RETAILING:-
MBA / BBA MARKETING MANAGEMENT QUESTION PAPER 2020 PUNE UNIVERSITY
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Retailing consists of all business activities associated with the sale of goods and services to ultimate consumers.
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Retailing involves a retailer—traditionally a store or a service establishment—that deals with consumers who are acquiring goods or services for their own use rather than for resale.
Of course, Shopper’s stop, Ebony, Parnami Jaipur and other familiar organizations offering products for sale to consumers are retailers.
However, the definition of retailing includes some less-than-obvious service marketers, such as hotels, movie theaters, restaurants, and ice-cream trolly operators. And even if an intermediary calls itself a “factory outlet,” a “wholesale club,” or a “shopping channel,” it is a retailer if its purpose is to sell to the ultimate consumer.
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Furthermore, Amazon.com and many other new “dot-com” companies that sell on the Internet are retailers. Because these retailers are e-commerce firms, they are often called e-tailers. Retailing : All business activities concerned with the sale of products to the ultimate users of those product.
e-tailers : e-commerce firms with retailing operations on the Internet.
Viewed in the context of the channel of distribution, retailers are the important final link in the process that brings goods or services from producers to consumer. Poor marketing on the part of retailers can negate all the planning and preparation that have gone into other marketing activities.
In the United States, there are more than 15 lac retailing institutions accounting for about Rs. 9600 crore in sales. About 15 percent of U.S. workers are employed in retailing.
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Retailing Institutions—
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Toward a System of Classifications Retailers are a diverse group of businesses. In the distribution of food there are supermarkets, convenience stores, restaurants, and various specialty outlets. Merchandise retailers may be department stores, apparel stores, consumer electornics stores, home shopping. Service retailers, such as movie theaters and banks, are as diverse as the types of services offered for sale. *******************************************************************************
Retailing is dynamic, and retail institutions evolve constantly. For example, institutions such as “mom and pop” grocery stores are at the end of their life cycle. Individual companies like Sears, which began in the late 1880s as a mail-order retailer of watches and jewelry, are continually transforming themselves into new types of retailers. Warehouse clubs and interactive shopping on the Internet are but two retailing innouvations that have developed in recent decades. In the next 20 years, retailers will inevitably adjust to their changing environments by transforming themselves further. Retailing is dynamic, and retail institutions evolve constantly. *******************************************************************************
In light of this constant change, and of the very large number of retailers in the United States, how can retail institutions be sorted into more easily analyzed groups ? Two commonly used methods classify retailers on the basis of ownership and prominent strategy. *******************************************************************************
Classifying Retailers by Ownership *******************************************************************************
Independent retailer : A retail establishment that is not owned or controlled by any other organization. One popular method of categorizing retailers is by ownership. Most retailers are independent retailers, operating as single-unit entities. Independent operations may be proprietorships, partnership, or corporations, but they are usually owned by one operator, a family, or a small number of individuals. They are not generally integrated into a larger corporation. These retailers are often thought of as small, but some are quite sizable. Taken together, they are the most important part of the Indian retailing scene. *******************************************************************************
An independent retailer that owns the merchandise stocked but leases floor space from another retailer is a leased department retailer. A leased department—for example, a branch bank, a jewelry department, or a watch repairer—operates independently from the lessor retailer (the retailer that rents out the floor space), although it often operates under the lessor’s name. The lessor grants leased department retailers this degree of independence because they have special expertise in handling the particular product line, will increase total store traffic, or are necessary to the lessor because consumer expected to find the department’s merchandise in the store. *******************************************************************************
If a retail establishment is not independent, it is classified as either a chain or an ownership group. The more familiar of these classifications is the chain store— one of a group of shops bearing the same name and having roughly the same merchandise assortment and store image. Chain-store systems consist of two or more stores of a similar type that are centrally owned and operated. Chains have been successful for a number of reasons, but one of the most important is the opportunity they have to take advantage of economies of scale in buying and selling goods. *******************************************************************************
Conducting certralized buying for several stores permits chains to obtain the lower prices associated with large purchases. They can then maintain their prices, thus increasing their margins, or they can cut prices, attracting greater sales volume. Unlike small independents with lesser financial means, chains can also take advantage of promotional tools, such as television advertising, by spreading the expense among many member stores, thus stretching their promotional budget. Other expenses, such as costs for computerized inventory control systems, may also be shared by all stores. According to the U.S. Department of Commerce, the term corporate chain is used for chains with 11 or more stores. Typically, as the number of units in a chain increases, management becomes more centralized, and each store manager has less autonomy in determining the overall marketing strategy. Although corporate chains possess many advantages over independents, some analysts say independents and smaller chains are more flexible. They may be better able to apply such marketing techniques as segmentation than are bigger operations, whose appeal must be more general. *******************************************************************************
