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  • 1. Marketing Management Unit 4 Delivering Marketing Programs Chapter 13 - Distribution Decisions and Strategies Lesson 38 - Wholesalers And Retailers, Current TrendStudents in the previous lesson we have studied Let us study how retailers are classified:about channel design .In this chapter we will study Students I will just highlight in brief thethe importance and structure of two popular in- classifications . Why don’t you give metermediaries involved in distribution function- examples of the same .?Retailers and Wholesalers 1. Amount of serviceWHAT IS RETAILING ? Self-service retailersAll of you are familiar with retailing process . Customers are willing to self-serve to saveYou have bought so many things so many times moneyas consumers . Let us understand the marketers Discount storesperspective to retailing : Limited-service retailers Retailing includes all the activities involved in Most department stores selling goods or services directly to final con- sumers for personal, non business use. A retailer Full-service retailers or retail store is any business enter-prise whose Salespeople assist customers in every aspect sales volume comes primarily from retailing. of shopping experience High-end department storesAny organization selling to final consumers-whether it is a manufacturer, whole-saler, or re- Specialty storestailer-is doing retailing. It does not matter how 2. Product linesthe goods or services are sold (by person, mail, Specialty storestelephone, vending machine, or Internet) or wherethey are sold (in a store, on the street, or in the Narrow product lines with deep assortmentsconsumer’s home). Department storesTherefore, Wide variety of product linesRetailer - Business whose sales come primarily Supermarketsfrom retailing.WHAT ARE DIFFERENT TYPES OF Convenience storesRETAILERS ? Limited line 1. Amount of service 2. Product lines Superstores 3. Relative prices Food, nonfood, and services 4. Organizational approach Category killers Giant specialty stores402 © Copy Right : Rai University 16.101G
  • 2. Marketing Management3. Relative prices the target market is defined and profiled , the Discount stores retailer cannot make consistent decisions on prod- Low margins are offset by high volume uct assortment , store décor, advertising messages and media, price, and service levels. Off-price retailers 2. Product assortment, Don’t you expect your grocer to stock every- Independent off-price retailers thing you need ? The retailer’s product assort- ment must match the target market’s shopping Factory outlets expectations. The retailer has to decide on prod- uct assortment- breadth and depth . The chal- Warehouse clubs lenge is to develop a product-different ion strat- egy.4. Organizational approach The store can adopt the following options :- Corporate chain stores Feature exclusive national brands that are not Commonly owned / controlled available at competing retailers Feature blockbuster distinctive merchandise Voluntary chains events Wholesaler-sponsored groups of independent Feature surprise or ever-changing merchan- retailers dise Feature the latest or newest merchandise first Retailer cooperatives Offer merchandise customizing services Groups of independent retailers who buy in Offer a highly targeted assortment bulk 3. Service mix and Store’s atmosphere Franchise organizations Based on something unique You want to be treated well when you shop ? Is it not ? Therefore the retailers must also decide on the service mix to offer customers Merchandising conglomerates Pre-purchase services- accepting telephone Diversified retailing lines and forms under and mail orders, advertising, window and in- central ownership terior display , fitting rooms , shopping hours, fashion shows, trade ins.WHAT ARE VARIOUS RETAIL Post purchase include – shipping and deliv-MARKETING DECISIONS ? ery ,gift wrapping , adjustments and returns,Let us study various marketing decisions affect- alterations and tailoring ,installations, engrav-ing the retail business :- ing. Target marketing and positioning Ancillary services –general information , Product assortment, check cashing , parking , restaurants , repairs Service mix, store’s atmosphere etc. Price 4. Price Promotion Place (location) Prices are a key positioning factor and must be decided in relation to the target market, the prod- uct and service assortment mix and competition.Let us discuss in detail each of these . All retailers would like to achieve high volumes1. Target Marketing and and high gross margins. Retailers must also pay Positioning attention to pricing tactics. Most retailers will put low prices on some items to serve as traffic build-Like other marketing activities, retailing too is ers or loss leaders. They will run storewide salesconcerned with defining its target market. Until16.101G © Copy Right : Rai University 403
