MARKETING Session 24

Retailing and Wholesaling

AGENDA
A. Introduction - the channel and its actors B. Retailers and retailing formats C. Retailing mix (specifics) 1. Private labels 2. Categories 3. Merchandising

AGENDA
A. Introduction - the channel and its actors B. Retailers and retailing formats C. Retailing mix (specifics) 1. Private labels 2. Categories 3. Merchandising

A. Definitions

Retailing All activities involved in selling goods or services directly to final consumers for their personal, nonbusiness use. Retailer Business whose sales come primarily from retailing. Wholesaling All activities involved in selling goods and services to those buying for resale or business use. Wholesaler A firm engaged primarily in wholesaling activity.

Retailing
Retailing is a service and as such it results from the combination of 2 components the service package and the interaction process (and experience) Service package assortment, ease of use (location, organization of the POS, overcrowding, speed, pre/ during/ post services, image and reputation Servuction SERVice prodUCTION interaction of clients with the front office (physical environment and contact personnel) operations and marketing activities overlap. Customers evaluate services on the basis of tangibles (as above) but also of reliability, empathy, responsiveness, assurance

A. The Servuction Model

Inanimate Environment Invisible organization and systems Contact Personnel Or Service Provider Visible FRONT OFFICE

Customer A

Customer B

Invisible BACK OFFICE

Bundle of service benefits received by Customer A

Physical product vs. Service

Service
Intangible Production, distribution and consumption are simultaneous Consumer participate production process Instant consumption (perishability) Reservable Variability (client, service provider) Similar, standard

Physical Product
Tangible Production and distribution are separated from consumption Consumer doesnt participate

DIFFICULT TO EVALUATE experience, credence goods OUTCOME & PROCESS

EASY TO EVALUATE Search goods

Service dimensions
(SERVQUAL)
Reliability Responsiveness Competence Access Courtesy Communication Credibility Security Understanding the customer Tangibles

ANALISI PER SETTORE DEI GIUDIZI SULLE SINGOLE COMPONENTI DEL SERVIZIO
farmacie asilo nido supermercati ristoranti/ pizzerie negozi alimentari centri comm./ ipermercati grandi magazzini agenzie di viaggio punto vendita telef. mobile negozi di abbigliamento
grande superf. elettron./elettrod.

viaggi aerei strutture sanitarie private banche alberghi concessionarie auto stazioni di servizio negozi di informatica serv. clienti telef. mobile uffici comunali servizi di telefonia fissa asl / assistenza sanit. pubbl. assistenza anziani azienda gas/acqua/enel assicurazioni tram o autobus di citt, MM uffici postali viaggi in treno (>100km)
Componente chiave del servizio

Accessibilit + + + + + + + + + = ++ = = = = + = + = = ------

Efficacia +++ + = + + + + + + = + = + = = + = = = --------

Affidabilit ++ +++ + + + + = + = + + = + + + = = = ---= ---

Flessibilit ++ + = + + = = + + = = = = = = = = = ------------

Trasparenza ++ ++ = = = + + + = = + = = = = ------------

Professionalit +++ ++ = + + + = + + = + = + + + + = = = -= --

Gradevolezza +++ +++ + + ++ + + ++ ++ + + + + + + + = + = = = ------

Convenienza = + = = = + = = = = = = ---------= ---

A. Retailer Marketing Strategies

A. Retailing Mix
Location, location, location Physical environment (Architecture and dcor, layoutatmospherics) Contact personnel (reliability, empathy, responsiveness, assurance) Product assortment Service and add-on services Prices Communication Sales technology Merchandising (and window dressing)

Retailer Marketing Decisions

Price decisions:
The price policy must fit with the target market and positioning, the product and service assortment, and the competition.
Price promotions vs. EDLP. High-low pricing.

Retailer Marketing Decisions

Promotion decisions:
Retailers can use any or all of the promotion toolsadvertising, personal selling, sales promotion, public relations, and direct marketingto reach consumers.

Retailer Marketing Decisions

Place (distribution) decisions:
Location is the key to success. Retailers can locate in:
Central business districts. Regional shopping centers. Community shopping centers. Strip malls (neighborhood shopping center). Power centers. Lifestyle centers.

