Lamb, Hair, McDaniel CHAPTER 15Retailing2010-2011

LO 1 Discuss the importance of retailing in the U.S. economy LO 2 Explain the dimensions by which retailers can be classified

LO 3 Describe the major types of retail operations LO 4 Discuss nonstore retailing techniques

Learning Outcomes

LO 5 Define franchising and describe its two basic forms

LO 6 List the major tasks involved in developing a retail marketing strategy

LO 7 Describe new developments in retailing

Learning Outcomes

The Role of RetailingDiscuss the importance of retailing in the U.S. economyLO1

RetailingRetailingLO1

The Role of Retailing Over 1.6 million U.S. retailers employ more than 24 million peopleRetailers account for 11.6 percent of U.S. employmentRetailing accounts for 13 percent of U.S. businessesRetailers ring up almost $4 trillion in salesnearly 40 percent of the U.S. GDPIndustry is dominated by a few giant organizations, such as Wal-MartLO1

Beyond the BookStress Value to Attract CustomersSOURCE: Larry Freed, Satisfied and Buying, online at http://www.internetretailer.com.Because of the recession, customers are in a particularly cost-conscious mood and focusing on value. To grab their attention retailers can:

Offer unique value propositions, i.e. prices, customer services, loyalty programs

Use innovative marketing concepts that will resonate with consumers, e.g. pop-up shops or a green emphasis

Appeal to time-strapped customers with an efficient multi-channel shopping experience LO1

REVIEW LEARNING OUTCOMEThe Importance of RetailingLO1

Classifying RetailersExplain the dimensions by which retailers can be classified LO2

Classification of Retail OperationsOwnershipLevel of ServiceProduct AssortmentPriceLO2

Classification of OwnershipLO2

Level of ServiceLO2

Types of Stores and Their CharacteristicsLO2

PriceGrossMarginLO2

Major Types of Retail OperationsDescribe the major types of retail operationsLO3

Major Types of Retail OperationsLO3

Categories of Discount StoresLO3

Discount StoresRetailing strategy using moderate to low prices on large quantities of merchandise and lower service to stimulate high turnover of products.LO3

Discount StoresLO3

Specialty Discount StoresCategory KillersSpecialty discount stores that heavily dominate their narrow merchandise segment. LO3

Types of Retail OperationsDepartment StoresSpecialty StoresSupermarketDrugstoresConvenience StoresDiscount StoresRestaurantsScrambled MerchandisingShoppingSpecialty GoodsDistinctive ProductsCustomer ServiceFood ProductsMedicationsHealth and BeautyCosmeticsSpecialtyHigh Turnover GoodsLO3

AldiStarted in 1976 in Iowa, ALDI is increasing its market presence as a discount grocer. Offering a slim 1,400 products as ALDI select brands, the chain is able to give consumers deep discounts through supplier deals and their no-frills approach. Products must meet national brand standards, but consumers purchase for up to 50% less. LO3

Nonstore RetailingDiscuss nonstore retailing techniquesLO4

Nonstore RetailingLO4

Direct RetailingLO4

Types of Direct MarketingShop-at-home networksOnline retailingLO4

Beyond the BookTop E-Tailers by Sales VolumeLO4

SOURCE: Larry Freed, Satisfied and Buying, online at http://www.internetretailer.com.Customer Satisfaction (out of 100 points)LO4Top E-Tailers by Customer Satisfaction

Nonstore Retailing TechniquesNonstore RetailingLO4

Vending Machine VarietyReverse Vending MachinesInput recyclables and the machine sorts, compresses, and pays out refunds based on the container.Used Golf Ball Vending MachinesTilly-Miss fills candy-style dispensers with reclaimed golf balls.Kosher Hot Dog Vending MachinesKosher Cart cooks hot dogs and other kosher foodsCustom Juice Drinks Vending MachinesSelect and mix custom juice drinksMoobella Custom Ice Cream Vending MachinesMake custom ice cream by mixing base flavors and mix-insLO4

FranchisingDefine franchising and describe its two basic formsLO5

Basic Forms of FranchisingBusiness Format FranchisingProduct and Trade Name FranchisingLO5

FranchisingLO5

Largest U.S. FranchisorsLO5

1. Subway

2. McDonalds

3. Liberty Tax Services

4. Sonic Drive-In Restaurants

5. InterContinental Hotels Group

6. Ace Hardware Corp.

7. Pizza Hut

8. The UPS Store/Mail Boxes Etc.

9. Circle K

10. Papa Johns International Inc.

11. Jiffy Lube International Inc.

12. Instant Tax Service

13. Baskin-Robbins USA Inc.

14. KFC Corp.

15. Jani-King

16. Dairy Queen

17. Super 8 Worldwide

18. Arbys

19. JAN-PRO Franchising International Inc.

20. Taco Bell Corp.

Retail Marketing StrategyList the major tasks involved in developing a retail marketing strategyLO6

