CHAPTER 13: Retailing and Multichannel Marketing

the set of business activities that add value to products and services sold to consumers for their personal or family use
four factors manufacturers consider when developing strategies for working with retailers
1) choosing retail partners
2) identifying types of retailers
3) developing a retail strategy
4) managing a multichannel strategy
1) choosing retail partners
– how likely it is for certain retailers to carry their products
– where their target customers expect to find the products
– overall size and level of sophistication of the manufacturer will determine how many of the supply chain functions it performs and how many it will hand off to other channel members
– the type and availability of the product and the image the manufacturer wishes to portray will determine how many retailers within a geographic region will carry the products
channel structure
the level of difficulty a manufacturer has in getting retailers to purchase its products is determined by the degree to which the channel is vertically integrated (the degree to which the manufacturer has a strong brand or is otherwise desirable in the market; and the relative power of the manufacturer and retailer)
channel structure – corporate vertical marketing system
Because MAC is made by Estée Lauder and operates its own stores, when the new mascara line is introduced, the stores will simply receive the new line automatically. They have no choice
channel structure – established firm
Coach cannot just place the products with any retailer. It must determine where its customers would expect to find higher-end scarves, leather goods, and accessories, and then use its established relationships with women’s handbag buyers, the power of its brand, and its overall reputation to leverage its position in this new product area
channel structure – entrepreneur
Even more difficult to gett a retailer to buy and sell her green hair care line, because she lacks power in the marketplace (small and brand is unknown. She might face relatively high listing fees just to get space on retailers’ shelves. But like Coach in Scenario 2, when choosing retailers to which to sell, Britt should consider where the end customer expects to find her products, as well as some important retailer characteristics
customer expectations
– retailers must know from which manufacturers its customers want to buy
– manufacturers must know where their target market customers expect to find their products and those of their competitors
channel member characteristics
– the larger and more sophisticated the channel member, the less likely that it will use supply chain intermediaries
2) identifying types of retailers
identify the types of retailers that would be appropriate to carry its products (although the choice is often obvious—such as a supermarket for fresh produce—manufacturers may have a choice of retailer types for some products)
food retailers
– conventional supermarkets
– big-box food retailers
– convenience stores
conventional supermarkets
Offer groceries, meat, and produce with limited sales of nonfood items, such as health and beauty aids and general merchandise, in a self-service format
big-box food retailers
larger than a conventional supermarket; carry both food and nonfood items
– supercentre
– hypermarket
– warehouse club
convenience stores
provide a limited number of items at convenient locations in mall stores with speedy checkout
general merchandise retailers
– discount stores
– specialty stores
– category specialists
– department stores
– drugstores
– off-price retailers
– extreme-value retailers
– services retailers
discount stores
– broad variety of merchandise
– limited service
– low prices
e.g. Walmart and Target
specialty stores
– limited number of complementary merchandise categories
– relatively small stores – tailor their retail strategy toward very specific market segments by offering deep but narrow assortments and sales associate expertise
e.g. Payless ShoeSource
category specialists
narrow variety but a deep assortment of merchandise
– most use a self-service approach, but some provide extensive customer service
– some resemble large specialty stores (e.g. Chapters Indigo – books)
– some resemble discount stores with similar low prices but offer a more concentrated assortment of goods (e.g. Future Shop – consumer electronics)
category killers
because category specialists offer such an extensive assortment in a particular category, they can overwhelm the category such that other retailers have difficulty competing
department stores
– carry many different types of merchandise (broad variety)
– lots of items within each type (deep assortment)
– some customer services
– organized into separate departments to display their merchandise
– often resemble a collection of specialty shops
– stuck in the middle, between those retailers that provide a better value at lower prices and those that offer more complete and fashionable assortments and better customer service, according to consumer perceptions => lost market share to specialty stores, discount stores, and category specialists
specialty stores that concentrate on health and personal grooming merchandise, though pharmaceuticals often represent more than 60 percent of their sales
– low margins earned on prescription drugs (health insurance companies and government programs pay most of the cost of many prescriptions, and the health insurance companies negotiate substantially lower prices with drugstores => drugstores attempting to make up for their lost profits on prescriptions by concentrating their efforts on nonpharmaceutical products: general merchandise has long been a staple in drugstores, but food is a relatively new addition)
off-price retailers
inconsistent assortment of merchandise at relatively low prices
– typically buy from manufacturers or other retailers with excess inventory or at the end of a season for one-quarter to one-fifth the original wholesale price
– customers can never be confident that the same type of merchandise will be in stock each time they visit the store
– different bargains will be available on each visit
– complement their opportunistically bought merchandise with merchandise purchased at regular wholesale prices to improve their offerings’ consistency
– in addition to their low prices, the key to off-price retailers’ success is the treasure hunt environment they create
e.g. Winners
extreme-value retailers
– a subset of off-price retailers
– general merchandise discount stores found in lower-income urban or rural areas
– much smaller than traditional discount stores
– one of the fastest growing retailing segments
e.g. Dollarama
services retailers
firms that primarily sell services rather than merchandise
– these companies are retailers because they sell goods and services to consumers
– organizations such as banks, hospitals, health spas, legal clinics, entertainment firms, and universities that offer services to consumers traditionally have not considered themselves retailers, yet due to increased competition, these organizations are adopting retailing principles to attract customers and satisfy their needs
