Ch 14:Retail

The Importance of Retailing

Retailing represents all the activities directly related to the sale of goods and services to the ultimate consumer for personal, nonbusiness use. Retailing has enhanced the quality of our daily lives in countless ways.

Types of Retailers And Retail Operations

Retail establishments can be classified in several ways, such as type of ownership, level of service, product assortment, and price. These variables can be combined in several ways to create numerous unique retail operating models. Exhibit 14.1 lists the major types of retailers and classifies them by their key differentiating characteristics.

Exhibit 14.1

Types of Stores and their Characteristics

Ownership Arrangement

• An independent retailer is owned by a person or group and is not operated as part of a larger network. Around the world, most retailers are independent, with each owner operating a single store in a local community.

• A chain store is a group of retailers (of one or more brand names) owned and operated by a single organization. Under this form of ownership, a home office for the entire chain handles retail buying; creates unified operating, marketing, and other administrative policies; and works to ensure consistency across different locations

• A franchise is a retail business for which the operator is granted a license to operate and sell a product under the brand name of a larger supporting organizational structure, such as Subway or Supercuts. Under this arrangement, a franchisor originates the trade name, product, methods of operation, and so on.

• A franchisee , in return, pays the franchisor for the right to use its name, product, and business methods and takes advantage of the franchisor’s brand equity and operational expertise. Franchises can provide both goods and services, but increasingly, the most successful franchises are services retailers
  
  Level of Service

  The service levels that retailers provide range from full service to self-service. Some retailers, such as exclusive clothing stores, offer very high or even customized service levels. They provide alterations, credit, delivery, consulting, liberal return policies, layaway, gift wrapping, and personal shopping.

Product Assortment

Retailers can also be categorized by the width and depth of their product lines. Width refers to the assortment of products offered; depth refers to the number of different brands offered within each assortment. Specialty stores such as Best Buy, Staples, and GameStop have the thinnest product assortments, usually carrying single or narrow product lines that are considerably deep

Stores often modify their product assortments in order to accommodate factors in the external environment. For example, a recent shift in customer preference toward bold and exotic flavors, snacking, and health and wellness has led to the inclusion of on-the-go, conveniently packaged healthy meals on store shelves. Some of these options include bowl-based choices featuring kale, quinoa, and other nutritious ingredients. Large packaged food companies that haven’t stayed on-trend with healthy options have suffered declining sales in recent years, demonstrating the importance of recognizing shifting customer lifestyles and offering new products to accommodate them.

Price

Price is the fourth way to position retail stores. Traditional department stores and specialty stores typically charge the full “suggested retail price.” In contrast, discounters, factory outlets, and off-price retailers use low prices and discounts to lure shoppers. The last column in Exhibit 14.1 shows the typical gross margin —how much the retailer makes as a percentage of sales after the cost of the goods sold is subtracted.

• Some online retailers use customer information such as income, location, and browsing history to adjust their prices. That is, depending on the information that Amazon has about you, the price you see for a book on Amazon might be different from the price your instructor sees and the prices that your fellow classmates see. This practice can lead to negative reactions from consumers if they realize that they are not receiving equal prices or if they feel that their privacy has been invaded

Types of In-Store Retailers

Traditionally, retailers fall into one of several distinct types of retail stores, each of which features a product assortment, types of services, and price levels that align with the intended customers’ shopping preferences.

• Department stores such as Nordstrom and Macy’s carry a wide range of products and specialty goods, including apparel, cosmetics, housewares, electronics, and sometimes furniture. Each department acts as a separate profit center, but central management sets policies about pricing and the types of merchandise carried.

• Specialty stores typically carry a deeper but narrower assortment of merchandise within a single category of interest. The specialized knowledge of their salesclerks allows for more attentive customer service. Office Depot, Ulta Beauty, and Foot Locker are well-known specialty retailers.

• Supermarkets are large, departmentalized, self-service retailers that specialize in food and some nonfood items. Some conventional supermarkets are being replaced by much larger superstores. Superstores offer one-stop shopping for food and nonfood needs, as well as services such as pharmacists, florists, salad bars, photo-processing kiosks, and banking centers.

• Drugstores primarily provide pharmacy-related products and services, but many also carry an extensive selection of cosmetics, health and beauty aids, seasonal merchandise, greeting cards, toys, and some refrigerated, nonrefrigerated, and frozen convenience foods.