Retail franchise operations are a special type of chain. Although the broad marketing strategy in such chains is centrally planned, the retail outlets are independently owned and operated. Franchises provide an excellent example of the evolution of retail institutions to fit the American culture. As the country’s mobile citizenry moves from place to place, a familiar retail outlet is “waiting” for them when they arrive. Each new franchise benefits from the company’s experience, reputation, and shared resources. *******************************************************************************
Chain store : One of a group of two or more stores of a similar type, centrally owned and operated. Corporate chain : A chain consisting of 11 or more stores. *******************************************************************************
Ownership group : An organization made up of stores or small chains, each with a separate name, identity, and image but all operating under the control of a central owner. The other type of retailing organization is the ownership group—an organization made up of various stores or small chains, each having a separate name, identity, and image but all operating under the ultimate control of a central owner. Typically, the members of such groups are former corporate chains bought out by much larger ownership groups. *******************************************************************************
Classifying Retailers by Prominent Strategy *******************************************************************************
Retailers can also be classified based on their most prominent retail strategies. The decision as to whether to market products and services with an in-store retailing strategy (also called a bricks-and-mortar strategy) or a direct marketing (nonstore) retailing strategy is such an important discriminating factor that these two major groupings will be discussed separately. Figure 11.1 shows these groupings and their subcategories. In-Store Retailing Many fundamental strategies differentiate in-store retailers. The variety of products they sell, store size, price level relative to competitors, degree of self-service, location, and other variables can be used to categorize retailers. Each strategy has its particular advantage and disadvantages, and each fits particular markets and situations. Try to envision the following store classes as responses to pariticular marketing opportunities Specialty store : A retail establisment that sells a single product or a few related lines. *******************************************************************************
Specialty Stores Specialty stores, also called single-line retailers or limited-line retailers, are differentiated from other retailers by their degree of specialization—that is, the narrowness of their product mixes and the depth of their product lines. These traditional retailers specialize within a particular product category, selling only items targeted to narrow market segments or items requiring a particular selling expertise, such as children’s shoes, contact lens, swimming costumes, or wall clocks. Service establishments, such as restaurants and banks, are often classified as specialty retailers. These retailers do not try to be all things to all people. In fact one can never be all things to all peoples. *******************************************************************************
General stores dominated Indian retailing and they are likely to dominate because, except in large cities, too few people could be found to justify specialty retailers. The remarkable success enjoyed by specialty stores in recent years, however, illustrates the importance of effective market segmentation and target marketing. The major reason for their success is the development of considerable expertise in their particular product lines. *******************************************************************************
Department store : A departmentalized retail outlet, often large, offering a wide variety of products and generally providing a full rang of customer services. *******************************************************************************
Department Stores Department stores are typically large compared with specialty stores. They carry a wide selection of products, including clothing, furniture, home appliances, housewares, and—depending on the size of the operation—good many other products as well. These stores are “departmentalized” both physically and organizationally. Each department is operated largely as a separate entity headed by a buyer, who has considerable independence and authority in buying and selling products and who is responsible for the department’s profits. Independent department stores do exist, but most department stores are members of chains or ownership groups. Most department stores are characterized by a full range of services, including credit plans, delivery, generous return policies, restaurants, and a host of other extras such as fashion clinics, closed-door sales for established customers only and even etiquette classes for customers’ children. *******************************************************************************
Department store Generally chain operations, wide variety, full range of services Supermarket Wide variety of food and nonfood products, large departmentalized operation featuring self-service aisles and centralized checkouts Convenience store Little variety, shallow selection, fast service General mass Wide variety, shallow selection of highmerchandiser turnover products, low prices, few customer Services Catalog showroom General mass merchandiser that uses a catalog to promote items Warehouse club General mass merchandiser that requires memberships if customers wish to shop; store goods warehouse-style Specialty mass Less variety but greater depth than general merchandiser mass merchandiser, low prices, few customer services Off-price retailer Specialty mass merchandiser that sells a limited line of nationally known brand names Category superstore Specialty mass merchandiser that offers deep discounts and extensive assortment and depth in a specific product category Supermarkets and Convenience Stores The supermarket of today differs greatly from the “grocery store” from which it evolved. The grocery operator of the early part of last century knew most customers, personally filled customers’ orders and was likely to offer both delivery service and credit. With the advent of the telephone, the grocer accepted phone orders and dispatched a delivery boy to the customer’s home. Supermarket : Any large, self-service, departmentalized retail establishment, but especially one that sells primarily food items. *******************************************************************************
