CH-14 Retailing, Direct Marketing, and Wholesaling – Foundations of Marketing : Book Guide

Chapter 14 Retailing, Direct Marketing, and Wholesaling Teaching Resources Quick Reference Guide Resource Location Purpose and Perspective IRM, p. 349 Lecture Outline IRM, p. 350 Discussion Starters IRM, p. 360 Class Exercises IRM, p. 361 Chapter Quiz IRM, p. 364 Answers to Issues for Discussion and Review IRM, p. 365 Answers to Marketing Applications IRM, p. 369 Answers to Internet Exercise IRM, p. 371 Answers to Developing Your Marketing Plan IRM, p. 372 Comments on Video Case 14 IRM, p. 374 PowerPoint Slides Instructor’s website Note: Additional resources may be found on the accompanying student and instructor websites at www.cengagebrain.com. Purpose and Perspective This chapter examines the nature of retailing, direct marketing, and wholesaling and their importance in supplying consumers with goods and services. First, it discusses the purpose and function of retailers in the marketing channel. Then it explores the major types of retailers and considers strategic issues in retailing such as location, retail positioning, store image, scrambled merchandising, and the wheel of retailing. Next, it discusses the various forms of direct marketing and selling, including catalog marketing, direct response marketing, telemarketing, television home shopping, online retailing, and direct selling. Then it looks at the benefits and weaknesses of franchising, a retailing form that continues to grow in popularity. Finally, it looks at the nature and functions of wholesaling and examines the importance of wholesalers in marketing channels, including their classifications. Lecture Outline I. Retailing Retailing includes all transactions in which the buyer is the ultimate consumer and intends to consume the product for personal, family, or household use. A retailer is an organization that purchases products for the purpose of reselling them to ultimate consumers. Although most retailers’ sales are made directly to the consumer, nonretail transactions occur occasionally when retailers sell products to other businesses. Retailing is important to the national U.S. economy as most personal income is spent in retail establishments. Retailers add value for customers by providing services and assisting in making product selections. Retailers are the critical link between producers and ultimate consumers because they provide the environment in which exchanges with ultimate consumers occur. Traditional retailing is being challenged by direct marketing channels which provide home shopping through catalogs, television, and the Internet. The key to success in retailing is to have a strong customer focus and a retail strategy that provides the level of service, product quality, and innovation that consumers desire. New store formats and advances in information technology are making the retail environment highly dynamic and competitive. Retailers are also finding global opportunities. II. Major Types of Retail Stores One way to classify retail stores is by the breadth of products offered. Two general categories are general-merchandise retailers and specialty retailers. General-Merchandise Retailers General merchandise retailers offer a variety of product lines, stocked in considerable depth. Department Stores Department stores are large retail organizations characterized by wide product mixes with at least 25 employees. To facilitate marketing efforts and internal management, related product lines are organized into separate departments. Department stores are distinctively service-oriented and often offer credit, delivery, personal assistance, merchandise returns, and a pleasant atmosphere. Typical department stores obtain a large proportion of their sales from apparel, accessories, and cosmetics. Discount Stores Discount stores are self-service, general-merchandise outlets that regularly offer brand-name and private-brand products at low prices. They accept lower profit margins than conventional retailers in exchange for higher sales volume. They carry a wide, carefully-selected assortment of products, including appliances, housewares, clothes, and toys. Discount retailing developed on a large scale in the early 1950s. Discount stores face growing competition and have responded by improving services, often blurring the line with department stores. Convenience Stores A convenience store is a small, self-service store that is open long hours and carries a narrow assortment of products, usually convenience items such as soft drinks and other beverages, snacks, newspapers, tobacco, and gasoline, as well as services such as automatic teller machines. The primary product offered by the “corner store” is convenience. Convenience stores are usually small in size and opened 24-hours a day, 7 days a week, and stock about 500 items. Supermarkets Supermarkets are large, self-service stores that carry a complete line of food products as well as some nonfood products such as cosmetics and nonprescription drugs. They are arranged by department for maximum efficiency in stocking and handling products, but have central checkout facilities. They offer lower prices than neighborhood grocery stores and offer convenience perks like free parking and check cashing. Consumers make majority of all grocery purchases in supermarkets. However, supermarkets’ total share of the food market is declining as a result of greater shopping options. Superstores Superstores—which originated in Europe—are giant retail outlets that carry not only the food and nonfood products ordinarily found in supermarkets, but also routinely-purchased consumer products such as housewares, hardware, small appliances, clothing, and personal-care products. They combine features of both discount stores and supermarkets. Superstores offer about four times as many items as supermarkets. To cut handling and inventory costs, they use sophisticated operating techniques and often have tall shelving which displays entire product assortments. Hypermarkets Hypermarkets combine supermarket and discount store shopping in one location. They are larger than superstores and carry more products, with 40–50 percent of their space allocated to grocery products and the remaining space to general merchandise. Hypermarkets have not been very successful in the United States, although they are popular in Europe, South America, Mexico, the Middle East, and India. Warehouse Clubs Warehouse clubs are large-scale, members-only operations combining cash-and-carry wholesaling with discount retailing. They are popular and are a rapidly expanding form of mass merchandising. Sometimes called buying clubs warehouse clubs offer the same types of products as discount stores, but in a limited range of sizes and styles. To keep prices down than those of supermarkets and discount stores, they provide very few services, keep advertising to a minimum, lack ambiance, have aisles wide enough for forklifts, and merchandise is often stacked on pallets or displayed pipe racks. Warehouse clubs appeal to many price-conscious consumers and small retailers