Marketing management Chapter 16 docx

IN THIS CHAPTER, WE WILL ADDRESS THE FOLLOWING QUESTIONS: 1. What major types of marketing intermediaries occupy this sector? 2. What marketing decisions do these marketing intermediaries make? 3. What are the major trends with marketing intermediaries? CHAPTER 16 MANAGING RETAILING, WHOLESALING, AND LOGISTICS In the previous chapter, we examined marketing intermediaries from the viewpoint of manufacturers who wanted to build and manage marketing channels. In this chapter, we view these intermediaries— retailers, wholesalers, and logistical organizations—as requiring and forging their own marketing strategies. Intermediaries must strive for marketing excellence like any company, or suffer the consequences. n late December 2003, Manifest Discs and Tapes, a music lover's mecca in two North and South Carolina towns, shocked loyal cus- tomers by announcing it would close all its locations and lay off all 100 of its employees. Even though there were still plenty of consumers eager to browse Manifest's stock of 85,000 albums, the popular chain was bowing to powerful forces hitting music retailers across the country. Tower Records, Musicland, and Wherehouse were all either filing for bankruptcy or up for sale at bargain prices. Shifts in consumer tastes, rampant ripping and burning of CDs, and an explosion of online downloads, fueled by Apple's popular iTunes site, led to declining CD sales. Competition from discounters, which treated CDs as loss leaders to generate store traffic, and online giant Amazon left tra- ditional music retailers frequently overpriced. Struggling to create a shopping experience that would justify consumers' time and money, some retailers have experimented with in-store technology such as Internet-connect kiosks and Opening clay at new Starbucks Hear Music Coffeehouse, March 2004, Santa Monica, California, a joint venture with Hewlett Packard and its wholly owned subsidiary Hear Music. 503 504 PART 6 DELIVERING VALUE portable Wi-Fi devices that allowed music sampling while roaming the store. In con- junction with its wholly owned subsidiary, retailer Hear Music, Starbucks is opening Hear Music Coffeehouses, fully integrated cafe-music stores that offer 3,000 square feet of warmly lit space where you can buy regular old CDs or linger with a latte while you listen to music and sift through thousands of songs stored in a computer data- base to create your own personalized masterpiece. In about five minutes a freshly burned CD, complete with your chosen title and funky artwork on the disc and the jacket (plus liner notes), is ready to take horned During this same time, department stores also found themselves contending with a dwindling customer base. But not all retailers have found themselves falling behind. Some intermediaries dominate the manufacturers who deal with them. Many use strategic planning, advanced information systems, and sophis- ticated marketing tools. They measure performance more on a return-on' : investment basis than on a profit-margin basis. They segment their markets, improve their market targeting and positioning, and aggressively pursue mar- ket expansion and diversification strategies. In this chapter, we consider mar- keting excellence in retailing, wholesaling, and logistics. ::: Retailing Retailing includes all the activities involved in selling goods or services directly to final con- sumers for personal, nonbusiness use. A retailer or retail store is any business enterprise whose sales volume comes primarily from retailing. Any organization selling to final consumers—whether it is a manufacturer, wholesaler, or retailer—is doing retailing. It does not matter how the goods or services are sold (by person, mail, telephone, vending machine, or Internet) or where they are sold (in a store, on the street, or in the consumer's home). Types of Retailers Consumers today can shop for goods and services in a wide variety of retail organizations. There are store retailers, nonstore retailers, and retail organizations. Perhaps the best-known type of retailer is the department store. Japanese department stores such as Takashimaya and Mitsukoshi attract millions of shoppers each year. These stores feature art galleries, restaurants, cooking classes, and children's playgrounds. Retail-store types pass through stages of growth and decline that can be described as the retail life cycle. 2 A type emerges, enjoys a period of accelerated growth, reaches maturity, and then declines. Department stores took 80 years to reach maturity, whereas warehouse retail outlets reached maturity in 10 years. The most important retail-store types are described in Table 16.1. LEVELS OF SERVICE The wheel-of-retailing hypothesis explains one reason that new store types emerge. 