Retailers, Wholesalers, and Direct Marketers

Chapter 14
Retailers,
Wholesalers,
and Direct Marketers
CHAPTER 14 Retailers, Wholesalers, and Direct Marketers
Chapter Objectives
1. Explain the wheel of retailing.

2. Discuss how retailers select target markets.
3. Show how the elements of the marketing mix apply to
retailing strategy.
4. Explain the concepts of retail convergence and scrambled
merchandising.
Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.
Chapter Objectives
5. Identify the functions performed by wholesaling

intermediaries.
6. Outline the major types of independent wholesaling
intermediaries and the appropriate situations for using each.
7. Compare the basic types of direct marketing and nonstore
retailing.
8. Describe how much the Internet has altered the wholesaling,
retailing, and direct marketing environments.
Retailing
o Activities involved in selling merchandise to ultimate

consumers
o Retailers act as both customers and marketers in their
channels
Evolution of Retailing
o The general store – First type of retail institution

o Rise of supermarkets in the early 1930s, discount
stores in the 1950s, convenience stores in the 1960s,
and off-price retailers in the 1980s and 1990s
o Wheel of retailing - Hypothesis that each new type
of retailer gains a competitive foothold by offering
lower prices than current suppliers charge; the result
of reducing or eliminating services
Retailing Strategy
o Retailers base key decisions on two fundamental

steps in the marketing strategy process:
o Selecting a target market
o Developing a retailing mix to satisfy the chosen
market
Selecting a Target Market
o Consider size and profit potential of the market and

the level of competition
o Example: Target draws customers away from
traditional department stores with trendy but
affordable lines of clothing
Merchandising Strategy
o Guides retailer’s decisions on the items it will offer

o While developing the merchandise mix, retailers
should consider:
o Needs and preferences of its target market
o Competitive environment influencing choices
o Overall profitability of each product line and category
Category Management
o Seeks to improve retailer’s product performance

through coordinated buying, merchandising, and
pricing
o Category management evaluates performance
according to each product category
o Categories that underperform may be dropped even if
they are strong brands
The Battle for Shelf Space
o Proliferation of new products and variations on

existing ones has increased the competition for shelf
space
o Stock-keeping unit (SKU) - Offering within a
product line such as a specific size of liquid detergent
The Battle for Shelf Space
o Major retailers increasingly make demands from

manufacturers—such as pricing and promotional
concessions—in exchange for shelf space
o Slotting allowances - Nonrefundable fees grocery
retailers receive from manufacturers to secure shelf
space for new products
Customer Service Strategy
o Heightened customer service is one possible retailing

strategy
o The goal is to attract and retain target customers to
increase sales and profits
o Some services that retailers could provide:
o Enhanced comfort through lounges, complimentary
coffee, convenient restrooms
o Child-care services for customers
o Virtual assistance programs
Pricing Strategy
o Prices reflect a retailer’s marketing objectives and

policies
o They affect consumer perceptions
Markups and Markdowns
o Markup - Amount a retailer adds to the cost of a

product to determine its selling price
o Markup is influenced by two factors:
o Services performed by the retailer
o Inventory turnover rate
o Markdown - Amount by which a retailer reduces the
original selling price of a product
Location/Distribution Strategy
o Location depends on many factors, including the

type of merchandise, the retailer’s financial resources,
characteristics of the target market, and site
availability
Locations in Planned Shopping Centers
o Planned shopping center - Group of retail stores

planned, coordinated, and marketed as a unit
o Includes five main types:
o Neighborhood shopping center
o Community shopping center
o Regional shopping center
o Power centre
o Lifestyle centre
Promotional Strategy
o Promotion informs customers about locations,

merchandise selections, hours of operation, and prices
o Helps retailers attract shoppers and build customer
loyalty
o National chains purchase advertising in print and
broadcast media
Promotional Strategy
o Salespeople play an important promotional role

o Selling up - Persuading customers to buy higher-priced
items than originally intended
o Suggestion selling - Broadening a customer’s original
purchase by adding related items, special promotional
products, or seasonal merchandise
o Poor service can influence customers’ attitudes about
a retailer
Store Atmospherics
o Atmospherics - Combination of physical

characteristics and amenities that contribute to a
store’s image
o Atmospherics includes: exterior and interior décor
o Exterior should help identify the retailer and attract
target market shoppers
o Interior should compliment retailer’s image, respond
to customers’ interests, and induce shoppers to buy
Classification of Retailers by Form of

Ownership
o Chain stores
o Groups of retail outlets that operate under central
ownership and management and handle the same
product lines
o Volume purchases allow chains to pay lower prices
than their independent rivals must pay
Classification of Retailers by Form of

