Our Finals in Principles of Marketing

Pasig Catholic College

Pasig City

A Fulfillment of the Requirement in 

Principles of Marketing

T-TH 12:00-1:30

Submitted to Maria Fe de Castro, MBA

First Semester 2012

Topic: Placing Products

Wholesaling and Retailing

Retailing includes all activities involved in selling, renting, and providing goods and services to the end consumers for personal and family non-business use.

What is Retailing?

Retailing: is a set of business activities that adds value to the products and services told to consumers for their personal or family use.

The Values of Retailing: Retailing creates customer value and has a significant impact on the economy.

• Consumer Utilities Offered by Retailing (CUO): The utilities provided by retailers create value for consumers. Time, place, form, and possession utilities are offered by most retailers in varying degrees, but one utility is often emphasized more than others. Some utilities are 
• time utility (you have the products and services available every time)
• place utility (you have the products and services available in the right place with the right amount)
• form utility (you have made the raw materials turned into something (product) the consumers could actually use right away)
• possession utility (having a variety of products available in one place. Ex. Supermarkets, Grocery stores)

• The Global Economic Impact of Retailing (GEI) : Creating an impact into the global market establishing an image known for being very productive business against other competitors of the same line of merchandise like Walmart, for instance, having $238 Billion in sales last 2004.

A retailer's role in a distribution channel

Retailer: Is a business that sells products and/or services to consumers for their personal or family use. Retailers are the final business in a distribution channel that links manufacturers to consumers.

Distribution Channel: Is a set of firms that facilitate the movement of products from the point of production to the point of sale to the ultimate consumer.

Manufacturers: typically make products and sell them to retailers or wholesalers. Its product are commonly raw materials used to make products. Classified as being low quality and high quality.

3 Types of Integration:

1. Vertical Integration: Means that a firm performs more than one set of activities in the channel, such as investments by retailers in wholesaling or manufacturing. 

2. Backward Integration: Happens when a retailer performs some distribution and manufacturing activities,  such as operating warehouses or designing private label merchandise.

3. Forward Integration: Is when a manufacturer undertakes retailing activities, such as Ralph Lauren operating its own retail stores. In short, the manufacturer owns and manages a retail store.

Functions Performed by Retailers

�        Providing Assortments: Supermarkets typically carry 20,000 to 30,000 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 prices at one location.

�        Breaking Bulk: To reduce transportation costs, manufacturers and wholesalers typically ship cases of frozen products such as food or cartons/crates of fragile products to retailers. 

Retailers then offer the products in smaller quantities tailored to individual consumers and households consumption patterns with their corresponding, reasonably priced mark ups.

�         Holding Inventory: A major function of retailers is to keep inventory that is already broken into user-friendly sizes so that products will be available when consumers want them. 

Thus, consumers can keep a smaller inventory of products at home because they know local retailers will have the products available when they need more. 

By maintaining an inventory, retailers provide a benefit to consumers; they reduce the consumers cost of storing products.

�        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 now and pay for it later. They display products so consumers can see and test them before buying.

�         Increasing the Value of Products and Services: By providing assortments, breaking bulk, holding inventory, and providing services, retailers increase the value consumers receive from their products and services.

Social and Economic Significance of Retailing

Support for Community: Retailers are also responsible for developing many innovative products and services.

Retail Sales: Retailing affects every facet of life. Just think of how many daily contracts you have with retailers when you eat meals, furnish your apartment, have your car fixed, and buy clothing for a part or job interview.

Employment: Retailing also is one of the nation's largest industries in terms of employment.

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. Students often view retailing as a part of marketing because the management of distribution channels is part of a manufacturer's marketing function. 

But retailers operate businesses and like manufacturers, undertake most traditional business activities. Retailers 

• raise capital from financial institutions; 

• purchase goods and services; 

• develop accounting and 

• management information systems to control operations; 

• manage warehouses and distribution systems; 

• design and develop new products and 

• undertake marketing activities such as 

• advertising, promotions, 

• sales force management, and 

• market research.

Entrepreneurial Opportunities: Retailing also provides opportunities for people who wish to start their own business. Some of the world's richest people are retailing entrepreneurs.

