Deck 15: Retailers, Wholesalers, and Direct Marketers

Question 1

Everyone likes ice cream-or sherbet. But suppose you could have the best of both, in one cup or cone? And what if you could buy your favorite treat at your local market? Jim King, founder and CEO of GaGa, is doing his best to see that your frozen dessert wishes come true. Nearly 10 years ago, King-a former TV news anchor-began experimenting with his grandmother GaGa's recipe for lemon sherbet. He made a few batches and peddled them to retailers in his home state of Rhode Island before stopping in at Munroe Dairy, a home-delivery dairy farm. The owner ordered 500 pints on the spot-and GaGa was in business. Suddenly, King and his wife Michelle had to figure out how to make and store a large batch of the "SherBetter"-Jim's name for the product, which he described as "sherbet but better." Eventually, he purchased a batch freezer for $2,800 at an IRS auction.
Once the Munroe Dairy order was filled, the Kings had to decide where and how to sell their product-directly to consumers, via wholesalers, or to retailers. Early on, they tried selling through an ice cream company. "We sold zero," recalls Michelle. Consumers would have to pay about $100 for a six-pint order instead of $4.99 for a pint at the grocery market, because the cost of shipping was astronomical- the SherBetter had to be shipped overnight in a heavy box with dry ice. The television shopping networks HSN and QVC also invited the Kings to sell their product on television; as a former news anchor, Jim would be a natural on camera. But the Kings declined- again because of the high cost of shipping directly to consumers.
Jim also researched the possibility of becoming a retailer himself-opening his scoop shop. But he quickly realized that the business model just wouldn't work for his company. Successful scoop shops must be located near a beach, lake, or other recreational area, and have no other direct competitors nearby. Furthermore, in New England, ice cream shops are mostly seasonal. Jim also determined that the projected expense of purchasing and maintaining a building and property was too high for GaGa. In addition, ice cream shops generally offer a wide variety of products, including ice cream, sherbet, frozen yogurt, diabetic-friendly and dairy-free frozen desserts, smoothies, shakes, and more. GaGa just had SherBetter-albeit in a growing array of flavors.
So the Kings decided that retailers would be the best outlet for their product. "Basically, we're a marketing agency," Jim comments. Jim works with a broker who arranges for Jim and Michelle to meet with retailers and demonstrate GaGa SherBetter at their stores, giving out free samples and promoting the product. If the retailers and their customers like the product, it is added to the grocery shelves. The smaller or specialty markets such as Whole Foods generally stock GaGa, because the Kings can't afford the huge slotting allowances charged by larger supermarkets. Jim explains that a slotting fee in the frozen section of a large supermarket chain could run as much as $35,000 to $40,000 just to place one product on the shelf at 600 to 800 stores. Jim notes that Whole Foods, which doesn't require a slotting allowance, may initially ask for free products to see if they will sell. "That's affordable," acknowledges Jim. "We can make that back pretty quickly." Not only is the cost of putting a product on the shelves of a large supermarket chain prohibitive, those customers aren't necessarily the consumers who would buy GaGa anyway. "Because we are a super-premium product and perceived as expensive, we don't sell well" in those stores, Michelle points out. "People who go into a market like that are looking for a deal." So they've decided to target the specialty markets, because that's where their true customers shop.
Looking to the future, Jim believes that ultimately GaGa could become an umbrella brand for a wider range of products, by building out the current line of SherBetter products and eventually adding new categories. He also wants to make a second stab at the wholesale food service channel, since the first attempt didn't work out. He tried to make a push into food wholesaler Sysco but was unsuccessful-largely because the price of GaGa was double that of Sysco's price for super-premium ice cream. "Restaurants are more concerned about price," says Jim. He's now searching for a wholesale outlet connected with a nationwide restaurant chain that would agree to put GaGa dessert on the menu.
For now, Jim remains focused on the job at hand-getting GaGa into the stores. "We've got this great name," he remarks. "We've got this great product."
Questions for Critical Thinking
1. Experience has taught the Kings that smaller, specialty markets are the strongest retail outlets for their GaGa SherBetter. Under what conditions might they begin to make a successful move into the larger supermarket chains?
2. How might the right wholesaler ultimately create marketing utility for GaGa?