AGENDA
A. Introduction - the channel and its actors B. Retailers and retailing formats C. Retailing mix (specifics) 1. Private labels 2. Categories 3. Merchandising

B. Retailers categories
1. Retailers are classified based on:
Ownership Size of the network Integration of the network

2. Retailing formats are classified based on:

Size, location Amount of service they offer Breadth and depth of product lines Relative prices charged

B.1 Retailers categories

Major types of retail organizations include: Corporate chain stores
Two or more outlets that are commonly owned and controlled.

Voluntary chain:
Wholesaler-sponsored group of independent retailers engaged in group buying and merchandising.

Retailer cooperative:
Group of independent retailers who set up a central buying organization and conduct joint promotion efforts.

Franchise organization:
Contractual association between a franchisor and franchisees.

B.2 Major Store Retailer Formats

Specialty stores Boutique Category Killers Department stores Supermarkets Hypermarkets Convenience stores Discount stores Traditional outlets(non specialized) Kiosks, vending, no-store (Internet)

Retailing Formats
Area covered
Department store Hypermarket Supermarket Cash & Carry Specialized shop Traditional shop Markets

Sectors

N references Core attraction

From 60.000 to 1.150.000 From 40.000 to 100.000 From 2.000 to 8.000 From 600 to 700 Wide range Customer service Wide range Price Wide range Proximity Price

From 10.000 Clothing, miscellany, to 60.000 m2 food From 5.000 to Clothing, miscellany, 20.000 m2 food From 300 to Dried and perishable 5.000 m2 foodstuffs Around 400 m2 From 200 to 20.000 m2 Difficult to determine Varies greatly Food All All Food

Varies greatly Wide specialized according to activity range Varies greatly according to activity From 1.000 to 4.000 Ill-defined Price, service fresh products Wide range of specialized items long hours Family price of items

Malls
24 hour store Bargain shop

From 10.000 to 300.000 m2

From 200 a 1.000 m2 Varies greatly

All, with leisure and restaurants

Miscellany and food Clothing and miscellany

Depends on shop (up to 800 shops)

Up to 3.000 Limited

 Hypermarket peripheral location, very large size,

wide assortment (food and non-food), low price

Supermarket peripheral/ central location, large

size, assortment of average width (mostly food), average price

Hard discount central location, small size,

limited assortment (food, no brands), very low price

Specialist central location, small size, very deep

assortment, high quality products, high price

Multi- channel (ex. Beauty)

Perfumery 30%

Outdoor markets DtD/Mail/Party 1% 4% Others 1% Pharmacy 12%

Drug & Dept. Stores 9% Fonte: Elaborazione Nielsen

Mass Mkt +HD 44%

Different value offers

Perfumery high quality products, known brands,
innovation, broad product offer

Pharmacy reliable & safe products, exclusive &

specialty products, high service level, competent and professional advice

Hyper/super wide assortment, competitive

pricing, promotions, branded products, one-stop shopping

GSS GS specializzate GSNS GS non alim. de-spec. GSA GS alimentari

New trends
More direct consumption Direct marketing Internet Stores in hospitals, prisons, homes of elderly people Multichannels and multichannel shoppers Decreasing number of outlets Size of outlets increases Concentration (mergers) (Increasing retail power) Cooperation /coopetition (franchising) Positioning of retailers (Price, Service) New forms of retailing (atmospherics) - train stations, gasoline outlets, post offices, entertainment

AGENDA
A. Introduction - the channel and its actors B. Retailers and retailing formats C. Retailing mix (specifics) 1. Private labels 2. Categories 3. Merchandising

C.1 Private labels (or own brands)

Products sold under the name of the retailer, Widespread practice (although wide differences by
country and product category) They are sold by manufacturers to retailers at a price that doersnt take into account marketing costs They usually command a huge price advantage vs national brands, but similar perceived quality. Benefits to consumers (high quality, low price) and retailers (low cost, high margin, high sales)

C.1 Benefits from private brands

Customers Choice Price/ quality ratio Complexity reduction Retailers Margins Power towards suppliers Customer loyalty Differentiation Depth of assortment (price points)

