BUS4098 Week 3

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Business Simulation

©2016 South University

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In the previous lecture, we discussed the end customer. But we also need to be clear that in the simulation, as in many industries, the direct customer of a firm is not the end customer. Here, it is the shoe retailer in the non-Internet markets. This customer—the retailer—also needs to be satisfied. There has to be something that you are offering to the retailers that will make them want to promote your shoes.

One thing that makes retailers happy is good service. If someone walks into a store and requests a shoe that you were promoting using a celebrity and the store has no shoes to sell, then who will be blamed by the end customer? The retailer, not the manufacturer, who failed to deliver the product when it was needed. Therefore, retailers do not like firms which put them in situations that hurt their business; this is true no matter how great a product you have. Of course, you don't want to have warehouses full of unsold shoes beyond what you need either. Therefore, pricing becomes a critical variable in managing retailers.

Another area where managing retailers is important is the balance that firms maintain between selling through retail outlets and selling directly to customers over the Internet. The Internet is becoming increasingly popular in many retail markets, and its popularity is likely to grow in the future. But retailers see the Internet as a new rival who steals their customers and their sales profits. Retailers are not unhappy when they have to fight other retailers for sales, but they are unhappy when the competitor is the same firm for which they are selling the same product.

The firm, of course, likes the higher margins that the Internet can produce due to the absence of retailer intermediaries. But firms cannot cut off the retailers completely. Many customers, especially the ones who are new to a brand, like to try on shoes before they buy them, and this cannot be done online. Therefore, manufacturers face a major tradeoff—should they push for higher-margin Internet sales knowing that it will hurt the willingness of retailers to promote their shoes or should they have a low-level Internet strategy to keep valuable retailers happy.

There is no single answer to this problem. Different geographic markets will present different tradeoffs. One of the marketing challenges you and your teammates will face is deciding on the mix of distribution channels you will use. With a little reflection, you can see that this is a decision that an increasingly large number of firms have to make in the twenty-first century.