Chapter Thirteen: Retailing and Multichannel Marketing TOOLS FOR INSTRUCTORS • Learning Objectives • Annotated Chapter Outline with Instructor’s Notes/Teaching Tips • Answers to End of Chapter Learning Aids Concept Review Marketing Application Questions Net Savvy Chapter Case Study • Video Activities Learning Objectives 1. Outline the considerations associated with choosing retail partners 2. Identify what types of retailers are available to distribute products 3. Describe the components of a retail strategy building on the four Ps to create value for consumers 4. Identify the benefits and challenges of multichannel retailing Annotated Chapter Outline PowerPoint Slides Instructor’s Notes Chapter 13 will focus on Retailing and Multichannel Marketing. These questions are the learning objectives guiding the chapter and will be explored in more detail in the following slides. Opening Vignette: Apple Store Apple became a successful retailer out of necessity because other retailers had no incentive to carry its products. Since then it has become one of Fortune’s most admired companies. Its retail outlets are carefully designed offering products, services, workshops, and exceptional customer service, all leading to the best per square foot sales in the country. Apple retail stores have been critical to the success of the company and account for 20% of revenues. They have become so successful that recently “fake” Apple stores have been opened in India and China to attract customers who think they are getting genuine Apple merchandise. Ask students: why has Apple been so successful? Group activity: List your favorite retailers. How do these retailers create value for you? Students should provide diverse lists that you can use as a basis for the remaining retail discussions. LO1: Choosing Retail Partners Retailing refers to business activities that add value to products and services sold to consumers for their personal or family use, including products bought in stores, through catalogues, or over the Internet, as well as services. Wholesalers buy, take title to, often store goods in large quantities, and then resell the goods (usually in smaller quantities) to retailers or industrial or business users. This is an overview and each stage is presented on the following slides. Group activity: List your favourite retailers. How do these retailers create value for you? Students should provide diverse lists that you can use as a basis for the remaining retail discussions. Choosing Retail Partners 1. Channel Structure: degree of vertical integration, manufacturer’s brand, power of manufacturer and retailer 2. Customer Expectations: how manufacturers determine which retailers would be best for consumers and where consumers expect to find certain products 3. Channel Member Characteristics: Larger firms often find that by performing the channel functions themselves, they can gain more control, be more efficient, and save money. 4. Distribution Intensity Ask students to describe what is meant by “degree of vertical integration”. This is discussed in chapter 12 and refers to a supply chain where the members act as a unified system. Ask students how vertical integration affects a manufacturer who is introducing a new product and choosing a retail partner. Students will mention that if the manufacturer and retailer already have a relationship from previous products that the retailer will be more likely to accept the new product. Ask Students: Why might Birkenstock choose exclusive distribution intensity? Answer: Birkenstock’s can only be purchased through certain retailers – this helps control conflict between retailers and gives the manufacturer better control. Some might argue that for products in the later stages of the product life cycle, it implies higher quality to the end consumer. LO2: Identifying Types of Retailers • Food Retailers • General Merchandise Retailers This slide can be used as an introduction to a detailed discussion of this topic or as a shortened version. Answer B; see page 407 Three Main Types of Food Retailers A. Conventional supermarkets offer groceries, meat, and produce, along with limited sales of non-food items such as health and beauty aids and general merchandise, in a self-service format. B. Big-box food retailers include supercentres, hypermarkets, and warehouse clubs and carry both food and non-food items in larger stores than conventional supermarkets. C. Convenience stores provide a limited number of items at convenient locations in small stores with speedy checkout procedures. Ask students: in what circumstances do you shop at each type of food retailer? How do the price, selection, and quality vary across each type? Case-in-Point Series This slide sets up the Case in Point which follows. Competition among food retailers has prompted new innovations, such as those that cater to more upscale, knowledgeable buyers. Pete’s Frootique is a Nova Scotia & New Brunswick based grocery chain. It carries more and a wider variety of fresh produce items than traditional grocery stores. It also provides nutrition and food preparation classes on site as well as an onsite dietician and has an extremely loyal following. Ask students: How does Pete’s Frootique create value beyond that offered by a traditional grocery retailer? Click on the link in the title to take students to the store’s website. Entrepreneurial Marketing 13.1 Our Ice is Cooler Ask students to watch CBC’s Dragons’ Den video. Ask them if they buy ice and if so, where? So they expect to find it in grocery stores? Would they pay a premium for ice in a grocery store environment? Six Categories of General Merchandise Retailers A. Discount stores offer a broad variety of merchandise, limited service, and low prices. B. Specialty stores concentrate on a few complementary merchandise categories in relatively small shops. C. Category specialists offer a narrow variety but a deep assortment of merchandise and may become category killers, which so overwhelm the category that other retailers cannot compete. D. Department stores carry many different types of merchandise and lots of variations, offer some customer service, and are organized into separate areas. E. Drugstores concentrate on health and personal grooming merchandise, though pharmaceuticals often represent more than 60% of their sales. F. Off-price retailers offer inconsistent assortments of merchandise at relatively low prices, typically purchased from manufacturers or other retailers with excess inventory. • Extreme value retailers are a particular type of off-price retailers that usually appear in lower-income urban or rural areas. • They are smaller than traditional discount stores. Group activity: Identify a retailer in each of these categories. Discuss how that specific retailer creates value for its target consumers. Remind students to use the 4Ps framework for this exercise. For example, Abercrombie & Fitch is a specialty store that carries trendy, high-quality, high-priced products. Its edgy advertising appeals to consumers and stores are located in upscale malls or shopping areas. Answer A; see page 409 Specialty stores must offer their target market something more than what other retailers offer, because they often charge a premium price. LO3: Developing a Retail Strategy To create