Retail Marketing StrategyDevelop the Six PsDefine & Select a Target MarketLO6

Defining a Target MarketLO6

Choosing the Retailing MixLO6

The Retailing MixLO6

Choosing the Retailing MixThe mix of products offered to the consumer by the retailer; also called the product assortment or merchandise mix.LO6

Retail Promotion StrategyLO6

The Proper LocationChoosing a CommunityChoosing a SiteLO6

Important Factorsfor Site ChoiceNeighborhood socioeconomicsTraffic flowsLand costsZoning regulationsPublic transportationSites visibility, parking, entrances and exits, accessibility, and safetyFit with other stores LO6

Shopping Center and Mall Locations

Design attracts shoppersActivities and anchor stores draw customersAmple parkingUnified imageSharing of common area expenses

Expensive leasesFailure of common promotion effortsLease restrictionsHours of operationAnchor store dominationDirect competitorsConsumer time limitsLO6

Retail PricesQualityImage

High Price Low PriceGood Value Single Price Point EDLPLO6

Presentation of the Retail StoreThe overall impression conveyed by a stores physical layout, dcor, and surroundingsLO6

Presentation of the Retail StoreLO6

Personnel and Customer ServiceLO6

Customer Service for On-Line RetailersLO6

Developing a Retail Marketing StrategyLocationPRICEAdvertising, and depth of product assortmentWidthand hourspublic relationspublicity, Customer serviceLayoutand atmosphereLO6

New Developments in RetailingDescribe new developments in retailingLO7

New Developments in RetailingLO7

Marketing cannot be accomplished in isolation. Even though the marketing function resides with marketers, the concept of marketing must permeate the entire organization. Notes:Retailing has enhanced the quality of our daily lives, with the millions of goods and services provided mirroring the needs and styles of U.S. society.

Retailing affects all of us directly or indirectly. The retailing industry is one of the largest employers, as shown on the next slide.

Discussion/Team Activity:Poll the class to see how many of the students have worked in the retail industry. How many are pursuing careers in the retail industry?

Notes:Retailers ring up almost $4 trillion in sales annually, about 40 percent of the U.S. gross domestic product. Retail counts for 11.6 percent of U.S. employment, and nearly 13 percent of all business are considered retail under NAICS.

Although most retailers are small, a few giants dominate the industry. Wal-Mart annual sales are greater than the next five U.S. retail giants' sales combined.

Refer to Hot Stores box on page 196 for a list of the ten largest U.S. retailers.

Notes:[The numbers in this table come from a biannual study conducted by ForeSee Results and FGI Research, using the methodology of the University of Michigans American Customer Satisfaction Index.]

You can see by studying the table that successful online retailers dont follow a single model to achieve that success. For instance, LLBean is primarily a catalog company, zappos.com is strictly online, and victoriassecret.com is principally bricks-and-mortar. Retailers with freestanding stores, Web sites, and catalogs have successfully implemented a multichannel solution, where customers can shop the catalog or site, and go to the store to try the product on before purchasing it.

The number one challenge e-tailers have to meet is keeping the shopping experience consistent across channels.

Notes:A retail establishment can be classified according to its ownership, level of service, product assortment, and price.

Retailers use the latter three variables to position themselves in the competitive marketplace. These variables can be combined in several ways to create distinctly different retail operations.

Notes:Retailers can be broadly classified by form of ownership.

Independent retailers are retailers owned by a single person or partnership. Around the world, most retailers are independent, operating one or a few stores in their community.

Chain stores are owned and operated as a group by a single organization, with many administrative tasks being handled by the home office for the entire chain.

Franchises are owned and operated by individuals, but are licensed by a larger supporting organization. With franchising, the advantages of both independent ownership and the chain store organization are combined.

Notes:The level of service that retailers provide can be classified along a continuum, from full-service to self-service.

Discussion Activity:Many students will not realize that gas stations used to offer full- and self-service pumps. As students to consider whether full-service gasoline is a retailing option that can be successfully revived. You may need to give a detailed description of the elements included in full-service gas pumping (pumping, windshield washing, fluid check, payment from car).

Notes:Exhibit 13.1 lists the major types of retail stores and classifies them by level of service, product assortment, price, and gross margin.