unable to obtain wholesaling services from large distributors. Warehouse Showrooms Warehouse showrooms are retail facilities that are large, low-cost buildings with warehouse materials-handling technology, vertical merchandise displays, large on-premises inventories, and minimal services. These high-volume low-overhead operations offer fewer personnel and services. Costs are lower because some marketing functions are shifted to consumers. Specialty Retailers Specialty retailers carry a narrow product mix with deep product lines; they do not sell specialty items unless they complement the overall product mix. Traditional Specialty Retailers Traditional specialty retailers are stores that carry a narrow product mix with deep product lines. They are sometimes called limited-line retailers. They may be referred to as single-line retailers if they carry unusual depth in one product category. Chain specialty stores are increasing in number and most are independently owned. Because they are usually small, specialty stores may have high costs in proportion to sales, and satisfying customers may require carrying some products with low turnover rates. Specialty retailers succeed by knowing their customers and providing what they want. Category Killers A category killer is a very large specialty store concentrating on a major product category and competing on the basis of low prices and broad product availability. These stores expand rapidly and gain sizable market shares, taking business away from smaller, higher-cost retailers. Off-Price Retailers Off-price retailers are stores that buy manufacturers’ seconds, overruns, returns, and off-season production runs at below-wholesale prices for resale to consumers at deep discounts. They offer limited lines of national-brand and designer merchandise, usually clothing, shoes, or housewares. They charge 20 to 50 percent less than department stores for comparable merchandise, but offer few customer services. To ensure a regular flow of merchandise into their stores, off-price retailers establish long-term relationships with suppliers that can provide large quantities of goods at reduced prices. III. Strategic Issues in Retailing Consumer purchases are often the result of social influences and psychological factors. A retailer must make desired products available, create a stimulating shopping environment, and develop marketing strategies which will increase store patronage. Location of Retail Stores Location is the least flexible and one of the most important issues because it dictates the limited geographic trading area from which a store draws its customers. Retailers must consider factors such as location of the firm’s target market within the trading area, kinds of products being sold, availability of public transportation, customer characteristics, and competitors’ locations. Ease of movement to and from the site is another important factor. Important characteristics of a site include types of surrounding stores, size and shape of buildings, and terms of rent, lease, or ownership. Retailers can choose from among several types of shopping centers. Neighborhood shopping centers consist of several small convenience and specialty stores. These retailers consider their target market to be consumers who live within 2-3 miles or 10 minutes driving time. There is usually little coordination of selling efforts within a neighborhood shopping center. Product mixes are essential products, and the depth of product lines is limited. Community shopping centers include one or two department stores and some specialty and convenience stores. They serve a larger geographic area and draw customers who want specialty products not found in neighborhood shopping centers. They include a wide range of product mixes and deep product lines. Regional shopping centers usually have the largest department stores, extensive product mixes, and deep product lines. They have 150,000 or more consumers in their target markets, including consumers traveling from a distance to find products and prices not available in their hometown. Shopping center tenants are more likely to be national chains. Superregional shopping centers are the largest of regional shopping centers and have the widest and deepest product mixes and attract customers from many miles away. They often have special attractions such as skating rinks, amusement centers, or upscale restaurants. A lifestyle shopping center is typically an open-air shopping center that features upscale specialty stores, dining, and entertainment stores, all usually owned by national chains. (1) Appealing architectural design is an important aspect. Some lifestyle centers are designed to resemble traditional “Main Street” shopping centers or may have a central theme underscored by the architecture of the area. Power shopping centers combine off-price stores and small stores with category killers. Some shopping centers may not include a traditional anchor department store. The number of power shopping centers is growing, resulting in a variety of formats vying for the same retail dollar. Factory outlet malls feature discount and factory outlet stores carrying manufacturer brands. They are owned by manufacturers, who make a special effort to avoid conflict with traditional retailers of their products. Factory outlet centers attract value-conscious customers seeking quality and major brand names. They operate like regional shopping centers, but draw customers from a larger radius. Retail Positioning Retail positioning involves identifying an unserved or underserved market segment and reaching it through a strategy that distinguishes the retailer from others in the minds of those consumers. A number of discount and specialty store chains have positioned themselves to appeal to time- and cash-strapped consumers with convenient locations and layouts as well as low prices. This strategy has helped them gain market share at the expense of large department stores. Store Image To attract customers, a retail store must project an image—a functional and psychological picture in the consumer’s mind—that appeals to its target market. Atmospherics, the physical elements in a store’s design that appeal to consumers’ emotions and encourage buying, help to create an image and position a retailer. Exterior atmospheric elements include the appearance of the storefront, display windows, store entrances, and degree of traffic congestion. Interior elements include aesthetic considerations such as lighting, wall and floor coverings, dressing facilities, store fixtures, and sensory elements, such as color, sound, and even scent. Category Management Category management is a retail strategy of managing groups of similar, often substitutable products produced by different manufacturers. Category management is part of developing a collaborative supply chain, which enhances value for customers. Successful category management involves collecting and analyzing data on sales and consumers and sharing the information between the retailer and manufacturer. The key is cooperative interaction between the manufacturers