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Managing Retailing, Wholesaling, and Logistics

LEARNING OBJECTIVES
After reading this chapter, students should:
3) Know what the major types of marketing intermediaries that occupy this sector
4) Know what marketing decisions these marketing intermediaries make
5) Know what are the major trends with marketing intermediaries

DETAILED CHAPTER OUTLINE
In the previous chapter, we examined marketing intermediaries from the viewpoint of manufacturers who wanted to build and manage marketing channels. In this chapter, we view these intermediaries—retailers, wholesalers, and logistical organizations—as requiring and forging their own marketing strategies. Intermediaries also strive for marketing excellence and can reap the benefits like any other company. Many of the more successful intermediaries use strategic planning, advance informaiton systems, and sophisticated marketing tools. They measure performance more on a return-on-investment basis than on a profit-margin basis. They segment their markets, improve their market targeting and positioning, and aggressively pursue market expansion and idversification strategies.

RETAILING

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

A retailer or retail store is any business enterprise whose sales volume comes primarily from retailing.
Any organization selling to the final consumer—no matter how or where they are sold is doing retailing.
Types of Retailers

Retail-type stores pass through stages of growth and decline that is described as the retail life cycle.

Levels of Service

A) The wheel-of-retailing hypothesis explains one reason that new types of stores emerge.
A) Conventional stores typically increase their services and raise prices to cover the incremental costs.
B) This then, provides, opportunities for new store forms to offer lower prices and less services
B) Retailers can position themselves as offering one of four levels of service:
A) Self-service
B) Self-selection
C) Limited service
D) Full service
C) By combining these different levels with different assortment breadths, we can distinguish the four broad positioning strategies available to retailers
D) Non-store retailing has been growing much faster than store retailing. Non-store retailing falls into four major categories:
Direct Selling (also called multi-level selling and network marketing).
Direct marketing
Automatic vending
Buying service
1) Corporate Retailing
2)
Although many retail stores are independently owned, an increasing number are part of some form of corporate retailing.

A) Corporate retail organizations achieve:
A) Economies of scale
B) Greater purchasing power
C) Wider brand recognition
D) Better-trained employees
B) The major types of corporate retailing are:
Corporate chain stores
Voluntary chains
Retailer cooperatives
Franchises
The New Retail Environment

In the past, retailers held customers by offering convenient locations, special or unique assortments of goods, greater or better services than competitors, and store credit cards.
Retailers are having to react or risk going out of business. Here are some of the other retail developments that are changing the way consumers buy and manufacturers and retailers sell:

A) New retail form and combinations
A) Growth of intertype of competition
B) Competition between store-based and non-store based retailing
C) Growth of giant retailers
D) Decline of middle market retailers
E) Growth investment in technology
F) Global profile of major retailers

Marketing Decisions
We will examine retailers’ marketing decisions in the areas of target market, product assortment and procurement, services and store atmosphere, price, communication, and location.
Target Market
A retailer’s most important decision concerns the target market. Until the target market is defined and profiled, the retailer cannot make consistent decisions on product assortment, store décor, advertising messages and media, price, and service levels.
A) Retailers are slicing the market into finer and finer segments and introducing new lines of stores to provide a more relevant set of offerings to exploit niche markets.
Product Assortment
The retailer’s product assortment must match the target market’s shopping expectations.
A) The retailer has to decide on product-assortment breath and depth.
B) The real challenge begins after defining the store’s product assortment, and that is to develop a product-differentiation strategy. Here are some possibilities:
1. Feature exclusive national brands that are not available at competing retailers.
2. Feature mostly private branded merchandise.
3. Feature blockbuster distinctive merchandise events.
4. Feature surprise or ever-changing merchandise.
5. Feature the latest or newest merchandise first.
6. Offer merchandise customizing services.
7. Offer a highly targeted assortment.
C) Merchandise may vary by geographical market.

Procurement
The retailer must establish merchandise sources, policies, and practices.
A) In the corporate headquarters, specialist buyers (sometimes called merchandise managers) are responsible for developing brand assortments and listening to salespersons’ presentations
B) Retailers are rapidly improving their skills in demand forecasting, merchandising selection, stock control, space allocation, and display.
C) When retailers do study the economics of buying and selling individual products there are typically findings:
a. One-third of their square footage is tied up with products that do not make an economic profit.
b. One-third of the products have break-even economics.
c. One-third of the products create more than 100 percent of the economic profit.
Prices
A) Prices are a key positioning factor and must be decided in relation to the target market.
B) Stores are using direct product profitability (DPP) to measure a product’s handling costs from the time it is received to when the customer buys it.
Services
A) The services mix is a key tool for differentiating one store from another.
)1 Retailers must decide on the services mix to offer customers:
A) Pre-purchase services
B) Post-purchase services
C) Ancillary services
B) Retailers also need to consider differentiating based on unerringly reliable customer service.
Retailers are rediscovering the usefulness of customer service as a point of differentiation.
Whatever retailers do to enhance customer service, they will have to keep women in mind. Approximately 85 percent of everything sold in this country is either bought or influenced by a woman.
Store Atmosphere
1) Atmosphere is another element in the store’s arsenal. Every store has a “look” or “feel” that is influenced by colors, layout, smell, and music.

