Previewing the Concepts: Chapter Objectives

Chapter 11 Retailing and Wholesaling

1. Explain the role of retailers and wholesalers in the distribution channel. 2. Describe the major types of retailers and give examples of each. 3. Identify the major types of wholesalers and give examples of each. 4. Explain the marketing decisions facing retailers and wholesalers.

JUST THE BASICS

Chapter Overview

This chapter is a continuation of the prior chapter on marketing channels; it provides more detail on retailing and wholesaling, two very important concepts in the value delivery network.

It begins with a discussion of retailers and the challenges they face. There are many types of retailers. These retailers can be classified according to several characteristics, including the amount of service they offer, the breadth and depth of their product lines, the relative prices they charge, and how they are organized.

Retailers are always searching for new strategies to attract and retain customers. The major decisions retailers need to make are centered around their target market and positioning, their product assortment and services, their price, their promotion strategies, and where they are located.

Retailing is facing many challenges, including new retail forms, such as warehouse stores. The wheel of retailing concept says that many new retailing forms begin as low- margin, low-price, low-status operations. They challenge established retailers, and then the new retailers’ success leads them to upgrade their facilities and offer more services. In turn, their costs increase, and eventually they become like the conventional retailers they replaced. The cycle begins again.

Wholesalers buy mostly from producers and sell mostly to retailers, industrial customers, and other wholesalers. As a result, many of this country’s largest and most important wholesalers are largely unknown to final consumers. Wholesalers provide important services, however, and they add value through performing one or more of several functions.

There are many types of wholesalers, including merchant wholesalers, agents and brokers, and manufacturers’ sales branches and offices. They face many of the same

251 decisions as retailers, including the choice of target market, positioning, and the marketing mix.

The distinction between large retailers and large wholesalers continues to blur. Many retailers now operate formats such as wholesale clubs and hypermarkets that perform many wholesale functions. In return, many large wholesalers are setting up their own retailing operations.

Chapter Outline

1. Introduction a. Few retailers can compete directly with Wal-Mart. Yet, little Whole Foods is thriving in the shadow of the giant. b. Whole Foods succeeds through careful positioning—specifically, by positioning itself away from Wal-Mart. It targets customers that Wal-Mart can’t serve, offering them value that Wal-Mart can’t deliver. c. Whole Foods’ value proposition is summed up in its motto: “Whole Foods. Whole People. Whole Planet.” In keeping with the company’s positioning, most of the store’s goods carry labels proclaiming “organic,” “100% natural,” and “contains no additives.” d. Whole Foods has found its own very profitable place in the world.

2. Retailing a. Retailing includes all the activities involved in selling products or services directly to final consumers for their personal, nonbusiness use. b. Retailers are businesses whose sales come primarily from retailing. c. Nonstore retailing has been growing much faster than has store retailing. Nonstore retailing includes selling to final consumers through direct mail, catalogs, telephone, the Internet, TV home shopping shows, home and office parties, door-to-door contact, vending machines, and other direct selling approaches.

Use Key Terms Retailing, Retailer here. Use Chapter Objective 1 here. Use Discussing the Issues 1 here.

Types of Retailers d. Table 11-1 shows the most important types of retail stores.

Use Table 11-1 here.

252 1. Retailers can be classified by amount of service. i. Self-service retailers serve customers who are willing to perform their own “locate-compare-select” process to save money. Self-service is the basis of all discount operations and is typically used by sellers of convenience goods and nationally branded, fast-moving shopping goods. ii. Limited-service retailers provide more sales assistance because they carry more shopping goods about which customers need information. iii. Full-service retailers, such as specialty stores and first-class department stores, offer salespeople who assist customers in every phase of the shopping process.

Let’s Discuss This What type of service strategy is implemented at a 7-Eleven? At J.C. Penney? At Neiman Marcus?