trends suggesting considerable future growth in services retailing
– the aging population will increase demand for health care services
– younger people are also spending more time and money on health and fitness
– busy parents in two-income families are willing to pay to have their homes cleaned, lawns maintained, clothes washed and pressed, and meals prepared so they can spend more time with their families
3) developing a retail strategy
manufacturers and retailers therefore develop their strategy by implementing the four Ps
retail mix
– product (merchandise assortment)
– pricing
– promotion
– personnel
– presentation (store design & display)
– place
product (merchandise assortment)
– providing the right mix of merchandise and services that satisfies the needs of the target market
– offering assortments gives customers choice and helps attract new and existing customers
– provide value to both manufacturers and customers by performing the storage function (manufacturers don’t like to store inventory because their factories and warehouses are typically not available to customers & consumers don’t want to store more than they need because it takes up too much space)
– private-label brands (also called store brands), which are products developed and marketed by a retailer and available only from that retailer to retailers to distinguish themselves from their competitors through the merchandise they carry because competitors can purchase and sell many of the same popular brands
– price helps define the value of both the merchandise and the service
– general price range of a particular store helps define its image
– both manufacturer and retailer can make a reasonable profit
– must always be aligned with the other elements of the retail mix
– once in the store, however, retailers use displays and signs, placed at the point of purchase (POP) or in strategic areas such as the end of aisles (end caps) to inform customers and stimulate purchases of the featured products
– co-ordinated effort between the manufacturer and retailer helps guarantee that the customer receives a cohesive message
– co-operative advertising (an agreement between manufacturer and retailer, where the manufacturer pays all or a portion of the advertising’s production and media costs) may help defray the costs of advertising
– store credit cards and gift cards are more subtle forms of promotion that also facilitate shopping
– retailers might offer pricing promotions—such as coupons, rebates, in-store or online discounts, or perhaps buy-one-get-one-free offers—to attract consumers and stimulate sales
– valuable to customers; they inform customers about what is new and available and how much it costs
presentation (store design & display)
– overall retail environment as a means to promote and showcase what the store has to offer
– improve “shopability” by providing more convenient store layouts and shopping experiences that make the task faster, easier, or more interesting
– “entertailing” to provide stories behind products and a more interactive experience that encourages customers to stay in stores longer
wheel of retailing
wheel of retailing
stores add services and improvements expand the mix of merchandise carried and upgrade their facilities => costs are generally added to the day-to-day operations => higher prices => opportunities for new lean, mean entrants at the beginning of the wheel
– personal selling and customer service representatives are also part of the overall promotional package
– retail associates (in the store, on the phone, or over the Internet) provide customers with information about product characteristics and availability, also facilitate the sale of products or services that consumers perceive as complicated, risky, or expensive
– salesperson and customer service functions are being augmented, or even replaced, by technology used through in-store kiosks, the Internet, or self-checkout lanes
– consumer information collected from the customers’ Internet browsing and buying behaviour to send personalized emails promoting specific products, may also offer special discounts to good customers to make them even more loyal
– many customers choose stores on the basis of where they are located, which makes great locations a competitive advantage that few rivals can duplicate
– retailers are experimenting with different options to reach their target markets (e.g. open 24 hours a day, virtual stores)
4) managing a multichannel strategy
examining the circumstances in which sellers may prefer to adopt a particular strategy (although these factors are listed consecutively, manufacturers may consider them all simultaneously or in a different order)
omnichannel strategy
creates a consistent experience for consumers across all distribution channels
benefits of stores (brick-and-mortar) for consumers
– browsing
– touching and feeling
– personal service
– cash and credit payment
– entertainment and social interaction
– instant gratification
– risk reduction
benefits of internet retailing
– deeper and broader selection
– more information to evaluate merchandise
– personalized customer service
– personalized offering
– expanded market presence
benefits of kiosk channels
– broader selection
– access to items online that are out of stock in store
– access to wish lists and gift registries
– access to loyalty program information
benefits of catalogue channels
– convenience (easily accessible for a long period of time)
– information
– safety (enabling customers to view merchandise and place orders from a safe environment – their homes)
effective multichannel retailing
– role of brands
– using technology
– increasing share of wallet
– gaining insights into customers’ shopping behaviours
role of brands
brands provide a consistent experience for customers that helps overcome the difficulty of not being able to touch and feel merchandise prior to purchase online
using technology
technology used to convert touch-and-feel information into look-and-see information that can be communicated through the Internet
increasing share of wallet
multichannel consumers spend substantially more than those who shop at a single channel
– electronic channel can be used to stimulate store visits by announcing special store events and promotions
– store-based retailers can leverage their stores to lower the cost of fulfilling orders and processing returned merchandise if they use the stores as “warehouses” for gathering merchandise for delivery to customers
gaining insights into customers’ shopping behaviours
– online retailing provides key insights into the choices consumers make since the data can be collected unobtrusively
– however, people often shop differently in the different channels (e.g. might browse extensively online but dash into and out of stores to get what they need)
– if a retailer gathers data about a customer’s actions in all of its channels, it should be able to put together a clearer, more detailed picture of how and why customers patronize—or don’t patronize—its channels and offerings

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