Supply Chain Management

Muhammad Zahid Malik

zahid.malik@iqra.edu.pk
RETAILING
 What is retailing to you?
• Retailing – a set of business activities that
adds value to the products and services
sold to consumers for their personal or
family use
The Four P’s of Marketing

Product
Distribution Price

Promotion
Retailing

All the activities

directly related to the
sale of goods and
services to the
ultimate consumer
for personal, non-
business use.
 The Role of Retailing
Retailing is one of the largest
employers

Retailers ring up almost a

third of the U.S. GDP

Industry is dominated by a
few
giant organizations, such as
Wal-Mart
 How do Retailers add value?
■ Provide Assortment
Buy other products at the same time
■ Break Bulk
Buy it in quantities customers want
■ Hold Inventory
Buy it at a convenient place when
you want it
■ Offer Services
See it before you buy; get credit;
layaway
 What do Retailers do for
Corporate Social Responsibility
• McDonalds Houses
• Starbuck fair trade coffee
• Target community Give Back
 Learning Objective

Explain the dimensions by which retailers

can be classified.
 Classification of Retail
Operations
Ownership
Ownership

Level
Levelof
ofService
Service

Product
ProductAssortment
Assortment
Classification
Classification
of
of
Retail
Retail Price
Price
Establishments
Establishments
 Ownership

Classification
Classification
of
of
Ownership
Ownership

Independent
Independent Franchises
Franchises
Retailers
Retailers

Chain
Chain Stores
Stores
 Level of Service

Self Service Full Service

Factory
Factory outlets
outlets Discount
Discount stores
stores Exclusive
Exclusive stores
stores
Warehouse
Warehouse clubs
clubs
 Classification Summary
Service
Service Assort-
Assort- Gross
Gross
Type
Typeof
ofRetailer
Retailer Price
Price
Level
Level ment
ment Margin
Margin
Department
DepartmentStore
Store Mod
ModHi-High
Hi-High Broad
Broad Mod-High
Mod-High Mod
ModHigh
High
Specialty
SpecialtyStore
Store High
High Narrow
Narrow Mod-High
Mod-High High
High
Supermarket
Supermarket Low
Low Broad
Broad Moderate
Moderate Low
Low
Convenience
ConvenienceStore
Store Low
Low Med-Narrow
Med-Narrow Mod
ModHigh
High Mod
ModHigh
High
Drugstore
Drugstore Low-Mod
Low-Mod Medium
Medium Moderate
Moderate Low
Low
Full-line
Full-lineDiscounter
Discounter Mod-Low
Mod-Low Med-Broad
Med-Broad Mod
ModLow
Low Mod
ModLow
Low
Specialty
SpecialtyDiscounter
Discounter Mod-Low
Mod-Low Med-Broad
Med-Broad Mod
ModLo-low
Lo-low Mod
ModLow
Low
Warehouse
WarehouseClubs
Clubs Low
Low Broad
Broad Low-lower
Low-lower Low
Low
Off-price
Off-priceRetailer
Retailer Low
Low Med-Narrow
Med-Narrow Low
Low Low
Low
Restaurant
Restaurant Low-High
Low-High Med-Narrow
Med-Narrow Low-High
Low-High Low-High
Low-High
Gross Margin

The amount of money

the retailer makes as a
percentage of sales
after the cost of goods
sold is subtracted.
Learning Objective

Describe the major types of retail operations.

 Major Types of Retail
Operations
Department
DepartmentStores
Stores

Specialty
SpecialtyStores
Stores

Supermarkets
Supermarkets

Drugstores
Drugstores

Convenience
ConvenienceStores
Stores

Discount
DiscountStores
Stores

Restaurants
Restaurants
Scrambled Merchandising

The tendency to offer a

wide variety of
nontraditional goods
and services under one
roof.
Categories of Discount Stores
Full-Line
Discounters

Discount Specialty Stores

Categories
of Discount
Stores
Warehouse
Clubs

Off-Price
Discount Retailers

Chapter 11 Version 3e
Mass Merchandising

Retailing strategy using

moderate to low prices
on large quantities of
merchandise and lower
service to stimulate
high turnover of
products.
 Hypermarket and Supercenter

AAlarge
large retail
retail store
store combining
combining
Hypermarket
Hypermarket aa supermarket
supermarket and and
aa full-line
full-line discount
discount store.
store.

