_____ are retailers that compete on the basis of low prices, high turnover, and high volume.

Marketing Channels and Retailing

Chapter 14

Learning Goals

Discuss marketing channels and channel intermediaries and describe their functions and activities.

Describe common channel structures, strategies, and factors that influence their choice.

Identify channel relationship types roles and their unique advantages and disadvantages.

Understand the importance of the retailer within the channel and within the national economy.

List and identify the different classifications and types of retailers and their different operational models.

Recognize the major tasks involved in developing a retail marketing strategy

Apply CRM and customer data in retailer decision making.

Discuss trends in retail and channel management.

GOAL #1

Discuss marketing channels and channel intermediaries and describe their functions and activities.

Marketing Channels

A marketing channel is:

A set of interdependent organizations that eases the transfer of ownership as products move from producer to business user or consumer

A business structure that helps channel members perform necessary actions to move products to the final consumer.

Viewed as a large pipeline through which products, their ownership, communication, financing and payment, and accompanying risk flow to the consumer.

Discuss marketing channels …and describe their functions and activities.

Channel Intermediaries

As products move to the final consumers, intermediaries facilitate the distribution process by providing specialization and division of labor, overcoming discrepancies, and providing contact efficiency.

Retailers are those firms in the channel that sell directly to consumers as their primary function

Discuss … channel intermediaries and describe their functions and activities

Channel Intermediaries

Channel Intermediaries

Channel Members

Negotiate with one another, buy and sell products, and facilitate the change of ownership between buyer and seller in the course of moving the product from the manufacturer into the hands of the final consumer.

Purpose of Marketing Channels

Marketing channels facilitate the physical flow of goods through the supply chain, representing “place” or distribution in the marketing mix

As products move through the supply chain, channel members facilitate the distribution process by providing specialization and division of labor, overcoming discrepancies, and providing contact efficiency.

9

Purpose (Functions) of Marketing Channel

Specialization and division of labor

Overcoming discrepancies

Providing contact efficiency

1

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Purposes of Marketing Channels

Specialization and Division of Labor

Contact Efficiency

Creates greater efficiency

Provides lower production costs

Create time, place, form, and exchange utility

Retailers simplify distribution by cutting the number of transactions required by consumers, making an assortment of goods available in one location.

Retailer -- Businesses in the channel that sell directly to customers

11

Channel Intermediaries

Merchant

Wholesaler

An institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them.

Agents and

Brokers

Wholesaling intermediaries who facilitate the sale of a product by representing channel members.

Intermediaries in a channel negotiate with one another, facilitate the change of ownership between buyers and sellers, and physically move products from the manufacturer to the final consumer.

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Notes:

12

Differences in Channel Intermediaries

Merchant

Wholesalers

Agents

and

Brokers

Take Title to Goods

Do NOT Take Title to Goods

1

The most prominent difference separating intermediaries is whether or not they take title to the product. “Taking title” means they own the merchandise and control the terms of the sale.

Retailers and merchant wholesalers take title to goods, while agents and brokers do not.

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Factors Suggesting Type of Wholesaling Intermediary to Use

Product characteristics

Buyer considerations

Market characteristics

1

Product characteristics, buyer considerations, and market conditions determine the type of intermediary the manufacturer should use. Each of these will determine which type of intermediary is appropriate for a product.

Product characteristics include such aspects of a product as standardization and customization, complexity, and gross margin.

Buyer considerations include purchase frequency and how long the buyer is willing to wait for a product.

Market characteristics include number of buyers and buyer concentration levels.

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Notes:

14

Channel Functions Performed by Intermediaries

Contacting/Promotion

Negotiating

Risk Taking

Researching

Financing

Physically distributing

Storing

Sorting

Facilitating Functions

Transactional Functions

Logistical

Functions

1

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14

Notes:

Goal #2

Describe common channel structures, strategies, and factors that influence their choice.

Channel Structures

When possible, producers use a direct channel to sell directly to consumers.

Other times an agent/broker channel may be the best solution.

Most consumer products are sold through distribution channels similar to the retailer channel and the wholesaler channel.

Exhibit 14.2 Marketing Channels for Consumer Products

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Chapter 13 Marketing Channels

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Alternative Channel Arrangements

Dual or multiple distribution

Strategic channel alliances

Nontraditional channels

Usually a producer uses several different (or alternative) channels, including:

Dual channels: Two or more channels selected is called dual or multiple distribution. Dual distribution systems differ from single channel systems, and managers should recognize those differences.

Nontraditional channels: Include the Internet and mail-order channels, and help differentiate a business’ product from the competition.

Strategic channel alliances: Producers use another manufacturer’s already-established channel.

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Factors Affecting Channel Choice

Managers must consider the three options for intensity of distribution: intensive distribution, selective distribution, and exclusive distribution.

3. Producer Factors

2. Product Factors

1. Market Factors

20

1. Market Factors

Market Factors That Affect

Channel Choices

Customer profiles

Consumer or Industrial

Customer

Size of market

Geographic location

Market factors include the target customer profiles: Who are the potential customers? What/where/when/how do they buy?