• A convenience store resembles a miniature supermarket but carries a much more limited line of high-turnover convenience goods. These self-service stores are typically located near residential areas and offer exactly what their name implies: convenient locations, long hours, and fast service in exchange for premium prices. In exchange for higher prices, however, customers are beginning to demand more from convenience store management, such as higher-quality food and lower prices on staple items such as gasoline and milk

• Discount stores compete on the basis of low prices, high turnover, and high volume. Discounters can be classified into several major categories:

• Full-line discount stores such as Walmart offer consumers very limited service and carry a vast assortment of well-known, nationally branded goods such as housewares, toys, automotive parts, hardware, sporting goods, garden items, and clothing.

• Supercenters extend the full-line concept to include groceries and a variety of services, such as pharmacies, dry cleaning, portrait studios, photo finishing, hair salons, optical shops, and restaurants.

The Rise of Nonstore Retailing

The retailing formats discussed so far entail physical stores where merchandise is displayed and to which customers must travel in order to shop. In contrast, nonstore retailing enables customers to shop without visiting a physical store location.

The major forms of nonstore retailing are automatic vending, direct retailing, direct marketing, and Internet retailing (or e-tailing). In response to the successes seen by nonstore retailers, many grocery stores have started offering curbside pick-up services. These services, such as Instacart Pickup and Walmart Grocery Pickup, offer consumers the ease of online shopping without the inconvenience of waiting days for a delivery.

• Automatic vending entails the use of machines to offer goods for sale—for example, the soft drink, candy, and snack vending machines commonly found in public places and office buildings. Retailers are continually seeking new opportunities to sell via vending. As a result, vending machines today sell merchandise such as DVDs, digital cameras, perfumes, and even ice cream. A key aspect of their continuing success is the proliferation of cashless payment systems in response to consumers’ diminishing preference for carrying cash. Automatic vending has allowed marketers to tap into a new, unlikely audience: customers seeking luxury items on the go.

• Self-service technologies (SST) comprise a form of automatic vending where services are the primary focus. Automatic teller machines, pay-at-the-pump gas stations, and movie ticket kiosks allow customers to make purchases that once required assistance from a company employee. However, as with any sort of self-service technology, automatic vending comes with failure risks due to human or technological error. Unless customers expect that they can easily recover from such errors, they may end up shopping elsewhere

• Shop-at-home television networks such as HSN and QVC produce television shows that display merchandise to home viewers. Viewers can phone in their orders directly on toll-free lines and shop with their credit cards. The shop-at-home industry has quickly grown into a multibillion-dollar business with a loyal customer following and high customer penetration.

• Online retailing , or e-tailing , enables customers to shop over the Internet and have items delivered directly to their door. Global online shopping accounts for about $2.3 trillion annually and is projected to grow to around $4.48 trillion by 2021. Additionally, 1.66 billion people worldwide purchase goods online in a single year. Online retailer Amazon earns $54.5 billion in revenue annually and sells over 564 million products to consumers in the United States.

  Online, interactive shopping tools and live chats substitute for the in-store interactions with salespeople and product trials that customers traditionally used to make purchase decisions. Shoppers can use a variety of devices to look at a much wider variety of products online, because physical space restrictions do not exist. While shopping, customers can take their time deciding what to buy.

• Telemarketing is a form of DM that employs outbound and inbound telephone contacts to sell directly to consumers. Telemarketing is a highly effective marketing technique; one survey indicates that 12 percent of sales and marketing leads come from telemarketing activity alone, surpassing the impact of public relations, print advertising, direct mail, and media buying activity.

• Alternatively, direct mail can be a highly efficient or highly inefficient retailing method, depending on the quality of the mailing list and the effectiveness of the mailing piece. With direct mail, marketers can precisely target their customers according to demographic, geographic, and/or psychographic characteristics. Direct mailers are becoming more sophisticated in targeting the right customers. Microtargeting based on data analytics of census data, lifestyle patterns, financial information, and past purchase and credit history allows direct mailers to pick out those most likely to buy their products

Executing a Retail Marketing Strategy

Retail managers develop marketing strategies based on the goals established by stakeholders and the overall strategic plans developed by company leadership

Defining a Target Market

The first and foremost task in developing a retail strategy is to define the target market. This process begins with market segmentation, the topic of Chapter 8. Successful retailing has always been based on knowing the customer. Sometimes retailing chains flounder when management loses sight of the customers the stores should be serving. Customers’ desires and preferences change over their personal and professional life spans, and it is important for retailers to be sensitive to these changes by migrating their customers to new and different products as their buying patterns evolve.

