marketing chapter 17

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marketing chapter 17
2010-12-02 07:34:38
marketing chapter

learning objectives and definitions
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  1. Explain the alternative ways to classify retail outlets (LO2)
    • Retail outlets can be classified by their:
    • - form of ownership (distinguishes retail outlets based on whether individuals, corporate chains, or contractual systems own the outlet)
    • - level of service (degree of service provided to the customer)
    • - type of merchandise line (how many different types of products a store carries and in what assortment)

    • Forms of ownership include
    • - independent retailers
    • - corporate chains
    • - contractual systems that include retailer-sponsored cooperatives
    • - wholesaler-sponsored voluntary chains
    • - franchises

    • Levels of service include:
    • - self-service
    • - limited-service
    • - full-service outlets

    • Merchandise line:
    • - stores with depth (ie: sporting good specialty stores)
    • - stores with breadth (ie: large department stores)
  2. Form of Ownership
    • Independent retailer
    • - independent business owned by an individual
    • - one of most common forms of retail ownership
    • - owner can be his/her own boss
    • - four or fewer employees
    • - offer customers convenience, personal service, lifestyle compatibility

    • Corporate chain
    • - multiple outlets under common ownership (ie: department store chains; Macy's Inc.)
    • - centralization in decision making and purchasing
    • - as chain grows, more advantages in dealing with manufacturers (good service, volume discounts)
    • - customers benefit in chain store prices, multiple outlets with similar merchandise and consistent management policies

    • Contractual systems
    • - independently owned stores that band together to act like a chain
    • - ie: retailer-sponsored cooperatives, wholesaler sponsored voluntary chains, franchises
    • - franchise: individual/firm contracts with a parent company to set up a business or retail outlet
    • - two types of franchises: business-format franchises (McDonald's, Radio Shack, Subway) and product-distribution franchises (Ford dealership, Coca-Cola distributor)
  3. Level of Service
    • Self-service
    • - customers perform many functions and little is provided by the outlet
    • - ie: Costco, gas stations, etc.
    • - trend toward retailing experiences that make customers co-creators of the value they receive

    • Limited service
    • - provide some services (ie: credit and merchandise return) but not others (ie: clothing alterations)
    • - ie: Walmart, Kmart, Target (general merchandise stores)
    • - customers responsible for most shopping activities
    • - salespoeple available in departments

    • Full service
    • - provide many services to their customers
    • - include most specialty stores and department stores
    • - ie: Meiman Marcus, Nordstorm rely on service to sell more distinctive, higher-margin goods and to retain customers
  4. Type of Merchandise Line
    • Depth of product line
    • - store carries a large assortment of each item
    • - ie: shoe store offering running shoes, dress shoes, and children's shoes
    • - specialty outlets: limited-line stores (carry considerable assortment of related line of items; Sports Authority); single-line store (carry tremendous depth in one primary line of merchandise; Victoria's Secret)
    • - specialty discount outlets: focus on one type of product at very competitive prices (ie: electronics Best Buy, office supplies Staples); (category killers: dominate the market)

    • Breadth of product line
    • - refers to variety of different items a store carries
    • - ie: appliances and CDs
    • - general merchandise stores: broad product line with limited depth (ie: large department stores carry wide range of goods, but not unusual sizes)

    • scrambled merchandising: offering several unrelated product lines in a single store (ie: drugstores, supermarkets)
    • hypermarket: (form of scrambled) concept is offer "everything under one roof"; eliminate need to stop at more than one location (ie: Carrefour)
    • - Supercenter: (U.S) combines typical merchandise store with full-size grocery store

    intertype competition: competition between very dissimilar types of retail outlets that results from a scrambled merchandising policy
  5. Describe the many methods of nonstore retailing. (LO3)
    • Nonstore retailing includes:
    • - automatic vending
    • - direct mail and catalogs
    • - television home shopping
    • - online retailing
    • - telemarketing
    • - direct selling

    • Methods of nonstore retailing vary by the level of involvement of the retailer and the level of involvement of the customer
    • - ie: vending has low involvement
    • - ie: direct selling: consumer and retailer have high involvement
  6. Automatic vending
    • Vending machines - serve customers when/where stores cannot
    • Vending prices include: machine maintenance, operating costs, location leases
    • Ie: cold beverages, candy and snacks, food, cellphones, cameras, etc.
    • Improved technology --> reduce need for cash, credit cards or PayPass cards, cell phones, etc.
    • "Green" machines: consumer less energy, use more efficient compressors, more efficient lighting, better insulations
  7. Direct mail and catalogs
    • - Eliminates cost of a store and clerks
    • - Improve marketing efficiency through segmentation and targeting
    • - Create customer value by providing fast and convenient means of making purchase

