Marketing plan 3

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Marketing: An Introduction

Thirteenth Edition

Chapter 11

Retailing and Wholesaling

Learning Objectives (1 of 2)

11-1. Explain the role of retailers in the distribution channel and describe the major types of retailers.

11-2. Describe the major retailer marketing decisions.

11-3. Discuss the major trends and developments in retailing.

11-4. Explain the major types of wholesalers and their marketing decisions.

This chapter explains the role of retailers in the distribution channel and describes the major types of retailers. It describes the major retailer marketing decisions, discusses the major trends and developments in retailing, and finally, the chapter explains the major types of wholesalers and their marketing decisions.

First Stop: Walmart The World’s Largest Retailer-the World’s Largest Company

“Save money. Live better.” Says Walmart’s CEO, “We’re obsessed with delivering value to customers.”

Day in and day out, giant Walmart lives up to its promise: “Save money. Live better.” Its obsession with customer value has made Walmart not only the world’s largest retailer but also the world’s largest company.

Walmart has the lowest cost structure in the industry. Walmart’s low costs result from superior operations management, sophisticated information technology, and tough buying. And Walmart is known for using its massive scale to wring low prices from suppliers.

Despite its incredible success over the past five decades, mighty Walmart faces some weighty challenges ahead. Having grown so big, it is having difficulty maintaining the rapid growth rates of its youth. To keep growing, Walmart has pushed into new, faster-growing product and service lines, including organic foods, store brands, in-store health clinics, and consumer financial services.

Learning Objective 11-1

Explain the role of retailers in the distribution channel and describe the major types of retailers.

Retailing (1 of 2)

Activities involved in selling goods or services directly to consumers for their personal use

Retailer: Business whose sales come primarily from retailing

Retailing includes all the activities involved in selling products or services directly to final consumers for their personal, nonbusiness use. Most retailing is done by retailers, businesses whose sales come primarily from retailing.

Many marketers are now embracing the concept of shopper marketing, focusing the entire marketing process—from product and brand development to logistics, promotion, and merchandising—toward turning shoppers into buyers as they approach the point of sale.

Omni-channel retailing, creating a seam- less cross-channel buying experience that integrates in-store, online, and mobile shopping

Retailing (2 of 2)

Shopper marketing: Focusing the entire marketing process toward turning shoppers into buyers as they approach the point of sale

Omni-channel retailing: Creating a seam-less cross-channel buying experience that integrates in-store, online, and mobile shopping

Omni-channel retailing creates a seam-less cross-channel buying experience that integrates in-store, online, and mobile shopping

Types of Retailers

Retailer classification can be based on

Amount of service offered

Breadth and depth of the product lines

Relative prices charged

Way they are organized

The most important types of retail stores are briefly discussed in the forthcoming slides.

They can be classified in terms of several characteristics, including the amount of service they offer, the breadth and depth of their product lines, the relative prices they charge, and how they are organized.

Amount of Service

Self-service retailers

Serve customers who are willing to perform their own locate-compare-select process

Limited-service retailers

Carry more shopping goods about which customers need information

Provide more sales assistance

Full-service retailers

Carry more specialty goods

Assist customers in every phase of the shopping process

Different types of customers and products require different amounts of service. To meet these varying service needs, retailers may offer one of three service levels.

Self-service retailers serve customers who are willing to perform their own locate-compare-select process to save time or money. Self-service is the basis of all discount operations and is typically used by retailers selling convenience goods and nationally branded, fast-moving shopping goods.

Limited-service retailers provide more sales assistance because they carry more shopping goods about which customers need information. Their increased operating costs result in higher prices.

Full-service retailers, such as high-end specialty stores and first-class department stores, assist customers in every phase of the shopping process. Full-service stores usually carry more specialty goods for which customers need or want assistance or advice.

Major Store Retailer Types (1 of 2)

Type	Type description
Specialty store	Carries a narrow product line with a deep assortment
Department store	Carries several product lines Each line is operated as a separate department
Supermarket	Large, low-cost, low-margin, high-volume, self-service operation
Convenience store	Carries a limited line of high-turnover convenience products at slightly higher prices
Discount store	Sells goods at lower prices with lower margins and higher volumes
Off-price retailer	Sells merchandise bought at less-than-regular wholesale prices and sold at less than retail
Superstore	Very large store for routinely purchased items

This table describes the most important types of retail stores.