of category products and the retailer to create maximum success for all parties in the supply chain. IV. Direct Marketing, Direct Selling, and Vending Many products are sold outside the confines of a retail stores. Direct selling and direct marketing account for an increasing proportion of total product sales. Direct Marketing Direct marketing is the use of the telephone, Internet, and nonpersonal media to communicate product and organizational information to customers, who can then purchase products by mail, telephone, or the Internet. Direct marketing is one type of non-store retailing. Non-store retailing is the selling of products outside the confines of a retail facility. Catalog Marketing Catalog marketing occurs when an organization provides a catalog from which customers make selections and place orders via mail, telephone, or the Internet. Some catalog marketers sell products spread over multiple product lines, while others are more specialized; some offer considerable product depth for just a few lines of products; still some specialize in products from a single product line. Customers benefit from efficiency and convenience for customers because they do not have to visit a store. The retailer benefits by being able to locate in remote, low-cost areas, save on expensive store fixtures, and reduce both personal selling and store operating expenses. Catalog retailing is inflexible, provides limited service, and is most effective only for a selected set of products. Direct-Response Marketing Direct-response marketing occurs when a retailer advertises a product and makes it available through mail, telephone, or online orders. Direct response marketing through television remains a multi-billion dollar industry, although it now competes with the Internet for customers’ attention. Direct-response marketing is also conducted by sending letters, samples, brochures, or booklets to prospects on a mailing list and asking that they order the advertised products by mail or telephone. . Telemarketing Telemarketing is the performance of marketing-related activities by telephone. Telemarketing can help generate sales leads, improve customer service, accelerate payments on past-due accounts, raise funds for nonprofit organizations, and gather marketing data. The laws and regulations regarding telemarketing have become more restrictive, making it a less appealing marketing method. U.S. Congress implemented a national do-not-call registry of customers who do not want to receive telemarketing calls from companies operating in their state. Television Home Shopping Television home shopping presents products to television viewers, encouraging them to order through toll-free numbers and pay with credit cards. The television home shopping format offers several benefits. Products can be easily demonstrated and allows for sufficient time to make viewers well-informed. Another benefit is customers can shop at their convenience from the comfort of their homes. Online Retailing Online retailing makes products available to buyers through computer connections. The phenomenal growth and expansion of the Internet use and online information services has created new retailing opportunities. Retailers frequently offer exclusive online sales, or may reward customers who visit their websites with special in-store coupons and other promotions and discounts. Consumers can purchase hard-to-find items and upscale items from virtually anywhere in the world; they can even manage their bank accounts and credit cards online. Security remains a serious issue, with most consumers concerned about online security. Direct Selling Direct selling is the marketing of products to ultimate consumers through face-to-face sales presentations at home or in the workplace. Direct selling was once associated with door-to-door sales, but has evolved into a professional industry where most contacts with buyers are prearranged through electronic communication or personal contacts. Most direct selling takes place on an individual, or person-to-person, basis, although a group, or “party,” plan is sometimes used in direct selling and can occur in homes or in the workplace. Benefits of direct selling include: It gives marketers an opportunity to demonstrate the product in the environment where it would most likely be used. Customers get personal attention. Products are presented at convenient times and locations for customers. Limitations of direct selling include: Direct selling is the most expensive form of retailing. Some customers believe the practices of direct sellers are unscrupulous and fraudulent. Some communities strictly control or prohibit direct selling. Automatic Vending Automatic vending is the use of machines to dispense products selected by customers. It is one of the most impersonal forms of retailing and it accounts for a very small minority of all retail sales. Because vending machines need only a small amount of space and no sales personnel this retailing method has some advantages over stores, but equipment is expensive and requires frequent servicing and repair. V. Franchising Franchising is an arrangement in which a supplier, or franchiser, grants a dealer, or franchisee, the right to sell products in exchange for some type of consideration. The franchiser may receive some percentage of total sales in exchange for furnishing equipment, buildings, management know-how, and marketing assistance to the franchisee. The franchisee supplies labor and capital, operates the franchised business, and agrees to abide by the provisions of the franchise agreement. Franchising offers several advantages to both the franchisee and the franchiser. Franchising enables a franchisee to start a business with limited capital and to benefit from the business experience of others. Franchised outlets are generally more successful than independently-owned businesses. The franchiser gains fast and selective product distribution through franchise arrangements without incurring the high cost of construction and operating its own outlets. Franchise arrangements also have several drawbacks. The franchiser can dictate many aspects of the business: decor, menu, design of employees’ uniforms, types of signs, etc. The franchisee must pay to use the franchiser’s name, products, and assistance. Not all franchise agreements are uniform, meaning one franchisee may pay more than another for the same services. The franchisee gives up control when entering into a franchise agreement. VI. Wholesaling Wholesaling refers to all transactions in which products are bought for resale, for making other products, or for general business operations. A wholesaler is an individual or organization that sells products which are bought for resale, for making other products, or for general business operations. Services Provided by Wholesalers Wholesalers provide essential services to both producers and retailers. By initiating sales contacts with a producer and by selling diverse products to retailers, wholesalers serve as an extension of the producer’s sales force. Wholesalers often pay for transporting