an effective retailer strategy, marketers must first identify the right target market and positioning. Then they need to develop their retail mix: product (merchandise assortment), pricing, promotion, place, personnel, and presentation (store design and display). This slide introduces how the 4Ps are used in retailing. More in depth slides follow. Retail Mix: Product A. Providing the right mix of merchandise and services to satisfy the needs of the target market is one of retailers’ most fundamental activities. B. Retailers store or hold inventory until consumers request it. C. Retailers also offer private label (store) brands, which are available only from that retailer. What is the most important thing that retailers do? They provide assortments to customers. Group activity: Divide the class into groups. Tell them that the classroom represents a new store. Have them identify a target market. Ask them to decide what they are going to put into the store. Have them consider both variety (number of categories) and assortment (number of SKUs within a category.) Retail Mix: Price A. Price defines the value of both the merchandise and the service. B. A general price range associated with a particular store helps define its image. How Do Retailers Create Value? • Consumer Preferences Change. • Definitions of price and quality differ. • Lifestyles have evolved toward greater casualness. • As definitions of price and quality change, so does the definition of value. • Retailers must respond by creating value through methods other than low price. Group activity continued: Now have them decide the general price range for their store, and justify their recommendation. Retailers need to create value for their customers outside of offering a great price. Other things that retailers offer include convenience & an easy shopping experience. Retail Mix: Promotion A. Retailers use a wide variety of promotions, both within their retail environment and through mass media. B. Promotions help get customers into stores, and then stimulate purchases after they are in the store. C. Promotions can take many forms. • Unusual or exciting stores atmospherics, which influence consumers’ perceptions of value and thus their subsequent patronage. • Personal selling and customer service representatives. • CRM databases to develop loyalty programs. Discuss how promotions affect consumers’ perceptions of value, patronage intentions, purchase, loyalty, and share of wallet devoted to a particular retailer, both individually and in combination. Group activity continued: Tell the students they have a fixed amount to spend on promotion, including personal selling. How would they divide up their promotional dollar? Justify their recommendation. Retail Mix: Presentation Store design and display are important forms of promotion. Ask students to share examples of retailers that do a really good job of designing their stores and displays. Get them to relate their answers back to the theory and provide specifics as to what makes one retailer stand out over others. The Wheel of Retailing • A second view of how new forms of retail outlets compete in the market. • Retailers enter with low prices, low margins, low status but over time add more service, raise prices and earn higher margins and status. To illustrate how McDonalds is progressing in the wheel of retailing, click on the links to show photos of two redesigned, upscale restaurants in Germany and in Canada. Retail Mix: Personnel Retailers gain customer knowledge from store personnel, e.g. Internet browsing and buying activities. The data they collect on customer shopping habits can be used in customer relationship management (CRM). Based on this information, retailers may modify product, price and/or promotion attempt to increase their share of wallet, the percentage of a customer’s purchases from that particular retailer. Store personnel are an extremely important part of the promotional mix. Customers rely on associates for a number of reasons. The goal is to provide more value to a firm’s best customers. Retail Mix: Place A. Convenience is a key ingredient to success, and location is an important part of convenience. B. Customers choose stores on the basis of where they are located C. Supply chain management, part of the fourth P, is responsible for getting the right merchandise to customers when they want it. In retailing there are two aspects to “place.” The first is location, and the second is supply chain management. Both are important. Location is important because it is one of consumers’ most important criteria in choosing a retailer and it is a very long-term investment. Group activity continued: Have students choose a location and justify it. Also, have them describe how they would design their supply chain, i.e., use of wholesalers versus distribution centers; direct store delivery versus, delivery to distribution centers; traditional warehouses versus cross-docking, etc. LO4: Managing Multichannel Options • Bricks-and-Mortar Retailers Are Traditional Retail Stores. • Trade Areas Define Potential Customers According to Geographic Area. • Multichannel Retailers Sell Merchandise in Multiple Retail Channels, e.g. stores, kiosks, catalogues and the Internet. • Each channel offers its own unique benefits. Among others, online stores offer great convenience, and a wide selection available at any time. Consumers view offerings from the comfort of their home or office. Merchandise gets delivered directly to consumers. This slide introduces channels for selling to consumers. More in depth slides follow. Ask students what they like to buy in stores vs. catalogue vs. online? Ask students: Have you ever started shopping online, and then visited the store to make the actual purchase? What kind of product did you buy using this method? The Internet has also opened opportunities to sell beyond a limited geographic region. Ask students: Have you ever purchased something online from a retailer that does not have a physical store in your area? This will hopefully identify niche retailers that have expanded their trade area by using the Internet. Shopping over the Internet provides the convenience offered by catalogues and other non-store formats. However, the Internet, compared with store and catalogue channels, also has the potential to offer a greater selection of products and more personalized information about products and services in a relatively short amount of time. It also offers sellers the unique opportunity to collect information about how consumers shop—information that they can use to improve the shopping experience across all channels. The Internet has radically altered the retail marketplace. Many traditional bricks-and-mortar retailers create synergy between online and traditional retailing. Multi-channel customers buy more than single channel customers. Ask students: Have you ever started shopping online, and then visited the store to make the actual purchase? What kind of product did you buy using this method? The Internet has also opened opportunities to sell beyond a limited geographic region. Ask students: Have you ever purchased something online from a retailer that does not have a physical store in your area? This will hopefully identify niche retailers that have expanded their