  • 3. Marketing Management. They will plan marks down on slower –moving APPLICATION EXERCISE :merchandise . Review the following article. Bring out the5. Promotion key points. Discuss your points ofRetailers use a wide range of promotion tools to agreement and disagreementgenerate traffic and purchases.Promotion methods include :- Ads Special sales Money saving coupons Sample distribution etc.6. PlaceLocation is often described as the most success- Retailing in India: Are you game forful strategy for retailing. Retailers can locate it!!!!!their stores in the They say ‘If you aren’t in IT or entertainment, central business district, you ought to be in retailing. Or you’re miss- a regional shopping center , ing the boom times altogether.’ a community shopping center In India, the retail sector is the second largestDO YOU KNOW THE TRENDS IN employer after agriculture. The retailing sectorRETAILING ? in India is highly fragmented and predominantly consists of small independent, owner-managedLet us know look at what are the trends in retail shops. There are some 12 million retail outlets inbusiness and the main developments retailers and India. Besides, the country is also dotted withmanufacturers need to take into account in plan- low-cost kiosks and pushcarts. In 2001, organisedning competitive strategies retail trade in India was worth Rs11,228.7 billion.1. New retail forms and combinations2. Growth of intertype competition. There has been a boom in retail trade in India3. Growth of giant retail owing to a gradual increase in the disposable in-4. Growing investment in technology comes of the middle class households. More and5. Global presence of major retailers more players are coming into the retail business6. Selling an experience, not just goods in India to introduce new formats like malls, su- permarkets, discount stores, department stores Non store retailing – Categories and even changing the traditional looks of book- stores, chemist shops, and furnishing stores. Direct selling There are no hypermarkets in the country as yet. Direct marketing More so, a billion people in overall population leads Telemarketing to very large numbers. While the middle class may not be as big as expected, it could still add Television direct-response marketing up to say the sizeable number. Electronic shopping Food sales constitute a high proportion of total retail sales. The share was 62.7% in 2001, worth Automatic vending approximately Rs7,039.2 billion in 2001 while non- Buying service food sales were worth Rs4189.5 billion. How- ever, the non-food retailing sector registered fasterLet us have a look at something interesting year-on-year growth than food sales.………..404 © Copy Right : Rai University 16.101G
  • 4. Marketing ManagementRetail Infrastructure improve margins. The turnover from private la-In 2001, there were an estimated 11.2 million re- bels by major retail chains was estimated attail outlets in the country. The concept of retail- around Rs 1200 million in chain stores is at a very nascent stage in In- In urban India, families are experiencing growthdia. Organized retailing represent a small frac- in income and dearth of time. More and moretion of the Indian retail market. However, these women are also turning to corporate jobs, whichmodern formats are showing robust growth as is adding to the family income but makingseveral retail chains have established a base in lifestyles extremely busy. Rising incomes has ledmetropolitan cities, especially in south India, and to increasing demand for better quality productsare spreading all over India at a rapid pace. while lack of time has led a demand for conve-Total retail sales area in India was estimated at nience and service. The demand for frozen, in-328 million sq m in 2001, with an average selling stant, ready-to-cook, ready-to-eat food has beenspace of 29.4 sq m per outlet. This trend towards on the rise, especially in the metropolitan and largelarger outlets is leading to a rise in average retail cities in India. There is also a strong trend inspace. However, space and rentals are proving favour of one-stop shops like supermarkets andto be the largest constraints to development of department stores.large formats in metropolitan cities, since retail-ers are aiming the prime locations. Competitive Environment Bata India Ltd is one of the largest retailer, withThe mid 1990s marked the arrival of new, well- 1600 footwear stores spread across the country,endowed malls and shopping centres, which are and a retail turnover of Rs6 billion in 2001. Withspacious, airy and equipped with modern ameni- almost a monopolistic presence in the organisedties. They have big label stores as well as in- footwear market until the 1980s, Bata is synony-house eateries and entertainment zones. Each mous with footwear in middle-class India. Themall typically has an anchor, which occupies