goods; they reduce a producer’s warehousing expenses and inventory investment by holding goods in inventory; they extend credit and assume losses from buyers who turn out to be poor credit risks; and when they buy a producer’s entire output and pay promptly or in cash, they are a source of working capital. Wholesalers serve as conduits for information within the marketing channel, keeping producers up-to-date on market developments and passing along the manufacturers’ promotional plans to other intermediaries. Wholesalers support retailers by assisting with marketing strategy, especially the distribution component. They help retailers select inventory. They are often specialists on market conditions and experts at negotiating final purchases. They can reduce a retailer’s burden of looking for and coordinating supply sources. If the wholesaler purchases for several different buyers, expenses can be shared by all customers. The distinction between services performed by wholesalers and those performed by other businesses has blurred in recent years because of changes in the competitive nature of business and technological innovations. Types of Wholesalers A wholesaler is classified according to several criteria, including: Whether it is independently-owned or owned by a producer Whether it takes title to (own) the products it handles, The range of services provided According to the breadth and depth of its product lines Merchant Wholesalers Merchant wholesalers are independently-owned businesses that take title to goods, assume risks associated with ownership, and generally buy and resell products to other wholesalers, business customers, or retailers. A producer is likely to rely on merchant wholesalers when selling directly to customers would be economically unfeasible. Merchant wholesalers go by various names, including wholesaler, jobber, distributor, assembler, exporter, and importer. They fall into two broad categories: full service and limited service. Full-service wholesalers perform the widest possible range of wholesaling functions. Customers rely on full-service wholesalers for product availability, suitable assortments, breaking large quantities into smaller ones, financial assistance, and technical advice and service. Full-service wholesalers are categorized as general-merchandise, limited-line, and specialty-line wholesalers. General-line wholesalers carry a wide product mix, but offer limited depth within product lines. Limited-line wholesalers carry only a few product lines, such as groceries, lighting fixtures, or oil-well drilling equipment, but offer an extensive assortment of products within those lines. Specialty-line wholesalers offer the narrowest range of products, usually a single product line or a few items within a product line. Rack jobbers are full-service, specialty-line wholesalers that own and maintain display racks in supermarkets, drugstores, and discount and variety stores. Limited-service wholesalers provide fewer marketing services than do full-service wholesalers and specialize in just a few functions; producers perform the remaining functions or pass them on to customers or other intermediaries. Limited-service wholesalers take title to merchandise but often do not deliver merchandise, grant credit, provide marketing information, store inventory, or plan ahead for customers’ future needs. The services provided by four typical limited-service wholesalers are: cash-and-carry wholesalers, truck wholesalers, drop shippers, and mail-order wholesalers. Cash-and-carry wholesalers are intermediaries whose customers—usually small businesses—pay cash and furnish transportation. Truck wholesalers, sometimes called truck jobbers, transport a limited line of products directly to customers for on-the-spot inspection and selection. Drop shippers, also known as desk jobbers, take title to goods and negotiate sales but never take actual possession of products. Mail-order wholesalers use catalogs instead of sales forces to sell products to retail and business customers. Agents and Brokers Agents and brokers negotiate purchases and expedite sales but do not take title to products. They are sometimes called functional middlemen. Agents represent either buyers or sellers on a permanent basis. Brokers are intermediaries temporarily employed by buyers or sellers. Although agents and brokers perform even fewer functions than limited-service wholesalers, they are usually specialists in particular products or types of customers and can provide valuable sales expertise. Manufacturers’ agents, which account for more than half of all agent wholesalers, are independent intermediaries who represent two or more sellers and usually offer customers complete product lines. Selling agents market either all of a specified product line or a manufacturer’s entire output. Commission merchants receive goods on consignment from local sellers and negotiate sales in large, central markets. A broker’s primary purpose is to bring buyers and sellers together. Thus, brokers perform fewer functions than other intermediaries. Manufacturers’ Sales Branches and Offices Sometimes called manufacturers’ wholesalers, manufacturers’ sales branches and offices resemble merchant wholesalers’ operations. Sales branches are manufacturer-owned intermediaries that sell products and provide support to the manufacturer’s sales force. Sales offices are manufacturer-owned operations that provide services normally associated with agents. Manufacturers may set up these branches or offices to reach their customers more effectively by performing wholesaling functions themselves. discussion starters Discussion Starter 1: RFID and the Future of Retailing ASK: Can you name one physical location within a retail setting that incurs significant cost and creates consumer frustration? One cost center for all types of retailing is the checkout area. Speedy and efficient checkout depends on accurate pricing and data entry. With the growth of RFID technology, grocers and other retailers can imagine a future where checkout lines are much shorter, even non-existent. Customers simply walk through a scanner, swipe their credit cards, and go. This would reduce labor costs for the retailer and increase value for the consumer by providing a faster shopping experience. http://www.youtube.com/watch?v=US-GcgHL2HM Discussion Starter 2: Mall of America ASK: How many of you have heard of the Mall of America? How many of you have been there? Located in Bloomington, Minnesota, the Mall of America is already the second-largest mall in North America, but its owners want it to be even bigger. In the works for years, the Phase II expansion would more than double the mall’s size from 4.2 million total square feet to more than 9.8 million square feet. Retail square footage would increase from 2.5 million to 3.7 million. Once this new phase is completed, Mall of America will be the 7th largest mall in the world. The Mall of America is more than a mere shopping mall; it includes amusement parks, an aquarium, ice rink, hotels, and restaurants. The Phase II development would even have a Mayo