Marketing Real People Real Choices P3 PDF

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Here’s my problem… Real People, Real Choices Stan Clark, the colorful entrepreneur behind the toothy grin of the Eskimo Joe caricature, and his dog Buffy faced a big problem. In 1975, Stan opened Eskimo Joe’s bar in Stillwater, Oklahoma— the home of Oklahoma State University (OSU). By the mid-1980s, the watering hole had become a huge favorite among OSU students. Situated right across from the OSU campus, Joe’s carved out a niche as the place to go for beer, music, pool, and foosball in this college town. Trading on the popularity of the bar as well as its quirky logo, Stan had also begun to sell some logo apparel over the counter. Before long, students, friends, parents, alums, and other visitors simply couldn’t get enough of the T-shirts sporting the wide smiles by the boy and his faithful dog. For Stan, life was good and also lots of fun. So what could possibly go wrong? Try the fact that Oklahoma had just passed a statewide “liquor by the drink” law. Prior to this, Oklahoma had a patchwork quilt of post–Prohibition era liquor laws, including “club card” requirements at bars and bring-your-own-bottle rules. Liquor by the drink opened up normal serving of beer, wine, and spirits at any establishment with a proper state liquor license; however, part of the new law was an increase in the legal drinking age from 18 to 21. Oops—a beer bar in a college town when you have to be 21 to drink? Not exactly an attractive business proposition. But, in the eight years since Eskimo Joe’s opening, Stan had come to understand that the place represented a whole lot more to people than just pitchers of cold Bud on hot summer nights. There was a certain mystique and a strong sense of community around the brand that made it more than just a place to drink. Brisk sales of T-shirts and other clothing over the counter were evidence that people saw something else in the retailer—something that made them want to wear these items again and again. The affection and interest reached almost cult-like proportions and were not limited to Stillwater or even to Oklahoma. Stan had hit on something big, but what could he do? Big Brother in the State of Oklahoma was about to regulate him right out of his core business. Stan had to take a couple of steps back, take a new look at his business, and think about what he might do to ensure that his retail enterprise would survive the new law. The situation could be life or death for Eskimo Joe’s.

stan considered his Options 1 2 3 •

•

Convert the beer bar into a full-service restaurant that focuses on selling great food. This option assumes that the equity of the Eskimo Joe’s brand would transfer into a brand-new market and product space. To accomplish this transforOption mation, Stan would have to extensively remodel the facility. He would have to figure out who the new target market is and what type of menu fare would be most appealing to that customer. This was a risky proposition because restaurants open and close all the time. On the other hand, if Stan could morph the location into a restaurant that also happens to serve alcohol

(which, under the new liquor law, would be legal—and potentially quite profitable), he would hopefully be able to continue to build the fledgling logo apparel business around the new restaurant theme, à la the Hard Rock Café. Continue operating as a beer bar at the core and work to offset declining beer sales with an increase in apparel sales. From 1975 to 1984, Joe’s was “Stillwater’s Jumpin’ Little Juke Joint.” It was by far one of the highest-volume Option beer bars in the region, and it had built its entire reputation on this image. As the number-one competitor in this market space, Stan had every reason to believe that the weaker competitors would be forced out of business by the law change, leaving their share of the market to him. Stan could continue to operate the bar in much the way it had always been operated, and if he liked, he could use it as a cash cow to generate revenues and then invest the money elsewhere for growth. The upside of this plan would be that any attempt to rebrand Eskimo Joe’s as something other than what it had always been would be risky. However, the downside was the unknown of what it would mean to a retailer over the long run to lose its primary customer base of 18- to 20-year-olds in a town brimming with college students. Close Eskimo Joe’s bar and refocus resources on building the growing apparel business. The cult-like status of the Eskimo Joe’s brand and image may have begun at the physical location of the bar in Stillwater, but the way to replicate Option and perpetrate it on a national or international scale is by marketing the now-hip logo. Stan could build a small retail clothing boutique in Stillwater but turn primarily to direct marketing through catalogs focused on his target primary age and demographic groups. A key benefit of this approach is avoiding any unexpected problems with the bar that might occur in the liquor law transition, especially the negative publicity that would result if Joe’s got caught selling beer to underage drinkers. The Eskimo Joe spirit would be maintained through the direct marketing and also through accompanying word of mouth. On the downside, to Joe’s loyal fans, closing Stillwater’s “Jumpin’ Little Juke Joint” would be like Harley-Davidson ceasing to make motorcycles: Who wants the logo apparel when there’s no product or place that still sports it? However, this option was tempting in that it would redirect Stan’s resources to the high-growth (and high-profit-margin) apparel retailing sector. Now put yourself in Stan’s shoes. Which option would you choose, and why?