2. Retailers can also be classified according to the length and breadth of their product assortments. i. Specialty stores carry narrow product lines with deep assortments within those lines. ii. Department stores carry a wide variety of product lines. Service remains the key differentiating factor. iii. Supermarkets are the most frequently shopped type of retail store. iv. Convenience stores are small stores that carry a limited line of high-turnover convenience goods. v. Superstores are much larger than regular supermarkets and offer a large assortment of routinely purchased food products, nonfood items, and services. a. Wal-Mart, Kmart, Target, and others offer supercenters, combination food and discount stores that emphasize cross-merchandising. vi. Category killers feature stores the size of airplane hangars that carry a very deep assortment of a particular line with a knowledgeable staff. vii. Hypermarkets are huge superstores. Hypermarkets have been very successful in Europe and other world markets, but they have met with little success in the United States.

Use Key Terms Specialty Store, Department Store, Supermarket, Convenience Store, Superstore, and Category Killer here. Use Discussing the Issues 2 here. Use Focus on Ethics here.

253 3. Retailers can be classified according to the prices they charge. i. A discount store sells standard merchandise at lower prices by accepting lower margins and selling higher volume. ii. An off-price retailer buys at less-than-regular wholesale prices and charges consumers less than retail. a. Independent off-price retailers are either owned and run by entrepreneurs or are divisions of larger retail operations. b. Most large off-price retailer operations are owned by bigger retail chains. iii. Factory outlets sometimes group together in factory outlet malls and value-retail centers, where dozens of outlet stores offer prices as low as 50% below retail on a wide range of items. iv. Warehouse clubs (or wholesale clubs or membership warehouses) operate in huge, drafty, warehouselike facilities and offer few frills.

Use Key Terms Discount Store, Off-Price Retailer, Independent Off-Price Retailer, Factory Outlet, and Warehouse Club here. Use Chapter Objective 2 here.

4. The major types of retail organizations are described in Table 11-2. i. Chain stores are two or more outlets that are commonly owned and controlled. a. A voluntary chain is a wholesaler-sponsored group of independent retailers that engages in group buying and common merchandising. b. A retailer cooperative is a group of independent retailers that bands together to set up a jointly owned, central wholesale operation and conducts joint merchandising and promotion efforts. ii. Franchise systems are normally based on some unique product or service; on a method of doing business; or on the trade name, goodwill, or patent that the franchiser has developed. iii. Merchandising conglomerates are corporations that combine several different retailing forms under central owner-ship.

Use Key Terms Chain Store, Franchise here. Use Marketing at Work 11-1 here.

254 Use Table 11-2 here. Use Application Questions 1 here. Use Linking the Concepts here.

Retailer Marketing Decisions e. Retailers are always searching for new marketing strategies to attract and hold customers. f. Figure 11-1 shows the major marketing decisions retailers face.

Use Figure 11-1 here.

1. Retailers must first define their target markets and then decide how they will position themselves in these markets. i. Too many retailers fail to define their target markets and positions clearly. They try to have “something for every- one” and end up satisfying no market well. 2. Retailers must decide on three major product variables. i. The retailer’s product assortment should differentiate the retailer while matching target shoppers’ expectations. ii. The services mix can also help set one retailer apart from another. iii. The store’s atmosphere is another element in the reseller’s product arsenal.

Applying the Concept You want to open a store that caters to the local college population. You will sell T- shirts, sweatshirts, and other casual clothing favored by college students. How will you differentiate your product assortment from the school’s bookstore? What type of service will you offer (keeping in mind the needs of the college students who are your target)? What kind of store atmosphere will you provide?

3. A retailer’s price policy must fit its target market and positioning, product and service assortment, and competition. i. Most retailers seek either high markups on lower volume or low markups on higher volume. 4. Retailers use any or all of the promotion tools—advertising, personal selling, sales promotion, public relations, and direct marketing—to reach consumers. 5. Retailers often point to three critical factors in retailing success— location, location, and location.