3 Conventional retail stores typically increase their services and raise their prices to cover the costs. These higher costs provide an opportunity for new store forms to offer lower prices and less service. New store types meet widely different consumer prefer- ences for service levels and specific services. MANAGING RETAILING, WHOLESALING, AND LOGISTICS CHAPTER 16 505 Specialty store: Narrow product line. Athlete's Foot, Tall Men, The Limited, The Body Shop. Department store: Several product lines. Sears, JCPenney, Nordstrom, Bloomingdale's. Supermarket: Large, low-cost, low-margin, high-volume, self-service store designed to meet total needs for food and household products. Kroger, Jewel, Food Emporium. Convenience store: Small store in residential area, often open 24/7, limited line of high-turnover conve- nience products plus takeout. 7-Eleven, Circle K. Discount store: Standard or specialty merchandise; low-price, low-margin, high-volume stores. Wal-Mart, Kmart, Circuit City, Crown Bookstores. Off-price retailer: Leftover goods, overruns, irregular merchandise sold at less than retail. Factory outlets, independent off-price retailers. Filene's Basement, T.J. Maxx, warehouse clubs Sam's Clubs, Price-Costco, BJ's Wholesale. Superstore: Huge selling space, routinely purchased food and household items, plus services (laundry, shoe repair, dry cleaning, check cashing). Category killer (deep assortment in one category) such as Petsmart, Staples, Home Depot; combination store such as Jewel, Osco; hypermarket (huge stores that combine supermarket, discount, and warehouse retailing), such as Carrefour in France, Pyrca in Spain, and Meijer's in the Netherlands. Catalog showroom: Broad selection of high-markup, fast-moving, brand-name goods sold by catalog at discount. Customers pick up merchandise at the store. Inside Edge Ski and Bike. TABLE 16.1 Major Retailer Types Retailers can position themselves as offering one of four levels of service: 1. Self-service - Self-service is the cornerstone of all discount operations. Many customers are willing to carry out their own locate-compare-select process to save money. 2. Self-selection - Customers find their own goods, although they can ask for assistance. 3. Limited service - These retailers carry more shopping goods, and customers need more information and assistance. The stores also offer services (such as credit and merchandise- return privileges). 4. Full service - Salespeople are ready to assist in every phase of the locate-compare-select process. Customers who like to be waited on prefer this type of store. The high staffing cost, along with the higher proportion of specialty goods and slower-moving items and the many services, results in high-cost retailing. By combining these different service levels with different assortment breadths, we can distin- guish the four broad positioning strategies available to retailers, as shown in Figure 16.1: 1. Bloomingdale's - Stores that feature a broad product assortment and high value added. Stores in this quadrant pay close attention to store design, product quality, service, and Bloomingdale's Wal-Mart Tiffany Sunglass Hut FIG. 16.1 Retail Positioning Map Source: William T. Gregor and Eileen M. Friars, Money Merchandising: Retail Revolution in Consumer Financial Service (Cambridge, MA: The MAC Group, 1982). 506 PART 6 DELIVERING VALUE image. Their profit margin is high, and if they are fortunate enough to have high volume, they will be very profitable. 2. Tiffany - Stores that feature a narrow product assortment and high value added. Such stores cultivate an exclusive image and tend to operate on a high margin and low volume. 3. Sunglass Hut -Stores that feature a narrow line and low value added. Such stores keep their costs and prices low by centralizing buying, merchandising, advertising, and distribution. 4. Wal-Mart-Stores that feature a broad line and low value added. They focus on keeping prices low so that they have an image of being a place for good buys. They make up for low margin by high volume. Although the overwhelming bulk (97 percent) of goods and services is sold through stores, nonstore retailinghzs been growing much faster than store retailing. Nonstore retailing falls into four major categories: direct selling, direct marketing (which includes telemarketing and Internet selling), automatic vending, and buying services: 1. Direct selling (also called multilevel selling, network marketing) is a $9 billion indus- try, with over 600 companies selling door-to-door or at home sales parties. Well- known in one-to-one selling are Avon, Electrolux, and Southwestern Company of Nashville (Bibles). Tupperware and Mary Kay Cosmetics are sold one-to-many: A salesperson goes to the home of a host who has invited friends; the salesperson demonstrates the products and takes orders. Pioneered by Amway, the multilevel (network) marketing sales system consists of recruiting independent businesspeople who act as distributors. The distributor's compensation includes a percentage of sales of those the distributor recruits as well as earnings on direct sales to customers. These direct-selling firms, now finding fewer consumers at home, are developing multidis- tribution strategies. 