CH-14 Retailing – MKTG: Principles of Marketing : Book Guide

CHAPTER 14 Retailing This chapter begins with the learning outcome summaries, followed by a set of lesson plans for you to use to deliver the content in Chapter 14. • Lecture (for large sections) on page 3 • Group Work (for smaller sections) on page 4 Review and Assignments begin on page 5 • Review questions • Application questions • Application exercise • Case assignment Great Ideas for Teaching Marketing from faculty around the country begin on page 12 LEARNING OUTCOMES 14-1 Explain the importance of the retailer within the channel and the U.S. economy Retailing represents all the activities directly related to the sale of goods and services to the ultimate consumer for personal, nonbusiness use, and has enhanced the quality of our daily lives. When we shop for groceries, hair styling, clothes, books, and many other products and services, we are doing business with retailers. Retailing affects all people directly or indirectly. Trends and innovations relating to customer data, social media, and alternative forms of shopping are constantly developing, and retailers have no choice but to react. 14-2 List and understand the different types of retailers Retail establishments can be classified according to ownership, level of service, product assortment, and price. These variables can be combined in several ways to create various retail operating models. Retail ownership takes one of three forms: independent, part of a chain, or a franchise outlet. The service levels that retailers provide range from full-service to self-service. Retailers can also be categorized by the width and depth of their product lines. Price is the fourth way to position retail stores. Many stores fall into the basic types of retailers, but some companies have begun to experiment with alternative formats. 14-3 Explain why nonstore retailing is on the rise and list the advantages of its different forms Nonstore retailing enables customers to shop without visiting a physical store location. It adds a level of convenience for customers who wish to shop from their current locations. Due to broader changes in culture and society, non-store retailing is currently growing faster than in-store retailing. The major forms of non-store retailing are automatic vending, direct retailing, direct marketing, and Internet retailing. 14-4 Discuss the different retail operations models and understand why they vary in strategy and format Retail formats are co-aligned with unique operating models that guide the decisions made by their managers. Each operating model can be summarized as a set of guiding principles. Today, most retail stores remain operationally and tactically similar to those that have been in business for hundreds of years; with one or more physical locations that the customer must visit in order to purchase a stocked product, and with strategies in place to attract customers to visit. 14-5 Explain how retail marketing strategies are developed and executed Retail managers develop marketing strategies based on the goals established by stakeholders and the overall strategic plans developed by company leadership. Strategic retailing goals typically focus on increasing total sales, reducing costs of goods sold, and improving financial ratios such as return on assets or equity. The first and foremost task in developing a retail strategy is to define the target market. Then comes combining the elements of the retailing mix to come up with a single retailing method to attract that target market. 14-6 Discuss how services retailing differs from goods retailing The fastest-growing part of our economy is the service sector. Although distribution in the service sector is difficult to visualize, the same skills, techniques, and strategies used to manage inventory can also be used to manage service inventory, such as hospital beds, bank accounts, or airline seats. Because service industries are so customer oriented, service quality is a priority. 14-7 Understand how retailers address product/service failures and discuss the opportunities that service failures provide No retailer can be everything to every customer, and by making strategic decisions related to targeting, segmentation, and the retailing mix, retailers implicitly decide which customers will be delighted and which will probably leave the store unsatisfied. The best retailers have plans in place not only to recover from inevitable lapses in service but perhaps even to benefit from them. 14-8 Summarize current trends related to customer data, analytics, and technology Retailers are constantly innovating. They are always looking for new products and services (or ways to offer them) that will attract new customers or inspire current ones to buy in greater quantities or more frequently. Big data analytics, shopper marketing, mobile technology, and social media are at the front of this innovation. Some retailers have turned to channel omnification, while others have embraced click-and-collect. TERMS atmosphere  drugstore  retail channel omnification automatic vending  factory outlet  retailer back stock floor stock retailing mix  beacon franchise  retailing  big data analytics  franchisee self-service technologies (SST) brand cannibalization franchisor shop-at-home television network  category killer full-line discount store shopper analytics chain store  gross margin  shopper marketing click-and-collect independent retailer  specialty discount store  convenience store  layout  specialty store  department store  microtargeting supercenter destination store  nonstore retailing  supermarket  direct mail off-price retailer  telemarketing  direct marketing (DM)  online retailing (e-tailing)  used goods retailer  direct retailing  restaurant warehouse club discount store  LESSON PLAN FOR LECTURE Brief Outline and Suggested PowerPoint Slides: Learning Outcomes and Topics PowerPoint Slides LO1 Explain the importance of the retailer within the channel and the U.S. economy 14-1 The Role of Retailing 1. Retailing 2. Learning Outcomes 3. Learning Outcomes 4. The Role of Retailing 5. Retailing 6. The Role of Retailing LO2 List and understand the different types of retailers 14-2 Types of Retailers and Retail Operations 7. Types of Retailers and Retail Operations 8. Classifications of Retail Operations 9. Classification of Ownership 10. Level of Service 11. Product Assortment 12. Price 13. Major Types of In-Store Retail Operations 14. Exhibit 14.1: Types of Stores and Their Characteristics LO3 Explain why nonstore retailing is on the rise and list the advantages of its different forms 14-3 The Rise of Nonstore Retailing 15. The Rise of Nonstore Retailing 16. Nonstore Retailing 17. Major Types of Nonstore Retail Operations LO4 Discuss the different retail operations models and understand why they vary in strategy and format 14-4 Retail Operations Models 18. Retail Operations Models 19. Retail Operating Models 20. Floor Stock and Back Stock 21. Operations Models Today LO5 Explain how retail marketing strategies are developed and executed 14-5 Executing a Retail Marketing Strategy 22. Executing a Retail Marketing Strategy 23. Retail Marketing Strategy 24. Defining a Target Market 25. Choosing the Retailing Mix 26. Exhibit 14.2: The Retailing Mix 27. Choosing the Retailing Mix 28. Retail Promotion Strategy 29. Place 30. The Proper Location 31. Retail Prices 32. Presentation of the Retail Store 33. Personnel LO6 Discuss how services retailing differs from goods retailing 14-6 Retailing Decisions for Services 34. Retailing Decisions for Services 35. Channel and Retailing Decisions for Services LO7 Understand how retailers address product/service failures and discuss the opportunities that service failures provide 14-7 Addressing Retail Product/Service Failures 36. Addressing Retail Product/Service Failures 37. Channel and Retailing Decisions for Services LO8 Summarize current trends related to customer data, analytics, and technology 14-8 Retailer and Retail Customer Trends and Advancements 38. Retailer and Retail Customer Trends and Advancements 39. Big Data Analytics and Beacons 40. Shopper Marketing 41. Analytics 42. Future Developments in Retail Management 43. Chapter 14 Video 44. Part 4 Video Suggested Homework: • The end of this chapter contains assignments for the JCPenney case. • This chapter’s online study tools include flashcards, visual summaries, practice quizzes, and other resources that can be assigned or used as the basis for longer investigations into marketing. LESSON PLAN FOR GROUP WORK Application question 1 lends itself well to group work. For this activity, divide the class into small groups of four or five people. Students from each group should read the question and then use their textbooks, or any work that was completed previously, to perform the exercise. Then each group should discuss or present its work to the class. Class Activity – Retail Location Objective: This exercise should aid students in understanding the multitude of factors that must be considered when selecting a site for a store. Tell the class that the object of this exercise is to find the optimal location for a new retail establishment. Select a store type that appeals to college students—a bar, bike shop, pizzeria, and so on. Divide the class into “location consultant groups” with you, the instructor, being the client. If the class is extremely large, you may want to have two or three types of retail stores. Each store should have three to four groups looking for a location. The students need to find an actual available location to recommend. The report to the client should include description, square footage, leasing terms or price, and a justification for the selection of the site. The group offering the site that is selected by the client (instructor) receives bonus points. REVIEW AND ASSIGNMENTS FOR CHAPTER 14 REVIEW QUESTIONS 1. Discuss the possible marketing implications of the recent trend toward supercenters, which combine a supermarket and a full-line discount store. Answer: Supercenters have been created to meet the needs of today’s customers for convenience, variety, and service. Customers can truly have one-stop shopping for both food and nonfood products. One of the most significant implications is the wholesale-level purchasing power that is wielded by the retailers that have developed the supercenter concept. The volume of purchases may mean that no other retail outlet will be able to command the deep discounts that Walmart or Kmart are receiving. Therefore, the other non-superstore retailers must compete on a basis other than low price. Many are tailoring marketing mixes to appeal to specific consumer segments, offering specialty products and a high level of service. 