Retail
Retail store
store combining
combining groceries
groceries
Supercenter
Supercenter and
and general
general merchandise
merchandise goods
goods
with
with aa wide
wide range
range of
of services.
services.
Learning Objective

Discuss non-store retailing techniques

 Nonstore Retailing
Automatic
AutomaticVending
Vending

Direct
DirectRetailing
Retailing

Direct
DirectMarketing
Marketing
Major
Major Forms
Forms
of
of
Nonstore
Nonstore Electronic
ElectronicRetailing
Retailing
Retailing
Retailing
 Direct Retailing

Direct
Direct Retailers
Retailers
sell
sell products:
products:

Home
Home Sales
Sales
Door-to-Door
Door-to-Door Parties
Parties

Office-to-Office
Office-to-Office
 Direct Marketing
Direct
DirectMail
Mail

Types
Types
Catalogs
Catalogs&&Mail
MailOrder
Order
of
of
Direct
Direct
Marketing
Marketing Telemarketing
Telemarketing

Electronic
ElectronicRetailing
Retailing
 Electronic Retailing

Shop-at-Home
Shop-at-HomeNetworks
Types
Types Networks

of
of
Electronic
Electronic
Retailing
Retailing On-Line
On-LineRetailing
Retailing
Learning Objective

Define franchising and describe its two basic

forms
Basic Forms of Franchising

Product
Productand
andTrade
TradeName
Name
Franchising
Franchising
Basic
Basic Forms
Forms
of
of
Franchising
Franchising
Business
BusinessFormat
Format
Franchising
Franchising
Basic Forms of Franchising

Product
Product and
and Dealer
Dealer agrees
agrees to
to sell
sell certain
certain products
products provided
provided by
by
Trade
Trade Name
Name aa manufacturer
manufacturer or
or wholesaler.
wholesaler.
Franchising
Franchising

Business
Business An
An ongoing
ongoing business
business relationship
relationship between
between aa
Format
Format franchiser
franchiser
Franchising
Franchising and
and aa franchisee.
franchisee.
Learning Objective

List the major tasks involved in

developing a retail marketing strategy.
 Retail Marketing Strategy

Define
Define&&Select
Select
Key
Key Tasks
Tasks aaTarget
TargetMarket
Market
in
in
Strategic
Strategic
Retailing
Retailing Develop
Developthe
the“Six
“SixP’s”
P’s”
 Defining a Target Market
Demographics
Demographics

STEP
STEP 1:
1: Geographics
Geographics
Segment
Segment the
the Market
Market

Psychographics
Psychographics
 Choosing the Retailing Mix

Product
Product Place
Place
STEP
STEP 2:2:
Choose
Choose thethe Price
Price Personnel
Personnel
Retailing
Retailing Mix
Mix
Promotion
Promotion Presentation
Presentation
 The Retailing Mix
Product
Product

Personnel
Personnel Promotion
Promotion

Target
Market

Presentation
Presentation Place
Place

Price
Price
Product Offering

The mix of products

offered to the
consumer by the
retailer; also called the
product assortment or
merchandise mix.
Retail Promotion Strategy
Advertising
Advertising

Public
PublicRelations
Relations

Publicity
Publicity
Retail
Retail
Promotion
Promotion
Strategy
Strategy Sales
SalesPromotion
Promotion
 The Proper Location
• Large, long-term commitment of
resources
• Location will affect future growth
• Local environment may change over
time
 Location

Location
Location
Decisions
Decisions

Freestanding
Freestanding Mall
Mall
Store
Store
Shopping
Shopping
Center
Center
 Shopping Center and Mall
Locations
Advantages Disadvantages

• Design attracts shoppers • Expensive leases

• Anchor stores draw • Failure of common
customers promotion efforts
• Ample parking • Lease restrictions
• Unified image • Anchor store
domination
• Direct competitors
 Price

Low Price High Price

Good
Good Value
Value Quality
Quality
Image
Image
 Presentation of the Retail
Store
Employee
Employee Type
Type &
& Density
Density

Merchandise
Merchandise Type
Type &
& Density
Density

Fixture
Fixture Type
Type &
& Density
Density
Factors
Factors Sound
Sound
in
in
Creation
Creation Odors
Odors
of
of aa Store’s
Store’s
Atmosphere
Atmosphere Visual
Visual Factors
Factors
 Personnel and Customer
Service

Trading
TradingUp
Up
Two
Two Common
Common
Selling
Selling
Techniques
Techniques
Suggestive
SuggestiveSelling
Selling
Learning Objective

