MAR 3231 Exam 1 PDF

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Full summary of chapters for exam 1. Using lecture and book materials. Earned an A on this exam ...

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Chapter 1: ● Retailing principles are used in businesses that aren’t typically thought of as retailers to develop offerings, improve customer service, and provide convenient and easy access to customers ● Retailing: the set of business activities that adds value to products and services sold to consumers for their personal or family use ○ Retailing also includes the sale of services (hotel lodging, doctor’s visit, haircut, pizza delivery, etc.) ○ Not all retailing is done in stores ■ Ordering online, through catalog, or using a platform developed by a company such as Amazon Prime to stream a movie rather than buying that product/service from a theatre ● Retailer: a business that sells products/services to consumers for their personal or family use. They link manufacturers to consumers in the supply chain. ● Supply chain: a set of firms that make and deliver goods and services to consumers ○ Example: Manufacturer to Wholesaler to Retailer to Consumer ○ Retailers add value and are more efficient in adding value than manufacturers or wholesalers, therefore they are a vital intermediary to the supply chain ● Retailers Create Value: ○ Providing Assortment: Offering an assortment enables customers to choose from a wide selection of products, brands, sizes, and prices at one location. ○ Breaking bulk: Manufacturers sell/ship products in large quantities to save on transportation costs. Retailers sell these products as individual items to customers in a way that is more comparable to household consumption patterns. Therefore, manufacturers can produce and ship efficiently in large quantities, but consumers can purchase what they want in smaller, more useful quantities. ○ Holding inventory: This activity is performed by retailers whereby products will be available when consumers want them. Thus, consumers can keep a smaller inventory of products because they know that retailers will have more available when they need it. This is especially important for customers limited on storage space like in apartments. ○ Providing services: Retailers provide services such as product testing, buying on credit, tailoring in-house, etc. ● Costs of Channel Activities: ○ While retailing provides value to the customers, it also adds costs to the supply chain and everytime the product changes hands, there is a party

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that intends to profit ■ These costs are justified considering the value added to customers is greater than the cost incurred by the supply chain since the product is most valuable when it is readily available in the proper setting Wholesalers: firms that buy and store products in large quantities from manufacturers and resell them to retailers in typically smaller quantities. ○ Companies like Costco perform retailing and wholesaling activities when they receive products from manufacturers and sell to businesses and personal consumers. Vertical Integration: a firm performs more than one set of activities in the channel, like diversification by retailers involving investments by retailers in wholesaling or manufacturing merchandise. ○ Ex: a retailer engages in wholesaling by operating its own distribution centers to supply its stores Backward Integration: a form of vertical integration where a retailer owns some or all of its suppliers. Forward Integration: a form of vertical integration when a manufacturer undertakes the retailing and wholesaling activities ○ Ex: Apple operating its own retail store The US has the greatest retail density (retail stores per person), therefore retailers often have large stores in lightly populated areas. Because of their size, they have the capacity to operate their own warehouses (so no wholesalers) and this produces a very efficient distribution system. ○ The US has the highest retail density, largest average store size, the best infrastructure and the least restrictions on location, size and ownership ○ India has the lowest retail density, smallest average store size, but the largest role for wholesalers and the worst infrastructure with the most restrictions on location, size and ownership of stores. ■ Merchandise must often go through various wholesalers to reach these smaller stores and a larger percentage of the work force is required to work in distribution and retailing, therefore supply chain costs are higher ○ China’s retail industry is highly fragmented, like India, with minimal chains ■ Government restrictions are changing to provide better opportunities, more FDI, and position China s the world’s fastest growing retail market ● The Eastern Chinese cities like Beijing and Shanghai are comparable with Chicago and NYC but the western cities are more similar to the inefficiency in India. ○ The European retailing realm falls between the US and Asia with northern