2. Explain the function of warehouse clubs. Why are they classified as both wholesalers and retailers? Answer: Although students’ answers will vary, they should address some of these points: • Wholesale clubs sell a limited selection of fast-moving merchandise including brand name appliances, household items, and groceries. • Wholesale clubs sell on a cash-and-carry basis from warehouse outlets to members only. • They are classified as wholesalers and retailers because they perform wholesaling and retailing functions by selling goods to both businesses and individual consumers. Warehouse clubs function as membership-based retail stores that offer a limited selection of bulk products at discounted prices. They serve both consumers and businesses by providing access to large quantities of goods at lower costs. They are classified as wholesalers because they often buy in bulk directly from manufacturers and sell to members at lower prices, reflecting wholesale pricing. However, they are also considered retailers because they sell directly to end consumers, offering a shopping experience similar to traditional retail stores. This dual role helps them leverage economies of scale while catering to both individual and business needs. 3. What advantages does franchising provide to franchisers as well as franchisees? Answer: Benefits for franchisees include the use of a known name, product, and/or business methods. In addition, the franchisee may receive training and an exclusive trade area. Benefits for franchisers include the receipt of the franchise fee and royalty fees, and growth into new areas. APPLICATION QUESTIONS 1. In order to fully appreciate the role retailing plays in the U.S. economy, it may be helpful to review a selection of press articles related to the retailing industry. Search for articles pertaining to retailing. Read a selection of articles, and report your findings to the class. Answer: Student answers will vary depending on the articles read. You may wish to have students divide into small groups in class and share the results of their reading, making a list of important issues raised in each person’s article. Then as a whole class, you can come back together to compare lists. Retailing plays a crucial role in the U.S. economy, contributing significantly to employment, consumer spending, and economic growth. Recent articles highlight trends such as: 1. E-commerce Growth: Online shopping continues to expand, driving traditional retailers to enhance their digital presence. 2. Supply Chain Challenges: Issues like delays and shortages impact inventory levels and pricing strategies. 3. Sustainability Efforts: Many retailers are adopting eco-friendly practices to meet consumer demand for sustainable products. 4. Labor Market Dynamics: Retail faces a tight labor market, with companies offering higher wages and benefits to attract workers. 5. Consumer Behavior Shifts: Changing preferences, especially post-pandemic, emphasize convenience and personalized shopping experiences. These insights demonstrate retail's adaptability and importance in shaping economic trends and consumer habits. 2. Form a team with three classmates to identify the different retail stores in your city where pet supplies are sold. Team members should divide up and visit all the different retailing outlets for pet supplies. Prepare a report describing the differences in brands and products sold at each of the retailing formats and the differences in store characteristics and service levels. For example, which brands are sold via mass merchandisers versus independent specialty stores or other venues. Suggest why different products and brands are distributed through different types of stores. Answer: Answers will vary widely based on the variety of locations visited by students. Team Report on Pet Supply Retail Outlets Objective: Analyze retail stores in our city selling pet supplies, focusing on brands, products, and service levels. Retail Outlets Visited: 1. Mass Merchandisers (e.g., Walmart) • Brands: Purina, Pedigree • Products: Basic food, toys • Characteristics: Large, self-service • Service: Minimal staff assistance 2. Independent Specialty Stores (e.g., PetSmart) • Brands: Orijen, Blue Buffalo • Products: Premium food, health items • Characteristics: Smaller, curated selection • Service: High expertise and customer care 3. Online Retailers (e.g., Chewy) • Brands: Various, often exclusive • Products: Wide range, subscription options • Characteristics: Virtual, extensive inventory • Service: Customer reviews, easy returns Key Differences: • Product Range: Mass merchandisers offer affordability, while specialty stores provide premium options. Online retailers excel in variety and convenience. • Store Characteristics: Physical stores vary in size and atmosphere; online is convenient but lacks personal interaction. • Service Levels: Specialty stores have higher service compared to mass merchandisers. Conclusion: Different retail formats cater to distinct consumer needs, influencing product distribution strategies. Mass merchandisers focus on budget shoppers, specialty stores on quality seekers, and online platforms on convenience. Recommendation: Enhance online presence for specialty stores to compete with mass retailers effectively. 3. Go to the Gift Center at online wine retailer wine.com’s Web site at http://www.wine.com. How does this site help shoppers select gifts? Student answers may differ depending on their experience with the product category. Answer: The Gift Center on wine.com helps shoppers select gifts by offering curated gift collections based on occasions (e.g., birthdays, holidays), personalized recommendations, and gift sets that include wine pairings. It features easy navigation with filters for price, type, and region, as well as the option to add personalized messages. Additionally, it provides detailed product descriptions and customer reviews to assist in making informed choices. 4. How much does the most powerful computer with the fastest modem, most memory, largest monitor, biggest hard drive, and all the available peripherals cost at http://www.dell.com? Then visit a store like Best Buy or Circuit City and price a comparable computer. How can you explain any price differences between the two retail operations? Explain any differences in features that you encountered. What conclusions can you draw from your research? Answer: Computer prices change constantly; at the current time, they are decreasing due to lower sales in the industry. Students may use more than just Dell Computer’s Web site to get price comparisons. 5. Most catalog companies also offer online shopping. Visit the Web site of one of your favorite catalogs to see if you can buy online. If so, surf the online catalog for a few minutes. Then compare the two retailing methods (paper and Internet) for prices, products, and so forth. Which do you prefer—the paper catalog or online shopping? Why? Answer: I visited [Favorite Catalog]’s website and confirmed that they offer online shopping. Comparison of Retailing Methods: 1. Prices: • Paper Catalog: Often includes promotional discounts or sales, but may not reflect real-time pricing. • Online Shopping: Typically shows the most current prices and additional online-only discounts. 2. Products: • Paper Catalog: Limited by physical space; offers a curated selection. • Online Shopping: Larger inventory with more detailed product descriptions and images. 3. Convenience: • Paper Catalog: Requires browsing through pages; less interactive. • Online Shopping: Easy to search, filter, and compare products quickly. Preference: I prefer online shopping due to its convenience, up-to-date pricing, and wider product selection. It allows for easier comparison and a more interactive experience. 6. Curves is the world’s largest fitness franchise and the fastest-growing franchise of any kind. What do you need to do to become a Curves franchisee? Visit the Web page (http://www.curves.com) to find out. Does anything surprise you? Answer: To become a Curves franchisee, you need to: 1. Submit an Application: Fill out an online franchise application. 2. Financial Requirements: Have a net worth of at least $100,000 and liquid assets of $30,000. 3. Training: Complete the required training program provided by Curves. 4. Location Selection: Identify and secure a suitable location for the franchise. Surprising Aspect: It’s surprising that Curves emphasizes a supportive community and training resources, highlighting a focus on empowering franchisees rather than just the financial aspects. This approach fosters a strong network among franchise owners. 