Notes:Price is a fourth way to position retail stores. Traditional department stores and specialty stores usually charge the suggested retail price. In contrast, discounters, factory outlets, and off-price retailers use low prices as a lure for shoppers. Refer to the last column of Exhibit 13.1 to see how gross margin and price levels correlate to the various types of stores.

Online: WalgreensDo you think drugstore Web sites add value for the consumer? What services on the Walgreens site would you be most likely to use? Would Internet selling be a factor in your choice of a pharmacy? To what group of consumers might selling items over the Internet be the most appealing? Why? Notes:With the experimentation with alternative formats of retail stores, classification has become more difficult. Department stores: carries a wide variety of shopping and specialty goods. Purchases are made within each department. Specialty stores: merchandise is tailored to specific target markets. Price is a secondary consideration to consumers. These stores provide a low-risk testing ground for many new products.Supermarkets: U.S. consumers spend about a tenth of their disposable income in supermarkets. Drugstores: stock pharmacy-related products and services. Convenience stores: defined as a miniature supermarket, carrying only a limited line of convenience goods.Discount stores: a retailer that competes on the basis of low prices, high turnover, and high volume. Restaurants: straddle the line between retailing establishments and service establishments.

Notes:Full-line discount stores offer very limited service and a broad assortment of well-known, nationally branded goods. Wal-Mart is the largest full-line discount store in terms of sales. Supercenters combine groceries and general merchandise with a wide range of services in one location.

Specialty discount stores offer a nearly complete selection of single-line merchandise and are often termed category killers because they dominate their merchandise segment.

Warehouse clubs sell a limited selection of appliances, household items, and groceries, usually in bulk and to members only.

Off-price retailers sells at prices 25 percent or more below traditional department stores.

Discussion/Team Activity:List discount stores in each of the above categories.

Notes:Nonstore retailing is shopping without visiting a store. The major forms are shown here. Because consumers demand convenience, nonstore retailing is growing faster than in-store retailing.

OnlineAvonWhat advantages to you think the Avon site has over a visit from an Avon representative? Can you get the same amount of product information from each? Does Avon offer any products that you would prefer to order from a representative? Notes:The sales of direct retailers, such as Avon and Tupperware, have suffered as more women have entered the workforce. Direct retailers are turning to direct mail, telephone, traditional retailing venues, and the Internet to reach more buyers. Direct retailers are also exploring opportunities in other countries.

Notes:Direct marketing refers to the techniques used to get consumers to make a purchase from home, office, or other non-retail setting. These include direct mail, catalogs and mail order, telemarketing, and electronic retailing. Examples of electronic retailing include shop-at-home networks and on-line retailing. Shop-at-home networks include the Home Shopping Network and the QVC Network. This industry has grown into a multibillion-dollar business with a loyal customer following.The use of on-line retailing has exploded in the last several years due to the convenience and cost savings to consumers. In 2005, e-retailers online sales surpassed $140 billion, by 2006, sales were $300 billion. Online auctions run by Internet companies such as eBay and Amazon.com have enjoyed phenomenal success. As the popularity of online retailing grows, it is becoming critical that retailers be online and that their stores, Web sites, and catalogs be integrated.

Notes:[The numbers in this table come from a biannual study conducted by ForeSee Results and FGI Research, using the methodology of the University of Michigans American Customer Satisfaction Index.]

You can see by studying the table that successful online retailers dont follow a single model to achieve that success. For instance, LLBean is primarily a catalog company, zappos.com is strictly online, and victoriassecret.com is principally bricks-and-mortar. Retailers with freestanding stores, Web sites, and catalogs have successfully implemented a multichannel solution, where customers can shop the catalog or site, and go to the store to try the product on before purchasing it.

The number one challenge e-tailers have to meet is keeping the shopping experience consistent across channels.

Notes:[The numbers in this table come from a biannual study conducted by ForeSee Results and FGI Research, using the methodology of the University of Michigans American Customer Satisfaction Index.]

You can see by studying the table that successful online retailers dont follow a single model to achieve that success. For instance, LLBean is primarily a catalog company, zappos.com is strictly online, and victoriassecret.com is principally bricks-and-mortar. Retailers with freestanding stores, Web sites, and catalogs have successfully implemented a multichannel solution, where customers can shop the catalog or site, and go to the store to try the product on before purchasing it.

The number one challenge e-tailers have to meet is keeping the shopping experience consistent across channels.