    • Factors impacting direct mail and catalog retailing
    • - positive influence of large retailers (IKEA, Crate and Barrel, JCP); increased number and variety of products consumers purchase
    • - negative: higher paper costs, increases in postage rates, growing interest in do-not-mail legislation, concern for "green" mailings, USPS reducing delivery to five days

    • Improving efficiency and providing additional customer value:
    • - focus on proven customers rather than prospective customers
    • - send specialty catalogs to market niches identified in databases
    • - new technologies: intelligent mail bar code, digital catalogs, personalized URLs
  8. Television home shopping
    • Consumers watch a shopping channel on which products are displayed
    • Orders placed over phone or Internet
    • Mostly attracted 40-60 year old women
    • To attract younger audience, invited celebrities
  9. Online Retailing
    • Allows consumers to search for, evaluate, and order products through the Internet
    • Advantages: 24-hour access, ability to comparison shop, in-home privacy, variety
    • Eventually standalone, Internet-only businesses failed or consolidated
    • Traditional and online retailers ("bricks and clicks") are melding (ie: Walmart)
    • Problems: shoppers make it to "checkout", then leave Web site to compare shipping costs and prices on other sites
  10. Telemarketing
    • Involves using telephone to interact with and sell directly to consumers
    • Viewed as more efficient than direct mail at targeting consumers
    • Cut costs but still maintain access to customers
    • Ie: insurance companies, brokerage firms, newspapers
    • Legistlation: National Do-Not-Call registry (issues with consumer privacy, industry standards, ethical guidelines)
  11. Direct selling
    • aka: door-to-door retailing
    • Involves direct sales of goods and services to consumers through personal interactions and demonstrations in their home or office
    • Provide consumers with personalized service and convenience
    • Growth due to 2 trends:
    • 1. many direct selling retailers are expanding into markets outside of the U.S. (growth in markets where lack of effective distribution channels increases importance of door-to-door convenience; lack of consumer knowledge about products and brands)
    • 2. Use direct selling to reach consumers who prefer one-on-one customer service and a social shopping experience (vs. online shopping or big discount stores)
  12. Classify retailers in terms of the retail positioning matrix, and specify retailing mix actions. (LO4)
    • The retail positioning matrix positions retail outlets on two dimensions:
    • - breadth of product line
    • - value added

    • Four possible positions in the matrix
    • - broad product line/low value added (Walmart)
    • - narrow product line/low value added(Payless Shoe Source)
    • - broad product line/high value added (Bloomingdale's)
    • - narrow product line/high value added (Tiffany)

    • Retailing mix actions are used to manage a retail store and the merchandise in a store. The mix variables include:
    • - pricing
    • - store location
    • - communication activities
    • - merchandise

    • Two common forms of assessment for retailers are
    • - "sales per square foot"
    • - "same store growth"
  13. Retail positioning matrix
    • Matrix developed by the Mac Group Inc., management consulting firm
    • Breadth of product line: range of products sold through each outlet
    • Value added: includes elements such as location, product reliability, or prestige
  14. Retail pricing
    In setting prices for merchandise, must decide on markup, markdown, and timing for markdowns

    • Markups
    • - Markup: refers to how much should be added to the cost the retailer paid for a product to reach the final selling price
    • - Original markup: difference between retailer cost and initial selling price
    • - Gross margin/maintained markup: difference between the final selling price and retailer cost

    • Markdowns
    • - Markdown: discounting a product when product does not sell at original price and an adjustment is necessary
    • - Often cause of new models or styles
    • - May be used to increase demand for complementary products

    • Timing of markdown
    • - As soon as sales fall off --> free up valuable selling space and cash
    • - Delay markdowns --> discourage bargain hunters and maintain image quality

    • Using price discounts as part of regular merchandising policy
    • - Everyday low pricing: emphasize consistently low prices and eliminate most markdowns; consumers use price as indicator of product quality; brand name of product and image of store important decision factors
    • - Everyday fair pricing: advocated by retailers that may not offer lowest price but try to create value for customers through service and total buying experience

    • Issues keeping prices low
    • - Shrinkage or breakage
    • - Theft
    • - Fraud by customers and employees (ie: fraudulent returns)

    • Off-price retailing
    • - involves selling brand-name merchandise at lower than regular prices
    • - ie: T.J. Maxx, Burlington Coat Factory, Ross
    • - Off-price merchandise bought by retailer from manufacturers with excess inventory at prices below wholesale prices
    • - (Discounter buys at full wholesale price but takes less of a markup and traditional department stores)
    • - Selection often unpredictable, have to search for bargains
    • - Warehouse club: large, rather stark outlets with no elaborate displays, customer service, or home delivery; require annual membership fee; ultralow prices and surprise deals on selected merchandise (ie: Sam's Club, Costco's Warehouse Club, etc.)
    • - Outlet store: offer products for x% off suggested retail price; used to clear excess merchandise and to reach consumers focused on value shopping; still maintain an image of offering merchandise at full price in primary store
    • - Single-price (extreme value) retailers: attract customers who want value and a "corner store" environment (ie: Family Dollar, Dollar General, and Dollar Tree)
  15. Store Location
    • Central business district
    • - Oldest retail setting, community's downtown area
    • - Suburban population grew at expense of downtown shopping area
    • - Less convenient: lack of parking, higher crime rates, exposure to weather