7. Identify a successful retail business in your community. What marketing strategies have led to its success? Answer: Although students’ answers will vary, the following is a basic model of a student response: Oak Street Market is a highly successful, small specialty grocery store in my community. In the 1980s, Oak Street recognized a market niche that had been neglected by the local supermarket chains. Oak Street offers a comprehensive selection of high-quality and organic foods for discriminating, health-conscious consumers. Typical of health food stores, Oak Street targets consumers who prefer buying organic food for health or environmental reasons. Oak Street, however, does not limit itself to health zealots. It appeals to a broader market segment by offering better produce than local supermarkets at comparable prices. It offers convenience and time-saving services including a deli with daily choices of soup, gourmet and vegetarian salads, and a self-service sandwich and salad bar. It also offers specialty items not available anywhere else, such as certain brands of baked goods, coffee, and yogurt. Although I have traditionally shopped at the large local supermarket chain, I now do a substantial portion of my shopping at Oak Street because much of its food is higher in quality and comparable in price. Furthermore, Oak Street has a pleasant environment in which to shop and provides fast and friendly service. A successful retail business in my community is [Local Coffee Shop Name]. Marketing Strategies for Success: 1. Community Engagement: Hosts local events to attract customers. 2. Social Media Presence: Actively promotes products and engages with customers online. 3. Loyalty Programs: Encourages repeat business through rewards. 4. Quality Products: Sources high-quality, local ingredients to appeal to customers. 5. Unique Atmosphere: Creates a cozy environment for socializing and working. These strategies have built a strong brand and loyal customer base. 8. How can a company create an atmosphere on its Web site? Visit the Web sites of some of your favorite retailers to see if they have been able to re-create the store atmosphere on the Internet. Answer: Students’ answers will vary. Many will cite elements of design as the ability to create atmosphere: color, layout, graphic elements (photos, typeface, etc.), and other visual elements. Students may also mention interactivity as an element that creates atmosphere online. For example, blogging areas, message boards, live interaction, ability to post content, and so forth can all contribute to an online store’s atmosphere. A company can create an atmosphere on its website by: 1. Visual Design: Using appealing colors, fonts, and imagery that reflect the brand’s identity. 2. User Experience: Ensuring easy navigation and a smooth shopping experience to make visitors feel comfortable. 3. Engaging Content: Incorporating videos, customer testimonials, and blog posts that convey the brand’s story and values. 4. Personalization: Offering tailored recommendations and personalized greetings based on user behavior. Examples from Favorite Retailers: • [Retailer 1]: Uses vibrant visuals and lifestyle images to evoke a welcoming in-store vibe. • [Retailer 2]: Features interactive elements like virtual try-ons, enhancing the shopping experience. • [Retailer 3]: Includes detailed product descriptions and reviews, creating a sense of community and trust. These elements successfully re-create the store atmosphere online, making the shopping experience more immersive. APPLICATION EXERCISE After reading the chapter, you can see that differences in retailing are the result of strategy. To better understand the relationship between strategic retailing factors and consumer perceptions, you can conduct a simple observation exercise. First, pick a product to shop for, and then identify two stores where you have never shopped as places to look for your product. The two stores must be different types of retailers. For example, you can shop for a new HDTV at Best Buy (category killer) and at local electronics stores (specialty retailer). Once you have identified what you are looking for and where you’re going to look, visit each store and record your observations of specific strategic retailing factors. Activities 1. Go through each store and make careful observations on the following: • Location: Where is each store? How congested is the area of town where each store is located? What influence does the neighborhood have on your impression of the store? Would you travel to this store under normal circumstances? Write a detailed paragraph on the location of each store. • Exterior atmosphere: How convenient is parking? Is parking adequate? How are other issues concerning parking (cleanliness and size of the lot, size of spaces, well-lit, etc.)? What kinds of stores are around the store you are visiting? Do you think being located next to them increases traffic at your store? Are direct competitors nearby? Is the building modern or historic? Is it attractive, clean, and appealing? Is the entrance inviting to shoppers? • Interior atmosphere: Compare the following attributes at each store: aisle width; lighting; number of customers; noise (background music, loudspeakers, etc.); store layout; signage; accessibility of the cashier; number of products available (depth and width of assortment); ability to inspect the product before purchase; quality of the fixtures (shelves, lights, etc.); availability of salespeople and their knowledge about the product; willingness of salespeople to help. • Product: Is your product available? If not, is there a satisfactory substitute? What is your perception of the quality of goods offered? Why do you think as you do? • Price: What is the price of the product/brand at this store? Is the price prominently displayed? How do the prices at the two stores compare? How does the price compare to your expectations? 2. From which of these two stores would you actually purchase the item? Why, specifically? List the factors that played a role in your decision. Which factor is most important to you? If you would not purchase the item at either store, why not? 3. What are the three most important differences you observed between the stores? 4. Using the results of your research, write a short paper that outlines your observations. Conclude your paper with your answers to questions 2 and 3. Purpose: To have students think intentionally about differences in retailing establishments by comparing two stores at which they have never shopped. Setting It Up: Because this involves excursions, you may wish to set this up as a paired exercise. Alternatively, you can pick the product for which the students will shop and direct teams to research the item, each at a different type of retailer. Teams can share results, and the class can see the comparisons and draw conclusions as a whole. This exercise was inspired by the following Great Idea in Teaching Marketing: Amy R. Hubbert University of Nebraska at Omaha DISCOVERY OF STRATEGIC RETAILING FACTORS The purpose of this assignment is to give students in the Principles of Marketing course an opportunity discover for themselves the influence of strategic retailing factors (e.g., location, atmospherics, etc.) on consumer perceptions. The project involves individual, detailed observation at two very different types of retail outlets and a four- to five-page summary of the findings. An in-class activity enables groups of students to compare and contrast their findings and reinforces the understanding of strategic retailing factors. Each student selects an item categorized as a “shopping product” for which to shop. Students describe the product attributes desired as specifically as possible. If it is a branded product, the brand sought is named. The intent of this aspect of the assignment is to ensure students start out with a clear conception of the specific product for which they are shopping. Students then select and compare two retailers who offer this product. Two issues are critical in the selection of specific stores. First, retailing factors will be most salient if two very different stores are compared. Therefore, each student chooses two types of retailers (specialty store, department store, discount store, or category killer) and visits one store of each type. Second, it is imperative that students choose stores where they have never shopped. Retailing factors will be most apparent, and observed most objectively, in unfamiliar stores. Each student visits the two stores he or she selects and records observations of specific strategic retailing factors at each store. The following guidelines encourage attention to detail and provide an outline for the discussion: A. Location Factors What is the type of location (traditional business district, community shopping center, etc.)? How congested is this part of town in general? What influence does the neighborhood have on your impression of the store? Would you travel to this store under normal circumstances to shop for your product? B. Exterior Atmospherics a. How convenient is it to get into the parking lot from the street? For example, do you have to drive by and make a U-tum or can you turn in at a stoplight? b. How adequate is the parking? What other parking issues do you notice? For example, is there a parking lot? Are the slots wide or too narrow? Is it a short or long walk to the entrance? Are there are other cars in the lot (if not, how does that make you feel)? How adequate is visibility? Describe the pedestrian traffic in the parking lot and to the store. c. Do you think nearby stores increase the number of customers to the store you are visiting, or is it more likely to be the other way around? Are there direct competitors nearby? d. Does the building have a modern appearance? Does it have an attractive appearance? Is the entrance inviting to potential shoppers? Explain. C. Interior Atmospherics a. Aesthetics: Discuss aisle width in general and in comparison to the other store. Note the lighting. Is it too bright or too dim? Is it used to emphasize the merchandise? How crowded does the store seem? Too deserted? Too crowded? Describe any odors you detect. What is the noise level? Is there background music? If yes, note the volume, tape quality, and appropriateness of the music. b. Layout: How prominent is the department in which your product is located? How