Clinic. For many visitors, the Mall of America is a vacation destination. The following link is to the Mall of America Phase II information site. Once there you can access more information about the project, view pictures, and watch a video. http://www.mallofamerica.com/about/future-expansion/overview Discussion Starter 3: Where do you shop and why? ASK: Where are some of your favorite places to shop for clothes and groceries? Have students give a couple of reasons as to why they shop at particular stores. Some of the factors may include price, quality, location, customer service, and product selection. It is likely that students will choose many of the same places, due to the demographics they have in common. Also, have them identify places they no longer shop at and why. The purpose of this discussion is to show students how certain marketers successfully serve the college student population. This is clearly applying retailing principles to a specific target market. CLASS EXERCISES Class Exercise 1: Strategic Issues in Retailing The objective of this class exercise is to help students understand strategic issues in retailing by developing an original retail store concept. Prompt for students: Assume that you have been given ample funds to invest in a new retail venture. Be as creative as possible. 1. Determine the type of retail store you want to open. Be specific about the characteristics of the store type. Include product assortment, target market(s), service level, and price level. 2. Where will you locate? a. Be sure to consider Ease of movement in, around, and out of the location Size and shape of the building Likely terms of rent or lease Surrounding stores b. Choose whether to locate in a free-standing store or in a Traditional business district Neighborhood shopping center Community shopping center Regional shopping center Superregional shopping center Lifestyle shopping center Power shopping center 3. Describe your product assortment in terms of depth, width, and quality. Which products will be the most important to consumers? Will consumers want other complementary products when they shop? Answers: Students will typically develop specialty store ideas, since they recognize the difficulty of going head to head with larger chain stores. You may also want your students to think in terms of atypical approaches like vending (“Venda-Bait” sells buckets of fishing bait for $1.50 in the Ozarks; Red Box DVD vending machines in many metro areas) or scrambled merchandising (7-Eleven stores with a Hardee’s restaurant or Kmart stores with a Little Caesars restaurant inside; Subways located in nontraditional outlets like hospitals or churches). As students respond to this question, press them to define each location in terms of types of stores and market reached. Offering local examples of each may also help students better understand the concepts. A common oversight by students is a decision to locate in a regional shopping center without considering the likely high lease costs. You might also want to talk about why local stores are vacant; most towns have a retail location that changes owners about once a year. Possible reasons could be poor parking and difficult entry, deteriorating or limited facilities, image of surrounding stores, and the like. Although it is difficult for students to think of an entire product assortment, they should go beyond naming only one type of product to be sold. You can carry this discussion further by asking about retail positioning, atmospherics, and store image. Class Exercise 2: Types of Wholesalers The objective of this exercise is to improve students’ recognition of various types of wholesalers. Prompt for students: Fill in the blank for the type of wholesaler that meets each set of requirements. Type of Wholesaler Takes Possession of Products Delivers Merchandise to Customers Provides Credit Takes Title to Products Common Products Carried 1. ________ No No No No Used in industrial equipment 2. ________ No No Yes Yes Building materials 3. ________ Sometimes Yes Yes No Textiles 4. ________ Yes No Sometimes Yes Office supplies 5. ________ Yes No No Yes Groceries and office supplies 6. ________ Yes Yes No Yes Perishables 7. ________ Yes Yes Sometimes No Agricultural commodities 8. ________ Sometimes Sometimes No No Apparel and accessories Answers: Broker Drop shipper Selling agent Mail-order wholesaler Cash-and-carry wholesaler Truck wholesaler Commission merchant Manufacturers’ agent Class Exercise 3: Selling Products and Services In this chapter, students learned about a variety of means for selling products and services. Each form of retailing, direct marketing, or wholesaling has advantages and disadvantages based on product type and organizational goals. Consider the following scenario: Matt and Ashley are two recent college graduates. They loved living in the small city where they attended school but were having difficulty finding jobs in the area. They began brainstorming about products and services they felt would be viable businesses to serve the needs of students and the broader community. Here is the list they came up with: Concierge Service: Provide laundry pick up and drop off, shopping services, bill paying services, travel planning, and a host of other services for busy students. Rent a Bike: A service with a number of bikes available at various locations on and off campus. People could rent the bikes by joining the service and swiping their membership card at a kiosk where the bikes are stored. The bike could be returned to any kiosk in town. Cereal Bar Restaurant: This restaurant would offer only cereal. People would enter the restaurant and pay one fee based on bowl size. They could then fill the bowl from cereal dispensers located on an island in the middle of the store. Juice, milk and stir-ins, such as fruit and chocolate chips, would be available for an additional fee. Answer the following questions: What form of selling is best for each idea? For example, is retailing a good means of selling this product/service? If so, where should the shop be located? Would franchising work for their ideas? How would they go about beginning a franchise or buying an existing franchise? Chapter Quiz 1. A ___________ is a retail establishment that combines a supermarket and a discount store in one location. a. superstore b. department store c. category killer d. hypermarket e. megamarket 2. ATMs are an example of a. remote retailing. b. automatic vending. c. bank marketing. d. telemarketing. e. online retailing. 3. Hannah owns and operates a scrapbooking supply business which supplies paper and related supplies to various craft stores in the area. She takes title to the supplies and assumes all risks associated with ownership. Hannah is a(n) a. agent. b. wholesaler agent. c. merchant wholesaler. d. functional middleman. e. rack jobber. 