a stores retail mainly Bata products, with a mar-sizeable percentage of the total usable area. The keting arrangement with Lotto and Nike as well.anchor is expected to attract a variety of con-sumers and hence is the key to increasing foot Spencer & Co Ltd another large retail group intraffic. the country, with interests in supermarkets, mu- sic stores and the beauty and health chain, HealthThe number of large mega-malls is expected to & Glow. However, each retail business at theincrease significantly as India is now experienc- time of writing was run as a separate a “mall boom”. Shopping malls is set to one Foodworld is operated by Foodworld Supermar-of the most visible faces of the Indian retail scene kets Ltd, while Health & Glow by RPG the end of 2002. According to estimates apartfrom the metropolitan and larger cities, as many The K Raheja-run department store chain, Shop-as 50 new malls will be coming up by 2005 in the pers Stop, is the second largest fascia in the coun-smaller cities as well. try with retail sales of Rs2.7 billion in 2001. The real estate development group has converted itsKey Developments in Retailing retailing operation into an Indian success story. It100% foreign direct investment (FDI) in the re- has also acquired the Crossword chain of book-tailing sector is not permitted yet, in order to pro- stores.tect the interests of the small retailers. There is a Another strong retailer is Subhiksha, whose dis-strong lobby of small traders that has been vocal counters and chemists/druggist chain is very popu-on the issue of not permitting FDI into retail. The lar in South India.lobby is based on the premise that modern retailwill impact the livelihood of millions of small fam- Retail Forecastsily-run businesses. The retail business is expected to reachThe trend to market private labels by a specific Rs19,069.3 billion by 2006, with further growthretail chain is catching on in India as it helps to of organised retailing, in both food and non-food16.101G © Copy Right : Rai University 405
  • 5. Marketing Managementsegments. The proportion of sales through cial markets and most importantly the highest everorganised retailing is estimated to increase to FDIs, the retail industry analyst estimate a growtharound 6% by 2010. of 15-20% per annum in the organised retail sec- tor. The Indian Retail Council formed in this re-There is already a strong trend in favour of large spect in 2000, under the auspices of the Confed-format retail outlets, in both food and non-food eration of Indian Industry (CII), is active in lob-sectors, as people are showing preference for bying for the industry. Until then, retailing hadone-stop shops. Customers are also looking for not been considered as an industry, and there wereambience and convenience in shopping. This only traders associations at the local levels. Inwould continue more strongly in the forecast pe- the coming years we can expect to see maxi-riod. In the future, with more dual income fami- mum action in three areas — apparel and cloth-lies, the consumer ability to spend will increase, ing, food retailing and entertainment. This is alsobut at the same time, it is predicted that the time evident from the current mall developments inavailable for shopping will go down. In such a pipeline not only in Indian metros but also in up-scenario, the retailers will have to increasingly coming satellite towns such as Noida, Gurgaon,develop shopping as an experience and at the Pune, Navi Mumbai, Bangalore, and Hyderabad.same time, the more successful ones will be those The other areas — consumer durables, music,that provide faster service. furniture and books — would definitely see the growth but on a slower pace. The key drivers forRetail rush this projection, according to analysts, are increas-ANUJ PURITIMES NEWS NETWORK ing disposable income amongst the huge urban[ SUNDAY, NOVEMBER 30, 2003 12:31:47 middle class, change in the family structures, moreAM] exposure to the media, new entrants, and devel-Gone are the days when shopping used to be a opment of supply chain. Too many regulations,tiring experience — running from pillar to post in high bureaucracy, labour laws, high taxation, in-search for specifics. Now it has become an out- adequate infrastructure have acted as major ob-ing for the entire family of a typical Indian house- stacles for the entry of global players. The econo-hold. Indian consumers now can fulfil their needs mies of scale are difficult to achieve in this in-and desires under one roof. Modern organised dustry with a general norm of at least five to sevenretail in India, even though in its nascent stage years for break even. The Indian players would,(only 2% of the entire retail market), has come a therefore, have to adopt a penetration strategylong way — from singly focused and multifac- (expansion of the target market and brand pro-eted shops to sprawling