Discuss the challenges of

expanding retailing operations
into global markets.
 Global Retailing

Reasons for
Global Expansion

Spread
Spread of
of Growth
Growth potential
potential
communication
communication in
in underserved
underserved
and
and mass
mass media
media markets
markets
Lowering
Lowering of
of trade
trade
barriers
barriers and
and tariffs
tariffs
 Global Retailing
Market
Market Size
Size &
& Economics
Economics
Infrastructure
Infrastructure &
& Distribution
Distribution
Competition
Competition
Operations
Operations
Factors
Factors Used
Used Financial
Financial &
& Tax
Tax Reporting
Reporting
to
to Analyze
Analyze
Merchandise
MerchandiseAcceptability
Acceptability
Global
Global Retail
Retail
Markets
Markets Partnering
Partnering Capability
Capability
 Consistent
Consistent
Global
Global and
and
Corporate
Corporate
Strategies
Strategies
Long-Term
Long-Term
Perspective
Going Global
Perspective
Prerequisites for
Secure
Secure
Domestic
Domestic
Position
Position
Global Retailing
Learning Objective

Describe future trends in retailing.

Trends in Retailing
Entertainment
Entertainment

Trends in Convenience
Convenience
Retailing and
andEfficiency
Efficiency

Customer
CustomerManagement
Management
 Customer Management

Customer
Customer
Management
Management
Strategies
Strategies

Customer
Customer
Relationship
Relationship Clienteling
Clienteling
Marketing
Marketing
Loyalty
Loyalty
Programs
Programs
Wal-Mart’s Retail Mix

Customer Location
Service

Store Design Merchandise

And Display Retail Strategy
Assortment

Communication Pricing
Mix
 Wal-Mart’s Retail Mix
Location Strategy

Free-standing Stores

Customer
Service

Store Display Merchandise

And Design Assortment

Communication
Mix Pricing
 Wal-Mart’s Retail Mix
Assortment Strategy

Customer
Service Location

Large Number
Store Design
and Display
of Categories
Few Items
Communication
Mix Pricing
in Each Category
 Wal-Mart’s Retail Mix

Location
Pricing Strategy
Customer
Merchandise
Service
Assortment

Store Design
and Display

Communication
Mix Low, EDLP
 Wal-Mart’s Retail Mix
Customer
Service Location

Communication Mix
Store Design Merchandise
and Display Assortment

Pricing

TV and Newspaper
Insert Ads
Wal-Mart’s Retail Mix

Store Design and Display

Customer
Service Location

Basic, Special
Merchandise
Displays
Assortments
for Products
Communication
Mix Pricing
Wal-Mart’s Retail Mix

Customer Service

Limited

Location

Merchandise
Assortment

Store Design
and Display Pricing

Communication
Mix
What is Wholesaling?
• All the activities involved in selling
goods and services to those
buying for resale or business use.

• Wholesaler - those firms engaged

primarily in wholesaling activity.
 Transporting
Transporting
Warehousing
Warehousing Financing
Financing
Bulk
BulkBreaking
Breaking
Functions Risk
RiskBearing
Bearing
Buying
Buyingand
and Market
Market
Wholesaler
Assortment
AssortmentBuilding
Building Information
Information
Selling
Sellingand
and Management
Management
Promoting
Promoting Services
Services&&Advice
Advice
Functions:
One or More of the Following Channel
Wholesalers are Often Better at Performing
Why are Wholesalers Used?
Types
Types of
of Wholesalers
Wholesalers

Merchant
Merchant
Wholesaler Brokers/
Brokers/Agents
Agents
Wholesaler
They
TheyDon’t
Don’tTake
TakeTitle
Titleto
to
Independently
IndependentlyOwned the
Business that
Owned
Takes theGoods,
Goods,and
andThey
They
Business that Takes Perform Only a Few
Perform Only a Few
Title
Titleto
tothe
the Functions.
Merchandise Functions.
Merchandise
ititHandles.
Handles.
Manufacturers’
Manufacturers’
Sales
Sales Branches
Branches
and
and Offices
Offices
Wholesaling
Wholesalingby
bySellers
Sellers
or Buyers Themselves
or Buyers Themselves
Rather
RatherThan
ThanThrough
Through
Independent
Independent
Wholesalers.
Wholesalers.
Wholesaler
Wholesaler Marketing
Marketing Decisions
Decisions
Wholesaler
WholesalerMarketing
Marketing
Mix
Mix
Wholesaler
WholesalerStrategy
Strategy
Product and Service
Assortment
Target Market

Prices
Retail Store
Positioning
Promotion

Place (Location)
 Global
GlobalExpansion
Expansion
Vertical
VerticalIntegration
IntegrationWill
WillRemain
RemainStrong
Strong
Surviving
SurvivingWholesalers
WholesalersWill
WillGrow
GrowLarger
Larger
Through
ThroughAcquisitions
Acquisitionsand
andMergers
Mergers
Increasing
IncreasingConsolidations
ConsolidationsWill
WillReduce
Reduce
Number
Numberof
ofWholesalers
Wholesalers
Must
MustLearn
Learnto
toCompete
CompeteEffectively
EffectivelyOver
Over
Wider
Widerand
andMore
MoreDiverse
DiverseAreas
Areas
Wholesaling Developments to Consider
Trends in
Trends Wholesaling
in Wholesaling
 Market logistics
It involves, Planning, Implementing, and
controlling the physical flow of materials and
final goods till from points of origin to points
of use.

