Managing Retailing, Wholesaling, and Logistics

Retailing includes all the activities in selling goods or services directly to final consumers for personal, nonbusiness use. A retailer or retail store is any business enterprise whose sales volume comes primarily from retailing. Any organization selling to final consumers - whether it is a manufacturer, wholesaler, or retailer - is in retailing.

Types of Retailers

Consumers today can shop at store retailers, nonstore retailer, and retail organization. Different formats of store retailers will have different competitive and price dynamics. Retailers can position themselves as offering one of four levels of service:

1. Self-service - is the cornerstone of all discount operations. Many customers carry out their own "locate-compare-select" process to save money.
2. Self-selection - customers find their own goods, although they can ask for assistance.
3. Limited service - these retailers carry more shopping goods and services such as credit and merchandise-return privileges. Customers need more information and assistance.
4. Full service - salepeople are ready to assist in every phase of the "locate-compare-select" process. The high staffing cost, along with the higher proportion of specialty goods and slower-moving items and the many services, result in high-cost retailing.

Nonstore retailing has been growing much faster than store retailing. It has four major categories (1) direct selling, a multibillion-dollar industry with hundreds of companies (such as Avon) selling door-to-door or at home sales parties; (2) direct marketing, with roots in direct-mail and catalog marketing, also includes telemarketing and Internet selling (1-800-FLOWERS); (3) automatic vending used for impulse items such as soft drinks and cosmetics; and (4) buying service, a storeless retailer serving a specific clientele that is entitled to discounts in return for membership.

Retailer Marketing Decisions

• Target Market - Until it defines and profiles the target market, the retailer cannot make consistent decisions about product assortment, store decor, advertising messages and media, price, and service levels.
• Channels - Based on a target market analysis and other considerations, retailers must decide which channels to employ to reach their customers.
• Product Assortment - The retailer's product assortment must match the target market's shopping expectations in breadth and depth. Another challenge is to develop a product-differentiation strategy by offering brands not available at competing stores, featuring mostly private-label goods, presenting distinctive merchandise events, changing merchandise frequently or offering surprise merchandise, featuring new merchandise, offering customizing services, or offering a highly targeted assortment.
• Procurement - The retailer must establish merchandise sources, policies, and practices for procurement. Stores are using direct product profitability (DPP) to measure a product's handling costs from the time it reaches the warehouse until a customer buys it in the store.
• Prices - Prices are a key positioning factor and must be set in relationship to the target market, product-and-service assortment mix, and competition. Retailers generally fall into the high-markup, lower-volume group (fine specialty stores) or the low-markup, higher-volume group (discount stores).
• Services - Retailers must decide on the services mix to offer customers. Prepurchase services include accepting telephone and mail orders, advertising, window and interior display, and fitting rooms. Postpurchase services include shipping and delivery, gift wrapping, adjustments and returns, and alterations.
• Store Atmosphere - Atmosphere is another differentiation tool. Every store has a look, and a physical layout that make it hard or easy to move around. 
• Store Activities and Experiences - The growth of e-commerce has forced traditional brick-and-mortar retailers to respond.
• Communications -Retailers use a wide range of communication tools to generate traffic and purchases, including advertising, special sales, money-saving coupons, frequent-shopping rewards, and in-store food sampling. 
• Location - The three keys to retail success are "location, location, and location." Retailers can place their stores in the following locations:
• Central business districts: the oldest and most heavily trafficked city areas, often known as "downtown."
• Regional shopping centers: large suburban malls containing 40 to 200 stores, a mix of smaller stores and one or two nationally known anchor stores or a combination of big-box stores.
• Community shopping centers: smaller malls with one anchor store and 20 to 40 small stores.
• Shopping strips: a cluster of stores, usually in one long building, serving a neighborhood's needs for groceries, hardware, dry cleaning, and more.
• A location within a larger store: concession space rented by McDonald's or another retailer within a larger operation, such as an airport or a department store.
• Stand-alone stores: free-standing retail sites not directly connected to other stores.

Private Labels

A private label brand (also called a reseller, store, house, or distributor brand) is a brand that retailers and wholesalers develop.

Wholesaling

Wholesaling includes all the activities in selling goods or services to those who buy for resales or business use. It excludes manufacturers and farmers (because they are engaged primarily in production) and retailers. Wholesalers (also called distributors) differ from retailers in several ways. First, wholesalers pay less attention to promotion, atmosphere, and location because they deal with business customers rather than final consumers. Second, wholesale transactions are usually larger than retail transactions, and wholesalers cover a larger trade area than retailers. Third, wholesalers and retailers comply with different legal regulations and taxes.

Wholesaling Functions

Savvy wholesalers are adding value to the channel by adapting their services to meet their suppliers' and target customers' changing needs. They are increasing asset productivity by managing inventories and receivable better and cutting costs by investing in materials-handling technology and information systems. Yet wholesaling remains vulnerable to one of the most enduring trends - fierce resistance to price increases and the winnowing out of suppliers based on cost and quality.

