Chapter 14 - Managing Retailing, Wholesaling, and Logistics

Summary

Retailing includes all the activities that it takes in selling goods or services to the consumer for personal, nonbusiness use.  Retailing can involve brick and mortar stores, e-commerce, m-commerce or a combination of each. Wholesaling is all it takes to get the goods from the producers into the hands of the business customers who use it or resale it. Wholesalers must decide on the best marketing-logistics strategy that will allow them to meet the demand, then implementing and controlling the flow of materials and final goods from point of origin to point of use, to meet customer requirements at a profit.

A.      Retailing

1.       Retailing includes all the activities in selling goods or services directly to final consumers for personal, nonbusiness use.

2.       Wal-Mart is probably the most famous retailer, then Target, K-mart, Sears, etc.

3.       There are store retailers, nonstore retailers, and retail organizations.  There are 10 major types of store retailers: Specialty store, department store, supermarket, convenience store, drug store discount store, extreme value or hard-discount store, off-price retailer, superstore and catalog showroom. Retailers can position themselves as offering one of four levels of service: 1) self-service – customers locate and select items on their own; 2) self-selections – customers find their own goods but can ask for assistance; 3) limited service – offer credit and merchandise return privileges and customers need more information and assistance; 4) full service – sales people are ready to assist in every phase.  Nonstore retailing has been growing faster than store retailing.  There are four major categories of nonstore retailing: 1) direct selling – door-to-door and home sales parties; 2) direct marketing – including telemarketing and internet; 3) automatic vending – soft drinks and snacks; and 4) buying service – storeless vendor serving specific clientele.  The new environment in retailing is emerging to better satisfy a customer’s need for convenience.  There are many decisions a retail marketer must make.  It needs to define and profile its target market.  It must decide which channels to employ to reach their customers.  It must decide which product assortment will best match its competitors. It must establish merchandise sources, policies, and practices for procurement. It must set prices in relation to the target market, product-and-service assortment mix, and competition.  It must decide on a service mix to offer customers. It must decide on the atmosphere of their stores and what kind of in-store experience they will offer to customers. It must decide on the type of communication to convey messages about products to customers.  Finally, a marketer must on location and where to place their stores.

B.      Private Labels

1.       A private label brand is a brand that retailers and wholesalers develop.

2.       Some popular private label brands are Equate, Great Value and Sav-a-Lot.

3.       According to the Private Label Manufacturers’ Association, store brands now account for one of every four items sold in stores.   Intermediaries sponsor their own brands because the can be more profitable.  Costs are lower so private labels generate higher profit margins. Generics are unbranded and plainly packaged and less expensive versions of common products.  They are sometimes made with lower quality ingredients and offer standard or low quality at a price that can be much lower than nationally advertised brands.  The growing power of store brands has benefited from the weakening of the national brands. Consumers have become more price conscious and are more likely to buy on price. 

C.      Wholesaling

1.       Wholesaling includes all the activities in selling goods or services to those who buy for resale or business use. Wholesalers are also called distributors.

2.       Big V Feed in McAlester is a wholesaler of cattle feed and other livestock feed and care products. A wholesaler for human food is U.S. Foods.  They are distributers of food and restaurant supplies.

3.       Wholesalers differ from retailers in several ways: 1) they deal with business customers instead of retail customers; 2) wholesale transactions are usually larger than retail transactions and cover a larger trade area; 3) wholesalers deal with differ legal regulations and taxes than retailers. Wholesalers are usually more efficient in the areas of selling and promoting, buying and assortment building, bulk breaking, warehousing, transportation, financing, risk bearing, market information, and management services and counseling.  Wholesalers face complaints from manufacturers that they don’t do enough to promote their products and they face new sources of competition, demanding customers and new technologies.  Savvy wholesalers can add value and increase asset productivity by managing inventories and receivables better, cutting costs by using current information systems and materials handling technology.  Wholesaling still remains vulnerable to customer resistance to price increases and by the winnowing out of suppliers based on cost and quality.

D.      Market Logistics

1.       Market logistics is planning the infrastructure to meet the demand, then implementing and controlling the physical flows of materials and final goods from points of origin to points of use, to meet customer requirements at a profit.

2.       Two companies that specialize in getting products from the manufacturer into the hands of the customer are UPS and FedEx. 

3.       Marketing logistics planning has four steps: 1) deciding on the company’s value proposition to its customers; 2) selecting the best channel design and network strategy for reaching the customers; 3) developing operational excellence in sales forecasting, warehouse management, transportation management, and materials management; and 4) implementing the solution with the best information systems, equipment, policies, and procedures. Marketing logistics tasks call for integrated logistics systems (ILS) which includes materials management, material flow systems, and physical distribution, aided by information technology.  A company’s total cost of marketing logistics can be 30 to 40 percent of the product cost.  A company that can lower its market logistics costs can lower prices, yield higher profit margins, or both. Most companies have a market logistics objective that wants to improve service at the least cost.  With the objective in mind, the company must design a system that will minimize costs and still achieve its objectives. Each possible market-logistics system will lead to the following cost: M=T+FW+VW+S where M = the total market-logistics cost of the proposed system; T = total freight cost of proposed system; FW = total fixed warehouse cost of proposed system; VW = total variable warehouse costs (including inventory) of the proposed system; and S = total cost of lost sales due to average delivery delay under proposed system.  Companies must make four major decisions about: 1) how to handle order processing; 2) where they should warehouse the stock; 3) how much should we hold in inventory; and 4) what mode of transportation they should use to ship goods.  Market-logistics should be derived from business strategies and not just from cost considerations, should be information sensitive and connect all the parties, and the company should set its logistics goals to match or exceed competitors’ service standards and should involve all relevant members in the planning process.