You Choose Which Option would you choose, and why? Option 1 Option 2 Option 3 See what option Stan chose in MyLab Marketing™

MyLab Marketing™ Improve Your Grade! Over 10 million students improved their results using the Pearson MyLabs. Visit mymktlab.com for simulations, tutorials, and end-of-chapter problems.

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Chapter 12

12.1

Retailing, Twenty-FirstCentury Style

OBjeCTive

retailing The final stop in the distribution channel in which organizations sell goods and services to consumers for their personal use.

Shop ’til you drop! For many people, obtaining the product is only Define retailing, understand half the fun. Others, of course, would rather walk over hot coals how retailing evolves, than spend time in a store. Marketers like Stan need to find ways and consider some ethical to deliver goods and services that please both types of consumers. issues in retailing. Retailing is the final stop on the distribution path—the process by (pp. 400–407) which organizations sell goods and services to consumers for their personal use. As we said in Chapter 11, planning for distribution of product offerings includes decisions about where to make the product available. Thus, when marketers of consumer goods and services plan their distribution strategy, they talk about the retailers they will include in their channel of distribution. This means they need to understand retailing and the ever-changing retailer landscape. Of course, retailers also develop their own marketing plans. Although the sample marketing plan we provided for your use in Appendix A relates to a manufacturer, we find essentially the same elements in retailers’ marketing plans. Like producers, they must decide which consumer groups they can best serve, what product assortment and services they will provide for their customers, what pricing policies they will adopt, how they will promote their retail operations, and where they will locate their stores. This chapter will explore the many different types of retailers as we keep one question in mind: How does a retailer—whether store or nonstore (selling via TV, mobile phone, vending machine, or the Internet)—successfully make its goods or services available to the consumer? So, this chapter has plenty “in store” for us. Let’s start with an overview of where retailing has been and where it’s going.

Retailing: A Mixed (Shopping) Bag Retailing is big business. In 2015, U.S. retail sales totaled $4.87 trillion, 7 percent of which came from e-commerce.1 Over 1 million retail businesses employ nearly 16 million workers—more than 1 of every 10 U.S. workers.2 Although we tend to associate huge stores such as Walmart and Sears with retailing activity, in reality most retailers are small businesses like Eskimo Joe’s. Certain retailers, such as Home Depot and Costco, are both wholesalers and retailers because they provide goods and services to both businesses and end consumers. As we said in Chapter 11, retailers are members of a channels of distribution. As such, they provide time, place, and ownership utility to customers. Some retailers save people time or money when they provide an assortment of merchandise under one roof. Others search the world for the most exotic delicacies; they allow shoppers access to goods they would otherwise never see. Still others, such as Starbucks, Apple, or REI, provide us with interesting environments in which to spend our leisure time and, they hope, our money. Service retailers such as banks, hospitals, and hair stylists satisfy our needs and wants for intangible products. Globally, retailing has different faces in different parts of the world. In some European countries, don’t even think about squeezing a tomato to see if it’s too soft or picking up a cantaloupe to see if it smells ripe. Such mistakes will quickly gain you a reprimand from the store clerk, who will choose your oranges and bananas for you. In developing countries like those in Asia, Africa, and South America, retailing often includes many small butcher shops where you won’t find hygienically sealed packages of steaks and lamb chops. Instead, sides of beef and lamb proudly hang in store windows so everyone will be assured that the meat comes from healthy animals. Other vendors sit

