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Retail Management: A Strategic Approach

Thirteenth Edition

Chapter 6

Web, Nonstore-based, And Other Forms Of Nontraditional Retailing

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Learning Objectives (1 of 2)

6.1 To contrast single-channel and multi-channel retailing

6.2 To look at the characteristics of the three major retail institutions involved with non store-based strategy mixes: direct marketing, direct selling, and vending machines – with an emphasis on direct marketing

Learning Objectives (2 of 2)

6.3 To explore the emergence of electronic retailing through the World Wide Web

6.4 To discuss two other nontraditional forms of retailing: video kiosks and airport retailing

Figure 6.1 Approaches to Retailing Channels

At the beginning, a retailer often relies on single-channel retailing, whereby it sells to consumers through one retail format. That one format may be store-based (a corner shoe store) or nonstore-based (catalog retailing, direct selling, or Web retailing).

As the firm grows, it may turn to multichannel retailing, whereby a retailer sells to consumers through multiple retail formats.

To optimize efficiency and enhance customer experiences, the best retailers turn to omnichannel retailing, and deliver a consistent, uninterrupted, and seamless experience regardless of channel or device.

Non-store Retailing

Retailing strategy that is not store-based

direct marketing

Web-based retailing is the fastest- growing area

M/SMS-commerce

Social commerce

Some types of non-store retailing will continue to grow, while others will not. Direct marketing will show the most growth as a result of its diversity, rising consumer confidence in it, overcrowding at stores, increases in working women, technological breakthroughs, etc. Vending machines and direct selling will show little growth as a result of rising costs, limited applications, and consumer distrust.

Direct Marketing

Customer is initially exposed to a good or service through a non-personal medium and then orders by mail, phone, fax, smart phone, or computer

Annual U.S. sales exceed $475 billion (including the Web)

Other leading countries include

Japan

Germany

Great Britain

France

Italy

Direct marketing is a type of retailing where a customer is made aware of a good/service through a nonpersonal medium and then proceeds to place an order by the mail, phone, fax, or via computer, smart phone or tablet. Strengths of direct marketing include the appeal it has to those who need a flexible shopping alternative to store-based retailing, increased sales, reduced costs, lower prices, and easier targeting of customers.

Characteristics of Direct Marketing Customers

Married

Upper middle class

35-50 years old

Have access to wifi and broadband Internet

Are multi-screen shoppers

Desire convenience, unique items, good prices

In the United States, direct-marketing customers are more apt to be middle class. Mail shoppers are more likely to live in areas away from malls. And, because they want to avoid traffic and save time, phone shoppers are more likely to live in upscale metropolitan areas. The share of direct-marketing purchases made by men has grown: The average consumer who buys direct spends several hundred dollars per year, and he or she wants convenience, unique products, and good prices.

Strategic Business Advantages of Direct Marketing

Reduced costs

Lower prices

Large geographic coverage

Convenient to customers

Ability to pinpoint customer segments

Ability to eliminate sales tax for some

Ability to supplement regular business without additional outlets

Many costs are reduced—even low startup costs are possible; inventories are reduced; no displays are needed; a prime location is unnecessary; regularly staffed store hours are not important; a sales force may not be needed; and business may be run out of a garage or basement. It is possible for direct marketers to have lower prices (due to reduced costs) than store-based retailers. A huge geographic area can be covered inexpensively and efficiently.

Customers shop conveniently—without crowds, parking congestion, or checkout lines. And they do not have safety concerns about shopping late at night. Specific consumer segments are pinpointed through targeted mailings. Consumers may sometimes legally avoid sales tax by buying from direct marketers not having retail facilities in their state (however, some states want to eliminate this loophole).

A store-based firm can supplement its regular business and expand its trading area (even becoming national or global) without adding outlets.

Strategic Business Limitations of Direct Marketing

Products often cannot be examined prior to purchase

Costs may be underestimated

Response rates to catalogs under 10%

Clutter exists

Long lead time required

Industry reputation sometimes negative

Products cannot be examined before purchase. Thus, the range of items purchased is more limited than in stores, and firms need liberal return policies to attract and keep customers.