Answer 1

Case analysis:
JK, the founder and the CEO of G favorite for ice creams/Sherbet has started the business by supplying the product to small retailers. Later, they planned to sell the product through Ice Cream Company but it failed due to high shipping costs. After considering different alternatives like opening scoop shop, they decided to sell through retailers.
The product is sold directly to the customers, wholesalers and through retailers. They believed that selling his product in small and specialty market would bring more profit than introducing in the large super markets.
Justification:
The slotting allowances for a single product in the super markets are very high and all customers who visit the super market do not buy the product. If they want to move in to the large super markets then they have to take the following steps:
• The slots in super markets are very expensive. So, the company should be ready to take some risk as it is not sure that the customer would buy it.
• The company can cut some costs by selecting few reputed super markets rather than selecting more.
• They can develop products at different price range so that they can be placed in super markets and customers can also afford the product.
• To position the product in the minds of different customer groups, the company needs to develop new promotional strategies.
Distribution channels depend on the nature of product. However, if the marketer wants to enter new markets and target groups, it is necessary to modify the channels and even the product.

Question 2

With a classmate, visit two or three retail stores that compete with each other in your area and compare their customer service strategies. (You might want to visit each store more than once to avoid making a snap judgment.) Select at least five criteria and use them to assess each store. How do you think each store sees its customer service strategy as fitting into its overall retailing strategy? Present your findings in detail to the class.

Answer 2

W. Company:
W. is an U.S based multinational retail corporation that runs chain of large discount warehouse stores and departmental stores.
Customer service strategy:
Objective:
Objective is to save people's money , which can make them live better. The company targets on modest income people , and price the product based on shoppers interest.
Strategy:
W. Company strategy is to sell quality goods at the minimal cost. The company set's the price based on consumer's interest. It sells wide range of diversified goods. All the W. Stores are 40,000 to 200,000 square feet; it helps consumers to move around the store more freely and could have pleasant shopping experience. Recently, W. Company has come up with a strategy of setting up stores in all rural locations around the globe.
T. Company:
T. Corporation is an U.S based retailing company. It is second largest discount retailer store in the U.S.
Objective:
T. Company focuses more on producing quality, trend, and stylish goods to the consumers. The store targeted on upper middle class people because it positioned itself as a high-end discount chain.
Strategy:
The company primary focus is on selling high quality latest product. It focus is not on pricing. T. Stores use very attractive marketing promotions to communicate the product detail messages to customers; it helped the company to increase its revenue and net income.
Conclusion:
In terms of revenue and profit W. Stores is the market leader. Both T. Stores and W. Stores sell almost similar products in their facilities, the differentiation factor that made W. Store as the market leader is with its pricing strategy , it sell product at very low price and attracted major segment of modest income people in the country.

Question 3

How do retailers identify target markets? Explain the major strategies by which retailers reach their target markets.

Answer 3

Target market:
The client or consumer of an organization that wants to sell its product and service, and to whom it performs all marketing efforts, is known as target market. A target market can be identified in a base of a whole by geography, psychographics, demographics, and purchasing power.
Selecting a target market:
Retailers will start defining the strategy by selecting a target market. The following are the few factors the influence retailers to select the target market:
• Size of the market
• Profit potential of the market
• Level of competition
Once the target market is determined, retailers develop marketing strategies to attract the selected consumers to its stores or website.

Question 4

Distinguish among the different types of manufacturer owned wholesaling intermediaries. What conditions might suit each one?

Question 5

Several major retailers have begun to test the extreme markdown strategy that lies behind popular dollar stores such as Dollar General and Dollar Tree Stores. Kroger, Walmart, and others have opened sections in selected stores that feature items from snacks to beauty supplies, all priced at $1. Is this experiment simply a test of pricing strategy? What else might motivate these retailers to offer such deep discounts?