Distinction between consumer or industrial customers. Consumers buy in small quantities and do not require much service, whereas industrial customers purchase in larger quantities and require more customer service.

If the target market is concentrated in specific areas, direct selling is appropriate. If widely dispersed, intermediaries would be less expensive.

In general, a large geographic market requires more intermediaries.

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Notes:

21

2. Product Factors

Product Factors That Affect

Channel Choices

Product Complexity

Product Standardization

Product Life Cycle

Product Delicacy

Product Price

Products that are more complex, customized, and expensive benefit from shorter and more direct marketing channels and through a direct sales force. Standardized products can be sold through longer distribution channels with greater numbers of intermediaries.

The choice of channel may change over the life of the product. As products become more common, producers turn from a direct channel to more alternative channels.

Perishable items and fragile products require fairly short marketing channels and a minimum amount of handling.

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3. Producer Factors

Producer Factors That Affect

Channel Choices

Producer Resources

Number of Product Lines

Desire for Channel

Control

2

Producers with larger financial, managerial, and marketing resources are able to use more direct channels. These producers can maintain their own sales force, warehouse their own goods, and extend credit to customers.

Producers with several products in a related area choose channels that are more direct, and sales expenses can be spread over more products.

A producer’s desire to control pricing, positioning, brand image, and customer support may avoid channels in which discount retailers are present. Furthermore, manufacturers of upscale products may sell only in expensive stores to maintain an image of exclusivity.

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Notes:

Goal #3

Identify channel relationship types roles and their unique advantages and disadvantages.

24

Benefits Hazards

Arm’s Length Relationship Fulfills a one time or unique need; low involvement/risk Parties unable to develop relationship; low trust level

Cooperative Relationship Formal contract without capital investment/long-term commitment; “happy medium” Some parties may need more relationship definition

Integrated Relationship Closely bonded relationship; explicitly defined relationships High capital investment; any failure could affect every channel member

Types of Channel Relationships

Identify channel relationship types roles and their unique advantages and disadvantages.

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Notes:

A marketing channel is more than a set of institutions linked by economic ties. Social relationships play an important role in building unity among channel members.

Companies may work with several different suppliers and customers, and so viewing the channel as a chain (with one company connected between two others) paints an incomplete picture. Instead, a distribution channel is more like a network than a chain.

Channel Relationships

Arm’s-length relationships can satisfy a sudden or unique need but carry a potential for opportunism.

Cooperative relationships offer balance and stability, but cannot be sustained long term; and

Integrated relationships are closely bonded and explicit but do not offer flexibility.

Identify channel relationship types roles and their unique advantages and disadvantages.

Social Influences in Channels

Managers must also be aware of the social dimensions that are constantly affecting their relationships.

Channel Power -- A channel member’s capacity to control or influence the behavior of other channel members.

Channel Control -- A situation that occurs when one marketing channel member intentionally affects another member’s behavior.

Channel Leadership -- A member of a marketing channel that exercises authority and power over the activities of other members

Partnering

Conflict

Leadership

Control

Power

Identify channel relationship types roles and their unique advantages and disadvantages.

Channel Issues

Channel Conflict

Channel Partnering

Caused by inequitable channel relationships, that is a clash of goals and methods among the members of a distribution channel

In a broad context, conflict may not be bad. If traditional members refuse to keep pace with the times, removing an outdated intermediary may reduce costs for the entire channel.

Conflict within a channel can be either horizontal or vertical. Horizontal conflict occurs among channel members at the same level, such two or more different retailers that handle the same manufacturer’s brands. Vertical conflict occurs between different levels in a marketing channel

The joint effort of all channel members to create a channel that serves customers and creates a competitive advantage

By cooperating channel members can speed up inventory re-supply, improve customer service, and reduce the total costs of the marketing channel.

Goal #4

Understand the importance of the retailer within the channel and within the national economy.

Importance of the Retailer

In early 2012, indicators estimated that approximately two-thirds of the U.S. gross domestic product comes from retail activity.

The retailing industry is one of the largest employers in the United States.

Though most retailers are quite small, a few giant organizations such as Wal-Mart dominate the retail industry.

Retailing -- All the activities directly related to the sale of goods and services to the ultimate consumer for personal, non-business use.

Retailing enhances the quality of our daily lives, with the millions of goods and services provided mirroring the needs and styles of U.S. society.

Retailing affects all of us directly or indirectly. The retailing industry is one of the largest employers, as shown on the next slide.

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Importance of Retailing

U.S. retailers employ nearly 15 million people

Retailers account for 10.8 percent of U.S. employment

Retailing accounts for 10 percent of all U.S. businesses

Retailing accounts for two-thirds (66%) of the U.S. GDP

4

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GOAL # 5

List and identify the different classifications and types of retailers and their different operational models.

Classification of Retail Operations

Retail establishments can be classified according to

ownership,

level of service,

products assortment, and

Price (gross margin).

Retailers use the last three variables to position themselves in the competitive marketplace.

These variables can be combined in several ways to create distinctly different retail operations.

Classifying Retail Stores

Product assortment

Price – Gross Margin

Classification based on breadth and depth of product lines.