Firms may underestimate costs. Catalogs can be costly. Computer systems must track shipments, purchases, and returns, and keep lists current. A 24-hour phone staff may be needed.

Even successful catalogs often draw purchases from less than 10 percent of recipients.

Clutter exists. Each year, billions of E-mails and catalogs are mailed in the United States alone.

Printed catalogs are prepared well in advance, causing difficulties in price and style planning.

Some firms have given the industry a bad name due to delivery delays and shoddy goods.

Clickstream Retailing

Collection, storage, and usage of relevant customer information

name

address

background

shopping interests

purchase behavior

Observation of 80-20 rule

Emerging Trends

Evolving activities

Changing customer lifestyles

Increasing competition

Increasing usage of dual distribution channels

Changing media roles, technological advances, and global penetration

Evolving Activities

Web and mobile technology has moved to the forefront in all aspects of direct marketing—from lead generation to order processing.

Multiple points of customer contact are offered by most firms today.

Changing Customer Lifestyles

Consumer lifestyles in the United States have shifted, mostly due to the numerous women who are now in the labor force and the longer commuting time to and from work for suburban residents. Many consumers no longer have the time or inclination to shop at stores. They are attracted by the ease of purchasing through direct marketing. (Selection Factors by Customers)

Increased Competition

Intense competition exists because entry into direct marketing is easier and less costly than entry into store retailing. A firm does not need a store; can operate with a small staff; can use low-cost 1-inch magazine ads, send brochures to targeted shoppers, and have an inexpensive Web site. It can also keep a low inventory and place orders with suppliers after people buy items (so long as it meets the “30-day rule”).

Dual Distribution Channels

Today, many stores add to their revenues by using ads, brochures, catalogs, and Web sites to obtain mail-order, phone, and computer-generated sales. They see that direct marketing is efficient, targets specific segments, appeals to people who might not otherwise shop with those firms, and needs a lower investment to reach other geographic areas than opening branch outlets.

Changing Media Roles

Many firms now print “specialogs” in addition to or instead of the annual catalogs showing all their products.

To help defray costs, some companies accept ads from noncompeting firms that are compatible with their image.

To stimulate sales and defray costs, some catalogs are sold in bookstores, supermarkets, and airports, as well as at company Web sites. The percentage of consumers buying a catalog who actually make a purchase is far higher than that for those who get catalogs in the mail.

Selection Factors by Customers

Company reputation and image

Ability to shop whenever consumer wants

Types of goods and services

Availability of toll-free phone number, Web site or mobile app for ordering

Credit card acceptance

Speed of promised delivery time

Competitive prices

Satisfaction with past purchases and good return policy

Figure 6.4 Executing a Direct Marketing Strategy

Business Definition

First, a company makes two decisions as to its business definition: (1) Is the firm going to be a pure direct marketer or is it going to engage in multichannel or omnichannel retailing? If the firm chooses one of the latter two strategies, it must clarify the role of direct marketing in its overall retail strategy. (2) Is the firm going to be a general direct marketer and carry a broad product assortment or will it specialize in one product category?

Generating Customers

Buy a printed mailing list or an E-mail list from a broker. For one mailing, a list usually costs up to $50 to $100 or more per 1,000 names and addresses; if printed, it is supplied in mailing-label format. Lists may be broad or broken down by gender, location, and so on. In purchasing a list, the direct marketer should check its currency.

Media Selection

Printed and/or online catalogs

Direct mail ads and brochures

Inserts with monthly credit card and other bills (“statement stuffers”)

Presenting The Message

The next step in a direct-marketing strategy is the firm prepares and presents its message in a way that engenders interest, creates (or sustains) the proper image, points out compelling reasons to purchase, and provides data about goods or services (such as prices and sizes).

Customer Contact

For each campaign, a direct marketer decides whether to contact all customers in its data base or to seek specific market segments (with different messages and/or media for each).

Customer Response

Customers respond to direct marketers in one of three ways: (1) They buy through the mail, phone, fax, computer, or smart phone. (2) They request further information, such as a catalog. (3) They ignore the message. Purchases are generally made by no more than 2 to 3 percent of those contacted.