Question 6

Visit a department store and compare at least two departments' pricing strategies based on the number of markdowns you find and the size of the discount. What, if anything, can you conclude about the success of each department's retailing strategy?

Question 7

As the largest company in the world, with more than two million employees worldwide and more than $473 billion in sales in a recent year, Walmart has become big and powerful enough to influence the U.S. economy. Some observers believe Walmart is also responsible for the low U.S. inflation rates of recent years.
Walmart is selective about what it sells-refusing, for instance, to carry music or computer games with mature ratings, magazines with content it considers too adult, or, in some of its stores, handguns. Because of its sheer size, these decisions can influence American culture. Do you think this is a positive

Question 8

Differentiate between direct selling and direct-response retailing. Cite examples of both.

Question 9

Online retailing strategy. Visit Kohl's website. Using the material in this chapter on retailing strategy, answer the following questions:
a. How does the design and layout of Kohl's online store appeal to the retailer's target market?
b. In your opinion, what is the main strategic objective of Kohl's online store? Is it to generate revenue independent of its brick-and-mortar stores? Or is the online store's main purpose to support so-called Web-to-store shoppers (shoppers who use the Web mainly to obtain product information and prices but make actual purchases at brickand- mortar stores)? www.kohls.com

Question 10

Think of a large purchase you make on a nonroutine basis, such as a new winter coat or expensive clothing for a special occasion. Where will you shop for such items? Will you travel out of your way? Will you go to the nearest shopping center? Will you look on the Internet? Once you have made your decision, describe any strategies used by the retailer that led you to this decision. What might make you change your mind about where to shop for this item?

Question 11

Visit a local Walmart store and observe product placement, shelf placement, inventory levels on shelves, traffic patterns, customer service, and checkout efficiency. Discuss what makes Walmart the world's most successful retailer.

Question 12

In what ways has the Internet changed direct-response retailing?

Question 13

Explain the importance of a retailer's location to its strategy.

Question 14

Outlet malls are a growing segment of the retail market. Visit a local outlet mall or research one on the Internet. What types of stores are located there? How do the product selection and price compare with typical stores?

Question 15

Industry watchers blame the introduction of iTunes and other online music streaming sites for the overall decline of the retail music store. Most, however, feel that music stores will somehow remain viable. What are some changes these retailers could make in their merchandising, customer service, pricing, location, and other strategies to try to reinvent their business?

Question 16

Define automatic merchandising, and explain its role in U.S. retailing today and in the future.

Question 17

Wholesale-distribution industry. Visit the website of the National Association of Wholesaler-Distributors. Click on "About NAW" and scroll down and click on "About the Industry." Review the data and prepare a brief report describing the state of the U.S. wholesale distribution industry. www.naw.org/about/industry.php

Question 18

Torrid is a national chain of about 170 stores that feature clothing for plus-size women. Recommend an appropriate retailing strategy for this type of retailer.

Question 19

Find some examples of retailers that demonstrate the concept of the wheel of retailing. Explain the stages they have gone through and which stage they are in currently.

Question 20

Target has become known for trendy clothes and stylish housewares, all readily available in spacious stores at reasonable prices. Visit a local Target store or the company's website and compare its product selection to that of your local hardware store or a department store. Make a list of each store's advantages and disadvantages, including convenience, location, selection, service, and general prices. Do any of their product lines overlap? How are they different from each other?

