Distribution Management: Key Points (MM411)

Role of Retailing

  • All activities directly related to the sale of goods and services to the ultimate consumer for personal, non-business use.
  • Role: Connects producers to consumers; creates value via assortment, service, and convenience.

Types of Retailers and Retail Operations

  • Retailers are classified by Ownership, Level of Service, Product Assortment, and Price.
  • Key concepts:
    • Ownership: Independent Retailers, Chain Stores, Franchises.
    • Level of Service: Full-Service vs Self-Service.
    • Product Assortment: Width (breadth) and depth of product lines.
    • Price and Gross Margin definitions.

Ownership and Level of Service

  • Independent Retailers: Owned by a single person or partnership; not part of a larger institution.
  • Chain Stores: Owned and operated as a group by a single organization.
  • Franchises: The right to operate a business or to sell a product.
  • Level of Service:
    • Full-Service: Higher service level.
    • Self-Service: Lower service level.

Product Assortment and Price

  • Product Assortment: Classification based on width and depth of product lines.
  • Price and Gross Margin:
    • Definition: The amount of money the retailer makes as a percentage of sales after the cost of goods sold is subtracted.
    • Formula: GM=Sales−COGSSales×100%GM = \frac{Sales - COGS}{Sales} \times 100\%

In-Store Retail Operations (Major Types)

  • Department Stores
  • Convenience Stores
  • Specialty Stores
  • Discount Stores
  • Supermarkets
  • Off-Price Retailers
  • Drugstores
  • Restaurants
  • Warehouse Clubs
  • Specialty Discounter

Rise of Nonstore Retailing

  • Nonstore retailing: Shopping without visiting a physical store.

Major Types of Nonstore Operations

  • Automatic Vending
  • Direct Marketing
  • Direct Retailing
  • Online Retailing

Retail Operation Models

  • A retail operating model is a set of guiding principles.
  • Example: Off-price retailers de-emphasize customer service and product selection in favor of lower prices, achieved through lean inventory management.

Floor Stock and Back Stock

  • Floor stock: Inventory displayed for sale to customers.
  • Back stock: Inventory held in reserve for potential future sale in storeroom/stockroom.

Operations Models Today

  • Hybrid retail operating models have emerged due to tradeoffs in restrictive models.
  • Online-only retailers exist; most stores remain operationally similar to historic models.

Executing a Retail Marketing Strategy

  • Retail Marketing Strategy involves:
    • Define a Target Market
    • Choose a Retailing Mix

Defining a Target Market

  • Step 1: Segment the Market
  • Segments include: Demographics, Geographics, Psychographics

Choosing the Retailing Mix

  • Product: Width and depth of product assortment
  • Price
  • Place: Location and hours
  • Promotion: Advertising, publicity, and public relations
  • Presentation: Layout and atmosphere
  • Personnel: Customer service and personal selling

The Retailing Mix (Expanded)

  • Personnel
  • Customer service and personal selling
  • Presentation
  • Layout and atmosphere
  • Product: Width and depth of product assortment
  • Target market
  • Place (distribution): Location and hours
  • Price
  • Promotion: Advertising, publicity, and public relations

Retail Life Cycle

  • The retail life cycle describes growth and decline of outlets like products: Early growth, Accelerated development, Maturity, Decline.

Parasites

  • Parasite stores do not create their own traffic; they run on proximity to draws (big stores, transit hubs, offices).

Destination Stores

  • Stores that generate customers from larger trading areas; e.g., Dunkin' Donuts: "It’s worth the trip!"

Power Centers

  • Large shopping strips with multiple anchors and often a supermarket.

Anchor Stores

  • A large store (department store or supermarket) prominently located in a mall to attract customers who may patronize other shops.

Key terms to memorize

  • Gross Margin (GM): GM=Sales−COGSSales×100%GM = \frac{Sales - COGS}{Sales} \times 100\%
  • Floor Stock vs Back Stock
  • Retail Mix components: Product, Price, Place, Promotion, Presentation, Personnel
  • Nonstore retail types: Automatic Vending, Direct Marketing, Direct Retailing, Online Retailing
  • Retail Life Cycle stages: Early growth, Accelerated development, Maturity, Decline