Chapter 17 Retailing and Omni-Channel Marketing PDF

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Professor: Victor Piscitello...

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Retailing and Omni-Channel Marketing KEY TERMS Retailing: The set of business activities that add value to products and services sold to consumers for their personal or family use Omni-Channel (or Multi-Channel) Strategy: Involves selling in more than one channel (e.g., store, catalog, Internet) Distribution Intensity: The number of channel members to use at each level of the marketing channel Intensive Distribution: Designed to place products in as many outlets as possible Exclusive Distribution: Granting exclusive geographic territories to one or very few retail customers so no other retailers in the territory can sell a particular brand Selective Distribution: Relies on a few selected retail customers in a territory to sell products Conventional Supermarket: A large, self-service retail food store offering groceries, meat, and produce, as well as some nonfood items such as health and beauty aids and general merchandise Limited-Assortment Supermarkets: Stock only about 1500 SKUs Extreme-Value Food Retailers: (SAME AS LIMITED-ASSORTMENT SUPERMARKETS) Supercenters: Large stores (185,000) square feet) that combine a supermarket with a full-line discount store Warehouse Clubs: Large retailers (100,000 to 150,000 square feet) that offer a regular assortment of food and general merchandise, little service, and low prices to the general public and small businesses Convenience Stores: Provide a limited variety an assortment of merchandise at a convenient location in 3000- to 5000-square-foot stores with a speedy checkout Department Stores: Retailers that carry a broad variety and deep assortment, offer customer services, and organize their stores into distinct departments for displaying merchandise

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Full-Line Discount Stores: Retailers that offer a broad variety of merchandise, limited service, and low prices Specialty Stores: Concentrate on a limited number of complementary merchandise categories targeted toward very specific market segments by offering deep but narrow assortments and sales associate expertise Drugstores: Specialty stores that concentrate on pharmaceuticals and health and personal grooming and merchandise Category Specialists / Big-Box Retailers / Category Killers: Offer a narrow but deep assortment of merchandise Extreme-Value Retailers: Small, full-line discount stores that offer a limited merchandise assortment of very low prices Off-Price Retailers: Offer an inconsistent assortment of brand-name merchandise at a significant discount from the manufacturers suggested retail price Service Retailers: Firms that primarily sell services rather than merchandise; are a large and growing part of the retail industry Private-Label (or Store) Brands: Products developed and marketed by a retailer and available only from that retailer Exclusive Brand: A brand that is developed by a national brand vendor, often in conjunction with the retailer, and is sold exclusively by the retailer Mobile Commerce (M-Commerce): Product and service purchases through mobile devices Cooperative (co-op) Advertising: Advertising by paying all or a portion of the advertising production and media costs Share of Wallet: The percentage of the customer’s purchase made from that particular retailer Online Chats: Used by firms to improve customer service from an electronic channel; customers can participate in an instant messaging conversation with the customer service representative; enables firms to send a proactive chat invitation at specific times to visitors to the site QUIZ-YOURSELF QUESTIONS Q: Retailing is where marketing ___________________.

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A: Q: If you were a marketer for a clothing manufacturer and you wanted to improve revenues from merchandise with minor construction errors, production overruns, and returns, you would be attracted to using _____________. A: CHOOSING RETAILING PARTNERS o Retailing  Products via stores, catalogs, Internet  Services such as fast-food restaurants, airlines, hotels  Selling to customers for personal use = retailer  NOT wholesaler, who buys from manufacturers and resells to retailers or industrial or business users  Many retailers now rule their supply chains  E.g. Walmart, Tesco, Costco, Target, Kroger, Schwars, Walgreens, Home Depot o Manufacturers’ Strategy with Retailers  A manufacturer’s strategy depends on its overall market power and how consistent a new product or product line is with current offerings  Four factors establishing a relationship with retailers  1. Choosing retailing partners  Manufacturers assess how likely it is for certain retailers to carry their products  Manufacturers consider where their target customers expect to find the products, because those are exactly the stores in which they want to place their products  The overall size and level of sophistication of the manufacturer will determine how many of the marketing channel functions it performs and how many it will hand off to other channel members  2. Identifying types of a retailers  Although the choice is often obvious, manufactures may have a choice of retailer types for some products  3. Developing a retail strategy  By implementing the four Ps  4. Managing an omnichannel strategy  Consists of examining the circumstances in which sellers may prefer to adopt a particular strategy o Partnerships  Manufacturers like Coach use retailers such as Macy’s to undertake partnerships that create value by pulling together all the actions necessary for the greatest possible customer convenience and satisfaction