trade area by using the Internet. Internet Channel The internet can supply research? Ask students what information Home Depot might gather research from web visits and how they would use it? Students might mention that they will search for products that the company does not currently stock. They might see products that consumers browse often but purchase little. For instance, they might look for lamps quite often but this is a low seller for Home Depot? What is it about the product that makes people come looking and leave not buying? Ask students when they are nervous to enter their credit card information online? How do they determine if a site is credible? How do they feel about privacy? Benefits Provided by Different Channels Use Exhibit 13.4 in the textbook to initiate a discussion of the advantages students see in each of these unique channels. Many students may feel that shopping in stores is better than online because they can try things on. Remind students that consumers who shop at multichannel retailers (i.e., store, catalogue, and Internet) typically buy more than those who shop in only one retail channel. Use this exhibit to supplement the discussion the last slide if needed. Answer B; see page 418 Effective Multichannel Retailing • Role of brands • Using technology • Increasing share of wallet • Gaining insight into customer shopping behaviours Consumers want a seamless experience when interacting with multichannel retailers. Adding an electronic channel is particularly attractive to firms with strong brand names but limited locations & distribution. There are challenges & advantages in selling merchandise via the Internet. For firms that use an electronic channel, the points noted in the slide will help them to be more successful. Role of brands: provide a consistent experience for customers. Using technology: convert touch & feel information into look and see information Increasing share of wallet: using the electronic channel with other channels can result in consumers making more total purchase from the seller. Gaining insight: data can be collected to provide key insights. Concept Review Generally, the concept questions are designed to achieve a single purpose – to encourage students to test their knowledge and understanding of the theoretical content of the chapter. These questions encourage recall and reflection, which will better prepare students to answer the marketing applications questions based on their understanding of the theory. 1. Describe the factors that manufacturers must consider when choosing retail partners. Answer: They need to consider the basic channel structure, where their target customers expect to find the products, and channel member characteristics. Distribution intensity should also be considered. First they need to ensure that products are available in the form that customers prefer and in locations that are convenient. Then they need to examine the channel structure to determine how desirable the brand is in the market as well as how much power retailers have. Lastly, they need to consider the size and sophistication level of the channel member and how much they need to rely on intermediaries to reach their target markets. 2. How would a manufacturer’s strategy for choosing a retailer change depending on its overall market power and the consistency of the new product with existing offerings? Answer: A new company with an unknown offering would not have much, if any, market power and thus would need to rely on intermediaries to distribute its products. A well established company may be able to sell directly via its own stores or at least have easy access to shelf space at well-known retail outlets. However, even a well established company may face challenges if a new product offering is dramatically different from its existing product lines. It may be able to leverage its existing relationship with retailers to convince them to accept new products. 3. Discuss the types of retailers that operate in Canada and identify some of the issues facing each type. Answer: ○ Food retailers: conventional supermarkets, big-box food retailers, and convenience stores. Issues faced by food retailers: Many non-food retailers such as gas bars and pharmacies are beginning to carry more food products infringing on conventional food retailers’ territory. Restaurants also compete for consumers’ food dollars. ○ General Merchandise Retailers: discount stores, speciality stores, category specialists, department stores, drugstores, off-price retailers. Some issues general merchandise retailers face: Consumers can be overwhelmed by the extensive assortment in some category specialists. Many department stores in Canada have disappeared in the past decade, e.g. Eatons, Robinsons, Kresge, Kmart, or have lost share to specialty stores, discount store and category specialists. Government legislation banned drug stores from selling tobacco products effective July 1, 1993. This fact, in combination with low profit margins on prescription drugs resulted in more of a focus on non-pharmaceutical products such as food. In this category, the distinction between the merchandise and services strategy is becoming increasingly blurred that it is very difficult to distinguish them. For example, Wal-Mart is beginning to carry groceries in its stores and Loblaws is increasing the breadth of its non-grocery merchandise. Many are even beginning to offer financial services to their customers. ○ Specialty Stores: concentrate on a limited number of complementary merchandise categories in relatively small stores Issues: Retail stores in this category are increasingly becoming specialised servicing very narrow niches or segments with a very narrow but deep line of merchandise and offering higher levels of services. 4. Generally merchandise retailers are classified into several different groups such as discount stores, specialty stores, category killers, and so on. However, it seems that increasingly many of these retailers are looking quite similar. Why is this so and what factors may explain this trend? Answer: Generally, many retail stores started out in a clear category, however, as competition intensifies, these stores have to find ways to survive and grow. As these retailers move through the Wheel of Retailing, they find it necessary to expand their range of merchandise and services they offer in order to attract and serve new and different market segments. Thus, they expand the range of products and services they offer. Also, customers’ desire for one-stop shopping has had a major influence on the merchandising strategies of retail businesses. 5. How do marketers use the 4Ps to create value in retailing? Answer: • Product - Providing the right mix of merchandise and services that satisfies the needs of the target market is one of retailers’ most fundamental activities and ways to deliver value to customers. • Price - helps define the value of both the merchandise and the service. The general price range of a particular store helps define its image. • Place – offering a convenient location is a key ingredient of success and an important way to deliver value to customers. • Promotion - informs customers about what is new and available and how much it costs. Good promotion can mean the difference between flat sales and a growing consumer base. Marketing communications add value for customers by not only informing them of new products and services, sales promotions, and where to they can be purchased, but also by educating customers about product features, use and performance. 