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Principles of Marketing

Eighteenth Edition

Chapter 13

Retailing and Wholesaling

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WALMART: A Battle between Titans in the New World of Retail

Walmart is the world’s largest retailer and the world’s largest company. Walmart has faced challenges as it tries to maintain its rapid growth. In particular, massive shifts toward digital and mobile buying have changed how Walmart delivers on its “Save money. Live better.” promise.

Walmart has invested heavily to build its omni-channel capabilities to better serve today’s mobile-first, omni-channel consumers.

Walmart has expanded its online and mobile options and partnered with Google Home. It acquired Jet.com and other niche sites. It made buying online easier and linked mobile and online shopping to its stores.

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Learning Objectives

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

13.2 Discuss how retailers are using omni-channel retailing to meet the cross-channel shopping behavior of today’s digitally connected consumers.

13.3 Describe the major retailer marketing decisions.

13.4 Discuss the major trends and developments in retailing.

13.5 Explain the major types of wholesalers and their marketing decisions.

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Learning Objective 1

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

Discussion Question

Name and describe the types of corporate or contractual organizations of retail stores and the advantages of each.

Learning Objective 1 Summary

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, whether during in-store, online, or 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).

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Retailing (1 of 2)

Retailing includes all the activities in selling products or services directly to final consumers for their personal, nonbusiness use.

Retailers are businesses whose sales come primarily from retailing.

Shopper Marketing focuses the entire marketing process on turning shoppers into buyers as they approach the point of sale, whether during in-store, online, or mobile shopping.

Many institutions—manufacturers, wholesalers, and retailers—do retailing. But most retailing is done by retailers, businesses whose sales come primarily from retailing. Retailing plays a very important role in most marketing channels.

They play an important role in connecting brands to consumers in what marketing agency OgilvyAction calls “the last mile”—the final stop in the consumer’s path to purchase. It’s the “distance a consumer travels between an attitude and an action.” In fact, many marketers are now embracing the concept of shopper marketing, using point-of-purchase promotions and advertising to extend brand equity to “the last mile” and encourage favorable point-of-purchase decisions. Shopper marketing involves focusing the entire marketing process—from product and brand development to logistics, promotion, and merchandising—toward turning shoppers into buyers at the point of sale.

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Retailing (2 of 2)

Omni-channel retailing creates a seamless cross-channel buying experience that integrates in-store, online, and mobile shopping, creating a single shopping experience.

The new retailing model: Digital technologies have caused a massive shift in how and where people buy. Today’s retailers must adopt omni-channel retailing that integrates in-store, online, and mobile shopping.

The dramatic growth of online and mobile shopping has added new dimensions to shopper marketing. The retailing “moment of truth” no longer takes place only in stores. Instead, Google defines a “zero moment of truth,” when consumers begin the buying process by searching for and learning about products online. Today’s consumers are increasingly omni-channel buyers, who make little distinction between in-store and online shopping, and for whom the path to a retail purchase runs across multiple channels.

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Types of Retailers (1 of 8)

Amount of Service Classifications

Self-service

Limited service

Full service

Self-service retailers serve customers who are willing to perform their own locate-compare-select process to save money. They include Walmart and supermarkets.

Limited service retailers provide more sales assistance because they carry more shopping goods about which customers need more information. Examples include Sears and JC Penney.

Full-service retailers assist customers in every phase of the shopping process, resulting in higher costs that are passed on to the customer as higher prices. Examples include department stores and specialty stores.

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Types of Retailers (2 of 8)

Product Line Classifications

Specialty stores

Department stores

Convenience stores

Superstores

Category killers

Discussion Question

What are examples of the types of stores on this slide?

It might be difficult, depending on their geographic region, to find examples of superstores. Ask them where they would rather shop for a computer – a department store like Walmart or a category killer like Best Buy? Why?

Specialty stores, like shoe stores, carry narrow product lines with deep assortments within those lines.

Department stores carry a wide variety of product lines. In recent years, department stores have been squeezed between more focused and flexible specialty stores on the one hand and more efficient, lower-priced discounters on the other. In response, many have added promotional pricing to meet the discount threat. Others have stepped up the use of store brands and single-brand designer shops to compete with specialty stores. Still others are trying catalog, telephone, and online selling. Service remains the key differentiating factor. Retailers such as Nordstrom, Saks, Neiman Marcus, and other high-end department stores are doing well by emphasizing exclusive merchandise and high-quality service.