Specialty stores carry a narrow product line with a deep assortment within that line. Department stores carry a wide variety of product lines, each operated as a separate department managed by specialist buyers or merchandisers. Supermarkets are large, low-cost, low-margin, high-volume, self-service stores that carry a wide variety of grocery and household products. Convenience stores are small stores located near residential areas, that are open long hours seven days a week, and carry a limited line of high-turnover convenience goods. Discount stores sell standard merchandise at lower prices by accepting lower margins and selling at higher volume. Off-price retailers buy less-than-regular wholesale prices and sell at less than retail. An independent off-price retailer is either independently owned and run or is a division of a larger retail corporation. A factory outlet is owned and operated by a manufacturer and normally carries the manufacturer’s surplus, discontinued, or irregular goods. Warehouse clubs sell a limited selection of brand name grocery items, appliances, clothing, and other goods at deep discounts to members who pay annual membership fees. Superstores are much larger than regular supermarkets and offer a large assortment of routinely purchased food products, nonfood items, and services. This includes supercenters, combined supermarket and discount stores, and category killers, which carry a deep assortment of a particular line. Finally, for many retailers, the product line is actually a service. Service retailers in the United States are growing faster than product retailers.

Major Store Retailer Types (2 of 2)

Discounter Dollar General is the nation’s largest small-box discount retailer.

Discounter Dollar General, the nation’s largest small-box discount retailer, makes a powerful value promise for the times: “Save time. Save money. Every day.”

Major Types of Retail Organizations

Type	Description
Corporate chain	Two or more outlets that are commonly owned and controlled
Voluntary chain	Wholesaler sponsored independent retailers engaged in group buying and merchandising
Retailer cooperative	Group of independent retailers who jointly establish a central buying organization and conduct joint promotion efforts
Franchise organization	Contractual association between a franchisor and franchisees

This table describes the four major types of retail organizations.

Corporate chains are two or more outlets that are commonly owned and controlled. Their size allows them to buy in large quantities at lower prices and gain promotional economies.

The great success of corporate chains caused many independents to band together in one of two forms of contractual associations. One is the voluntary chain—a wholesaler-sponsored group of independent retailers that engages in group buying and common merchandising. The other type of contractual association is the retailer cooperative—a group of independent retailers that bands together to set up a jointly owned, central wholesale operation and conducts joint merchandising and promotion efforts.

Another form of contractual retail organization is a franchise. It refers to a contractual association between a manufacturer, wholesaler, or service organization (a franchisor) and independent business people (franchisees) who buy the right to own and operate one or more units in the franchise system.

Learning Objective 11-1 Summary

Retailing - selling goods or services directly to final consumers

Shopper marketing - turning shoppers into buyers

Omni-channel retailing - integrates in-store, online, and mobile shopping

Retailers classified by amount of service, product line sold, and relative prices

Corporate and contractual retail organizations

Retailing includes all the activities involved in selling goods or services directly to final consumers for their personal, nonbusiness use. Retailers play an important role in connecting brands to consumers in the final phases of the buying process. Shopper marketing involves focusing the entire marketing process on turning shoppers into buyers as they approach the point of sale. These days, shopper marketing and the “point of purchase” go well beyond in-store buying. Today’s buyers are omni-channel consumers who work across multiple channels as they shop. Thus, influencing consumers’ buying decisions calls for omni-channel retailing, creating a seamless cross-channel buying experience that integrates in-store, online, and mobile shopping. Retail stores come in all shapes and sizes, and new retail types keep emerging. Store retailers can be classified by the amount of service they provide (self-service, limited service, or full service), product line sold (specialty stores, department stores, supermarkets, convenience stores, superstores, and service businesses), and relative prices (discount stores and off-price retailers). Today, many retailers are banding together in corporate and contractual retail organizations (corporate chains, voluntary chains, retailer cooperatives, and franchise organizations).

Learning Objective 11-2

Describe the major retailer marketing decisions.

Figure 11.1 - Retailer Marketing Strategies

This figure shows the major marketing decisions retailers face about segmentation and targeting, store differentiation and positioning, and the retail marketing mix.

As with other types of marketers, the aim for retailers is to find the customer value-driven marketing strategy and marketing mix that will let them create value for customers and capture value in return.