6. Assume that addias, the shoe manufacturer, has decided to sell expensive wristwatches for men and women. What factors should it consider when developing its strategy for choosing retail partners? Answer: This question challenges the student to consider aspect of the retail store that may impact the brand’s image. The retail partners should be chosen selectively so that the retail outlet matches the brand image that adidas is trying to display. Accessibility to the target market as well as the retail store-front (which should be upscale) will be critical to adidas in forming partnerships with retail partners. 7. In this chapter, we discuss the fact that researchers have found that store image and atmospherics exert a huge impact on customers shopping behaviour. What are the key elements of a store’s atmospherics and image and why do you think that they affect consumers so strongly? Answer: The layout of the store, i.e. physical and social surroundings, its merchandise, the music, the lighting, the appearance of its sales associates, and the location all contribute to a store’s atmospherics and image. Retailing as theatre has become an important concept to attract consumers to a store. For example, when choosing a restaurant, the Rainforest Café has a fantasy appeal to some consumers because of its jungle décor, changing scenery (thunderstorms, wild animal sounds) and fun atmosphere. G.A.P. Adventures has concept stores that let customers try a vacation before they buy it. The stores enhance customers’ visual experiences, provide them with educational information, and maximize the store’s sales potential. 8. Explain how the Internet has helped reshape retail marketing strategies. What are some of the unique advantages between physical store retailing, website selling, and kiosks? Answer: • Although some experts predicted that the Internet would result in people buying everything over the Internet, this has not yet happened. However, the Internet has reshaped retail strategies by reducing entry costs, offering search engines and shopping bots which make it easier for consumers to find products and buy them, and allowing much smaller niche players to compete in an expanded trade area. The Internet allows retailers to collect information about what consumers look at or purchase on their sites and use this information to plan inventories, promotions, and loyalty programs. • Physical store advantages - Personalized human contact; Ability to see, feel, try out and test item and substitute items; Immediacy - consumer can see item and take home on same trip; No shipping costs for items taken home by shopper; Satisfies “shopping as a social activity” which other channels cannot • Website advantages – Virtually unlimited space to describe and display an item; Access to a global market and to markets without retail stores; 24/7 ordering capability; Can easily compare offerings of merchants, prices, product features; Enables disabled shoppers to browse and shop in a barrier-free environment; Allows retailers to more effectively stock slow-selling merchandise; Enables prices to be easily and quickly changed. Communities help consumers exchange information and share their experiences about a product or service (word-of-mouth) which has a powerful impact on online shopping. • Kiosk advantages - Can reach customers without Web access; In-store kiosks can enable retailers to avoid lost sales due to out-of-stock situations; High levels of video/audio quality 9. Discuss the advantages of multichannel retailing from the perspectives of both retailers and consumers. Answer: • Retailers: multichannel retailing can lead to greater operational efficiencies, higher revenues, and increased market share. Consumers who shop at multichannel retailers typically buy more than those who shop in only one retail channel. Retailers can achieve economies of scale by coordinating their buying and logistics activities across channels and consolidating their marketing information and activities. • Consumers: enables customers to search for or examine goods at one channel, buy them at another channel, and pick them up at yet another channel. 10. Explain why it is important for retailers to develop effective retailing strategy and positioning. How do retailers develop such a strategy? Hint: Look at the various store formats of Loblaw or any national grocery chain. Answer: • Today’s consumers shop at retailers they feel offer the best value for money and so it is cri • tical to develop effective retailing strategies and positioning. As the lines between different types of retailers become increasingly blurred, they need to differentiate themselves and give customers a compelling reason to shop at their stores. ○ To develop such a strategy, retailers must first obtain a deep understanding of the consumers in their markets. They must define segments and choose which segments they can best serve. Then they have to develop merchandising, pricing, promotion, and place strategies to reach and serve these consumers. Marketing Applications 1. Assume you have been given some money to invest in a retailer’s stock. What type of retailer would you choose? Provide a rationale for your answer. Instructor’s Notes: This question leads the student to think of the successful aspects of retail outlet and potential growth opportunities. When it comes to investing money in a company’s stock, retailers that appeal to the most customers may not be the most profitable investments. Firms must always either continue to change and innovate to keep up with consumers’ and investors’ shifting tastes or face unprofitability. Example answers: Student answers will vary. Students will likely gravitate to a current retailer they are familiar with and have had success with. Customer service, quality, response to the target market changes/demands may all be suitable rationale An example of a retailer that started out doing very well on the stock market is lululemon. Some students may even cite this retailer based on the popularity of its products. Its share price has fallen in recent years and is not as attractive for investors in 2014 as it was a few years earlier. (Share price July 27, 2007 $28 versus July 22, 2014 $37.53. However it listed at over $81 in June 2013 so has fallen dramatically since then.) I would choose to invest in a retailer that specializes in e-commerce, like Amazon. The rationale is that e-commerce retailers have shown consistent growth, especially with increasing consumer preference for online shopping. They also have a global reach, a diverse product range, and the ability to leverage technology for efficiency and personalized customer experiences, making them well-positioned for future growth. 