Supermarkets are the most frequently visited type of retail store. Today, however, they are facing slow sales growth because of slower population growth and an increase in competition from discounters (Walmart, Costco, and Dollar General) on the one hand and specialty food stores (Whole Foods Market, Trader Joe’s, Sprouts) on the other.

Convenience stores are small stores that carry a limited line of high-turnover convenience goods. After several years of stagnant sales, these stores are now experiencing growth. They are shedding the image of a “truck stop” where men go to buy gas, beer, cigarettes, or shriveled hotdogs on a roller grill and are instead offering freshly prepared foods and cleaner, safer, more-upscale environments.

Superstores are much larger than regular supermarkets and offer a large assortment of routinely purchased food products, nonfood items, and services. Walmart, Target, Meijer, and other discount retailers offer supercenters, very large combination food and discount stores.

Recent years have also seen the rapid growth of superstores that are actually giant specialty stores, the so-called category killers (Best Buy, Home Depot, and PetSmart). They feature stores the size of airplane hangars that carry a very deep assortment of a particular line. Category killers are found in a wide range of categories, including electronics, home-improvement products, books, baby gear, toys, linens and towels, party goods, sporting goods, and even pet supplies.

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Types of Retailers (3 of 8)

Relative Price Characteristics

Discount stores

Off-price retailers

Factory outlets

Warehouse clubs

Retailers can also be classified according to the prices they charge. Most retailers charge regular prices and offer normal-quality goods and customer service. Others offer higher-quality goods and service at higher prices. Retailers that feature low prices are discount stores and “off-price” retailers.

A discount store (Target, Kmart, or Walmart) sells standard merchandise at lower prices by accepting lower margins and selling higher volume. Leading “big-box” discounters, such as Walmart, Costco, and Target, now dominate the retail scene. However, even “small-box” discounters are thriving in the current economic environment. Dollar General, the nation’s largest small-box discount retailer, makes a powerful value promise for the times: “Save time. Save money. Every day.”

As the major discount stores traded up, a new wave of off-price retailers moved in to fill the ultralow-price, high-volume gap. Ordinary discounters buy at regular wholesale prices and accept lower margins to keep prices down. By contrast, off-price retailers buy at less-than-regular wholesale prices and charge consumers less than retail. Off-price retailers can be found in all areas, from food, clothing, and electronics to no-frills banking and discount brokerages. The three main types of off-price retailers are independents, factory outlets, and warehouse clubs.

Independent off-price retailers either are independently owned and run or are divisions of larger retail corporations. Although many off-price operations are run by smaller independents, most large off-price retailer operations are owned by bigger retail chains. Examples include store retailers such as TJ Maxx and Marshalls.

Factory outlets—manufacturer-owned and operated stores by firms such as J. Crew, Gap, Levi Strauss, and others—sometimes group together in factory outlet malls and value-retail centers. At these centers, dozens of outlet stores offer prices as much as 50 percent below retail on a wide range of mostly surplus, discounted, or irregular goods.

Warehouse clubs (also known as wholesale clubs or membership warehouses), such as Costco, Sam’s Club, and BJ’s, operate in huge, drafty, warehouse-like facilities and offer few frills. However, they offer ultralow prices and surprise deals on selected branded merchandise. Warehouse clubs have grown rapidly in recent years. These retailers appeal not only to low-income consumers seeking bargains on bare-bones products but also to all kinds of customers shopping for a wide range of goods, from necessities to extravagances.

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Types of Retailers (4 of 8)

Table 13.2 Major Types of Retail Organizations

Type	Description	Examples
Corporate chain	Two or more outlets that are commonly owned and controlled. Corporate chains appear in all types of retailing but they are strongest in department stores, discount stores, food stores, drugstores, and restaurants.	Macy’s (department stores), Target (discount stores), Kroger (grocery stores), CVS (drugstores)
Voluntary chain	Wholesaler-sponsored group of independent retailers engaged in group buying and merchandising.	Independent Grocers Alliance (IGA), Western Auto (auto supply), True Value (hardware)
Retailer cooperative	Group of independent retailers who jointly establish a central buying organization and conduct joint promotion efforts.	Associated Grocers (groceries), Ace Hardware (hardware)
Franchise organization	Contractual association between a franchisor (a manufacturer, wholesaler, or service organization) and franchisees (-independent businesspeople who buy the right to own and operate one or more units in the franchise system).	McDonald’s, Subway, Pizza Hut, Jiffy Lube, Meineke Mufflers, 7-Eleven

Although many retail stores are independently owned, others band together under some form of corporate or contractual organization. Table 13.2 describes four major types of retail organizations—corporate chains, voluntary chains, retailer cooperatives, and franchise organizations.