The Retail Management Decision Process

Competitors: At first glance, identifying competitors appears easy. A retailer's primary competitors are other retailers using the same format. 

Example: Department stores compete against other department stores and supermarkets against other supermarkets. This competition between the same types of retailers is called intratype competition.

Variety: To appeal to a broader group of consumers, many retailers are increasing the variety of their merchandise. 

Variety is the number of different merchandise categories within a store or department.

By offering greater variety in one store, retailers can offer one-stop shopping to satisfy more of the needs of their target markets.

Scrambled Merchandising: The offering of merchandise not typically associated with the store type, such as clothing in a drug store, is called scrambled merchandising. Scrambled merchandising increases intertype competition, or competition between retailers that sell similar merchandise using different formats, such as discount and department stores.

Customers: The second factor in the microenvironment is customers. Customer needs are changing at an ever-increasing rate. Retailers must respond to broad demographic and lifestyle trends in our society, such as the growth in the elderly and minority segments of the US population and the importance of shopping.

Retail Strategy: indicates how the firm plans to focus its resources to accomplish its objectives. It identifies 1) the target market, or markets, toward which the retailers will direct its efforts; 2) the nature of the merchandise and services the retailers will direct its efforts; 2) the nature of the merchandise and services the retailer will offer to satisfy the needs of the target market; and 3) how the retailer will build a long-term advantage over its competitors.

Strategic Decision Areas: The key strategic decision areas for a firm involve determining its market, financial, location, organizational structure, and human resource, information systems, and supply chain, and customer relationship management strategies.

Retail Mix: To implement a retail strategy, management develops a retail mix that satisfies the needs of its target market better than that of its competitors. The retail mix is the decision variables retailers use to satisfy customer needs and influence their purchase decisions.

Ethical and Legal Considerations: When making the strategic and tactical decisions discussed previously, managers need to consider the ethical and legal implications of their decisions in addition to the effects those decisions have on the profitability of their firms and the satisfaction of their customers. Ethics are the principles governing the behavior of individuals and companies to establish appropriate behavior and indicate what is right and wrong.

Classifying Retail Outlets: Form of ownership distinguishes retail outlets based on whether individuals, corporate chains, or contractual systems own the outlet. Second, level of service used to describe the degree of service provided to the customer. 

• Form of Ownership
• Independent retailer: A retail business owned by an individual. 
  • The advantage of this form of ownership for the owner is that he or she can be his or her own boss. 
  • For customers, the independent store can offer convenience, quality personal service, and lifestyle compatibility.
  
  
• Corporate Chain: Involves multiple outlets under common ownership. 
  • Chain stores have advantages in dealing with manufacturers, particularly as the size of the chain grows. A large chain can bargain with a manufacturer to obtain good service or volume discounts on orders. 
  • Consumers also benefit in dealing with chains because there are multiple outlets with similar merchandise and consistent management policies.
  
  
• Contractual Systems: Contractual systems involves independently owned stores that band together to act like a chain. 
  • Three types are 
    • Retailer-sponsored cooperatives 
    • Wholesaler-sponsored voluntary chains 
    • Franchise 
      • In a franchise system an individual or firm (the franchisee) contracts with a parent company (the franchisor) to set up a business or retail outlet. Two general types of franchises: 
      • Business Format Franchise 
      • Product distribution franchises
      
      

Level of Service: In the Philippines, most of the retail stores, specially the franchise stores, compete with what they call, 'levels of service' where in the competition is how well you serve and take care of your customers compared with that of the competitor's.

• Self-Service: Self-service requires that the customer performs many functions and little is provided by the outlet. Examples are some of the 'try it yourself' electronic stores in some parts of US where in you do all the means to test the product and the only service they provide is the purchasing of items.
• 
  
• Limited Service: Outlets provide some services, such as credit and merchandise return, but not others, such as return and exchange of product. 
  • Customers are responsible for most shopping activities, although salespeople are available in departments such as consumer electronics, jewelry, and lawn and garden to help in the inquiries of the customers.
• 
  
• Full- Service: Include most specialty stores and department stores; provide many services to their customers. They all relay on better service to sell more distinctive, higher-margin goods. 
  • Examples are hotels, high- end restaurants and resorts.