2. Why don’t traditional department stores have the same strong appeal to Canadian consumers that they enjoyed during their height in the last half of the twentieth century? Discuss which types of retailers are now competing with department stores. Instructor’s Notes: This question asks students to consider why traditional department stores have lost their appeal. If students think about it, they likely will notice that department stores have been slow to innovate and do not offer the lowest prices; thus, they exist in an in-trouble segment. Example answers: Traditional department stores lost their strong appeal because of a combination of changing customer tastes and a lack of real change. Consumers are much more cost conscious today, so stores like Walmart and Costco have gained an advantage. Department stores also lack innovation. Therefore, the key players competing with department stores are big discount retailers (e.g., Walmart, Costco) and stores offering innovative products (e.g., Old Navy, Best Buy). Traditional department stores have lost appeal to Canadian consumers due to changes in shopping habits, such as the rise of e-commerce, increased preference for specialty stores, and demand for convenience and personalized experiences. Retailers now competing with department stores include online giants like Amazon, discount retailers like Walmart, specialty stores, and direct-to-consumer brands that offer niche products and unique shopping experiences. 3. What do retailers do to increase the value of products and services for consumers? Discuss the extent to which bricks-and-mortar retailers are threatened by Internet-only retailers with regard to these factors. Instructor’s Notes: In considering how retailers add value, students might consider overall value creation or use the 4Ps framework to describe value creation related to each factor. The degree to which students consider Internet-only businesses threats to traditional retailers will depend on their assessments of the value each delivers to consumers. Example answers: Retailers increase the value of products and services by bringing everything together in one place for consumers, pricing their products to reflect quality and value, promoting offerings so consumers know where to get it and at what price, and providing convenient locations. Without such efforts, consumers would be forced to do all the legwork in finding products, negotiating prices with each manufacturer, getting the products shipped, and maybe even assembling and installing the products themselves. Traditional bricks-and-mortar retailers are being threatened in some degree by Internet-only retailers because Internet retailers can bring even more products and services together, price them attractively, and promote them without extensive investments in real estate, store locations, inventory, or staffing. The bricks-and-mortar retailers that will fare the best are those that can differentiate themselves in the minds of consumers, whether through innovation, lower prices, convenience, or customer service. Retailers increase the value of products and services for consumers by offering personalized experiences, loyalty programs, high-quality customer service, convenient locations, and unique in-store experiences. Bricks-and-mortar retailers are threatened by Internet-only retailers because online shopping offers greater convenience, wider selection, and often lower prices. However, physical stores can counter this by enhancing in-store experiences, integrating online and offline channels, and providing immediate product availability. 4. Some argue that retailers can be eliminated from the distribution channel because they only add costs to the final product without creating any value-added services in the process. Do you agree with this perspective? Is it likely that consumers will make most purchases directly from manufacturers in the near future? Provide justification for your answers. Instructor’s Notes: Students must offer an opinion of the future of retailers and therefore should think about the ways in which retailers add value and whether manufacturers could provide such value. Students also might address the relative power of retailers in the value chain currently as compared with the past. Example answers: Retailers could not be eliminated from the distribution channel, because they provide value-added services that justify their associated additional costs. Such value-added services include aggregating disparate products from different vendors into convenient locations for consumers, installation and maintenance services, and customer service to answer questions or deal with issues. Consumers probably will not make more purchases directly from manufacturers in the near future, because most manufacturers are good at making products but not necessarily at serving consumers. In addition, the power relationships in the retailing industry have changed such that retailers—not manufacturers—have the greatest power. Because of this power and consumers’ preferences for direct, face-to-face service in many cases, retailers are here to stay. I disagree with the perspective that retailers only add costs without creating value. Retailers provide essential services like product assortment, convenience, customer service, and after-sales support, which enhance the shopping experience. It is unlikely that consumers will make most purchases directly from manufacturers in the near future, as retailers play a crucial role in bridging the gap between producers and consumers, offering a level of convenience, variety, and trust that direct-from-manufacturer channels cannot easily replicate. 5. Many years ago, the corporations that sold gasoline made the strategic move to include a substantial offering of food items. Today, it is rare to find a gas station that does not sell food items. Into which category of food retailer do these service stations fall? Do you think this was a prudent strategic direction for these corporations? Explain your logic. Instructor’s Notes: By identifying which of the three major food retailer categories (conventional supermarket, big-box food retailers, convenience stores) service stations that provide food fall into, students can determine how food items make service stations more attractive to consumers or helps them compete with other retailers. Example answers: These service stations fall into the food retail category of convenience stores. According to the definition of the category, convenience stores provide a limited number of items at convenient locations in small stores with speedy checkout processes. Adding the word “gasoline” to this definition provides a good description of modern service stations. It was a prudent decision by service stations to add food, because it brought consumers into the store rather than remaining out at the gas pump. The more time consumers spend in the service station, and the more products that are readily available to them, the more likely they are to make purchases beyond just gasoline. Thus, service stations have been able to increase their profits. Gas stations that sell food items fall into the category of convenience stores. This was a prudent strategic direction for these corporations as it capitalizes on the high traffic of fuel customers, offering them additional convenience and increasing overall sales and profit margins. This diversification meets consumer demand for quick, accessible food options and enhances the value proposition of the gas stations. 