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Types of Retailers (5 of 8)

Organizational Approach

Corporate chains are two or more outlets that are commonly owned and controlled.

Size allows them to buy in large quantities at lower prices and gain promotional economies

Macy’s

C V S

Corporate chains have many advantages over independents. Given the promotional economies gained, corporate chains hire specialists to deal with areas such as pricing, promotion, merchandising, inventory control, and sales forecasting.

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Types of Retailers (6 of 8)

Organizational Approach

Voluntary chains are wholesale-sponsored groups of independent retailers that engage in group buying and common merchandising.

IGA

Western Auto

True Value

The great success of corporate chains caused many independents to band together in one of two forms of contractual associations: the voluntary chain and retailer cooperatives detailed on the next slide.

Voluntary chains are wholesaler-sponsored groups of independent retailers engaged in group buying and merchandising.

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Types of Retailers (7 of 8)

Organizational Approach

Retailer cooperatives are a group of independent retailers that band together to set up a joint-owned, central wholesale operation and conduct joint merchandising and promotion efforts.

Ace Hardware

Associated Grocers

These organizations give independents the buying and promotion economies they need to meet the prices of corporate chains.

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Types of Retailers (8 of 8)

Organizational Approach

Franchises are contractual associations 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.

Franchising covers a lot more than just burger joints and fitness centers. Century 21 consists of over 127,000 independent agents working in more than 9,400 franchise offices in 80 countries.

The main difference between franchise organizations and other contractual systems (voluntary chains and retail cooperatives) is that franchise systems are normally based on some unique product or service; a method of doing business; or the trade name, goodwill, or patent that the franchisor has developed. Franchising has been prominent in fast-food restaurants, motels, health and fitness centers, auto sales and service dealerships, and real estate agencies.

However, franchising covers a lot more than just burger joints and fitness centers. Franchises have sprung up to meet just about any need. For example, Mad Science Group franchisees put on science programs, and Soccer Shots offers programs that give kids an introduction to basic soccer skills.

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Learning Objective 2

Discuss how retailers are using omni-channel retailing to meet the cross-channel shopping behavior of today’s digitally connected consumers.

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Omni-Channel Retailing

The key to omni-channel retailing is to integrate channels for a seamless buying experience.

Omni-channel retailing: Used-car giant CarMax makes the entire used-car buying experience simple and seamless across its digital and store shopping channels.

Marketers increasingly need to blend in-store, online, mobile, and social media channels. Shopping typically includes websites, smartphones, mobile apps, social media, and other things digital. Omni-channel shoppers research products and prices online; shop from home, work, stores; and get ideas and advice on social media.

Long Description

One of the screenshots shows the homepage listing the finance, buy, and sell sections. The other screenshot depicts a pictorial representation that reads "Shop from anywhere: Online or in store, browse, reserve, and have cars brought to you from any CarMax; Finance at home: Secure financing and complete paperwork whenever works for you; Try and buy at home or work: With test drives delivered, you can try before you buy without coming to a store."

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Learning Objective 3

Describe the major retailer marketing decisions.

Discussion Question

What do you believe is the most important marketing mix decision a retailer must make?

Learning Objective 3 Summary

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.

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Retailer Marketing Decisions (1 of 7)

Figure 13.1 Retailer Marketing Strategies

Retailers are always searching for new marketing strategies to attract and hold customers. Today, the assortments and services of various retailers are looking more and more alike. You can find most consumer brands not only in department stores but also in mass-merchandise discount stores, off-price discount stores, and all over the internet. Thus, it’s now more difficult for any one retailer to offer exclusive merchandise.

Service differentiation among retailers has also eroded. Many department stores have trimmed their services, whereas discounters have increased theirs. In addition, customers have become smarter and more price sensitive. They see no reason to pay more for identical brands, especially when service differences are shrinking. For all these reasons, many retailers today are rethinking their marketing strategies.

As shown in Figure 13.1, retailers face major marketing decisions about segmentation and targeting, store differentiation and positioning, and the retail marketing mix.

Long Description

The flowchart depicts retail strategy leading to retail marketing mix.

Retail strategy includes:

Retail segmentation and targeting

Store differentiation and positioning

Retail marketing mix includes:

Product and service assortment

Retail prices

Promotion

Distribution (location)

Both retail strategy and retail marketing mix lead to "create value for targeted retail customers."