Today’s supermarket is a large departmentalized retail establishment selling a variety of products, mostly food items but also health and beauty aids, housewares, magazines, and much more. *******************************************************************************
The dominant features of a supermarket marketing strategy are large in-store inventories on self-service aisles and centralized checkout lines. Often, supermarkets stress the low prices resulting from self-service. The inclusion of nonfood items on supermarket shelves was once novel, in that it represented the stocking of items that did not traditionally belong in the supermarket’s group of offerings. The name given to this practice is scrambled merchandising Scrambled merchandising permits supermarkets (as well as other types of retailing institutions) to sell items that carry a higher margin than most food items; thus it provides a means to increase profitability. Across the board, however, supermarket profit margins are slim—only 1 to 2 percent of total sales. Supermarkets rely on high levels of inventory turnover to attain their return on investment goals. *******************************************************************************
Scrambled merchandising : The offering by retail establishment of products not traditionally associated with that establishment. *******************************************************************************
Supermarkets were among the first retailers to stress discount strategies. Using such strategies, large self-service retail establishments sell a variety of highturnover products at low prices. A good part of a retailer’s ability to hold process down stems from the practice of offering few services. Other than the costs of the goods they sell, most retailers find that personnel costs are their largest financial outlay. Thus, by eliminating most of the sales help, having no delivery staff, and hiring stock clerks and cash-register operators rather than true salespeople, discounters are able to take a big step toward reducing their prices. Buying in large volume also reduces the cost of goods sold. Convenience store : A small grocery store stressing convenient location and quick service and typically charging higher prices than other retailers selling similar products. *******************************************************************************
Convenience stores are, in essence, small supermarkets. They have rapidly developed as a major threat to their larger cousins. 7-Elevens, Quick-Trips, and other imitative convenience store have sprung up and multiplied across the United States. These stores carry a carefully selected variety of high-turnover consumer products. As their names generally imply, the major benefit these stores provide to consumers is convenience— convenience of location and convenience of time. By choosing handy locations and staying open 15, 18, or 24 hours a day, 7 days a week, convenience stores offer extra time and place utility. Consumers must pay for these conveniences and seem quite willing to do so. Managers of these stores price most of their “convenience goods” at levels higher than supermarketers, to provide high profit margins. Convenience stores are unusual among retailers because they have both a high margin and a high inventory turnover. *******************************************************************************
Mass merchandise retailer : A retailer that sells products at discount prices to achieve high sales volume; also called a mass merchandise discount store. There are two basic types of mass merchandise retailers: general mass merchandesers and specialty mass merchandisers. *******************************************************************************
Mass Merchandisers Mass merchandise retailers, sometimes called mass merchandise discount stores or superstores, sell at discount prices to achieve high sales volume. Mass merchandisers cut back on their stores’ interior design and on customer service in their efforts to reduce costs and maintain low prices. Supermarkets were the forerunners of mass merchandisers. In fact, the term supermarket retailing has been used to describe Target, Wal-Mart, and many other stores that have adopted the supermarket strategy, incorporating large inventories, self-service, centralized checkouts, and discount. Using supermarket-style discount strategies helps mass merchandisers to offer prices lower than those at traditional stores. *******************************************************************************
Mass merchandisers can be classified as general or specialty. General mass merchandisers, such as Wal-Mart, carry a wide variety of merchandise that cuts across product categories. They may sell everything from drug and cosmetic items to electrical appliances to clothing, toys, and novelty items. The wide variety of goods general mass merchandisers offer at low prices means that they usually cannot afford to carry a deep selection of goods in any product line. Retailers usually carry either a wide variety or a deep selection, but not both. The expense associated with having many kinds of goods and many choices of each kind makes the two possibilities largely mutually exclusive. (Indeed, small retailers can often compete with giant mass merchandisers on the basis of selection. *******************************************************************************
In contrast with general mass merchandisers, specialty mass merchandisers carry a product selection that is limited to one or a few product categories. For example, some specialty mass merchandisers sell only clothing. We will discuss two types of gerneral mass merchandisers, catalog showrooms and warehouse clubs, and two types of specialty mass merchandisers, category superstores and off-price retailers. *******************************************************************************
Catalog showroom : A gerneral mass merchandise outlet where customers select goods from a catalog and store employees retrieve the selected items from storage. Catalog showrooms, like Service Merchandise, publish large catalogs identifying products for sale in the store. Typically, these are high-margin items. The catalog—or an accompanying price list—shows the “normal” retail price of the item and the catalog discounter’s much lower price. Often, the discounter’s price is printed without a dollar sign in the form of an easily decipherable “code” to let the buyer know that a special deal—not available to just anyone—is being offered. Catalog discounters, like other discounters, do not offer customer conveniences or salesperson assistance. Service is slowed by the need to wait for purchased products to be delivered from a storage place. However, this successful formula permits lower prices. Door-to-Door Selling Cutlery, vacuum cleaners, magazines, and cosmetics are among the many products successfully sold door-to-door. This kind of retailing is an expensive method of distribution. Labor costs, mostly in the form of commissions, are quite high. Yet many consumers enjoy the personal in-home service provided by established companies like Cutco, Fuller Brush, and Avon. In general, products sold door-to-door are of the type that particularly benefit from demonstration and a personal sales approach. Vacuums and carving knives are among the many products that lend themselves to such demonstrations. In-home retailing is often performed by organizations with outstanding reputations. Unfortunately for the many legitimate companies practicing this form of retailing, the image of the door-to-door approach has been tarnished by some unethical salespeople. A number of laws make door-to-door selling difficult. For example, Green River ordinances, in effect in many local areas, put constraints on the activities of door-todoor salespeople by limiting the hours or neighborhoods in which they may call or by requiring stringently controlled licenses. It is interecting to observe that while door-to-door retailing is decreasing in importance in the United States, it is growing in some less-develop countries. Avon, for example, has a major door-to-door organization in China, and Tupperware parties are popular in many countries. Vending Machines The coin-operated vending machine is an old retailing tool that has become increasingly sophisticated in recent years. For the most part, items dispensed through vending machines are relatively low-priced convenience goods. There is a vending machine for about every 40 people in the United States. Vending machines can be found almost everywhere—and this is a big part of their appeal to the marketers that use them. Cigarettes, gum, and other items can be sold in hotels, college dormitories, and church basements without an investment in a store or in personnel. Items sold through vending machines are generally small, easily preserved, high-turnover goods such as candy and soft drinks. Technological improvements in vending machines have allowed machines to dispense airline tickets, travelers insurance, customized greeting cards, and breathalyzer tests. e-tailing on the Internet The newest development in nonstore retailing is e-tailing, or computer-interactive retailing on the Internet. Consumers can shop from their homes or offices by using personal computers to interact with retailers via the Internet. For example, Egghead.com sells consumer eletronics products and computer software. Preview Travel.com allow owners of personal computers to book airline flight and hotel reservations on-line. E*Trade makes it possible for investors to buy and sell stocks via the Net. The number of Internet Web sites, or “store fronts,” where products can be ordered has been growing very rapidly. And the operations of e-tailers are expected to continue expanding dramatically. Two years ago, Amazon.com was only an Internet bookstore, but today shoppers can find thousands of items ranging from toys to sporting goods to consumer electronics products at the Amazon.com site. Its slogan, “Earth’s Biggest Selection,” communicates the message that no physical store could possibly offer the variety and depth of merchandise available at Amazon.com. An Internet retailing strategy is not limited by the geographical store. An e-tailer can market to customers every where. An e-tailer must maintain a web site, which requires high-speed computers and sophisticated software, but it does not have to maintain physical stores or employ sales clerks and other store personnel. In some cases, etailers do not even hold any inventory. Hence, marketing costs can be relatively low. Savings from operations may be passed on to customers. *******************************************************************************
Interactivity is a fundamental and vital aspect of an Internet retail strategy. Shoppers visiting an internet store use hyperlinks to narrow their search efforts or to get additional details about a product. When consumers provide information about their unique needs, marketers can address their specific requirements on a one-to-one basis. For example, customers who return to a Web site can be greeted by name and offered product recommendations based on their past purchases and their specific tastes. In addition to interactivity, e-tailing offers many other advantages for consumers. Internet shopping at home is convenient. No travel is required, and consumers have access to etailers 24 hours a day, 7 days a week (24/7). Prices are often lower than prices at bricks-and-mortar stores. Priceline.com, Buy.com, and numerous other e-tailers offer rockbottom prices—some even let you name you own price. The Internet allows many retailers to offer broader and deeper product lines than they could in bricks-and-mortar stores or through printed catalogs. Shelf space does not limit the number of items in a product line. For example, Amazon.com offers an assortment of 3,500 video games, three times the selection of a typical electronics store. Because going from one Web site to another is a simple task, comparison shopping can be done relatively easily. Automated Shopping Tasks Performed by Shopbots *******************************************************************************
Shopbot : A smart agent software program that performs shopping tasks for online shoppers. Several companies provide automated shopping programs known as “shopbots” to make shopping easier for their customer. Shopbots are smart agent software programs designed to perform shopping tasks, as summarized in Exhibit 13.2. Search, Alert, Compare, and Negotiate. For example, Saleseeker.com and Bottomdollar.com provide lists of items and prices available at various Web site stores. MySimon.com locates goods and services based not only on price but also on certain policies (e.g., merchandise return and technical support policies), shipping time, and overall quality of the marketers. Respond.com connects buyers and sellers via email. Mercata.com uses a shopbot to aggregate buyers and use the power of volume purchasing to drive down prices. The more people who want to buy the same item, the lower the price. *******************************************************************************
Shopping on the Internet is not without its disadvantage. The most obvious disadvantage is that a shopper cannot touch, pick up, or carefully examine a product. Although Furniture.com and other companies make furniture available online, consumers cannot sit on a couch without visiting a bricks-and-mortar store. Another disadvantage is that consumers who purchase goods online must wait for delivery. (However, there are exceptions. For example, software and digital music can be purchased and downloaded from the Internet extremely quickly). Finally, a major disadvantage of Internet shopping for many consumers is potential problems with privacy. Many are reluctant to provide credit card numbers online, even though credit card fraud on the Internet is no more likely than credit card fraud in other retail situations.
Retailing consists of all business activities associated with the sale of goods and services to ultimate consumers.
*******************************************************************************
Retailing involves a retailer—traditionally a store or a service establishment—that deals with consumers who are acquiring goods or services for their own use rather than for resale.
Of course, Shopper’s stop, Ebony, Parnami Jaipur and other familiar organizations offering products for sale to consumers are retailers.
However, the definition of retailing includes some less-than-obvious service marketers, such as hotels, movie theaters, restaurants, and ice-cream trolly operators. And even if an intermediary calls itself a “factory outlet,” a “wholesale club,” or a “shopping channel,” it is a retailer if its purpose is to sell to the ultimate consumer.
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Furthermore, Amazon.com and many other new “dot-com” companies that sell on the Internet are retailers. Because these retailers are e-commerce firms, they are often called e-tailers. Retailing : All business activities concerned with the sale of products to the ultimate users of those product.
e-tailers : e-commerce firms with retailing operations on the Internet.
Viewed in the context of the channel of distribution, retailers are the important final link in the process that brings goods or services from producers to consumer. Poor marketing on the part of retailers can negate all the planning and preparation that have gone into other marketing activities.
In the United States, there are more than 15 lac retailing institutions accounting for about Rs. 9600 crore in sales. About 15 percent of U.S. workers are employed in retailing.
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Retailing Institutions—
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Toward a System of Classifications Retailers are a diverse group of businesses. In the distribution of food there are supermarkets, convenience stores, restaurants, and various specialty outlets. Merchandise retailers may be department stores, apparel stores, consumer electornics stores, home shopping. Service retailers, such as movie theaters and banks, are as diverse as the types of services offered for sale. *******************************************************************************
Retailing is dynamic, and retail institutions evolve constantly. For example, institutions such as “mom and pop” grocery stores are at the end of their life cycle. Individual companies like Sears, which began in the late 1880s as a mail-order retailer of watches and jewelry, are continually transforming themselves into new types of retailers. Warehouse clubs and interactive shopping on the Internet are but two retailing innouvations that have developed in recent decades. In the next 20 years, retailers will inevitably adjust to their changing environments by transforming themselves further. Retailing is dynamic, and retail institutions evolve constantly. *******************************************************************************
In light of this constant change, and of the very large number of retailers in the United States, how can retail institutions be sorted into more easily analyzed groups ? Two commonly used methods classify retailers on the basis of ownership and prominent strategy. *******************************************************************************
Classifying Retailers by Ownership *******************************************************************************
Independent retailer : A retail establishment that is not owned or controlled by any other organization. One popular method of categorizing retailers is by ownership. Most retailers are independent retailers, operating as single-unit entities. Independent operations may be proprietorships, partnership, or corporations, but they are usually owned by one operator, a family, or a small number of individuals. They are not generally integrated into a larger corporation. These retailers are often thought of as small, but some are quite sizable. Taken together, they are the most important part of the Indian retailing scene. *******************************************************************************
An independent retailer that owns the merchandise stocked but leases floor space from another retailer is a leased department retailer. A leased department—for example, a branch bank, a jewelry department, or a watch repairer—operates independently from the lessor retailer (the retailer that rents out the floor space), although it often operates under the lessor’s name. The lessor grants leased department retailers this degree of independence because they have special expertise in handling the particular product line, will increase total store traffic, or are necessary to the lessor because consumer expected to find the department’s merchandise in the store. *******************************************************************************
If a retail establishment is not independent, it is classified as either a chain or an ownership group. The more familiar of these classifications is the chain store— one of a group of shops bearing the same name and having roughly the same merchandise assortment and store image. Chain-store systems consist of two or more stores of a similar type that are centrally owned and operated. Chains have been successful for a number of reasons, but one of the most important is the opportunity they have to take advantage of economies of scale in buying and selling goods. *******************************************************************************
Conducting certralized buying for several stores permits chains to obtain the lower prices associated with large purchases. They can then maintain their prices, thus increasing their margins, or they can cut prices, attracting greater sales volume. Unlike small independents with lesser financial means, chains can also take advantage of promotional tools, such as television advertising, by spreading the expense among many member stores, thus stretching their promotional budget. Other expenses, such as costs for computerized inventory control systems, may also be shared by all stores. According to the U.S. Department of Commerce, the term corporate chain is used for chains with 11 or more stores. Typically, as the number of units in a chain increases, management becomes more centralized, and each store manager has less autonomy in determining the overall marketing strategy. Although corporate chains possess many advantages over independents, some analysts say independents and smaller chains are more flexible. They may be better able to apply such marketing techniques as segmentation than are bigger operations, whose appeal must be more general. *******************************************************************************
Retail franchise operations are a special type of chain. Although the broad marketing strategy in such chains is centrally planned, the retail outlets are independently owned and operated. Franchises provide an excellent example of the evolution of retail institutions to fit the American culture. As the country’s mobile citizenry moves from place to place, a familiar retail outlet is “waiting” for them when they arrive. Each new franchise benefits from the company’s experience, reputation, and shared resources. *******************************************************************************
Chain store : One of a group of two or more stores of a similar type, centrally owned and operated. Corporate chain : A chain consisting of 11 or more stores. *******************************************************************************
Ownership group : An organization made up of stores or small chains, each with a separate name, identity, and image but all operating under the control of a central owner. The other type of retailing organization is the ownership group—an organization made up of various stores or small chains, each having a separate name, identity, and image but all operating under the ultimate control of a central owner. Typically, the members of such groups are former corporate chains bought out by much larger ownership groups. *******************************************************************************
Classifying Retailers by Prominent Strategy *******************************************************************************
Retailers can also be classified based on their most prominent retail strategies. The decision as to whether to market products and services with an in-store retailing strategy (also called a bricks-and-mortar strategy) or a direct marketing (nonstore) retailing strategy is such an important discriminating factor that these two major groupings will be discussed separately. Figure 11.1 shows these groupings and their subcategories. In-Store Retailing Many fundamental strategies differentiate in-store retailers. The variety of products they sell, store size, price level relative to competitors, degree of self-service, location, and other variables can be used to categorize retailers. Each strategy has its particular advantage and disadvantages, and each fits particular markets and situations. Try to envision the following store classes as responses to pariticular marketing opportunities Specialty store : A retail establisment that sells a single product or a few related lines. *******************************************************************************
Specialty Stores Specialty stores, also called single-line retailers or limited-line retailers, are differentiated from other retailers by their degree of specialization—that is, the narrowness of their product mixes and the depth of their product lines. These traditional retailers specialize within a particular product category, selling only items targeted to narrow market segments or items requiring a particular selling expertise, such as children’s shoes, contact lens, swimming costumes, or wall clocks. Service establishments, such as restaurants and banks, are often classified as specialty retailers. These retailers do not try to be all things to all people. In fact one can never be all things to all peoples. *******************************************************************************
General stores dominated Indian retailing and they are likely to dominate because, except in large cities, too few people could be found to justify specialty retailers. The remarkable success enjoyed by specialty stores in recent years, however, illustrates the importance of effective market segmentation and target marketing. The major reason for their success is the development of considerable expertise in their particular product lines. *******************************************************************************
Department store : A departmentalized retail outlet, often large, offering a wide variety of products and generally providing a full rang of customer services. *******************************************************************************
Department Stores Department stores are typically large compared with specialty stores. They carry a wide selection of products, including clothing, furniture, home appliances, housewares, and—depending on the size of the operation—good many other products as well. These stores are “departmentalized” both physically and organizationally. Each department is operated largely as a separate entity headed by a buyer, who has considerable independence and authority in buying and selling products and who is responsible for the department’s profits. Independent department stores do exist, but most department stores are members of chains or ownership groups. Most department stores are characterized by a full range of services, including credit plans, delivery, generous return policies, restaurants, and a host of other extras such as fashion clinics, closed-door sales for established customers only and even etiquette classes for customers’ children. *******************************************************************************
Department store Generally chain operations, wide variety, full range of services Supermarket Wide variety of food and nonfood products, large departmentalized operation featuring self-service aisles and centralized checkouts Convenience store Little variety, shallow selection, fast service General mass Wide variety, shallow selection of highmerchandiser turnover products, low prices, few customer Services Catalog showroom General mass merchandiser that uses a catalog to promote items Warehouse club General mass merchandiser that requires memberships if customers wish to shop; store goods warehouse-style Specialty mass Less variety but greater depth than general merchandiser mass merchandiser, low prices, few customer services Off-price retailer Specialty mass merchandiser that sells a limited line of nationally known brand names Category superstore Specialty mass merchandiser that offers deep discounts and extensive assortment and depth in a specific product category Supermarkets and Convenience Stores The supermarket of today differs greatly from the “grocery store” from which it evolved. The grocery operator of the early part of last century knew most customers, personally filled customers’ orders and was likely to offer both delivery service and credit. With the advent of the telephone, the grocer accepted phone orders and dispatched a delivery boy to the customer’s home. Supermarket : Any large, self-service, departmentalized retail establishment, but especially one that sells primarily food items. *******************************************************************************
Today’s supermarket is a large departmentalized retail establishment selling a variety of products, mostly food items but also health and beauty aids, housewares, magazines, and much more. *******************************************************************************
The dominant features of a supermarket marketing strategy are large in-store inventories on self-service aisles and centralized checkout lines. Often, supermarkets stress the low prices resulting from self-service. The inclusion of nonfood items on supermarket shelves was once novel, in that it represented the stocking of items that did not traditionally belong in the supermarket’s group of offerings. The name given to this practice is scrambled merchandising Scrambled merchandising permits supermarkets (as well as other types of retailing institutions) to sell items that carry a higher margin than most food items; thus it provides a means to increase profitability. Across the board, however, supermarket profit margins are slim—only 1 to 2 percent of total sales. Supermarkets rely on high levels of inventory turnover to attain their return on investment goals. *******************************************************************************
Scrambled merchandising : The offering by retail establishment of products not traditionally associated with that establishment. *******************************************************************************
Supermarkets were among the first retailers to stress discount strategies. Using such strategies, large self-service retail establishments sell a variety of highturnover products at low prices. A good part of a retailer’s ability to hold process down stems from the practice of offering few services. Other than the costs of the goods they sell, most retailers find that personnel costs are their largest financial outlay. Thus, by eliminating most of the sales help, having no delivery staff, and hiring stock clerks and cash-register operators rather than true salespeople, discounters are able to take a big step toward reducing their prices. Buying in large volume also reduces the cost of goods sold. Convenience store : A small grocery store stressing convenient location and quick service and typically charging higher prices than other retailers selling similar products. *******************************************************************************
Convenience stores are, in essence, small supermarkets. They have rapidly developed as a major threat to their larger cousins. 7-Elevens, Quick-Trips, and other imitative convenience store have sprung up and multiplied across the United States. These stores carry a carefully selected variety of high-turnover consumer products. As their names generally imply, the major benefit these stores provide to consumers is convenience— convenience of location and convenience of time. By choosing handy locations and staying open 15, 18, or 24 hours a day, 7 days a week, convenience stores offer extra time and place utility. Consumers must pay for these conveniences and seem quite willing to do so. Managers of these stores price most of their “convenience goods” at levels higher than supermarketers, to provide high profit margins. Convenience stores are unusual among retailers because they have both a high margin and a high inventory turnover. *******************************************************************************
Mass merchandise retailer : A retailer that sells products at discount prices to achieve high sales volume; also called a mass merchandise discount store. There are two basic types of mass merchandise retailers: general mass merchandesers and specialty mass merchandisers. *******************************************************************************
Mass Merchandisers Mass merchandise retailers, sometimes called mass merchandise discount stores or superstores, sell at discount prices to achieve high sales volume. Mass merchandisers cut back on their stores’ interior design and on customer service in their efforts to reduce costs and maintain low prices. Supermarkets were the forerunners of mass merchandisers. In fact, the term supermarket retailing has been used to describe Target, Wal-Mart, and many other stores that have adopted the supermarket strategy, incorporating large inventories, self-service, centralized checkouts, and discount. Using supermarket-style discount strategies helps mass merchandisers to offer prices lower than those at traditional stores. *******************************************************************************
Mass merchandisers can be classified as general or specialty. General mass merchandisers, such as Wal-Mart, carry a wide variety of merchandise that cuts across product categories. They may sell everything from drug and cosmetic items to electrical appliances to clothing, toys, and novelty items. The wide variety of goods general mass merchandisers offer at low prices means that they usually cannot afford to carry a deep selection of goods in any product line. Retailers usually carry either a wide variety or a deep selection, but not both. The expense associated with having many kinds of goods and many choices of each kind makes the two possibilities largely mutually exclusive. (Indeed, small retailers can often compete with giant mass merchandisers on the basis of selection. *******************************************************************************
In contrast with general mass merchandisers, specialty mass merchandisers carry a product selection that is limited to one or a few product categories. For example, some specialty mass merchandisers sell only clothing. We will discuss two types of gerneral mass merchandisers, catalog showrooms and warehouse clubs, and two types of specialty mass merchandisers, category superstores and off-price retailers. *******************************************************************************
Catalog showroom : A gerneral mass merchandise outlet where customers select goods from a catalog and store employees retrieve the selected items from storage. Catalog showrooms, like Service Merchandise, publish large catalogs identifying products for sale in the store. Typically, these are high-margin items. The catalog—or an accompanying price list—shows the “normal” retail price of the item and the catalog discounter’s much lower price. Often, the discounter’s price is printed without a dollar sign in the form of an easily decipherable “code” to let the buyer know that a special deal—not available to just anyone—is being offered. Catalog discounters, like other discounters, do not offer customer conveniences or salesperson assistance. Service is slowed by the need to wait for purchased products to be delivered from a storage place. However, this successful formula permits lower prices. Door-to-Door Selling Cutlery, vacuum cleaners, magazines, and cosmetics are among the many products successfully sold door-to-door. This kind of retailing is an expensive method of distribution. Labor costs, mostly in the form of commissions, are quite high. Yet many consumers enjoy the personal in-home service provided by established companies