Choosing the Retailing Mix

As previously noted, defining a retail operation entails combining the elements of the retailing mix to come up with a single retailing method to attract the target market. The retailing mix consists of six Ps: the four Ps of the marketing mix (product, promotion, place, and price) plus presentation and personnel

Product

The first element in the retailing mix is the product offering, also called the “product assortment” or “merchandise mix.” Developing a product offering is essentially a question of the width and depth of the product assortment. Price, store/website design, displays, and service are important to customers in determining where to shop, but the most critical factor is merchandise selection

Promotion

Retail promotion strategies includes advertising, public relations and publicity, and sales promotions. The goal is to help position the store or website in customers’ minds. Retailers design intriguing ads, stage special events, and develop promotions aimed at their target markets.

Place

The retailing axiom “location, location, location” has long emphasized the importance of place to the retail mix. The physical location decision is important first because the retailer is making a large, semipermanent commitment of resources that can reduce its future flexibility. Second, the physical location will almost inevitably affect the store’s future growth and profitability. Many retailers work with consultants and/or city planners to determine the best sites for current sales as well as potential future growth.

• After identifying a geographic region or community, retailers must choose a specific site. In addition to growth potential, the important factors to consider are neighborhood socioeconomic characteristics, traffic flows, land costs, zoning regulations, and public transportation. A particular site’s visibility, parking, entrance and exit locations, accessibility, and safety and security issues are also important considerations.

• . Large retailers like Target and sellers of shopping goods like furniture and cars often use an isolated, freestanding location. A freestanding store location may have the advantages of low site cost or rent and no nearby competitors. On the other hand, it may be hard to attract customers to a freestanding location, and no other retailers are around to share costs. To be successful, stores in isolated locations must become “destination stores.” A destination store is one that consumers seek out and purposely plan to visit. Websites can also be destinations for shoppers. Amazon is a destination website for a wide variety of products, and Google is a destination website for search information.

• Price

Another important element in the retailing mix is price. Retailing’s ultimate goal is to sell products to consumers, and the right price is critical to ensure sales. Because retail prices are usually based on the cost of the merchandise, an essential part of pricing is efficient and timely buying. Another pricing strategy is “value-based pricing,” which focuses on the value of the product to the customer more than the cost of the product to the supplier. Price is also a key element in a retail store’s positioning strategy.

Presentation

The presentation of a retail store helps determine the store’s image and positions the retail store in consumers’ minds. For instance, a retailer that wants to position itself as an upscale store would use a lavish or sophisticated presentation. The main element of a store’s presentation is its atmosphere , the overall impression conveyed by a store’s physical layout, decor, and surroundings

• Employee type and density: Employee type refers to an employee’s general characteristics—for instance, neat, friendly, knowledgeable, or service oriented. Density is the number of employees per thousand square feet of selling space.

• Merchandise type and density: A prestigious retailer like Nordstrom or Neiman Marcus carries the best brand names and displays them in a neat, uncluttered arrangement. Discounters and off-price retailers often carry seconds or out-of-season goods crowded into small spaces and hung on long racks by category—tops, pants, skirts, and so on—creating the impression that “We’ve got so much stuff, we’re practically giving it away.”

• Fixture type and density: Fixtures can be elegant (rich woods) or trendy (chrome and smoked glass); they can even consist of old, beat-up tables, as in an antiques store. The fixtures should be consistent with the general atmosphere the store is trying to create.

• Sound: Sound can be pleasant or unpleasant for a customer. Music can entice some customers to stay in the store longer and buy more or to eat quickly and leave a table for others. It can also control the pace of the store traffic, create an image, and attract or direct the shopper’s attention. Studies show the type of music played can even influence a customer’s choice of product.

• Odors: Smell can either stimulate or detract from sales. Research suggests that people evaluate merchandise more positively, spend more time shopping, and are generally in a better mood when an agreeable odor is present. Other research shows that certain scents empower consumers and lead to more premium purchases.

  Retailers use fragrances as an extension of their retail strategy.

• Visual factors: Colors can create a mood or focus attention and therefore are an important factor in atmosphere. Red, yellow, and orange are considered warm colors and are used when a feeling of warmth and closeness is desired. Cool colors like blue, green, and violet are used to open up closed-in places and create an air of elegance and cleanliness.

• Personnel

  People are a unique aspect of retailing. Most retail sales involve a customer–salesperson relationship, if only briefly. Sales personnel provide their customers with the amount of service prescribed by the retail strategy of the store.

  Retail salespeople serve another important selling function: They persuade shoppers to buy. They must therefore be able to persuade customers that what they are selling is what the customer needs. Salespeople are trained in two common selling techniques: trading up and suggestion selling. Trading up means persuading customers to buy an item with a higher price than the one they originally intended to purchase. To avoid selling customers something they do not need or want, however, salespeople should take care when practicing trading-up techniques.