Specialty stores may carry dozens of brands, each in a large variety of shapes and sizes. On the other end of the spectrum, full-line discounters typically carry broad assortments of merchandise with limited depth.

The amount of money the retailer makes as a percentage of sales after the cost of goods sold is subtracted.

Traditional department stores and specialty stores usually charge the full “suggested retail price.” In contrast, discounters, factory outlets, and off-price retailers use low prices as a lure for shoppers.

Margins are covered in more detail in Chapter 19.

Categories of Retailers

Retail stores fall into these basic categories:

Department stores,

Specialty stores,

Supermarkets,

Drugstores,

Convenience stores,

Discount stores,

Off-price retailers,

Used goods retailers, and

In some ways, restaurants.

Because consumers demand convenience, non-store retailing is currently growing faster than in-store retailing.

List and identify the different classifications and types of retailers and their different operational models.

Exhibit 14.4: Types of Stores and Their Characteristics

Assort-

ment

Price

Gross Margin

Broad

Narrow

Broad

Med-Narrow

Medium

Med-Broad

Med-Broad

Broad

Med-Narrow

Narrow

Mod-High

Mod-High

Moderate

Mod High

Moderate

Mod Low

Mod Lo-low

Low-very low

Low

Low-High

Mod High

High

Low

Mod High

Low

Mod Low

Mod Low

Low

Low

Low-High

Type of Retailer

Specialty Store

Supermarket

Convenience Store

Drugstore

Full-line Discounter

Specialty Discounter

Warehouse Clubs

Off-price Retailer

Restaurant

Service

Level

Mod Hi-High

High

Low

Low

Low-Mod

Mod-Low

Mod-Low

Low

Low

Low-High

Department Store

Broad

Broad

Medium

Mod-High

Moderate

Moderate

Mod High

Low

Supermarket

Drugstore

Mod Hi-High

Low

Low-Mod

Department Store

How would you classify your most frequented retail outlets?

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Independent

Retailers

Chain Stores

Franchises

Owned by a single person or partnership and not part of a larger retail institution.

Owned and operated as a group by a single organization.

The right to operate a business or to sell a product.

36

Classifications of Retail Ownership

5

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Basic Forms of Franchises

Product and Trade Name Franchising

Dealer agrees to sell in products provided by a manufacturer or wholesaler.

Business

Format

Franchising

An ongoing business relationship

between a franchiser and a

franchisee.

A franchise is a continuing relationship in which a franchiser grants to a franchisee the business rights to operate or sell a product.

The franchisor originates the trade name, product, operation methods, etc.

The franchisee pays the franchiser for the right to use its name, product, or methods.

Goal #6

Recognize the major tasks involved in developing a retail marketing strategy.

Key Tasks in Retail Marketing Strategy

Identify and select a target market

Develop the retailing mix to successfully meet the needs of the chosen target market.

Define a Target Market

Choose a Retailing Mix

40

Defining a Target Market

Step 1:

Segment the Market

Demographics

Geographics

Psychographics

6

Defining a target market in retailing begins with market segmentation.

The retailing mix consists of six Ps: the four Ps of the marketing mix plus presentation and personnel.

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Notes:

Retailers develop marketing strategies based on overall goals and strategic plans.

Defining the target market begins with market segmentation.

Successful retailing is based on knowing the customer.

Target markets are defined by demographics, geographics, and psychographics.

© 2015 by Cengage Learning Inc. All rights reserved

41

Choosing the Retailing Mix

STEP 2:

Choose the Retailing Mix

Product

Promotion

Personnel

Place

Price

Presentation

6

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Exhibit 14.6 The Retailing Mix

43

Presentation of the Retail Store

The presentation of a retail store helps determine the store’s image and positioning in consumers’ minds. For example, positioning as an upscale store would use a lavish or sophisticated presentation.

The main element of presentation is atmosphere (the overall impression conveyed by a store’s physical layout, décor, and surroundings), with the most influential factors Employee type and density: An employee’s general characteristics such as friendly and knowledgeable, and the number of employees in the selling space.

Other influential factors include:

Merchandise type and density: The type of merchandise carried (best brands) and how it is displayed (neat uncluttered, crowded).

Fixture type and density: Elegant, trendy, uncluttered. Fixtures should be consistent with the general atmosphere.

Sound: Sound can be pleasant or unpleasant for a customer.

Odors: Smell can either stimulate or detract from sales.

Visual factors: Colors can create a mood or focus attention.

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Notes:

The presentation of a retail store helps determine the store’s image and positioning in consumers’ minds. For example, positioning as an upscale store would use a lavish or sophisticated presentation.

The main element of presentation is atmosphere (the overall impression conveyed by a store’s physical layout, décor, and surroundings), with the most influential factors shown on this slide.

Employee type and density: An employee’s general characteristics such as friendly and knowledgeable, and the number of employees in the selling space.

Merchandise type and density: The type of merchandise carried (best brands) and how it is displayed (neat uncluttered, crowded).

Fixture type and density: Elegant, trendy, uncluttered. Fixtures should be consistent with the general atmosphere.

Sound: Sound can be pleasant or unpleasant for a customer.

Odors: Smell can either stimulate or detract from sales.