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Marketing Principles Session 11 Retailing and Wholesaling Jeffrey E. Newcomb Red Widget Strategies for Hosei University Looking Forward: Where are we going? Session 11, Retailing and Wholesaling, will help you to:

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retailing and wholesaling

Marketing Principles

Session 11

Retailing and Wholesaling

Jeffrey E. Newcomb

Red Widget Strategies

for Hosei University

looking forward where are we going
Looking Forward:Where are we going?

Session 11, Retailing and Wholesaling, will help you to:

  • Explain the roles of retailers and wholesalers in the distribution channel
  • Describe the major types of retailers and give examples of each
  • Identify the major types of wholesalers and give examples of each
  • Explain the marketing decisions facing retailers and wholesalers
whole foods case story
Whole Foods [Case Story]

an alternative retail grocer

  • Committed to quality
  • Value Proposition: Whole Foods, Whole People, Whole Planet.
  • Sales = $700/sq foot, nearly twice the yield of traditional grocers
  • Profit margins: 2.9%, 2.5 times the industry average; sales and profits continue to increase by substantial double digits
  • Products are differentiated: organic, 100% natural, no additives
  • Shopping environment is warm, friendly and information-rich
  • Customers are affluent, liberal, educated; median household income of shoppers exceeds the US average

Whole Foods’ Vision of a Sustainable Future: Our children and

grandchildren will be living in a world that values human creativity,

diversity and individual choice. Business will use resources without

de-valuing the integrity of the individual or the planet’s ecosystems.

definitions
Definitions

Retailing

  • All activities involved in selling goods or services directly to final consumers for their personal, non-business use
  • For products

Example: World-class fashions on the Ginza

  • For services

Example: The veterinarian for your pet

Retailer

  • A business organization whose sales come primarily from retailing to final customers
shaping retail strategy
Specialty Stores

Department Stores

Supermarkets

Non-store retailers

Discount Stores

Convenience Stores

Off-Price Retailers

Superstores

Shaping Retail Strategy

Types of Retailers:

  • Key Factors in Consumers’ Retail Choices:
  • Convenience
  • and….

As a consumer, what other factors do you consider in making a retail choice? Consider as many factors as you can. Compare with the following list of key factors.

more key factors in consumers retail choices
More Key Factors in Consumers’ Retail Choices
  • Product Selection
  • Fairness
  • Useful Information
  • Prices
  • Image
  • Shopping Atmosphere
  • Others?
types of retailing
Self-service retailers

Customers are willing to self-serve to save money

Convenience stores and fast moving shopping goods -Example: 7-Eleven

Limited-service retailers

Most department stores

Full-service retailers

Salespeople assist customers in every aspect of shopping experience

High-end department stores and specialty stores -Example: Buying a new chair to be custom–fitted with matching fabric

Types of Retailing

Retailers can be classified by….

Amount of service:

types of retailing8
Specialty stores

Narrow product lines with deep assortments

Department stores

Wide variety of product lines

Supermarkets

Convenience stores

Limited line

Superstores

Food, nonfood, and services

Category killers

Giant specialty stores

-Example: Toys R Us

Types of Retailing

Retailers can be classified by….

Product lines:

types of retailing9
Discount stores

Low margins are offset by high volume

Off-price retailers

Independent off-price retailers

-Clothing stores which buy off-season

or excess production of brand names

Factory outlets

-Example: Levi Strauss

Warehouse clubs

-Example: Costco

Types of Retailing

Retailers can be classified by….

Relative prices:

wal mart
Started in 1962 by Sam Walton in Bentonville, Arkansas

Current annual sales approximately $300 billion

Value proposition: Always Low Prices. Always!