6. Identify three categories of products especially suited for sale on the Internet. Identify three categories that are not currently suitable for sale on the Internet. Justify your choices. Instructor’s Notes: In answering this question, students might review Exhibit 13.4, to identity advantages and disadvantages of the Internet channel and thus generalize to identify appropriate product categories. Example answers: Three product categories that are especially well suited for sale on the Internet are pure commodities (e.g., office supplies, building supplies, coffee), quasi-commodities (e.g., books, CDs), and unique products (e.g., one-of-a-kinds, limited editions). These three categories are well suited for Internet sale because they are either so standardized that a consumer can be confident of the product’s attributes and quality or so unique that they fill a niche that traditional bricks-and-mortar retail stores cannot. Three categories that are not suitable for sale on the Internet are medical care, home purchases, and post purchase, low-cost services. These categories require direct human contact and a high level of interpersonal trust, prepurchase trial experience, and/or involvement from the retailer beyond the purchase transaction. Suitable for Sale on the Internet: 1. Books and Media: Easy to ship, standardized products, and wide selection available. 2. Electronics: High demand, detailed specifications, and customer reviews help in making informed decisions. 3. Apparel: Wide variety, easy to compare prices and styles, and flexible return policies. Not Currently Suitable for Sale on the Internet: 1. Perishable Groceries: Require immediate consumption and careful handling, challenging for delivery logistics. 2. High-End Furniture: Need to be physically seen and experienced for comfort and quality, and complex delivery. 3. Luxury Watches and Jewelry: Require in-person inspection for authenticity and detailed evaluation, and high risk of fraud. These choices are based on factors like ease of shipping, need for physical inspection, and logistical challenges. 7. How does Staples.com or Officedepot.com provide value to their customers beyond the physical products that they sell? Identify some of the ways that the companies have overcome the inhibitors to successful Internet retailing. Instructor’s Notes: According to the list of Internet helpers and hinderers in Exhibit 14.6, students might consider the lack of prepurchase product trial, lack of interpersonal trust, lack of instant gratification, loss of privacy and security, lack of in-store shopping experience, and high shipping and handling costs. They then must discuss how these retailers handle such concerns. Example answers: Websites like Staples.com and Officedepot.com offer value to their customers beyond the physical products they sell by offering services such as delivery to the customer’s home or business, rebate management, reward programs for different types of consumers, and business services such as copying and printing. A website like Staples.com can overcomes inhibitors to successful Internet retailing by posting its policies clearly, such as its guarantee of customer satisfaction (to build trust); allowing customers to create their own accounts on a secure site (to ensure privacy and security); and offering delivery to a customer’s home or business (to make gratification quicker and help eliminate the hassle and cost of customers picking up products themselves). Staples.com and Officedepot.com provide value beyond physical products by offering: 1. Convenient Online Shopping: Easy navigation, detailed product information, and user reviews. 2. Fast Delivery Options: Same-day or next-day delivery for many items. 3. Extensive Customer Support: Live chat, FAQs, and dedicated help lines. 4. Business Solutions: Services like printing, copying, and tech support. They have overcome inhibitors to successful Internet retailing by ensuring a seamless user experience, providing reliable and fast delivery, and offering comprehensive customer service and support. 8. What options do you have for purchasing food in your town? Under what circumstances would you shop at each option? What about a family with two young children? Instructor’s Notes: In answering the question, students might consider the three food retailer categories mentioned in the chapter (conventional supermarket, big-box food retailer, convenience store), in addition to online home-delivery grocers from both their own perspective and that of a parent. Example answers: I have several options for purchasing food, including grocery stores, convenience stores, warehouse clubs, and Internet-based home delivery. In normal circumstances, I go to my regular grocery store for most items and a warehouse club for those things I can store for longer periods of time and save by buying in bulk. In special circumstances (e.g., after-hours, when I am travelling), I might stop into a convenience store for a snack or order groceries online and schedule delivery for a day when I am home. A family with two children might be more inclined to use a warehouse club (for greater savings) or an online retailer (for greater convenience). Options for purchasing food in a town typically include: 1. Supermarkets: For weekly grocery shopping with a wide selection and competitive prices. 2. Convenience Stores: For quick, last-minute items or snacks. 3. Farmers' Markets: For fresh, local produce and specialty items. 4. Online Grocery Delivery: For convenience and time-saving, especially for bulk or routine purchases. Circumstances: • Supermarkets: Regular, planned grocery trips. • Convenience Stores: Quick, immediate needs. • Farmers' Markets: Fresh, local produce and special items. • Online Grocery Delivery: Busy schedules, bulk buying, or avoiding store visits. For a family with two young children: • Supermarkets: Weekly shopping, variety of products. • Convenience Stores: Quick, emergency purchases. • Farmers' Markets: Fresh produce, family outing. • Online Grocery Delivery: Time-saving, convenience, less hassle with children. 9. You can purchase apparel at a discount store, specialty store, category specialist, off-price retailer, department store, or Internet-only store. From which of these types of stores do you shop? Explain why you prefer one type over another. Instructor’s Notes: Similar to the previous question, students must think about the types of stores they patronize and the circumstances that might make them prefer one type of retailer over another. Example answers: I shop at discount stores (Target), specialty stores (HMV), category specialists (Best Buy), off-price retailers (Winners), department stores (The Bay), and Internet-only stores (iTunes). I generally appreciate convenience and value, so I tend to favour the Internet-only and discount stores. I prefer shopping for apparel at Internet-only stores because they offer: 1. Convenience: Shopping from home saves time and effort. 2. Variety: A wide selection of brands and styles not limited by physical space. 3. Price Comparison: Easier to compare prices and find discounts online. These factors make Internet-only stores more appealing for their convenience, selection, and potential cost savings. 