2. Direct marketing has roots in direct-mail and catalog marketing (Lands' End, L.L. Bean); it includes telemarketing (1-800-FLOWERS), television direct-response mar- keting (Home Shopping Network, QVC), and electronic shopping (Amazon.com, Autobytel.com). Of these, electronic shopping experienced a major take-off in the late 1990s as consumers flocked to dot-com sites to buy books, music, toys, electronics, and other products. 3. Automatic vending is used for a variety of merchandise, including impulse goods like cigarettes, soft drinks, coffee, candy, newspapers, magazines, and other products like hosiery, cosmetics, hot food, condoms, and paperbacks. Vending machines are found in factories, offices, large retail stores, gasoline stations, hotels, restaurants, and many other places. They offer 24-hour selling, self-service, and merchandise that is always fresh. Japan has the most vending machines per person—Coca-Cola has over 1 million there, and annual vending sales of $50 billion—twice that of the United States. These reliable, high-tech machines allow consumers to buy products ranging from blue jeans to expen- sive lunches. Some U.S. retailers are now trying to emulate Japan's success with a new generation of vending machines in high-traffic areas. All over South Florida, machines are popping up that dispense Banana Boat sunscreen to travelers and outdoor enthusi- asts where they need it most.' 1 4. Buying service is a storeless retailer serving a specific clientele—usually employees of large organizations—who are entitled to buy from a list of retailers that have agreed to give discounts in return for membership. CORPORATE RETAILING Although many retail stores are independently owned, an increas- ing number are part of some form of corporate retailing. Corporate retail organizations achieve economies of scale, greater purchasing power, wider brand recognition, and better- trained employees. The major types of corporate retailing—corporate chain stores, voluntary chains, retailer cooperatives, franchises, and merchandising conglomerates—are described in Table 16.2. Franchising is described in detail in "Marketing Insight: Franchise Fever." New Models for Success In the past, retailers held customers by offering convenient location, special or unique assortments of goods, greater or better services than competitors, and store credit cards. All of this has changed. Today, national brands such as Ralph Lauren Polo, Calvin Klein, and Levi's are found in department stores, in their own shops, in merchandise outlets, and in \ MANAGING RETAILING, WHOLESALING, AND LOGISTICS • CHAPTER 16 507 Corporate chain store: Two or more outlets owned and controlled, employing central buying and merchan- dising, and selling similar lines of merchandise. GAP, Pottery Barn, Hold Everything. Voluntary chain: A wholesaler-sponsored group of independent retailers engaged in bulk buying and com- mon merchandising. Independent Grocers Alliance (IGA). Retailer cooperative: Independent retailers using a central buying organization and joint promotion efforts. Associated Grocers, ACE Hardware. Consumer cooperative: A retail firm owned by its customers. Members contribute money to open their own store, vote on its policies, elect a group to manage it, and receive dividends. Franchise organization: Contractual association between a franchiser and franchisees, popular in a num- ber of product and service areas. McDonald's, Subway, Pizza Hut, Jiffy Lube, 7-Eleven. Merchandising conglomerate: A corporation that combines several diversified retailing lines and forms under central ownership, with some integration of distribution and management. Allied Domeq PLC with Dunkin' Donuts and Baskin-Robbins, plus a number of British retailers and a wine and spirits group. TABLE 16.2 Major Types of Corporate Retail Organizations off-price discount stores. In their drive for volume, national-brand manufacturers have placed their branded goods everywhere. The result is that retail-store assortments have grown more alike. Service differentiation also has eroded. Many department stores have trimmed services, and many discounters have increased services. Customers have become smarter shoppers. They do not want to pay more for identical brands, especially when service differences have diminished; nor do they need credit from a particular store, because bank credit cards are almost universally accepted. In the face of increased competition from discount houses and specialty stores, depart- ment stores are waging a comeback war. In addition to locations in the centers of cities, many have branches in suburban shopping centers, where parking is plentiful and family incomes are higher. Bloomingdale's opened a store in downtown SoHo to attract young, well-heeled New Yorkers who would rarely venture up to their flagship midtown store. 5 To better compete, other department stores update merchandise more frequently, remodel their stores, introduce their own brands, and experiment with mail-order and online mar- keting, and telemarketing. 