Order Fulfillment

A system is needed for order fulfillment. If orders are received by mail or fax, the firm must sort them, determine if payment is enclosed, see whether the item is in stock, mail announcements if items cannot be sent on time, coordinate shipments, and replenish inventory.

Measuring Results And Maintaining The Data Base

The last step in a direct-marketing strategy is analyzing results and maintaining the database.

Media Selection

Printed catalogs

Direct-mail ads and brochures

Inserts with monthly credit card and other bills (statement stuffers)

Freestanding displays

Ads or programs in mass media

Banner ads or hot links on the Web

Video kiosks

In choosing among media, costs, distribution, lead time, and other factors should be considered.

Outcome Measures (RFM)

Overall response rate (R)

Frequency of purchases (F)

Average purchase amount (M)

Sales volume by product category

Value of list brokers

Overall response rate: The number and percentage of people who make a purchase after receiving or viewing a particular brochure, catalog, or Web site

Average purchase amount: By customer location, gender, and so forth

Sales volume by product category: Revenues correlated with the space allotted to each product in brochures, catalogs, and so forth

Value of list brokers: The revenues generated by various mailing lists

Direct Selling

Direct selling includes personal contact with consumers in their homes (and other nonstore locations such as offices) and phone solicitations initiated by retailer.

Annual sales of $35 billion in the U.S., where 18.2 million people are employed (more than 90 percent part-time).

Annual foreign revenues of $185 billion, generated by 100 million salespeople.

A direct-selling strategy emphasizes convenient shopping and a personal touch, and detailed demonstrations can be made. Consumers often relax more at home than in stores. They are also apt to be attentive and are not exposed to competing brands (as in stores). For some, such as older consumers and those with young children, in-store shopping is difficult due to limited mobility.

Table 6.2 A Snapshot of the U.S. Direct Selling Industry

Major Product Groups (as a percent of sales)	2012	2015
Home and family care products/home durables	24.4	16.3
Wellness (weight loss products, vitamins, etc.)	23.0	33.6
Personal care	19.4	17.1
Services	19.2	21.9
Clothing	11.0	8.8
Leisure/educational (books, encyclopedias, toys/games, etc.	3.0	2.3

Web Strengths: Consumer Appeal

Using the Web

Information

Entertainment

Interactive communications

Personalization

Peer-reviews

Shopping Online

Low search costs

Endless selection

Prices

Convenience

Fun

From a consumer’s perspective, the Web provides a means to access a wider variety of products at a retail level (at even a global level) without leaving the home. It is especially useful for consumers at remote locations or for those who have difficulty leaving home to do their retail shopping. The Web also provides an opportunity for the consumer to comparison shop (both product and price-based) with relative ease; consumers on the Web have easy access to competitive analysis and product and price comparisons (via shopping bots). Web purchases offer the added bonus of increased privacy and anonymity over traditional storefront transactions, and are currently free of sales taxes in many instances.

Figure 6.7 Global Consumers’ Online Retail Purchases, 2016 (Selected Product Categories)

U.S. retail e-commerce sales as a percent of total retail sales has been increasing since 2006, and has a far higher growth rate than overall retail sales. Mobile commerce surged ahead of computer in terms of time spent shopping for the first time in early 2015 (59 percent compared to 41 percent for computer); however, it still lags computers in share of online spending (15 percent to 85 percent).

How has the World Wide Web Changed Shopping Behavior?

Decoupled ordering, payment, and delivery

Website design/interaction – drives retailer image

Fulfillment/reliability: 24/7/365. Buy, pay, pick-up anywhere, anytime

Customer service – info from retailer, must also provide peer-reviews

Security/privacy – personalize for “me only when I need it”

For a retailer, the World Wide Web offers the advantages of the potential access to a larger customer base and operating on a 24/7 basis. The Web shortens the distance between the retail storefront and the customer. Also, a Web site is advantageous to a retailer in that it is inexpensive, builds image, provides data on store locations and products, promotes and explains a company’s offerings, enables consumers to choose what they want to view, and allows firms to gather feedback. In addition, specials can be promoted, employment opportunities are featured, and sales are generated.

How Payment has Decoupled From Ordering and Pick-Up

Consumers select channels based on when and where they want to pay

Cross-Channel Shopping Behavior (Payment and Pickup Decoupled)

Reasons NOT to Shop Online

Online shopping accounts for only 8% overall retail spend!