10. Suppose you are the confectionary buyer for a regional chain of grocery stores. Store policy charges a “substantial” listing fee for the placement of new items. Listing fees were originally designed to cover the costs of placing new products on the shelves, such as adjustments to computer systems and the realignment of warehouse and store space. Over the years, these fees have increased and now provide a significant source of revenue for the chain. A local manufacturer of a popular brand of specialty candy wants to sell to your chain but argues the listing fee does not reflect the real cost of adding its candy to your shelves. Discuss the ethical implications of such a policy. What should the chain do? Instructor’s Notes: Students should question the degree to which the common retail grocery practice of charging listing fees, regardless of the company and circumstances, might violate their ethical standards. Using the ethical decision-making framework, students could evaluate the practice and determine an appropriate course of action. This question is very similar to one in Chapter Fourteen, but in this question, the candy manufacturer explicitly argues that the listing fee is unethical, not just that it cannot afford the cost. Example answers: In applying the ethical decision-making framework: “Have you thought broadly of any ethical issues associated with the decision to be made?” I have thought broadly about the ethical issues, in that though listing fees are common practice in the industry, my store might be losing sight of a good business opportunity with a smaller firm because it is too concerned about earning additional revenue from listing fees. “Have you involved as many possible people who might have a right to offer input into or have actual involvement in making this decision and action plan?” At this point, the vendors, the stockholders, and the consumers have not been allowed to give input into the practice, though the candy manufacturer has indicated its opinion. “Does this decision respect the rights and dignity of the stakeholders?” As the candy firm claims, listing fees may not reflect real costs but instead serve as a form of bribery, which can be demeaning to the vendor. In addition, smaller, more entrepreneurial firms with good ideas cannot get their products the exposure they need because of high listing fees, which favour larger, more cash-rich companies. “Does this decision produce the most good and the least harm to the relevant stakeholders?” Smaller vendors are hurt, because they either have to pay or cannot get their products stocked in the store. It also hurts consumers whose choices are limited without their knowledge. “Does this decision uphold relevant conventional moral rules?” It likely violates the community’s standard for what is fair, because if a small, local firm is simply trying to get greater exposure for its products, the community may regard the lack of a sliding scale in the listing fee practice as unfair and a means to stifle competition. “Can you live with this decision alternative?” If the decision alternative is to forgo the listing fee altogether or create a sliding scale based on the size or sales revenue of the vendor, I could live with such a decision. Based on these answers, in this case, I believe that my firm should stop charging listing fees. As it stands right now, the listing fee practice could seem fair to the stockholders, because it means higher revenues and more dividend income for them, but the vendors and consumers likely consider it unfair and discriminatory. The ethical implications of charging substantial listing fees include potentially limiting market access for smaller manufacturers, reducing product diversity, and prioritizing profit over consumer choice. This practice may unfairly disadvantage local or specialty brands that cannot afford high fees, stifling competition and innovation. The chain should consider: 1. Reviewing the Fee Structure: Ensure fees are proportional to actual costs. 2. Supporting Local Manufacturers: Offer reduced or waived fees for local or small-scale producers to promote diversity. 3. Transparency: Clearly communicate the purpose and calculation of fees to manufacturers. These actions would promote fairness, support local businesses, and enhance consumer choice. Net Savvy 1. Companies like Lee Valley Tools have expanded their offerings beyond their original channels to sell through multiple channels. Visit the company’s website (www.leevalley.com) and determine in which channels it operates (Web, stores, and/or catalogue). Discuss the advantages of using a multichannel strategy over a single channel strategy. Instructor’s Notes: Multichannel retailers sell merchandise in more than one retail channel (i.e. store, catalogue, and Internet); the question asks students to consider why. Example answers: Lee Valley uses a multichannel strategy that includes its website, retail store locations, and physical catalogues that the consumer can receive through the mail to sell its products. Consumers tend to buy more from multichannel retailers, the company can collect information about customers it would not be able to get through a single channel, and the company can achieve economies of scale by coordinating buying and logistics activities across channels and consolidating marketing information and activities. Lee Valley Tools operates through multiple channels: their website (Web), physical stores, and catalogs. Advantages of a Multichannel Strategy: 1. Broader Reach: Access to more customers through various touchpoints. 2. Convenience: Offers customers multiple ways to shop, increasing satisfaction. 3. Increased Sales Opportunities: Different channels can drive sales in different ways (e.g., impulse buys online vs. in-store). 4. Brand Presence: Enhances brand visibility and recognition across various platforms. Using a multichannel strategy allows Lee Valley Tools to maximize its market reach and better meet customer preferences. 2. Select a familiar multichannel retailer. Evaluate its website in terms of how well it provides value to its customers. Do you believe that offering multiple selling channels to customers enhances their shopping experience? How does it help the retailer? Explain your answer. Instructor’s Notes: This question allows the student to evaluate multichannel retailers as well as customer service. Example answers: Student answers will vary. Students should evaluate the Web site in terms of how well it provides value to its customers (convenience, selection, ease of use of the Web site, discounts, etc.). Multiple selling channels work well for most products except for prestigious high-ticket items such as a Mercedes or a diamond ring. Multiple channels help the retailer because it provides an opportunity to sell more goods. Retailer: Best Buy Website Evaluation: • User Experience: Easy navigation, detailed product information, and customer reviews. • Convenience: Options for home delivery, in-store pickup, and same-day service. • Support: Live chat, customer service, and comprehensive FAQs. Multichannel Benefits: For Customers: • Enhanced Convenience: Multiple ways to shop (online, in-store) suit different preferences. • Flexibility: Ability to choose delivery or pickup options and easily compare products. For Retailer: • Increased Sales: Reaches more customers through various channels. • Customer Loyalty: Provides a seamless shopping experience, fostering repeat business. • Competitive Edge: Stands out by offering comprehensive service options. Offering multiple channels enhances the shopping experience by providing convenience and flexibility, and helps the retailer by expanding reach and boosting sales. End-of-Chapter Case Study Target and its New Generation of Partnerships Questions 1. Assess the role of consumer expectations in Target’s success as a major discount retailer. Example answers: Customers who shop at Target understand that Target will offer limited time partnership with top designers. This creates a sense of urgency and exclusivity around the offers; in addition, it creates tremendous customer excitement. This excitement differentiates Target from other discount retailers. Consumer expectations play a crucial role in Target’s success by driving: 1. Value for Money: Target meets expectations with affordable prices and quality products. 