Question 21

Costco, the $108 billion warehouse-style chain, is the third-largest retailer in the United States. With low prices, low employee turnover, and steady growth, the company would seem to be an all-around success. It even boasts above-average survey scores on the quality of the shopping experience and customer service in its more than 663 stores worldwide.
But Costco is playing catch-up online, a sector that's growing faster than in-store retailing and where nimble competitors such as Walmart hope to gain most of their future expansion. A rarity in store retailing because it has been profitable since day one, Costco has big plans for boosting its e-commerce business, but it has also missed some opportunities.
Costco.com takes in more than $3 billion a year with a broad assortment of products that are not always found in the stores. These range from electronics and lawn furniture to caskets and pricey diamond jewelry. The convenience of free shipping and assembly are usually included. Most of Costco's online customers are a bit more affluent than customers of other warehouse stores, and their average purchases tend to be bigger, too.
But despite being a brick-and-mortar presence in eight countries abroad, Costco currently limits its online operations to the United States, Mexico, and Canada. Some critics have found weaknesses in the company's online marketing efforts. Customers are not always aware of the product variety online, nor do they realize that the special offers outlined in the company's emails, which go to more than 12 million registered customers, promote products unique to the website. Another issue is that products on the website don't turn up in shoppers' search engine results because of the way the website's pages are named, a condition Costco hopes to improve via the technical process of search engine optimization. The website could also be more user-friendly, say critics, with less visual clutter and fewer poorly labeled photographs. One search engine consultant said the company's online division is "undoubtedly leaving some sales on the table."
Questions for Critical Thinking
1. How can Costco.com better inform its online customers of the product variety available and the real value of its special offers?
2. What priority do you think Costco should put on expanding its online business abroad? Is this more or less important than improving sales from the existing e-commerce operations in North America? Explain your reasoning.

Question 22

What is retail convergence?

Question 23

The retail chain Anthropologie sells a unique mix of women's clothing and home furnishings. Since its founding in 1992, Anthropologie has opened stores across the United States, Canada, and Great Britain. The retailer aims to create a shopping "experience" where its customers-independentminded, college-educated female professionals between ages 30 and 45-can find their own look. No two Anthropologie stores are exactly alike, and the chain does not use advertising. Visit the website at www.anthropologie.com. How does it differentiate itself from its competitors?

Question 24

McDonald's has traditionally relied on a cookie-cutter approach to its restaurant design. One store looked essentially like every other-until recently. The chain has decided to loosen its corporate design mandate to fit within special markets and to update its image with customers. Research McDonald's makeover efforts. What types of changes has the company made and where? How have changes in atmospherics helped the chain with customers? Have the changes you researched modified your perception of McDonald's at all? If so, how?

