Chapter 15

PRINCIPLES OF MARKETING 101

TABLE OF CONTENTS

  • CH 15. RETAILING, DIRECT MARKETING, WHOLESALING

DISCUSSION QUESTIONS

  • What is the value add to a product by retailers?

  • How does online retailing contribute to other forms of retailing?

  • What major issues should be considered when determining a retail site location?

  • Describe the three major types of traditional shopping centers. Give an example of each.

  • Discuss the major factors that help to determine a retail store’s image.

  • Some consumers believe that direct-response orders bypass the retailer. Is this true?

WHAT IS RETAILING?

  • Retailing encompasses all transactions where buyers intend to consume products for:
      - Personal use
      - Family use
      - Household use

ROLE OF RETAILERS

  • Definition: Retailers are organizations that primarily sell goods and services to ultimate consumers.

  • Functions:
      - They act as customers of wholesalers and producers.
      - They serve as marketers to end-users.

KEY RETAILER CONTRIBUTIONS

  • Value Addition:
      - Retailers improve convenience, accessibility, and time/place utility for consumers.

  • Services Provided:
      - Product displays and comparisons.
      - Customer assistance and handling returns.
      - Financing options, delivery options, and loyalty programs.

  • Assistance in Selection:
      - Retailers help consumers make informed purchasing decisions.

MULTI-CHANNEL RETAILING

  • Definition: Multi-channel retailing combines traditional brick-and-mortar operations with:
      - E-commerce websites
      - Mobile applications
      - Catalogs

  • Benefits:
      - Enhances customer experiences.
      - Widens market reach.

THE RISE OF ONLINE RETAILING

  • Definition: Online retailing refers to the selling of products via computers and mobile devices.

  • Importance: It is a key driver for the growth of multi-channel retail strategies.

  • Consumer Advantages:
      - 24/7 access to products and services.

CONSUMER EXPECTATIONS IN MODERN RETAILING

  • Modern consumers expect:
      - Seamless shopping options.
      - Convenience, speed, product variety, and personalized experiences.

TASKS CONSUMERS CAN PERFORM ONLINE

  • Capabilities offered by online retailing include:
      - Browsing and comparing products.
      - Reading reviews and recommendations.
      - Placing orders and tracking shipments.
      - Managing returns and customer service interactions.

STRATEGIC BENEFITS FOR RETAILERS

  • Expansion of reach beyond geographic limitations.

  • Improved customer targeting through the integration of data from all channels.

  • Better inventory management and promotional effectiveness.

CLASSIFICATION OF RETAILERS

  • Retailers can differ based on:
      - Breadth: Wide vs. narrow product variety.
      - Depth: Extensive vs. limited selection within a category.

MAJOR TYPES OF RETAILERS

  1. Department Stores:
       - Characteristics: Large-scale with multiple departments, wide product mix, significant depth.
       - Examples: Macy’s, Nordstrom.

  2. Discount Stores:
       - Characteristics: Self-service format focused on low prices, general merchandise.
       - Examples: Walmart, Target.

  3. Convenience Stores:
       - Characteristics: Small, accessible, open long hours, narrow product mix of convenience items.
       - Examples: 7-Eleven.

  4. Supermarkets:
       - Characteristics: Large self-service food retailers, also offer non-food household items.
       - Examples: Kroger, Stop & Shop.

  5. Superstores:
       - Characteristics: Combine aspects of supermarkets with a wide range of routine purchases, serving as one-stop shopping locations.
       - Examples: SuperTarget, Walmart Supercenter.

  6. Warehouse Clubs:
       - Characteristics: Membership model offering bulk discounts, emphasizing price and quantity.
       - Examples: Costco, Sam’s Club.

  7. Specialty Retailers:
       - Characteristics: Narrow product lines with deep assortments, may include:
         - Category Killers: Dominant in one category (e.g., Best Buy, Home Depot).
         - Off-Price Retailers: Sell brand-name surplus at discounts (e.g., T.J.Maxx, Marshalls).

STRATEGIC ISSUES IN RETAILING

  1. Location:
       - Critical decision for retailers affecting trading area.
       - Key considerations include:
         - Proximity to target market
         - Type of product offered
         - Availability of public transportation
         - Customer demographics
         - Local competition
       - Types of locations include:
         - Freestanding structures
         - Traditional business districts
         - Planned shopping centers (neighborhood, community, regional, super-regional)
         - Nontraditional formats (lifestyle centers, outlet malls).

  2. Franchising:
       - A franchisor grants rights to a franchisee to sell products.
       - Franchisee Benefits:
         - Access to established brands.
         - Support and training provided.
         - National advertising.
       - Challenges:
         - Control from franchisors.
         - Franchise fees and royalties.
         - Variability in franchise agreements.
         - Significant time/work commitment.