Market logistics starts from the point of sales

forecasting which planning for other
activities depend on such as scheduling
distribution, production and inventory levels.
Market-logistics objectives
Getting the right goods to the right places
at the right time for the least cost.
Ex.
Rail shipments or air shipments?
Cheaper containers to minimize cost?
Low Inventories, will lead to increase stakeouts,
back orders, more paper work, special
production runs will lead to high-cost fast
freight shipments.
Each market system will lead
to the following costs.
– M = T+FW+VW+S
– M = Total market – logistics cost of proposed
system
– T = Total freight cost of proposed system
– FW = Total fixed warehouse cost of proposed
system
– VW = Total variable Warehouse cost (include
inventory).
– S = Total cost of lost sales due to average
delivery delay under proposed system.
Market Logistic Decisions
– Four major decision must be made:

– Order Processing “system of ordering”

– Warehousing ”where should stocks be located”

– Inventory “how much stock should be held”

– Transportation “how should goods be shipped”

Organizational Lessons about
Marketing Logistics:
• Market logistics decisions must be based on
profit maximizing rather than cost
consideration

• Electronic links among all parties should be

established

• Logistics goals should match or exceed

competitors’ service standards.
 What is Franchising?
• Franchising
– Franchising is a form of business organization in
which a firm that already has a successful product or
service (franchisor) licenses its trademark and
method of doing business to another business or
individual (franchisee) in exchange for a franchise fee
and an ongoing royalty payment.
– Some franchisors are established firms (like
McDonald’s) while others are first-time enterprises
being launched by entrepreneurs.
 Two Types of Franchise
Systems
• Product and Trademark Franchise
– An arrangement under which the franchisor grants to the
franchisee the right to buy its products and use its trade
name.
– This approach typically connects a single manufacturer
with a network of dealers or distributors.
• For example, General Motors has established a
network of dealers that sell GM cars and use the GM
trademark in their advertising and promotions.
• Other examples of product and trademark franchisors
include agricultural machinery dealers, soft drink
bottlers, and beer distributorships.
 Two Types of Franchise
Systems
• Business Format Franchise
– An arrangement under which the franchisor
provides a formula for doing business to the
franchisee along with training, advertising,
and other forms of assistance.
– Fast-food restaurants, convenience stores,
and motels are well-known examples of
business format franchises.
• Business format franchises are by far the
most popular form of franchising,
particularly for entrepreneurial firms.
Two Types of Franchise
Systems
• Panera Bread is an
example
of a business format
franchise.
• Panera provides its
franchisees
a strong brand and a
method
for doing business.
• In return, each franchisee
must
pay an initial franchise fee
and
ongoing royalties.
Types of Franchise Agreements
Individual Franchise Agreement
Types of Franchise Agreements
Area Franchise Agreement
Types of Franchise Agreements
 When to Franchise
From the Franchisor’s Point
of View
• Approach Franchising With Caution and Care
– Establishing a franchise system should be approached
carefully and deliberately.
– Franchising is a complicated business endeavor, and an
entrepreneur must look closely at all its aspects before
deciding to franchise.
• Regulations
– An entrepreneur should also be aware that over the
years a number of fraudulent franchise organizations
have come and gone and have left financially ruined
franchise owners behind.
 When to Franchise?
• When Is Franchising Most Appropriate?
– Franchising is most appropriate when a firm has
a strong or potentially strong trademark, a well-
designed business method, and a desire to
grow.
– A franchise system will ultimately fail if the
franchisee’s brand doesn’t add value for
customers and its business method is flawed or
poorly developed.
Steps to Franchising a
Business
 Qualities for Look for in
Prospective Franchisees
• Good work ethic.
• Ability to follow instructions.
• Ability to operate with minimal supervision.
• Team oriented.
• Experience in the industry in which the
franchise competes.
• Adequate financial resources and good credit
history.
• Ability to make suggestions without becoming
upset if the
suggestions are not adopted.
• Represents the franchisor in a positive manner.
 Ways Franchisors Can
Develop the Potential of Their
Franchisees
• Provide mentoring that supersedes routing
training.
• Keep operating manuals up-to-date.
• Keep product, services, and business systems
up-to-date.
• Solicit input from franchisees to reinforce their
importance in
the larger franchise system.
• Encourage franchisees to develop a franchise
association.
• Maintain the franchise system’s integrity.
Advantages and Disadvantages
of Franchising As a Method of
Business Expansion
Advantages Disadvantages
• Rapid, low-cost market • Profit sharing.
expansion. • Loss of control.
• Income from franchise fees and
• Friction with franchisees.
royalties.
• Franchisee motivation. • Managing growth.

