Retailing and Wholesaling - Essay Example

Running Head Retailing and Wholesaling Retailing and Wholesaling Retailers and wholesalers can be described as a link between manufacturers and end consumers. They are experiencing greater use of multiple channels than ever before. Clearly, many have felt that there is a positive net benefit from using multiple channels. Channel members that provide significant value-added services are especially vulnerable in this context. Providing value-added services (e.g., advice on the best camera for a particular use) takes considerable resources (e.g., hiring, training, and retaining experts on cameras) (Kotler and Armstrong 2008). Value-added resellers normally have a disadvantage in cost structure compared to channel members that compete mainly on the basis of price or convenience, such as discount stores or mail-order firms. This means that the value-added reseller in a diverse multiple channel context must either (1) charge a higher price than other channel members based on the provision of valued services or (2) live with a relatively small gross margin (Dunne and Lusch 2007). Professor Leo Aspinwall advanced the depot theory to explain some of the reasons for the changes that have occurred in the physical handling and storing of goods, the growth of manufacturers' wholesale branches, and the changing position of general-line wholesaling. The depot theory of distribution states that goods tend to move toward the point of final consumption at a rate established by the ultimate consumer. The theory views depots as places that move rather than store goods -- that get goods to retailers at the lowest handling and transportation costs (Dunne and Lusch 2007). Accordingly, a steady flow of goods is envisaged from production to final consumption. The intermediaries facilitating the flow are in essence depots that perform a largely service function on the basis of costs of services performed, and so tend to eliminate merchandising profits. For example, backward integration of retail food chains and cost-plus wholesalers illustrate the performance of the depot function and the elimination of merchandising costs (Dunne and Lusch 2007). If the retailer links with independent channel members in one or several of its multiple channels (e.g., it uses independent sales representatives), the same basic challenges faced by the manufacturer in utilizing multiple channels could be faced by the retailer as well. Intrabrand or intratype competition could be heightened in the territories served by the retailer's multiple channels, prices and margins could be reduced, conflicts and alienation could arise, and support and control could wane (at least in the independent channels) (Dunne and Lusch 2007). The functions of retailers in the channel have been to assemble merchandise, maintain an inventory, price, promote, advertise, sell, and account for the merchandise, again as a service to the manufacturer and the ultimate consumer. Further, retailers have also provided a place for consumers to shop and find other services that might assist them in obtaining or using the available goods. The channel systems that have developed and, granted, have been improved over the years, have been built on some very basic beliefs about consumers, their needs and wants, and what they are willing to accept from channel members. It is these basic marketplace assumptions that are being challenged by direct and database marketers (Dunne and Lusch 2007). As was discussed earlier, technology and communication allow consumers to learn about and demand increasingly differentiated and even personalized products. As this occurs, the traditional economies of scale that have accrued to those manufacturers and retailers with extensive facilities and large sales volumes are no longer important in the marketplace. Smaller companies, using technology and direct and database marketing approaches, can compete not only effectively, but in many cases more efficiently than can large companies. As technology expands and sales-driven inventorying become more prevalent, the balance will shift to direct/database marketers simply because of their ability to respond more quickly and more effectively to consumer demand (Dunne and Lusch 2007). 2. Retailing is defined as businesses primarily engaged in the final sale of tangible goods to individual, ultimate consumers and households (Kotler and Armstrong 2008). In recent years, marketing professors have increasingly realized that some or most sectors of the service industries, those establishments engaged in selling intangibles, have many locational, operational, and promotional opportunities and problems analogous to those of merchandise retailers. In fact, many writers now speak of services retailing. The major types of retailers include specialty stores, department stores, supermarkets, convenience stores, discount stores, off price retailers and superstores (Dunne and Lusch 2007). The traditional department stores mail-order (and telephone-order) sales are credited to the in-store sector, unless the company involved has set up a separate facility to handle the mail orders. However, the total conventional department store group is responsible for only about 3 percent of total retail sales, and the mail order portion is only a small fraction of that. S. Sears and Macy's are typical department stores. The traditional department stores, the businesses typically rooted in a family-owned, single, large, downtown emporium and more recently expanded through the opening of suburban branches, generally have an upscale image these days. There are historical justifications for, and contradictions to, that image (Dunne and Lusch 2007). Specialty Stores sell a narrow product line but propose customers 'deep