6 Two models for department store success seem to be emerging: 7 m Strong retail brand approach. In this type of department store, typified by Marks and Spencer in the United Kingdom and Kohl's in the United States, in-house brands feature strongly and managers take an active roll in choosing inventory. Kohl's and Marks and Spencer are more interested in promot- ing themselves as brands than promoting any particular brand within them. While these stores tend to have high operating costs, they usually command high margins if their in-house brands are both fashion- able and popular. a The showcase store. Typified by Galeries Lafayette in Paris and Selfridges in London, this type of store not only sells other people's brands but often gets the vendors of those brands to take responsibility for stock, staff, and even the selling space. The vendors then hand over a percentage of the sales to the store's owner. This translates into lower gross Wall poster ads for Bloomingdale's new SoHo store in New York. 508 PART 6 DELIVERING VALUE MARKETING INSIGHT FRANCHISE FEVER Franchising accounts for more than $1 trillion of annual U.S. sales and nearly one-third of all retail transactions. More than 320,000 small businesses are franchises, employing one in every 16 workers in the country. This figure should not come as a surprise in a society where it is nearly impossible to stroll down a city block or drive on a suburban thoroughfare without seeing a McDonald's, a Jiffy-Lube, a Supercuts, or a 7-Eleven. In a franchising system, individual franchisees are a tightly knit group of enterprises whose systematic operations are planned, directed, and controlled by the operation's innovator, called a franchiser. Franchises are distinguished by three characteristics: 1. The franchiser owns a trade or service mark and licenses it to franchisees in return for royalty payments. 2. The franchisee pays for the right to be part of the system. Start- up costs include rental and lease equipment and fixtures, and usually a regular license fee. McDonald's franchisees may invest as much as $1.6 million in total start-up costs and fees. The franchisee then pays McDonald's a certain percentage of sales plus a monthly rent. 3. The franchiser provides its franchisees with a system for doing business. McDonald's requires franchisees to attend "Hamburger University" in Oak Brook, Illinois, for three weeks to learn how to manage the business. Franchisees must follow cer- tain procedures in buying materials. Franchising is mutually beneficial to both franchiser and fran- chisee. Among the benefits reaped by franchisers are the motivation and hard work of employees who are entrepreneurs rather than "hired hands," the franchisees' familiarity with local communities and conditions, and the enormous purchasing power of the franchiser. Franchisees benefit from buying into a business with a well-known and accepted brand name. They find it easier to borrow money from financial institutions, and they receive support in areas ranging from marketing and advertising to site selection and staffing. Franchisees do walk a line between being independent and loyal to the franchiser. Their independence can allow them more flexibility. When Mike Roper opened his first Quiznos Sub franchise south of Chicago in the fall of 2000, the restaurant industry was about to collapse into its longest slump in nearly 30 years. Yet, his sales leapt 40 percent in his store's second year, far exceeding his projection of only 4 percent growth. Whenever business slows, he pretends it is "grand-opening day" again, with coupons and cookie giveaways to draw more traffic. "When you have your own money on the line, you act a little differently," he says. "You tend to be a little more aggressive on the day to day." The franchise explosion in recent years, however, has increas- ingly saturated the domestic market. To sustain growth, firms are looking overseas (McDonald's has over 30,000 restaurants in 119 countries outside the United States) or in nontraditional site locations in the United States. Franchises are opening in airports, sports stadi- ums, college campuses, hospitals, gambling casinos, theme parks, convention halls, and even riverboats. Sources: Norman D. Axelrad and Robert E. Weigand, "Franchising—A Marriage of System Members," in Marketing Managers Handbook, 3rd ed., edited by Sidney Levy, George Frerichs, and Howard Gordon (Chicago: Dartnell, 1994), pp. 919-934; Meg Whittemore, "New Directions in Franchising," Nation's Business (January 1995): 45-52; "Trouble in Franchise Nation," Fortune, March 6,1995, pp. 115-129; Carol Steinberg, "Millionaire Franchisees," Success (March 1995): 65-69; Richard Gibson, "Even 'Copycat' Businesses Require Creativity and Flexibility," Wall Street Journal Online, March 2004; <http://www.entrepreneur.com>. margins for the department store but also lower operating costs. The showcase store needs to keep droves of customers coming in, and that means it needs to be an entertainment destination in its own right. Galeries Lafayette's flagship Paris store recently offered free lessons from professional striptease artists to promote the opening of its huge new lin- gerie department. Supermarkets have opened