Lack of trust in retailer

Fear of fraud

Lack of security (credit card access)

Lack of personal communication

High shipping costs

The Web may fall short for consumers who prefer to see products in person as they purchase them. The sense of the buying experience is changed when purchases are done over the Web. Consumers may easily adjust to buying items such as contact lens solution from a Web-based outlet, but may resist buying clothing from a Web-based retailer because they consider shopping for clothes an event that requires leaving the home. They may prefer to physically be at the retail outlet for the full experience. It may be for the simple reason that they always try on clothing before they buy, or just because they prefer to be in a mall setting to establish the mood for clothes shopping.

Figure 6.9 Checklist of Retailer Decisions for the Web

Recommendations for Web Retailers (1 of 2)

Develop or exploit a well-known, trustworthy retailer name

Tailor the product assortment for Web shoppers

Enable the shopper to “click” as little as possible-Amazon.com one-click option

Provide an effective search engine

Permission-based use of customer information

Tailor the product assortment for Web shoppers, and keep freshening the offerings.

With download speed in mind, provide pictures and ample product information.

Enable shoppers to make as few clicks as possible to get information and place orders.

Provide the best possible search engine at the firm’s Web site.

Capitalize on information about customers and relationships.

Integrate online and offline businesses, and look for partnering opportunities.

With permission, save customer data to make future shopping trips easier.

Recommendations for Web Retailers (2 of 2)

Include unedited ratings and reviews for customers to increase consumer information and to reduce risk

Personalize the shopping experience for each shopper based on past purchases and previous Web searches

Include free shipping or one time shipping fee for unlimited shipping

Indicate shipping fees upfront and be clear about delivery options.

Do not promote items that are out of stock; and let shoppers know immediately if items will not be shipped for a few days.

Offer online order tracking.

Use a secure order entry system for shoppers.

Prominently state the firm’s return and privacy policies.

Optimizing Customers’ Web-Based Service Experience (1 of 3)

Service experience based on delivery speed, speed with which questions are answered, customer’s ability to find suitable product and accurate portrayal of good (features, color, style and fit)

To enhance customer service on the World Wide Web, retailers should ensure consumers that purchases will be private and secure. Once consumers fears about shopping online are acknowledged, addressed, and overcome, there will be more likely to complete online purchases.

Optimizing Customers’ Web-Based Service Experience (2 of 3)

Access to call center personnel through instant messaging and Email—L.L.Bean’s “click and call” features

Personalization--Use of computer algorithms to show suggested products

Customer reviews

One-click checkout

Demonstration videos

Amazon Remembers-matches photos to actual products available on amazon.com

Another important point is that Web-based retailers could improve the ease of transactions to prevent potential customers from backing out of online sales. Web sites should have as few forms as possible to fill out, and have ways to make repeat shopping easier (such as retention of credit card numbers and retention of preferred shipping information). Amazon.com’s one click purchase mode illustrates an easy to implement Web-based transaction.

Optimizing Customers’ Web-Based Service Experience (3 of 3)

Zappos– full service online shoe retailer

Free returns, free online shipping

365 day return policy

Eliminated drop shipping due to inability to control on-time delivery

Manage 1,417 brands, 152,000 styles, 824,000 UPC codes

4 week new hire training program + 2 weeks in the call center

Creating Shopping Experience for Amazon Customers

Please click URL to view:

https://youtu.be/PeWzMmmDlQM

2;53 mins.

Inside Amazon Videos

Amazon teams creating a great shopping experience for customers

Published on Mar 9, 2016

Shoppers visiting Amazon.com have come to expect that they will find the products and services they are looking for with ease. It takes a lot of hard work from our Search Experience, Browse, Personalization and Catalog Quality teams to make the product discovery experience simple for customers. Our technical and product management teams use advanced techniques and customer data to create an intuitive shopping experience, touching every customer who visits Amazon.com and leading the eCommerce industry in search and discovery. To learn more about our teams, visit Amazon.jobs.

