Distribution Channel

Manufacturer Retailer

Distributor Consumers

Introduction to Retailing
The word retail is derived from the French word retaillier, meaning to cut piece off or to break bulk. All the activities directly related to the sale of goods and services to the ultimate consumer for personal, non-business use.

Individual or organization that sells good or services to final customers for their personal, non-business use.

 Business activities involved in selling goods and services to consumers for their personal, family or household use. All the activities involved in the sale of products to final consumers. Changing in terms of power/size relationships. Retailing is the set of business activities that adds value to the products and services sold to consumers for their personal or family use. Retailers are the final businesses in distribution channels that link manufactures with consumers. Often people think of retailing only as the sale of products in stores.

 But retailing also involves the sale of services: for e.g. overnight lodging in a motel, a doctors exam, a haircut, a videotape rental, or a home-delivered pizza. Not all retailing is done in stores. Examples of nonstore retailing are internet sales of record albums by CDNOW (www.cdnow.com), the direct sales of cosmetics by Mary Kay and Dell Computers these manufactures are performing both the production and retailing business activities. Functions Performed by Retailers Providing an assortment of products and services supermarkets typically carry 15,000 different items made by over 500 companies. Offering an assortment enables their customers to choose from a wide selection of brands, designs, sizes, colors, and prizes in one location. Continued..,

 Breaking bulk to reduce transportation costs, manufactures and wholesalers typically ship cases of goods to retailers. Retailers then offer the products in smaller quantities tailored to individual consumers and households consumption patterns. This is called breaking bulk. Holding inventory A major function of retailers is to keep inventory so that products will be available when consumers want them. Providing services retailers provide services that make it easier for customers to buy and use products. They offer credit so consumers can have a product and now pay for it later. They display products so consumers can see and test them before buying. Some retailers have salespeople on hand to answer questions and provide additional information about products.

I. Food Retailers
Conventional Supermarkets Big-box Food Retailers Convenience Stores Issues in Food Retailing

II. General Merchandise Retailers

Departmental Stores Discount Stores Specialty Stores Drug Stores Category Specialists Home Improvement Centers Off-Price Retailers Hypermarkets

III. Services Retailing.

Types of Service Retailers Differences between Services and Merchandise Retailers

I. Food Retailers
It is a self-service food store offering groceries, meat,with limited sales of nonfood items, such as health and beauty aids and general merchandise. Half of the conventional supermarkets are very promotional. One day each week, they advertise the weeks sale items in local papers. The other half of conventional supermarkets uses very few promotions and sells almost all merchandise at the same price every day. Continued..,

Big-box Food Retailers Over the past 25 years, super markets have increased in size and have begun to sell a broader variety of merchandise. In 1979, conventional supermarkets accounted for 85 percent of supermarket sales. By 1998 only 41 percent of U.S. supermarket sales were in conventional supermarkets due to the growth of bigbox food retailing formats: superstores, combination stores, warehouse clubs, and Supercenters. Superstores and Combination stores Superstores are large supermarkets (20,000 to 50,000 square feet). Combination stores are food-based retailers of 30,000 to 1, 00,000 square feet that have over 25 percent of their sales from nonfood merchandise such as flowers, health and beauty aids, kitchen utensils, film developing, prescription drugs, and video tape rentals. Continued..,

Super Centers
These are 1, 50, 000-to-2, 00, 000-square-foot stores that combine a superstore (a large supermarket) and a fullline discount store. Supercenters are the fastest growing retail category. The largest Supercenter chains in the United States are Wal-Mart Supercenters, Fred Meyers and Super Kmart Centers. Their sales are increasing day by day. By offering broad assortments of grocery and general merchandise under one roof, Supercenters provide a one-stop shopping experience. Customers will typically drive farther to shop at these stores than to visit conventional supermarkets (which offer a smaller selection). Continued..,

Warehouse Club It is a retailer that offers a limited assortment of food and general merchandise with little service at low prices to ultimate consumers and small businesses. Stores are large (about 1, 00,000 square feet) and located in lowrent districts. Convenience stores It provides a limited variety and assortment of merchandise at a convenient location in a 2, 000-to3,000-square foot store with speedy checkout. They are the modern version of the neighborhood mom-and-pop grocery store. The major in-store merchandise categories are tobacco products, food service, beer and packaged soft drinks. Continued..,

Departmental Stores Departmental sores are retailers that carry a broad variety and deep assortment, offer considerable customer services, and are organized into separate departments for displaying merchandise. They offer a full range of services from clothing to home delivery. Discount Stores A full line-line discount store is a retailer that offers a broad variety of merchandise, limited service, and low prices. They offer national brands, but these brands are typically less fashion-oriented than brands in department stores (Wal-Mart Stores).

Continued..,

Specialty Stores
A traditional specialty store concentrates on a limited number of complementary merchandise categories and provides a high level of service in an area typically under 8, 000 square feet. Lifestyle retailing tailors merchandise to the lifestyle of a specific group of customers.

Drug Stores These are specialty stores that concentrate on health and personal grooming merchandise. Pharmaceuticals often represent over 50 percent of drugstore sales and even greater percentage of their profits. Continued..,

Category Specialists
A category specialist is a discount store that offers a narrow variety but deep assortment of merchandise. These retailers are basically discount specialty stores.

Home Improvement Centers

It is a category specialist offering equipment and material used by do-it-yourselfers and contractors to make home improvements. It focuses on providing material and information that enable consumers to maintain and improve their homes. Continued..,

Off-Price Retailers
They offer an inconsistent assortment of brand name, fashion-oriented soft goods at low prices (outlet stores or factory outlets, closeout retailers and single-price retailers.

Hypermarkets
It is a very large retail store offering low prices. It combines a discount store and superstore food retailer in one warehouse building.

Types of Stores and Their Characteristics

Type of Retailer Department Store Specialty Store Supermarket Convenience Store Drugstore Full-line Discounter Specialty Discounter Warehouse Clubs Off-price Retailer Restaurant Service Level Mod Hi-High High Low Low Low-Mod Assortment Broad Narrow Broad Price Mod-High Mod-High Moderate Gross Margin Mod High High Low Mod High Low

Med-Narrow Mod High Medium Moderate

Mod-Low
Mod-Low Low Low Low-High

Med-Broad
Med-Broad Broad

Mod Low

Mod Low

Mod Lo-low Mod Low Low-lower Low Low Low-High

Med-Narrow Low Med-Narrow Low-High

Categories of Discount Stores

Full-Line Discounters Discount Specialty Stores

Categories of Discount Stores

Warehouse Clubs
Off-Price Discount Retailers

Categories of Discount Stores

Selling Services is challenging

A good-service continuum
Relatively pure good
Service intensive good Goods Intensive service Air Travel Banks Insurance Teaching Relatively Pure Service

HYBRID

Automobile

Restaurants

Salt
Soup Toothbrush

Intangibles are often difficult for many prospects to understand, e.g.. insurance, financial investments, health services

Selling Services is challenging!

Characteristics of Services Intangibility Inseparability Heterogeneity Perishability and fluctuating demand Selling services is the most challenging sales job, why?

Characteristics of Service Retailing

Intangibility

No patent protection possible Difficult to display/communicate service benefits Service prices difficult to set Quality judgment is subjective Some services involve performances/experiences

Characteristics of Service Retailing

Inseparability

Consumer may be involved in service production Centralized mass production difficult

Consumer loyalty may rest with employees

Characteristics of Service Retailing

Perishability

Services cannot be inventoried Effects of seasonality can be severe Planning employee schedules can be complex

Characteristics of Service Retailing

Variability

Standardization and quality control hard to achieve Services may be delivered in locations beyond control of management Customers may perceive variability even when it does not actually occur

Selected Factors Affecting Consumer Perceptions of Service Retailing

Lessons in Service Retailing

Multi-Channel Retailing
A retailer sells to consumers through multiple retail formats. Web sites. Physical stores. Catalog. Mix of the above.

J.C. Penney and Multi-Channel Retailing

The Retail Salespersons Role

Service is key
Working hard and knowing stock is necessary Personal selling is where its at!

Accurate completion of transaction a must.

Basic Retail Selling Process

The customer asks certain questions:
Salesperson Company Product Price Time to buy Service Trust
product

customer

company

salesperson

The Retailers Role in the Sorting Process

The Role of Retailing

Retailing is one of the largest employers
Retailers ring up almost a third of the U.S. GDP Industry is dominated by a few giant organizations, such as Wal-Mart

Opportunities in Retailing
Management Opportunities To cope with a highly competitive and challenging environment, retailers are hiring and promoting people with a wide range of skills and interests. Entrepreneurial Opportunities It also provides opportunities for people wishing to start their own business. Many retail entrepreneurs are among the Forbes 400 wealthiest people in the united states. Highly successful entrepreneurs include Jeffrey Bezos (Amazon.com) and Donald Fisher (The Gap).

2. Career Opportunities
Financial rewards are excellent
Straight salary Commissions Combination of salary & commission

Non-financial rewards are many

Excellent training programs Rapid assumption of responsibility Personal growth & development

An Ideal Candidate for Retailing Career

Be a people person Be flexible

Be decisive
Have analytical skills Have stamina

Retailing
Trends in Retailing
1. 2. 3. 4. 5. 6. 7. New retail forms and combinations Growth of intertype competition Growth of giant retailers Growing investment in technology Global presence of major retailers Selling an experience, not just goods Competition between store-based and non-store-based retailing

Choosing the Retailing Mix

Product Choose the Retailing Mix Price Promotion

Place Personnel Presentation

Financial Strategy

Managing a Retailers Finances

Strategic Profit Model

Every retailer wants to be financially successful. One important financial goal is to achieve a high return on assets. Return on assets can be divided into two paths: the profit path (which is measured by net profit margin) and the turnover path) which is measured by asset turnover) Net profit is simply how much profit (after tax) a firm makes divided by its net sales. Asset turnover is used to measure the productivity of a firms investment in assets. It is expressed as net profit/total asset when you multiply net profit margin times asset turnover, the net sales cancels out the equation and you get return on assets. Net profit x Asset turnover = Return on assets. Net profit/Net sales x Net sales/Total assets=Net profit/Total Assets

The Merchandise Budget

Merchandising is the planning and control of the buying
and selling of gods and services to help the retailer realize its objectives.

Merchandise budget is a plan of projected sales for an

upcoming season, when and how much merchandise is to be purchased, and what markups and reductions will likely occur.

Gross margin is the difference between net sales and

cost of goods sold.

Five Major Merchandising Decisions

What will be the anticipated sales for the department,
division, or store? How much stock on hand will be needed to achieve this sales plan, given the level of inventory turnover expected? What reductions, if any, from the original retail price must be made in order to dispose of all the merchandise brought into the store? What additional purchases must be made during the season? What gross margin ( the difference between sales and cost of goods sold) should the department, division, or store contribute to the overall profitability of the company?

Four Rules in Preparing the Merchandise Budget

Always be prepared in advance of the selling season.
The language of the budget must be east to understand. Must be planned of a relatively short period of time (six
months is the norm used by most retailers).

Flexible enough to permit changes.

Cash in must always exceed cash out (if you want to stay in business).

Customer Buying Behavior

Customer Buying Behavior Selecting a Retailer and Selecting a Merchandise

Step 1: Need Recognition. Step 2: Search for Information about Retailers. Step 3: Evaluate Retailers. Step 4: Select a Retailer. Step 5: Visit Store or Internet Site or Look through Catlog. Step 1: Need Recognition. Step 2: Search for Information about Merchandise. Step 3: Evaluate Merchandise. Step 4: Select Merchandise. Step 5: Purchase Merchandise. Step 6: Postpurchase Evaluation.

Relationship in Retailing

Relationship Retailing
Seek to establish and maintain long-term bonds with customers, rather than act as if each sales transaction is a completely new encounter Concentrate on the total retail experience Monitor satisfaction Stay in touch with customers

Effective Relationship Retailing

Use a win-win approach
It is harder to get new customers than to keep existing ones happy

Develop a customer database

Ongoing customer contact is improved with information on peoples attributes and shopping behavior

Retail Mission, Objectives and Overall strategy : Chapter : 3

Situation Analysis : Ownership, Store-based Strategy Web and non-store based retailing

Introduction Relationships in Retailing Chapters 1&2

Information gathering and processing in retailing

Chapter 8

Chapters : 4, 5 and 6

Identifying and Understanding customers Chapter 7

Store Location evaluation and selection Chapter 9, 10

Managing a Retail Business Human Resources, Financial and Operational Dimensions Chapter 12 & 13

Planning, Buying and Managing merchandise Chapters 14, 15, 16

Pricing Chapter 17 Communicating with the customer Retail image and promotional strategy Chapter 18 & 19

Integrating and Control of Retail Strategy Chapter 20

The bottom line

Consumers will demand more for less from the shopping experience.

They will spend less time shopping.

They will split the commodity-shopping trip from the value-added shopping trip.

What is Value?
Channel Perspective Value is a series of activities and processes - the value chain - that provides a certain value for the consumer Customer Perspective Value is the perception that the shopper has of the value chain It is the view of all the benefits from a purchase versus the price paid.

Retail Value Chain

Represents the total bundle of benefits offered to consumers through a channel of distribution
Store location and parking, retailer ambience, customer service, brands/products carried, product quality, retailers in-stock position, shipping, prices, image, and other elements.

Value Is A Meaningful Concept For Any Retailer For Several Reasons

Customers must always believe they got their moneys worth. Retailers must work to ensure that customers perceive the level of value provided in the manner intended. Value is desired by all customers. It is easy for customers to comparison shop through ads and the Web. Meaningful retail differentiation is essential. A specific value/price point is required

Retailer Relationships
Customer Relations : Customer Service
Expected customer service is the service level that customers want to receive from any retailer such as basic employee courtesy Augmented customer service includes the activities that enhance the shopping experience and give retailers a competitive advantage

Classifying Customer Services

Fundamental Decisions
What customer services are expected and what customer services are augmented for a particular retailer?

What level of customer service is proper to complement a firms image? Should there be a choice of customer services?

Fundamental Decisions
Should customer services be free?

How can a retailer measure the benefits of providing customer services against their costs?

How can customer services be terminated?

Augmented Services Going Above and Beyond

Typical Customer Services

Credit Delivery Alterations/ Installations Packaging/ gift wrapping Complaints/ Return handling Gift certificates Trade-ins Trial purchases Special sales Extended store hours Mail and phone orders

Turning Around Weak Customer Service

Focus on Customer Concerns
Show That You Are Listening

Empower Front-Line Employees

Express Sincere Understanding

Apologize and Rectify the Situation

Channel Relations
Members of a distribution channel (manufacturers, wholesalers, and retailers) jointly represent a value delivery system, which comprises all the parties that develop, produce, deliver, and sell and service particular goods and services. This has important ramifications for the retailer

Each channel member is dependent on the other Every value delivery system activity must be enumerated and responsibility assigned for them.

A value delivery system is only as good as its weakest link.

Channel member costs and functions are influenced by each partys role.

Value delivery systems are complex due to the vast product assortment of superstores, the many forms of retailing, and the use of multiple distribution channels by some manufacturers.
Nonstore retailing requires a different delivery system than store retailing. Due to conflicting goals, some channel members are adversarial.

Elements Contributing to Effective Channel Relationships

Relationship Retailing
Seek to establish and maintain longterm bonds with customers, rather than act as if each sales transaction is a completely new encounter
Concentrate on the total retail experience Monitor satisfaction Stay in touch with customers

A Customer Respect Checklist

(Used to assess relationship efforts) Do we trust our customers? Do we stand behind what we sell? Is keeping commitments to customers important to our company? Do we value customer time? Do we communicate with customers respectfully? Do we treat all customers with respect? Do we thank customers for their business? Do we respect employees?

Effective Relationship Retailing

Use a win-win approach
It is harder to get new customers than to keep existing ones happy

Develop a customer database

Ongoing customer contact is improved with information on peoples attributes and shopping behavior

The High Costs and Low Profits of Retailing

Ethical performance and relationships in retailing

Ethics Fair Trustworthy Consumerism Customer rights Social Responsibility Charities Environmental policy

CRM best practices are comprised of three groups of interrelated processes

CRM Best Practices

CRM Best Practice - Customer Insight

Dataware House Development/CIF Customer Insights Segmentation Customer profitability Behaviour, needs, and attitudes

Campaign/Contact Management

Campaign/Contact Management Targeting highpotential/value customers Customer event detection Delivering the opportunity to the sales force

Best Practice Customer Relationship Management Is

delivering high quality sales & service leads across all channels, every day to all sales staff. having campaigns for all segments and all financial needs where each campaign is multi channel, multi offer, multi target - continuous learning loop alignment of sales activities with retailing and marketing objectives (customer management and contact)

Integrated Relationship Management Capability

National Leads

Opportunity Analysis

Customer Contact/ Interview

Relationship Management

Customer Satisfaction Retention & Profitability

Customer wealth care plan

Needs Analysis & Capture

Sales & Fulfilment

Plan Preparation

Event Detection

Daily Activities (eg. deposits, home loans repayment enquiries) are recorded in source (transaction) systems A continuous (historical) transaction pattern/profile for each customer is kept in a database Queries trawl this database every night to search for any unusual changes (which is of interest to us) Any significant changes in a customers transaction pattern is detected (eg. a very large deposit today relative to the average over the previous six months). This is an event. Best events (prioritised) are sent daily (every morning) to bankers for action managed by Relationship Optimiser)

Propensity Scoring

Summarised data (up to 1600 variables) on customers is stored in Predictive Modelling Datamarts and updated monthly Statistical models (or rules) to profile customer behaviour/needs for various financial services and products are developed from these files. Best leads (ie. highest propensity, highest strike rates) are selected and sent to bankers by Relationship Optimiser for action.

Relationship/Campaign Managment

Relationship Optimiser manages:

how often we communicate with a customer

what channel we use and what we offer

when we communicate with customers

what is the best opportunity to be offered to the customer (ie. prioritisation of leads)

CRM Customer Experience Vision

Customer focused marketing, sales and service, and the following seven themes

1. Anytime, anywhere access and navigation to

2. friendly, capable, proactive resources which have 3. organisational memory and can execute a 4. streamlined, personalised, secure process to create a 5. consistent and totally satisfactory customer experience while demonstrating a track record of 6. continuous improvement and 7. superior profitability.

CRM Vision
Clicks and Mortar Customer Centricity 360 degree View of the Customer Customer Process Excellence Common Technical Architecture Alternative Interaction Methods
24 hour Customer

A Single View of the Customer

Banker Customer Response Centre

Internet

Mobile Planner

CRM Benefits
A fully implemented CRM solution will give the National the ability to maximise the life time value of its customers. It coordinates all customer access channels together to produce products and services that are worth far more than the sum of their parts. This is achieved by: Being able to easily cross sell products and services to customers that those products are relevant to.

Providing a single, consistent view of the customer across the enterprise.

Enabling National staff to see all communications, contact and interaction history across all channels with the bank. The integration of front end systems to a single/ fewer front ends for users. Providing a consistent message, brand and experience to

CRM benefits have been quantified

Results from Siebels independently conducted customer satisfaction surveys further support the benefits derived through its implementation

CRM benefits supporting the implementation

The National is focusing in on two core benefit streams resulting form the CRM implementation:

Sales Customer Retention

+5%

+2.5%

5 Year Discounted Benefits $328m

Retail Communication Mix

Retail Communication Mix

Advertising Store Atmosphere and Visual Merchandising Objectives Inform Persuade Remind

Public Relations

Salespeople

Sales Promotion

Multi-Channel Retailing
A retailer sells to consumers through multiple retail formats
Web sites Physical stores Catalog Mix of the above

Relationship Management Among Retailers and Suppliers Disagreements may occur:

control over channel profit allocation number of competing retailers product displays promotional support payment terms operating flexibility

Table 18.1: Major Retailer Types

Specialty Store: Narrow product line with a deep assortment. A clothing store would be a single-line store; a mens clothing store would be a limited-line store; and a mens custom-shirt store would be a superspecialty store. Examples: Athletes Foot, Tall Men, The Limited, The Body Shop. Department Store: Several product linestypically clothing, home furnishings, and household goodswith each line operated as a separate department managed by specialist buyers or merchandisers. Examples: Sears, JCPenney, Nordstrom, Bloomingdales. Supermarket: Relatively large, low-cost, low-margin, high volume, selfservice operation designed to serve total needs for food, laundry, and household products. Examples: Kroger, Food Emporium, Jewel. Convenience Store: Relatively small store located near residential area, open long hours, seven days a week, and carrying a limited line of highturnover convenience products at slightly higher prices, plus takeout sandwiches, coffee, soft drinks. Examples: 7-Eleven, Circle K.

See text for complete table

Retailing
Levels of Service
Wheel-of-retailing Four levels of service:
Self-service Self-selection Limited service Full service

Figure 18.1: Retail Positioning Map

Wholesaling
Wholesalers functions:
Selling and promoting Buying and assortment building Bulk breaking Warehousing Transportation Financing Risk bearing Market information Management services and counseling

The Growth and Types of Wholesaling

McKesson offers online supply management

Wholesaling
Trends in Wholesaling
Narus and Anderson identified four ways to strengthen relationships with manufacturers
Sought clear agreement about their expected function in the marketing channel Gained insight into the manufacturers requirements by visiting their plants Fulfilled commitments by meeting volume targets Identified and offered value-added services to help their suppliers

J.C. Penney and Multi-Channel Retailin

Category Management
One relationship-oriented practice that some manufacturers and retailers are trying to use is category management. With this approach, channel members collaborate to manage products by category rather than individual item.

Principles of Category Management

Retailers listen more to customers Profitability is improved because inventory matches demand more closely By being better focused, each department is more desirable for shoppers Retail buyers are given more responsibilities and accountability for category results Retailers and suppliers must share data and be more computerized Retailers and suppliers must plan together