larger stores, carry a larger number and variety of items, and upgrade facilities. Supermarkets have also increased their promotional budgets and moved heavily into private brands. Others have sought to create stronger differentiation. WHOLE FOODS MARKET In 157 stores in 28 states, the District of Columbia, Canada, and Great Britain, Whole Foods creates celebrations of food. The markets are bright and well staffed, and food displays are bountiful and seductive. Whole Foods is the largest organic and natural foods grocer in the country and offers lots of information about its food. If you want to know, for instance, whether the chicken in the display case lived a happy, free-roaming life, you get a 16-paqe booklet and an invitation to visit the farm in Pennsylvania where it was raised. If you can't find the infor- mation you need, you have only to ask a well-trained and knowledgeable employee. Whole Foods' approach is working, especially for consumers who view organic and artisanal food as an affordable luxury. In each of the last four years, Whole Foods beat Wal-Mart in both overall and comparable-store, year-to-year sales growth. 8 s MANAGING RETAILING, WHOLESALING, AND LOGISTICS CHAPTER 16 509 J—\ MARKETING MEMO HELPING STORES TO SELL — In the pursuit of higher sales volume, retailers are studying their store Make merchandise available to the reach and touch: It is hard environments for ways to improve the shopper experience. Paco to overemphasize the importance of customers' hands. A store can Underhill, managing director of the retail consultant Envirosell Inc., offer the finest, cheapest, sexiest goods, but if the shopper cannot offers the following advice for fine-tuning retail space in order to keep reach or pick them up, much of their appeal can be lost, shoppers spending: Men do not as ^ questions: Men always move faster than Attract shoppers and keep them in the store: The amount of women d0 tnr0L, 9 h a store ' s aisles - ln man V settin 9 s > il is hard t0 time shoppers spend in a store is perhaps the single most impor- 9 et them t0 look at anvlnin g lhe Y had not intended t0 buv - Men tant factor in determining how much they will buy. also do not like askin 9 where thin 9 s are ' lf a man cannot find the „ ,„ „ n L . section he is looking for, he will wheel about once or twice, then Honor the "transition zone : On entering a store, people need . „ . ,.„,. . . . , , . . _, iXL t . ,. z 1, , , leave the store without ever asking for help, to slow down and sort out the stimuli, which means that shoppers will likely be moving too fast to respond positively to signs, mer- Women need space: A shopper, especially a woman, is far less chandise, or sales clerks in the zone they cross before making like| y t0 bu y an ltem lf her derriere is brushed . even Nghtly, by that transition. Make sure there are clear sight lines. anotner customer when she is looking at a display. Keeping aisles n .* i «. «. * n * u. * i A . « * wide and clear is crucial. Dont make them hunt: Put the most popular products up front to reward busy shoppers and encourage leisurely shoppers to : Make checkout easy: Be sure to have the right high-margin goods look more. At Staples, ink cartridges are one of the first products near cash registers to satisfy impulse shoppers. And people love to shoppers encounter after entering. bu y cand y wnen ^ cneck out — so satisf y tneir sweet t00th - In the pursuit of higher sales volume, retailers are studying their store Make merchandise available to the reach and touch: It is hard environments for ways to improve the shopper experience. Paco to overemphasize the importance of customers' hands. A store can Underhill, managing director of the retail consultant Envirosell Inc., offer the finest, cheapest, sexiest goods, but if the shopper cannot offers the following advice for fine-tuning retail space in order to keep reach or pick them up, much of their appeal can be lost, shoppers spending: Men do not as ^ questions: Men always move faster than Attract shoppers and keep them in the store: The amount of women d0 tnr0L, 9 h a store ' s aisles - ln man V settin 9 s > il is hard t0 time shoppers spend in a store is perhaps the single most impor- 9 et them t0 look at anvlnin g lhe Y had not intended t0 buv - Men tant factor in determining how much they will buy. also do not like askin 9 where thin 9 s are ' lf a man cannot find the „ ,„ „ n L . section he is looking for, he will wheel about once or twice, then Honor the "transition zone : On entering a store, people need . „ . ,.„,. . . . , , . . _, iXL t . ,. z 1, , , leave the store without ever asking for help, to slow down and sort out the stimuli, which means that shoppers will likely be moving too fast to respond positively to signs, mer- Women need space: A shopper, especially a woman, is far less chandise, or sales clerks in the zone they cross before making like| y t0 bu y an ltem lf her derriere is brushed . even Nghtly, by that transition. Make sure there are clear sight lines. anotner customer when she is looking at a display. Keeping aisles n .