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The store provides a sales person to help customers coordinate their outfits and a tailor to make the whole thing fit perfectly  What manufacturers look at when choosing retailer partners:  Channel Structure  Customer Expectations  Channel Member Characteristics  Distribution Intensity Channel Structure  The level of difficulty and manufacture experiences in getting retailers to purchase its products is determined by the degree to which the channel is vertically integrated, the degree to which the manufacturer has a strong brand or is otherwise desirable in the market, and the relative power of the manufacturer and retailer  Manufacturer should consider where the end customer expects to find their products Customer Expectations  The retailer should know customer preferences regarding manufacturers  Manufacturers need to know where their target market customers expect to find their products and those of competitors Channel Member Characteristics  Generally, the larger and more sophisticated the channel member, the less likely that it ill use supply chain intermediaries  Larger firms often find that by performing the channel functions themselves, they can gain more control, be more efficient, and save money Distribution Intensity  Commonly divided into three levels:  Intensive  Exclusive  Selective  Intensive Distribution  Most consumer packaged goods companies and other nationally branded products found in grocery and discount stores  Product available everywhere  More exposure = Sell more  E.g. Pepsi, P&G, Kraft  Exclusive Distribution  Can benefit manufacturers by assuring them that the most appropriate retailers represent their products  Helps when supply is limited or a firm is just starting out  Ensures adequate inventory  Protects retailers’ profit margins o No price competition o Gives retailer incentive to carry more inventory and use extra advertising, personal selling, and sales promotions

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Selective Distribution  Helps a seller maintain a particular image and control the flow of merchandise into an area  Attractive to many shopping goods manufacturers  Retailers still have a strong incentive to sell the products but not to the same extent as if they had an exclusive territory

IDENTIFY TYPES OF RETAILERS o Food Retailers  The food retailing landscape is changing dramatically  20 years ago, consumers purchased food primarily at conventional supermarkets  Now, Conventional supermarkets account for only slightly more than 60% of food sales (not including restaurants)  Supermarkets  Conventional Supermarket  Perishables including meat, produce, baked goods, and dairy products account for 30% of supermarket sales and typically have higher margins than packaged goods  Carry about 30,000 SKUs  Limited-Assortment or Extreme-Value Food Retailers  Stock only about 1500 SKUs  Two largest in U.S: Save-A-Lot and ALDI  Offer one or two brands and sizes, one of which is a store brand  Can offer merchandise at prices 40% lower than those at conventional supermarkets o By trimming costs  To compete successfully against intrusions by other food retailing formats, conventional supermarkets are differentiating their offerings by:  Emphasizing fresh perishables  Targeting green and ethnic consumers  Providing better value with private-label merchandise  Providing a better shopping experience  Supercenters  E.g. Wal-Mart has over 3,000 supercenters, accounting for the vast majority of total supercenter sales  Warehouse Clubs  Largest in U.S: Costco, Sam’s Club, BJ’s Wholesale Club  Customers are attracted because they can stock up on basics  Convenience Stores  Modern version of mom-and-pop stores  Enable customers to make purchases quickly  No large store to search through

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 No lengthy lines  Assortments limited in depth and breadth  Charge higher prices than supermarkets  Most sales from gasoline and cigarettes  Facing increased competition  Offering new assortments  Making stores more convenient  Adding new services o General Merchandise Retailers  Department Stores  Largest chains in U.S: Sears, Macy’s, Kohl’s, JCPenney, Nordstrom  Many are increasing amount of exclusive and private-label merchandise  To attract younger consumers  Full-Line Discount Stores  Largest: Wal-Mart, Target, Kmart  Wal-Mart accounts for two-thirds of sales  Target has grown  Customers do not expect higher-end products here  Looking for value prices; willing to compromise on quality  Specialty Stores  Brick-and-mortar but also expanding into online  Drugstores  Prescription pharmaceuticals represent almost 70% of drugstore sales  Largest: CVS, Walgreens, Rite Aid  Category Specialists  Most use a predominantly self-service approach, but offer assistance in some areas  AKA big-box retailers or category killers  Offer a complete assortment at somewhat lower prices than competition  “Killing” the category for other retailers  E.g. Staples  Home Improvement Centers  Off-price Retailers  May be brick-and-mortar, online outlets, or a combination of both  Largest: TJX Companies, Ross Stores, Burlington Coat Factory, Big Lots, Overstock.com, and Bluefly.com  Sell at prices 20-60% lower than the MSRP  Because most merchandise is bought opportunistically from manufacturers or other retailers with excess inventory at the end of the season  Consumers cannot be confident the same merchandise will be available each time they visit the store  Do not:  Ask suppliers to help them pay for advertising

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 Ask suppliers to take back unsold merchandise  Charge suppliers for markdowns  Ask suppliers to delay payments  Extreme-Value Retailers  Largest: Dollar General, Family Dollar  Reduce costs and maintain low prices by:  Buying opportunistically from manufacturers with excess merchandise  Offering a limited assortment  Operating in low-rent locations  Offer a broad but shallow assortment of household goods, health and beauty aids, and groceries  Often target low-income consumers  Often have special smaller packages available from vendors  Higher-income consumers are increasing shopping here for the “thrill of the hunt” o Service Retailers  Examples:  Laundromats  Pharmacies  Auto care  Hair salons  Health clubs  Movie Theaters  Clubs  Banks  Hospitals  Legal Clinics  Growth:  Aging population will increase demand for health care services  Younger people are spending more on health and fitness  Busy parents are paying for household maintenance services DEVELOPING A RETAIL STRATEGY USING THE FOUR Ps o Product  *A typical grocery store carries 30,000 to 40,000 items  A regional department store may carry as many as 100,000  Firms must provide the right mix of merchandise and services that satisfies the needs of the target market  To reduce transportation costs and handling, manufacturers typically ship cases of merchandise to retailers  But retailers break up the cases and sell consumers the smaller quantities they desire  Retailers often provide a storage function for manufacturers and consumers

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For retailers to distinguish themselves from retailers, they:  Develop private-label brands  Get exclusive brands from a national brand vendor  Available at only one retailer (pro)  Provide name recognition similar to that of a national brand (pro)  Can be sold by only one retailer so manufacturer’s market is limited (con)  Retailer has to share profits with national brand manufacturer (con)

o Price  Helps define the value of both the merchandise and service  The general price range of a particular store helps define its image  Firms must keep in mind customers’ perceived images of retailers’ price-quality relationship  Price must always be aligned with the other element’s of a retailer’s strategy: product, promotion and place  Both manufacturers and retailers are concerned about making a reasonable profit and about what the customer is willing and expecting to pay o Promotion  Good promotion can mean the difference between flat sales and a growing consumer base  Traditional media advertising is important to get consumers into stores  Newspapers, magazines, television  Electronic communications are being increasingly used as well  Some companies offer real-time promotions on websites  Coupons.com offers coupons that customers can use immediately  Twitter@Coupons  Mobile Commerce (M-commerce)  Special sites for users to access via mobile devices  Specialized mobile applications  To shop and obtain more merchandise information  A coordinated effort between the manufacturer and retailer helps guarantee that the customer receives a cohesive message and that both entities maintain their image  May help defray costs of cooperative advertising  Store credit cards or gift cards  Subtler forms of promotion that also facilitate shopping  Pricing promotions  Coupons, discounts, and other offers attract consumers and stimulate sales  Drive traffic to retail locations  Increase average purchase size  Create opportunities for repeat purchases  Inform customers about what is new and available and how much it costs  Displays and signs  Point-of-Purchase (POP) displays  In strategic areas  Overall retail environment