255 i. It is very important that retailers select locations that are accessible to the target market in areas that are consistent with the retailer’s positioning. ii. Central business districts were the main form of retail cluster until the 1950s. iii. A shopping center is a group of retail businesses planned, developed, owned, and managed as a unit. a. A regional shopping center, or regional shopping mall, the largest and most dramatic shopping center, contains from 40 to more than 200 stores. b. A community shopping center contains between 15 and 40 retail stores. c. Most shopping centers are neighborhood shopping centers or strip malls that generally contain between 5 and 15 stores. d. A recent addition to the shopping center scene is the so-called power center. These huge unenclosed shopping centers consist of a long strip of retail stores, each with its own entrance with parking directly in front.

Use Key Term Shopping Center here. Use Marketing at Work 11-2 here. Use Application Questions 2 here.

The Future of Retailing g. Retailers operate in a harsh and fast-changing environment, which offers threats as well as opportunities. 1. New retail forms continue to emerge to meet new situations and consumer needs, but the life cycle of new retail forms is getting shorter. 2. The wheel of retailing concept says that many new types of retailing forms begin as low-margin, low-price, low-status operations. They challenge established retailers that have become “fat” by letting their costs and margins increase. The new retailers’ success leads them to upgrade their facilities and offer more services. In turn, their costs increase, forcing them to increase their prices. Eventually, the new retailers become like the conventional retailers they replaced. The cycle begins again.

Use Key Term Wheel of Retailing Concept here. Use Discussing the Issues 5 here. Use Application Questions 3 here.

256 Use Under the Hood/Focus on Technology here.

3. Americans are increasingly avoiding the hassles and crowds at malls by doing more of their shopping by phone or online. 4. Today’s retailers are increasingly selling the same products at the same price to the same consumers in competition with a wider variety of other retailers. i. This merging of consumers, products, prices, and retailers is called retail convergence. ii. This convergence means greater competition for retailers and greater difficulty in differentiating offerings.

Let’s Discuss This Do you avoid the crowds at malls? Do your parents? Do you think that there could be a backlash against the ever-larger malls and stores? Use the wheel of retailing concept to think about consumers’ reactions to crowds, the same merchandise everywhere, and the difficulty retailers have in differentiating themselves.

5. The rise of huge mass merchandisers and specialty superstores, the formation of vertical marketing systems and buying alliances, and a rash of retail mergers and acquisitions have created a core of superpower megaretailers. They are shifting the balance of power between retailers and producers. 6. Retail technologies are becoming critically important as competitive tools. i. Progressive retailers are using advanced information technology and software systems to produce better forecasts, control inventory costs, order electronically from suppliers, send email between stores, and even sell to customers within stores. 7. Retailers with unique formats and strong brand positioning are increasingly moving into other countries. i. U.S. retailers are still significantly behind Europe and Asia when it comes to global expansion. 8. There has been a resurgence of establishments that, regardless of the product or service they offer, also provide a place for people to get together.

Use Linking the Concepts here. Use Discussing the Issues 4 here.

257 3. Wholesaling a. Wholesaling includes all activities involved in selling goods and services to those buying for resale or business use. b. Wholesalers are firms engaged primarily in wholesaling activity.

Use Key Terms Wholesaling, Wholesaler here. Use Chapter Objective 3 here.

c. Wholesalers buy mostly from producers and sell mostly to retailers, industrial consumers, and other wholesalers. d. Wholesalers add value by performing one or more of the following channel functions: 1. Selling and promoting 2. Buying and assortment building 3. Bulk breaking 4. Warehousing 5. Transportation 6. Financing 7. Risk bearing 8. Market information 9. Management services and advice

Use Discussing the Issues 6 here.

Types of Wholesalers e. Wholesalers fall into three major groups as shown in Table 11-3.

Use Table 11-3 here.

1. Merchant wholesalers are the largest single group of wholesalers, accounting for roughly 50% of all wholesaling. i. Full-service wholesalers provide a full set of services. ii. Limited-service wholesalers offer fewer services to their suppliers and customers. 2. Brokers and agents do not take title to goods, and they perform only a few functions. They generally specialize by product line or customer type. i. A broker brings buyers and sellers together and assists in negotiations.