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Europe being more similar to the US 8% of US GDP comes from retailing and that number does not include the sale of services therefore it is likely much higher When consumers are spending more, it is an indication of economic success and stability because it demonstrates that there is extra income and faith in the economy More than 14 million people are employed in retailing in the US (10% of the workforce) and another 15% work for companies that provide services and or sell products through retailers BoP/ Bottom of the pyramid: the 25% of the world’s population at the lowest end of the global income distribution, with combined spending power of approximately $5 trillion. ○ 3 billion people or 40% of the world’s population are living on less than $2.50 a day and serving this demographic provides the social role of reducing worldwide poverty ○ It is difficult to communicate and complete transactions with people at the base of the pyramid because of a lack of access to credit cards, media, cell phones, etc. ■ Many of these people live in rural areas that are difficult to access and have limited local demand combined with the high cost of transportation means a higher cost of goods Stakeholders: the broad set of people who might be affected by a firm's actions, from current and prospective customers to supply chain partners to employees to shareholders to government agencies to members of the communities in which the firm operates and to a general view of society. Corporate Social Responsibility/CSR: voluntary actions taken by a company to address the ethical, social, and environmental impacts of it business operations and the concerns of its stakeholders Conscious Marketing: entails a sense of purpose for the firm higher than simply making a profit from selling goods and services. ○ Goes beyond the inherent corporate social responsibility ○ 1. Recognition of the retailing firm’s greater purpose: realizing that there is more to the business than just making money. Ex: TOMS giving back shoes ○ 2. Consideration of stakeholders and their interdependence: to serve as many stakeholders as possible, but avoid inflicting damage on others, they must give up their exclusive focus on maximizing profit. They must consider the broad implications of their actions and use them as a foundation for decision making and achieve the most benefits for the largest number of stakeholders while ensuring their isn’t harm done to one group.

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○ 3. The presence of conscious leadership, creating a corporate culture: a firm’s leaders should be dedicated to the proposition of being conscious at all levels of the business throughout its culture and this should give them a higher purpose. Every member of a firm embodies the ideas of conscious marketing and every stakeholder can recognize the higher principles involved. ○ 4. Understanding that decisions are ethically based: business ethics distinguishes between right and wrong actions and decisions that arise in a business setting, according to broad and well-established moral principles. More than 90% of all retail sales are made in stores, usually less than 15 minutes from the customers home or work. About 25% of the retailers included in the top 250 list actually account for less than $5 billion in revenues total. ○ A few well known names make up the majority of the market share in departments like home improvement, pharmacy, and department stores. Information systems is on of the forces facilitating the growth of large retail firms, because prior to their development, it was difficult for someone other than the local store manager to track how merchandise was selling and to collect and consolidate the plans from a number of different stores so that a buyer could place large orders with vendors to get a price discount. Many retailers use customer data to target promotions and use purchase data to determine how to place products in closer proximity when the data show that many customers buy the same products at the same time and use the location data to tailor the assortment of products in each store to match the needs of the store’s local market. Retailers: ○ Raise capital from financial institutions ○ Purchase goods and services ○ Use accounting and management information systems to control their operations ○ Manage warehouses and distribution systems ○ Design and develop new products ○ Undertake marketing activities such as advertising, promotion, sales force management and market research Retailers to Entrepreneurs: ○ Jeff Bezos: quit a wall street job to start an entrepreneurial internet retailer for books and is now the third richest person in the world ■ Now amazon is one of the largest retailers in the world and Bezos has acquired the Washington Post and Blue Origin ○ Sam Walton: began working at JCPenny in 1940 and bought a Ben

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Franklin variety store which he lost but when he opened a new one with his brother they ended up with 15 stores and he opened his first Walmart Discount City and his vision of partnering with low cost suppliers to maximize profit made him one of the richest people in America ○ Do Won and Jin Sook Chang: the co founders of Forever 21 emigrated from South Korea and opened a store in 1984 with incredible sales growth which is now forever 21 and they have more than 600 stores worldwide and huge profits, it is a family business with their daughters running marketing and visuals. ○ Ingvar Kamprad: he’s been an entrepreneur since childhood but at the age of 17 his father gave him money to establish IKEA. He (like Sam Walton) is known for his frugality and that translates to his mission of providing quality furniture at a low price and in his personal life he also lives very modestly. He gave away most of his shares in IKEA and gave over control to his son ○ Howard Schultz: he went from Starbucks marketing head to acquiring the business and translating his vision for an Old World Italian coffee bar into the brand. He remains a visionary by transforming his childhood experience of his father’s struggle in the labor force into a comprehensive insurance plan for employees and stock options. The Retail Mix: a combination of factors used by a retailer to satisfy customer needs and influence their purchase decisions ○ Customer service ○ Store design and display ○ Communication mix ○ Location ○ Merchandise Management ○ Pricing Macro Environment: technological, social, ethical/legal/political factors Microenvironment: competitors and customers Intratype competition: competition between the same type of retailers ○ Ex: Macy’s vs Nordstrom Scrambled Merchandising: an offering of merchandise not typically associated with the store type ○ Ex: walgreens having clothing at a drugstore ○ Scrambled merchandising increases intertype competition Intertype Competition: competition between retailers that sell similar merchandise using different formats ○ Ex: discount and department stores Retail Strategy: ○ The target market toward which a retailer plans to commit its resources

○ The nature of the retail offering that the retailer plans to use to satisfy the needs of the target market ○ The bases on which the retailer will attempt to build a sustainable competitive advantage over competitors ● Strategic Decisions: ○ The development of critical assets: ■ Location: typically a top consideration when selecting a store ● Provides a long term advantage over competitors because if your business has the best spot the competition must settle for the second best spot ■ Human resources ■ Information and supply chain systems: retailers are developing sophisticated computer and distribution technologies to monitor flows of information and merchandise from vendors to retail distribution centers to retail stores. ● Make sure desired merchandise is available when customers want it ● Minimize the retailer’s inventory investment ■ Supply chain organization ■ Customer loyalty

Chapter 2: ● Four elements of the retail mix to classify retailers: ○ Type of merchandise: ■ NAICS/ North American Industry Classification System: classification of retail firms into a hierarchical set of six-digit codes based on the types of products and services they produce and sell. ○ Variety and assortment of merchandise: ■ Variety: the number of different merchandise categories within a store or department, or breadth ■ Assortment: the number of SKUs within a merchandise category, also called depth ■ SKU/Stock Keeping Unit: the smallest unit available for keeping inventory control. In soft goods merchandise, an SKU usually means size, color, and style. ○ Level of customer service: displaying merchandise, accepting credit cards, providing parking, being open at convenient hours, home delivery, gift wrapping, repairs, etc. ■ More services attract more customers but can also become costly for retailers who have to hire extra staff or take up valuable retail

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space with child care services, coat checks, etc. Offering delayed billing, credit, or payments in installments requires a financial investment that could be otherwise used for more merchandise ○ Price of merchandise: a broader variety and deeper assortment with more services provided, leads to higher prices charged on customers. Food Retailers: Conventional supermarkets now account for less than 65% of food sales because online grocers and other stores that don’t typically sell food have diversified their product mix Conventional Supermarket: a self service food store that offers groceries, meat, and produce with limited sales of nonfood items, such as health and beauty aids and general merchandise. Limited Assortment Supermarket/Extreme value food retailers: a supermarket offering a limited number of SKUs ○ Ex: Aldi, offers one to two brands and sizes of a product, one of which is typically a store brand. Conventional Supermarkets are differentiating their offerings by: ○ Emphasizing fresh perishables ○ Targeting green, ethnic, millennial consumers ○ Providing better value with private label merchandise ○ Providing a better shopping experience, such as by adding restaurant options or hosting events Power Perimeter: the areas around the outside walls of a supermarket that have fresh merchandise categories ○ Dairy, meat, bakery, florist, produce, deli, and coffee bar ○ These are some of the most profitable products in the store and are being promoted with cooking exhibitions and freshly made meals (ex.Publix chicken, sushi, etc) Green Merchandise: conventional supermarkets are offering more fair trade, natural, organic and locally sourced foods for the growing segment of consumers who are health and environmentally conscious. Fair trade: Purchasing practices that require producers to pay workers a living wage, well more than the prevailing minimum wage and offer other benefits like onsite medical treatment. Locavore Movement: a movement focusing on reducing the carbon footprint caused by the transportation of food throughout the world ○ People like the idea of farm to table and supporting local businesses but they also want the same variety of foods year round that can only be provided by importing certain seasonal goods Private Label Brands: ○ Benefits to consumers: having more choices and finding the same ingredients and quality as in national brands at a lower price or higher