• Type of Merchandise Line: Retail outlets also vary by their merchandise lines, the key distinction being the breadth and depth of the items offered to customers.                                                                                     
• Depth of Line: A type of merchandise line where in, in a specific retail store, it only carries one line of product. Usually the owner 'masters' the product and establishes a name known for its uniqueness. 
  • Example: Cinnabon, Havaianas, Nokia                                                                                                                            
• Breadth of Line: A type of merchandise line where in, in a specific retail store, it carries a broad line of merchandise/ products for sale.
• Scrambled Merchandising: Offering several unrelated product lines in a single retail store.
  • Examples: Puregold, Hypermarket, Super 8
  
  
  
  
  
  

Nonstore Retailing: Most of the retailing examples discussed earlier in the chapter, such as corporate chains, department stores, limited- and single-line specialty stores, involve store retailing.

• Automatic Vending: Vending machines make it possible to serve customers when and where stores cannot. Machine maintenance, operating costs, and location leases can add to the cost of the products, so prices in vending machines tend to be higher than those in stores.

• Direct Mail and Catalogs: Catalogs improve marketing efficiency through segmentation and targeting, and they create customer value by providing a fast and convenient means of making a purchase without the cost of a store and clerk.
• Television Home Shopping: Is possible when consumers watch a shopping channel on which products are displayed; orders are then placed over the telephone or the internet. 
• Online Retailing: Allows consumers to search for, evaluate, and order products through the Internet. For many consumers the advantages of this form of retailing are the 24 hour access, the ability to comparison shop, in-home privacy, and variety like e-bay, sulit.com.ph and ayosdito.com.ph
• Telemarketing: Another form of non-store retailing, called telemarketing, involves using the telephone to interact with and sell directly to consumers. Telemarketing is considered to be able to target your market much more focused. Telemarketing is used by insurance companies, loan banks, and newspaper companies.
• Direct Selling: Sometimes called door-to-door retailing, involves direct sales of goods and services to consumers through personal interactions and demonstrations in their home or office. Direct selling has been entering into international markets. Direct selling is likely to continue to grow in markets where the lack of effective distribution channels increases the importance of door-to-door convenience and where the lack of consumer knowledge about products and brands will increase the need for a person-to-person approach.

Retail Strategy: indicates how the firm plans to focus its resources to accomplish its objectives. It identifies 

1) the target market, or markets, toward which the retailers will direct its efforts 

2) the nature of the merchandise and services the retailers will direct its efforts

3) the nature of the merchandise and services the retailer will offer to satisfy the needs of the target     market

4) how the retailer will build a long-term advantage over its competitors

Retail Mix, as part of the retailing decision process, is to implement a retail strategy, management develops a retail mix that satisfies the needs of its target market better than that of its competitors. The retail mix is the decision variables retailers use to satisfy customer needs and influence their purchase decisions. 

 

Retail Pricing is where you take out the items/ products from a bulk items and sells it per piece with a mark- up. 

Example: 

1. A sack of rice (50 kilos) will be sold in smaller volumes (1-10 kilos) for low-end consumer to purchase.

2. 10 Kilos of Calamansi will be sold per piece for P 1.00.

Store Location: Another aspect to the retailing mix involves deciding where to locate the store and how many stores to have.

• Central Business District (CBD) is the oldest retail setting, the community's downtown area. Downtown shopping areas are seen to be inconvenient because of lack of parking, high crime rate, and exposure to weather.
• Regional Shopping Centers (RHS) consist of 50 to 150 stores that typically attract customers who live or work within a 5- to 10-mile range. At these centers there is typically a large anchor department store that will attract consumers.
• Strip Location is a cluster of stores to serve people who are within a 5 to 10 minute drive. Gas station, hardware, laundry, grocery, and pharmacy outlets are commonly found in a strip location.
• Multichannel retailers use a combination of traditional store formats and non-store formats such as catalogs, television, and online retailing. 

    Retail Communication 

A retailer's communication activities can play an important role in positioning a store and creating its image. Function refers to the mix of elements like prices, store layout, and breadth and depth of merchandise lines. 

The psychological attributes are intangibles such as a sense of belonging, excitement, style, or warmth. Image has been found to include impressions of the corporation that operates the store, the category or type of store, the product categories in the store, the brands in each category, merchandise and service quality, and the marketing activities of the store. 