long did it take you to find the department/product? Are more/better signs needed? How large is this department compared to others in the store? How accessible is a cashier’s station? Is someone immediately available to take payment? If not, how long would you have to wait? c. Display: How deep and wide are the product lines compared to others in the store, the other store, and your own expectations? What sources of information/promotion about your product are available? Are you able to inspect the very unit you would purchase, or is it sealed in its package, located in a warehouse, etc.? What are your perceptions of the quality of the fixtures, shelving, etc.? d. Personnel: Are salespeople available to help? If yes, by what clues are the sales staff recognizable? Is a salesperson willing and/or able to help you right away? Is the salesperson knowledgeable about the products and services offered? D. Product Is your product available at the store? Is there a satisfactory substitute? What are your perceptions of the quality level of the goods offered? Specifically identify the factors on which you base these perceptions. E. Price What is the price of the product/brand you would purchase from this store? Is the price prominently displayed? How does the price compare to the other store’s price? How does the price compare to your expectations? Students conclude their papers with reflections on the following questions: a. From which of these two stores would you actually purchase the item? Why, specifically? List the factors that play a role in your decision. Which factor is most important to you? If you would not purchase the item at either store, why not? b. What are the three most important differences you observed between the stores? On the due date, an in-class activity offers the opportunity for students to share and compare their findings. Small groups of four to five students are formed. Each group member names their product and identifies the types of retailers and specific stores visited. Groups identify and discuss key differences among types of retailers. Based on their discussion, each group identifies the three most important benefits offered by each type of retailer and lists these on the chalkboard. The activity concludes with a class wide discussion of strategic retailing factors and how these relate to retail positioning and customer satisfaction. CASE ASSIGNMENT: JCPenney It is common knowledge among consumers and retailers alike that apparel prices tend to be marked up artificially. Years of coupons and promotions have trained customers to wait for price reductions, only shopping at department stores when special sales are available. During the Great Recession, consumer confidence dropped and spending slowed dramatically. As the economy has improved, department stores such as Macy's and JCPenney have begun looking for ways to increase customer spending. Many department stores have once again turned to steep sales and special coupons, further encouraging the cycle of regular (lukewarm) business and sale-time frenzy. Taking a different route, JCPenney moved to reduce the artificial markup so common to department store apparel. Borrowing Walmart's long-time "everyday low prices" strategy, JCPenney hoped to spur demand and reduce off-sale shopper apathy with basic contemporary apparel, promotions such as "Best Price Fridays," and special month-long values. Customers accustomed to receiving a coupon before shopping did not respond well to the new retail strategy, however, and JCPenney incurred substantial losses. The company launched an informative marketing campaign extolling the great values available without needing coupons or special sales, but the public remained unmoved. In April 2013, JCPenney ousted the man behind the change, Ron Johnson, as CEO and promised a return to coupon-based sales. Dana Mattioli, "Penney to Tweak Message, but Not Its Strategy," Wall Street Journal, June 19, 2012, http://online.wsj.com/article/SB10001524052702303703004577476830407027186.html (Accessed March 26, 2013). TRUE/FALSE 1. JCPenney is not considered a retailer because it manufactures and sells clothing under its own private brand as well as selling manufacturers’ brands. Answer: False Retailers are those firms in the channel that sell directly to consumers as their primary function, whether they sell private or manufacturers’ brands. 2. JCPenney-branded products are only sold at JCPenney retail outlets, exemplifying exclusive distribution. Answer: True 3. Because it carries a wide variety of shopping and specialty goods, including apparel, cosmetics, housewares, and furniture, JCPenney is an example of a specialty store. Answer: False JCPenney is an example of a department store. 4. One of JCPenney’s key problems was that management lost sight of the customers it should have been serving, resulting in an ill-defined target market. Answer: True 5. Of the six retailing mix elements, JCPenney’s most critical errors were made in its decisions regarding place. Answer: False JCPenney’s retail locations did not change dramatically during Ron Johnson’s tenure. It could be argued that JCPenney’s most critical errors were made regarding product, promotion, price, or presentation. MULTIPLE CHOICE 1. Suppose JCPenney and Macy’s were both vying to carry an exclusive line of Heidi Klum-designed outerwear. This would be an example of: A. Parallel conflict. B. Horizontal conflict. C. Perpendicular conflict. D. Vertical conflict. E. None of these. Answer: B Horizontal conflict occurs among channel members on the same level, such as two or more different wholesalers or two or more different retailers that handle the same manufacturer’s brands. 2. Each JCPenney retail outlet is owned and operated by a single larger organization. JCPenney is a(n): A. Independent retailer. B. Chain store. C. Franchise. D. Discount store. E. None of these. Answer: B A chain store is part of a group of the same stores owned and operated by a single organization. 3. How could JCPenney have used shopper marketing to avoid alienating its customers and losing sales? A. It could have partnered with brands to advertise the most desirable products. B. It could have compared its loyal shoppers with brands’ core target consumers. C. It could have conducted a large-scale research project to gauge customers’ attitudes, perceptions, emotions, and behaviors. D. It could have inspired managers to coordinate better, measure more, think more creatively, and move faster. E. It could have done all of these. Answer: E Shopper marketing entails doing all these things, and then using the information it collects in business-based strategies and initiatives that are carefully designed to deliver balanced benefits to all stakeholders. 4. Which of the retailing mix elements did JCPenney engage when it launched the informative marketing campaign explaining its new pricing structure? A. Product. B. Place. C. Promotion. D. Presentation. E. Personnel. Answer: C Retail promotion strategy includes advertising, public relations and publicity, and sales promotion. 5. _____ would have allowed JCPenney to use complex mathematical models to determine which products to stock at what price, how to manage markdowns, and how to advertise to draw target customers. A. Data scrubbing B. Data mining C. Data scraping D. Data drilling E. Data scouring Answer: B Data mining uses complex mathematical models to help retailers make better product mix decisions. GREAT IDEAS FOR TEACHING CHAPTER 14 James S. Cleveland, Sage College of Albany DISCUSSION BOARD TOPICS TO ENCOURAGE PARTICIPATION Discussion board questions provided to students to encourage them to engage in thinking and writing about the content of the Principles of Marketing course usually take the form of a provocative statement to which students are asked to respond. An example of this would be “All PR is good PR.” Discussion topics such as this one are abstract and often require that the instructor provide an initial reply to show students what is expected of them in their own replies. For students with limited work experience, this approach may be quite appropriate. For adult students with extensive experience as employees and consumers, however, the abstract nature of such topics can be frustrating. I have developed, therefore, a series of discussion board questions to use with experienced, adult students. These questions are designed to encourage them to use their experiences as employees and consumers as doorways to better understand the course material, and to make their own responses more interesting to themselves and to the other students in the class who will read and comment on them. Each question has three parts: 1. First, there is a sentence or two from the students’ textbook introducing the topic. By using the text author’s own words, students are enabled to locate relevant material in the text more easily, the text content is reinforced, and confusion resulting from use of variant terms or expressions is minimized. 2. Second, there is a reference to text pages the students should review before proceeding. Since the goal of the exercise is for students to apply the course content to their own experiences, reviewing the content first is important. 3. Third, there is a request for the students to think about or remember some specific situation in their experiences to which they can apply the text material, and a question or questions for them to address in their replies. Here are additional such discussion board questions developed for Chapter 14 of MKTG10. Each is written to fit the same text cited above but could easily be rewritten and revised to fit another text. Series A 1. Organizations have three options for distribution intensity: intensive distribution, selective distribution, or exclusive distribution. 