  3. Retail Technology Trends:
       - Innovations include:
         - Data analytics
         - Inventory optimization
         - Augmented reality
         - Omnichannel strategies.
       - Purpose is to enhance customer experiences and streamline operations.

  4. Retail Positioning:
       - Involves identifying underserved market segments and differentiating through unique offerings, customer service, pricing, or experiences.

  5. Store Image & Atmospherics:
       - Store image is formed based on how customers perceive the retailer, influenced by:
         - Product assortment
         - Customer service
         - Pricing, location, and promotions
         - Store atmospherics including lighting, music, layout, and scent, all of which influence customer emotional responses.

  6. Category Management:
       - A retail strategy managing product categories as individual business units with the goal to maximize sales and profits for the entire category.
       - Focus placed on product assortment, shelf space, as well as promotions and pricing across brands.

DIRECT-TO-CONSUMER MARKETING (D2C)

  • Definition: D2C marketing involves selling directly to consumers and bypassing traditional retail channels.

  • Communication: Brands communicate and transact without intermediaries.

  • Channels Include:
      - E-commerce websites and apps.
      - Catalogs sent directly to consumers’ homes.
      - Direct response marketing channels (TV, online ads, infomercials).
      - Telemarketing and direct mail.
      - Pay-per-click advertising.
      - Direct selling and vending machines.

REASONS TO USE D2C MARKETING

  • Complete control over brand messaging and customer experience.

  • Direct access to customer data and feedback.

  • Higher profit margins by eliminating middlemen.

  • Can operate as a standalone or supplement traditional channels.

TYPES OF D2C MARKETING

  • Direct Selling:
      - Personal selling directly to consumers in their homes or workplaces, focusing on relationship building and product demonstrations.
      - Common sectors include cosmetics, wellness, and home goods (e.g., Mary Kay, Tupperware).

  • Vending:
      - Automated machines providing products, effective for convenience goods in high-traffic locations.
      - Expanding to innovative products and cashless payment options.

WHAT IS WHOLESALING?

  • Definition: Wholesaling includes all transactions where products are purchased for resale, production use, or general business operations.

  • Functionality: Wholesalers facilitate and expedite product flow between producers and retailers or other businesses.

VALUE PROVIDED BY WHOLESALERS

  • Financial assistance and inventory management.

  • Buying expertise and a wide selection of products for retailers.

  • Enable producers to focus on manufacturing tasks.

  • Provide warehousing and storage solutions, helping reduce logistical burdens.

TYPES OF WHOLESALERS

  1. Merchant Wholesalers:
       - Independently owned businesses taking title of products.
       - Full-Service Merchant Wholesalers:
         - General Merchandise Wholesalers: Broad product mix but less depth.
         - Limited-Line Wholesalers: Deep product mix in a few lines.
         - Specialty-Line Wholesalers: Narrow category focus.
         - Rack Jobbers: Maintain and stock shelves in stores.
       - Limited-Service Merchant Wholesalers:
         - Fewer services offered:
           - Cash-and-Carry Wholesalers: Require payment in cash without delivery.
           - Truck Wholesalers (Truck Jobbers): Sell directly from trucks.
           - Drop Shippers: Own goods, arrange sales but not involved in product handling.
           - Mail-Order Wholesalers: Sell via catalogs or through online platforms.

  2. Agents & Brokers:
       - Do not take title to goods; work on commission for negotiating sales.
       - Types Include:
         - Agents: Represent buyers or sellers long-term (e.g., Manufacturer’s Agents, Selling Agents).
         - Brokers: Act as short-term intermediaries for specific transactions.

  3. Manufacturer-Owned Intermediaries:
       - Sales Branches: Sell products and provide services.
       - Sales Offices: Similar to agents but do not hold inventory.

CLASS EXERCISE

  • Objective: Assist students in applying marketing channel, logistic, retailing format, and wholesaling knowledge by analyzing a business scenario and making strategic distribution decisions.

  • Scenario: Market strategy for GlowSip, a start-up selling nutrient-infused sparkling water, targeting health-conscious Gen Z and Millennial consumers. Key areas of focus include distribution strategy, channel structure, and logistics.

CHANNEL STRATEGY IN ACTION

  1. Channel Design:
       - Recommend intensive distribution for wide availability, especially in health-focused, urban markets.

  2. Intermediaries:
       - Use merchant wholesalers alongside selective direct retail partnerships for brand alignment.

  3. Retailing Strategy:
       - Prioritize supermarkets and convenience stores due to high foot traffic and alignment with health-driven purchasing.

  4. Direct Marketing:
       - Yes to a D2C strategy utilizing online sales and subscription models.
       - Consider vending in fitness centers.

  5. Logistics & Supply Chain:
       - Recommend partnering with a 3PL for efficient warehousing and fulfillment to enable scalability while ensuring transportation efficiency and product freshness.