258 ii. Agents represent buyers or sellers on a more permanent basis. a. Manufacturers’ agents are the most common type of agent wholesaler. iii. Manufacturers’ sales branches and offices are the third major type of wholesaler.

Use Key Terms Merchant Wholesaler, Broker, Agent, Manufacturers’ Sales Branches and Office here.

Wholesaler Marketing Decisions f. As with retailers, wholesaler marketing decisions include choices of target markets, positioning, and the marketing mix. See Figure 11-2. 1. Wholesalers must define their target markets and position themselves effectively. They can choose a target group by size of customer, type of customer, need for service, or other factors. 2. Wholesalers must decide on product assortment and services, prices, promotion, and place. i. The wholesaler’s “product” is the assortment of products and services that it offers. ii. Price is an important decision. Wholesalers usually mark up the cost of goods by a standard percentage, say 20%. iii. Most wholesalers are not promotion minded. iv. Place is important—wholesalers must choose their locations, facilities, and Web locations carefully.

Use Chapter Objective 4 here. Use Figure 11-2 here.

Trends in Wholesaling g. As the wholesaling industry moves into the 21st century, it faces considerable challenges. h. The industry remains vulnerable to one of the most enduring trends of the last decade—fierce resistance to price increases and the winnowing out of suppliers who are not adding value based on cost and quality. i. The distinction between large retailers and large wholesalers continues to blur. 1. Many retailers now operate formats such as wholesale clubs and hypermarkets that perform many wholesale functions. 2. In return, many large wholesalers are setting up their own retailing operations. j. Wholesalers will continue to increase the services they provide to retailers. k. Many large wholesalers are now going global.

Use Marketing at Work 11-3 here.

259 Travel Log

Discussing the Issues 1. Define both retailing and wholesaling. What are the primary differences between the two? Retailing includes all the activities involved in selling products or services directly to final consumers for their personal, nonbusiness use. Wholesaling includes all activities involved in selling goods and services to those buying for resale or business use. The primary difference is that retailers sell to final consumers while wholesalers do not.

2. Distinguish between specialty stores, department stores, supermarkets, convenience stores, superstores, and category killers. Give one example of each. Specialty stores, such as Talbots and The Wild Bird Center, carry narrow product lines with deep assortments within those lines. Department stores, such as Macy’s, carry a wide variety of product lines. Supermarkets, such as Kroger, are the most frequently shopped type of retail store. Convenience stores are small stores that carry a limited line of high-turnover convenience goods. Superstores, like Super Target, are much larger than regular supermarkets and offer a large assortment of routinely purchased food products, nonfood items, and services. Category killers, like PETsMART, feature stores the size of airplane hangars that carry a very deep assortment of a particular line with a knowledgeable staff.

3. Describe the target market and positioning for each of the stores you listed in the previous example. Do any of those markets overlap? If so, how does each store differentiate itself on the basis of product assortment and services? Student responses will vary based on responses to the previous question.

4. The popularity of non-store retailing is on the rise. What advantages do mail-order catalogs, television shopping networks, and the Internet offer consumers? Do you think non-store retailing will continue to grow? Non-store retailing offers consumers convenience (ease of ordering, 24 hour service) and selection not available in traditional stores. Student responses to the second part of the question will vary.

5. Define retail convergence. Consider your own shopping preferences. Do you frequent independently owned stores or shop primarily at larger chains? Why? The merging of consumers, products, prices, and retailers is called retail convergence. Such convergence means greater competition for retailers and greater difficulty in differentiating offerings. The competition between chain superstores and smaller, independently owned stores has become particularly heated. Because of their bulk- buying power and high sales volume, chains can buy at lower costs and thrive on smaller margins. The arrival of a superstore can quickly force nearby independents out of business. Student responses will vary for the second question.

