Retailing For the students of MBA

1. Dunne, Lusch, & Carver
Chapter 1
Perspectives on Retailing

2. Primer to Retailing*
• What is Marketing?

3. Primer to Retailing*
• What is Marketing?
• “Marketing is the process of planning and executing the conception, pricing,
promotion, and distribution of ideas, goods, and services to create the
exchanges that satisfy individual and organizational goals.” (1985 AMA Definition)
• “Marketing is an organizational function and a set of processes for creating,
communicating, and delivering value to customers and for managing customer
relationships in ways that benefit the organization and its stakeholders.” (Lusch and
Marshall 2004 AMA Definition)
• “Competition for a Differential Advantage.” (Wroe Alderson 1957)

4. Primer to Retailing*
• What is the Marketing Concept?
• It’s a marketing-management philosophy which
advocates that business organizations…

5. Primer to Retailing*
• What is the Marketing Concept?
• It’s a marketing-management philosophy which
advocates that business organizations…
1. Exist to identify & satisfy the needs of their customers (i.e.,
Customer Orientation)
2. That a customer orientation is accomplished through an
integrative effort throughout the firm (i.e., Integrated Effort)
3. The firm’s focus should be long-term & seek to provide a
satisfactory ROI (i.e., Long-Term Profit Orientation)

6. What is Retailing?

7. What is Retailing?
• Consists of the final activities and steps needed to
place merchandise made elsewhere into the hands of
the consumer or to provide services to the consumer.
• Notice this is a verb. Thus …
• Any firm that sells a product or provides a service to the
final consumer is performing the act of retailing.
• A retailer is a noun:
• It is any firm that generates a majority of its revenues or
business from the act of retailing

8. Distinguishing Between
a Retailer and Retailing
• If you go to the local Walmart to buy a loaf of bread is this a
retail activity? from a retailer?
• Yes. And Yes.
• Say you buy the same loaf of bread from Costco or Sam’s.
What are your answers?
• Should be 1) yes, and 2) no.
• Sam’s & Costco are wholesalers. The majority of their business comes from
selling to other businesses; yet, it’s retailing because you’re the consumer.
• If the chef of a local restaurant bought the same loaf of bread
for her business from Walmart, what would be your answers?
• Should be 1) no, and 2) yes.
• The chef buying for her business is a wholesale activity, but Walmart is a
retailer because the majority of its business comes from the act of retailing.

9. The Nature of
Change in Retailing Today
• Change is a result of at least four different
catalysts:
1. E-tailing
2. Price competition
3. Demographic shifts
4. Store size

10. E-tailing
• Definition:
• Retailing activity that occurs online
• Represents “the great unknown” for retail managers as
current online retail sales account for less than 5%.
• With the growth of the 2nd generation web, the Internet
has become much more interactive and social in nature.
This has important implications for retailers.

11. E-tailing (cont.)
• E-tailing’s impact on retailers and the supply
chain:
• Has Led to a Shift of Power
• Many like to talk about the “powerful” manufacturers
(e.g., P&G) or retailers (e.g., Walmart), but…
• Power is shifting from these firms to consumers
• Traditional brick-and-mortar retailers at a loss
• Why?

12. E-tailing (cont.)
• Why the shift in power?
• “Information is Power”
• The information dissemination capabilities of the Net
make consumers better informed when transacting and
negotiating with retailers.
• Channel surfing is growing threat to all retailers, but
particularly traditional brick-and-mortar retailers
• What is “channel surfing”?
• Common synonyms also include: Three-tailing and Showrooming*

13. Price Competition
• Americans are naturally price conscious,
whether shopping online or at a brick-and-
mortar store.
• Price conscious consumers are naturally price
sensitive*
• Price sensitivity*
• The degree to which price is a deciding factor in a consumer’s
purchase decision
• High (low) price sensitivity occurs when the percentage
change in demand is greater (lower) than the percentage
change in price

14. Price Competition (cont.)
• So if Americans are naturally price conscious,
is having the lowest price key to success in
retailing?

15. Price Competition (cont.)
• So if Americans are naturally price conscious,
is having the lowest price key to success in
retailing?
• No. Cost management is key.
• Retailers that are able to cut costs in order to provide
lower prices will be the winners.
• Example:
• Sam Walton forever changed the face of retailing by realizing
that most of any product’s cost gets added after the item is
produced, which is why he computerized Walmart (i.e., to
reduce expenses).