An annotation corresponding to the flowchart reads "As with other types of marketers, the name of the game for retailers is to find the customer value-driven marketing strategy and mix that will let them create value for customers and capture value in return. Think of Walmart’s 'Save money. Live better.' value proposition. And Olive Garden’s 'When you’re here, you’re family.'"

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Retailer Marketing Decisions (2 of 7)

Segmentation targeting, differentiation, and positioning involve the definition and profile of the market so the other retail marketing decisions can be made.

Retail targeting and positioning: Lush Fresh Handmade Cosmetics succeeds by carefully positioning itself away from its larger competitors. It makes premium beauty products made by hand from the freshest possible natural ingredients.

Segmentation, Targeting, Differentiation, and Positioning Decisions

Retailers must first segment and define their target markets and then decide how they will differentiate and position themselves in these markets. Should they focus on upscale, midscale, or downscale shoppers? Do target shoppers want variety, depth of assortment, convenience, or low prices? Until they define and profile their markets, retailers cannot make consistent decisions about product assortment, services, pricing, advertising, store décor, online and mobile site design, or any of the other decisions that must support their positions.

Too many retailers, even big ones, fail to clearly define their target markets and positions. For example, what market does Sears target? For what is the department store known? What is its value proposition?

By contrast, successful retailers define their target markets well and position themselves strongly. For example, Trader Joe’s has established its “cheap gourmet” value proposition. Walmart is powerfully positioned on low prices and what those always-low prices mean to its customers. And highly successful outdoor products retailer Bass Pro Shops positions itself strongly as being “as close to the Great Outdoors as you can get indoors!”

Long Description

The text below the title reads "[ellipsis] in making effective products from fresh organic fruit and vegetables, the finest essential oils and safe synthetics. We believe in buying ingredients only from companies that do not conduct or commission tests on animals and in testing our products on humans. We invest our own products and fragrances, we make them fresh by hand using little or no preservative or packaging, using only vegetarian ingredients and tell you when they were made. We believe in happy people making happy soap, putting our faces on our products and making our mums proud. We believe in long candlelit baths, sharing showers, massage, filling the world with perfume and in the right to make mistakes, lose everything and start again. We believe our products are good value, that we should make a profit and that the customer is always right. We also believe words like 'Fresh' and 'Organic' have an honest meaning beyond marketing."

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Retailer Marketing Decisions (3 of 7)

Major product variables:

Product assortment

Services mix

Store atmosphere

Experiential retailing: adidas’s stadium-like flagship store on Fifth Avenue in New York City carries about every product that adidas offers. But the store focuses as much on offering customer experiences as on selling products.

Retailers must decide on three major product variables: product assortment, services mix, and store atmosphere.

The retailer’s product assortment should differentiate it while matching target shoppers’ expectations. One strategy is to offer a highly targeted product assortment: Lane Bryant carries plus-size clothing, Brookstone offers an unusual assortment of gadgets and gifts, and BatteryDepot.com offers about every imaginable kind of replacement battery. Alternatively, a retailer can differentiate itself by offering merchandise that no other competitor carries, such as store brands or national brands on which it 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. Home Depot offers a diverse mix of services to do-it-yourselfers, from “how-to” classes and “do-it-herself” and kid workshops to a proprietary credit card.

The store’s atmosphere is another important element in the reseller’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. Such experiential retailing confirms that retail stores are much more than simply assortments of goods. They are environments to be experienced by the people who shop in them.

Experiential retailing: Furnishings retailer Restoration Hardware has unleashed a new generation of furniture galleries that are part store, part interior design studio, and part restaurant. In these new stores, you don’t just see the furnishings, you experience them.

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Retailer Marketing Decisions (4 of 7)

Price Decision

Price policy must fit the target market and positioning, product and service assortment, competition, and economic factors.

High markup on lower volume

Low markup on higher volume

All retailers would like to charge high markups and achieve high volume, but the two seldom go together. Most retailers seek either high markups on lower volume (most specialty stores) or low markups on higher volume (mass merchandisers and discount stores).

Thus, 110-year-old Bergdorf Goodman caters to the upper crust by selling apparel, shoes, and jewelry created by designers such as Chanel, Prada, Hermes, and Jimmy Choo. The up-market retailer pampers its customers with services such as a personal shopper and in-store showings of the upcoming season’s trends with cocktails and hors d’oeuvres.