Segmentation, Targeting, Differentiation, and Positioning Decisions (1 of 2)

Target markets must be segmented and defined.

Retailers then decide how to differentiate and position themselves in those markets.

Retailers must first segment and define their target markets and then decide how they will differentiate and position themselves in these markets. With solid targeting and positioning, a retailer can compete effectively against even the largest and strongest competitors.

Segmentation, Targeting, Differentiation, and Positioning Decisions (2 of 2)

Which Wich Superior Sandwiches succeeds by positioning itself strongly away from larger competitors.

How does Which Wich compete with one of the world’s largest franchise chains? It doesn’t—at least not directly. Which Wich succeeds by carefully positioning itself away from Subway:

Sandwiches are where it’s at these days. If you’re craving something between two slices of bread, you have no end of choices, from a basic Subway sub to more exotic creations from Panera Bread, McAlister’s Deli, Au Bon Pain, or Potbelly Sandwich Shop. But Which Wich Superior Sandwiches stands out from the pack as the ultimate “have it your way” sandwich place. It offers more than 50 varieties of customizable “wiches”—unlike anything you’ll find at Subway.

Product Assortment and Services Decision

Retailers must determine three product variables.

Product assortment

Services mix

Store atmosphere

Retailers must decide on three major product variables.

The retailer’s product assortment should differentiate it while matching target shoppers’ expectations. One strategy is to offer merchandise that no other competitor carries, such as store brands or national brands for which the retailer holds exclusive rights.

The services mix can also help set one retailer apart from another. For example, some retailers invite customers to ask questions or consult service representatives in person or via phone or keyboard.

The store’s atmosphere is another important element in the retailer’s product arsenal. Retailers want to create a unique store experience, one that suits the target market and moves customers to buy. Many retailers practice experiential retailing.

Price Decision

Price policy must fit the retailers’

Target market and positioning

Product and service assortment

Competition

Economic factors

Retailers practice either

Everyday low pricing (EDLP)

High-low pricing

A retailer’s price policy must fit its target market and positioning, product and service assortment, the competition, and economic factors. Most retailers seek either high markups on lower volume or low markups on higher volume.

Retailers such as Walmart, Costco, Aldi, and Family Dollar practice everyday low pricing (EDLP), charging constant, everyday low prices with few sales or discounts. Still other retailers practice high-low pricing, that is, charging higher prices on an everyday basis, coupled with frequent sales and other price promotions, to increase store traffic, create a low-price image, or attract customers who will buy other goods at full prices.

Promotion Decision

Retailers use various combinations of the five promotion tools:

Advertising

Personal selling

Sales promotion

Public relations (PR)

Direct and social media marketing

Retailers use various combinations of the five promotion tools—advertising, personal selling, sales promotion, public relations, and direct and social media marketing—to reach consumers.

Advertising may be supported by newspaper inserts and catalogs. Personal selling involves store salespeople greeting customers, meeting their needs, and building relationships. Sales promotions may include in-store demonstrations, displays, sales, and loyalty programs. Public relations (PR) activities, such as new-store openings, special events, newsletters and blogs, store magazines, and public service activities, are also available to retailers.

Most retailers also interact digitally with customers using Web sites and digital catalogs, online ads and video, social media, mobile ads, and apps, blogs, and emails.

Place Decision

Locations should be accessible to the target market in areas that are consistent with the retailer’s positioning.

Shopping center: Group of retail businesses built on a site that is planned, developed, owned, and managed as a unit

It’s very important that retailers select locations that are accessible to the target market in areas that are consistent with the retailer’s positioning. Most stores today cluster together to increase their customer pulling power and give consumers the convenience of one-stop shopping.

A shopping center is a group of retail businesses built on a site that is planned, developed, owned, and managed as a unit. The various types of shopping centers are discussed in the following slide.

