Today’s Lesson will cover the roles of retailers and wholesalers in the distribution channel, the
major types of retailers, Identify the major types of wholesalers and the marketing decisions facing
retailers and wholesalers.

RETAILING AND WHOLESALING.

A. Retailing

What is retailing? Retailing includes all the activities involved in selling goods or services directly to
final consumers for their personal, nonbusiness use. Many institutions—manufacturers,
wholesalers, and retailers—do retailing. But most retailing is done by retailers: businesses whose
sales come primarily from retailing.

Although most retailing is done in retail stores, in recent years nonstarter retailing has been growing
much faster than has store retailing. Nonstore retailing includes selling to final consumers through
direct mail, catalogs, telephone, home TV shopping shows, home and office parties, door-to-door
contact, vending machines, online services and the Internet, and other direct retailing approaches.

a. Types of Retailers:

Retail stores come in all shapes and sizes, and new retail types keep emerging. The most important
types of retail stores are described in Table 13.1 and discussed in the following sections. They can
be classified in terms of several characteristics, including the amount of service they offer, the breadth
and depth of their product lines, the relative prices they charge, and how they are organized.

Amount of Service

Different products require different amounts of service, and customer service preferences vary.
Retailers may offer one of three levels of service—self-service, limited service, and full service.
Self-service retailers serve customers who are willing to perform their own "locate-compare-select"
process to save money. Self-service is the basis of all discount operations and is typically used by
sellers of convenience goods (such as supermarkets) and nationally branded, fast-moving shopping
goods (such as Best Buy or Service Merchandise).
Limited-service retailers provide more sales assistance because they carry more shopping goods about
which customers need information. Their increased operating costs result in higher prices. In fullservice
retailers, such as specialty stores and first-class department stores, salespeople assist customers
in every phase of the shopping process. Full-service stores usually carry more specialty goods for
which customers like to be "waited on." They provide more services resulting in much higher
operating costs, which are passed along to customers as higher prices.

Customer Service: Why is it Becoming Scarce

Increasingly, customers complain about the poor state of retail customer service. What we expect
from retail stores is to get the products we want when we want them, where we want them, and to
have them delivered in a pleasingly professional manner at a reasonable price. This ideal may be
slipping further from our reach.
Unfortunately, as the economy improved, retailers found customers balking at paying higher prices
for improved service.
Experts have pointed to a host of other reasons for the drop in retail service levels. Some argue
that such problems begin at the top. They argue that top executives responsible for fostering a
culture of customer service often do not understand their business or their customers, nor do they
have proper ordering procedures or effective employee training programs.

Product Line

Retailers also can be classified by the length and breadth of their product assortments. Some
retailers, such as specialty stores, carry narrow product lines with deep assortments within those
lines. Today, specialty stores are flourishing. The increasing use of market segmentation, market
targeting, and product specialization has resulted in a greater need for stores that focus on specific
products and segments.
In contrast, 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 "bargain
basements" and promotional events to meet the discount threat. Others have set up store brand
programs, "boutiques" and "designer shops" within department stores), and other store formats
that compete with specialty stores. Still others are trying mail-order, telephone, and Web site
selling. Service remains the key differentiating factor.
Supermarkets are the most frequently shopped type of retail store. Today, however, they are
facing slow sales growth because of slower population growth and an increase in competition from
convenience stores, discount food stores, and superstores. Supermarkets also have been hit hard
by the rapid growth of out-of-home eating. Thus, most supermarkets are making improvements to
attract more customers. In the battle for "share of stomachs," most large supermarkets have
moved upscale, providing from-scratch bakeries, gourmet deli counters, and fresh seafood
departments. Others are cutting costs, establishing more efficient operations, and lowering prices
in order to compete more effectively with food discounters.
Convenience stores are small stores that carry a limited line of high-turnover convenience goods.
In the 1990s, the convenience store industry suffered from overcapacity as its primary market of
young, blue-collar men shrunk. As a result, many chains have redesigned their stores with female
customers in mind. They are dropping the image of a "truck stop" where men go to buy beer,
cigarettes, and magazines, and instead offer fresh, prepared foods and cleaner, safer environments.
Many convenience chains also are experimenting with micromarketing—tailoring each store's
merchandise to the specific needs of its surrounding neighborhood. Superstores are much larger
than regular supermarkets and offer a large assortment of routinely purchased food products,
nonfood items, and services. Stores, the so-called category killers. They feature stores the size of
airplane hangers that carry a very deep assortment of a particular line with a knowledgeable staff.
Category killers are prevalent in a wide range of categories, including books, baby gear, toys,
electronics, home improvement products, linens and towels, party goods, sporting goods, even pet
supplies. Another superstore variation, hypermarkets, are huge superstores, perhaps as large as six
football fields. Finally, for some retailers, the product line is actually a service. Service retailers
include hotels and motels, banks, airlines, colleges, hospitals, movie theaters, tennis clubs, bowling
alleys, restaurants, repair services, hair care shops, and dry cleaners.