2. Review the information about levels of distribution intensity from section 14-2 in your text. 3. Then select a product you recently purchased. At what level of distribution intensity is this product distributed? Why do you think this might be the case? Explain your answer. Series B 1. Because consumers demand convenience, nonstore retailing is currently growing faster than in-store retailing. 2. Review the information about nonstore retailing from section 14-5 in your text. 3. Then consider five recent purchases. Have any of them been through nonstore retailing? If so, list what type of nonstore retailing, and explain why you choose that method over traditional stores. If not, classify the type of stores you purchase from and why you choose those over nonstore retailing options. David M. Blanchette, Rhode Island College FRANCHISE EXPO This exercise has several purposes. Most directly, students have the opportunity to internalize and apply concepts related to obtaining and operating a retail franchise. Secondarily, students can practice their negotiation and management skills. Ideally the exercise is done in groups of two to four, but can be easily done with individuals as well. The time devoted to the exercise is very flexible, and can be done in as little as one hour or as long as one semester. After presenting information to the class about franchising, students are separated into groups. Some groups are “franchisors,” and some are potential “franchisees.” The premise is that there will be a franchise expo in which franchisors sell franchises to prospective franchisees. (Normally, the number of potential franchisees will exceed that of franchisors to encourage competition and negotiation, but this is up to the instructor.) Franchisors initially need to determine the franchise they have for sale. A common restriction here is that the franchise cost must be relatively low, as the franchisee groups are recent college graduates and of relatively modest means. Franchisors can invent franchises or sell existing franchises (if preferred, the instructor may assign or give available franchises for sale). Depending on the time devoted, franchisors can research these franchises to learn about their characteristics, or simply make up characteristics that would be logical for the franchise. Specifically, franchisors need to determine the offer to potential franchisees as well as the selection criteria they will use to determine which franchisee offers to accept. Time permitting, franchisors may develop (or have the option of developing) an offering circular, earnings representations, applications, etc., consistent with the Franchise Rule. Their task, then, is to prepare materials and standards to be used to attract and retain desirable franchisees. Potential franchisees initially need to determine the types of businesses they are interested in (and ideally have some qualifications for). Also, franchisees need to calculate how much they have to spend, as well as the source of these finances. (Alternatively, the instructor may assign an amount available to each group. However, while making the groups even may seem fair, it hinders students from considering the important element of obtaining financing. Further, competing investor groups are rarely even.). Franchisees should also give some thought to how their partnership should be organized and structured. Lastly, the potential franchisees should develop some general goals and standards for obtaining a franchise. This initial organizational phase can be accomplished in as little as half an hour or take as long as the instructor deems appropriate (even months). Following the organizational phase, groups are now ready to attend the franchise expo, where franchisors attempt to attract and provide information to prospective franchisees. This can be an elaborate stage in the exercise, where franchisors construct booths and exhibits, or as simple as rearranging desks in the classroom. For extended exercises, the expo can emulate a normal trade fair, where brochures, samples, presentations, videos, and so on are offered; general questions are answered; initial applications are offered (and sometimes accepted); and appointments for future meetings made. These future meetings, inside or outside of class, may then be used for applications, presentations, interviews, negotiations, and so forth. For shorter exercises, the expo can be used for both the preliminary information gathering as well as the detailed negotiations. Phase two, then, is the initial attraction, contact, and informational portion of the exercise. Following this informational phase, groups negotiate (during the expo in short exercises, at later times in extended exercises) to form franchise contracts. The terms of this contract are completely up to the parties. However, potential franchisees are only allowed to enter into a single con¬tract, while franchisors can enter into as many contracts as they choose. Some time limit should be set as the deadline for all contracts to be sealed. (by handshake, signature, deposit, etc.) Importantly, the terms of the contract should be reduced to writing, even for agreements in principle. Finally, the negotiated contracts (as well as those negotiations that collapsed) are discussed in class. The selection criteria for both franchisors and franchisees are first addressed. Terms of negotiated and failed contracts are then discussed. This tends to be fascinating, entertaining, and illuminating as the implications of contract terms (as well as contract omissions) are elaborated. For example, students often tend to negotiate contracts of very brief duration, forget important fees (or express them in ambiguous terms—for example, is that 6% of gross, net, or what?), battle over advertising, or focus almost exclusively on financial matters. Shorter exercises, which do not permit as much research and thought, tend to produce contracts that allow for much instruction, while longer exercises, as expected, produce more thoughtful contracts (though still with suboptimal terms) where student learning is reflected. In either case, students have the chance not only to apply important franchising concepts but to manage partnerships and partnership tasks, as well as to practice negotiation. Some instructors may prefer to make the exercise more competitive by allowing for winners and losers (based on expected profitability). This exercise is most appropriate for retail management classes, but may also be used for other marketing and management classes. Chris Pullig, Louisiana State University RETAIL PROFITS: NO ROOM FOR ERROR In discussing the small profit margin accomplished by many retail firms, I have found that most students do not stop and think about what a 3 percent to 5 percent profit margin really means. They seem to write the figure down and continue to assume that if one opens a store and charges a huge marked up price, profits automatically follow. One way to demonstrate how slim retail margins are is to use real money and mock invoices for the expenses normally encountered. As a former business person, I know there is no better illustration of how delicate and difficult it is to hold onto cash and profits than to have your own money and expenses and then see the process unfold until you are left with the 3 percent margin that is near the industry norm. For this illustration, I use $100 in cash and three student volunteers. I suppose one could use play money if necessary with the understanding that they can trade the play money profits for real cash at the end of the game, but I find that the acquisition and then subsequent payout of the real money results in a more realistic demonstration. Two of the student volunteers act as partners in a small specialty retail firm. I ask for two students who are interested in the retail business and who want to sell me an item for $100 with the understanding that they can split the profits. The third student is the firm’s controller. In my example, I use apparel as my specialty store’s merchandise item because this is an area I am familiar with, as are most students. But other items may be used. The students come to the front of the room where I would buy an apparel item (e.g., a sports jacket) for $100 in cash. I give the $100 to one the two partners, but at the same time I give the controller a stack of bills that have to be paid today. The controller is instructed to present the invoices in the following order to the partners, and of course, payment is made directly back to me. I use card-size documents with large letters noting “Invoice” and the nature of the debt. These invoices and amounts are presented in order, as follows: Cost of Merchandise $50 Markdowns on Other Goods $10 Advertising $3 Rent $10 Salaries and Wages (give $1 to the Controller) $15 Insurance and Local Taxes $2 Utilities $2 Travel to Market $2 Misc. Supplies (sacks, tickets, hangers) $1 Shrinkage $2 (The students should be left with $3 at this point) Each invoice provides an opportunity to discuss a cost issue and possible strategic alternatives. For instance, the cost of merchandise indicates only a 50 percent initial markup; perhaps the students should have tried for a higher markup. The markdowns on other goods and advertising can be used as an example of the cost of having a sale, and also perhaps the reason for their current customer’s store visit. While the cost of rent, salaries and wages, insurance, utilities, and miscellaneous supplies might be somewhat exaggerated, they demonstrate much of the unavoidable costs of a retail business. The travel to market and shrinkage costs are deliberately high to demonstrate the need for control in the retail organization. Maybe on the next market trip our young businesspeople will not stay at the Plaza Hotel in New York City. Also, they might work in the store more themselves to reduce the salaries expense and to control shrinkage better. Oh, by the way, do not forget to collect $1 in federal income taxes from the students. This will leave them with a dollar