Chapter 16

Retailing and Direct Marketing

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 Learning Objectives

16.1 Describe the retailing sector in the United States in terms of size, major
companies, and marketing channels.
16.2 Describe the six components of retail strategy.
16.3 Given a component of retail strategy, summarize the key strategic
considerations for that component.
16.4 Outline the four bases for categorizing retailers.
16.5 Describe the five basic types of direct marketing and nonstore retailing.
16.6 Given a manufacturer’s goals for retailing their products, determine the
most effective retail strategy.

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 Icebreaker

1. List out characteristics of your favourite retail outlet.

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 16-1
Retailing

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 16-1 Retailing in the United States

• Retailing: the activities involved in selling merchandise to consumers

• Retailers represent the distribution channel to most consumers.
• Retailers determine:
• Locations
• Store hours
• Number of sales personnel
• Store layouts
• Merchandise selections
• Return policies
• Technology is changing the way consumers shop.

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 16-2
Retailing Strategy

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 16-2 Retailing Strategy (1 of 7)

• A retailer develops a marketing strategy based on the firm’s goals and

strategic plans.
• Part of this strategy includes developing a retailing mix to satisfy the chosen
market.
• Merchandising strategy
• Customer service standards
• Pricing guidelines
• Promotion goals
• Location/distribution decisions
• Store atmosphere choices

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Exhibit 16.2 Components of Retail Strategy

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 16-2 Retailing Strategy (2 of 7)

• Merchandising strategy: guides a retailer’s decisions regarding the items it

will offer.
• A retailer must decide on:
• General merchandise categories

• Product lines

• Specific items within lines

• Depth and width of assortments

• Example: Selling “all things beauty,” Ulta offers well-known brands such as Cover Girl as well as
high-end cosmetics and professional hair care products.

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 16-2 Retailing Strategy (3 of 7)

• Customer service strategy: some stores offer no-frills shopping.

• Others build their retailing strategy around customer service for shoppers.
• Examples: gift wrapping, alterations, bridal registries, delivery, and installations

• A retailer’s customer service strategy must specify:

• The services the firm will offer

• Whether it will charge customers for the services

• Example: Ulta allows customers to try products before they buy and provides full-service salons
offering haircuts, facials, and manicures.

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 16-2 Retailing Strategy (4 of 7)

• Pricing strategy: prices reflect a retailer’s marketing objectives and policies.

• Prices also impact consumers’ perceptions of a retailer.
• Example: Ulta offers high-end brands as well as affordably priced products.

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 16-2 Retailing Strategy (5 of 7)

• Location/Distribution strategy: location can be a determining factor in the

success or failure of a retail business.
• The location decision depends on the:
• Type of merchandise
• Retailer’s financial resources
• Characteristics of the target market
• Site availability
• To change its perception of discount shopping, Ulta stores moved from strip malls to locations
near urban centers.
• Ulta built two distribution centers to improve delivery times for online purchases.

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 16-2 Retailing Strategy (6 of 7)

• Promotional strategy: retailers use promotional techniques to entice more

shoppers.
• A retailer communicates information about its stores:
• Locations
• Merchandise selections
• Hours of operation
• Prices
• Advertising is typically used to promote current styles.
• Example: To promote the store, Ulta advertises during prime-time TV shows and uses
direct mail and print ads in fashion magazines.

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 16-2 Retailing Strategy (7 of 7)

• Atmospherics: the physical characteristics and amenities that attract

customers and satisfy their shopping needs
• Atmospherics include both a store’s exterior and interior décor.
• Ulta has created store interiors that are bright and clean with an open layout and wide
aisles.

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 16-3
Strategic Considerations for Retail Strategy

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 16-3 Strategic Considerations for Retail Strategy
(1 of 8)

• A retailer begins to define its strategy by selecting a target market.