assortment' (Kotler and Armstrong 2008, p. 367). Although there are variations across the retail categories surveyed-women's specialty apparel, men's specialty apparel, department stores, discount department stores, grocery stores, home improvement/hardware stores, and TV/VCR stores--and by region of the country. An example of specialty store is Gap. Inc. Grocery retailing is most price sensitive; furniture is least price sensitive. Supermarkets are large retail stores proposing a low cost and large merchandise. A supermarket may carry fifteen to twenty thousand SKUs while a department store would require over a million SKUs to track every item down to the lowest SKU (i.e., by color-size-style). This movement toward lowest-level SKUs will accelerate and expand to all of retailing and will spread most dramatically to department and specialty stores. An example of supermarket is Kroger. Supermarket chains are again experimenting with home delivery service (Dunne and Lusch 2007). The effect of these changes is to make shopping more convenient for the buyer, both in time and location. DS fits this pattern very well, as the time and location of the meeting between salesperson and buyer can be arranged to fit the buyer's convenience. Convenience stores 'small stores located near residential areas' (Kotler and Armstrong 2008, p. 367). The examples are Seven-Eleven and Circle K. Today, discount stores are the mast popular types of stores around the world. They are represented by such giants as Wal-Mart and target, Tesco and Sainsbury. Discount stores in some markets do face competition from (and may be co-subsidiaries of companies that own) "wholesale warehouse" membership clubs, another form of low-priced generalists. The persistent emphasis on price on the part of customers from the top to the bottom of the income spectrum has had a dramatic leveling effect on retailers. Off-price retailers "sell merchandize at low prices, usually leftover goods" (Kotler and Armstrong 2008, p. 367). Such stores as Costco and Sam's belong to this type. Superstores are aimed to meet diverse customers' needs and demands. They "combine features of supermarkets and discount stores" (). The examples are SuperTarget and SuperKmart. The mass merchants are positioned a notch or two below the traditional department stores and, in the case of Sears and Montgomery Ward, developed more of a reputation in hard goods than in fashion apparel. In some ways, they have been stereotyped as "men's stores" in contrast to female-oriented traditional department stores. In recent years, they have experimented with upgrading their assortments but have obtained mixed results (Dunne and Lusch 2007). 3. Wholesaling involves "all activities involved in selling goods and services to those buying for resale or business use" (Kotler and Armstrong 2008, p. 385). The main types of wholesaling are merchant wholesalers, agents and brokers, manufacturers' sale branches and offices (Kotler and Armstrong 2008, p. 385). Merchant wholesalers represent a large group of wholesalers involving 50% of all wholesale in the industry. The examples are mild product wholesalers and fish wholesalers. Agents and brokers earn commission from each operation and usually are specialized "by a product line or a customer type" (Kotler and Armstrong 2008, p. 387). Agents and brokers "facilitate buying and selling" (p. 387). These salespeople, in their independent agent status, seek a diversity of rewards including income, self-esteem, entrepreneurial success, friendship, and a flexible work situation that dovetails with their family responsibilities and other life-style interests. How well direct selling Organizations prosper in the future will depend on how well the opportunities offered will match the various rewards sought by this legion of independent performers as their needs and life styles evolve. Marketplace changes in buying behavior, values, and accessibility will impact product lines offered and mechanisms for channeling them to buyers (Rosenbloom, 1994). New technologies will achieve more widespread public acceptance and offer new ways of communicating with prospects and customers. Competitors will proact, react, and in the aggregate produce a shifting matrix of marketing efforts aimed at capturing customer patronage. New markets in other parts of the world will beckon with tantalizing opportunities in unfamiliar and challenging cultural settings. The examples of brokers are security brokers or insurance brokers. Also, it is possible to distinguish several types of agents: manufacturers' agents, selling and purchasing agents and commission merchants (Kotler and Armstrong 2008). Manufacturers; offices and branches aim to support wholesale operations provided by the end consumers itself. These offices improve inventory control and supply chain. For instance, Apple Computer's primary channel to the consumer market is from the company through a group of independent distributors to an array of different types of independent retailers. At the same time, Apple uses a company sales force to sell to university bookstores that, in turn, sell to college students, staff, and faculty at special educational discounts(Rosenbloom, 1994). Dell Computers started out selling its low-end personal computers through mail-order. It has opened up another channel in the past year by agreeing to sell its computers through a chain of independently owned retail stores. IBM is selling its PS/1 line of personal computers through mass merchandisers (e.g., Sears) as well as its own dealer network (Rosenbloom, 1994). It may well be that direct/database marketing will be a more attractive form of retailing for third world and developing countries. For the most part, these countries do not have the investment capital necessary to establish market infrastructures needed to support fixed-location retailing. Thus, it may be that direct/database marketing, if only because of the lower capital requirements, may become the retailing form of choice for new businesses around the world. Where once the manufacturer had control, today it is the powerful retailers with major market shares who are demanding and gaining concessions from the manufacturer. Because of the power of technology, logistics, and marketing expertise, we will likely see more and more of this domination of the manufacturer by the retailer. For instance, many large companies such as General Motors and BMW have representative offices in big cities around the world (Rosenbloom, 1994). 