like Cutco, Fuller Brush, and Avon. In general, products sold door-to-door are of the type that particularly benefit from demonstration and a personal sales approach. Vacuums and carving knives are among the many products that lend themselves to such demonstrations. In-home retailing is often performed by organizations with outstanding reputations. Unfortunately for the many legitimate companies practicing this form of retailing, the image of the door-to-door approach has been tarnished by some unethical salespeople. A number of laws make door-to-door selling difficult. For example, Green River ordinances, in effect in many local areas, put constraints on the activities of door-todoor salespeople by limiting the hours or neighborhoods in which they may call or by requiring stringently controlled licenses. It is interecting to observe that while door-to-door retailing is decreasing in importance in the United States, it is growing in some less-develop countries. Avon, for example, has a major door-to-door organization in China, and Tupperware parties are popular in many countries. Vending Machines The coin-operated vending machine is an old retailing tool that has become increasingly sophisticated in recent years. For the most part, items dispensed through vending machines are relatively low-priced convenience goods. There is a vending machine for about every 40 people in the United States. Vending machines can be found almost everywhere—and this is a big part of their appeal to the marketers that use them. Cigarettes, gum, and other items can be sold in hotels, college dormitories, and church basements without an investment in a store or in personnel. Items sold through vending machines are generally small, easily preserved, high-turnover goods such as candy and soft drinks. Technological improvements in vending machines have allowed machines to dispense airline tickets, travelers insurance, customized greeting cards, and breathalyzer tests. e-tailing on the Internet The newest development in nonstore retailing is e-tailing, or computer-interactive retailing on the Internet. Consumers can shop from their homes or offices by using personal computers to interact with retailers via the Internet. For example, Egghead.com sells consumer eletronics products and computer software. Preview Travel.com allow owners of personal computers to book airline flight and hotel reservations on-line. E*Trade makes it possible for investors to buy and sell stocks via the Net. The number of Internet Web sites, or “store fronts,” where products can be ordered has been growing very rapidly. And the operations of e-tailers are expected to continue expanding dramatically. Two years ago, Amazon.com was only an Internet bookstore, but today shoppers can find thousands of items ranging from toys to sporting goods to consumer electronics products at the Amazon.com site. Its slogan, “Earth’s Biggest Selection,” communicates the message that no physical store could possibly offer the variety and depth of merchandise available at Amazon.com. An Internet retailing strategy is not limited by the geographical store. An e-tailer can market to customers every where. An e-tailer must maintain a web site, which requires high-speed computers and sophisticated software, but it does not have to maintain physical stores or employ sales clerks and other store personnel. In some cases, etailers do not even hold any inventory. Hence, marketing costs can be relatively low. Savings from operations may be passed on to customers. *******************************************************************************
Interactivity is a fundamental and vital aspect of an Internet retail strategy. Shoppers visiting an internet store use hyperlinks to narrow their search efforts or to get additional details about a product. When consumers provide information about their unique needs, marketers can address their specific requirements on a one-to-one basis. For example, customers who return to a Web site can be greeted by name and offered product recommendations based on their past purchases and their specific tastes. In addition to interactivity, e-tailing offers many other advantages for consumers. Internet shopping at home is convenient. No travel is required, and consumers have access to etailers 24 hours a day, 7 days a week (24/7). Prices are often lower than prices at bricks-and-mortar stores. Priceline.com, Buy.com, and numerous other e-tailers offer rockbottom prices—some even let you name you own price. The Internet allows many retailers to offer broader and deeper product lines than they could in bricks-and-mortar stores or through printed catalogs. Shelf space does not limit the number of items in a product line. For example, Amazon.com offers an assortment of 3,500 video games, three times the selection of a typical electronics store. Because going from one Web site to another is a simple task, comparison shopping can be done relatively easily. Automated Shopping Tasks Performed by Shopbots *******************************************************************************
Shopbot : A smart agent software program that performs shopping tasks for online shoppers. Several companies provide automated shopping programs known as “shopbots” to make shopping easier for their customer. Shopbots are smart agent software programs designed to perform shopping tasks, as summarized in Exhibit 13.2. Search, Alert, Compare, and Negotiate. For example, Saleseeker.com and Bottomdollar.com provide lists of items and prices available at various Web site stores. MySimon.com locates goods and services based not only on price but also on certain policies (e.g., merchandise return and technical support policies), shipping time, and overall quality of the marketers. Respond.com connects buyers and sellers via email. Mercata.com uses a shopbot to aggregate buyers and use the power of volume purchasing to drive down prices. The more people who want to buy the same item, the lower the price. *******************************************************************************
Shopping on the Internet is not without its disadvantage. The most obvious disadvantage is that a shopper cannot touch, pick up, or carefully examine a product. Although Furniture.com and other companies make furniture available online, consumers cannot sit on a couch without visiting a bricks-and-mortar store. Another disadvantage is that consumers who purchase goods online must wait for delivery. (However, there are exceptions. For example, software and digital music can be purchased and downloaded from the Internet extremely quickly). Finally, a major disadvantage of Internet shopping for many consumers is potential problems with privacy. Many are reluctant to provide credit card numbers online, even though credit card fraud on the Internet is no more likely than credit card fraud in other retail situations.
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