Types of Shopping Centers

Regional Shopping Center

Community Shopping Center

Neighborhood Shopping Center

Power Center

Lifestyle Center

A regional shopping center, or regional shopping mall, is the largest and most dramatic shopping center. It has from 50 to more than 100 stores, including two or more full-line department stores. A community shopping center contains between 15 and 50 retail stores. It contains a branch of a department store or variety store, a supermarket, specialty stores, professional offices, and sometimes a bank. Neighborhood shopping centers or strip malls contain between 5 and 15 stores. These centers, which are close and convenient for consumers, usually contain a supermarket, perhaps a discount store, and several service stores—dry cleaner, drugstore, hardware store, local restaurant, or other stores. A newer form of shopping center is the power center. Power centers are huge unenclosed shopping centers consisting of a long strip of retail stores, such as Walmart, Home Depot, Costco, and Best Buy. Lifestyle centers are smaller, open-air malls with upscale stores, convenient locations, and nonretail activities, such as a playground, skating rink, hotel, dining establishments, and a movie theater.

Learning Objective 11-2 Summary

Major retailer marketing decisions

Segmentation and targeting

Store differentiation and positioning

Retail marketing mix decisions

Product and services assortment

Price, promotion, and place

Retailers are always searching for new marketing strategies to attract and hold customers. They face major marketing decisions about segmentation and targeting, store differentiation and positioning, and the retail marketing mix. Retailers must first segment and define their target markets and then decide how they will differentiate and position themselves in these markets. Those that try to offer “something for everyone” end up satisfying no market well. By contrast, successful retailers define their target markets well and position themselves strongly.

Guided by strong targeting and positioning, retailers must decide on a retail marketing mix—product and services assortment, price, promotion, and place. Retail stores are much more than simply an assortment of goods. Beyond the products and services they offer, today’s successful retailers carefully orchestrate virtually every aspect of the consumer store experience. A retailer’s price policy must fit its target market and positioning, products and services assortment, and competition. Retailers use various combinations of the five promotion tools—advertising, personal selling, sales promotion, PR, and direct marketing—to reach consumers. Online, mobile, and social media tools are playing an ever-increasing role in helping retailers to engage customers. Finally, it’s very important that retailers select locations that are accessible to the target market in areas that are consistent with the retailer’s positioning.

Learning Objective 11-3

Discuss the major trends and developments in retailing.

Retailing Trends and Developments (1 of 5)

Tighter consumer spending

Impact of the Great Recession on consumers

Changed spending patterns

Impact of the Great Recession on retailers

Cost-cutting, price promotions, bankruptcy

New value pitches in positioning

New retail forms, shortening retail life cycles, and retail convergence

Following many years of good economic times for retailers, the Great Recession of 2008–2009 turned many retailers’ fortunes from boom to bust.

Some retailers benefit from a down economy. For example, as consumers cut back and looked for ways to spend less, big discounters such as Costco scooped up new business from bargain-hungry shoppers. For most retailers, however, tighter consumer spending has meant tough times.

New retail forms continue to emerge to meet new situations and consumer needs, but the life cycle of new retail forms is getting shorter. Today’s retail forms appear to be converging. Increasingly, different types of retailers now sell the same products at the same prices to the same consumers. This merging of consumers, products, prices, and retailers is called retail convergence. Such convergence means greater competition for retailers and greater difficulty in differentiating the product assortments of different types of retailers.

Retailing Trends and Developments (2 of 5)

Rise of megaretailers

Offer better merchandise selections, good service, and strong price savings to consumers

Have shifted the balance of power between retailers and producers

Growth of direct, online, mobile, and social media retailing

Availability of a variety of nonstore alternatives

The rise of huge mass merchandisers and specialty superstores, the formation of vertical marketing systems, and a rash of retail mergers and acquisitions have created a core of superpower megaretailers. The megaretailers have shifted the balance of power between retailers and producers. With their size and buying power, these giant retailers can offer better merchandise selections, good service, and strong price savings to consumers. As a result, they grow even larger by squeezing out their smaller, weaker competitors.

Most consumers still make a majority of their purchases the old-fashioned way. They go to a store, find what they want, plunk down their cash or credit cards, and bring home the goods. Retailer online sites, mobile apps, and online social media influence a large amount of in-store buying.

Retailing Trends and Developments (3 of 5)

Showrooming is the now common practice of viewing products in stores but buying them online.

Showrooming, the now-common practice of viewing products in stores but buying them online, presents serious challenges to store retailers. But rather than fighting showrooming, retailers are now embracing it as a way to showcase their omni-channel strengths.