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 E.g. displays, demonstrations  Music, color, scent, aisle size, lighting, availability of seating, crowding Personal selling and customer service reps  Provide information  Facilitate sales  Being replaced by technology and automation in some places Using CRM to provide more value to the best customers  Attempt to modify product, price, and/or promotion to attempt to increase their share of wallet  E.g. send promotions via email based on browsing behavior  Offer special discounts to good customers to increase loyalty

o Place  Convenient locations  Location, location, location! BENEFITS OF STORES FOR CONSUMERS o Browsing  Consumers go to a store to see what is available before making their final decision about what to buy  Despite the option to browse the web, many consumers still prefer going to stores  Or do both o Touching and Feeling Products  Consumers have opportunity to use all five senses to examine products o Personal Service  Sales associates can provide meaningful, personalized information  Can be particularly helpful when purchasing a complicated product o Cash and Credit Payment  Stores are only channel that accepts cash  Some customers prefer to pay cash because:  Is easy  Resolves the transaction immediately  Does not result in potential interest payments  Some don’t have a credit card  Some customers prefer to use cards in person rather than send information over Internet o Entertainment and Social Experience  In-store shopping can be a stimulating experience for some people, providing a break in their daily routine and enabling them to interact with friends o Immediate Gratification  Stores have the advantage of allowing customers to get the merchandise immediately after paying for it o Risk Reduction

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When customers purchase in stores, the physical presence of the store reduces the perceived risk of buying and increased their confidence that any problems with the merchandise will be corrected

BENEFITS OF THE INTERNET AND OMNI-CHANNEL RETAILING o Deep and Broader Selection  Vast number of alternatives can be made available  No crowding of stores  Deeper assortments than stores or catalogs  Satisfy demand for less popular options o Personalization  Personalized Customer Service  Online chats  Personalized Offering  Based on a customer’s behavior  Unique recommendations  Personalized promotions o Expand Market Presence  Expand market without having to build new stores of incur high costs of additional catalogs  Particularly attractive to retailers with strong brand names but limited locations and distribution  E.g. Nordstrom, REI, IKEA EFFECTIVE OMNI-CHANNEL RETAILING o Integrated CRM  Effective omnichannel operations require an integrated CRM system with a centralized customer data warehouse that houses a complete history of each customer’s interaction with the retailer  Regardless of whether the sale occurred in store, on the Internet, or on the phone  Allows retailers to:  Efficiently handle complaints  Expedite returns  Target future promotions  Provide a seamless experience for consumers when they interact with the retailer through multiple channels o Brand Image  Retailers need to provide a consistent brand image across all channels o Pricing  Customers expect price consistency for the same SKU across channels

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But sometimes retailers lower prices on Internet to compete effectively  E.g. against Amazon Retailers with stores in multiple markets often set different prices to compete better with local stores  Customers are often unaware of these differences but can see differences of price on the Internet

o Supply Chain  Omnichannel retailers struggle to provide an integrated shopping experience across all their channels because unique skills and resources are needed to manage each channel  Different shipping orientations for stores vs. catalog or Internet channels  Many store-based retailers have a separate organization to manage their Internet and catalog operations, but retailers tend to integrate all operations as the operation matures  E.g. Wal-Mart and JCPenney initially had separate organizations for their Internet channel but then integrated them with stores and catalogs...