usually a department store branch) & often about 20 to 40 smaller outlets
- Serves a population of consumers who are within a 10-to20-min drive
Strip Mall
a cluster of neighborhood stores to serve people who are within a 5- to 10-min drive
Power Center
a huge shopping strip w/ multiple anchor (or national) stores such as TJ Maxx, Ulta, Ross, or Pier 1 Imports
Retail Communication
communication activities play an important role in positioning a store & creating its image
› In creating the right image & atmosphere, a retail store tries to attract a target audience & fortify beliefs about the store, its products, and the shopping experience in the store
Retail Image
the way in which the store is defined in the shopper’s mind, partly by its functional qualities & partly by an aura of psychological attributes
Functional qualities: refers to mix elements such as price ranges, store layouts, & breadth & depth of merchandise lines
› Psychological Attributes: intangibles such as sense of belonging, excitement, style, or warmth
Shopper Marketing
the use of displays, coupons, product samples, & other brand communications to influence shopping behavior in a store
Store Image/Atmospherics
-store layout
-merchandise display
-fixtures and signage
-lighting and color
-music and scents
Store Layout
what’s the proper layout for business/how you want products to be displayed for customers
Merchandise Display
how you actually display the products
-crowded or curated
Fixtures & Signage
signs that say where products are at
Ex: Signs in aisles
Lighting & Color
having certain colors/lighting can affect how ppl feel/their mood
Music & Scents
what’s being played in store/how it smells
Merchandise
merchandise offering
› Popular approach to managing the assortment of merchandise is category management
Category Management
Retailer’s perspective- maximizing profit performance of the entire mix of brands in a product category
Ex: Best Buy wants to be the leader/best in the technology category
Brand Management
Manufacturers’ perspective - maximizing profit performance of the brand
Ex: Kraft has all these brands & they have someone in charge of the Heinz brand
Marketing Metrics Used to Assess the Effectiveness of a Store/Retail Format
- Measures related to customers, such as the # of transactions per customer, the avg transaction size per customer, # of customers per day/hr, & avg length of a store visit
- Measures related to the stores & products, such as level of inventory, # of returns, inventory turnover, inventory carrying cost, & avg # of items per transaction
- Financial measures, such as gross margin, sales per employee, return on sales, & markdown percentage
› Two Most Popular: Sales per Square Foot & Same-Store Sales Growth
The Wheel of Retailing
describes how new forms of retail outlets enter the market
› They usually enter as low-status, low-margin stores
› Gradually they add fixtures/more embellishments to increase attractiveness
› With these additions, prices/status rise
› Now face some new form of retail outlet that appears as low-status, low-margin operator
› It describes how retail outlets change over time
› Ex: McDonald’s had limited menu & opened certain times now they have a big menu and are everywhere
The Retail Life Cycle
the process of growth & decline that retail outlets, like products, experience
Retail Life Cycle: 4 stages
Early Growth Stage
Accelerated Development Stage
Maturity Stage
Decline Stage
Early Growth Stage
emergence of a retail outlet, with a sharp departure from existing competition
- Market share rises gradually, although profits may be low bc of startup costs
Ex: UNTUCKit/thredUP
Accelerated Development Stage
both market share & profit achieve their greatest growth rates. Usually multiple outlets are established as companies focus on the distribution element of the retailing mix. In this stage, some later competitors may enter.
