Retail Marketing Exam 2

Supply Chain

The set of institutions that move goods from the point of production to the point of consumption.

Channel

A term commonly used for supply chain, although the slides note there are some differences.

Primary Marketing Institutions

Channel members that take title to goods as they move through the marketing channel; manufacturers, wholesalers, and retailers.

Facilitating Marketing Institutions

Channel members that do not take title to goods but assist in the marketing process by specializing in certain marketing functions.

Eight Marketing Functions

Buying, selling, storing, transporting, sorting, financing, information gathering, and risk taking.

Public Warehouse

Stores goods for any owner in return for a fee.

Private Warehouse

A warehouse owned by the company using it.

Third-Party Logistics Provider (3PL)

Provides outsourced logistics services such as storage, transporting, sorting, information, and risk management.

Supply-Chain Length

The number of levels or intermediaries between the manufacturer and consumer.

Direct Supply Chain

The manufacturer sells its goods directly to the final consumer.

Indirect Supply Chain

A supply chain that includes one or more intermediaries between the manufacturer and consumer.

Supply-Chain Width

The number of retailers used in a geographic or trading area.

Intensive Distribution

Uses all possible retailers in a trade area; typically used for convenience goods.

Selective Distribution

Uses a moderate number of retailers in a trade area; typically used for shopping goods.

Exclusive Distribution

Uses only one retailer in a trading area; typically used for specialty goods.

Conventional Marketing Channel

Each channel member is loosely aligned with the others and takes a short-term orientation.

Vertical Marketing Channel

A capital-intensive network of several levels that is professionally managed and centrally programmed.

Quick Response (QR) / Efficient Consumer Response (ECR)

Integrated information, production, and logistical systems that use real-time sales information to improve production and distribution scheduling.

Corporate Vertical Marketing Channel

One channel member owns other members at different levels of the channel.

Forward Integration

A manufacturer integrates forward by moving toward the consumer, such as buying a retail partner.

Backward Integration

A retailer integrates backward toward suppliers, such as buying a wholesale partner.

Contractual Vertical Marketing Channel

A vertical marketing channel in which a contract governs the working relationship between channel members.

Franchise

A form of licensing where the owner of a product, service, or business method obtains distribution through affiliated dealers.

Administered Vertical Marketing Channel

A channel in which one channel member takes the initiative to lead the channel by managing relationships with other members.

Dependency

The idea that each channel member depends on other members to perform certain jobs.

Power

The ability of one channel member to influence the decisions of another channel member.

Reward Power

Power based on one member's perception that another member can provide rewards.

Expertise Power

Power based on the perception that another channel member has special knowledge.

Referent Power

Power based on one channel member identifying with another.

Coercive Power

Power based on the belief that another channel member can punish or harm the member.

Legitimate Power

Power based on one member's right or perceived authority to influence another.

Perceptual Incongruity

When two channel members disagree about issues such as merchandise quality, customer demand, advertising appeal, or shelf position.

Goal Incompatibility

When channel members have goals that are not aligned and achieving one member's goals would hurt the other's performance.

Dual Distribution

When manufacturers sell to independent retailers and through their own retail outlets.

Diverter

An unauthorized buyer who buys and sells excess merchandise from authorized buyers.

Gray Marketing

Branded merchandise flowing through unauthorized channels.

Free Riding

When a consumer gets product information or service from a full-service store but buys the product from a discounter or online.

Category Management

The process of managing all SKUs within a product category, including price, shelf space, merchandising, and promotional efforts.

Mutual Trust

When a retailer and supplier have faith that each will be truthful and fair in their dealings.

Two-Way Communication

When retailer and supplier openly communicate ideas, concerns, and plans.

Solidarity

When high value is placed on the relationship between a supplier and retailer, allowing flexible adaptation as circumstances change.

Sherman Antitrust Act

A federal law that bans monopolies and conspiracies that restrain trade.

Clayton Act

Adds to the Sherman Act by prohibiting practices such as price discrimination and tying clauses.

Federal Trade Commission Act

Established the FTC and gave it powers to investigate unfair methods of competition.

Robinson-Patman Act

Regulates pricing practices.

Wheeler-Lea Amendment

Controls false advertising.

Fair Credit Reporting Act (FCRA)

Regulates the use of credit information and limits consumer liability for stolen credit cards.

CAN-SPAM Act

Sets rules for commercial email, including requirements for commercial messages and the right of recipients to opt out.

Horizontal Price Fixing

When competing retailers or other channel members at the same level establish a fixed price at which to sell products.

Vertical Price Fixing

When a retailer collaborates with a manufacturer or wholesaler to resell an item at an agreed-on price; also called resale price maintenance or fair trade.

Price Discrimination

When two retailers buy an identical amount of like-grade and quality merchandise from the same supplier but pay different prices.

Deceptive Pricing

Using a misleading price to lure customers into a store and then adding hidden charges, or advertising an item that is unavailable.