Store Activities and Experiences
The growth of e-commerce has forced traditional brick-and-mortar retailers to respond.
A) In addition to the natural advantages over e-commerce:
A) Products that consumers can actually see, touch, and test
B) Real-life customer service
C) No delivery lag time
B) They also provide a shopping experience as a strong differentiator
C) Real-life retailers are developing new services and promotions:
A) Calling each customer a “guest”
B) Provide a place for people to congregate
C) Creating in-store entertainment
D) Creating “showcase” stores
D) Super-regional malls are anchoring themselves with unique and interesting shops, rather than the brand-name department stores and national retailers of old.
1) They want to become “destination retail” locations.
Communications
Retailers use a wide range of communication tools to generate traffic and purchases.
A) Each retailer must use communications that support and reinforce its image positioning.
Location Decisions
Retailers are accustomed to saying that the three keys to success are “location, location, and location”.
A) The problem breaks down in selecting regions of the country in which to open outlets, then particular cities, and then particular sites.
B) Retailers can locate their stores in the:
1) General business district
2) Regional shopping centers
3) Community shopping centers
4) Strip malls (shopping strips)
5) A location within a larger store
C) In view of the relationship between high traffic and high rents, retailers must decide on the most advantageous locations for their outlets.
D) Retailers can use a variety of methods to assess locations:
Traffic counts.
Survey of consumer shopping habits
Analysis of competitive locations
E) Retailers can assess a particular store’s sales effectiveness by looking at four indicators:
1) Number of people passing by on an average day
2) Percentage who enter the store
3) Percentage of those entering who buy
4) Average amount spent per sale

PRIVATE LABELS
A private label (also called reseller, store, house, or distributor brands) is one retailer’s and wholesalers develop.
A) In the United States, one out of every five items sold is a private labeled item.
B) Some experts believe that 50 percent is the natural limit for carrying private brands because:
1) Consumers prefer certain national brands.
2) Many product categories are not feasible or attractive on a private-brand basis.
Role of Private labels
Why do intermediaries bother to sponsor their own brands?
1) They are more profitable than national brands.
2) Retailers develop exclusive store brands to differentiate themselves from competitors.
3) Generics are unbranded, plainly packaged, less expensive versions of common products.
1) They offer standard or lower quality at a price that may be as much as 20 to 40 percent lower than nationally advertised brands.
2) As well as 10 to 20 percent lower than private label brands.
3) The lower price of generics is made possible by lower-quality ingredients, lower-cost labeling and packaging, and minimal advertising.
The Private-Label Threat
In the confrontation between manufacturers’ and private label brands, retailers have many advantages and increasing market power.

Many supermarkets charge a slotting fee for accepting a new brand.
The growing power of store brands is not the only factor weakening national brands:
1) Consumers are more price-sensitive.
2) They are noting the better quality of the private-label brands.
3) Reduction in brand equity caused by a reduced advertising by national brand
4) The endless stream of brand extensions and line extensions has blurred brand identity and led to a confusing amount of product proliferation.
C) Manufacturers have reacted to the private label threat by spending substantial amounts of money on consumer-directed advertising and promotion to maintain strong brand preference.
D) To maintain their power, leading brand marketers should:
Invest in heavy and continuous R&D.
Sustain a strong “pull” advertising program.
Partner with major mass distributors in a joint search for logistical economies and competitive strategies that produce savings.
WHOLESALING
Wholesaling includes all the activities involved in selling goods and services to those who buy for resale or business use.
A) Wholesaling excludes farmers, manufacturers, and retailers.
B) Wholesalers (also called distributors) differ from retailers in:
1) Wholesalers pay less attention to promotion, atmosphere, and location because they are dealing with business customers.
2) Wholesale transactions are usually larger than retail transactions.
3) Wholesalers cover a larger trade area than retailers.
4) The government deals with wholesalers and retailers differently in terms of legal regulations and taxes.
C) Wholesalers are more efficient in performing the following functions:
1) Selling and promoting
2) Buying and assortment building
3) Bulk breaking
4) Warehousing
5) Transportation
6) Financing
7) Risk bearing
8) Market information
9) Management services and counseling
A) Trends in Wholesaling
B)
Wholesaler-distributors have faced mounting pressures in recent years from new sources of competition.
(i) One major response has been to increase asset productivity by managing inventories and receivables better.
(ii) Each have had to improve their strategic decisions on target markets, product assortment, and services, price, promotion, and place
MARKET LOGISTICS
Physical distribution has now been expanded into the broader concept of supply chain management (SCM).
A) Supply chain management starts before the physical distribution:
A) Procuring the right products
B) Converting them efficiently into finished products
C) Dispatching them to their final destinations
B) The supply chain perspective can help a company identify superior suppliers and distributors and help them improve productivity.
C) Market logistics involves planning the infrastructure to meet demand, then implementing and controlling the physical flows of materials and final goods from points of origin to points of use, to meet customer requirements at a profit.
D) Market logistic has four steps:
Deciding on the company’s value proposition to its customers
Deciding on the best channel design and network strategy for reaching the customers
Developing operational excellence in sales forecasting, warehouse management, transportation management, and materials management
Implementing the solution with the best information systems, equipment, policies, and procedures
E) Market logistics leads to an examination of the most efficient way to deliver value.
Integrated Logistics Systems
The market logistics task calls for integrated logistics system (ILS), involving:
1) Materials management
2) Material flow systems
3) Physical distribution abetted by information technology
4) Information systems play a critical role in managing market logistics especially:
F) Market logistics encompass several activities
A) Sales forecasting
B) The company schedules distribution, production, and inventory levels.
C) Production plans
D) Materials to order
E) Finished goods inventory
G) The total cost of market logistics can amount to 30 to 40 percent of the product’s cost.
H) Lower market-logistics cost will permit lower prices.
I) A well-planned market-logistics program can be a potent tool in competitive marketing.

