5-1

Marketing Channel Strategy

Chapter 5
Retailing Structures and Strategies

Marketing Channel Strategy © 2015 by Pearson Education

 Agenda
6-2

 Retail Structures
 Retail Positioning Strategies

 Multichannel Retail Strategies

 Adapting to the Increasing Power of Major

Retailers

Marketing Channel Strategy © 2015 by Pearson Education

 Retail Structures
6-3

 Retailing consists of the activities involved in

selling goods and services to ultimate consumers
for their personal consumption.
 Office Depot makes both retail and wholesale
sales, but it also needs to understand which kind of
customer it is serving
Retail Sale Wholesale Sale
Buyer buyer is the ultimate business or institutional
consumer purchaser
Buying personal or family resale for business,
Motive satisfaction industrial, or institutional
uses
Marketing Channel Strategy © 2015 by Pearson Education
 Retail Structures (Cont.)
6-4

 Wal-Mart’s sales are more than three

times as great as those of the next largest
retailer (Carrefour)
 United States is the world’s biggest retail
marketplace
 Increasing globalization becomes clear

when we evaluate the data

Marketing Channel Strategy © 2015 by Pearson Education

 Agenda
6-5

 Retail Structures
 Retail Positioning Strategies
 Multichannel Retail Strategies
 Adapting to the Increasing Power of Major
Retailers

Marketing Channel Strategy © 2015 by Pearson Education

 Retail Positioning Strategies
6-6

 Recognition of the significant potential effects on

its competitiveness and performance
 Select specific cost-side and demand-side
characteristics
 Three Strategies:
 Cost-Side Positioning Strategies
 Demand-Side Positioning Strategies

 Taxonomy of Retail Positioning Strategies

Marketing Channel Strategy © 2015 by Pearson Education

 Cost-Side Positioning Strategies
6-7

 High-service retailing systems: high margins, low

turnover
 Low-price retailing systems: low margins, high
turnover
 If consumers remain unwilling to trade off lower
service levels for lower prices, retailers need to
avoid such low-price, low-margin retail operations
 Lowering operational costs does not always require
lowering the levels of all service outputs.
 Example: Zara and H&M hold their costs down and
thus can also provide competitive prices
Marketing Channel Strategy © 2015 by Pearson Education
 Cost-Side Positioning Strategies
(Cont.)
6-8

 Strategic profit model (SPM), best estimates best chance for

achieving its financial targets
ne t pr ofit ne t s ale s ne t pr ofit
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ne t pr ofit total as s e ts ne t pr ofit
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ne t pr ofit ne t s ale s total as s e ts ne t pr ofit
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 Manage margins (net profit/net sales), asset turnover (net
sales/total assets), financial leverage (total assets/net worth) to
secure a target return on net worth (net profit/net worth)
 Three Ways to improve profitability
 Gross margin return on inventory investment (GMROI)
 Gross margin per full-time equivalent employee (GMROL)
 Gross margin per square foot (GMROS)
Marketing Channel Strategy © 2015 by Pearson Education
 Gross Margin Return on Inventory
Investment (GMROI)
6-9

 GMROI = Gross margin percentage × Sales (at

cost) Inventory
 Evaluate its performance according to the return
it earns on its investments into inventory
 Reduce GMROI by reducing average inventory
levels while maintaining sales by relying on just-
in-time shipments, electronic data interchange
(EDI) linkages between manufacturers and
retailers, and the like.
 The gross margin only accounts for the cost of
goods sold
Marketing Channel Strategy © 2015 by Pearson Education
 Gross Margin Per Full-time
Equivalent Employee (GMROL)
6-10

 Retailers’ goals are to optimize, not

maximize
 As sales per square foot rise, some fixed
costs (e.g., rent, utilities, advertising)
might not increase but rather might even
decline as a percentage of sales
 Hiring some additional salespeople to help
out in suffers lower average sales per
employee, but profitability still jumps

Marketing Channel Strategy © 2015 by Pearson Education

 Gross Margin Per Square Foot
(GMROS)
6-11

 Measures exerts pressure on suppliers, which

need to find a way to secure sufficient margins for
retailers, earned through their brands
 Upstream channel members increasingly seek to
speed up inventory replenishment steps