Market Logistics

Market logistics includes planning the infrastructure to meet demand, then implementing and controlling the physical flows of materials and final goods from points of origin to points of use, to meet customer requirements at a profit. Market logistics planning has four steps:

1. Deciding on the company's value proposition to its customers.
2. Selecting the best channel design and network strategy for reaching the customers.
3. Developing operational excellence in sales forecasting, warehouse management, transportation management, and materials management.
4. Implementing the solution with the best information systems, equipment, policies, and procedures.

Integrated Logistics Systems

The market logistics task calls for integrated logistics systems (ILS), which include materials management, material flow systems, and physical distribution, aided by information technology to shorten the order-cycle time, reduce errors, and improve control. Companies are concerned about the total cost of market logistics, which can amount to as much as 30 percent to 40 percent of the product's cost. Lower market-logistics costs will permit lower prices, yield higher profit margins, or both. Even though the cost of market logistics can be high, a well-planned program can be a potent tool in competitive marketing.

Market-Logistics Objectives

Many companies state their market-logistics objective as "getting the right goods to the right places at the right time for the least cost." Unfortunately, no system can simultaneously maximize customer service and minimize distribution cost. Given the market-logistics objectives, the company must design a system that will minimize the cost of achieving these objectives. Each possible market-logistics system will lead to the following cost:

M = T + FW + VW + S

where M = total market-logistics cost of proposed system
           T  = total freight cost of proposed system
         FW = total fixed warehouse cost of proposed system
         VW= total variable warehouse cost (including inventory) of proposed system
           S  = total cost of lost sales due to average delivery delay under proposed system

Market-Logistics Decisions

The firm must make four major decisions about its market logistics: (1) How should we handle orders (order processing)? (2) Where should we locate our stock (warehousing)? (3) How much stock should we hold (inventory)? and (4) How should we ship goods (transportation)?

Order Processing

Most companies want to shorten the order-to-payment cycle - the elapsed time between an order's receipt, delivery, and payment. The longer this cycle takes, the lower the customer's satisfaction and the lower the company's profits.

Warehousing

Every company must store finished goods until they are sold, because production and consumption cycles rarely match. More stocking locations mean goods can be delivered to customers more quickly, but warehousing and inventory costs are higher. To reduce these costs, the company might centralize inventory and use fast transportation to fill orders.

Inventory

Salespeople would like their companies to carry enough stock to fill all customer orders immediately. However, this is not cost-effective. Inventory cost increases at an accelerating rate as the customer-service level approaches 100 percent. Management needs to know how much sales and profits would increases as a result of carrying larger inventories and promising faster order fulfillment times, and then make a decision.

Transportation

Transportation choices affect product pricing, on-time delivery performance, and the condition of the goods when they arrive, all of which affect customer satisfaction. Shippers are increasingly combining two or more transportation modes, thanks to containerization, putting goods in boxes or trailers that are easy to transfer between two transportation modes. Piggyback describes the use of rail and trucks; fishyback, water and trucks; trainship, water and rail; and airtruck, air and trucks. Each coordinated mode offers specific advantages.

Shippers can choose private, contract, or common carriers. If the shipper owns its own truck or air fleet, it becomes a private carrier. A contract carrier is an independent organization selling transportation services to others on a contract basis. A common carrier provides services between predetermined points on a scheduled basis and is available to all shippers at standard rates.

Organizational Lessons

Market-logistics strategies must be derived from business strategies, rather than solely from cost considerations. The logistics system must be information-intensive and establish electronic links among all the significant parties. Smart companies will adjust their logistics strategies to each major customer's requirements. The company's trade group will set up differentiated distribution by offering different bundled service programs for different customers.

Summary

Retailing includes all the activities in selling goods or services directly to final consumers for personal, nonbusiness use. A retailer or retail store is any business enterprise whose sales volume comes primarily from retailing. Any organization selling to final consumers - whether it is a manufacturer, wholesaler, or retailer - is in retailing. Wholesaling includes all the activities in selling goods or services to those who buy for resales or business use. It excludes manufacturers and farmers (because they are engaged primarily in production) and retailers. Wholesalers (also called distributors) differ from retailers in several ways. First, wholesalers pay less attention to promotion, atmosphere, and location because they deal with business customers rather than final consumers. Second, wholesale transactions are usually larger than retail transactions, and wholesalers cover a larger trade area than retailers. Third, wholesalers and retailers comply with different legal regulations and taxes.

Personal Point of View

I believe wholesaling will take another stage in the next century. In the near future, wholesalers will skip the retailers and reach out to customers directly by opening "warehouse club" or "wholesale club." People will start shopping at "warehouse club" or "wholesale club" more frequently than retailers. The weak point is locations and easy access in the community. If wholesalers can open "warehouse clubs" in the every community such as Costco in California, then reality of succeeding in reaching directly out to customers is possible.