 Conditions
Commodities (low differentiation) Overcapacity High marketing costs

Great Value" Says Consumer Reports

"Consumer Reports published a review of dishwasher detergents in its March 2005 issue, and the best buy was a private label from WalMart, Bentonville, AR. Its appropriate-named Great Value detergent with enzymes was #7 in terms of overall quality (there was very little difference in the quality of the top 12 enzyme performers). In terms of price, however, Great Value was 9 cents a load, compared to 20 cents a load for the #1 detergent in effectiveness: Cascade's 2 in 1 Action Pac. The #2 brand for effectiveness was also a store brand: Trader Joe's, Monrovia, CA. It sells for a higher 20 cents a load, but gets its job done without using any phosphates. Costco, Issaquah, WA, and Kroger, Cincinnati, OH, also ranked in the top ten for performance with their enzyme detergents. Detergents without enzymes (most gel detergents, since enzymes don't fare well in gel form) fared poorly on quality tests, for both national brands and store brands.

Benefits to Retailers of National Brands

Pre-sold merchandise, customers expect certain brands to be carried. Strong brand image can complement the retailers desired image. Store can gain immediate volume from loyal customers. Retailer can benefit from potential promotional tie-ins and sales programs.

Private brands - Tesco

AGENDA
A. Introduction - the channel and its actors B. Retailers and retailing formats C. Retailing mix (specifics) 1. Private labels 2. Categories 3. Merchandising

C.2 Category - basics

Management by category the management of product groups through trade partnerships, which aims to maximise sales and profits by satisfying consumer needs. Category homogeneous group of products/ services that the client perceive as interrelated and interchangeable in satisfying his own needs

La definizione e la segmentazione della categoria

YOGURT

BIANCO

FRUTTA

GOLOSO

FUNZIONALI

CLASSICO

CREMOSO

IN PEZZI

OMOGENEO

DA BERE

BICOMPARTOVASETTO

MAGRI

PROBIOTICI

FORMATO

GUSTI CLASSICI ALLA FRUTTA

CUCCHIAIO

GUSTO

GUSTI INNOVATIVI BIANCO

DA BERE

Consumo tradizionale Ingrediente

BIOLOGICO

Consumo familiare Pezzi: tradizione Omogeneo: bambini Bere: snack Colazione, dessert

Consumo edonistico Bicomparto: sostituto del pasto, snack Vasetto: dessert Consumo salutistico Light: linea Probiotico cucchiaio:
funzionalit intestinale

Pr.Bere: rinforzo difese

The category management process

The Category Management Process Category Definition
Define the Category. Establish the strategic role of the category within the total product assortment of the retailer. Establish the measures upon which category performance will be assessed. Formulate a strategy for the category. Establish the category marketing mix.
Determine the products that make up the category from a consumers perspective. Consider the role of sub-categories or individual SKUs taken in the category. Develop a strategic plan for the category, considering long-term trends.

Category Planning

Determine the way in which the performance of a category will be evaluated. Consider various costing and profitability approaches and include both quantitative and qualitative assessments. Develop a marketing and supply development plan to achieve both short term and long-term category objectives. Determine the various tactics to be used within the marketing and supply plan, e.g. space allocation, promotions. Assign responsibilities for category management implementation within both retailer and supply partner organisations. Measure, monitor and modify the category.

Category Management Implementation

Establish category management roles. Category Review

C.2 The strategic role of the category

Retail brand reinforcer
New Categories High fashion and symbolic categories High technology product categories Includes strong (retailer or manufacturer) brands Create excitement and theatre in store Established categories Non-symbolic categories Consistent value provision Growing categories Fashion categories Symbolic categories High profit margins Stagnant or declining categories Staple product categories Well established market leading brands Competitive with other category providers - low profit margins Growing or well established category Contains leading brands Deep and wide assortment Considered the best retail offer by target customer

Cash-flow contributor Profit generator

Service provider

Destination (traffic generator)

C.2 Categories defined in terms of consumer behavior

High Frequecy of purchase

' NICHES '

Ex. petfood

' STAPLES '

Ex. bread, yogurt

' FILL-INS '

Ex. spices

' REGULARS '

Ex. toothbrush, dishwasher detergent

Low Low Number of consumers High

C.2 Categories defined in terms of retailer performance

High

' MAINTAIN GROWTH '

Unit Margin
High profit low sales categories

' FLAGSHIP '

High profitability categories

' UNDER FIRE '