260 6. Describe the primary functions that wholesalers perform. How do those activities affect the relationships that companies build with consumers? How do they impact relationships with other channel partners? Wholesalers provide the following functions: (1) Selling and promoting: Wholesalers’ sales forces help manufacturers reach many small customers at a low cost. The wholesaler has more contacts and is often more trusted by the buyer than the distant manufacture. (2) Buying and assortment building: Wholesalers can select items and build assortments needed by their customers, thereby saving the consumers much work. (3) Bulk-breaking: Wholesalers save their customers money by buying in carload lots and breaking bulk (breaking large lots into small quantities). (4) Warehousing: Wholesalers hold inventories, thereby reducing the inventory costs and risks of suppliers and customers. (5) Transportation: Wholesalers can provide quicker delivery to buyers because they are closer than the producers. (6) Financing: Wholesalers finance their customers by giving credit, and they finance their suppliers by ordering early and paying bills on time. (7) Risk bearing: Wholesalers absorb risk by taking title and bearing the cost of theft, damage, spoilage, and obsolescence. (8) Market information: Wholesalers give information to suppliers and customers about competitors, new products, and price developments. (9) Management services and advice: Wholesalers often help retailers train their salesclerks, improve store layouts and displays, and set up accounting and inventory control systems. By helping companies warehouse, distribute, and sell their products more efficiently, more reliably, and at a lower cost, wholesalers create customer value that leads to stronger relationships both with channel partners and the final consumer.

Application Questions 1. The chapter opens with a discussion of Whole Foods. Have you shopped at Whole Foods? What was your impression of the store? Would you shop there again? Are you part of the chain’s target market? How does the chain compete with other grocers? Student responses will vary. Whole Foods succeeds through careful positioning— specifically, by positioning away from Wal-Mart. Rather than pursuing mass-market sales volume and razor thin margins, Whole Foods targets a select group of upscale customers and offers them “organic, natural, and gourmet foods, all swaddled in Earth Day politics.”

2. Develop a table with the retail characteristics of amount of service, product line length and breadth, relative prices, and organizational structure as the rows of the table. Place the following retailers at the top of each column in the table: Best Buy, Sears, Sam’s Club, Gap, Wal-Mart, and a local convenience store. Complete the cells in the table by describing each of the retailers on each of the characteristics. What implications can you draw from this table? Student responses will vary, but answers should focus on differentiation based on service level, product assortment, price, and structure.

261 3. Visit Grainger’s Web site (www.grainger.com). Which of the channel functions discussed in the chapter does Grainger perform? How does the wholesaler create value for its customers? How does Grainger use its Web site to build customer relationships? Grainger offers buying and assortment building, bulk-breaking, warehousing, transportation, and management services and advice. Through its branch network, service centers, sales reps, catalog, and Web site, Grainger links customers with the supplies they need to keep their facilities running smoothlyeverything from light bulbs, cleaners, and display cases to nuts and bolts, motors, valves, power tools, and test equipment. It operates on a simple value proposition: to make it easier and less costly for customers to find and buy MRO supplies. It starts by acting as a one-stop shop for products to maintain facilities. Beyond making it easier for customers to find the products they need, Grainger also helps them streamline their acquisition processes. On a broader level, it builds lasting relationships with customers by helping them find solutions to their overall MRO problems. Acting as consultants, Grainger sales reps help buyers with everything from improving their supply chain management to reducing inventories and streamlining warehousing operations.

Under the Hood

Piggly Wiggly, a chain of grocery stores, has always focused on providing innovative, customer-centered shopping experiences. In fact, the chain was the first to allow customers to browse for their own groceries, rather than having a clerk behind a counter retrieve needed items. Continuing with that tradition, Piggly Wiggly now offers Pay By Touch, a technology that allows customers to pay for their groceries with the simple touch of a finger. After completing a two-minute registration process, customers link their unique fingerprint with payment information, including credit cards or checking account numbers, and loyalty card accounts. When checking out, customers place a finger on a small scanner located next to the register and the transaction is complete. No credit cards or loyalty card required. Within a month of adding Pay By Touch technology to its stores nationwide, nearly twenty percent of the store’s non-cash customers had signed on. And, according to loyalty card statistics, says Rich Farrell, vice president of information services at Piggly Wiggly, customers “are buying more than they used to. It must be the ease of the purchasing process. When we first purchased this technology, we were looking for a payment system that would enhance speed, convenience and security, and this does all three.”*

1. How comfortable are you with fingerprint scanning technology in a retail setting? Would you complete the registration process and use the Pay By Touch technology when checking out? Student responses will vary.