Relative Prices

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. The retailers that feature low prices are discount stores, "off-price"
retailers, and catalog showrooms:

Discount Stores:

A discount store sells standard merchandise at lower prices by accepting lower margins and
selling higher volume. The early discount stores cut expenses by offering few services and
operating in warehouse like facilities in low-rent, heavily traveled districts. In recent years, facing
intense competition from other discounters and department stores, many discount retailers have
"traded up." They have improved decor, added new lines and services, and opened suburban
branches, which have led to higher costs and prices.

Off-Price Retailers

When the major discount stores traded up, a new wave of off-price retailers moved in to fill the
low-price, high-volume gap. Ordinary discounters buy at regular wholesale prices and accept lower
margins to keep prices down. In 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 are either owned and run by entrepreneurs 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. Factory outlets—
sometimes group together in factory outlet malls and value-retail centers, where dozens of outlet stores
offer prices as low as 50 percent below retail on a wide range of items. Whereas outlet malls
consist primarily of manufacturers' outlets, value-retail centers combine manufacturers' outlets with
off-price retail stores and department store clearance outlets. Factory outlet malls have become one
of the hottest growth areas in retailing.
The malls now are moving upscale, narrowing the gap between factory outlets and more traditional
forms of retailers. As the gap narrows, the discounts offered by outlets are getting smaller.
Manufacturers counter that they send last year's merchandise and seconds to the factory outlet
malls, not the new merchandise that they supply to the department stores. The malls are also
located far from urban areas, making travel to them more difficult. Still, the department stores are
concerned about the growing number of shoppers willing to make weekend trips to stock up on
branded merchandise at substantial savings.

Warehouse clubs (or wholesale clubs, or membership warehouses), operate in huge, drafty, warehouse
like facilities and offer few frills. Customers themselves must wrestle furniture, heavy appliances,
and other large items to the checkout line. Such clubs make no home deliveries and accept no
credit cards, but they do offer rock-bottom prices.

b. Retailer Marketing Decisions

Retailers are searching for new marketing strategies to attract and hold customers. In the past,
retailers attracted customers with unique products, more or better services than their competitors
offered, or credit cards. Today, national-brand manufacturers, in their drive for volume, have
placed their branded goods everywhere. Thus, stores offer more similar assortments—national
brands are found not only in department stores but also in mass-merchandise and off-price
discount stores. As a result, stores are looking more and more alike.
Service differentiation among retailers has also eroded. Many department stores have trimmed
their services, whereas discounters have increased theirs. 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. Retailers face major marketing decisions about their target
markets and positioning, productassortment and services, price, promotion, and place.

i. Target Market and Positioning Decision

Retailers first must define their target markets and then decide how they will position themselves in
these markets. Should the store focus on upscale, miscalled, 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 decor, or any of the other decisions that must support their
positions.
Too many retailers fail to define their target markets and positions clearly. They try to have
"something for everyone" and end up satisfying no market well. In contrast, successful retailers
define their target markets well and position themselves strongly.

ii. Product Assortment and Services Decision

Retailers must decide on three major product variables: product assortment, services mix, and store
atmosphere.
The retailer's product assortment should match target shoppers' expectations. In its quest to
differentiate itself from competitors, a retailer can use any of several product-differentiation
strategies. For one, it can offer merchandise that no other competitor carries—its own private
brands or national brands on which it holds exclusives. Retailers also must decide on a services mix
to offer customers. The old mom-and-pop grocery stores offered home delivery, credit, and
conversation—services that today's supermarkets ignore. The services mix is one of the key tools
of nonprime competition for setting one store apart from another.
The store's atmosphere is another element in its product arsenal. Every store has a physical layout that
makes moving around in it either hard or easy. Each store has a "feel"; one store is cluttered,
another charming, a third plush, a fourth somber. The store must have a planned atmosphere that
suits the target market and moves customers to buy.
Increasingly, retailers are turning their stores into theaters that transport customers into unusual,
exciting shopping environments. All of this 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.
Store atmospheres offer a powerful tool by which retailers can differentiate their stores from those
of competitors.

iii. Price Decision

A retailer's price policy is a crucial positioning factor and must be decided in relation to its target
market, its product and service assortment, and its competition. 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).