Ex: Wendy’s appeared on the hamburger chain scene 20yrs after McDonald’s
Maturity Stage
new retail forms enter the market. Stores try to maintain their market share & price discounting occurs
Ex: In-N-Out Burger & Fatburger entered the hamburger chain industry
Decline Stage
market share & profit fall rapidly
Ex: Toys R Us, Payless
Current Trends in Retailing
- safety and convenience
- multichannel retailing
- data analytics
Safety & Convenience
caused by the COVID19 pandemic
› Consumers now want speed, convenience, touchless technology, & safety from retailers
Multichannel Retailing
Multichannel Retailers: utilize & integrate a combination of traditional store formats & nonstore formats such as catalogs, television home shopping, & online retailing
Ex: Amazon has opened physical stores in six states, with more coming
Data Analytics
new science of retailing
› Three Ways Data Analytics Benefits Retailers:
1. Understanding how consumers use multiple channels, info sources, & payment options can help retailers predict shopping behavior
- Detailed customer-specific data allow merchants to provide personalized, real-time messaging & promotions
- Tracking customer needs allows retailers to offer innovative products, maintain optimal inventory levels, & manage prices to remain competitive & profitable
Merchant Wholesalers
independently owned firms that take title to the merchandise they handle
› Also called industrial distributor
› Most firms engaged in wholesaling activities are merchant wholesalers
Merchant Wholesalers are classified as
Full-Service or Limited-Service
Two Types of Full-Service Wholesalers
- General Merchandise (or full-line) Wholesalers
- Specialty Merchandise (or limited-line) Wholesalers
General Merchandise (or full-line) Wholesalers
carry a broad assortment of merchandise & perform all channel functions
-Do not maintain much depth of assortment within specific product lines
Ex: Most prevalent in the hardware, drug, & clothing industry
Specialty Merchandise (or limited-line) Wholesalers
offer a relatively narrow range of products but have an extensive assortment within the product lines carried. They perform all channel functions
Ex: Are found in the health foods, automotive parts, & seafood industries
Two Types of Limited-Service Wholesalers
1.Rack Jobbers
2.Cash & Carry Wholesalers
Rack Jobbers
furnish the racks or shelves that display merchandise in retail stores, perform all channel functions, & sell on consignment to retailers, which means they retain the title to the products displayed & bill retailers only for the merchandise sold
Ex: Hosiery, toys, housewares, & health/beauty items are sold by rack jobbers
Cash & Carry Wholesalers
take title to merchandise but sell only to buyers who call on them, pay cash for merchandise, & furnish their own transportation for merchandise
-Carry a limited product assortment & do not make deliveries, extend credit, or supply market information
Ex: Common in electrical supplies, office supplies, hardware products, & groceries
Agents & Brokers…
Agents & Brokers do not take title to merchandise & perform fewer channel functions. They make their profit from commissions/fees paid for their servs, whereas merchant wholesalers make their profit from the sale of the merchandise they own
Two Types of Agents
- Manufacturers’ Agents
2.Selling Agents
Manufacturers’ Agents
work for several producers & carry noncompetitive, complementary merchandise in an exclusive territory
› Act as a producer’s sales arm in a territory & are principally responsible for the transactional channel functions, primary selling
› Ex: Used in the automotive supply, footwear, & fabricated steel industries
Selling Agents
represent a single producer & are responsible for the entire marketing function of that producer
› They design promotional plans, set prices, determine distribution policies, & make recommendations on product strategy
› Ex: Used by small producers in the textile, apparel, food, & home furnishings industries
Brokers
independent firms/individuals whose principal function is to bring buyers & sellers together to make sales
› Brokers, unlike agents, usually have no continuous relationship with the buyer/seller but negotiate a contract b/w two parties and then move on to another task
› Ex: Used extensively by producers of seasonal products (fruits/vegetables) & in the real estate industry
Manufacturer’s Branch Office
carries a producer’s inventory & performs the function of a full-service wholesaler
Manufacturer’s Sales Office
does not carry inventory, typically performs only a sales function, & serves as an alternative to agents and brokers
Recreational shopping
finding ways to get ppl into the mall
Ex: Mall of America
Net Sales Per Square Foot
- Used to compare departments and stores
- Net sales = total Sales - Returns/sqft
Ex: Total Sales = $350,000
Returns= $50,000
Sqft= 600
350,000-50,000= 300,000/600 = $500
Retail Productivity Measures
- Net Sales per Square Foot
- Stockturn Rate
-Same-Store Sales Growth