Low profitability categories Low Low

' CORE TRAFFIC '

High volume categories High

Sales (value)

PROFIT BUILDERS

STAR PERFORMERS

Profit margins are high but sales Sales turnover and profit margins turnover is low equal or exceed targets Adjust space allocation focusing Allocate large amounts of good on quality of space rather than quality space quantity in order to increase sales. Consider increasing product Consider rationalizing range of assortment within category Product products in category profit

SPACE WASTERS
Low profit margins and low sales turnover Reduce space or eliminate product

TRAFFIC BUILDERS
Products have a good sales turnover rate , but profit margins are small Place close to higher profit/impulse purchase goods. Use to pull customers through store Work on improving margins. Consider introducing own-label variation

Product sales

Blattbergs Category Role Matrix

Gross Margin %

High

Flagship

Cash Machine

Maintain

Low

Core Traffic High

Under Fire Medium

Rehab

Low
Sales Dollar Volume

Categories ex. Carrefour

Importance for consumer

Purchase frequency

Traffic
Build trafic Routine needs

Franchise Builder
Determine store choice Caff Differentiation

Contribution to Pasta business/image

EBIT

Average purchase
Market size Tmarket growth rate

Service

Niche/ Dev.

Differentiation towards competitors

Emotional involvement of customers

Small markets Impulse buying Image of service Innovation Complementary Hedonic needs needs

Assegnazione dei ruoli nel mondo Drogheria Dolce

Traffico Franchise

Biscotti classici Pasticceria industriale Caff

Cereali prima colazione Cioccolato

ESTATE NICCHIA

Servizio

Nicchia

Fette biscottate Frutta sciroppata Zuccheri Latte condensato

Spalmabili dolci
Cibi prima infanzia Chewing-gum Preparati istantanei Caramelle

NUTELLA: TRAFFICO

Sviluppo

Preparati per dessert The infusi Prodotti dietetici integratori

Category Gross Margins Dominicks Fine Foods:

Toothbrushes Cheeses Analgesics Shampoo Saltines Juices Snack crackers Oatmeal Tuna Cookies Soap Canned soup Fabric softener Toothpaste Paper towels Dish detergent Cereal Laundry detergents Bathroom tissue 38.7% 32.1% 29.7% 29.0% 28.6% 28.4% 27.5% 26.8% 26.2% 26.1% 24.2% 22.0% 21.1% 20.7% 20.4% 20.4% 15.1% 13.8% 12.8%

Display mathematics

Gross margin = Revenue-Cost of goods Gross margin % = Gross Margin/Revenue Sales to stock = Revenue/Inventory Cost Inventory intensity = Inventory/Square feet GM% * Rev./Inv. = GMROI GMROI * Inv./ft2 = GMROS

Which category gets preferred display or additional space?

Category

Gross margin % 37.30 24.00 28.48 35.65

Sales to stock ratio 18.63x 7.71x 7.23x 4.49x

Inventory intensity $10.36 $11.40 $12.27 $4.84

Pet supplies Deodorants Insect, rodent control Hosiery

Compare using GMROS

Category

GMROI (GM x Sales to stock)

Inventory intensity (shelf ft.)

GMROS

Pet supplies
Deodorants Insect, rodent control Hosiery

$6.95
$1.85 $2.06 $1.60

x
x x x

$10.36
$11.40 $12.27 $4.84

= $72.00
= $21.00 = $25.28 = $7.74

AGENDA
A. Introduction - the channel and its actors B. Retailers and retailing formats C. Retailing mix (specifics) 1. Private labels 2. Categories 3. Merchandising

Physical environment
Store design
External, Ambiance, Lightning

Store plan
Space allocation, Layout, Circulation

Merchandising
Fixture selection, Merchandise presentation, Visual merchandising

Visual communication
Retail Identity, Graphics, POS signage

REMEMBER - Operations & Marketing Logics

A simple business model

AVG SQUARE FOOTAGE = 300 / 1000 (North America: 617 Sqf / Store) AVERAGE SALES PER STORE > $ 400 k (North America) > AU$ 570 k (AU&NZ) > 650 k (UK) AVERAGE FACING = 600 / 1000 units AVERAGE UNIT REVENUE > $ 143 (North America) > AU$ 189 (Asia Pacific) > 101 (UK)