Predatory Pricing

A retail chain charges different prices in different geographic areas to eliminate competition in selected areas.

Deceitful Diversion of Patronage

Using false statements about a competitor to divert customers from that competitor.

Palming Off

Representing merchandise as being made by a firm other than the true manufacturer.

Deceptive Advertising

Making false or misleading claims about a product's physical makeup, benefits, or appropriate uses.

Puffery

A subjective opinion or judgment rather than a factual claim; generally legal.

Bait-and-Switch Advertising

Advertising a product at an unrealistically low price as bait and then trying to switch the customer to a higher-priced product.

Deceptive Sales Practices

Illegal practices such as failing to be honest or omitting key facts in advertising or sales presentations and using deceptive credit contracts.

Product Safety

Retailers have an obligation to carry merchandise that is safe for use.

Product Liability Laws

Laws dealing with the seller's responsibility to market safe products.

Foreseeability Doctrine

A seller must attempt to foresee how a product may be misused and warn consumers against that misuse.

Expressed Warranty

A written or verbal agreement about the performance of a product.

Implied Warranty of Merchantability

An implied promise that merchandise is fit for the ordinary purpose for which it is typically used.

Implied Warranty of Fitness

An implied promise that merchandise is fit for a particular purpose when a customer relies on the retailer to help make the selection.

Territorial Restrictions

Restrictions that limit the geographic area in which a retailer may resell merchandise.

Exclusive Dealing

When retailers and their partners agree to exclusive arrangements only with each other.

One-Way Exclusive Dealing

A retailer receives the exclusive right to sell a supplier's product in a particular trade area without agreeing to do anything in return; the slides state this is legal.

Two-Way Exclusive Dealing

A supplier gives a retailer exclusive distribution in a trade area and the retailer returns the favor; it can be illegal if it harms competition.

Tying Agreement

When a seller with a strong product or service requires a buyer to purchase a weaker product or service as a condition of buying the strong product or service.

Full-Line Policy

A policy requiring a retailer to carry an entire merchandise assortment if it wants to carry the most popular items.

Ethics

A set of rules for human moral behavior.

Explicit Code of Ethics

A written policy that states what is ethical and unethical behavior.

Implicit Code of Ethics

Unwritten but well-understood standards of moral responsibility.

Target market

Group of customers the retailer is seeking to serve; found by segmenting the market first

Criteria for a good target market

Measurable, accessible, and substantial (large enough to be profitable)

Central business district (CBD)

Unplanned shopping area where all public transportation converges, usually the city center and original city site.

Pros: public transit, wide assortment. Cons: expensive parking, high rents and taxes, congestion, crime

Secondary business district (SBD)

Shopping area smaller than the CBD that revolves around at least one department or variety store at a major street intersection

Neighborhood business district (NBD)

Shopping area that meets convenience-oriented needs of a neighborhood; several small stores (usually anchored by a supermarket or variety store) on a major artery of a residential area

Shopping center or mall

Centrally owned or managed, planned shopping district with balanced tenancy and surrounding parking

Balanced tenancy

Stores in a shopping center complement each other in merchandise offerings

Anchor stores

The most dominant stores in a shopping center; expected to draw customers to the center

Shopping center disadvantages

Inflexible hours, high rents, restrictions on merchandise, required merchant organization membership, anchor dominance, too much competition

Freestanding retailer (destination)

Locates along a major traffic artery with no adjacent retailers. ‘

Pros: no direct competition, lower rent, freedom in operations. Cons: little drawing power, higher advertising costs, costs not shared

Nontraditional locations

Airports, college campuses, truck and travel stops

Nonstore-based retailers

Street peddling, Internet, direct selling, vending machines

Geographic information system (GIS)

Computerized system that combines physical geography with cultural geography to produce maps and displays

Uses of GIS

Market selection, site analysis, trade area definition, new store cannibalization, evaluating store managers

Trading area

Geographic area from which a retailer, group of retailers, or community draws its customers

Reilly's Law of Retail Gravitation

Larger urban areas attract customers from smaller communities because of better selection worth the travel time; used to find the point of indifference

Point of indifference

Point where customers are indifferent between shopping in either of two cities (calculated with Reilly's Law)

Saturation theory

Examines how well the demand in a potential trading area is already served by existing retail stores

Understored

few stores relative to households, so the market is attractive (high store profitability).

Overstored

so many stores that the market is likely unprofitable

Demand density

Extent to which potential demand is concentrated in certain zip codes

Site analysis

Evaluating density of demand and supply within a market to identify the best retail site(s)

What affects trading area size

Trading area grows with consumer mobility, larger store size, and greater distance between competitors; natural and human-made obstacles limit it.

Site selection factors

Traffic characteristics, parking, neighboring retailers, and terms of purchase or lease (price, lease length, exclusivity clause); build a pro forma based on research.