2. How might Pay By Touch, and other retail technologies, help build relationships with new consumers and grow relationships with loyal customers?

262 Streamlining the payment process for customers adds value to Piggly Wiggly’s products. In addition, the registration process and continual monitoring of customer purchases allows the store to build a better picture of the individual customer and offer more targeted products and services.

*See Andrea Orr, “Piggly Wiggly Finds the Right Touch,” July, 18, 2005, accessed at www.extremenano.com.

Focus on Ethics

Large discount stores and superstores can wield enormous power and impact a community. Because of their bulk-buying power and high sales volume, national chains can buy at lower costs and thrive on smaller margins. By doing so, Wal-Mart has been accused of destroying independents in countless small towns around the country. As a result, the mega retailer has been the target of considerable criticism. Sam Walton once responded to the criticism, saying, “Of all the notions I’ve heard about Wal-Mart, none has ever baffled me more than this idea that we are somehow the enemy of small-town America. Nothing could be further from the truth. Wal-Mart has actually kept quite a number of small towns from becoming extinct by saving literally billions of dollars for the people who live in them, as well as by creating hundreds of thousands of jobs in our stores… I don’t want to be too critical of small-town merchants, but the truth is that a lot of these folks just weren’t doing a very good job of taking care of their customers. Whenever we put a Wal-Mart store into a town, customers would just flock to us from the variety stores. With our low prices, we ended an era of 45 percent markups and limited selection.”**

1. What is your reaction to Sam Walton’s remarks? Do you agree with his perspective? Student responses will vary.

2. Does Wal-Mart have a responsibility to the small retailers it puts out of business? Why or why not? Student responses will vary.

3. Should communities be concerned about the plight of small businesses competing with Wal-Mart? What are the benefits and drawbacks of having big box retailers in a community? What, if anything, should city governments do to protect local retailers from the threat of large retailers? Student responses will vary.

**See http://www.emich.edu/public/geo/557book/c313.impactwalmart.html.

263 GREAT IDEAS

Barriers to Effective Learning

1. Retailing is generally not a difficult concept for students. However, the different types of retailers should be thoroughly explained to the students to ensure their understanding. Table 11-1 is an excellent resource in this regard. The differing types of retail organizations are also critical to understand; Table 11-2 helps here. 2. The decisions retailers need to make will be easily understood with a review of Figure 11-1. It is very clear in this figure that the marketing mix elements studied earlier in the text are being applied in a retail environment. Explain carefully how the type of retail organization chosen affects the marketing mix, and vice versa. 3. The wheel of retailing concept can be difficult to understand without a proper explanation. Drawing a parallel to the product life-cycle concept is an aid in this. Also, discuss with the students how retailing has changed from “Main Street,” to the mall, megastores like Wal-Mart Supercenters, horizontal marketing systems, and such. 4. Nonstore retailing should be familiar to students, but perhaps not by this name. Many students may not realize that they are visiting a retailer when they buy books or CDs from Amazon.com, or select an item from a catalog and order it over the phone. Explain that this is an extension of the “place” variable of the marketing mix, but it is still selling to ultimate consumers, so it is indeed a retailing outlet. 5. Wholesaling, by contrast, could be a difficult subject for many students. Although the concept was introduced in an earlier chapter, there is more detail here, and there are many more terms for the students to learn. A careful review of the introduction to this section, with a description of the various channel functions wholesalers perform, will set the stage for the students’ ability to learn these concepts. 6. The description of the types of wholesalers is brief but important. Examples will help tremendously, even though most wholesalers, by their nature and as discussed in the text, are virtually unknown to consumers. Some students, however, might be familiar with distributors who service grocery stores and other retail outlets from summer jobs or those held by family members. You can also draw the parallel between stockbrokers and product brokers, because the function is virtually the same, although the item being brokered is very different. A stockbroker never takes ownership of the stock, however, just as a product broker does not. A celebrity or sports agent can be the parallel descriptor for manufacturers’ agents. Table 11-3 will be very helpful in this discussion. 7. As with retailers, the decisions wholesalers make revolve around the marketing mix components. This concept should be easily grasped by students at this point.