EDLP: Every Day Low Prices

Wal-Mart executives spend at least two days a week visiting stores to stay close to customers

The first to call employees “associates”

Wal-Mart maintains low prices through tight controls on costs, and aggressive buying practices

Technological advances in distribution and communications systems help increase efficiency and lower costs

Less advertising as a percentage of sales helps keep costs low

70% of goods carried by Wal-Mart originate in China

Challenged to enter markets

in Japan and Germany

Wal-Mart

As market leader, Wal-Mart

is a learning opportunity in retailing:

types of retailing11
Corporate chain stores

Commonly owned and controlled

-Examples: Home Depot, Staples, Gucci

Voluntary chains

Wholesaler-sponsored groups of independent retailers

Retailer cooperatives

Groups of independent retailers who buy in bulk

Franchise organizations

Based on differentiated offers

-Examples: McDonald’s, Burger King; travel agencies

Merchandising conglomerates

Diversified retailing lines with central ownership

-Examples: Macy’s, Sears

Types of Retailing

Retailers can be classified by….

Organizational approach:

franchises
Franchises

Franchise: a contractual association between a manufacturer, wholesaler or service organization (the franchiser), and independent businesspeople (franchisees), who own or operate one or more units of the franchise system

  • Successful franchises are based upon a unique product, service or business process
  • The franchiser develops marketing strategy
  • The retail franchisees implement the marketing strategy
  • Legal contracts govern the relationship
  • Franchisers have been successful with newcomers
  • Franchise sales continue to grow, but slower than 1980s
  • Franchising represents 40% of all retail sales in US
retailing
Retailing

Retailer Marketing Decisions

  • Target marketing and positioning
  • Product and service mix
  • Price
  • Promotion
  • Place

Food retailer Whole Foods is a useful example

of effective target marketing and positioning

illustrative gross margins in selected retail trades for recent years

Retail Business

Typical Gross Margin (percent)

Custom tailors, monuments, florists and nurseries, bakery shops, furs

50% or more

Garages, jewelry, restaurants, furniture, undertaking

40-50%

Instruments, furnishings, gifts, books, bars, shoes, appliances

35-40%

Paint, glass, drugs, fuel, clothing, auto parts

30-35%

Hardware, dry goods

20-30%

Source: US Retailing Industry

Alcoholic beverage package stores, motor vehicles, groceries

Less than 20%

Illustrative Gross Margins in Selected Retail Trades for Recent Years
slide15

Less than

$50,000

Less than

$50,000

$50,000 –

$99,000

$50,000 –

$99,000

$100,000-

$249,999

$100,000-

$249,999

$250,000 –

$499,999

$250,000 –

$499,999

$500,000-

$999,999

$500,000-

$999,999

$1million –

$2.5 million

$1million –

$2.5 million

$2.5 million

-$5 million

$2.5 million

-$5 million

Over

$5 million

Over

$5 million

Retailer Size and ProfitsThe largest retailers in the US have the highest percentage of total retail sales

Percent of Stores

9.1%

2.1%

65.6%

Smaller stores

Bigger stores

Percent of Total Retail Sales

Source: US Retailing Industry

.03%

comparisons of in store and online shopping
Comparisons of In-Store and Online Shopping

CharacteristicsOnline ShoppingIn-Store Shopping

Day-of-week emphasis: Higher percentage Higher percentage

of purchases weekdays of purchases weekends

Product availability: Not accessible for Usually accessible for inspectionor inspection and immediate immediate useuse

Entertainment value: A media experience Often a social experience

Shopping hours: 24/7: all the time Varies; typical “business hours”

….

retailing17
Retailing

The Future of Retailing

  • New retail forms and shortening retail life cycles
  • Growth of non-store retailing
    • Mail-order, television, phone, online shopping
    • Examples: Home Shopping Network, Rakuten, Google, Yahoo, eBay, Amazon; traditional “bricks n mortar” retailers; catalog retailers
  • Retail convergence
    • Merging of consumers, products, prices, and retailers
    • Example: Options for buying a recently-published history book to read for pleasure….
    • Greater competition among retailers creates greater difficulty in differentiating offers
retailing18
Retailing

The Future of Retailing

  • Rise of mega-retailers
  • Growing importance of retail technology

Examples: software for connecting with distributors, monitoring stockouts, consumer trends; use of handheld scanners