each in profits. While this is well under industry norm, there are probably many small retail firms with years just like the one just demonstrated. John T. Drea, Western Illinois University Mandeep Singh, Western Illinois University ANALYZING RETAILING ON THE INTERNET The Internet is an increasingly important marketing tool for a variety of products and services. We believe students entering marketing careers in the coming years will need to know how the Internet can be used to market products to target markets across the globe. To prepare our students for this challenge, we developed “Analyzing Retailing on the Internet” for use in our introductory marketing course. The assignment has two goals: to teach students how to use Internet search engines, and to require students to think analytically about how to effectively market products over the Internet. Our experiences suggest that the assignment is both a useful learning exercise and one that students like. How It Works Students are assigned by the instructor to one of seven product or service categories: shoes, men’s clothing, women’s clothing, sporting goods, furniture, financial products, and travel. (We match categories to student interests whenever possible.) The assignment itself has three parts. Part 1: Students are instructed to use a search engine to locate and compile a list of as many retailers as they can find who sell their assigned product category on the Web. Only Internet retailers in the assigned category who sell products or services directly online may be included in the list (i.e., no mailing or faxing order forms). Students compile and submit a list of these sites and the corresponding URL addresses. Part 2: Next, students select five of the above sites and describe them in detail: What is the range of products sold? How user-friendly was the site? Was it interesting? Informative? These are written in an essay format. Part 3: Finally, students are required to use the knowledge gathered from completing parts one and two to address each of the following questions: (a) What are the characteristics of a good Web site? (b) Which site in particular do you think is most likely to be successful in reaching its target market, and why? (c) Which site was your favorite, and why? Assignments are graded according to the number of correct sites found relative to each product category (i.e., we don’t expect a student assigned to furniture to find as many sites as one assigned to travel), and the completeness of the descriptions in parts 2 and 3. We also spot-check addresses to see if they are accurate—students lose points for each incorrect URL. The Results Follow-up research was conducted with two sections of introductory market students concerning the assignment. The results indicate that the assignment meets its stated goals. Nearly all students (86.5%) indicated the assignment was a positive learning experience (a score of 5–7 on a seven-point scale). Students also devoted a considerable amount of time to the assignment (over 50% spent more than five hours completing the assignment, with 22% spending over nine hours), even though it was worth less than 6% of the course grade. The assignment grade was positively correlated with the amount of time spent on the assignment (r = .73, p = .000), suggesting that students do better on the assignment when they devote more time. Student written comments indicated the assignment was a considerable amount of work, but it was also a fun and useful learning experience. Mark B. Houston, Bowling Green State University Beth A. Walker, Arizona State University BRINGING THE RETAIL MIX TO LIFE When students are first introduced to the retail mix (store location, pricing, merchandise variety and assortment, promotion and layout, and customer service and personal selling) in a Retail Management course, they may not recognize the degree to which the competitiveness of a business depends on these elements. “Oh yeah, this is kind of like that marketing mix we saw in Principles. What was that fourth P, anyway?” Beyond providing a definition of the mix [i.e., “the combination of factors retailers use to satisfy customer needs and influence their purchase decisions” (Levy and Weitz 1995, p. 22)], there is a simple, effective exercise that helps students recognize the practical importance of the mix. The insights they develop energize later class sessions that explore each mix element. To facilitate involvement, students are asked to form groups (three to five students) and to discuss and list specific responses to the following questions: • What distinguishes . . . Gap from Walmart? Kroger from Barney’s (a local convenience store chain)? the Union Cafeteria from Kaufman’s (a local sit-down restaurant)? McDonald’s from Rally’s (a drive-through hamburger chain)? Finders from Madhatters (two popular local music retailers)? • Why would anyone buy a Sunbeam toaster from Elder Beerman (a regional department store chain) when they could buy the same thing at Walmart at a lower price? Why doesn’t Walmart sell all the Sunbeam toasters sold in America? After 10 minutes or so, I ask the class for their responses. Since most students have frequented all of the retailers chosen, they have incorporated their personal insights into identifying the differences in each set of retailers. A large number of students get involved in providing responses and giving examples. I list on the board the key differences identified, highlighting those responses that are mentioned frequently. The list usually grows to 15–20 items, containing things like “different types of merchandise,” “big differences in quality,” “they provide a lot more personal attention,” “they are trying to reach different customers,” “price,” “number of different items,” “image or prestige,” “convenience,” and so forth. As the discussion begins to slow, I ask students if the list on the board reminds them of anything. After a few moments of stunned silence, someone will recognize, “Hey, that’s the retail mix we talked about at the end of class last time.” As this statement soaks into students’ minds across the classroom, the retail mix is transformed from a list in the textbook to a living, real-world phenomenon. I show how their individual responses can be neatly categorized into the retail mix. Students have, for themselves, just described how retailers use the retail mix to differentiate their stores from competitors’ and to target their efforts toward specific target markets. Discussion of the questions regarding the toaster illustrates that it is not just the core product or service that drives consumer choice, but that other elements of the retail mix have significant influence. Individual mix elements have differing relevance across target markets. This type of activity is also very useful for introducing the marketing mix (the four Ps) in a Principles of Marketing class. Reference: Levy, Michael and Barton A. Weitz (1995), Retail Management. 2nd ed., Chicago: Irwin. Karen L. Stewart, Richard Stockton College RETAIL STORE CLASSIFICATIONS I have typically found it quite tedious to lecture on the various types of retail stores. This term I decided to try a different approach. (I alerted the students prior to starting the retailing chapter that it was important to read the chapter prior to coming to class since we would be doing an in-class exercise.) I made a chart for the students for work on during class. The chart had seven headings across the top of the page: 1) name of store; 2) ownership (chain, independent, franchise); 3) level of service (limited, moderate, extensive); 4) product assortment (narrow, wide); 5) depth of assortment (shallow, deep); 6) price (low, moderate, high); and 7) major type of store (department, specialty, discount, etc.). Students were told to begin by listing in the first column 10 stores that reflect where they shop and that are somewhat different from one another. Then they were instructed to fill out the remainder of the table. The class came up with a variety of stores—some very familiar to all; some that were truly out of the ordinary. Once in a while, they’d come up with something I didn’t expect like the Home Shopping Network. That presented the opportunity to introduce nonstore retailing. It also quickly became apparent that retailing is dominated by chain stores. We could also see how some of the classification lines have blurred over time. Also, I attached several other handouts to the chart discussed above. One page was a floor plan for a typical hypermarket. The other pages consisted of the following questions: 1. List anything you have purchased in the last few years from a direct mail offer. This would include items purchased from so-called “junk” mail. 2. Lists items purchased via catalogs over the last few years. 3. Have you purchased anything online? If so, what? Have you considered purchasing anything online, even if you didn’t follow through? If so, what? 4. What advantages and disadvantages do you associate with buying from a supercenter? 5. How can smaller stores attempt to compete with superstores? 6. Attached is a copy of a floor plan for a hypermarket. Hypermarkets have been very successful in Europe but have failed in the United States. (Note: The Carrefour in the Philadelphia area closed in 1994.) What is it about Americans’ shopping habits that would help to account for this failure? 7. What reasonable explanations account for vending machine prices being so high? Or is this just marketers taking advantage of your hunger and thirst? 8. Name a successful retail business in your area. What marketing strategy has led to its success? 