• Access to ideas and suggestions. • Differences in required business skills.

• Cost savings. • Legal expenses.

• Increased buying power.

 Buying a Franchise
From the Franchisee’s Point
of View
• Buying a Franchise
– Purchasing a franchise is an important business decision
involving a substantial financial commitment.
– Potential franchise owners should strive to be as well
informed as possible before purchasing a franchise and
should be aware that it is often legally and financially
difficult to exit a franchise relationship.
 Buying a Franchise
Answering the following questions will
help determine if franchising is right for
you
• Are you willing to take orders? Franchises are
typically
very particular about how outlets operate.
• Are you willing to be part of a franchise “system”
rather
than an independent businessperson?
• How will you react if you make a suggestion to your
franchisor and your suggestion is rejected?
• What are you looking for in a business? How hard
do you
want to work?
 Buying a Franchise
Answering the following questions will
help determine if franchising is right for
you
• How willing are you to put your money at
risk?
• How will you feel if your business is
operating at a net
loss but you will have to pay royalties on your
gross
income?
 The Costs Involved With
Buying a Franchise
• Initial Franchise Fee
– The initial fee varies depending on the
franchisor.
• Capital Requirements
– The costs vary but may include the cost of
buying real estate, the cost of putting up a
building, the purchase of inventory, and the cost
of obtaining a business license.
• Continuing Royalty Payment
– Typically 3% to 7% of monthly gross income.
 The Costs Involved With
Buying a Franchise
• Advertising Fees
– Franchisees are often required to pay into a national or
regional advertising fund.
• Other Fees
– Other fees may be charged for various activities, including:
• Training additional staff.
• Providing management expertise when needed.
• Providing computer assistance.
• Providing a host of other items or support services.
The Costs Involved With Buying
a Franchise
Initial Costs to the Franchisee of a Sample of Franchise Organizations
Advantages and Disadvantages
of Buying a Franchise
Advantages Disadvantages

• A proven product or service • Cost of the franchise.

within • Restrictions on creativity.
an established market. • Duration and nature of commitment.
• An established trademark or
• Risk of fraud, misunderstandings, or
business system.
• Franchisor’s training, technical lack of franchisor commitment.
• Poor performance on the part of other
support, and managerial expertise.
• An established marketing franchisees.
network. • Potential for failure.
• Availability of financing (varies).
• Potential for business growth.
Steps in Purchasing a
Franchise
 Watch Out! Common
Misconceptions About
Franchising
• Franchising is a safe investment.
• A strong industry ensures franchise success.
• A franchise is a “proven” business system.
• There is no need to hire a franchise attorney or an
accountant.
• The best systems grow rapidly and it is best to be part of
a rapid-growth
system.
• I can operate my franchise outlet for less than the
franchisor predicts.
• The franchisor is a nice person—he’ll help me out if I
need it.
Legal Aspects of the Franchise
Relationship
• Federal Rules and Regulations
– The offer and sale of a franchise is regulated at the
federal level.
According to Federal Trade Commission (FTC) rule
436, franchisors must furnish potential franchisees
with written disclosures that provides information
about the franchisor, the franchised business, and
the franchise relationship.
• In most cases, the disclosures are made through a
lengthy document referred to as the Franchisor
Disclosure Document (FDD).
• The FDD contains 23 categories of information that
give a prospective franchisee a broad base of
information about the background and financial
health of the franchisor.
 More About Franchising
• Franchise Ethics
– The majority of franchisors and franchisees
are highly ethical.
– There are certain features of franchising,
however, the make it subject to ethical abuse.
These features are as follows:
• The get rich quick mentality.
• The false assumption that buying a franchise is a
guarantee of business success.
• Conflicts of interest between franchisors and
franchisees.
 More About Franchising
• International Franchising
– International opportunities for franchising are
becoming more prevalent for the following two
reasons:
• The markets for certain franchised products in the U.S. have
become saturated (i.e., fast food).
• The trend towards globalization continues.
– Steps to take before buying a franchise overseas:
• Consider the value of the franchisor’s name in the foreign
country.
• Get a good lawyer.
• Determine whether the product or service is salable in the
foreign country.
• Find out how much training and support you will receive from
the franchisor.