2. Convenience: Customers expect a wide range of products and convenient shopping experiences, both in-store and online. 3. Trendy and Exclusive Items: Target aligns with expectations for fashionable and exclusive items at competitive prices. By consistently meeting and exceeding these expectations, Target maintains customer satisfaction and loyalty, contributing to its success as a major discount retailer. 2. What differentiates Target’s new retail partnership model from its longstanding partnerships with top designers? What are the relative strengths of each? Example answers: Target’s new retail partnership with Apple is different from its relationship with other designers. Apple is building store-in-store shops in several Target locations that will remain permanently in these Target locations. Target usually only works with top designers by offering their merchandise on a temporary basis. A strength of having a long-term relationship with Apple is that both companies can benefit from each other’s brand recognition and these two partners can work towards complementary goals. On the other hand, Target benefits from partnering with certain brands temporarily because it creates excitement among customers. Differentiation: New Retail Partnership Model: • Focus: Collaborates with a broader range of brands and retailers, often incorporating exclusive lines and experiences. • Objective: Enhances store traffic and attracts diverse customer segments with unique offerings. Longstanding Designer Partnerships: • Focus: Partners with high-profile designers for limited-edition collections. • Objective: Leverages designer brand prestige to create buzz and offer high-fashion items at affordable prices. Relative Strengths: New Retail Partnership Model: • Strength: Attracts a wider audience through varied partnerships and exclusive in-store experiences. Longstanding Designer Partnerships: • Strength: Builds brand prestige and drives sales through high-fashion collaborations and unique, sought-after products. 3. What explains Target’s ability to attract top designers and high-end specialty shops as retail partners? Example answers: Target is able to attract top designers because of its previous success promoting and selling high-end brands. Target shoppers have come to expect new designer brands and are always on the lookout for the next new thing. Target has been able to create an air of exclusivity and excitement with its brand relationships. Target attracts top designers and high-end specialty shops by offering: 1. Broad Market Reach: Access to a large, diverse customer base. 2. Marketing Support: Strong promotional efforts to highlight designer collections. 3. Strategic Collaborations: Opportunities for designers to showcase their work to a mainstream audience. 4. Competitive Pricing: Ability to offer designer items at accessible prices, increasing visibility and sales for both Target and the designers. 4. Using the factors for choosing retail partners outlined in the chapter, do you believe that Eva’s line of green cosmetics should attempt to get placement in Target? Example answers: Eva might have a hard time convincing a retailer like Target to sell her products because her company does not have a lot of power in the marketplace and her brand is relatively unknown. Eva should consider whether her customers would expect to find her product at a store like Target, or would they rather expect to find her product at a higher end specialty store or a health food or natural store. Yes, Eva’s line of green cosmetics should attempt to get placement in Target. Factors for Choosing Retail Partners: 1. Market Reach: Target’s large, diverse customer base aligns with expanding the product’s visibility. 2. Brand Fit: Target’s commitment to sustainability and trendy products fits with green cosmetics. 3. Retail Support: Target’s strong marketing and promotional capabilities can boost product visibility. 4. Sales Potential: Target’s extensive reach and established customer base can drive significant sales for green cosmetics. 5. Develop a strategy for Target to promote Eva’s line of green cosmetics as part of its new specialty shop partnership program. Example answers: Student answers will vary. Student answers should focus on a promotional program that would showcase Eva’s products within Target. Often, Target does “limited time” promotions with some of its vendors. This exclusivity, even though it is a selective distribution strategy, might create some buzz for Eva’s products. Another thing that Target can do would be to promote Eva’s green cosmetics with other green products as part of a specialty shop sustainability campaign. Strategy for Promoting Eva’s Green Cosmetics: 1. Exclusive Launch Event: Host an in-store and online launch event featuring demonstrations and samples. 2. Targeted Marketing Campaign: Utilize social media, email newsletters, and Target’s website to highlight the eco-friendly benefits and exclusive nature of the line. 3. In-Store Displays: Create attractive, dedicated displays and end-caps featuring Eva’s cosmetics to capture attention. 4. Collaborative Content: Develop engaging content with influencers and beauty bloggers to promote the line and educate consumers about its benefits. 5. Special Offers: Offer limited-time discounts or bundle deals to encourage trial and repeat purchases. Video Activities Video: On the Rocks (CBC’s Dragons’ Den) Learning Objective: LO2, LO4 Description: This video provides a real world pitch by Vancouver entrepreneurs, Danielle Nesbit and Jennifer Trayler, on CBC’s Dragons’ Den. They wanted to expand their business of making ice for special events to retail channels, specifically, mainstream grocery stores. While the Dragons were not keen to invest, the duo successfully attracted the interest of specialty stores such as Whole Foods, Urban Fare and T&T Supermarket. Key Words: food retailers, grocery stores, multichannel strategy, retailing, packaging, positioning Activity: Ask students where they buy ice? Would they expect to find it in grocery stores? Would they pay a premium for ice in a grocery store environment? How difficult is it for a company to differentiate ice? Solution Manual for Marketing Dhruv Grewal, Michael Levy, Shirley Lichti, Ajax Persaud 9781259030659, 9781259104312
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