9. What retail store do you most dislike? What accounts for your negative feelings? I found that this approach took about the same total time as lecturing on retailing but the overall learning experience as more meaningful and interesting for the students. Part 4 – Integrated Case Assignments MARKETING MISCUES MICROSOFT IMPLIES DISTRIBUTION OF ANGRY BIRDS ON WINDOWS PHONE 7 Rovio Mobile is a leading independent developer of wireless games. The company has developed games for companies such as Electronic Arts, Nokia, Vivendi, NAMCO Bandai, and Mr. Goodliving/Real Networks. As a leading provider to platforms such as the iOS and Android, the company was not pleased when Microsoft included a screenshot of an Angry Birds icon in promotional material on the Windows Phone 7 Web site. According to Rovio, the two companies had not agreed that the Windows Phone 7 would be a distributor of the Angry Birds game. Rovio Mobile and Angry Birds Rovio Mobile started in the early 2000s when three students at the Helsinki University of Technology participated in a mobile game development competition sponsored by Nokia and Hewlett Packard. The students won the competition with a real-time multiplayer game called King of the Cabbage World and started their own company called Relude. The first commercial realtime multiplayer mobile game in the world, King of the Cabbage World was later sold to Digital Chocolate and renamed Mole War. After a round of angel investment in 2005, the company changed its name to Rovio Mobile. This was the beginning of the development of numerous successful games that gave the company a reputation for innovative game design. The company’s ability to create both two- and three-dimensional games meant that it could offer product for a variety of platforms, including Nokia’s N-Gage, Flash, and Apple’s iOS. Angry Birds was released in December 2009 for Apple’s iOS platform. The game is a puzzle video game in which players use slingshots to launch birds with the intent of destroying pigs on the playing field. Angry Birds can be played on personal computers, gaming consoles, and touchscreen-based smartphones. Since its release, over six million copies of the smartphone game have been purchased from the iTunes Store, making it one of the top-selling paid applications. The Android version of Angry Birds was downloaded over two million times in the first weekend of its release, and Rovio is said to receive around $1 million revenue per month from the advertising that appears in the Android version of the game. The popularity of the Angry Birds game is exemplified by the download reports and logged playing time. According to the company, there are more than one million hours of game time logged on the iOS version of the game. Other reports suggest that no other game even comes close to having the following that Angry Birds captures in the marketplace. The game’s success is attributed to a successful combination of addictive gaming, comical presentation, and low price. Windows Phone 7 Launched in 2010 and developed by Microsoft, Windows Phone 7 is a re-branding of Windows Mobile and is targeted to the consumer marketplace instead of the business marketplace. As such, it competes with the Android and the Apple platforms. Nokia is a major partner with Windows Phone 7. Since the phone was developed by Microsoft, it has access to Outlook, Internet Explorer, and, of course, Xbox Live. With Angry Birds holding the top spot for mobile accessed games, it was not surprising that Microsoft wanted to distribute the game on the Windows Phone 7. Microsoft, however, apparently jumped the gun on saying that it would be a distributor of Angry Birds. Just days before the actual launch of the phone, with an Angry Birds icon on the phone’s launch site, Rovio said that it had not committed to doing a Windows Phone 7 version of the game and that Microsoft had posted the icon without permission. Interestingly, it was not that Rovio did not plan to do a Windows Phone 7 version of Angry Birds—it was that the two companies had not come to such an agreement yet. SOURCES: Rovio Mobile Web site, http://rovio.com (Accessed May 2, 2011); Jon Mundy, “Interview: Rovio on the Origin of Angry Birds, Being Inspired by Swine Flu, and Why You May Never See an Angry Birds 2,” Pocket Gamer, October 13, 2010, www.pocketgamer.co.uk/r/Various/Angry+Birds/news.asp?c=24243; Ian Paul, “Angry Birds Maker Is Angry with Microsoft,” PCWorld, October 11, 2010, www.pcworld.com/article/207421/angry_birds_maker_is_angry_with_microsoft.html; Helen Popkin, “Angry Birds Fail to Negotiate Peace Treaty,” Technolog, November 22, 2010, http://technolog.msnbc.msn.com/_news/2010/11/22/5509508-angry-birds-fail-to-negotiate-peace-treaty. Open-ended questions 1. Describe the channel of distribution for Angry Birds. Answer: Rovio creates an Angry Birds version for various platforms. Customers do not obtain the game generically from Rovio; games are accessed via the download provider for the platform. Thus, the platform (Apple’s iOS, Android, etc.) is the middleman between the producer (Rovio) and the consumer (individual game player). 2. Who has the channel power in the distribution of online games? Answer: The popularity of Angry Birds has clearly given Rovio the channel power, regardless of provider/middleman. The case depicts this in the discussion of the game’s popularity. According to the company, there are more than one million hours of game time logged on the iOS version of the game. Other reports suggest that no other game even comes close to having the following that Angry Birds captures in the marketplace. Nowhere does it mention that Angry Birds is popular because of a particular platform. Close-ended questions TRUE/FALSE 1. Rovio Mobile, in its ongoing negotiations with Microsoft described in the case, was being courted by the software giant to sell Angry Birds to the users of its Windows Phone 7 platform. Answer: False The producer, Rovio, would not be conducting its own transactions with phone users. Microsoft would handle these. So neither would be a direct seller. 2. None of the classic marketing discrepancies apply to the marketing channels for a downloadable product such as Angry Birds. Answer: True 3. At this writing, you cannot download Angry Birds for your BlackBerry phone. As yet Angry Birds can’t achieve the kind of economies of scale it could producing the app. Answer: False Since BlackBerry cannot sell Angry Birds, it just means it cannot be part of its market channel. However, it can compete with its knockoff, Angry Farm. 4. Online sales of apps should always be seen as a direct channel to consumers. Answer: False Online sales is often, indeed more often, done through middlemen. In this case, the middleman was Microsoft in a retailer channel. MULTIPLE CHOICE 1. What Microsoft “jumped the gun” on in making it possible for users of its Windows Phone 7 to play Angry Birds can best be described as __________. A. intellectual theft, at least temporarily B. an intermediary C. a reseller D. a wholesale distributor E. a franchisee Answer: B In the marketing channel for apps, Microsoft, like the Apple’s App Store, would play the role of an intermediary in the transaction. 2. Just like a company that manufacturers the smartphones on which users can play Angry Birds, Rovio Mobile benefits from the principle of __________ in distributing its product via Microsoft, the App Store, and Android Market? A. economies of scale B. intermediaries C. contact efficiency D. overcoming discrepancies E. all of the above Answer: C The contact efficiency of having these online stores means that the producer, Rovio, is free from the costs of making its own transactions with end users. 3. Which of the following channel functions applies in the download delivery of Angry Birds? A. logistics B. facilitating C. promoting D. assorting E. all of the above Answer: E Microsoft, in its premature advertisement of Angry Birds, was promoting the product. It also facilitates it in the information it gathers about who downloads the game, it performs the assorting function, too, and Windows Phone 7 servers and phones provide the logistics for getting the game to the consumer. 4. Because the Angry Birds app is sold through __________ you will probably never see it sold __________. A. wholesale distributors/directly to consumers B. virtual distributors/in a box C. virtual distribution/in spinoff forms for non-phone platforms D. retail channels/as a standalone product E. app stores alone/Game Stopper and the like Answer: C The Internet as well as cell phone networks has enabled virtual distributors to sell products that will never require conventional packaging. Spinoffs do exist, however, which are not apps. And these are being sold too as downloads as gaming systems have access to the Web. 5. Given that Angry Birds is available for iPhones, Microsoft, and Android phones, it is fair to say it enjoys __________. A. multiple distribution B. economies of scale in regard to marketing channels C. high-profile placement D. a price monopoly E. market segmentation Answer: B These three giants allow for marketing channels that can attain economies of scale (i.e., specialization and division of labor) by marketing the app to end users. 6. Which of the following nonstore outlets would best describe Microsoft’s mode of selling Angry Birds? A. automatic vending B. online retailing C. online vending machine D. direct retailing E. none of the above since an app store is a store Answer: B Purchasing an app on a smartphone is analogous to purchasing it on PC via the Web. CRITICAL THINKING CASE CUTCO CUTLERY CORPORATION: DIRECT TO CONSUMER FOR OVER 60 YEARS! CUTCO Corporation, the largest manufacturer and marketer of high-quality kitchen cutlery and accessories in the United States and Canada, celebrated its 60th anniversary in 2009. With the design and manufacture of the highest-quality product as its primary objective, over 100 kitchen cutlery products are sold under the CUTCO name. The company also carries a line of cookware, sporting/pocket knives, and garden tools. The CUTCO corporate family consists of: • CUTCO Corporation—parent company • CUTCO Cutlery Corporation—manufacturer of CUTCO products since 1949 • Vector Marketing Corporation—exclusive marketer of CUTCO products, which are sold direct to consumers • CUTCO International, Inc.