Ownership
o Independent retailers
o Generate about $4.5 trillion in retail sales every year
and account for about 12 percent of all business
establishments in the United States
o Traditional advantage is friendly, personalized service
Classification by Shopping Effort
o Convenience retailers - Focus marketing appeals on

accessible locations, extended store hours, rapid
checkout service, and adequate parking facilities
o Examples: Gas stations and dry cleaners
o Shopping stores - Offer potential customers the
chance to compare pricing, assortment, and quality
levels
o Examples: Furniture stores, clothing outlets
Classification by Shopping Effort
o Specialty retailers - Combine carefully defined

product lines, services, and reputations in attempts to
persuade consumers to expend considerable effort to
shop at their stores
o Examples: Nordstrom
Classification by Services Provided
o Classifications include self-service, self-selection, or

full-service retailers
Classification by Product Lines
o Specialty stores
o Handles only part of a single product line that
it stocks in considerable depth or variety
o Examples: Fish markets, shoe stores, and bakeries
Classification by Product Lines
o Limited-line retailers
o Offer a large assortment of products within one
product line or a few related lines
o Example: IKEA
o Category killer - Offers huge selections and low
prices in single product lines
General Merchandise Retailers
o Variety stores
o Offer an extensive range and assortment of low-price
merchandise
o Declining in popularity in U.S.
General Merchandise Retailers
o Department stores
o A series of limited-line and specialty stores under one
roof
o Example: Bloomingdale’s
o Faced intense competition from discount stores,
Internet retailers, and hypermarkets
o Fought back by eliminating poorly performing lines,
opening in new locations, and modernizing their stores
Mass Merchandisers
o Stocks a wider line of items than a department store

but usually without the same depth of assortment
within each line
Mass Merchandisers
o The four types:

o Discount houses - Charge low prices and offer fewer
services
o Off-price retailers - Stock only designer labels or well-
known brand-name clothing at prices equal to or
below regular wholesale prices and then passes the
cost savings along to buyers
Mass Merchandisers
o Hypermarkets - Giant one-stop shopping facilities

that offers wide selections of grocery and general
merchandise products at discount prices
o Supercenter - Large store, usually smaller than a
hypermarket, that combines groceries with discount
store merchandise
o Showroom and warehouse retailers - Send direct mail
to their customers and sell the advertised goods from
showrooms that display samples
Classification of Retail Transactions by

Location
o Most retail transactions occur in stores
o Nonstore retailing is used for generating orders for
both consumer and B2B marketers
Retail Convergence and Scrambled

Merchandising
o Retail convergence - Situation in which similar
merchandise is available from multiple retail outlets,
resulting in the blurring of distinctions between type
of retailer and merchandise offered
o Scrambled merchandising - Retailing practice of
combining dissimilar product lines to boost sales
volume
o Example: Drugstores that offer cameras and small
appliances
Wholesaling Intermediaries
o Wholesaler - Channel intermediary that takes title to

goods it handles and distributes these goods to
retailers, other distributors, or B2B customers
o Wholesaling intermediary - Comprehensive term
that describes wholesalers as well as agents and
brokers
Functions of Wholesaling Intermediaries
o Creating utility
o Time utility - Making products available for sale when
consumers want to purchase them
o Place utility - Helping deliver goods and services for
purchase at convenient locations
o Ownership (or possession) utility - Involves smooth
exchange of title to the products from producers or
intermediaries to final purchasers
Video
Watch Retailing at Flight 001
o What are the key components to Flight 001’s retailing

strategy?
o Flight 001 was started in the late 1990s because the
founders couldn’t find all their travel needs in one place.
Do you think they face any impending threat from so-
called category killers as these stores continue to raise the
bar in terms of products offered and style? Explain.

Retailers, Wholesalers, and Direct Marketers

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Chapter 14

1. Explain the wheel of retailing.

5. Identify the functions performed by wholesaling

o Activities involved in selling merchandise to ultimate

o The general store – First type of retail institution

o Retailers base key decisions on two fundamental

Selecting a Target Market

o Consider size and profit potential of the market and

o Guides retailer’s decisions on the items it will offer

o Seeks to improve retailer’s product performance

The Battle for Shelf Space

o Proliferation of new products and variations on

The Battle for Shelf Space

o Major retailers increasingly make demands from

Customer Service Strategy

o Heightened customer service is one possible retailing

o Prices reflect a retailer’s marketing objectives and

Markups and Markdowns

o Markup - Amount a retailer adds to the cost of a

o Location depends on many factors, including the

Locations in Planned Shopping Centers

o Planned shopping center - Group of retail stores

o Promotion informs customers about locations,

o Salespeople play an important promotional role

o Atmospherics - Combination of physical

Classification of Retailers by Form of

Classification of Retailers by Form of

Classification by Shopping Effort

o Convenience retailers - Focus marketing appeals on

Classification by Shopping Effort

o Specialty retailers - Combine carefully defined

Classification by Services Provided

o Classifications include self-service, self-selection, or

Classification by Product Lines

Classification by Product Lines

General Merchandise Retailers

General Merchandise Retailers

o Stocks a wider line of items than a department store

o The four types:

o Hypermarkets - Giant one-stop shopping facilities

Classification of Retail Transactions by

Retail Convergence and Scrambled

o Wholesaler - Channel intermediary that takes title to

Functions of Wholesaling Intermediaries

Watch Retailing at Flight 001

o What are the key components to Flight 001’s retailing

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