Market-Logistics Objectives
Many companies state that their market-logistics objective as “getting the right goods to the right places at the right time for the least cost”. Given that market-logistics involve strong trade-offs, decisions must be made on a total system basis.
1) The company must research the relative importance of each of their service outputs.
2) The company must consider competitors’ service standards.
3) The company ultimately has to establish some promise to the market.
4) Given the market-logistic objectives, the company must design a system that will minimize the cost of achieving these objectives.
5) Each possible market-logistic system will lead to the following costs:
1) M = T+FW+VW+S.
a. Where M = total market-logistic cost of proposed system.
b. Where T = total freight cost of proposed system.
c. Where FW = total fixed warehouse cost of proposed system.
d. Where VW = total variable warehouse costs (including inventory).
e. Where S = total cost of lost sales due to average delivery delay under proposed system.
Market-Logistics Decisions
Four major decisions must be made with regard to market logistics:
How should orders be handled (order processing)?
Where should stocks be located (warehousing)?
How much stock should be held (inventory)?
How should goods be shipped (transportation)?

Order Processing
Most companies today are trying to shorten the order-to-payment cycle.
1) That is the elapsed time between an order’s receipt, delivery, and payment.
2) The longer this cycle takes the lower the customer’s satisfaction and the lower the company’s profits.
Warehousing
Every company has to store finished goods until they aresold, because production and consumption cycles rarely match.
The storage function helps smooth discrepancies between production and quantities desired by the market.
The company must decide on the number of inventory stocking locations:
1) More locations means that goods can be delivered to customers more quickly.
2) More locations also means higher warehousing and inventory costs.
C) Storage warehouses store goods for moderate-to-long periods of time.
D) Distribution warehouses receive goods from various company plant and suppliers and move them out as soon as possible.
E) Automated warehouses employ advanced materials-handling systems under the control of a central computer.
F) Some warehouses are now taking on activities formally done in the plant.
Inventory

Inventory levels represent a major cost. Inventory cost increases at an accelerating rate as the customer service level approaches 100 percent.

1) Inventory decision making involves knowing when to order and how much to order.
2) As inventory draws down, management must know at what stock level to place a new order.
1) This stock level is called the order (reorder) point.
2) The order point should balance the risks of stockout against the costs of overstock.
3) The company needs to balance order-processing costs and inventory-carrying costs.
4) Order processing costs for a manufacturer consist of setup costs and running costs (operating costs when production is running).
C) Order-processing costs must be compared with inventory-carrying costs.
1) The larger the average stock carried, the higher the inventory-carrying costs.
2) Carrying costs include:
D) The optimal order quantity can be determined by observing how order-processing costs and inventory-carrying costs sum up at different order levels.
E) Companies are reducing their inventory costs by treating inventory items differently
1) They are positioning inventory items according to risk and opportunity.
2) They are also keeping slow-moving items in a central location while keeping faster moving items closer to customers.
F) The ultimate answer to carrying near-zero inventory is to build for order.
Transportation

Marketers need to be concerned with transportation decisions, as transportation choices will affect product pricing, on-time delivery performance, and the conditions of the goods upon arrival, all of which affects customer satisfaction.
A) Shippers are increasingly combining two or more transportation modes, thanks to containerization.
B) Containerization consists of putting the goods in boxes or trailers that are easy to transfer between two transportation modes.
Piggyback describes the use of rail and trucks.
Fishyback water and trucks.
Trainship water and rail.
Airtruck air and trucks.
C) In deciding on transportation modes, shippers can choose from:
1) Private.
2) Contract.
3) Common carriers.
D) If the shipper owns their own truck or air fleet, the shipper becomes a private carrier.
E) A contract carrier is an independent organization selling transportation services to others on a contract basis.
F) A common carrier provides services between predetermined points on a scheduled basis and is available to all shippers at standard rates.
Organizational Lessons

Market-logistics strategies must be derived from business strategies, rather than solely from cost considerations.

A) The company should set its logistics goals to match or exceed competitors’ service standards and should involve members of all relevant teams in the planning process.
B) Today’s stronger demands for logistical support from large customers will increase suppliers’ costs.
C) Set up differentiated distribution by offering bundled service programs for different customers.

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