Marketing Channel Strategy © 2015 by Pearson Education

 Demand-Side Positioning
Strategies
6-12

 Bulk breaking
 Spatial convenience

 Waiting and delivery time

 Product variety

 Customer service

Marketing Channel Strategy © 2015 by Pearson Education

 Bulk Breaking
6-13

 The provenance of a retail intermediary

 Traditional, service-oriented retailers buy in
large quantities and offer the consumer exactly
the quantity they want
 Other retailers such as warehouse stores (e.g.,
Costco), offer consumers a lower price but
require them to buy larger lot sizes (i.e., break
bulk less)
 Dollar stores offer very small quantities of
products at very low prices
Marketing Channel Strategy © 2015 by Pearson Education
 Spatial Convenience
6-14

 Convenience goods should require little effort to obtain

 Retail locations should be convenient to their target
market
 The balance of search/shop demand for spatial
convenience, varies across consumer segments and
with changing demographic and lifestyle trends

Marketing Channel Strategy © 2015 by Pearson Education

 Waiting and Delivery Time
6-15

 Consumers differ in their willingness to tolerate out-of-

stock situations when they shop
 For furniture, consumers trade off long wait times for
better delivery service outputs
 Changing competitive norms in the marketplace
becomes necessary
 Discount club retailers offer no guarantee of in-stock
status

Marketing Channel Strategy © 2015 by Pearson Education

 Product Variety
6-16

 Variety describes the breadth of the product lines

 Assortment refers to the depth of product brands
 Sometimes a retailer’s variety and assortment
choice is purposefully narrow, to appeal to a
particular niche
 The variety and assortment dimension clearly
demands the careful and strategic attention of top
management
 Buyers play a central role in retailing; some retailers
even generate more profits through the trade deals
and allowances that their buyers negotiate than
they earn through their merchandising efforts

Marketing Channel Strategy © 2015 by Pearson Education

 Customer Service
6-17

 Retailing is one of the few industries that

remains highly labor intensive
 Sales, general, and administrative (SG&A)
expenses for retailers must include the cost
of keeping salespeople on the floor to help
shoppers
 SG&A tends to be higher for specialty stores
(The Gap) and department stores
(Nordstrom) than for office supply or drug
stores
Marketing Channel Strategy © 2015 by Pearson Education
 Agenda
6-18

 Retail Structures
 Retail Positioning Strategies
 Multichannel Retail Strategies
 Adapting to the Increasing Power of Major
Retailers

Marketing Channel Strategy © 2015 by Pearson Education

 Taxonomy of Retail Positioning
Strategies
6-19

 The differences across retailers allow for multiple types

of retail outlets, selling the same physical merchandise
 Example: Tweeter is an electronics specialty store,
whereas Best Buy is a category killer.
 Both break bulk, reduce consumers’ waiting and carry a
narrow together with a deep assortment
 Tweeter focuses on high margin rather than high
turnover as a key to its profitability, along with slightly
lower spatial convenience on average (because it has
fewer stores than Best Buy)

Marketing Channel Strategy © 2015 by Pearson Education

 Multichannel Retail Strategies
6-20

Direct Selling Channel

• Face to face personal selling
• DSO distributors are
independent contractors
• Pyramid scheme: recruits pay a
non-refundable fee to be a
Internet Retail Channel distributor
Hybrid Retail Channels
• Location” consideration • Combine bricks-and-mortar with
• E-commerce sales increased online selling strategies
• Bricks-and-mortar retailing • Free riding becomes a natural
captures a significant portion byproduct
of sales • Control channel conflict and
cannibalization

Multichannel
Retail
Strategies

Marketing Channel Strategy © 2015 by Pearson Education

 Example of Avon
6-21

 For direct sellers, hybrid channel challenge has

been stressful
 The “stay-at-home mom” model that supported so
many companies’ direct selling operations suffered
a blow
 Avon yielded to the strong temptation to add online
selling to its cosmetics channel mix and allowed
each distributor to set up her own website, on which
she received sales credit for her online sales
 The issue is how to gain the benefits without
incurring the costs of increased channel conflict and
cannibalization