shopping centers, super- motion), positioning and experimenting with dif-markets, multi-storied malls and entertainment ferent locations to survive and stay in the com-complexes. One can understand the tremendous petition by entering and establishing their formatsopportunities present in this sector by comparing in ‘B’ and ‘C’ class Indian cities. However, thethe sales of biggest Indian private retail company benefits of organised retailing would be felt onceRPG with that of Wal-Wart of the US. Accord- an equitable scale is achieved. This depends oning to industry sources, RPG’s worth is Rs 500 the store size, the footfalls, bills per customer percrore and Wal-Mart’s worth is Rs 1,091,250 annum, average bill size and the revenue earnedcrore. As estimated by CII-McKinsey Report, per sq. ft. But besides resources, a variety of‘Retailing in India – The Emerging Revolution’, other aspects such as qualified and trained man-retailing is the biggest industry in the country with power would be the need The point to be notedgross sales totalling $180 billion and second larg- over here is that the Indian retail sector is stillest generator of employment after agriculture. dominated by small and medium-sized stores. CanThis sector, however, being fragmented has not we then say that the organised retail marketbeen fully recognised as an industry and has suf- would in the near future grab more than half thefered from the limited access to capital, labour share of the entire retail industry? Probably not.and suitable real estate options. With the Indian Obviously, the development trends would meaneconomy predicted to grow by more than 6.5%, the transformation of neighbourhood grocery orcomparably lower interest rates, booming finan- kirana stores into self-serviced convenience and speciality stores — possibly similar to that of406 © Copy Right : Rai University 16.101G
  • 6. Marketing ManagementHarts-The Grocer, UK. The recent example in 6. Financingthis respect could be the opening of Akbarallys 7. Risk bearingconvenio in India. But still the paan-beedi pat- 8. Market informationterns of shops are here to stay. Reason being, 9. Management services and counselingthe Indian culture and the sizeable population liv-ing below a dollar a day. Increased competition, Looking at the Growth and Types ofhowever, would force the neighbourhood stores Wholesalingto improvise and to innovate different strategies,ideas and benefits to attract the customer. Such Wholesalers fall into four groups. Merchantsmall players would definitely leave a mark, may wholesalers take possession of the goods and in-be as a strong contender in the retail market. Also, clude full-service wholesalers (wholesale mer-online shopping, which didn’t take off as expected, chants, industrial distributors) and limited-serviceis not likely to cannibalise the retail industry as wholesalers (cash-and-carry wholesalers, truckthe significant share of consumers prefer to ac- wholesalers, drop shippers, rack jobbers, produc-tually feel the goods before buying. In terms of ers’ cooperatives, and mail-order wholesalers).magnitude, the non-food sector at present has Agents and brokers do not take possession ofmore number of outlets and they would continue the goods but are paid a commission for facilitat-to dominate the retail industry in India in terms of ing buying and selling. Manufacturers’ and re-numbers. Department stores are expected to tailers’ branches and offices are wholesaling op-witness the most dynamic growth in the coming erations conducted by non wholesalers to bypassyears. With new format chain of drug stores and the wholesalers. Miscellaneous wholesalers in-toy stores gaining popularity in the country, these clude agricultural assemblers, petroleum bulktwo sectors are also likely to become more promi- plants and terminals, and auction companies.nent. Indian consumers can now have variety and Merchant Wholesalers:value for their money and a different shopping - Independently owned businesses that takeexperience from the organised as well as frag- title to the merchandise they handle.mented retail sector. Hence, the Indian consum- - —They are called jobbers, distributors, orers reign supreme. mill supply houses and - fall into two categories: full service and lim-WHAT IS WHOLESALING? ited service.Wholesaling includes all the activities involved in Full-Service Wholesalers: Carry stock,selling goods or services to those who are buying maintain a sales force, offer credit, makefor the purpose of resale or for business use. deliveries, and provide management assis- tance.Can you distinguish between retailers and There are two types of full-service wholesalerswholesalers ? Wholesalers help manufacturers (1) Wholesale merchants sell primarily to retail-deliver their products efficiently to the many re- ers and provide a full range of servicetailers and industrial users across