Merchandise

A popular approach to managing the assortment of merchandise today is called category management.

This approach assigns a manager with the responsibility for selecting all products that consumers in a market segment might view as substitutes for each other, with the objective of maximizing sales and profits in the category.

Many retailers are developing an advanced form of category management called consumer marketingat retail. Retailers are conducting research, analyzing the data to identify shopper problems, translating the data into retailing mix actions, executing shopper friendly in-store programs, and monitoring the performance of the merchandise. 

Changing Nature of Retailing: Retailing is the most dynamic aspect of channel of distribution. Stores such as factory outlets show that new retailers are always entering the market, searching for a new position that will attract customers.

• The Wheel of Retailing: The wheel of retailing describes how new forms of retail outlets enter the market.

 

 The Retail Life Cycle 

Early growth is the stage of emergence of a retail outlet, with a sharp departure from existing competition. Market share rises gradually, although profits may be low because of start-up costs.

 The next stage is accelerated development; both market share and profit achieve their greatest growth rates. More competitors may enter. The battle for market share is usually fought before the maturity stage, and some competitors drop out of the market. 

New retail forms enter in maturity stage, stores try to maintain their market share, and price discounting occurs.

Wholesaling: 

Many retailers depend on intermediaries that engage in wholesaling activities and selling products and services for the purposes of resale or business use.

Types of Wholesalers

• Merchant Wholesalers: are independently owned firms that take title to � that is they own � merchandise they handle. 
  • Full service
    • General merchandise (or full-line) wholesalers carry a broad assortment of merchandise and perform all channel functions. This type of wholesaler is most prevalent in the hardware, drug, and clothing industries. 
    • Specialty merchandise (or limited-line) wholesalers offer a relatively narrow range of products but have an extensive assortment within the product lines carried. 
  • Limited service
    • Rack jobbers furnish the racks or shelves that display merchandise in retail stores, perform all channel functions, and sell on consignment to retailers, which means they retain the title to the products displayed and bill retailers only for the merchandise sold. 
    • Drop shippers, or desk jobbers are wholesalers that own the merchandise they sell but do not physically handle, stock, or deliver it. They simply solicit orders from retailers and other wholesalers and have the merchandise shipped directly from a producer to a buyer. 
    • Truck jobbers are small wholesalers that have a small warehouse from which they stock their trucks for distribution to retailers. They usually handle limited assortments of fast-moving or perishable items that are sold for cash directly from trucks in their original packages.
  
  
  
  
• Agents and Brokers: Unlike merchant wholesalers, agents and brokers do not take title to merchandise and typically provide fewer channel functions. They make profit from commissions or fees paid for their services, whereas wholesalers make their profit from the sale of the merchandise they own.
• Manufacturer's agents: work for several producers and carry non competitive, complementary merchandise in an exclusive territory.
• Brokers: Independent firms or individuals whose main function is to bring buyers and sellers together to make sales.
• Manufacturer's branches and offices: Unlike merchant wholesalers, agents and brokers, manufacturer's branches and sales offices are wholly owned extensions of the producer that perform wholesaling activates. 

Wholesaling Channel Functions

Channel Length

Distribution channels can be described as being either short or long. A short channel involves few intermediaries. A long channel, on the other hand, involves many intermediaries working in succession to move goods from producers to consumers. 

In general, business products tend to move through shorter channels than consumer products due to geographical concentrations and comparatively few business purchases. 

Consumer Channels

The simplest and shortest distribution channel is a direct channel. A direct channel carries goods directly from a producer to the business purchaser or consumer.

Business-to-Business Channels

B2B distribution channels facilitate the flow of goods from a producer to an organizational customer. Generally, B2B channels parallel consumer channels in that they may be direct or indirect.

Channels for Services

Because services are intangible, there is no need to worry about storage, transportation, and the other functions of physical distribution. In most cases, the service travels directly from the producer to the customer.