16. Demographic Shifts (cont.)
• To meet these ever changing and increasing
number of needs, successful retailers will be
those that…
1. become more service-oriented
2. offer better value in price and quality
3. are more promotion-oriented, and
4. are better atended to their customers’ needs.

17. Demographic Shifts (cont.)
• Shrinking birthrates and greater variance in
consumers’ needs means sustainable profit
growth will result from…
1. Increasing same-store sales by stealing competitors’
market share, or
• Same-store sales - Compares an individual store’s sales to its
sales for the same month in the previous year
• Market share - Retailer’s total sales divided by total market
sales
2. Reducing expenses without reducing services to the
point of losing customers

18. Store Size
• Prior to the recession, emphasis on increasing
store size
• Why?
• “The more merchandise customers see, the more they
will buy.”
• Result:
• Growth in scrambled merchandising
• When a retailer handles many different and unrelated items.

19. Store Size (cont.)
• Yet supersized stores raise several major costs,
namely:
1. Rent
2. Inventory Carrying Costs (ICCs)
3. Labor Costs

20. Store Size (cont.)
• Recent recession has altered this trend
somewhat…
• Growing trend towards reducing store size (when
possible).
• Doing so:
• Lessens aforementioned “major cost drivers”
• Addresses consumers’ desire for convenience
• Those who are “locked-in” to long-term leases or
own their own buildings are pushing ahead with
greater scrambled merchandising.

21. External Environmental
Forces Confronting Retail Firms

22. Categorizing Retailers
• The five most popular schemes to categorize
retailers:
1. Census
2. Number of outlets
3. Margin versus Turnover
4. Location
5. Size

23. Census Bureau
•NAICS Code – North American Industry Classification System
•Classifies all retailers using a general set of codes
•May be either a 3- or 4-digit code
• Pros:
• Greatest part of a retailer’s
competition comes from
others in its NAICS category.
• Cons:
• 3-digit codes tend to be too
general for any strategic use
• Year to year comparisons are
difficult
• Codes used do not reflect all
retail activity (e.g., no
services)

24. Number of Outlets
•Greatest Shortcomings of This Approach:
•Only considers traditional (brick-and-mortar) retailers
•Overlooks online retailers and non-traditional retailers
• Advantages of Several
Units:
• Spread fixed costs
• Economies of scale in
purchasing
• Channel Captain status
• Private label products
• Advantages of Single Units:
• More motivated employees
• Attune to change in market
• Tailor their merchandise
buying to fit local needs
• Possible economies from
joint-purchasing (IGA)

25. Margin Versus Turnover
• Categorizing based upon:
• Gross margin percentage
• Gross margin divided by net sales or what percent of each
sales dollar is gross margin
• Inventory turnover
• The number of times per year, on average, that a retailer sells
its inventory
• Gross Margins
• Is the difference between net sales and cost of good sold.

26. Location
• Retailers are now aware that opportunities
exist in new, non-traditional retail areas.
• Retailers are reaching out to alternative retail
sites, rather than simply renovating existing
stores.
• Today, the most significant of the new,
nontraditional shopping locations could be the
one which combines culture with
entertainment or shopping.

27. Size
• Refers to either sales volume or the number of
employees
• Operating performance tends to vary according to
size
• Larger firms usually have lower operating costs per
sales dollar.
• While size has been useful in the past, technology
advances bring this logic into question.
• For example:
• The fully automated retailer

28. A Retailing Career
• Exposure to all business disciplines…
• Economics - Forecasting sales growth
• Fashion – Predicting behavior and future trends.
• Marketing - Determining which styles will be "in," ordering and
stocking these styles, promoting them and properly pricing them.
• Finance - Reducing store expenses.
• Management – Managing schedules & hiring employees
• Logistics – Managing the flow of merchandise
• Information Systems - Analyzing sales and other data to
determine opportunities for improved management practices.
• Accounting - Obtaining bottom line sales and profit figures.

29. The Study and Practice of Retailing
Analytical Method
Manager is finder and
investigator of facts.
Creative Method
Manager is conceptual
and very imaginative.
Two-Pronged Method
Manager who employs both
approaches.

30. What You Should Have Learned…
Chapter’s Learning Objectives
1. What retailing is and why it is undergoing so
much change today.
2. The five methods used to categorize retailers.
3. What is involved in a retail career and be able
to list the prerequisites necessary for success
in retailing.
4. The different methods for the study and
practice of retailing.