the nation. - General-merchandise wholesalers carry sev-Wholesalers perform many functions, including eral merchandise lines.selling and promoting, buying and assortment- - General-line wholesalers carry one or twobuilding, bulk-breaking, warehousing, transport-, financing, risk bearing, supplying market in- - Specialty wholesalers carry only part of a lineformation, and providing management servicesand counseling. (2) Industrial distributors sell to manufacturersIn brief we can say , following are the functions rather than to retailers and provide severalperformed by wholesalers, services—carrying stock, offering credit, and1. Selling and promoting providing delivery.2. Buying and assortment building Wholesaler Marketing Decisions3. Bulk breaking Shall we now take a look at wholesalers mar-4. Warehousing keting decisions .? Wholesalers also must make5. Transportation16.101G © Copy Right : Rai University 407
  • 7. Marketing Managementdecisions on their target market, product assort- A wholesaler will often take on the some ofment and services, pricing, promotion, and place. the marketing responsibilities. Many produceWholesalers who fail to carry adequate assort- their own brochures and use their ownments and inventory and provide satisfactory ser- telesales operations.vice are likely to be bypassed by manufacturers.Progressive wholesalers, on the other hand, adapt 2. Channel Intermediaries - Agentsmarketing concepts and streamline their costs of Agents are mainly used in international mar-doing business. kets. Target Market An agent will typically secure an order for a Product Assortment and Services producer and will take a commission. They Price Decision do not tend to take title to the goods. This means that capital is not tied up in goods. Promotion Decision However, a ‘stockist agent’ will hold con- Place Decision signment stock (i.e. will store the stock, but the title will remain with the producer. ThisThe marketing concept calls for paying increased approach is used where goods need to getattention to marketing logistics, an area of poten- into a market soon after the order is placedtially high cost savings and improved customer e.g. foodstuffs).satisfaction. When order processors, warehouseplanners, inventory managers, and transportation Agents can be very expensive to train. They are difficult to keep control of due to the physi-managers make decisions, they affect each cal distances involved. They are difficult toother’s costs and demand-creation capacity. The motivate.physical-distribution concept calls for treating allthese decisions within a unified framework. The 3. Channel Intermediaries -task becomes that of designing physical-distribu- Retailerstion arrangements that minimize the total cost of Retailers will have a much stronger personalproviding a desired level of customer service. relationship with the consumer.Types of Channel Intermediaries And The retailer will hold several other brands and products. A consumer will expect to be ex-Their Functions - Summarized. posed to many products.There are many types of intermediaries such as Retailers will often offer credit to the cus-wholesalers, agents, retailers, the Internet, over- tomer e.g. electrical wholesalers, or travelseas distributors, direct marketing (from manu- agents.facturer to user without an intermediary), and Products and services are promoted andmany others. The main modes of distribution will merchandised by the looked at in more detail. The retailer will give the final selling price to1. Channel Intermediaries - the product. Wholesalers Retailers often have a strong ‘brand’ them- selves e.g. Ross and Wall-Mart in the USA, They break down ‘bulk’ into smaller pack- and Alisuper, Modelo, and Jumbo in Portu- ages for resale by a retailer. gal. They buy from producers and resell to retail- ers. They take ownership or ‘title’ to goods 4. Channel Intermediaries - whereas agents do not (see below). Internet They provide storage facilities. For example, The Internet has a geographically disperse cheese manufacturers seldom wait for their market. product to mature. They sell on to a whole- The main benefit of the Internet is that niche saler that will store it and eventually resell to products reach a wider audience e.g. Scot- a retailer. tish Salmon direct from an Inverness fish- Wholesalers offer reduce the physical con- ery. tact cost between the producer and consumer There are low barriers low barriers to entry e.g. customer service costs, or sales force as set up costs are low. costs.408 © Copy Right : Rai University 16.101G
  • 8. Marketing Management Use e-commerce technology (for payment, There is a paradigm shift in commerce and shopping software, etc) consumption which benefits distribution via the Internet. Points to remember16.101G © Copy Right : Rai University 409
  • 9. Marketing Management410 © Copy Right : Rai University 16.101G