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quality item at a similar price to national brands ○ Benefits to retailers: increased store loyalty, the ability to differentiate themselves from the competition, lower promotional costs, and higher gross margins compared with national brands Supercenters: large store combining a discount store with a supermarket, providing a one stop shopping experience. ○ General merchandise (nonfood) items are typically purchased on impulse when customers intend to buy groceries ○ This merchandise usually has higher margins, enabling supercenters to price food items more aggressively ○ Cons: Supercenters are very large and some consumers get frustrated when they can’t find an item quickly and easily Hypermarkets: large, combination food and general merchandise retailer, uncommon in the US ○ Hypermarkets carry a large portion of food products than supercenters and place a greater emphasis on perishables like produce, fish and meat ■ Ex: the world’s second largest retailer, Carrefour Big-Box Opposition: land is expensive and multistory buildings pose inconvenience in other countries like Japan and Europe ○ Big-box stores drive out local business, offer low wages, provide nonunion jobs, have unfair labor practices, threaten US workers through imports, and cause excessive auto and delivery traffic Warehouse clubs: a retailer that offers a limited assortment of food and general merchandise with little service and low prices to ultimate consumers and small businesses. ○ Typically large and located in low rent districts ○ Little service is offered and low prices are available due to low cost locations, inexpensive store designs and limited customer service ○ Serve wholesale members who own businesses and individual members who purchase for personal use. Convenience Stores: a store that provides a limited variety and assortment of merchandise at a convenient location in a 2000 to 3000 square foot store with speedy checkout. ○ Enable consumers to make purchases quickly without searching a whole store and waiting in long lines ○ More than half of the items bought are consumed within 30 minutes of purchase ○ Convenience stores generally charge higher prices than supermarkets for similar products, but most sales now come from low profit items like gas and cigarettes ■ Supercenters and supermarkets are attempting to appeal to

customers by offering gasoline and using programs to incentivize consumers ■ Drugstores and discount stores also have easily accessible areas of their stores filled with convenience store merchandise ○ Easy access, storefront parking, and quick in and out access are key benefits offered by convenience stores ● Online Grocery Retailers: time-poor customers are willing to pay more to access options for ordering groceries online and having them delivered ○ In the past 5 years, annual online sales of groceries have grown by 14.1% ○ About 30% of the online orders placed with grocery retailers involve nonfood items like paper products or cleaning products as opposed to in store sales that usually only feature about 14 percent nonfood items ○ Slim margins are a problem because consumers rely on online grocers for non-perishable low profit margin items ○ Most delivery services are only accessible in large, urban cities which also limits the customer base and profitability ● Department stores: a retailer that carries a broad variety and deep assortment, offers customer services, and organizes their stores into distinct departments for displaying merchandise. ○ Pleasing ambiance, attentive service, wide variety of merchandise under one roof ○ Soft Goods: merchandise with a relatively short life span, such as clothing or cosmetics ○ Hard Goods: merchandise expected to last for several years, s...