Retailing Trends and Developments (4 of 5)

Growing importance of retail technology

Produce better forecasts

Control inventory costs

Interact electronically with suppliers

Send information between stores

Sell to customers within stores

Retail technologies have become critically important as competitive tools. Progressive retailers are using advanced information technology and software systems to produce better forecasts, control inventory costs, interact electronically with suppliers, send information between stores, and even sell to customers within stores. They have adopted sophisticated systems for checkout scanning, RFID inventory tracking, merchandise handling, information sharing, and customer interactions.

Retailing Trends and Developments (5 of 5)

Green retailing

Promoting more environmentally responsible products

Launching programs to help customers be more responsible

Working with channel partners to reduce their environmental impact

Global expansion of major retailers

Escaping saturated home markets

Today’s retailers are increasingly adopting environmentally sustainable practices. They are greening up their stores and operations, promoting more environmentally responsible products, launching programs to help customers be more responsible, and working with channel partners to reduce their environmental impact. Many large retailers are also joining forces with suppliers and distributors to create more sustainable products, packaging, and distribution systems.

Retailers with unique formats and strong brand positions are increasingly moving into other countries. Many are expanding internationally to escape saturated home markets. International retailing presents challenges as well as opportunities. Retailers can face dramatically different retail environments when crossing countries, continents, and cultures. Hence, when going global, retailers must understand and meet the needs of local markets.

Learning Objective 11-3 Summary

Major trends and developments in retailing

New economic realities – thrift-minded consumers

New retail forms and retail convergence

Rise of mega retailers

Growth of direct, online, mobile, and social media retailing and retail technology

Green retailing and global expansion of major retailers

Retailers operate in a harsh and fast-changing environment, which offers threats as well as opportunities. Following years of good economic times, retailers have now adjusted to the new economic realities and more thrift-minded consumers. New retail forms continue to emerge. At the same time, however, different types of retailers are increasingly serving similar customers with the same products and prices (retail convergence), making differentiation more difficult. Other trends in retailing include the rise of megaretailers; the rapid growth of direct, online, mobile, and social media retailing; the growing importance of retail technology; a surge in green retailing; and the global expansion of major retailers.

Learning Objective 11-4

Explain the major types of wholesalers and their marketing decisions.

Wholesaling (1 of 2)

Involves all the activities in selling goods and services to those buying for resale or business use

Wholesaler: A firm engaged primarily in wholesaling activities

Wholesaling includes all the activities involved in selling goods and services to those buying for resale or business use. Wholesalers buy mostly from producers and sell mostly to retailers, industrial consumers, and other wholesalers. For example, many of the nation’s largest and most important wholesalers like Grainger are largely unknown to final consumers. But they are very well known and much valued by the business customers they serve.

Wholesaling (2 of 2)

Many of the nation’s largest and most important wholesalers —like Grainger—are largely unknown to final consumers.

Channel Functions Performed by Wholesalers

Selling and Promoting

Buying and Assortment Building

Bulk Breaking

Warehousing

Transportation

Financing

Risk Bearing

Market Information

Management Services and Advice

Wholesalers add value by performing one or more channel functions.

Wholesalers’ sales forces help manufacturers reach many small customers at a low cost. They can select items and build assortments needed by their customers, thereby saving much work. Wholesalers can save their customers money by buying in carload lots and breaking bulk. They can also hold inventories, thereby reducing the inventory costs and risks of suppliers and customers. Wholesalers can provide quicker delivery to buyers because they are closer to buyers than are producers. They finance their customers by giving credit, and they finance their suppliers by ordering early and paying bills on time.

Wholesalers absorb risk by taking title and bearing the cost of theft, damage, spoilage, and obsolescence. They give information to suppliers and customers about competitors, new products, and price developments. Wholesalers also help retailers train their salesclerks, improve store layouts and displays, and set up accounting and inventory control systems.

Types of Wholesalers (1 of 2)

Type	Description
Merchant wholesalers	Independently owned wholesale businesses that take title to all merchandise handled Full-service wholesalers Limited-service wholesalers
Brokers	Do not take title to goods Facilitate buying and selling Earn a commission based on selling price

This table summarizes the first two types of wholesalers: merchant wholesalers, and brokers.

Merchant wholesalers are the largest single group of wholesalers, accounting for roughly 50 percent of all wholesaling. They include two broad types: full-service wholesalers and limited-service wholesalers. Full-service wholesalers provide a full set of services, whereas the various limited-service wholesalers offer fewer services to their suppliers and customers.