Omni channel Retailing

Seeks synergies among formats (get product information on Web, order through catalog, pick-up in store, use kiosks for out-of-stock merchandise)

Retailer views each channel as creating value (immediacy of store, 24/7 of Web, long lasting impression of catalog)

Channels are viewed as complementary, not competitive (Costco Web site vs. store)

The advantages of a multi-channel retailer include possible synergies among the multiple channels, being able to appeal to multiple types of consumers, diversification, and increased bargaining power due to greater overall sales. There is seldom integration or coordination among the separate channels or devices at a multichannel retailer. A multichannel retailer also seeks to maximize the performance of each separate channel.

Principles of Omni Channel Retailing

Use same product identification in all channels

Price goods the same in all channels

Assess infrastructure economies. Direct marketer data base and delivery system.

Cross promote goods across channels.

Use suitable partners (Amazon to sell, Fedex to deliver)

Nontraditional Retailing

Nontraditional retailing includes hybrid formats that do not fit into store and nonstore-based categories to extend retailers’ footprint :

Vending machines

Video kiosks

Airport retailing

Nontraditional retailing also comprises video kiosks and airport retailing—two key formats not fitting neatly into “store-based” or “nonstore-based” retailing. Sometimes they are store-based; other times they are not. What they have in common is their departure from traditional retailing strategies.

Vending Machines

Vending machines are a cash- or card-operated retailing format that sells goods and services.

Eliminates the use of sales personnel and allows 24-hour sales. Lowers costs and risks.

Machines placed wherever convenient for consumers, but not for store.

95 percent of the $50 billion in annual U.S. vending machine sales involve hot/cold beverages and food items.

A vending machine is a cash- or card-operated retailing format that dispenses goods (such as beverages) and services (such as electronic arcade games). It eliminates use of sales personnel and allows 24-hour sales. Machines can be placed wherever convenient for consumers—inside or outside stores, in motel corridors, at train stations, or on street corners.

Although there have been many attempts to “vend” clothing, magazines, and other general merchandise, the vast majority of the $65 billion in annual U.S. vending machine sales involve cold beverages, candy, snacks, and confections.

Advanced Shopping Technology at Amazon Go

Please click URL to view:

https:// youtu.be/ NrmMk1Myrxc

2;53 mins.

Inside Amazon Videos

Amazon teams creating a great shopping experience for customers

Published on Mar 9, 2016

Video Kiosks

A video kiosk is a freestanding, interactive, electronic computer terminal that displays products and related information.

Some kiosks are located in stores to enhance customer service; others let consumers place orders.

There are 2.2 million video kiosks in use throughout the world, nearly 1 million of which are Internet-connected.

Kiosks can be used to supplement store-based sales for goods that are out-of-stock or that are only available on the Web or as a means of contacting customer service personnel. An electronics retailer, for example, can use a video kiosk to enable customers to surf the retailer’s Web site. This provides Web-based services in a retailer’s store environment.

Airport Retailing

Large group of prospective shoppers

Captive audience

Strong sales-per-square-foot of retail space

Strong sales of gift and travel items

Difficulty in replenishment

Longer operating hours

Duty-free shopping possible

In the past, the leading airport retailers were fast-food outlets, tiny gift stores, and newspaper/magazine stands. Today, airports are a major mecca of retailing. At virtually every large airport, as well as at many medium ones, there are full-blown shopping areas.

The potential retail market is huge. Worldwide, more than 1,200 commercial airports handle nearly 5 billion passengers each year—with North America accounting for one-third of global passenger traffic.

Airport Omnichannel E-Commerce

Please click URL to view:

https:// youtu.be/ x1u6v0_9IQE

3:14 mins.

Frankfurt Airport Omnichannel E-Commerce Launch

Published on Apr 17, 2016

Watch how AOE & Magento turned Frankfurt Airport, Europe's largest travel hub and one of the largest shopping malls on the planet, into the most comprehensive Omnichannel E-Commerce experience ever conceived. The Fraport project won "Omnichannel Site of the Year" at Imagine Conference 2016 in Las Vegas More about the project: Case Study: https://www.aoe.com/ en /projects/frank... Blogpost: https://www.aoe.com/ en /blog/why-the-d... Project URL: https://shop.frankfurt-airport.com/

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