By contrast, TJ Maxx sells brand-name clothing at discount prices aimed at middle-class Americans. As it stocks new products each week, the discounter provides a treasure hunt for bargain shoppers. “No sales. No gimmicks.” says the retailer. “Just brand name and designer fashions for you . . . for up to 60 percent off department store prices.”

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Retailer Marketing Decisions (5 of 7)

Price Decision

Everyday low pricing (E D L P) involves charging constant, everyday low prices and offering few sales or discounts.

High-low pricing involves charging higher prices on an everyday basis, coupled with frequent sales and other price promotions.

Discussion Question

Why would a retailer engage in high-low pricing?

In most cases it is to increase store traffic, clear out unsold merchandise, create a low price image, or attract customers who will buy other goods at full price.

Retailers must also decide on the extent to which they will use sales and other price promotions. Some retailers use no price promotions at all, competing instead on product and service quality rather than on price. 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. Recent tighter economic times caused a rash of high-low pricing, as retailers poured on price cuts and promotions to coax bargain-hunting customers into their stores. Which pricing strategy is best depends on the retailer’s overall marketing strategy, the pricing approaches of its competitors, and the economic environment.

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Retailer Marketing Decisions (6 of 7)

Promotion Decision

Advertising

Personal selling

Sales promotion

Public relations

Direct marketing

Discussion Question

Ask students for examples of retailers that advertise heavily. They might even be able to mention a local retailer whose ads they seem to constantly see on television. Local furniture stores and car dealers invest heavily on local television.

Retailers use various combinations of the five promotion tools—advertising, personal selling, sales promotion, public relations (PR), and direct and social media marketing—to reach consumers. They advertise in newspapers and magazines and on radio and television. Advertising may be supported by newspaper inserts and catalogs. Store salespeople greet customers, meet their needs, and build relationships. Sales promotions may include in-store demonstrations, displays, sales, and loyalty programs. 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 websites and digital catalogs, online ads and video, social media, mobile ads and apps, blogs, and email. Almost every retailer, large or small, maintains a full social media presence. For example, giant Walmart leads the way with a whopping 34 million Facebook likes, 37,000 Pinterest followers, 446,000 Twitter followers, and 15,000 YouTube subscribers. Digital promotions let retailers reach individual customers with carefully targeted messages.

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Retailer Marketing Decisions (7 of 7)

Place Decision

Central business districts are located in cities and include department and specialty stores, banks, and movie theaters.

A shopping center is a group of retail businesses planned, developed, owned, and managed as a unit.

Discussion Question

What makes a good retail location?

Central business districts are declining. Students might even be able to cite examples in their home town where shopping centers are being built but central business districts are failing to thrive. Shopping centers can be:

Regional shopping centers

Community shopping centers

Neighborhood shopping centers

Power centers

Lifestyle centers

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 regional shopping center, or regional shopping mall, the largest and most dramatic shopping center, has from 50 to more than 100 stores, including two or more full-line department stores. It is like a covered mini-downtown and attracts customers from a wide area.

A community shopping center contains between 15 and 50 retail stores. It normally contains a branch of a department store or variety store, a supermarket, specialty stores, professional offices, and sometimes a bank.

Most shopping centers are neighborhood shopping centers or strip malls that generally 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.

A newer form of shopping center, power centers are huge unenclosed shopping centers consisting of a long strip of retail stores, including large, freestanding anchors such as Walmart, Home Depot, Costco, Best Buy, Michaels, PetSmart, and OfficeMax.

In contrast, 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 complex.

“The line between shopping, entertainment, and community building has blurred,” says one analyst. “Shopping centers aren’t just places to buy things. They’re social centers, places for entertainment, and employment hubs.”

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Learning Objective 4

Discuss the major trends and developments in retailing.

Discussion Question

Define the concept of shopper marketing and explain why it has grown in prominence.

Learning Objective 4 Summary

Retailers operate in a harsh and fast-changing environment, which offers threats as well as opportunities. Following years of good economic times for retailers, 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, and social media retailing; the growing importance of retail technology; a surge in green retailing; and the global expansion of major retailers.

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Retailing Trends and Developments (1 of 6)

Tighter Consumer spending

Changed consumer spending patterns

Some retailers benefit

Other retailers have tough times

Value positioning: To attract today’s more value-oriented consumers, T G I Friday offers Fridays 5, “a selection of delicious drinks and appetizers, all for $5 each… whenever you want.”.

Even as the economy has recovered, retailers will feel the effects of changed consumer spending patterns well into the future.