• Once a retailer has done that, it must develop a retailing mix to satisfy the
chosen market.
• Example: Best Buy has identified a number of target markets:

• Small business owners

• Affluent professionals

• Adopters of new technology

• Suburban families

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 16-3 Strategic Considerations for Retail Strategy
(2 of 8)

• Merchandising strategy: to develop a successful merchandise mix, a retailer

must weigh a few priorities:
• The preferences and needs of its defined target market

• The overall profitability of each product line and category

• The competitive environment influences these choices.

• By offering a range of electronic product categories and multiple brands within each
category, Best Buy is a trusted source for consumers’ electronics needs.

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 16-3 Strategic Considerations for Retail Strategy
(3 of 8)

• Customer service strategy: choosing which services to offer and how much
to charge for them depends on:
• Store size, type, and location
• Merchandise assortment
• Services offered by competitors
• Customer expectations
• Financial resources
• The basic objective of all customer services focuses on attracting and
retaining target customers in order to increase sales and profits.
• Example: Best Guy’s Geek Squad provides services such as home installation, set up,
support, and repair for thousands of products.

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 16-3 Strategic Considerations for Retail Strategy
(4 of 8)

• Pricing strategy: retailers determine a pricing strategy based on:

• Type of product
• Company objectives
• Competitor pricing
• Customer perceptions
• Markup: the amount a retailer adds to a product’s cost to set the final selling
price.
• The amount of markup typically results from services performed by the
retailer and inventory turnover rate.

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 16-3 Strategic Considerations for Retail Strategy
(5 of 8)

• Showrooming: when a customer examines and compares products at a

store, then buys the product through an online retailer
• Example: Best Buy introduced price matching to reduce lost sales through
showrooming.

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 16-3 Strategic Considerations for Retail Strategy
(6 of 8)

• Location/distribution strategy: planned shopping centers: a group of retail

stores designed, coordinated, and marketed to shoppers in a geographic
trade area
• Example: Almost all Best Buy stores are located in planned shopping centers.

• Distribution impacts how efficiently a retailer gets its products to customers.

• Example: Best Buy offers same day in-store pickup on many items purchased online.

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 16-3 Strategic Considerations for Retail Strategy
(7 of 8)

• Promotional strategy: decisions about the amount and type of promotion are
influenced by the target market and other components of the retailer’s
strategy.
• Best Buy uses many promotional techniques:
• Weekly circulars

• Commercials

• Banner ads on websites

• In-store promotions

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 16-3 Strategic Considerations for Retail Strategy
(8 of 8)

• Store atmospherics:
• The exterior of a store:
• Identifies the retailer
• Attracts its target shoppers
• The interior of a store should:
• Complement the retailer’s image
• Respond to customers’ interests
• Induce shoppers to buy
• When designing the interior and exterior of a store, marketers must remember that
people shop for reasons other than purchasing needed products.
• Best Buy’s products are displayed to encourage customers to try them.
• Products are grouped with clear signage to help customers navigate the stores.

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 16-4
Categorizing Retailers

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 16-4 Categorizing Retailers (1 of 6)

• Certain differences define categories of retailers:

• Forms of ownership

• Shopping effort expended by customers

• Services provided to customers

• Product lines carried

• These categories are not mutually exclusive.

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 16-4 Categorizing Retailers (2 of 6)

• Classification by form of ownership: the easiest way to categorize retailers

may be by ownership structure.
• Chain stores

• Groups of retail outlets that operate under central ownership and management

• Independent retailers

• Those who are responsible for their own businesses

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 16-4 Categorizing Retailers (3 of 6)

• Classification by shopping effort: this classification is based on the reasons

consumers shop at a particular retailer:
• convenience retailers: stores that appeal to customers by having accessible locations,
extended store hours, rapid checkout service, and adequate parking
• Examples: local food stores, gas stations, dry cleaners
• shopping stores: stores where consumers compare prices, assortments, and quality
levels before making purchase decisions
• Examples: furniture stores, clothing outlets, sporting goods stores
• specialty retailers: stores that combine carefully defined product lines, services, and
reputations in attempts to persuade consumers to expend considerable effort to shop at
their stores
• Examples: Macy’s, Sephora, Footlocker

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 16-4 Categorizing Retailers (4 of 6)

• Classification by services provided: this classification differentiates retailers

by the services they provide:
• A continuum between self-service and full-service retailers with the middle of the
continuum called self-selection

• Example: A gas station is a self-service retailer; LensCrafters is a full-service eyeglass retailer.