264 Student Projects

1. How do retailers identify target markets? Explain the major strategies by which retailers reach their target markets. 2. Cite several examples (not from the textbook) in each of the following categories: department store, specialty store, convenience store, discount store, off-price retailer. 3. Show how the elements of the marketing mix apply to retailers. Apply these elements to the decision process for a major chain of convenience stores to open an outlet on your college campus. 4. Take any three retail stores of your choice and evaluate the atmospherics contained in each. What moods are established? Ask some customers of the stores what they think about the atmosphere of the store. Ask the store manager what atmosphere they are trying to project and why. 5. Considering the increased use of the Internet, what are the ramifications that you think will affect retailing? How can retailers use the Internet to increase their business? What do you see in the future for retailing? Have you ever bought a retail item via the Internet? If so, describe your experience. If not, why have you not purchased in this manner (what would it take to convert you to e-commerce)? 6. How can wholesalers use the Internet to increase their business? Provide an example of how wholesalers can use the Internet to compete. 7. Find a wholesaler and interview them about functions, descriptions of duties, and clients. What changes do they see in the future for wholesaling? How have the computer and the Internet affected their business? How do they target markets? 8. Interview a retailer and get a description of the types of wholesalers they use. What functions are performed by the wholesaler for the retailer? Why does the retailer use a wholesaler? What is the retailer’s biggest problem (if any) with using the wholesaler? 9. Do library or Internet research to determine what new forms of retailers and wholesalers have emerged in recent years. What has caused the emergence? Have any forms disappeared? If so, what and why?

Interactive Assignments

Small Group Assignment

1. Form students into groups of three to five. Each group should read the opening vignette to the chapter on Whole Foods and then answer the following questions: a. What is Whole Foods’ overall strategy? b. Describe Whole Foods based on the types of retailers described in the text —via service, product line, prices, and organizational approach. c. Describe the decisions that Whole Foods has made for each of the 4 Ps. d. If you were a wholesaler, how would you approach Whole Foods to carry your products?

265 Each group should share its findings with the class.

Individual Assignment

1. Read the opening vignette to the chapter. Think about the answers to the following questions: a. What is Whole Foods’ overall strategy? b. Suggest a positioning strategy for Whole Foods. c. Describe the decisions that Whole Foods has made for each of the 4 Ps. d. If you were a wholesaler, how would you approach Whole Foods to carry your products? How would you position your company?

Share your findings with the class.

Think-Pair-Share

1. Consider the following questions, formulate an answer, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor. a. What is retailing? b. How is retailing different from wholesaling? c. How can retailers be classified? d. What are the three levels of service? How are they different? e. Briefly characterize the various retail forms found in Table 13.1. f. What is a category killer? What is a hypermarket? g. Explain how a franchise works. h. What are the benefits and drawbacks of a franchise? i. How do retailers target a market? j. How do retailers establish a position in the marketplace? k. What is meant by “a shortening retail life cycle”? l. Briefly characterize each of the wholesale forms mentioned in Table 13.3. m. What are the functions of wholesalers? Can these be replaced? If so, how? n. What do you think is the most dramatic trend in wholesaling?