As consumers cut back and looked for ways to spend less on what they bought, big discounters such as Costco scooped up new business from bargain-hungry shoppers. Similarly, lower-priced fast-food chains, such as McDonald’s, took business from their pricier eat-out competitors.

For other retailers, however, tighter consumer spending meant tough times. During and following the recession, several large and familiar retailers declared bankruptcy, closed their doors completely, laid off employees, cut their costs, or offered deep price discounts and promotions aimed at luring cash-strapped customers back into their stores.

As the economy has improved, and as consumers have retained their more frugal spending ways, many retailers have added new value pitches to their positioning like Home Depot’s “More saving. More doing.” Other retailers are boosting their emphasis on more economical private label brands.

When reacting to economic difficulties, retailers must be careful that their short-run actions don’t damage their long-run images and positions. For example, drastic price discounting can increase immediate sales but damage brand loyalty. Instead of relying on cost-cutting and price reductions, retailers should focus on building greater customer value within their long-term store positioning strategies.

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Retailing Trends and Developments (2 of 6)

New Retail Forms, Shortening Retail Life Cycles, and Retail Convergence

Retail convergence involves the merging of consumers, producers, prices, and retailers, creating greater competition for retailers and greater difficulty differentiating offerings.

New retail forms are always emerging. The most recent blockbuster retailing trend is the advent of online retailing, by both online-only and brick-and mortar retailers, via websites, mobile apps, and social media.

But lesser innovations occur regularly. For example, many retailers are now using limited time pop-up stores that let them promote their brands to seasonal shoppers and create buzz in busy areas.

The online and mobile equivalent is flash sales sites, which create buzz using limited time deals.

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. For example, you can buy brand name home appliances at department stores, discount stores, home-improvement stores, off-price retailers, electronics superstores, and a slew of online sites that all compete for the same customers. Such convergence means greater competition for retailers and greater difficulty in differentiating the product assortments of different types of retailers.

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Retailing Trends and Developments (3 of 6)

The Rise of Megaretailers

The rise of megaretailers involves the rise of mass merchandisers and specialty superstores, the formation of vertical marketing systems, and a rash of retail mergers and acquisitions.

Superior information systems

Buying power

Large selection

With their size and buying power, megaretailers 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.

The megaretailers have shifted the balance of power between retailers and producers. A small handful of retailers now controls access to enormous numbers of consumers, giving them the upper hand in their dealings with manufacturers.

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Retailing Trends and Developments (4 of 6)

Growing Importance of Retail Technology

Retail technology provides better forecasts, inventory control, electronic ordering, transfer of information, scanning, online transaction processing, improved merchandise handling systems, and the ability to connect with customers.

Retail technology: “If you want to glimpse the future of retail, check out an Amazon Go store.”

Today, thanks to advanced technologies, easier-to-use and enticing online sites and mobile apps, improved online services, and the increasing sophistication of search technologies, online retailing is thriving.

Retail technologies have become critically important as competitive tools. Progressive retailers are using advanced information technology (IT) 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.

Perhaps the most startling advances in retail technology concern the ways in which retailers are connecting with consumers. Today’s customers have gotten used to the speed and convenience of buying online and to the control that the internet gives them over the buying process. At the same time, websites, blogs, social media, and mobile apps give retailers a whole new avenue for establishing brand connections and community with customers. No real-world store can do all that.

Increasingly, retailers are bringing online and digital technologies into their physical stores. Many retailers now routinely use technologies ranging from touchscreen kiosks and handheld shopping assistants to interactive dressing-room mirrors and virtual sales associates.

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Retailing Trends and Developments (5 of 6)

Green Retailing

Environmentally Sustainable Practices

Store design, construction, operations

Product assortment

Recycling made easier

Package and distribution

Green retailing: 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. At the most basic level, most large retailers are making their stores more environmentally friendly through sustainable building design, construction, and operations. Retailers are also greening up their product assortments. Many retailers have also launched programs that help consumers make more environmentally responsible decisions.

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Retailing Trends and Developments (6 of 6)

Global Expansion of Major Retailers

Retailers with unique formats and strong brands in other countries

U.S. behind Asian and European companies in global expansion

Challenges in meeting needs of local markets

Many retailers are expanding internationally to escape saturated home markets. Over the years, some giant U.S. retailers, such as McDonald’s, have become globally prominent as a result of their marketing prowess.

Although 8 of the world’s top 20 retailers are U.S. companies, only 4 of these retailers have set up stores outside North America (Walmart, Home Depot, Costco, and Best Buy).