Question 25

Pushing Content into New Channels
"We're a content-first company," notes Sergei Kuharsky, senior vice president and general manager of licensing and merchandising for Scripps Networks Interactive. How do you build a distribution (or marketing) channel system for content featuring a product that customers can't actually see, smell, hear, touch, or taste? Food Network, one of the branded networks owned by Scripps Networks Interactive, creates and produces the content (concept, script, and other programming details) for an array of television shows focused on food and cooking. Television is the first distribution channel that comes to mind-but the company's website and magazine are also two important channels for getting the content out to consumers. Then there are all the social and digital options: Facebook, Twitter, Pinterest, and more. Finally, there is the retailer who agrees to stock its shelves with Food Network's branded kitchen supplies.
Scripps and Food Network marketers partner to handle the logistics of delivering Food Network's products-ranging from programming to frying pans. By coordinating the flow of marketing information, goods, programming content, and services to members of the overall marketing channel, marketers extend Food Network's reach. Food Network's huge cache of original recipes is a good example. Viewers love to try recipes they see on Food Network's various cooking shows, whether it's Bobby Flay's Barbecue Addiction or Melissa D'Arabian's Ten Dollar Dinners. Marketers had to determine the best way to get those recipes into the kitchens of viewers by facilitating searches. So they posted the recipes on the Food Network website, making it easy for consumers to locate and use. Then they pushed the recipes out farther by creating digital and print cookbooks (often in partnership with Food Network stars such as Rachael Ray or Giada De Laurentiis). The cookbooks have been extremely popular; during one recent year, ten Food Network cookbooks hit the New York Times best seller list.
When Food Network decided to create a line of kitchen and cooking supplies-cookware, dinnerware, table linens, and more-marketers considered the options and settled on an exclusive distribution partnership with Kohl's. Kuharsky notes that while being everywhere can be a very good thing because it eliminates barriers to consumers, it also poses challenges. "With it, you lose control, and then you risk quality," he explains. So Food Network remains selective in its choice of distribution channels. Today, Kohl's sells more than 1,100 Food Network items at its retail stores and online. And since food is, after all, about the senses, Food Network has partnered with about 2,200 sports arenas across the country to offer everything from sizzling burgers to crispy fries at exclusive concessions. Sports fans can belly up to the Food Network stand and enjoy their favorite arena snacks while cheering their teams. Kuharsky summarizes the company's overall distribution strategy this way: "You look at all the different consumer touch points and what the challenges are. You want the ones that give you the best opportunity to present the brand and deepen your relationship."
Managing all of the interactive digital channels for delivering content as well as marketing messages is a vital job for Scripps and Food Network marketers. "I think our strongest channel right now is probably the Food Network website, for its reach," observes Tanya Edwards, digital programming director. One reason for this is that people engage online while they are watching the television shows, giving Food Network a prime opportunity to hold onto viewers' attention after a show is over. For example, at the end of Restaurant: Impossible, viewers see a prompt to the Food Network website, where they learn more about the featured restaurant. They might catch an interview with the owners or updates on the restaurant's success.
Edwards notes that Food Network has enjoyed great success with its apps, especially those that focus on recipes and cooking tips, such as "In the Kitchen." The app delivers content right to consumers wherever they are, whether it's the grocery store, farmers' market, or kitchen. This also helps build brand loyalty. "People trust our brand as someone who will help them get dinner, create a great dessert, or bake cupcakes to take to a party," Edwards says.
Because social media is by definition interactive, it creates some unique challenges as part of the overall marketing channel system. For example, it's unclear how to monetize a social media presence. But social media is still one of the best ways to capture valuable data as people talk about the brand. In the end, says Kuharsky, it's all about "looking for all those fun touch points that food goes where we go, and trying to be people's best friend in food."
Questions for Critical Thinking
1. Food Network adopts a dual distribution strategy. In your opinion, what are the benefits of this?
2. Scripps and Food Network appear to have achieved channel cooperation. However, describe a scenario in which channel conflict might arise.
3. How does social media marketing support Food Network's distribution strategy?
4. Do you think Kohl's is the best choice of retail outlet for Food Network's products? Why or why not?

Question 26

Match each industry with the most appropriate type of wholesaling intermediary.
___hardware
___perishable foods
___lumber
___wheat
___used cars
a. drop shipper
b. truck wholesaler
c. auction house
d. full-function merchant wholesaler
e. commission merchant

Question 27

As the largest company in the world, with more than two million employees worldwide and more than $473 billion in sales in a recent year, Walmart has become big and powerful enough to influence the U.S. economy. Some observers believe Walmart is also responsible for the low U.S. inflation rates of recent years.
Some economists fear what might happen to the U.S. economy if Walmart has a bad year. (So far, it has had more than four decades of growth.) Should a single retailer have that much influence on the economy? Why or why not?

Question 28

Define scrambled merchandising. Why has this practice become so common in retailing?

Question 29

Shopping center trends. Read the article at the URL listed below. Review the material and prepare a brief report on some of the major trends in shopping center development. http://www.washingtonpost.com/business/ capitalbusiness/five-retail-trends-to-watch -in-2014/2014/02/21/fca8180e-99ab-11e3-b931 -0204122c514b_story.html

Question 30

In teams, develop a retailing strategy for an Internet retailer. Identify a target market and then suggest a mix of merchandise, promotion, service, and pricing strategies that would help a retailer reach that market via the Internet. What issues must Internet retailers address that do not affect traditional store retailers?

Question 31

Research and then classify each of the following retailers:
a. Home Depot
b. H M
c. h.h. gregg
d. Dillard's
e. Gymboree

Question 32

What is a wholesaling intermediary? Describe the activities it performs.