Examples: Insurance agents, stockbrokers, and travel agents

1. Wholesale Management - Planning, organizing, staffing and controlling wholesaling operations. 
2. Negotiating with suppliers - Serving as the purchasing agent for customers by negotiating supplies. 
3. Promotion - Providing as sales force, advertising, sales promotion and publicity. 
4. Product Handling - Receiving, storing and stock keeping, order processing, packaging, shipping outgoing orders and materials handling. 
5. Inventory and Data processing - controlling physical inventory, book keeping, recording transactions, keeping records for  financial analysis. 
6. Security - Safeguarding merchandise. 
7. Pricing - Developing prices and providing price quotations. 
8. Financing and budgeting - extending credit, borrowing, making capital investments and forecasting cash flow. 
9. Marketing assistance to clients- Supplying information about market and products and providing advisory services to assist customers in their sales efforts.

Wholesaler Marketing Decisions

Wholesalers have experienced mounting competitive pressures in recent years. They have faced new sources of competition, more demanding customers, new technologies, and more directbuying
programs on the part of large industrial, institutional, and retail buyers.

 As a result, they have had to improve their strategic decisions on target markets and positioning, and on the marketing mix—product assortments and services, price, promotion, and place.

Topic: 

Promoting Products

The Promotional Elements: To communicate with consumers, a company can use one or more of five promotional alternatives: advertising, personal selling, public relations, sales promotion, and direct marketing.

There are five main aspects of a promotional mix. These are:

• Advertising - Presentation and promotion of ideas, goods, or services by an identified sponsor. 
  • Examples: Print ads, radio, television, billboard, direct mail, brochures and catalogs, signs, in-store displays, posters, motion pictures, Web pages, banner ads, and emails. (Always in Paid Form, non- personal)
• Personal selling - A process of helping and persuading one or more prospects to purchase a good or service or to act on any idea through the use of an oral presentation. 
  • Examples: Sales presentations, sales meetings, sales training and incentive programs for intermediary salespeople, samples, and telemarketing. Can be face-to-face or via telephone.
• Sales promotion - Media and non-media marketing communication are employed for a pre-determined, limited time to increase consumer demand, stimulate market demand or improve product availability. 
  • Examples: Coupons, sweepstakes, contests, product samples, rebates, tie-ins, self-liquidating premiums, trade shows, trade-ins, and exhibitions.
• Public relations - Paid intimate stimulation of supply for a product, service, or business unit by planting significant news about it or a favorable presentation of it in the media. 
  • Examples: Newspaper and magazine articles/reports, TVs and radio presentations, charitable contributions, speeches, issue advertising, and seminars.
• Direct Marketing is a channel-agnostic form of advertising that allows businesses and nonprofits to communicate straight to the customer, with advertising techniques such as mobile messaging, email, interactive consumer websites, online display ads, fliers, catalog distribution, promotional letters, and outdoor advertising.

Promotion has many potential uses in business. It can be used to:

Increase sales

Attract new customers

Encourage customer loyalty

Encourage trial

Create awareness

Inform

Remind potential customers

Reassure new customers

Change attitudes

Create an image

Position a product

Encourage brand switching

To support a distribution channel

Decision Making In Promotions

• Market share - A company that has a higher market share must generally spend more on advertising to maintain its share.
• Sales from new products-If a company has a high percentage of its sales resulting from new products, it must spend more on advertising compared to companies that have well established products.
• Market growth-Companies competing in fast-growing markets should spend comparatively more on advertising.
• Plant capacity-If a company has a lot of unused plant capacity, it should spend more on advertising to stimulate sales and production.
• Unit price (per sales transaction)-The lower the unit price of a company’s products, the more it should spend on advertising because of the greater likelihood of brand switching.
• Importance of product to customers (in relation to their total purchases)- Products that constitute a lower proportion of customers’ purchases generally require higher advertising expenditures.
• Product price-Both very high-priced (or premium) products and very low priced (or discount) products require higher ad expenditures because in both the cases, price is an important factor in the buying decision and the buyer must be convinced (through advertising) that the product is a good value.
• Product quality- Higher-quality products require a greater advertising effort because of the need to convince the consumer that the product is unique.
• Breadth of product line-Companies with a broad line of products must spend more on advertising compared to companies with specialized product lines.
• Degree of standardization-Standardized products produced in large quantities should be backed by higher advertising outlays because they are likely to have more competition in the market.