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cross-legged on the sidewalk where they sell lettuce, tomatoes, and cucumbers while men and boys offer passersby watermelons, neatly stacked on a donkey cart. Women cook small breakfast items and sell them in the front of their homes for workers and schoolchildren who pass by in the mornings. Neat store shelves stacked with bottles of shampoo may be replaced, as we said in Chapter 10, by hanging displays that hold one-use size sachets of shampoo and fabric softener, the only size that a woman can afford to buy and then only for special occasions. Street vendors may sell cigarettes one at a time. The local pharmacist may also give customers injections and recommends antibiotics and other medicines for patients who come in with a complaint and who can’t afford to see a doctor. Don’t feel like cooking tonight? There’s no drive-through window for pickup; but even better—there’s delivery from McDonald’s, Hardees, KFC, Pizza Hut, Fuddruckers, Chili’s, and a host of local restaurants via motor scooters that dangerously dash in and out of traffic is just a few minutes away. You can even order your Big Mac or a spicy vegetable dragon roll for delivery online through sites such as Egypt’s Otlob.com or Mumbai’s Foodkamood.com.

The evolution of Retailing Retailing has taken many forms over time, including the peddler who hawked his wares from a horse-drawn cart, a majestic urban department store, an intimate boutique, and a huge “hyperstore” that sells everything from potato chips to snow tires. But now the cart you see inside at your McDonald’s is experimenting with delivery service in Vienna and other giant local mall that sells new-age jewelry or monogrammed golf balls to cities. passersby has replaced the horse-drawn cart and you’ve traded the local hypermarket for your computer, tablet, or smartphone. As the economic, social, and cultural pictures change, different types of retailers emerge, and they often squeeze out older, outmoded types. How can marketers know what the dominant types of retailing will be tomorrow or 10years from now? One of the oldest and simplest explanations for these changes is the wheel-of-retailing wheel-of-retailing hypothesis hypothesis. Figure 12.1 shows that new types of retailers begin at the entry phase A theory that explains how retail firms change, with low-end strategies as they offer goods at lower prices than their competitors.3 After becoming more upscale as they go through their life cycle. they gain a foothold, they gradually trade up as they improve facilities and upgrade merchandise. Finally, retailers move on to a high-end strategy with even higher prices, better

Snapshot | The Wheel of Retailing

Figure 12.1

Vulnerability Phase

Entry Phase

High prices Luxurious facilities Excellent services and amenities

Low margin Low prices Limited or no services Low-end facilities

Trading-up Phase Moderate prices Better facilities Some services Increased quality merchandise

the Wheel of retailing explains how retailers change over time.

Court esy of DDB Wien and McDonald’s Aust ria. McDelivery – t he delivery service of McDonald’s.

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facilities, and amenities such as parking, gift wrapping, and maybe even spa treatments. Upscaling results in greater investment and operating costs, so the store must raise its prices to remain profitable. This makes it vulnerable to still newer entrants that can afford to charge lower prices. And so the wheel turns. That’s the story behind Pier 1 Imports. Pier 1 started as a single store in San Mateo, California, that sold low-priced beanbags, love beads, and incense to post–World War II baby boomers. Today, it sells quality home furnishings and decorative accessories to the same customers, who are now among the more affluent of the American population.4 The wheel of retailing helps us explain the development of some but not all forms of retailing. For example, some retailers never trade up; they simply continue to occupy a niche as discounters. Others, such as upscale specialty stores, start out at the high end and then move “downscale” as when Gap Stores opened Old Navy,

The evolution Continues: What’s “in Store” for the Future? As our world continues to change rapidly, retailers scramble to keep up. A few of the factors that motivate innovative merchants to reinvent the way they do business are the economic environment, changing demographics and consumer preferences, technology, and globalization.