Marketing Channel Strategy © 2015 by Pearson Education

 Agenda
6-22

 Retail Structures
 Retail Positioning Strategies
 Multichannel Retail Strategies
 Adapting to the Increasing Power of Major
Retailers

Marketing Channel Strategy © 2015 by Pearson Education

 The Domination of Retailers
6-23

 The competition is based on prices

 The chain retailers have had little choice but to
pressure suppliers for price concessions of their
own
 New type of supplier–retailer negotiation in the
grocery arena
 Retailers continuously seek to improve their productivity
and thereby lower costs, while keeping their prices the
same or slightly lower than competitors’
 Supermarket and mass merchandisers to increase their
emphasis on generating enormous sales volumes
Marketing Channel Strategy © 2015 by Pearson Education
 The Domination of Retailers (Cont.)
6-24

 Increased pressures on companies mean

increased pressures on retail buyers
 Retailers can threaten not to buy most
manufacturers’ products, because they have so
many other alternatives
 Suppliers have long engaged in product, price,
and promotional allowances

Marketing Channel Strategy © 2015 by Pearson Education

 Effects of Forward Buying
6-25

 Increases the quantity sold to the retail trade, and

requires the retailer to bear inventory costs, but it
also plays havoc with the manufacturer’s costs and
marketing plans
 Solution: Continuous Replenishment Programs
(CRP)
 Related problem:
 Diverting
 Retailers and wholesalers buy large volumes with
promotion and then distribute some other places where the
discount is not available

Marketing Channel Strategy © 2015 by Pearson Education

 Effects of Slotting Allowances
6-26

 Compensate the grocery trade for the costs of

integrating a new product into its systems (to
create space)
 Because of the scarcity of shelf space, slotting
allowances have grown significantly

Marketing Channel Strategy © 2015 by Pearson Education

 Effects of Failure Fee
6-27

 If a new product failed to reach a minimum sales

target within three months, failure fees are
charged
 Failure fees are not paid upfront, so even small
manufacturers seeking product placement in
grocery stores could pay them
 Related problem:
 Moral hazard problem
 A product could fail not due to its inferiority or lack of
appeal but as a result of poor retailer support

Marketing Channel Strategy © 2015 by Pearson Education

 Effects of Private Branding
6-28

 Private labels have been very popular in Europe

 A group of U.S. retailers were money-saving but
unexciting alternatives to national, heavily advertised
brands
 Grocery retailers in the US are following European
trends are expanding their private label branded
products (Trader Joe’s, Kroger)

 Offer an even closer substitute for branded products

 Use private-label products to target consumers who
seek value for the money they spend in the store
Marketing Channel Strategy © 2015 by Pearson Education
 Effects of Globalization of
6-29
Retailing
 Retailing has lagged behind other industries in the
global race
 Five difficulties:
 Quality real estate locations on which to build stores
 The demand for physical logistics operations
 Develop supplier relationships in new markets
 Operational choices that reflect other regulations in each market
 Offer locally attractive products in a culturally sensitive manner
 Key: a balance between exporting the distinctive retail
competencies that make the retailer strong in the home
market and being sensitive to local preferences

Marketing Channel Strategy © 2015 by Pearson Education

 Effects of Globalization of
6-30
Retailing
 Virtuous cycle:
 Benefit from greater economies of scale
 The big get bigger

 Example of local incumbent retailer

 Carrefour and Wal-Mart arrived in Brazil
 The local retailer Pao de Azucar emphasize its
convenient locations and provide credit to its
customers
 International competition is now a given, rather
than an exception
Marketing Channel Strategy © 2015 by Pearson Education
 Takeaways
6-31

 Concept of retailing
 A retail positioning strategy involves both cost-
side and demand-side decisions
 Managing a multi-channel shopping experience
 Recognition of the continued power of retailers
in market
 Understanding the increased international and
even global reach of retailing

Marketing Channel Strategy © 2015 by Pearson Education