Outside Example

Both Barnes & Noble and Borders have been described as category killers. These very large book stores are fairly ubiquitous in shopping malls, strip malls, and downtown locations in major cities. In addition to books, they carry music, newspapers, and magazines, and generally will have small cafes within them to encourage customers to hang around for a while.

Barnes & Noble established a major online presence in response to the early success of Amazon.com. Borders has taken another tack for its online sales, teaming up with the enemy, Amazon.com itself. These two giants have presence virtually everywhere you go,

266 even cyberspace, and they have both largely squeezed out independent bookstores. Even the movie You’ve Got Mail! discusses the impact of this specific kind of category killer.

1. Discuss the kind of service you get at the stores. Are they self-service, limited-service, or full-service retailers? How about their online stores? 2. If you have never visited one of these stores, visit one. What is the atmosphere? What do you like about the store? What do you dislike? 3. Describe their targeting efforts for their physical store locations. What type of customer is likely to go to a store versus buy on the Internet? 4. How do these two stores compete with Amazon.com when it comes to product assortment? Can you differentiate them at all? If so, how? 5. Do you find these retailers comfortable as “hang outs”? Do you use them that way yourself? Why or why not? Do they instill a sense of community?

Classroom Exercise/Homework Assignment

C&S Wholesale Grocers is New England’s largest food wholesaler and the second largest in the United States. It distributes more than 53,000 items, including groceries, produce, and nonfood items. They have more than 36 facilities in the United States, and serve grocery stores on the East Coast and West Coast, and in Hawaii. Visit their Web site at www.cswg.com.

1. C&S is largely a wholesaler, but in looking at its press releases, you see that it joined IGA, a retail outlet organized as a volunteer chain. Why would a wholesaler join a retailer chain?

Student responses to this will vary, but C&S saw an opportunity. Fleming Foods has been in bankruptcy and has dropped out of the IGA family. C&S took its place to solidify its own place as the second largest wholesaler in the nation. It also wanted to further expand its market. Finally, it is one of many firms joining the convergence of retailing and wholesaling, as large retailers become wholesalers, and large wholesalers become retailers.

2. C&S distributes to both independent grocery stores and chains. With its long list of customers, how might C&S develop its marketing strategy? Discuss all four elements of the marketing mix: product, price, place, and promotion.

Again, student responses will vary. However, C&S will need to ensure that it has a thorough product mix to serve the needs of its various customers. Because these customers are located in many regions of the country, there will need to be some variety in the products it carries; in Vermont, for instance, they probably don’t sell any Taro chips, which are a very big product in Hawaii.

As mentioned in the text, margins are very thin in the grocery business, at both the retail and wholesale level. Therefore, C&S probably does not hold a lot of pricing power and must constantly keep in mind the profit needs of its customers.

267 Place is critical for wholesalers—they need a lot of space to take large shipments in from producers, and then break bulk and ship the new assortment out to the local grocery retail outlets. Therefore, they need to be outside major city centers, but close enough to their retail customers to keep transportation costs down.

Finally, their promotional efforts may vary between the large chains and small independents, but they must ensure that they do not break any laws that govern pricing and its promotional aspects (this was covered in Chapter 10).

Classroom Management Strategies

This chapter can easily be covered in one standard class period. Although the terminology will be new to students, particularly the types of retailers and wholesalers, the material itself is easily understood as a general rule, and students will tend to be pretty familiar with retailing in particular.

1. The majority of the class, perhaps 40 minutes in a 60-minute class, should be spent on retailing. This can be broken down further, with 15 minutes on the Types of Retailers, 15 minutes on Retailer Marketing Decisions, and 10 minutes on the Future of Retailing. You can liberally use examples and the various questions from the chapter in going through this material. 2. The remaining 20 minutes of the class will be spent on the Wholesaling section. Here, it is very important that time be spent on discussing the various types of wholesalers and what kinds of functions they perform. Students will be less familiar with this type of business, so several examples should be gathered to discuss in class. The Classroom Exercise/Homework Assignment provided previously can be very useful.