iv. Promotion Decision

Retailers use the normal promotion tools—advertising, personal selling, sales promotion, public
relations, and direct marketing—to reach consumers. They advertise in newspapers, magazines,
radio, and television. Advertising may be supported by newspaper inserts and direct-mail pieces.
Personal selling requires careful training of salespeople in how to greet customers, meet their
needs, and handle their complaints. Sales promotions may include in-store demonstrations,
displays, contests, and visiting celebrities. Public relations activities, such as press conferences and
speeches, store openings, special events, newsletters, magazines, and public service activities, are
always available to retailers. Many retailers have also set up Web sites, offering customers
information and other features and sometimes selling merchandise directly.

v. Place Decision

Retailers often cite three critical factors in retailing success: location, location, and location! A retailer's
location is key to its ability to attract customers. The costs of building or leasing facilities have a
major impact on the retailer's profits. Thus, site-location decisions are among the most important
the retailer makes. Small retailers may have to settle for whatever locations they can find or afford.
Large retailers usually employ specialists who select locations using advanced methods.

vi. Site Selection for Retail Location

Site selection is an important decision for retailers planning to open new stores. Not only do they
have to decide whether they want to locate in a mall or as a standalone store, they also have to
assess the site's potential in terms of likely sales and profitability.
Most stores today cluster together to increase their customer pulling power and to give consumers
the convenience of one-stop shopping. A shopping center is a group of retail businesses planned,
developed, owned, and managed as a unit. 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. They are close and convenient for consumers. They usually contain a supermarket,
perhaps a discount store, and several service stores—dry cleaner, self-service laundry, drugstore,
video-rental outlet, barber or beauty shop, hardware store, or other stores.

c. The Future of Retailing

Retailers operate in a harsh and fast-changing environment, which offers threats as well as
opportunities. Consumer demographics, lifestyles, and shopping patterns are changing rapidly, as
are retailing technologies. To be successful, then, retailers will have to choose target segments
carefully and position themselves strongly. They will have to take the following retailing
developments into account as they plan and execute their competitive strategies.

New Retail Forms and Shortening Retail Life Cycles

New retail forms continue to emerge to meet new situations and consumer needs, but the life cycle
of new retail forms is getting shorter. Department stores took about 100 years to reach the mature
stage of the life cycle; more recent forms, such as warehouse stores, reached maturity in about 10
years. To remain successful, they must keep adapting.
Many retailing innovations are partially explained by the wheel of retailing concept According to
this concept; many new types of retailing forms begin as low-margin, low-price, low-status
operations. They challenge established retailers that have become "fat" by letting their costs and
margins increase. The new retailers' success leads them to upgrade their facilities and offer more
services. In turn, their costs increase, forcing them to increase their prices. Eventually, the new
retailers become like the conventional retailers they replaced. The cycle begins again when still
newer types of retailers evolve with lower costs and prices. The wheel of retailing concept seems to
explain the initial success and later troubles of department stores, supermarkets, and discount
stores, and the recent success of off-price retailers.

• Growth of Nonstore Retailing

Although most retailing still takes place the old-fashioned way across countertops in stores,
consumers now have an array of alternatives, including mail order, television, phone, and online
shopping. "

• Increasing Intertype Competition

Today's retailers increasingly face competition from many different forms of retailers. For example,
a consumer can buy CDs at specialty music stores, discount music stores, electronics superstores,
general merchandise discount stores, video-rental outlets, and through dozens of Web sites. They
can buy books at stores ranging from independent local bookstores to discount stores The
competition between chain superstores and smaller, independently owned stores has become
particularly heated. Because of their bulk buying power and high sales volume, chains can buy at
lower costs and thrive on smaller margins. The arrival of a superstore can quickly force nearby
independents out of business.

• The Rise of Mega retailers

The rise of huge mass merchandisers and specialty superstores, the formation of vertical marketing
systems and buying alliances, and a rash of retail mergers and acquisitions have created a core of
superpower mega retailers. Through their superior information systems and buying power, these
giant retailers are able to 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 mega retailers also are shifting the balance of power between retailers and
producers. A relative handful of retailers now control access to enormous numbers of consumers,
giving them the upper hand in their dealings with manufacturers.

• Growing Importance of Retail Technology

Retail technologies are becoming critically important as competitive tools. Progressive retailers are
using computers to produce better forecasts, control inventory costs, order electronically from
suppliers, send e-mail between stores, and even sell to customers within stores. They are adopting
checkout scanning systems, online transaction processing, electronic funds transfer, electronic data
interchange, in-store television, and improved merchandise-handling systems.
One innovative scanning system now in use is the shopper scanner, a radar like system that counts
store traffic. Perhaps the most startling advances in retailing technology concern the ways in which
today's retailers are connecting with customers: