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Chapter 13 RETAILING AND WHOLESALING MARKETING STARTER: CHAPTER 13 Walmart: The World’s Largest Retailer—the World’s Largest Company Synopsis Walmart‟s phenomenal success has resulted from an unrelenting focus on bringing value to its customers. Day in and day out, Walmart lives up to its promise: “Save money. Live better.” It rang up an incredible $408 billion in sales last year—1.7 times the sales of competitors Costco, Target, Sears/Kmart, Macy‟s, JCPenney, and Kohl‟s combined. Walmart isn‟t just out to deliver customer value. It‟s mission is to lower the cost of living for the world. To accomplish this mission, Walmart offers a broad selection of carefully selected goods at “unbeatable low prices.” Just how does Walmart make money with such low prices? Walmart is a lean, mean, distribution machine. Superior management, sophisticated technology, and bargaining power that comes with its size have all contributed to the lowest cost structure in the retail world. Walmart‟s growth has slowed as it has reached such an enormous size. But it isn‟t taking its eye off the ball. To reignite growth, Walmart is pushing into new, faster-growing product and service lines, including organic foods, store brands, in-store health clinics, and consumer financial services. It‟s also pushing its expansion into international markets and online sales. Based on its obsession with customer value, Walmart is determined to keep making its slogan, “Save money. Live better.” a reality for as many people as possible.

Discussion Objective A brief, focused discussion of the Walmart story will clarify students‟ understanding of the strategy that has made this unimaginably large retailer the world‟s largest company. It‟s easy to take Walmart for granted but be certain that students stop to think about that—it‟s the world’s largest company. Walmart‟s obsession with delivering customer value is well summarized by its promise: “Save money. Live better.”

Starting the Discussion To get the discussion rolling on Walmart‟s strong positioning and how it‟s led to such amazing success, head to Walmart‟s YouTube channel (www.youtube.com/walmart). Here, you‟ll find an extensive selection of video clips, from current advertisements that emphasize the “Save money. Live better.” slogan to customer testimonials addressing Walmart‟s sustainability efforts. You can also find an assortment of recent Walmart ads, testimonials, and other information at www.walmart.com. Both sites contain enough material to last for hours. So you‟ll need to pare it down to selected pages and clips that facilitate discussion based on the questions below. This short discussion will reveal that Walmart stands for a lot more than just low prices. Although some students will turn up their noses at Walmart, many customers feel strongly about how the retailer really does help them live better. Use the following questions to help guide the discussion.

Discussion Questions 1.

What is Walmart‟s “Save Money. Live Better.” slogan all about? (Have students quickly lay out the basics of Walmart‟s strategy. As a backdrop, pull up the Walmart YouTube channel or at www.walmart.com. Everyone gets the everyday low prices part of Walmart‟s positioning. But make sure that the discussion brings out how that “low price” strategy makes people‟s lives better. Perhaps show some of the ads from the Walmart YouTube channel and discuss how “low price” translates into “living better.” And be sure to explore how much Walmart has saved American families.

2.

Does Walmart‟s message work for you? Do people feel as strongly about Walmart as they do about, say, Target? (Many students will perceive that people shop at Walmart only for functional reasons such as onestop shopping and low prices. But some of the “Dear Walmart” clips under the “Our Stories” tab on Walmart‟s YouTube channel reflect the strong emotional connections people have with Walmart because of its “Save Money. Live Better.” strategy. People don‟t go to Walmart only because it‟s cheap. Regular customers are really into Walmart and its unique shopping experience.) Copyright©2014 Pearson Education

3.

How does Walmart do it? (Pull out the operations model by which Walmart delivers on its promise. Smart buying and a world-class IT system create operational excellence and a low cost structure. Walmart passes the savings on to customers. But it‟s what these low costs mean to customers that really matters—lower prices that let them live better.)

4.

Why did the authors choose Walmart to introduce the chapter on retailing? (What better example than the world‟s largest retailer for illustrating the breadth of retailing concepts discussed in the chapter. Walmart‟s extraordinarily strong targeting, positioning, and marketing mix have provided it with an unbeatable competitive advantage. It‟s not just about low prices. The giant retailer really does help people to save money so that they can live better.)

CHAPTER OVERVIEW Use Power Point Slide 13-1 here This chapter is a continuation of the prior chapter on marketing channels; it provides more detail on retailing and wholesaling, two very important concepts in the value delivery network. Retailers can be classified according to 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. The major decisions retailers make are centered on their target market and positioning, their product assortment and services, their price, their promotion strategies, and where they are located. The wheel of retailing concept says that many new retailing forms begin as low-margin, lowprice, low-status operations. They challenge established retailers, and then the new retailers‟ success leads them to upgrade their facilities and offer more services. In turn, their costs increase, and eventually they become like the conventional retailers they replaced. The cycle begins again. There are many types of wholesalers, including merchant wholesalers, agents and brokers, and manufacturers‟ sales branches and offices.

CHAPTER OBJECTIVES Use Power Point Slide 13-2 here 1. Explain the role of retailers in the distribution channel and describe the major types of retailers. 2. Describe the major retailer marketing decisions. 3. Discuss the major trends and developments in retailing. 4. Explain the major types of wholesalers and their marketing decisions.

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CHAPTER OUTLINE p. 372

INTRODUCTION Day in and day out, giant Walmart lives up to its promise: “Save money. Live better.” Its obsession with customer value has made Walmart not only the world‟s largest retailer but also the world‟s largest company.

p. 373 Photo: Walmart

Walmart is the number-one seller in several categories of consumer products, including groceries, clothing, toys, CDs, and pet care products. What‟s behind this spectacular success? First and foremost, Walmart is passionately dedicated to its long-time, lowprice value proposition and what its low prices mean to customers: “Save money. Live better.” Walmart is a lean, mean, distribution machine; it has the lowest cost structure in the industry. Low costs let the giant retailer charge lower prices but still reap higher profits. Even as it brushes up its image, in no way will Walmart ever give up its core low price value proposition. After all, Walmart is and always will be a discount store.

p. 374 PPT 13-3

 Opening Vignette Questions 1. Do you believe that Walmart engages fairly with its competitors in the marketplace? Defend your answer. 2. What specific advantages does Walmart‟s distribution system provide the company? 3. Do you believe that the company‟s mission really is to “lower the world‟s cost of living”? Explain. 4. Besides offering low prices, what does Walmart do better than its competitors to attract customers? Chapter Objective 1 RETAILING Retailing includes all the activities involved in selling p. 374 products or services directly to final consumers for their Key Terms: Retailing, Retailer personal, nonbusiness use. Retailers are businesses whose sales come primarily from p. 374 retailing. Copyright©2014 Pearson Education

PPT 13-4

Many marketers are now embracing the concept of shopper Photo: Shopper marketing, the idea that the retail store itself is an Marketing important marketing medium. p. 375 In recent years nonstore retailing has been growing much Key Term: faster than has store retailing. Shopper Marketing Types of Retailers

p. 375

Retailers 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.

PPT 13-5

Amount of Service

p. 375

Self-service retailers serve customers who are willing to perform their own “locate-compare-select” process to save time or money. Limited-service retailers provide more sales assistance because they carry more shopping goods about which customers need information. Full-service retailers include high-end specialty stores and first-class department stores. Salespeople assist customers in every phase of the shopping process.

PPT 13-6

p. 375 Key Terms: Specialty Store, Specialty stores carry narrow product lines with deep Department Store, assortments within those lines. Product Line

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.

p. 376 Table 13.1: Major Store Retailer Types

Supermarkets are the most frequently shopped type of retail store. p. 376 Key Term: Supermarkets also have been hit hard by the rapid growth of Supermarket out-of-home eating.

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Supermarkets‟ share of the groceries and consumables market plunged from 89 percent in 1988 to less than 50 p. 377 percent in 2008. Photo: Publix Convenience stores are small stores that carry a limited line of high-turnover convenience goods. p. 377 Photo: Sheetz Superstores are much larger than regular supermarkets and offer a large assortment of routinely purchased food p. 377 products, nonfood items, and services. Key Terms: Convenience Store Supercenters (called hypermarkets in some countries) are Superstore, very large combination food and discount stores. Category Killer, Service Retailer Category killers are superstores that are actually giant specialty stores like Best Buy and Home Depot. Service retailers include hotels and motels, banks, airlines, colleges, hospitals, movie theaters, tennis clubs, bowling alleys, restaurants, repair services, hair salons, and dry cleaners. Service retailers in the United States are growing faster than product retailers.  Assignments, Resources Use Discussion Questions 1 and 2 here Use Critical Thinking Exercise 1 here Use Think-Pair-Share 1 here Use Outside Example 1 here Use Web Resources 1, 2, and 3 here  Troubleshooting Tip Retailing is generally not a difficult concept for students. However, the different types of retailers should be thoroughly explained to the students to ensure their understanding. Table 13.1 is an excellent resource in this regard. p. 378 PPT 13-7

p. 378 Key Terms: Discount stores sell standard merchandise at lower prices Discount Store, Offby accepting lower margins and selling higher volume. Price Retailer, Independent OffOff-price retailers offer products to fill the ultralow-price, Price Retailer, high-volume gap by pricing lower than discount stores. Factory Outlet Relative Prices

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The three main types of off-price retailers are: 1. Independent off-price retailers either are independently owned and run or are divisions of larger retail corporations. 2. Factory outlets are manufacturer-owned and operated stores—sometimes group together in factory outlet malls and value-retail centers. 3. Warehouse clubs (or wholesale clubs or membership warehouses), operate in huge, drafty, warehouse-like facilities and offer few frills.

p. 378 Photo: Dollar General p. 379 Key Term: Warehouse Club p. 379 Photo: Costco

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Organizational Approach

PPT 13-9

Corporate chains are two or more outlets that are p. 379 commonly owned and controlled. Key Terms: Corporate Chain, They have many advantages over independents. Franchise  

Their size allows them to buy in large quantities at lower prices and gain promotional economies. They can hire specialists to deal with areas such as pricing, promotion, merchandising, inventory control, and sales forecasting.

There are three forms of contractual associations: PPT 13-10

PPT 13-11

PPT 13-12

1. Voluntary chain—a wholesaler-sponsored group of independent retailers that engages in group buying and common merchandising. 2. Retailer cooperative—a group of independent retailers that bands together to set up a jointly owned, central wholesale operation and conducts joint merchandising and promotion efforts. 3. Franchise—the main difference between franchise organizations and other contractual systems is that franchise systems are normally based on some unique product or service; on a method of doing business. Franchises now command approximately 40 percent of all retail sales in the United States.  Assignments, Resources Use Real Marketing 13.1 here Use Small Group Project 1 here Use Think-Pair-Share 2 here Copyright©2014 Pearson Education

p. 380 Table 13.2: Major Types of Retail Organizations

p. 380 Retailer Marketing Decisions PPT 13-13 Segmentation, Targeting, Differentiation, and p. 381 Positioning Decisions

Chapter Objective 2 p. 381 Photo: Five Guys Burgers

PPT 13-14 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. P 383 Figure 13.1: In contrast, successful retailers define their target markets Retailer Marketing well and position themselves strongly. Strategies Product Assortment and Services Decision p. 383 Retailers must decide on three major product variables:

p. 382 Photo: Sears

PPT 13-15 1. Product assortment should differentiate the retailer p. 384 while matching target shoppers‟ expectations. Photo: Cabela‟s 2. Services mix can help set one retailer apart from another. 3. Store atmosphere is another important element in the reseller‟s product arsenal. p. 385 p. 384 Photo: Bergdorf Price Decision Goodman PPT 13-16 Most retailers seek either:  

High markups on lower volume (most specialty stores). Low markups on higher volume (mass merchandisers and discount stores).

Other pricing decisions: PPT 13-17



Everyday low pricing (EDLP), charging constant, everyday low prices with few sales or discounts.



“High-low” pricing—charging higher prices on an everyday basis, coupled with frequent sales and other price promotions to increase store traffic, clear out unsold merchandise, create a low-price image, or attract customers who will buy other goods at full prices.

 Assignments, Resources Use Real Marketing 13.2 here Copyright©2014 Pearson Education

Use Critical Thinking Exercise 2 here Use Marketing by the Numbers here Use Individual Project 1 here Use Web Resource 4 here  Troubleshooting Tip The decisions retailers need to make will be easily understood with a review of Figure 13.1. It is very clear in this figure that the marketing mix elements studied earlier in the text are being applied in a retail environment. Explain how the type of retail organization chosen affects the marketing mix, and vice versa. p. 385 Promotion Decision PPT 13-18 Retailers use any or all of the promotion tools—advertising, personal selling, sales promotion, public relations, and direct marketing—to reach consumers. Place Decision Retailers often point to three critical factors in retailing success: location, location, and location! It‟s very important that retailers select locations that are accessible to the target market in areas that are consistent with the retailer‟s positioning. Location options include:  PPT 13-19 

Central business districts were the main form of retail cluster until the 1950s. p. 385 A shopping center is a group of retail businesses Key Term: Shopping Center planned, developed, owned, and managed as a unit.  Regional shopping centers, or regional shopping malls, are the largest and most dramatic shopping center, contains from 50 to over 100 stores, including 2 or more full-line department stores.  Community shopping centers contain between 15 and 50 retail stores. It normally contains a branch of a department store or variety store, a supermarket, specialty stores, professional offices, and sometimes a bank.  Neighborhood shopping centers or strip malls Copyright©2014 Pearson Education

that generally contain between 5 and 15 stores. They are close and convenient for consumers. 

Power centers are huge unenclosed shopping centers consisting of a long strip of retail stores, including large, freestanding anchors, which is the current trend.



Lifestyle centers are smaller malls with upscale stores, convenient locations, and non-retail activities such as dining and a movie theater.

 Assignments, Resources Use Additional Projects 1 and 2 here Use Small Group Project 2 here Use Outside Example 2 here p. 386

Retailing Trends and Developments

Chapter Objective 3

Retailers operate in a harsh and fast-changing environment, which offers threats as well as opportunities. To be successful, retailers need to choose target segments carefully and position themselves strongly. Tighter Consumer Spending

p. 386 Photo: Home Depot

Following many years of good economic times for retailers, the Great Recession turned many retailers‟ fortunes from boom to bust. Beyond cost cutting and price promotions, many retailers have also added new value pitches to their positioning. 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. p. 387 Key Term: WheelPPT 13-20 The wheel-of-retailing concept states that many new types of-Retailing of retailing forms begin as low-margin, low-price, and Concept low-status operations. The new retailers‟ success leads them to upgrade their p. 390 facilities and offer more services, forcing them to increase Photo: Pop-up their prices. Stores Copyright©2014 Pearson Education

PPT 13-21 Eventually, the new retailers become like the conventional retailers they replaced. The cycle begins again. The Rise of Megaretailers The megaretailers are shifting the balance of power between PPT 13-22 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. p. 388

Growth of Direct and Online Retailing

PPT 13-23 Americans are increasingly avoiding the hassles and crowds p. 389 at malls by doing more of their shopping by phone or Photo: Internet computer. Shopper Much of the anticipated growth in online sales will go to multichannel retailers—the click-and-brick marketers who can successfully merge the virtual and physical worlds. Growing Importance of Retail Technology PPT 13-24 Many retailers now routinely use technologies such as p. 390 touch-screen kiosks, customer-loyalty cards, electronic shelf Photo: Retail labels and signs, handheld shopping assistants, smart cards, Technology and self-scanning checkout systems. PPT 13-25 Green Retailing Today‟s retailers are increasingly adopting environmentally sustainable practices. They are greening up their stores and operations, promoting more environmentally responsible products, launching programs to help customers be more responsible, and working with channel partners to reduce their environmental impact. p. 391

Global Expansion of Major Retailers

PPT 13-26 Retailers with unique formats and strong brand positioning are increasingly moving into other countries. Many are expanding internationally to escape mature and saturated home markets.

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p. 391 Photos: Safeway

Most U.S retailers are still significantly behind Europe and Asia when it comes to global expansion.  Assignments, Resources Use Discussion Questions 3 and 4 here Use Marketing Technology here Use Marketing Ethics here Use Additional Project 3 here Use Individual Project 2 here Use Think-Pair-Share 3 and 4 here Use Web Resource 5 here Use Video Case here  Troubleshooting Tip Nonstore retailing should be familiar to students, but perhaps not by this name. Many students may not realize that they are visiting a retailer when they buy their textbooks or download music from Amazon.com or Apple‟s iTunes. p. 392

WHOLESALING

Wholesaling includes all activities involved in selling goods and services to those buying for resale or business p. 392 Key Terms: use. Wholesaling, Wholesalers are those firms engaged primarily in Wholesalers wholesaling activities. p. 392 PPT 13-27 Wholesalers buy mostly from producers and sell mostly to Photo: Grainger retailers, industrial consumers, and other wholesalers. Wholesalers add value by performing one or more of the following channel functions: 

Selling and promoting: Wholesalers‟ sales forces help manufacturers reach many small customers at a low cost.



Buying and assortment building: Wholesalers can select items and build assortments needed by their customers, thereby saving the consumers much work.



Bulk-breaking: Wholesalers save their customers money by buying in carload lots and breaking bulk (breaking large lots into small quantities).

PPT 13-28

PPT 13-29

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PPT 13-30

PPT 13-31

PPT 13-32



Warehousing: Wholesalers hold inventories, thereby reducing the inventory costs and risks of suppliers and customers.



Transportation: Wholesalers can provide quicker delivery to buyers because they are closer than the producers.



Financing: Wholesalers finance their customers by giving credit, and they finance their suppliers by ordering early and paying bills on time.



Risk bearing: Wholesalers absorb risk by taking title and bearing the cost of theft, damage, spoilage, and obsolescence.



Market information: Wholesalers give information to suppliers and customers about competitors, new products, and price developments.



Management services and advice: Wholesalers often help retailers train their salesclerks, improve store layouts and displays, and set up accounting and inventory control systems.

 Assignments, Resources Use Think-Pair-Share 5 here p. 393 Types of Wholesalers PPT 13-33 Wholesalers fall into three major groups

Chapter Objective 4

PPT 13-34

p. 393 Key Term: Merchant Wholesaler, Broker, Agent, Manufacturer‟s Sales Branches and Offices

1. Merchant wholesalers are the largest single group of wholesalers, accounting for roughly 50 percent of all wholesaling. Merchant wholesalers include two broad types: a. Full-service wholesalers provide a full set of services. b. Limited-service wholesalers offer fewer services to their suppliers and customers. The different types of limited-service wholesalers perform varied specialized functions.

PPT 13-35

2. Brokers and agents differ from merchant wholesalers in two ways: a. They do not take title to goods. b. They perform only a few functions.

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A broker brings buyers and sellers together and assists in negotiation. Agents represent buyers or sellers on a more permanent basis. Manufacturers’ agents (also called manufacturers‟ representatives) are the most common type of agent wholesaler. PPT 13-36

3. Manufacturers’ Sales Branches and Offices are wholesaling by sellers or buyers themselves rather than through independent wholesalers.  Assignments, Resources Use Critical Thinking Exercise 3 here Use Additional Project 4 here Use Think-Pair-Share 6 here  Troubleshooting Tip The description of the types of wholesalers is brief but important. Examples will help tremendously, even though most wholesalers, by their nature and as discussed in the text, are virtually unknown to consumers. Some students, however, might be familiar with distributors who service grocery stores and other retail outlets from summer jobs or those held by family members. Table 13.3 will be helpful in this discussion.

p. 393 Wholesaler Marketing Decisions PPT 13-37 Segmentation, Targeting, Differentiation, and Positioning Decisions PPT 13-38 Like retailers, wholesalers must segment and define their target markets and differentiate and position themselves effectively—they cannot serve everyone. p. 394-395 Table 13.3 Marketing Mix Decisions PPT 13-39 Major Types of Wholesalers add customer value though the products and Wholesalers services they offer. They are often under great pressure to carry a full line and p. 393 to stock enough for immediate delivery. But this practice Figure 13.2: can damage profits. Wholesaler Marketing Price is also an important wholesaler decision. Strategies Copyright©2014 Pearson Education

Most wholesalers are not promotion minded. Their use of trade advertising, sales promotion, personal selling, and public relations is largely scattered and unplanned. Distribution (location) is important—wholesalers must choose their locations, facilities, and Web locations carefully. p. 396 Trends in Wholesaling PPT 13-40 The industry remains vulnerable to one of the most enduring trends of the last decade—the need for ever- p. 396 greater efficiency. Recent economic conditions have led to Photo: demands for even lower prices and the winnowing out of McKesson suppliers who are not adding value based on cost and quality. The distinction between large retailers and large wholesalers continues to blur. Wholesalers will continue to increase the services they provide to retailers—retail pricing, cooperative advertising, marketing and management information reports, accounting services, online transactions, and others. Finally, many large wholesalers are now going global.  Assignments, Resources Use Real Marketing 12.2 here Use Marketing Ethics here Use Company Case here Use Web Resource 6 here

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END OF CHAPTER MATERIAL Discussion Questions 1. Discuss factors used to classify retail establishments and list the types within each classification. (AASCB: Communication) Answer: Retail stores 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. Different types of customers and products require different amounts of service. To meet these varying service needs, retailers may offer one of three service levels—self-service, limited service, and full service. Retailers can also be classified by the length and breadth of their product assortments. This classification includes specialty stores, department stores, supermarkets, convenience stores, superstores, and service retailers. Retailers can also be classified according to the prices they charge, and categories include discount stores and off-price retailers such as independents, factory outlets, and warehouse clubs. Finally, the major types of retail organizations are corporate chains, voluntary chains and retailer cooperatives, and franchise organizations.

2. Name and describe the types of corporate or contractual organization of retail stores and the advantages of each. (AACSB: Communication) Answer: There are four major types of retail organizations—corporate chains, voluntary chains, retailer cooperatives, and franchise organizations. Corporate chains are two or more outlets that are commonly owned and controlled. They have many advantages over independents. Their size allows them to buy in large quantities at lower prices and gain promotional economies. They can hire specialists to deal with areas such as pricing, promotion, merchandising, inventory control, and sales forecasting. The great success of corporate chains caused many independents to band together in one of two forms of contractual associations. One is the voluntary chain—a wholesaler-sponsored group of independent retailers that engages in group buying and common merchandising. Examples include the Independent Grocers Alliance (IGA), Western Auto, and Do-It Best. The other type of contractual association is the retailer cooperative—a group of independent retailers that bands together to set up a jointly owned, central wholesale operation and conduct joint merchandising and promotion efforts. Examples are Associated Grocers and Ace Hardware. These organizations give independents the buying and promotion economies they need to meet the prices of corporate chains. Another form of contractual retail organization is a franchise. The main difference between franchise organizations and other contractual systems (voluntary chains and retail cooperatives) is that franchise systems are normally based on some unique product or service; a method of doing business; or the trade name, goodwill, or patent that the franchisor has developed. Franchising has been prominent in fastCopyright©2014 Pearson Education

food restaurants, motels, health and fitness centers, auto sales and service dealerships, and real estate agencies. 3. Develop a concept for a new retail store and explain the marketing decisions that must be made. (AACSB: Communication; Reflective Thinking) Answer: Students‟ responses will vary. However, they should understand that retailers face major marketing decisions about segmentation and targeting, store differentiation and positioning, and the retail marketing mix. They must first segment and define their target market and then decide how they will differentiate and position themselves in this market. Should the store focus on upscale, midscale, 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 décor, or any of the other decisions that must support their positions. 4. What is retail convergence? Has it helped or harmed small retailers? (AACSB: Communication; Reflective Thinking) Answer: Retail convergence is the merging of consumers, products, prices, and retailers. Such convergence means greater competition for retailers and greater difficulty in differentiating offerings. 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. For example, the decision by electronics superstore Best Buy to sell CDs as loss leaders at rock-bottom prices pushed a number of specialty record-store chains into bankruptcy. And with its everyday low prices, Wal-Mart has been accused of destroying independents in countless small towns around the country who sell the same merchandise. Yet the news is not all bad for smaller companies. Many small, independent retailers are thriving. They are finding that sheer size and marketing muscle are often no match for the personal touch small stores can provide or the specialty merchandise niches that small stores fill for a devoted customer base.

Critical Thinking Exercises 1. Visit a local mall and evaluate five stores. What type of retailer is each of these stores? What is the target market for each? How is each store positioned? Do the retail atmospherics of each store enhance this positioning effectively to attract and satisfy the target market? (AACSB: Communication; Reflective Thinking) Answer: Copyright©2014 Pearson Education

Students‟ responses will vary depending on the stores selected. An example is Anthropologie, which is a trendy clothing and homeware store targeted toward young women. The stores have concrete floors, trendy fixtures and furniture, and cool music playing. The merchandise is trendy, very feminine, and unique—not the same clothing that can be found in every department or women‟s clothing stores. In sum, Anthropologie does a good job of creating the right retail atmospherics for the target market. The types of retailers are specialty store, department store, supermarket, convenience store, discount store, off-price retailer, and superstore. Most of the stores found in a mall will likely by department stores and specialty stores. 2. Retailers that accept credit cards pay a “swipe fee” to credit card issuers such as Visa and MasterCard ranging from 1 to 3 percent of the purchase. The credit card companies prohibited retailers from passing that fee on to consumers, but a recent lawsuit settlement proposal lifted that restriction. Under the settlement, retailers can charge 2.5 to 3 percent on each transaction. Research this issue and develop a report on the pros and cons of retailers adding a surcharge to credit purchases. (AACSB: Communication; Reflective Thinking) Answer: Many consumers do not know that retailers must pay swipe fees every time a customer pays with a credit card, resulting in thousands of dollars that retailers must pay for the convenience of accepting credit cards. Not all retailers will be able to assess a credit surcharge even though the lawsuit settlement allows it because ten states prohibit charging surcharges. An interesting article on this issue is Emily Maltby (July 19, 2012), “The „Swipe Fee‟ Conundrum,” Wall Street Journal, p. B1, B8. The pros of adding a surcharge include offsetting the increasing expense of swipe fees as consumers use credit cards for more and more purchases, making customers aware of the cost using credit cards, and lower prices for cash purchases. The cons include more customers will pay with less-secure forms of payment (cash or check), merchants may lose customers to competitors that don‟t charge credit surcharges, and increased checkout time. If a retailer chooses to impose credit surcharges, notices must be posted at the store‟s entrances and cash registers and the cost information must appear on customer receipts. Surcharges are limited to the cost of the swipe fees and must apply to all merchandise, not just selected merchandise. 3. As discussed at the start of Chapter 10, in 2012, JCPenney changed its pricing strategy from one in which it charged relatively high prices and aggressively discounted them to one in which it charges lower but constant everyday “fair and square prices.” Evaluate the effectiveness of this pricing strategy change. (AACSB: Communication; Reflective Thinking) Answer: This case is discussed at the start of Chapter 10 and students should be able to find articles about Penney‟s strategic changes (for example, Susan Berfield (May 28, 2012), “J.C. Penney Copyright©2014 Pearson Education

vs. The Bargain Hunters,” BloombergBusinessweek, p. 21-22.). The initial results were dismal. In the first quarter of 2012, the chain lost $163 million, store sales fell 19 percent, store traffic dropped 10 percent, and shopper purchases decreased 5 percent. Prior to the price change, less than 1 percent of Penney‟s products were sold at full price and the store offered almost 600 different promotions every year. Apparently the retailer underestimated customers‟ preference for finding bargains. The pricing strategy change is just part of a fouryear plan presented by the new CEO, Ron Johnson. Mr. Johnson‟s past successes include developing Target‟s “cheap chic” image and Apple‟s sleek stores. In addition to the price change strategy, the plans for the chain include building the department store around a “town square” with several boutiques carrying known brands with products specifically for Penney‟s (for example, Martha Stewart, Jonathan Adler, and Vivienne Tam). The Penney‟s logo was changed to a square shape as well.

Marketing Technology: Tracking Customers According to Nielsen, more than 50 percent of mobile phone consumers own smartphones. Many of them use free Wi-Fi when available for faster connections and to reduce data usage charges. But even when they don‟t log on to the Wi-Fi, the device continues to search, giving information on users‟ locations. By using the signals emitted by shoppers‟ smartphones, retailers can keep tabs on shoppers, knowing where they are and what they are searching for on their phones‟ browsers. Retailers can learn on which aisles shoppers are most likely to check online prices at retailers such as Amazon.com and can send an alert to a sales representative. “Heat mapping” identifies traffic patterns and locations attracting the greatest number of shoppers checking the Internet. This gives retailers an idea of the products most vulnerable to “showrooming”—the practice of shoppers visiting stores to learn about and try products and later purchasing them for less online. 1. What is shopper marketing and how might retailers use Wi-Fi technology to implement it? (AACSB: Communication; Use of IT; Reflective Thinking) Answer: Shopper marketing uses point-of-purchase promotions and advertising to extend brand equity to “the last mile” and encourage favorable point-of-purchase decisions. Retailers can use the information gleaned from shoppers‟ smartphones to determine where they are in the store and if they are searching for more information about the product they are near. Ads and promotional offers can be sent to the shopper that might influence them to purchase from the retailer instead of leaving and purchasing elsewhere. If shoppers are searching price information, a sales representative can focus on price concerns. 2. What will be the likely response as more shoppers learn that retailers gather information without their knowledge? (AACSB: Communication; Reflective Thinking) Answer:

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Students‟ responses will vary. Mobile devices reveal considerable user data, especially when some users willingly give personal information through apps such as Foursquare. Some apps like “Girls Around Me” and “Find Friends Nearby” that tap into publically available data could be used to better understand who is shopping in a particular retail store and who is more likely to purchase. Wi-Fi can be integrated with facial recognition technology to identify a shopper. All of this can be done without a shopper‟s knowledge and may cause privacy concerns. However, better information allows retailers to better serve customers.

Marketing Ethics: Roll-Your-Own Shops In 2009, federal taxes on a carton of cigarettes increased $6.16 to $10.06. The tax on a pound of loose pipe tobacco increased $1.73, resulting in a total tax per pound of only $2.83. The tax on loose cigarette tobacco increased the most—from $1.09 to $24.78 per pound. Small tobacco shops have purchased machines that allow shoppers to make 20 cigarettes per minute. The loose tobacco is labeled “pipe tobacco,” allowing smokers to make their cigarettes for almost half the price of ready-made cigarettes because of the much lower taxes. The U. S. Government Accountability Office claims federal tobacco tax revenue decreased almost $500 million between April 2009 and September 2011 as a result of the booming roll-your-own shops sales. The Alcohol and Tobacco Tax and Trade Bureau declared that retailers using these machines are manufacturers. Makers of the machines got a court injunction, giving temporary reprieve for retailers. However, in 2012 Congress approved an amendment tucked into a highway bill expanding the definition of a manufacturer to include these retailers, which would subject them to federal excise taxes. Lawmakers felt these retailers were taking advantage of an unintended tax loophole. 1. Is it fair that Congress defined retailers operating roll-your-own machines as manufacturers? (AACSB: Communication; Ethical Reasoning; Reflective Thinking) Answer: Students‟ responses will vary. Some might argue that yes it is fair because manufacturers of ready-made cigarettes lost sales because of the tax discrepancy and consumers‟ decisions to make their own cigarettes in the store. Others might argue that it is not fair because the retailer is reselling the items that can be used to make a cigarette but the consumer is the one manufacturing the actual cigarette. They may argue that the retailers are taking advantage of an opportunity and are savvy businesspeople. Of course the argument might focus on the tax discrepancy and the fact that taxes are so high on cigarettes and loose cigarette tobacco compared to loose pipe tobacco. 2. Are the tobacco retailers being ethical by labeling the loose tobacco as pipe tobacco so that smokers can avoid the high tax and by providing roll-your-own machines for consumers? (AACSB: Communication; Ethical Reasoning; Reflective Thinking) Answer:

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The labeling of the tobacco could be questionable, especially if it is not truly pipe tobacco, which it probably isn‟t. If that is the case, then no, retailers are not being ethical by mislabeling the tobacco just to avoid the taxes. Providing the machines so consumers can roll their own cigarettes could be argued either way.

Marketing by the Numbers: Mark Up Consumers typically buy products such as toiletries, food, and clothing from retailers rather than directly from the manufacturer. Likewise, retailers buy from wholesalers. Resellers perform functions for the manufacturer and the consumer and mark up the price to reflect that value. Refer to Appendix 2: Marketing by the Numbers to answer the following questions. 1. If a manufacturer sells its laundry detergent to a wholesaler for $2.50, for how much will the wholesaler sell it to a retailer if the wholesaler wants a 15 percent margin based on the selling price? (AACSB: Communication; Analytical Reasoning) Answer: price  cost Markup percentage on price = —————— price So, at any level in the chain: cost price = ————— (1 %markup) cost $2.5 Wholesaler‟s price = ————— = ————— = $2.94 (1 %markup) (1 0.15) 2. If a retailer wants a 20 percent margin based on the selling price, at what price will the retailer sell the product to the consumers? (AACSB: Communication; Analytical Reasoning) Answer: cost $2.94 Retailer‟s price = ————— = ————— = $3.68 (1 %markup) (1 0.2)

COMPANY CASE NOTES Dollar General: Today’s Hottest Retailing Format Copyright©2014 Pearson Education

Synopsis Dollar stores are hot. And Dollar General is the hottest. Like its dollar store counterparts, Dollar General has found a way to own not only a concept, but a word: “dollar.” Through partnerships with vendors, Dollar General is able to offer not only bargain deals on unknown brands, but on national brands from the likes of Procter & Gamble, Kraft Foods, and Coca-Cola. In the end, Dollar General beats even Walmart at the low price game. But Dollar General isn‟t just succeeding based on low price. It is succeeding on things like convenience with more locations, less time required for a shopping trip, and less hassle to find the basics.

Teaching Objectives The teaching objectives for this case are to: 1. Classify a retailer according to the different retailer types. 2. Understand how segmentation, targeting, differentiation, and positioning apply to retailers. 3. Evaluate the strengths of a particular retailer‟s strategy. 4. Consider a retailer‟s chances for success by comparing its strengths against market trends.

Questions for Discussion 1. Describe Dollar General according to the different types of retailers discussed in the chapter. Amount of service – self-service. Product line – Looking at Table 13.1, it is hard to place Dollar General in this typology. While it doesn’t fit the perfect description of a discount store, that is the closest one to it. Organizational approach – corporate chain store. 2. As a retail brand, assess the Dollar General strategy with respect to segmentation, targeting, differentiation, and positioning. The most likely variable for segmentation seems to be “income.” If you consider different income ranges, Dollar General has focused primarily on targeting low-income households. However, as the case points out, “47 percent of households with incomes over $100,000” had shopped at a dollar store in the prior three months. Its core customer is still those who make less than $40,000 a year, but its fastest growing segment is those earning more than $75,000. That said, it appears that segmentation may be shifting to “benefits” (economy or low price). Dollar General clearly differentiates itself on price and convenience. It is positioning itself as a “less for much less” option. It offers fewer items, sizes, and brands. But its prices are much less than average. Copyright©2014 Pearson Education

3. List all the reasons why Dollar General has been so successful over the past 40 years. Low price bargains have always had some appeal to a certain segment of the population. However, as Dollar General began focusing on name brands and items that are similar to what people can find in other stores, the concept became ever more appealing. The formula that focuses on smaller stores, fewer items, plenty of locations, and saving customers time has made the Dollar General format all the more appealing for a broader segment of customers. 4. In competing against other brick-and-mortar retailers, will Dollar General succeed or fail in the long term? Support your answer. It seems like a “can’t lose” proposition at this point. It has done well in bad times and in good. As people become more familiar with the concept and what it has to offer, they will be more likely to visit. But Dollar General also has a few other things going for it. Relationships with national brands will continue to give Dollar General options to provide the kinds of items that customers desire in smaller packages for less money. A growing number of outlets will take Dollar General into more places, making it even more convenient. 5. Against online retailers, will Dollar General succeed or fail in the long term? Support your answer. This one is far from a slam-dunk. Primarily, it’s the nature of the products involved. Cheap, frequently purchased items do not have a good track record for e-commerce. It isn’t that low-income folks don’t have access to online shopping. Most everyone has access to the Internet now. But Dollar General has to find ways to make purchasing its goods online easy for shoppers while retaining its price advantage.

Teaching Suggestions Have students make a list of a dozen or so items they regularly purchase. For each, they should establish if they have a brand preference and if they would be willing to switch brands if they could save money. Then, have them consider how much they would need to save on each item in order to give Dollar General a try. See if anyone will volunteer to make a trip to a Dollar General (or other dollar store) and price-compare those items against the same items at their regular store. Have those people report back for the next class period. This case goes well with the segmentation chapter (Chapter 7) and the pricing chapters (Chapters 10 and 11).

ADDITIONAL PROJECTS, ASSIGNMENTS, AND EXAMPLES Projects 1. Go to a local power center. Make a list of all the stores located there. Which of these stores serve as the anchor and which stores are dependent on the anchor? (Objective 2) Copyright©2014 Pearson Education

2. Visit a local discount store (Walmart, Target, etc.) and a local off-price store (T.J.Maxx, Stein Mart, etc.). Examine the product mix and pricing strategies of these stores. Who would you say is the target market of each? Why? (Objective 2) 3. In your town, locate a merchant at each stage of the wheel of retailing. (Objective 3) 4. Who are the major wholesalers that service the restaurants in your town? What are the principle functions they serve? (Objective 4)

Small Group Assignments 1. Form students into groups of three to five. Each group should read Real Marketing 13.1: Positioning Sears: Why Should You Shop There? Each group should then answer the following questions and share their answers with the class. (Objective 1) a. Based on this reading, how do you think the once-great retail giant lost its way amid the competition over the last three decades? b. What retail niche, if any, does Sears still occupy in the minds of its customers in comparison to Walmart and other mega-retailers? c. If you were hired as the new CEO of Sears, what kind of retail position would you seek for the struggling company? How might Sears rediscover a meaningful niché in the minds of American consumers? 2. Form students into groups of three to five. Each group should read the opening vignette on Walmart. Each group should then answer the following questions and share their answers with the class. (Objective 2) a. Do you believe that Walmart engages fairly with its competitors in the marketplace? Defend your answer. b. What specific advantages does Walmart‟s distribution system provide the company? c. Besides offering low prices, what does Walmart do better than its competitors to attract customers?

Individual Assignments 1. Reread Real Marketing 13.2: Showrooming: Shopping in Stores but Buying Online. Then answer the following questions. (Objective 3) a. Picture yourself as a consumer. Are you a “showroomer?” On which products have you tried this tactic? How successful were you? Explain. b. Besides the strategies listed in this story, what other ideas can you think of that brickand-mortar stores might try to stem the tide of consumers walking out of their stores, headed for the nearest online retailer? c. Do you believe that stores like Best Buy or Target, which rely on “atmosphere” to sell their products, are doing the customer an injustice? After all, isn‟t the product itself the most important part of the purchase decision? Explain your reasoning. 2. Become an Internet detective and do some research on the history of Walmart. Trace the evolution of the company from its humble beginnings to the global powerhouse it is Copyright©2014 Pearson Education

today. Give a time-line of the company as it passes through the stages of Wheel-ofRetailing. At what stage do you believe Walmart finds itself today? Justify your answer. (Objective 3)

Think-Pair-Share Consider the following questions, formulate an answer, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor. 1. How would you define retailing? How does it fundamentally differ from wholesaling? (Objective 1) 2. What is a category killer? Why do you believe they have become so popular in recent years? (Objective 1) 3. What are the stages of the wheel of retailing? What stage do you believe Costco is in? Why? (Objective 3) 4. Cite at least three examples of retail convergence. What advantages and disadvantages do the converged organizations have? (Objective 3) 5. What are the functions of wholesalers? Can these be replaced? If so, how? (Objective 4) 6. What are the differences between merchant wholesalers, brokers and agents, and manufacturers‟ agents? (Objective 4)

Outside Examples 1. Traditional department stores have had a hard go of it in recent years. It seems as though they keep seeing their business being siphoned off by either the specialty stores or the discounters. Review Table 13.1. If you were to be hired by Macy‟s (the nation‟s largest department store) to advise them on a strategy to stop the bleeding-off of their clientele, how would you advise them? (Objective 1) Possible Solution: This question is wide open to students. The answers you receive will be varied and very wide-ranging. It is important for department stores to decide who they really are. One of the major stumbling blocks of recent years has been they have tried to be all things to all people. They have tried to be specialty boutique-style stores to the upscale shopper who demands exclusive products and personalized attention. Conversely, they have also attempted to compete with the “Walmarts” of the world by offering continual sales, inexpensive (cheap) merchandise and a self-service atmosphere. They are trying to do it all. As a result, they have ended up doing nothing overly well, as their continued shrinking share of retail sales attests. 2. Consider both Walmart (www.walmart.com) and Amazon (www.amazon.com). In what ways do these two companies compete? Compare them using the variables of the marketing mix. Which do you believe has the upper hand? Why? (Objective 2) Copyright©2014 Pearson Education

Possible Solution: Product. Although both companies carry a tremendous assortment of product, from a standpoint of absolute numbers, Amazon wins. Walmart‟s assortment of products caters more to the everyday needs of the majority of Americans (one of the principle reasons for its continued success). Amazon carries a much wider assortment of goods but, upon close examination, it will be seen that the product assortment does not appeal to as wide a cross-section of the population. Advantage: Walmart Price. Walmart touts the mantra of “Low Prices Every Day.” Although this is an admirable tag line, a comparison of comparable product from the two retailers shows Amazon typically comes out with a lower price. Advantage: Amazon Promotion. Walmart spends a fortune on consumer advertising, everything from television to billboards to print. Amazon, by comparison, spends relatively little. Advantage: Amazon Place. Physically, Walmart is just about everywhere. With more than 2,500 stores in the United States, there is at least one Walmart in just about every town of any significant size. Amazon, on the other hand, IS everywhere—or everywhere that has an Internet connection. Without a doubt, more and more retailing is taking place over the Web. One only needs to take a look at Amazon‟s growing presence there or, more telling, the emphasis that Walmart is giving to growing its Web business. Advantage: Walmart, for now.

Web Resources 1. http://247.prenhall.com This is the link to the Prentice Hall support link. 2. www.walmart.com Here is the portal to Walmart‟s online world. 3. www.macys.com/ Here is Macy‟s homepage. As instructed above, take a look at both Walmart and Macy‟s and compare the two companies. 4. http://www.cabelas.com Go here to check out Cabela‟s—the ultimate “atmosphere” store—and the assortment of products they present within it. 5. www.marketingpower.com/_layouts/Dictionary.aspx?dLetter=W This link gives you another look at the wheel of retailing and links to several related topics. 6. www.mckesson.com Copyright©2014 Pearson Education

Take a look here to learn more about McKesson, the county‟s leading wholesaler of pharmaceuticals.

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