Brokers differ from merchant wholesalers in two ways. They do not take title to goods, and second, they perform only a few functions. Like merchant wholesalers, they generally specialize by product line or customer type. A broker brings buyers and sellers together and assists in negotiations for which they earn a commission on the selling price.

Types of Wholesalers (2 of 2)

Type	Description
Agents	Represent buyers or sellers on a relatively permanent basis Perform only a few functions Do not take title to goods
Manufacturers’ and retailers’ branches and offices	Wholesaling by sellers or buyers themselves rather than through independent wholesalers

This table summarizes two other types of wholesalers: agents and manufacturers’ and retailers’ branches and offices.

Agents represent buyers or sellers on a more permanent basis. Manufacturers’ agents (also called manufacturers’ representatives) are the most common type of agent wholesaler. They perform only a few functions and do not take title to goods.

Another major type of wholesaling is that done in manufacturers’ and retailers’ branches and offices by sellers or buyers themselves rather than through independent wholesalers.

Types of Full-Service Wholesalers

Wholesale merchants

Sell primarily to retailers

Provide a full range of services

Types

General merchandise wholesalers

General line wholesalers

Specialty wholesalers

Industrial distributors

Sell to manufacturers

Carry stock

Offer credit

Provide delivery

May carry a broad range of merchandise, a general line, or a specialty line

This slide illustrates the two types of full-service wholesalers: wholesale merchants and industrial distributors.

Wholesale merchants sell primarily to retailers and provide a full range of services. General merchandise wholesalers carry several merchandise lines, whereas general line wholesalers carry one or two lines in great depth. Specialty wholesalers specialize in carrying only part of a line.

Industrial distributors sell to manufacturers rather than to retailers. They provide several services, such as carrying stock, offering credit, and providing delivery, and they may carry a broad range of merchandise, a general line, or a specialty line.

Types of Limited-Service Wholesalers

Types	Description
Cash-and-carry wholesalers	Carry a limited line of fast-moving goods Sell to small retailers for cash
Truck wholesalers	Perform primarily a selling and delivery function
Drop shippers	Do not carry inventory or handle the product
Rack jobbers	Price the goods Keep goods fresh Set up point-of-purchase displays Keep inventory records
Producers’ cooperatives	Farmer-owned members Assemble farm produce for sale in local markets
Mail-order or Web wholesalers	Send catalogs to or maintain Web sites for retail, industrial, and institutional customers

This table shows the types of limited-service wholesalers.

Cash-and-carry wholesalers carry a limited line of fast-moving goods and sell to small retailers for cash. They normally do not deliver.

Truck wholesalers (or truck jobbers) carry a limited line of semi-perishable merchandise which is sold for cash as deliveries are made.

Drop shippers do not carry inventory or handle the product. On receiving an order, drop shippers select a manufacturer, who then ships the merchandise directly to the customer. Drop shippers operate in bulk industries.

Rack jobbers price the goods, keep them fresh, set up point-of-purchase displays, and keep inventory records.

Producers’ cooperatives are farmer-owned members that assemble farm produce for sale in local markets.

Mail-order or Web wholesalers send catalogs to or maintain Web sites for retail, industrial, and institutional customers featuring jewelry, cosmetics, specialty foods, and other small items. Its primary customers are businesses in small outlying areas.

Types of Agents

Manufacturers’ agents

Represent two or more manufacturers of complementary lines

Selling agents

Have contractual authority to sell a manufacturer’s entire output

Purchasing agents

Have a long-term relationship with buyers and make purchases for them

Commission merchants

Take physical possession of products and negotiate sales

There are four types of agents.

Manufacturers’ agents represent two or more manufacturers of complementary lines. They are hired by small manufacturers who cannot afford their own field sales forces and by large manufacturers who use agents to open new territories or cover territories that cannot support full-time salespeople.

Selling agents have contractual authority to sell a manufacturer’s entire output. The selling agent serves as a sales department and has significant influence over prices, terms, and conditions of sale. Found in product areas such as textiles, industrial machinery and equipment, coal, chemicals, and metals.

Purchasing agents have a long-term relationship with buyers and make purchases for them, often receiving, inspecting, warehousing, and shipping the merchandise to buyers. Purchasing agents help clients obtain the best goods and prices available.