4. What is the most expensive form of retailing? a. specialty retailing b. direct marketing c. telemarketing d. direct selling e. online retailing Answers to Chapter Quiz: 1. d; 2. b; 3. c; 4. d. Answers to ISSUES FOR Discussion and Review 1. What value is added to a product by retailers? What value is added by retailers for producers and ultimate consumers? Retailers add value to products in several ways. Image enhances the value of the product. Through its location, a retailer facilitates comparison shopping. A product’s value is increased when the retailer offers services, such as delivery, credit, and repair. Retail sales personnel can also demonstrate how products help solve customers’ problems. Retailers link producers and ultimate consumers by providing the environment in which exchanges with ultimate consumers take place. Producers have a place to sell their products. Ultimate consumers benefit from the resulting availability of a broad array of products. 2. What are the major differences between discount stores and department stores? Discount stores are self-service, general merchandise outlets which regularly offer brand-name merchandise at low prices. Department stores are large retail organizations characterized by wide product mixes. These two types of retail outlets differ in several respects. First, discount stores are mass merchandisers; that is, they generally offer fewer customer services than department stores and emphasize low prices, high turnover, and large sales volume. Rather than having structured departments, the discount store uses a central check-out procedure. These stores are often in less convenient locations than department stores. Department stores are distinctly service-oriented, offering services such as credit, delivery, personal assistance, returns, and a pleasant atmosphere. They are structured by departments, and different atmospheres can be created in each department. They are more conveniently located than discount stores, usually in a major shopping area. 3. In what ways are traditional specialty stores and off-price retailers similar? How do they differ? Traditional specialty retailers and off-price retailers are similar in that both are specialty retailers. They often carry similar lines of merchandise and generally offer narrower product mixes than department stores and mass merchandisers. Traditional specialty retailers and off-price retailers differ in several respects. Traditional specialty retailers offer more depth in their product lines than off-price retailers because the latter often buy “leftover” merchandise from manufacturers. Traditional specialty retailers offer more services than off-price retailers and usually have an exclusive store image. In addition, off-price stores charge 20 to 50 percent less than traditional retailers for comparable merchandise. 4. What major issues should be considered when determining a retail site location? Because of its inflexible nature, the location of a retail outlet is one of the most important strategic issues a retailer must address. Location dictates the limited geographic trading area from which a store can draw its customers. Retailers must evaluate potential locations on the basis of several factors: Ease of movement, including factors such as pedestrian and vehicular traffic, parking, and transportation Site characteristics, such as the types of stores in the area, the lease terms, and the size, shape, and visibility of the lot or building Compatibility with nearby retailers—that is, the degree to which stores complement one another, thereby generating traffic 5. Describe the three major types of traditional shopping centers. Give an example of each type in your area. Students’ answers may vary based on the area they live. Following are major types of traditional shopping centers with examples for each type: Neighborhood shopping centers consist of small grocery stores, gas stations, and fast-food restaurants. They serve consumers who live within a ten-minute drive from the center. A typical neighborhood shopping center might have a Safeway supermarket, an Eckerd drugstore, and a McDonald’s fast-food restaurant. Community shopping centers include one or two department stores and some specialty stores as well as convenience stores. They serve a larger geographic area than neighborhood centers. A community shopping center might be a small mall with a locally owned department store, a Baker’s shoe store, a Hallmark card store, and a small drugstore that sells convenience goods. Regional shopping centers usually have the largest department stores with extensive product mixes and deep product lines. They target more than 150,000 people and often host special events. Super-regional shopping centers have the widest and deepest product mixes and attract customers from many miles away. They often have special attractions such as skating rinks, amusement centers, or upscale restaurants. A lifestyle shopping center is typically an open-air shopping center that features upscale specialty, dining, and entertainment stores, usually owned by national chains. Power shopping centers combine off-price stores and small stores with category killers. They may not include a traditional anchor department store. Outlet shopping centers feature discount and factory outlet stores carrying manufacturer brands. They are owned by manufacturers, who make a special effort to avoid conflict with traditional retailers of their products. They attract value-conscious customers seeking quality and major brand names. 6. Discuss the major factors that help to determine a retail store’s image. How does atmosphere add value to products sold in a store? A retail store’s image is a functional and psychological picture in the consumer’s mind. A store must project an image acceptable to its target market. Seven factors contribute to a retail store’s image: Atmospherics, which are physical elements in a store’s design that appeal to consumers’ emotions and encourage them to buy Reputation for integrity Location, including accessibility and surrounding retailers Merchandise assortment offered Pricing Promotional activities Involvement in community activities The term atmospherics describes the physical elements in a store’s design that appeal to consumers’ emotions and encourage consumers to buy. Atmospherics adds value to products sold in a store in that it enhances the products or the products’ benefits by offering the psychological rewards of shopping in pleasant surroundings. 7. How is door-to-door selling a form of retailing? Some consumers believe that direct-response orders bypass the retailer. Is this true? Door-to-door selling is a form of retailing because it involves an exchange with ultimate consumers. Direct response orders do not bypass the retailer. A mail-order house makes final exchanges with ultimate consumers and thus can be considered a retailer. 8. If you were opening a retail business, would you prefer to open an independent store or own a store under a franchise arrangement? Explain your preference. Students’ answers will vary. There are advantages to both owning an independent store and owning a store under a franchise arrangement. Under a franchise arrangement, a supplier grants a dealer the right to sell products in exchange for some type of consideration. For example, the franchiser can offer equipment, buildings, management know-how, marketing assistance, and an established reputation in exchange for a percentage of sales. With an independent business, however, the owner has complete control over the elements of the retailing mix and is not bound by the franchiser’s rules. 