  • Global expansion of major retailers

Examples: 13 of top 30 retailers are US based -- but only

2 US-based retailers have stores outside North America

Examples of top retailers who have become global: France’s Carrefour, Germany’s Metro, Britain’s Tesco, Sweden’s IKEA, and from Japan, Yaohan supermarkets

  • Retail stores as “communities” or “hangouts”Examples: Starbucks coffeehouses; Sony’s Metreon retail complex in San Francisco
how retailers adapt to change
How Retailers Adapt to Change
  • The Wheel of Retailing
  • helps to explain the early success and later troubles of
  • many department stores, supermarkets and discount stores
  • New retailers often begin as low-margin, low-price operations
  • These retailers compete successfully, grow and evolve
  • They become higher-priced, higher-service operations
  • Then these retailers are challenged, and
  • often replaced by new retailers....
  • who are low-margin, low-priced operations!
  • And the Wheel of Retailing turns again

Keeping close to the customer, while controlling costs

and building operational efficiencies, are proven solutions

to slow the Wheel of Retailing. Example: Cabela’s for the Outdoors enthusiast – a differentiated, niche-driven retailer!

definitions20
Definitions

Wholesaling

  • All activities involved in selling goods and services to those buying for resale or business use

Wholesaler

  • An organization engaged primarily in wholesaling activity
wholesaling
Wholesaling

Wholesalers add value in

the following functions:

  • Selling and promoting
  • Buying and assortment building
  • Bulk-breaking
  • Warehousing
  • Transportation
  • Financing
  • Risk bearing
  • Market information
  • Management services and advice
wholesaling22
Full-service wholesalers

Wholesale merchants

Examples: health foods; seafood

Industrial distributors

Example: Grainger Maintenance Repair - operating supplies

Limited-service wholesalers

Cash-and-carry wholesalers

Example: Lumber yards for construction

Truck wholesalers or jobbers

Drop shippers

Rack jobbers

Producer’s cooperatives

Example: In California, SunMaid Raisins; Diamond Walnuts

Mail-order wholesalers

Wholesaling

Merchant Wholesalers

wholesaling23
Wholesaling

Brokers and Agents

Different from Merchant Wholesalers,

  • Brokers and agents do not take ownership of the goods
  • Brokers and agents have only a few specialized functions

Brokers

Bring buyers and sellers together and assist in negotiation

Agents

Represent buyers longer-term

    • Manufacturers’ agents: most common
    • Selling agents
    • Purchasing agents
    • Commission merchants
wholesaling24
Sales branches and offices

Branches carry inventory: lumber, auto equipment, parts

Offices do not carry inventory: dry goods

Purchasing officers

Perform roles similar to brokers and agents

Purchasing officers are employees of the organization

Wholesaling

Manufacturers’ and retailers’

branches and offices

wholesaling25
Wholesaling

Trends in Wholesaling

  • Price competition is still intense
  • Successful wholesalers must add value by increasing efficiency and effectiveness
  • The distinction between large retailers and wholesalers continues to blur
  • More services will be provided to retailers
  • As in retail, many wholesalers are seeking global markets
markups and markdowns
Markups and Markdowns

Markup and Markdown are tools for analysis to help retailers and wholesalers manage pricing

Markups

  • Markup is the difference between merchandise cost and the selling price for a channel member
  • Markup is typically expressed as a percentage:

a. Markup % on selling price = Selling price – Merchandise cost

Selling price

b. Markup % on cost = Selling price – Merchandise cost

Merchandise cost

c. Selling price = cost

1- markup %

Organizations use markups to cover operating expenses and net profit

markups and markdowns27
Markups and Markdowns

Markdowns

  • Markdown is a reduction in the original selling price of a product or service by a retailer or wholesaler, in order to sell
  • Markdowns result from poor sales, inventory clearances, model changes, business liquidation or other factors
  • Markdowns, like markups, are expressed as percentages:

Markdown %= Original selling price – Reduced selling price

(off-original price) Original selling price

Markdown %= Original selling price – Reduced selling price

(off-sale price) Reduced selling price

Lower markups and higher markdowns usually result in higher unit sales. Higher markups and lower markups usually result in lower unit sales

markups and markdowns28
Markups and Markdowns

1. A carpenter’s tool with a selling price of Y1,000 has a merchandize cost to Hiro’s Hardware store of Y700. What is the markup based upon the…

  • selling price (Y1,000)? Markup = 30%
  • the merchandise cost (Y700)? Markup = 43%

2. Hiro’s Hardware has a new mechanic’s tool he wants to distribute. His merchandise cost is Y1,200, and his desired markup based on selling price is 25%. What should be Hiro’s selling price?