—marketer of CUTCO products internationally • KA-BAR Knives, Inc.—maker of quality sporting knives • Schilling Forge—manufacturer of precision forgings All businesses within the corporate family, except for Schilling Forge, are located in Olean, New York (USA), where the company has over 700 manufacturing and administrative employees. Schilling Forge is located in Syracuse, New York. Only a very small percentage of the company’s items are manufactured outside the United States and that is only when the company cannot find a partner in the United States that meets stringent quality standards while simultaneously meeting the pricing needs of the company and its customers. The quality built into a CUTCO product at the point of manufacturing is reinforced by the company’s direct-to-consumer channel of distribution, which enables high-quality consumer engagement during the selling process. The Producer CUTCO’s commitment to quality and innovation is evident throughout every step of the manufacturing process—from the selection of steel to final inspection. The company stands behind each and every product with a FOREVER satisfaction guarantee. The guarantee has four components: 1. FOREVER Performance Guarantee 2. FOREVER Sharpness Guarantee 3. FOREVER Replace Service Agreement for Misuse or Abuse 4. 15-Day Unconditional Money-Back Guarantee CUTCO Cutlery’s American-made products and the hard-working craftsmen and women dedicated to creating this high-quality kitchen cutlery were featured on the Travel Channel’s John Ratzenberger’s Made in America program. With its reputation for high quality, accompanied by a FOREVER satisfaction guarantee, CUTCO Cutlery Corporation distributes its products direct to the consumer via its Vector Marketing sales force. The Consumer CUTCO Cutlery Corporation has approximately 18 million satisfied consumers in North America. Customer response to CUTCO research directs the development of new products and services and the sharing of personal stories about special times with family and friends serves as an inspiration to everyone in the company. Thousands of customers have written letters telling the company about the role the company has played in their lives. These customer letters tell how CUTCO has helped them slice and dice fruits and vegetables for weeknight dinners, create weekend party fare, and chop and carve food for holidays, birthdays, and anniversaries. CUTCO cutlery is given as gifts to newly married sons and daughters and is handed down from generation to generation as a family heirloom. The customers praise the quality of CUTCO and offer thanks for the comfort of the ergonomically designed handles and the CUTCO FOREVER Guarantee. Product to Consumer Direct Channel via Vector Marketing Corporation Unlike many competitive cutlery products, CUTCO cutlery products are not available in mass merchandise or specialty stores. Boasting annual sales of over $200 million, Vector Marketing Corporation is a direct sales firm and the sole distributor of Cutco Cutlery. The independent sales representatives of Vector Marketing Corporation are largely college students from campuses across the nation. According to a company spokesperson, Vector Marketing’s sales force is a group of dynamite individuals who represent the company to the consumer in the same high-quality fashion as the CUTCO product. The sales representatives contact potential consumers via referrals, referred to as the “friends of friends” approach. Conversely, consumers can contact the company directly and be connected to a salesperson in the same geographic region. Divided into six regions (Northeast, Midwest, Eastern, Central, Southwest, and Western), Vector Marketing has over 300 offices across the United States and Canada. Regional headquarters are in Philadelphia (Pennsylvania), Detroit (Michigan), Milwaukee (Wisconsin), Dallas (Texas), Austin (Texas), San Diego (California), and Toronto (Canada). Vector Marketing Corporation belongs to the Direct Selling Association (DSA), whose members are leading companies engaged in direct selling in the United States. All DSA members adhere to a strict code of ethics and promote a high standard of integrity in direct selling. From production through sales, the CUTCO Corporation takes ownership of its products. Using this direct-to-consumer channel enables the company to guarantee quality from production to consumption. SOURCES: CUTCO Web site, www.cutco.com (Accessed February 28, 2011); Vector Marketing Web site, www.vectormarketing.com (Accessed February 28, 2011). Open-ended questions 1. Why would a company such as CUTCO Cutlery opt for the direct channel instead of the retailer channel for its consumer products? Answer: Direct selling is a method of marketing and retailing products and services directly to the consumer via person-to-person or party plan selling and away from permanent retail locations. Direct selling offers customers the opportunity to see, touch, and test a product at their own leisure and frequently in their own home. CUTCO products are high quality products and, as such, are also very high priced products. Using the direct channel allows the company to demonstrate the product in the customer’s home so that the customer does not easily make a final decision based solely on price comparisons. Instead the sales representative is able to focus the customer’s attention on the quality of the product in relation to the price. Quite honestly, the CUTCO product would likely not sell well if placed next to a lower-priced version of the same utensil on a store shelf as the customer would likely let the price difference be the deciding factor since the quality difference would not jump off the shelf by itself. 2. What other companies are similar to CUTCO Cutlery in its approach to direct retailing? Answer: Direct sales representatives are generally independent, self-employed individuals. They earn commissions and pay their own expenses and taxes. Other companies that use a direct selling sales force for retailing are found easily on the Direct Selling Association’s Web site (www.dsa.org). Examples of large and well-known direct selling companies are: • Amway • Avon • The Fuller Brush Company • Herbalife • Jafra Cosmetics International, Inc. • The Kirby Company • Mary Kay Inc. • Nature’s Sunshine Products, Inc. • Nu Skin Enterprises • PartyLite Gifts, Inc. • Shaklee Corporation There are 202 companies that are members of the Direct Selling Association. Students should be directed to the Web site to look at the types of products sold via direct selling retailing. Closed Ended Questions TRUE/FALSE 1. CUTCO’s college student sales force performs the role of channel members. Answer: True 2. In a strict sense, only CUTCO enjoys an economy of scale, not its direct sellers. Answer: False As a marketing channel, CUTCO’s direct sellers also attain economies of scale by selling only CUTCO-branded products to end users. 3. Students who work for Vector Marketing are a form of selective distribution. Answer: True 4. CUTCO is the channel member with channel control and power over the student sales force. Answer: False Vector Marketing Channel controls and influences the behavior of the channel members below it, i.e., the student sales force. MULTIPLE CHOICE 1. Vector Marketing is a(n) __________. A. independent direct marketer for CUTCO B. merchant wholesaler C. CUTCO broker D. corporate subsidiary of CUTCO E. CUTCO agent Answer: D Vector Marketing is not an independent direct marketer but rather part of CUTCO’s corporate family. 2. CUTCO is an example of a company that concentrates on __________ to achieve its economy of scale in cutlery and related implements. A. distribution B. direct sales C. franchising with college students D. manufacturing E. all of the above Answer: D Specialty manufacturers such as CUTCO achieve their economies of scale by focusing on producing large quantities of a single product line or item. 3. “Products that are more complex, customized, and expensive” benefit from direct marketing channels. Knives and scissors are fairly low-tech. Why does CUTCO use direct sales? A. Because it is located in New York State. B. Because its products are difficult to find C. CUTCO sells to an exclusive market—newlyweds, professional chefs, cooking schools, and the like. D. Direct sales forces can demonstrate CUTCO’s product factors over cheaper retail and imported cutlery to justify its price. E. Actually, the technology used to make high-quality CUTCO products at the factory is customized and complex. Answer: D A producer’s desire to control pricing, positioning, and brand image also tends to influence channel selection, especially for firms that sell products vulnerable to discount retailers and alternative product item equivalents. 4. Which of the following businesses does not use direct retailing? A. Vector Marketing B. Tupperware C. Pampered Chef D. Amway E. CUTCO independent sales representatives Answer: A In the marketing channel, the sales reps are hired and managed by Vector. 5. Why are CUTCO sales people not small-scale franchisees? A. They do not establish retail outlets. B. They only deal with Vector Marketing for the only product they sell. C. They do not pay a royalty. D. They do not pay Vector Marketing for the right to sell CUTCO products. E. all of the above Answer: E Although a direct retailer may resemble a franchise, it is different for all the reasons listed. 6. In the retailing mix, which of the following only applies to CUTCO’s success? A. price B. place C. product D. personnel E. promotion Answer: C As a direct sales operation, CUTCO really has no retailing mix. This is the only P that applies: product. Solution Manual for MKTG: Principles of Marketing Charles W. Lamb, Joe F. Hair, Carl McDaniel 9781305631823, 9781285860145, 9781337116800