Retailers can face dramatically different retail environments when crossing countries, continents, and cultures. Simply adapting the operations that work well in the home country is usually not enough to create success abroad. Instead, when going global, retailers must understand and meet the needs of local markets.

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Learning Objective 5

Explain the major types of wholesalers and their marketing decisions.

Discussion Question

Explain how wholesalers add value in the channel of distribution.

Learning Objective 5 Summary

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.

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Wholesaling (1 of 15)

Wholesaling includes all activities involved in selling goods and services to those buying for resale or business use.

Selling and promoting

Buying and assortment building

Bulk breaking

Warehousing

Transportation

Firms engaged primarily in wholesaling activities are called wholesalers.

Wholesalers buy mostly from producers and sell mostly to retailers, industrial consumers, and other wholesalers. As a result, many of the nation’s largest and most important wholesalers are largely unknown to final consumers.

For example, you may never have heard of Grainger, even though it’s very well known and much valued by its more than 2 million business and institutional customers in more than 150 countries:

Grainger is a wholesaler, and like most wholesalers, it operates behind the scenes, selling mostly to other businesses.

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Wholesaling (2 of 15)

Wholesaling includes all activities involved in selling goods and services to those buying for resale or business use.

Financing

Risk bearing

Market information

Management services and advice

Wholesaling includes all the activities involved in selling goods and services to those buying them for resale or business use.

Why are wholesalers important to sellers? For example, why would a producer use wholesalers rather than selling directly to retailers or consumers? Simply put, wholesalers add value by performing one or more of the above channel functions.

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Wholesaling (3 of 15)

Selling and promoting involves the wholesaler’s sales force helping the manufacturer reach many small customers at a low cost.

Buying and assortment building involves the selection of items and building of assortments needed by customers, saving the customers work.

Selling and promoting. Wholesalers’ sales forces help manufacturers reach many small customers at a low cost. The wholesaler has more contacts and is often more trusted by the buyer than the distant manufacturer.

Buying and assortment building. Wholesalers can select items and build assortments needed by their customers, thereby saving much work.

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Wholesaling (4 of 15)

Bulk breaking involves the wholesaler buying in large quantities and breaking into smaller lots for customers.

Warehousing involves the wholesaler holding inventory, reducing its customers’ inventory cost and risk.

Bulk breaking. Wholesalers save their customers money by buying in carload lots and breaking bulk (breaking large lots into small quantities).

Warehousing. Wholesalers hold inventories, thereby reducing the inventory costs and risks of suppliers and customers.

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Wholesaling (5 of 15)

Transportation involves the wholesaler providing quick delivery due to its proximity to the buyer.

Financing involves the wholesaler providing credit and financing suppliers by ordering early and paying on time.

Transportation. Wholesalers can provide quicker delivery to buyers because they are closer to buyers than are producers.

Financing. Wholesalers finance their customers by giving credit, and they finance their suppliers by ordering early and paying bills on time.

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Wholesaling (6 of 15)

Risk bearing involves the wholesaler absorbing risk by taking title and bearing the cost of theft, damage, spoilage, and obsolescence.

Market information involves the wholesaler providing information to suppliers and customers about competitors, new products, and price developments.

Risk bearing. Wholesalers absorb risk by taking title and bearing the cost of theft, damage, spoilage, and obsolescence.

Market information. Wholesalers give information to suppliers and customers about competitors, new products, and price developments.

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Wholesaling (7 of 15)

Management services and advice involves wholesalers helping retailers train their sales clerks, improve store layouts, and set up accounting and inventory control systems.

Wholesaling: 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.

Management services and advice. Wholesalers often help retailers train their salesclerks, improve store layouts and displays, and set up accounting and inventory control systems.

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Wholesaling (8 of 15)

Types of Wholesalers

Merchant wholesalers

Brokers and agents

Manufacturers’ and retailers’ branches and offices

Wholesalers fall into three major groups (see Table 13.3): merchant wholesalers, brokers and agents, and manufacturers’ and retailers’ branches and offices.

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Wholesaling (9 of 15)

Types of Wholesalers

Merchant wholesalers are the largest group of wholesalers and include:

Full-service wholesalers that provide a full set of services

Limited service wholesalers that provide few services and specialized functions

Merchant wholesalers account for roughly 50 percent of all wholesaling. Merchant wholesalers include two broad types: full-service wholesalers and limited-service wholesalers.