Randy Duchaine/Alamy St ock Phot o

The Changing Economy Recently, changes in the economic environment have been especially important both to consumers and to retailers. The economic downturn that began in 2007 meant that consumers worldwide were less willing to spend their discretionary income. Instead, they chose to lower their level of debt and to save. Retail sales, including the all-important Christmas sales, fell in nearly all retail segments.5 Sales for most upscale retailers were especially vulnerable, whereas stores such as TJ Maxx, Marshalls, Dollar General, and online retailer Amazon.com that offer consumers low prices or discounted merchandise thrived. A number of retailers filed for bankruptcy, including Sharper Image, Circuit City, CompUSA, and Waldenbooks.6 During the economic downturn, some stores changed their merchandise assortment to meet consumers’ desires for lower- or value-priced products. Sales of private-label brands continued to grow and in 2013 reached an all-time high in sales of $108 billion, which included 19 percent of supermarket sales.7 Walmart and other mass merchandisers responded to this trend by allocating more shelf space to their own private-label brands and less to national brands. (Walmart later found that this strategy angered many consumers and hurt overall sales, and the chain quickly returned many items to its shelves.8) Although the recession is formally over, consumer spending has not grown as expected and retailer sales, even Christmas sales, remain fairly level. Even private-label wines have become more popular. Many retailers have found that offering private label products during a downturn in the economy is good business. Trader Joe’s exclusively carries Charles Shaw (aka “Two Buck Chuck”), Whole Foods uniquely offers Three Wishes, and Total Wine & More sells its very own Pacific Peak—and all sell for the low price of about $3 a bottle. Costco, which sells more than $1 billion of wine a year and is the largest retailer of fine wine in the U.S., buys wine from all over the world and sells it under its own Kirkland label. Can your palate detect the difference between private labels and the pricier brands if you remove the labels first?9 Retailers adapted to a weak economy by offering low-price wines.

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Changing Demographics and Consumers Preferences As we noted in Chapter 7, keeping up with changes in population characteristics including demographics and product preferences is at the heart of many marketing efforts. Here are some of the ways changing consumer demographics and preferences are altering the face of retailing.

volved in the workforce, they demand greater convenience. In response retailers adjust their operating hours and services to meet the needs of working consumers who have less time to shop. Other retailers, including banks, dry cleaners and pharmacies, add driveup windows to meet the needs of both working consumers and older consumers. A phone app called “ShowInRoom” reproduces your room on your phone and lets you “virtually” rearrange furniture without breaking a sweat. And walk-in medical clinics located at retailer, pharmacy, or grocery stores not only provide convenience Like other marketers, retailers need to stay on top of cultural trends that affect demand for the merchandise they sell, such as fur-free, vegan, or but also save both patients and insurers money on routine care.11 sustainable products. experiential merchandising. Instead of shopping being a passive activity where a sales associate suggests what they should purchase, consumers want to convert shopping into a more interactive activity. Build-A-Bear provides such an experience with unique merchandise, store design, and customer activities. After all, it’s not a store; it’s a “Workshop.” At Build-A-Bear, you don’t just buy a toy with predetermined accessories, you get the excitement of “building” your very own bear. Once the customer (a child or the friend of a child) has selected the perfect color bear, he or she can select one or more outfits from a wide variety of well-made clothes (underwear and shoes included). Would your furry friend look best in a college or pro sports uniform? A career outfit? What about a Wonder Woman or Sleeping Beauty play costume? Better try on several! Probably need to buy more than one or come back another day. Build-A-Bear will also plan a child’s birthday party complete with a party leader, games and activities, a Heart Ceremony for the Birthday child, and a party hat for each guest and their furry friends.12

experiential merchandising Tactic whose intent is to convert shopping from a passive activity into a more interactive one, by better engaging the customer.

destination retailer

sumers view as distinctive enough to go out of their way to shop there. Destination Firm that consumers view as distinctive enough retailers come with different faces: an upscale strategy for status-conscious consumers, to become loyal to it. Consumers go out of their way to shop there. a convenience strategy ...