* i «. «. * n * u. * i A . « * wide and clear is crucial. Dont make them hunt: Put the most popular products up front to reward busy shoppers and encourage leisurely shoppers to : Make checkout easy: Be sure to have the right high-margin goods look more. At Staples, ink cartridges are one of the first products near cash registers to satisfy impulse shoppers. And people love to shoppers encounter after entering. bu y cand y wnen ^ cneck out — so satisf y tneir sweet t00th - In the pursuit of higher sales volume, retailers are studying their store Make merchandise available to the reach and touch: It is hard environments for ways to improve the shopper experience. Paco to overemphasize the importance of customers' hands. A store can Underhill, managing director of the retail consultant Envirosell Inc., offer the finest, cheapest, sexiest goods, but if the shopper cannot offers the following advice for fine-tuning retail space in order to keep reach or pick them up, much of their appeal can be lost, shoppers spending: Men do not as ^ questions: Men always move faster than Attract shoppers and keep them in the store: The amount of women d0 tnr0L, 9 h a store ' s aisles - ln man V settin 9 s > il is hard t0 time shoppers spend in a store is perhaps the single most impor- 9 et them t0 look at anvlnin g lhe Y had not intended t0 buv - Men tant factor in determining how much they will buy. also do not like askin 9 where thin 9 s are ' lf a man cannot find the „ ,„ „ n L . section he is looking for, he will wheel about once or twice, then Honor the "transition zone : On entering a store, people need . „ . ,.„,. . . . , , . . _, iXL t . ,. z 1, , , leave the store without ever asking for help, to slow down and sort out the stimuli, which means that shoppers will likely be moving too fast to respond positively to signs, mer- Women need space: A shopper, especially a woman, is far less chandise, or sales clerks in the zone they cross before making like| y t0 bu y an ltem lf her derriere is brushed . even Nghtly, by that transition. Make sure there are clear sight lines. anotner customer when she is looking at a display. Keeping aisles n .* i «. «. * n * u. * i A . « * wide and clear is crucial. Dont make them hunt: Put the most popular products up front to reward busy shoppers and encourage leisurely shoppers to : Make checkout easy: Be sure to have the right high-margin goods look more. At Staples, ink cartridges are one of the first products near cash registers to satisfy impulse shoppers. And people love to shoppers encounter after entering. bu y cand y wnen ^ cneck out — so satisf y tneir sweet t00th - Source: Paco Underhill, Why We Buy: The Science of Shopping (New York: Simon & Schuster, 1999); Keith Hammonds, "How We Sell," Fast Company, November 1999, p. 294; Paul Keegan, "The Architect of Happy Customers," Business 2.0, August 2002, pp. 85-87; Bob Parks, "5 Rules of Great Design," Business 2.0, March 2003, pp. 47-49. Marketing Decisions We will examine retailers' marketing decisions in the areas of target market, product assort- ment and procurement, services and store atmosphere, price, communication, and loca- tion. (See also "Marketing Memo: Helping Stores to Sell.") TARGET MARKET A retailer's most important decision concerns the target market. Until the target market is defined and profiled, the retailer cannot make consistent decisions on product assortment, store decor, advertising messages and media, price, and service levels. Some retailers have defined their target markets quite well: CHRISTOPHER & BOND Apparel retailer Christopher & Bond bucked a downward retail sales trend to generate increased sales in 2002-2003 by shunning trendy fashions to target a more mature consumer less concerned about the latest and greatest. Christopher & Bond decided to appeal to 40-something moms—a traditionally overlooked market segment—who preferred classic looks in their clothing. They even created a prototype to help focus their efforts: "Mary" is a 48-year-old suburban mother of two who works as a teacher, nurse, or bank teller. By compiling a rich profile of the target—right down to her physical measurements—they could then go about designing and making clothes to fill her closet, something few other retailers were bothering to do. 9 Retailers are slicing the market into finer and finer segments and introducing new lines of stores to provide a more relevant set of offerings to exploit niche markets. Gymboree launched Janie and Jack, selling apparel and gifts for babies and toddlers; Mot Topic intro- duced Torrid, selling fashions for plus-sized teen girls; and Chico's added Pazo, selling casual apparel for working women in their thirty's. 10 PRODUCT ASSORTMENT The retailer's product assortment must match the target mar- ket's shopping expectations. The retailer has to decide on product-assortment breadth and depth. A restaurant can offer a narrow and shallow assortment (small lunch counters), a 510 PART 6 DELIVERING VALUE TA B L E 16.3 Retail Category Management Step What It Means How Borders Applied It 1. Define the category. Decide where you draw the line between product categories. For Named the cookbook section Food and Cooking example, do your customers view alcohol and soft drinks as one because consumers expected to see books on beverage category, or should you manage them separately? nutrition there as well. 2. Figure out its role. Determine how the category fits into the whole store. For example, Decided to make Food and Cooking a "destination" categories lure folks in, so they get maximum marketing push, while "fill-ins" carry a minimal assortment. destination category. 