AVERAGE TURN > 2.4 (North America) OVER 70% SINGLE SHIFT ESTIMATED CONVERSION RATE = 7/8%

> 3.4 (Asia Pacific)

$ PER FACING (weekly) > $ 9.5 (North America) > AU$ 14,7 (Asia Pacific)

Evaluating Space Productivity

Productivity ratios are output/input

Sales per square foot Sales per linear foot Gross or contribution margin per square foot, GMROS

Measuring Display

Square feet = display area, combines customer space with merchandise space Linear feet = length of display area in shelving Display feet = length x height of display Cubic feet = display x depth

C.3 Merchandising

Decisions about Layout and Shelving Allocation of categories and products to

Layout

Objective: to move customers to every area of store Influenced by product assortment (depth and width) Constrained by size and structure of store Determined by fixtures Trend towards more spacious and airy layouts

Price Chopper Roeland Park, KS

Vantaggi della Disposizione a griglia

Minori costi Maggiore familiarit Esposizione della merce Facilit di gestione (pulizia, manutenzione,) Facilit di self service Security

Vantaggi del Free Flow

Libert di muoversi e di spostarsi Maggiori acquisti di impulso Attrattivit Flessibilit

Customer paths

Allotment of Floor Space

Quantity of space: How much? Category sales Category penetration Quality of space: Where? Adjacencies: Complementary products, cross-elasticities Destination product: pulls shoppers through store

Categories in the horizontal & vertical space

High margin products in hot areas (central, with a lot of customers) Products in high demand in cold areas (peripheral, with less customers) Complementary products together Products that need to be moved frequently, close to cashiers or storage .

Distribution of categories in a Supermarket

Special offers Cold meats Butcher Fishmonger Yoghurts Cakes Bread Shoes

Curtains Whisky Oil Champagne Poultry Fruit Womens Knitwear clothes Underwear Toys Tools Paint Pet accessories Music Books Light-bulbs/Batteries Lamps Wines Canned food Icecreams frozen foods Dairy products Crockery Cutlery Mens Childrens clothes clothes Pharmacy Baby wear Small electrical appliances Furniture

Curtains

Car accessories After-sales service and credit

White goods

Water

Flour Sugar

Photography/Video/DVD Computers

2
Coffee

10 11 12 13 14

Checkouts
Decoration Chil. Clothes Ice-creams Sweet shop Bakery

Entrance
newsagent Key copier

Product adjacencies
Product Groups in a baby equipment retailer Feeding Baby Care Bath Time Clothes Travel Nursery

bottles sterilizers formula milk bottle warmers bibs

nappies wipes change mats

baby baths sleepwear soaps/liqui daywear ds towels shoes outerwear

prams

cots

pushchairs bedding strollers car seats travel cots toys furniture

travel bags toys

 Quality and quantity of space Space elasticity Adjacencies and interactions

The scope of visual merchandising

makes the market place innovative, exciting and stimulating by creating product-led stories supported by merchandising solutions (Corsie, 2003:1) choice of fixtures method of product presentation construction of displays (including window) choice of layout use of point of sale/purchase material

Merchandising
Series of activities or tasks carried out in sales outlets to encourage the sale of products, the aim being to make the largest possible profit Merchandising activities may be carried out by the manufacturer or the distributor

Quality of Display Space

Choice, may be too high for children

Best Satisfactory, OK for children

Burial, large sizes, lowest unit costs, low margin products that must be stocked

Shelf Weight According to Levels

Head Eyes 9% 52%

Hand 26%

Floor

13%

Variations in Product Sales According to Changes in Shelf Level

Eye level +63% - 20%

Hand level
+78% +34% Floor level - 40%

- 32%

Facings - Diminishing Returns

$10.00 $5.00 $1 2 3 4 5 6 7 8 Facings

APPLICATIONS

Sales

Excess space does not increase sales Minimum - Case plus order cycle
Minimizes stocking labor

Different Approaches to Display

Merchandise lines compete for consumer demand in the store for space based on their ability to: Compete for the best spots via traffic patterns of shoppers Compete for visibility, visual merchandising Display space must meet demands for conversion ratesbottom-line, product on display must sell, shoppers entering the store should be converted in buyers.

Tools for Shelf Space Management: the Spaceman