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Wholesaling (10 of 15)

Types of Wholesalers

Brokers and agents do not take title, perform a few functions, and specialize by product line or customer type.

Brokers bring buyers and sellers together and assist in negotiations.

Agents represent buyers or sellers.

Agents represent buyers or sellers on a more permanent basis.

Manufacturers’ agents (also called manufacturers’ representatives) are the most common type of agent wholesaler.

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Wholesaling (11 of 15)

Types of Wholesalers

Manufacturers’ and retailers’ branches and offices are a form of wholesaling by sellers or buyers themselves, rather than through independent wholesalers.

Separate branches and offices 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.

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.

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Wholesaling (12 of 15)

Figure 13.2 Wholesaler Marketing Strategies

Wholesalers now face growing competitive pressures, more-demanding customers, new technologies, and more direct-buying programs on the part of large industrial, institutional, and retail buyers. As a result, they have taken a fresh look at their marketing strategies. As with retailers, their marketing decisions include choices of segmentation and targeting, differentiation and positioning, and the marketing mix—product and service assortments, price, promotion, and distribution (see Figure 13.2).

Long Description

The flowchart depicts wholesale strategy leading to wholesale marketing mix.

Wholesale strategy includes:

Wholesale segmentation and targeting

Differentiation and service positioning

Wholesale marketing mix includes:

Product and service assortment

Wholesale prices

Promotion

Distribution (location)

Both wholesale strategy and wholesale marketing mix lead to "create value for targeted wholesale customers."

An annotation corresponding to the flowchart reads "Why does this figure look so much like Figure 13.1? You guessed it. Like retailers, wholesalers must develop customer-driven marketing strategies and mixes that create value for customers and capture value in return. For example, Grainger helps its business customers 'save time and money by providing them with the right products and solutions to keep their facilities up and running.'"

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Wholesaling (13 of 15)

Wholesaler Marketing Decisions

Segmentation, targeting, differentiation, positioning decisions:

Size of customer

Type of customer

Need for service

Like retailers, wholesalers must segment and define their target markets and differentiate and position themselves effectively—they cannot serve everyone.

They can choose a target group by size or type of customer, the need for service, or other factors.

Within the target group, they can identify the more profitable customers, design stronger offers, and build better relationships with them. They can propose automatic reordering systems, establish management-training and advisory systems, or even sponsor a voluntary chain. They can discourage less-profitable customers by requiring larger orders or adding service charges to smaller ones.

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Wholesaling (14 of 15)

Wholesaler Marketing Decisions

Marketing mix decisions

Product

Price

Promotion

Place

Wholesaler marketing: Progressive wholesalers like Grainger maintain an active presence in online, mobile, and social media. For example, online and mobile purchasing now account for 80 percent of Grainger’s total sales.

Marketing Mix Decisions

Like retailers, wholesalers must decide on product and service assortments, prices, promotion, and place.

Wholesalers add customer value though the products and services they offer. Wholesalers today are cutting down on the number of lines they carry, choosing to carry only the more profitable ones. They are also rethinking which services count most in building strong customer relationships and which should be dropped or paid for by the customer. The key for companies is to find the mix of services most valued by their target customers.

Price is also an important wholesaler decision. Wholesalers usually mark up the cost of goods by a standard percentage—say, 20 percent.

Although promotion can be critical to wholesaler success, most wholesalers are not promotion minded. They use largely scattered and unplanned trade advertising, sales promotion, personal selling, and public relations. Many are behind the times in personal selling and also need to adopt some of the nonpersonal promotion techniques used by retailers. They need to develop an overall promotion strategy and make greater use of supplier promotion materials and programs.

Finally, distribution (location) is important. Wholesalers must choose their locations, facilities, and web locations carefully. Today’s large and progressive wholesalers have reacted to rising costs by investing in automated warehouses and IT systems. Orders are fed from the retailer’s information system directly into the wholesaler’s, and the items are picked up by mechanical devices and automatically taken to a shipping platform where they are assembled. Most large wholesalers use technology to carry out accounting, billing, inventory control, and forecasting.

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Wholesaling (15 of 15)

Trends In Wholesaling

Need for greater efficiency

Value-adding customer relationships

Increase in customer demand for services

Increase in use of technology to 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 tighter economic conditions have led to demands for even lower prices and the winnowing out of suppliers who are not adding value based on cost and quality. Progressive wholesalers constantly watch for better ways to meet the changing needs of their suppliers and target customers. They recognize that 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.

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