    • Regional shopping centers
    • - typically attract customers who live or work within a 5-10 mile range
    • - Large shopping are containing two or three anchor stores (well-known national or regional stores, Sears, Saks, etc.)

    • Community shopping center
    • - Has one primary store (usually department store branch) and about 20-40 smaller outlets
    • - Serve population of consumers within 10-20 minute drive

    • Strip mall
    • - clusters of stores that serve people within 5-10 minute drive
    • - ie: gas station, hardware, laundry, grocery, and pharmacy outlets
    • - Composition of stores usually unplanned

    • Power center
    • - Variation of strip mall
    • - Huge shopping strip with multiple anchor stores (ie: Home Depot, Best Buy, JCP)
    • - Convenient location with additional power of national stores
  16. Retail Communication
    • Important role in positioning a store and creating its image
    • Image: "the way in which the store is defined in the shopper's mind" partly by its functional qualities and partly by an aura of psychological attributes
    • Functional: mix elements such as price ranges, store layouts, and breadth and depth of merchandise lines
    • Psychological: intangibles such as sense of belonging, excitement, style, warmth
    • Includes impressions of corporation operating store, category or type of store, product categories in store, brands in each category, merchandise and service quality, and marketing activities of store
  17. Merchandise
    Managing breadth and depth of product line requires retail buyers who are familiar with needs of target market and alternative products available

    • Category management
    • - assigns a manager the responsibility for selecting all products that consumers in a market segment might view as substitutes for each other, with the objective of maximizing sales and profits in the category
    • - popular approach to managing the assortment of merchandise

    • Consumer Marketing at Retail (CMAR)
    • - advanced form of category management
    • - conduct research, identify shopper problems, translate data into retailing mix actions, execute shopper-friendly in-store programs, monitor performance of merchandise

    • Marketing metrics
    • - Measures related to customers (number of transactions per customer, average transaction size per customers, average length of store visit, etc.)
    • - Measures related to products (number of returns, inventory turnover, inventory carrying cost, average number of items per transaction)
    • - Financial measures (gross margin, sales per employee, return on sales, markdown percentage)
    • - two most popular measures: sales per square foot (how effectively retail space is used to generate revenue) and same store sales growth (compare increase in sales of stores that have been open for same period of time)
  18. Explain changes in retailing with the wheel of retailing and the retail life cycle concepts. (LO5)
    • Wheel of retailing: explains how retail outlets typically enter the market as low-status, low-margin stores
    • - Stores gradually add new products and services, increasing their prices, status, and margins
    • - Leaves an opening for new low-status, low-margin stores

    • Retail life cycle: describes the process of growth and decline for retail outlets through four stages:
    • - early growth
    • - accelerate development
    • - maturity
    • - decline
  19. Wheel of Retailing
    • 1. Outlet starts with: low prices, low margins, low status
    • (as time passes, outlet adds services)
    • 2. Outlet now was: higher prices, higher margins, higher status
    • (as more time passes, outlet adds still more services)
    • 3. Outlet now has: still higher prices, still higher margins, still higher status
    • 4. New form of outlet enters retailing environment with characteristics of outlet in box 1
    • (continue cycle)
  20. Retail life cycle
    • Early growth
    • - stage of emergence of retail outlet
    • - sharp departure from existing competition
    • - market share rises gradually, although profits may be low because of start-up costs
    • - (value-retail centers -> online retailers -> single-brand stores)

    • Accelerated development
    • - both market share and profit achieve their greatest growth rates
    • - usually multiple outlets are established
    • - companies focus on distribution element of marketing mix
    • - later competitors may enter
    • - key goal: establish dominant position in fight for market share
    • - (single-price stores -> factory outlet stores -> warehouse clubs)

    • Maturity
    • - competitors begin to drop out of market
    • - stores try to maintain market share
    • - price discounting occurs
    • - challenge: delay entering decline stage
    • - (fast-food outlets -> convenience stores -> supermarkets -> department stores)

    • Decline
    • - market share and profit fall rapidly
    • - to prevent further decline: need to find ways of discouraging customers from moving to low-margin, mass-volume outlets or high-price, high-service boutiques
    • - (catalog retailers -> business-district retailers -> general store)