3. Assess performance. Analyze sales data from ACNielsen, Information Resources Inc., and Learned that cookbooks sell faster than others. Identify opportunities. expected during holidays. Responded by creating gift promotions. 4. Set goals. Agree on the category's objectives, including sales, profit, and Aimed to grow cookbook sales faster than the average-transaction targets, as well as customer satisfaction levels. store average and to grab market share from competition. 5. Choose the audience. Sharpen your focus within the category for maximum effect. Decided to go after repeat buyers. "Since 30% of shoppers buy 70% of the cookbooks sold, we are aiming at the enthusiast," says Borders' Chief Marketing Officer Mike Spinozzi. 6. Figure out tactics. Decide the best product selection, promotion merchandising, and Gave more prominent display to books by pricing to achieve the category's goals. celebrity chefs like Mario Batali. Created a more approachable product selection by reducing the number of titles on certain subjects. 7. Implement the plan. Set the timetable and execute the tactics. Introduced changes to its cooking sections as of November 2002. Source: Andrew Raskin, "Who's Minding the Store," Business 2.0, February 2003, p. 73. narrow and deep assortment (delicatessen), a broad and shallow assortment (cafeteria), or a broad and deep assortment (large restaurant). Table 16.3 provides an illustration of how Borders developed category assortment within a section of its stores. New York-based retailer Aeropostale was named the top retailer in Business-Week's 2004 "Hot Growth" list mainly by carefully matching its product assortment to young teen target market needs. AEROPOSTALE INC. Rather than compete head-on with trend-setting Abercrombie and Fitch or American Eagle Outfitters Inc., Aeropostale has chosen to embrace a key reality of its target market: teens, and especially those on the young end, often want to look like other teens. So while Abercrombie and American Eagle reduced the number of cargo pants on the sales floor in the fall of 2003, Aeropostale kept the cargos coming and at a price that wouldn't bust teens' wallets. Piggybacking on the right trends doesn't come cheaply. Aeropostale is among the most diligent of teen retailers when it comes to consumer research. In addition to high school focus groups and in-store product tests, Aeropostale launched an Internet-based program that seeks online shop- pers' input in creating new styles. The company targets 10,000 of its best customers for each of these tests and averages 3,500 participants in each of 20 tests a year. Aeropostale has gone from being a lackluster per- former with only 100 stores to a powerhouse with 494 mall stores and earnings that have jumped an aver- age of 88 percent over the past three years. 11 The real challenge begins after defining the store's product assortment, and that is to develop a product-differentiation strategy. Here are some possibilities: E Feature exclusive national brands that are not available at competing retailers. Saks might get exclusive rights to carry the dresses of a well-known international designer. MANAGING RETAILING, WHOLESALING, AND LOGISTICS CHAPTER 16 511 Print ad for Hot Topic and Converse shoes: Hot Topic features the merchandise teens want, usually before the competition does. B Feature mostly private branded merchandise. Benetton and GAP design most of the clothes carried in their stores. Many supermarket and drug chains carry private branded merchandise. B Feature blockbuster distinctive merchandise events. Bloomingdale's will run month- long shows featuring the goods of another country, such as India or China, throughout the store. m Feature surprise or ever-changing merchandise. Off-price apparel retailer T.J. Maxx offers surprise assortments of distress merchandise (goods the owner must sell immedi- ately because it needs cash), overstocks, and closeouts, totaling 10,000 new items each week. s Feature the latest or newest merchandise first. Hot Topic sells hip clothing and hard-to- find pop culture merchandise to teens, catching trends to launch new products in six to eight weeks, literally months before traditional competitors using off-shore suppliers. 12 • Offer merchandise customizing services. Harrod's of London will make custom-tailored suits, shirts, and ties for customers, in addition to ready-made menswear. a Offer a highly targeted assortment. Lane Bryant carries goods for the larger woman. Brookstone offers unusual tools and gadgets for the person who wants to shop in an "adult toy store." 