• Most retailers fall between self-service and full-service and are considered
self-selection.
• Examples: Albertsons and Kroger grocery stores

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 16-4 Categorizing Retailers (5 of 6)

• Classification by product line: this classification results in three major

categories:
• specialty stores: focus on a single product category but stock it in considerable depth
or variety
• Examples: health food stores, shoe stores, bakeries
• general-merchandise retailers: stores that carry a wide variety of product lines stocked
in some depth and distinguish themselves from specialty retailers by the large number of
product lines they carry
• Examples: Target, Walmart
• supermarkets: stores that sell mainly groceries, but also a wide selection of items in
other categories
• Examples: Whole Foods, Fred Meyer, Costco

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 16-4 Categorizing Retailers (6 of 6)

• Department Store: a series of specialty stores under one roof

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 16-5
Direct Marketing and Nonstore Retailing

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 16-5 Direct Marketing and Nonstore Retailing
(1 of 6)

• Direct marketing: a broad concept that includes direct mail, direct selling,
online retailing, direct-response retailing, and automatic merchandising

• Some companies use direct marketing as their sole method for distributing
and promoting products.

• Others use direct marketing to complement their physical stores and

traditional promotions.

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 16-5 Direct Marketing and Nonstore Retailing
(2 of 6)
• Direct mail is a type of direct marketing that comes in many forms.
• Examples: sales letters, brochures, catalogs, DVDs

Advantages: Disadvantages:
• Ability to select a narrow target market • High per-reader cost
• Intensive coverage • Effectiveness depends on quality of
mailing list
• Quick
• Some consumers object to it.
• Various formats
• Complete information
Marketers are making a shift from direct
mail to digital advertisements.
• Can personalize each mailing piece

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 16-5 Direct Marketing and Nonstore Retailing
(3 of 6)

• Direct selling: manufacturers bypass retailers and wholesalers, setting up

their own channels to sell their products directly to consumers.
• Examples: Avon, Pampered Chef, LuLaRoe, Tupperware

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 16-5 Direct Marketing and Nonstore Retailing
(4 of 6)

• Online retailing: online retailers sell directly to consumers using

e-commerce stores.
• Examples: Amazon (the largest online retailer), Walmart (a physical retailer that is
upping its online retailing operation)

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 16-5 Direct Marketing and Nonstore Retailing
(5 of 6)

• Direct-response retailing: a hybrid of physical retail, online retail, and direct

mail promotion

• Customers can order merchandise by mail or telephone, through a mail-

order desk in a retail store, or online.
• Example: Lillian Vernon makes almost all of its sales through catalog orders.

• Example: Historically, L.L. Bean was a direct mail company that relied entirely on catalog
sales; now its catalog is more likely to drive sales at its e-commerce site.

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 16-5 Direct Marketing and Nonstore Retailing
(6 of 6)

• Automatic merchandising: nearly 18,000 vending machine operators sell

about $7 billion in convenience goods annually in the United States.

• U.S. marketers have started to realize the potential of this underused

marketing tool.
• Vending-machine companies such as Fresh Healthy Vending are working with schools
to replace traditional offerings with fresh, healthy snacks.

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 Knowledge Check

The type of retailing where manufacturers bypass retailers and wholesalers,

setting up their own channels to sell their products directly to consumers is
known as:

a. Online retailing

b. Direct-response retailing

c. Direct selling

d. Automatic merchandising

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scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.