9. What services do wholesalers provide to producers and retailers? For producers, wholesalers serve as an extension of the producer’s sales force. Wholesalers also provide services such as financial assistance, storage, and transportation, and they are excellent sources of information and working capital. Wholesalers help retailers select inventory and negotiate final purchases. Wholesalers also provide transportation, storage, information, materials handling, and warehousing. Because they provide the fastest delivery at the lowest cost, they create time and place utilities. 10. What is the difference between a full-service merchant wholesaler and a limited-service merchant wholesaler? A merchant wholesaler is an independently-owned business that takes title to goods, assumes risks associated with ownership, and generally buys and resells products to other wholesalers, organizational customers, or retailers. Full-service merchant wholesalers perform the widest possible range of wholesaling functions, whereas limited-service merchant wholesalers provide fewer functions and specialize in just a few functions. 11. Drop shippers take title to products but do not accept physical possession of them, whereas commission merchants take physical possession of products but do not accept title. Defend the logic of classifying drop shippers as merchant wholesalers and commission merchants as agents. Drop shippers are classified as merchant wholesalers because they take title and assume risk of product ownership, although they do not take physical possession. Commission merchants take physical possession but do not assume the risk associated with product ownership; they return unsold merchandise to the owner. Product ownership therefore differentiates agents from merchants and determines the classifications of drop shipper and commission merchant. 12. Why are manufacturers’ sales offices and branches classified as wholesalers? Which independent wholesalers are replaced by manufacturers’ sales branches? By sales offices? Manufacturers’ sales offices and branches are classified as wholesalers because their main function is to perform wholesaling activities. Manufacturers’ sales branches serve the same functions as merchant wholesalers, and manufacturers’ sales offices serve essentially the same function as agents. answers to MARKETING APPLICATIONS 1. Five Guys Burgers and Fries is one of the fastest growing fast-food franchises in the United States. Started as a single burger joint by Jerry Murrell and his four sons—the “five guys”—in Alexandria, Virginia, the company now has more than 1,000 franchised outlets around the nation. Start-up costs for a Five Guys store range from about $150,000 to $300,000. A $25,000 franchising fee must also be paid, and ongoing royalties stand at 6 percent of sales. Making a fast-food restaurant successful means selecting the right location. Indeed, to recover start-up costs, and, of course, generate a profit, getting people through the door is paramount. Franchises like Five Guys, traditional and online retailers, and other types of channel members are all concerned with this idea of traffic. Once conducted almost exclusively by hand using “clickers,” traffic is now measured using a variety of electronic and mechanical devices. A great advantage of online retailing is the ability to track online traffic behaviors. In the real world, many consulting companies specialize in measuring pedestrian and vehicular traffic. Most commercial real estate agents and property developers/managers use traffic data. If you were considering becoming a Five Guys franchisee in your region, what would be the best location? What are the major factors affecting your decision? Students’ answers will vary. Some may say that the best location is within a shopping center as it will attract numerous customers. Some may say that the best location to have a franchisee is where competitors are not present. Some may answer that the best location is the one with parking facilities and some may say that the location with good rental and leasing terms is the best location. Some of the major factors that may affect students’ decisions regarding the location are location of the firm’s target market within the trading area, kinds of products being sold, availability of public transportation, customer characteristics, and competitors’ locations. 2. Juanita wants to open a small retail store that specializes in high-quality, high-priced children’s clothing. What types of competitors should she be concerned about in this competitive retail environment? Why? Juanita is opening a specialty store (with a narrow and deep assortment). Because Juanita is selling high-quality and high-priced products, the only type of general-merchandise retailer she should be concerned about are department stores because they may carry similar products at similar prices at more convenience. Juanita needs to pay special attention to category killers because they compete on the basis of price and take business away from smaller stores. Off-price retailers will also be able to compete based on price. Juanita also needs to be concerned about similar specialty retailers. 3. Location of retail outlets is an issue in strategic planning. What initial steps would you recommend to Juanita (see Application Question 2) when she considers a location for her store? When choosing a location, Juanita should evaluate the relative ease of movement to and from the site, including factors such as pedestrian and vehicular traffic, parking, and transportation. She should also evaluate the characteristics of the site itself: types of stores in the area; size, shape, and visibility of the lot or building under consideration; and rental, leasing, or ownership terms. Juanita needs to look for compatibility with nearby retailers because stores that complement one another draw more customers for everyone. Juanita’s store would fit in well with a neighborhood shopping center, community shopping center, or lifestyle shopping center. 4. Think about a retail store you shop in regularly, or visit one in which you would like to shop. Think about and describe its atmospherics. Be specific about both exterior and interior elements, and indicate how the store is being positioned through its use of atmospherics. Students’ answers will vary based on their selections. 5. Contact a local retailer you patronize, and ask the store manager to describe the store’s relationship with one of its wholesalers. Using your text as a guide, identify the distribution activities performed by the wholesaler. Are any of these activities shared by both the retailer and the wholesaler? How do these activities benefit the retailer? How do they benefit you as a consumer? Students’ answers will vary based on their selections. 