  • Selling price = Y1,600
markups and markdowns29
Markups and Markdowns

Midori’s Bakery has some cakes not yet sold, left over from over-production yesterday. Midori would like to make the cakes available at a discount, before they spoil. Originally, each cake would sell for Y2,000. If Midori reduced the price today to Y1,500, what would the markdown be….

  • off - original price?

(Y2,000 – Y1,500)/Y2,000 = 25%

  • off - sale price?

(Y2,000 – Y1,500)/Y1,500 = 33%

For purposes of planning and budgeting the “off-original price” method is preferred. The “off-sale price” method is sometimes used to create greater awareness with customers

3qq 3 question quiz
3QQ 3 Question Quiz
  • The ________ concept suggests that many
  • new forms of retailing begin as low-margin, low-price, low-status operations, which take the place of other such retailers who have, over time, added services and moved upscale.
  • 1. retail life cycle 
  • 2. merchant wholesaling  
  • 3. scrambled merchandising 
  • 4. wheel-of-retailing
  • 5. “1” and “3” are correct
3qq 3 question quiz31
3QQ 3 Question Quiz

1. The ________ concept suggests that many

new forms of retailing begin as low-margin, low-price, low-status operations, which take the place of other such retailers who have, over time, added services and moved upscale.

  • value delivery network 
  • merchant wholesaling  
  • scrambled merchandising
  • wheel-of-retailing
  • “1” and “3” are correct

The wheel-of-retailing explains the initial success and later problems of many department stores and supermarkets

3qq 3 question quiz32
3QQ3 Question Quiz

2. Retailers are increasingly selling the same products at the same prices to the same customers, as are their competitors. This situation is an example of:

  • Retail convergence 
  • Growth of non-store retailing 
  • Global retailing by major retailers
  • The rise of superstores
  • None of the above
3qq 3 question quiz33
3QQ3 Question Quiz

2.Retailers are increasingly selling the same products at the same prices to the same customers, as are their competitors. This situation is an example of:

  • Retail convergence
  • Growth of non-store retailing 
  • Global retailing by major retailers
  • The rise of superstores
  • None of the above

Retail convergence is the merging of shoppers, goods and prices. Distinctions between discount, specialty and department stores are losing significance

3qq 3 question quiz34
3QQ3 Question Quiz

3. Which of the following is a trend likely to continue in the wholesaling industry?

  • Vertical integration 
  • Increase in services
  • decrease in the number of wholesalers
  • Geographic expansion of operations to the global market
  • All of the above
3qq 3 question quiz35
3QQ3 Question Quiz

3. Which of the following is a trend likely to continue in the wholesaling industry?

  • Vertical integration 
  • Increase in services
  • decrease in the number of wholesalers
  • Geographic expansion of operations to the global market
  • All of the above

Growth in wholesaling revenues will depend on vertical integration, increase in services and globalization. Resistance to price increases eliminates wholesalers who cannot add value for their customers

slide36

Your

TOP TEN

Terms

  • Agent
  • Broker
  • Category killer
  • Convenience store
  • Discount store
  • Franchise
  • Markdown and Markup
  • Retailer
  • Wheel-of-retailing concept
  • Wholesaler
looking back where have we been
Looking Back:Where have we been?

You should now be able to.…

  • Explain the roles of retailers and wholesalers in the distribution channel
  • Describe the major types of retailers and give examples of each
  • Identify the major types of wholesalers and give examples of each
  • Explain the marketing decisions facing retailers and wholesalers