Notes:A franchise is a continuing relationship in which a franchiser grants to a franchisee the business rights to operate or sell a product. The franchiser originates the trade name, product, operation methods, etc. The franchisee pays the franchiser for the right to use its name, product, or methods. The initial franchise fee generally ranges from $50,000 to $250,000 and higher, and royalty fees paid weekly/monthly are in the range of 3 to 7 percent of gross revenues. For example, a McDonalds franchise costs an initial $45,000 per store plus a monthly fee. Start-up costs for equipment and expenses range from $511,000 to over $1 million.

Notes:Box on page 205 features information on the largest U.S. franchisors.

Notes:Retailers develop marketing strategies based on overall goals and strategic plans. The key tasks in strategic retailing are defining and selecting a target marketing and developing the retailing mix to meet the needs of the chosen target market.

The key tasks in strategic retailing are defining and selecting a target market and developing the retailing mix to meet the needs of the chosen market.

Notes:The first task in developing a retail strategy is to define the target market. Defining the target market begins with market segmentation. Successful retailing is based on knowing the customer.

Target markets are defined by demographics, geographics, and psychographics.

Notes:The retailing mix consists of six Ps: the four Ps of the marketing mix (product, price, promotion, and place), plus presentation and personnel.

The combination of the 6 Ps projects a store image, which influences perceptions. Retail stores can be positioned on the three dimensions: service, product assortment, and price. Everything elseplace, presentation, and promotion-- can be used to fine-tune the basic positioning.

Notes:Exhibit 13.2 shows the retailing mix.

Notes:The goal of retail promotion strategy is to position the store in consumers minds. Ads, special events, promotions, even grand openings are an orchestrated blend of advertising, merchandising, goodwill, and glitter.

Retailers advertising is carried out mostly at the local level, providing store information, hours, prices, and sales. In contrast, national retail advertising focuses on image.

Many retailers these days favor direct mail or frequent shopper programs as a cost-effective means of increasing brand loyalty and spending by core customers.

Notes:The retailing axiom location, location, location has long emphasized the importance of place to the retail mix. The retailer is making a large commitment of resources that reduces future flexibility, and the location will affect the stores future growth and profitability. Factors to consider in site selection are the areas economic growth potential, the amount of competition, and geography. One final decision about location is whether to have a freestanding unit or to become a tenant in a shopping center or mall.

Notes:Specific site considerations are the neighborhood socioeconomic characteristics, traffic flows, land costs, zoning regulations, and public transportation. Additional variables are the sites visibility, parking, entrance and exit locations, accessibility, and safety/security issues. It is also important to ensure that the store fits with its surrounding environment. A Dollar General store would probably not be wanted next to a Neiman Marcus department store.

Notes:The retailers ultimate goal is to sell products to consumers at a price that ensures profits.

Price is a key element in a stores positioning strategy and classification. Higher prices often indicate quality and prestige, while discounters and off-price retailers offer a good value for the money.

A pricing trend is everyday low pricing, or EDLP.

Online: Apple StoresApple Computers retail stores are set up to accommodate visitors who wish to experiment with and learn about Apples products. Visit Apples Web site and use the store locator to find a store near you and then report on the presentations and workshops scheduled at that location for the week. Compare the schedule to a store from another area. Do the schedules differ? If so, how? Could apple find a way to tie its in-store programs to its Web site? How?

Notes:The presentation of a retail store helps determine the stores image and positioning in consumers minds. For example, positioning as an upscale store would use a lavish or sophisticated presentation. The main element of presentation is atmosphere, with the most influential factors shown on this slide.Employee type and density: an employees general characteristics such as friendly and knowledgeable, and the number of employees in the selling space.Merchandise type and density: the type of merchandise carried and how it is displayed.Fixture type and density: elegant, trendy, uncluttered. Technology may be added as a fixture. Sound: music at a restaurant or store. Odors: smells of pastries in bakeries, fragrances as a key design element. Visual factors: colors can create a mood or focus attention.

Notes:Retail salespeople persuade shoppers to buy. They are trained in two common selling techniques.

Trading up: persuading customers to buy a higher-priced item.

Suggestion selling: seeks to broaden customers original purchases with related items.

Notes:Providing customer service is a challenging element in the retail mix because customer expectations are varied. Online shoppers expect an easy-to-use Web site, products to be available, and simple returns.

Notes:Retailers are adopting new strategies to better serve customers. Two recent developments are:Interactivity: get customers involved in the process, such as bagging and pricing fruits and vegetables. Another example is Build-A-Bear, a store that enables customers to make their own stuffed animal. M-Commerce: enables consumers using wireless mobile devices to connect to the Internet and shop. For example, Coca-Cola drinkers in Europe dial a phone number on their mobile device, the machine signals to select a drink, and the transaction appears on the next phone bill.

M-commerce is used because it saves time and offers more convenience in a greater number of locations.