6. Develop your analytical and communication skills using the Role-Play Exercises Online at www.cengagebrain.com. Students can visit the website and develop their analytical and communication skills. ANSWERS TO INTERNET EXERCISE Walmart Walmart provides a website where customers can shop for products, search for a nearby store, and even preorder new products. The website lets browsers see what is on sale and view company information. Access Walmart’s company website at www.walmart.com. a. How does Walmart attempt to position itself on its website? Walmart’s “Save money. Live better.” slogan is reflected everywhere on its website. Every page and promotion talks about getting high quality products at low prices. The site features a “Value of the Day” and sections called “Save big now” and “Money saving tips & ideas.” b. Compare the atmospherics of Walmart’s website to the atmospherics of a traditional Walmart store. Are they consistent? If not, should they be? Atmospherics are the physical elements in a store’s design that appeal to consumers’ emotions and encourage buying. Depending on their opinions of Walmart, students’ answers may vary. The website is neat and well-organized (students’ opinions of actual Walmart stores may vary) and features the same design scheme and clear labeling of a physical store. However, walking to a Walmart filled with merchandise is different then slowly sorting through product categories on the website. Answers to Developing your Marketing Plan The information obtained from these questions should assist students in developing various aspects of their marketing plans found in the Interactive Marketing Plan exercise at www.cengagebrain.com. Considering your product’s attributes and your target market’s (or markets’) buying behavior, will your product likely be sold to the ultimate customer or to another member of the marketing channel? Students’ answers will vary based on the different products selection, which will also be directed at different target markets. The decision to sell to the ultimate consumer versus to another member of the marketing channel will vary depending on the situation as well. If your product will be sold to the ultimate customer, what type of retailing establishment is most suitable to your product? Consider the product’s characteristics and your target market’s buying behavior. Refer to Table 14.1 for types of general merchandise retailers. The different types of general merchandise retailing establishments are department store, discount store, convenience store, supermarket, superstore, hypermarket, warehouse club, and warehouse showroom. In addition to general merchandise retailers, there are specialty retailers, category killers, and off-price retailers that all emphasize narrow and deep product assortments. The retailer most appropriate for each student’s products will vary. They should consult Table 14.1 if they need a refresher on the types of retail establishments. Discuss how the characteristics of the retail establishment, such as location and store image, have an impact on the consumer’s perception of your product. This question asks students to discuss how the characteristics of the retail establishment, such as location, store image, and scrambled merchandising, have an impact on the consumer’s perception of a product. Retail location is critical to the success of a product, yet it is the least flexible element of the marketing mix. It is therefore critical to do ample research and determine the best location possible. In order to attract the right market, a retail establishment must project an image that appeals to its target market. This image is attained through atmospherics, which are the physical elements in a store’s design that appeal to consumer emotions and encourage buying. Are direct-marketing or direct-selling methods appropriate for your product and target market? Students will have to decide whether direct-marketing or direct-selling methods are most appropriate for his or her product and target market. If your product will be sold to another member in the marketing channel, discuss whether a merchant wholesaler, agent, or broker is most suitable as your channel customer. Students will have to decide whether a merchant wholesaler, agent, or broker is most suitable as their channel customer. Not all students will opt to sell to a channel intermediary. In fact, it is likely that most students will prefer to sell to the ultimate consumer. Comments on video Case 14: L.L.Bean: Open 24/7, Click or Brick Summary L.L.Bean’s outdoorsy image and innovative products, combined with a century-old reputation for standing behind every item, have made its stores popular shopping destinations around the world and around the Web. The company creates over 50 catalogs targeting different consumers, which facilitates shopping via the phone and the online store. The company’s flagship store in Freeport, Maine, provides a variety of customer services as well as pleasant atmosphere that includes a café. The L.L.Bean online store offers a vast inventory that can be shipped directly to a customer or to their local store. Questions for Discussion What forms of direct marketing does L.L.Bean employ? Which additional forms of direct marketing should L.L.Bean consider using? Direct marketing is the use of the telephone, Internet, and nonpersonal media to communicate product and organizational information to customers, who can then purchase products via mail, telephone, or the Internet. L.L.Bean uses catalog marketing and online retailing. It could add direct response marketing to targeted lists of prospects, or partner with a network to start adding some television home shopping for some products. Do you think L.L.Bean’s website will ever entirely take the place of its mail-order catalog? Why or why not? Students’ answers will vary based on how they feel about actual paper materials. However, L.L.Bean’s mail-order catalogs are customized for different markets and customers, something that would be very difficult to do with its website. Additionally, being able to browse a physical catalog is enjoyable to many customers. What type(s) of location do you think would be most appropriate for future L.L.Bean stores, and why? Students’ answers will vary, but the most common answers will probably include the following points: A lifestyle shopping center because it is an open-air shopping center that features upscale specialty, dining, and entertainment stores, usually owned by national chains. Such shopping centers are intended to encourage consumer loyalty by creating a sense of place. Regional shopping centers because they have a variety of stores and attract 150,000 or more consumers in their target markets, which may include consumers traveling from a distance to find products and prices not available in their hometowns. Because of the expense of leasing space in regional shopping centers, tenants are more likely to be national chains than small, independent stores. Solution Manual for Foundations of Marketing William M. Pride, O. C. Ferrell 9781305361867, 9781305405769, 9780357033760