Commission merchants take physical possession of products and negotiate sales. They are used in agricultural marketing by farmers who do not want to sell their own output. They take a truckload of commodities to a central market, sell it for the best price, deduct a commission and expenses, and remit the balance to the producers.

Types of Manufacturers’ and Retailers’ Branches and Offices

Sales branches and offices

Set up by manufacturers to improve inventory control, selling, and promotion

Sales branches carry inventory.

Sales offices do not carry inventory.

Purchasing offices

Role similar to that of brokers or agents

Part of the buyer’s organization

Separate branches and offices for manufacturers and retailers can be dedicated to either sales or purchasing.

Sales branches and offices are set up by manufacturers to improve inventory control, selling, and promotion. Sales branches carry inventory and are found in industries such as lumber and automotive equipment and parts. Sales offices do not carry inventory and are most prominent in the dry goods and notions industries.

Purchasing offices perform a role similar to that of brokers or agents but are part of the buyer’s organization. Many retailers set up purchasing offices in major market centers, such as New York and Chicago.

Figure 11.2 – Wholesaler Marketing Strategies

As shown in this figure, wholesalers’ marketing decisions include choices of segmentation and targeting, differentiation and positioning, and the marketing mix, which is product and service assortments, price, promotion, and distribution. They can choose a target group by size of customer (for example, large retailers only), type of customer (convenience stores only), the need for service (customers who need credit), or other factors.

Like retailers, wholesalers must decide on product and service assortments, price, promotion, and place. Wholesalers add customer value through the products and services they offer. Price is an important wholesaler decision. Wholesalers usually mark up the cost of goods by a standard percentage. Most wholesalers are not promotion minded. Finally, distribution or location is important. Wholesalers must choose their locations, facilities, and Web locations carefully.

Trends in Wholesaling

Need for greater efficiency

Demands for lower prices

Sorting out suppliers who are not adding value based on cost and quality

Blurring distinction between large retailers and wholesalers

Increased use of technology to contain costs and boost productivity

Today’s wholesalers face considerable challenges. The industry remains vulnerable to one of its most enduring trends, the need for ever-greater efficiency. Recent economic conditions have led to demands for even lower prices and the sorting out of suppliers who are not adding value based on cost and quality.

The distinction between large retailers and large wholesalers continues to blur. Many retailers now operate formats such as wholesale clubs and supercenters that perform many wholesale functions. In return, some large wholesalers are setting up their own retailing operations. The increased use of computerized, automated, and Internet-based systems will help wholesalers contain the costs of ordering, shipping, and inventory holding, thus boosting their productivity.

Learning Objective 11-4 Summary

Wholesaling - selling goods or services to those buying for the purpose of resale or business use

Wholesalers fall into three groups:

Merchant wholesalers

Brokers and agents

Manufacturers’ and retailers’ branches and offices

Wholesaling includes all the activities involved in selling goods or services to those who are buying for the purpose of resale or business use. Wholesalers fall into three groups. First, merchant wholesalers take possession of the goods. They include full-service wholesalers (wholesale merchants and industrial distributors) and limited-service wholesalers (cash-and-carry wholesalers, truck wholesalers, drop shippers, rack jobbers, producers’ cooperatives, and mail-order wholesalers). Second, brokers and agents do not take possession of the goods but are paid a commission for aiding companies in buying and selling. Finally, manufacturers’ and retailers’ branches and offices are wholesaling operations conducted by non-wholesalers to bypass the wholesalers.

Like retailers, wholesalers must target carefully and position themselves strongly. And, like retailers, wholesalers must decide on product and service assortments, prices, promotion, and place. Progressive wholesalers constantly watch for better ways to meet the changing needs of their suppliers and target customers. They recognize that, in the long run, their only reason for existence comes from adding value, which occurs by increasing the efficiency and effectiveness of the entire marketing channel. As with other types of marketers, the goal is to build value-adding customer relationships.

Learning Objectives (2 of 2)

11-1. Explain the role of retailers in the distribution channel and describe the major types of retailers.

11-2. Describe the major retailer marketing decisions.

11-3. Discuss the major trends and developments in retailing.

11-4. Explain the major types of wholesalers and their marketing decisions.

This chapter explained the role of retailers in the distribution channel and describes the major types of retailers. It described the major retailer marketing decisions, discussed the major trends and developments in retailing, and finally, the chapter explained the major types of wholesalers and their marketing decisions.