4. The marketing manager in both retail and wholesale company must constantly analyze and evaluate alternative situations and choose among them. To do so requires the simplification of marketing reality and the resolution of conflicts. Given conflicting marketing situations, choice is often difficult and involves balancing risks and payoffs, knowledge, attitudes, opinions, feelings, judgments and facts, and current situations and future opportunities (Rosenbloom, 1994). The decision-making process includes more than the decision-the actual choice or cut-off point per se. It is concerned with solving problems and applying decision criteria. In retailing, as a decision maker, he is concerned with marketing decisions that alter the scope and direction of the whole firm as well as those that pertain directly to marketing. For example, the relationship between the inputs of the marketing mix affect profitability, corporate image, and reputation, as well as market share, sales volume, and customer satisfaction. The total volume of wholesale trade is generally an unknown quantity because data for all wholesaling transactions, as viewed from the truest and broadest concept discussed above, are not collected and published. For practical reasons already indicated, the measurement of wholesale trade is restricted to the volume of business transacted by wholesale establishments, and it is the operations of such establishments that constitute the basis for all quantitative data presented in this discussion. Manufacturers' sales branches rank second in terms of sales volume, and have increased somewhat in importance in recent decades. While outranked numerically by three of the six major segments, they account for 29 per cent of total wholesale trade (Rosenbloom, 1994; Dunne, P. M., Lusch). The actual choice is difficult and is based on marketing mix and assortment (Kotler and Armstrong 2008). It depends on conditions that can be predicted or estimated with complete accuracy. In decision theory, these uncertain situations are dealt with as "states of nature." The states of nature include the multiplicity of factors that determine the outcomes of any particular marketing strategy. Customer behavior and response, a competitor's action, and the impact of socioeconomic forces, all fit this prescription. They are complex factors beyond the control of the marketing decision-maker, though having a marked impact on the results of decisions. For instance, a favorable economic climate, though uncontrollable by the decision maker, may nevertheless affect the payoff of any particular strategy. Similarly, competitors' actions, which cannot be controlled by an individual may easily affect the market impact of any alternative choice. While decision makers "control" the acts, nature "controls" the events. In determining which alternative to choose, therefore, it is desirable to try to assess future states of nature. Complete assessment can never be attained, since it is difficult, if not impossible, to identify all these states (Dunne and Lusch 2007). The decision-making is affected by the target market and market positioning, product and service assortment, price, promotion and place (Kotler and Armstrong 2008, p. 389). Thus, in most marketing decisions, optimization is not usually possible, and less than optimal results accrue. In retail and wholesale environment, marketing decision-makers should think in terms of strategies they can select, events that might occur, the probability of occurrence, and the resulting payoff of the intersection of each strategy and event. To do so, they can apply conditional reasoning. Decision makers can assume that they have selected a given strategy, and that a given state of nature exists. Conditional on these factors, they can estimate the payoff likely to occur. Payoffs can be measured in terms of net dollars, which include allowances for various types of intangibles such as dealer good will, salesman's morale, and product image. Such payoffs should be estimated on some adjusted net basis by deducting the relevant costs from the estimated gross payoffs for particular acts and states. Decision making can be decentralized even though data are maintained and organized centrally, because the data and information can be communicated and accessed more readily from remote decision-maker locations than in the past. local decision making instills local involvement in the decision and therefore local responsibility. This human-nature side of decision making and organizational psychology cannot be overlooked, even with systems capable of making centralized decisions. Local decisions drive local responsibility, which in turn drives local motivation and commitment (Dunne and Lusch 2007; Rosenbloom, 1994). References 1. Dunne, P. M., Lusch, R. F. (2007). Retailing. South-Western College Pub; 6 editio. 2. Kotler, Ph., Armstrong. G. (2008). Principles of Marketing, 12ed, Pearson Prentice-Hall. 3. Rosenbloom, B. (1994). Wholesale Distribution Channels: New Insights and Perspectives. Haworth Press. Read More