13 Merchandise may vary by geographical market. In 2003, electronics superstore Best Buy reviewed each of its 25,000 SKUs to adjust its merchandise according to income level and buying habits of shoppers. 14 Bed Bath & Beyond allows store managers to pick 70 percent of their own merchandise to make stores cater to local interests. 15 [...]... a 40 percent markup, and the remaining 25 percent at cost As Chapter 14 notes, some retailers such as Wal-Mart have abandoned "sales pricing" in favor of everyday low pricing (EDLP) EDLP could lead to lower advertising costs, greater pricing stability, a stronger image of fairness and reliability, and higher retail profits CHAPTER 16 515 516 PART 6 DELIVERING VALUE Research has shown that supermarket... Wholesalers recognize that Marketing support t h e i r r o l e i s n o t s i m p | y t 0 r e p r e s e n t t h e s u p p i i e r S ' interests, or their customers' interests, but to support both, by acting as a valued member of the marketing value chain tomerS| 5 Sources: Robert F Lusch, Deborah Zizzo, and James M Kenderdine, "Strategic Renewal in Distribution," Marketing Management, no 2 (1993): 20-29... through intermediaries? What products should it source from which manufacturing facilities? How many warehouses should it maintain and where should they be located?) CHAPTER 16 523 524 PART 6 DELIVERING VALUE K i i A D i / c r i M r n/icivii^ MARKETING M E M O STRATEGIES FOR HIGH-PERFORMANCE WHOLESALER-DISTRIBUTORS Lusch, Zizzo, and Kenderine studied 136 wholesalers in North America and concluded that... title and bearing the cost of theft, damage, spoilage, and obsolescence MANAGING RETAILING, WHOLESALING, AND LOGISTICS CHAPTER 16 B Market information Wholesalers supply information to suppliers and customers regarding competitors' activities, new products, price developments, and so on s Management services and counseling Wholesalers often help retailers improve their operations by training sales clerks,... Book, Distribution Research Program (Norman: College of Business Administration, University of Oklahoma, 1996) 3 Developing operational excellence in sales forecasting, warehouse management, transportation management, and materials management 4 Implementing the solution with the best information systems, equipment, policies, and procedures Market logistics leads to an examination of the most efficient way... depreciation and obsolescence Carrying costs might run as high as 30 percent of inventory value This means that marketing managers who want their companies to carry larger inventories need to show that the larger inventories would produce incremental gross profits to exceed incremental carrying costs CHAPTER 16 527 528 PART 6 DELIVERING VALUE FIG 1 6 2 Total cost per unit Determining Optimal Order Quantity Inventory-carrying... right store at the right time To accomplish CHAPTER 16 531 WAL-MART this goal, Wal-Mart developed several IT systems that work together It all begins at the cash register or point-of-sale (POS) terminal Every time an item is scanned, the information is relayed to headquarters via satellite data links Using up-to-the-minute sales information, Wal-Mart's Inventory Management System calculates the rate of... pp 65-68 3 Stanley C Hollander, "The Wheel of Retailing," Journal of Marketing (July 1960): 37-42 23 For more discussion, see Philip Kotler, "Atmospherics as a Marketing Tool," Journal of Retailing (Winter 1973-1974): 48-64; Mary Jo Bitner, "Servicescapcs: The Impact of Physical Surroundings on Customers and Employees," Journal of Marketing (April 1992): 57-71 Also see B Joseph Pine II and James II... Scammers," BusinessWeek, January 16, 1995, pp 32-33; Ronald C Goodstein, "UPC Scanner Pricing Systems: Are They Accurate?" Journal of Marketing (April 1994): 20-30 37 For a listing of the key factors involved in success with an EDI system, see R P.Vlosky, D T.Wilson, and R M Smith, "Electronic Data Interchange Implementation Strategies: A Case Study," Journal of Business & Industrial Marketings, no 4 (1994):... 102-108 41 Matthew Boyle, "Brand Killers," Fortune, August 11, 2003, pp 88-100 CHAPTER 16 533 49 50 Narus and Anderson, "Contributing as a Distributor to Partnerships with Manufacturers." Also see Illavecek and McCuistion, "Industrial Distributors—When, Who, and How," pp 96-101 51 Copacino, Supply Chain Management 42 Gary McWilliams, "Retailers Create Own-Label PCs as Brand Names . 3. What are the major trends with marketing intermediaries? CHAPTER 16 MANAGING RETAILING, WHOLESALING, AND LOGISTICS In the previous chapter, we examined marketing intermediaries from the. IN THIS CHAPTER, WE WILL ADDRESS THE FOLLOWING QUESTIONS: 1. What major types of marketing intermediaries occupy this sector? 2. What marketing decisions do these marketing intermediaries. build and manage marketing channels. In this chapter, we view these intermediaries— retailers, wholesalers, and logistical organizations—as requiring and forging their own marketing strategies.