Supply chain management- a management system that coordinates and integrates all of the activities performed by supply chain members into a seamless process, from the source to the point of consumption, resulting in enhanced customer and economic value
Many modern companies are turning to supply chain management for competitive advantage.
The goal of supply chain management is to coordinate and integrate all of the activities performed by supply chain members into a seamless process, from the source to the point of consumption, ultimately giving supply chain managers "total visibility and control" of the materials, processes, money, and finished products both inside and outside the company they work for.
The philosophy behind supply chain management is that by visualizing and exerting control over the entire supply chain, supply chain managers can balance supply and demand needs, maximize strengths, and increase efficiencies at each level of the chain. Understanding and integrating supply and demand-related information at every level enables supply chain managers to optimize their decisions, reduce waste, and respond quickly to sudden changes in supply or demand.
Supply chain management, when performed well, reflects a completely customer-driven management philosophy. I
supply chain agility- an operational strategy focused on creating inventory velocity and operational flexibility simultaneously in the supply chain
Agile companies synchronize their activities through the sharing of supply and demand market information, spend more time than their competitors focusing on activities that create direct customer benefits, partner closely with suppliers and service providers to reduce customer wait times for products, and constantly seek to reduce supply chain complexity through the evaluation and reduction (or elimination) of stock-keeping units (SKUs) that customers aren't buying, among other strategies. By managing the product pipeline in this way, companies are able to reduce supply chain costs while at the same time offering better service levels, and in doing so, deliver more desirable products at better prices to customers.
In a supply chain, agility which involves being flexible, like star athletes, allows companies to adapt to customer needs.
Supply chain management is a key means of differentiation for a firm, and therefore represents a critical component in marketing and corporate strategy. Companies that focus on supply chain management commonly report lower inventory, transportation, warehousing, and packaging costs; greater logistical flexibility; improved customer service; and higher revenues. Research has shown a clear relationship between supply chain performance and both profitability and company value. Additionally, because well-managed supply chains are able to provide better value to customers with only marginal incremental expenditure on company assets, best-in-class supply chain companies such as Kimberly-Clark are becoming significantly more valuable investments for investors. Kimberly-Clark re-organized its supply chains by reducing distribution centers, increasing flexibility, and making its supply chain more "demand-driven." As a result, the company decreased forecasting errors by up to 35 percent each week, reduced fuel consumption by 2.4 million gallons per year, and reduced overall supply chain costs by millions of dollars per year*—all of which positively impact the company's bottom line. Under the DSI philosophy, those functional areas in a company charged with creating customer demand (such as marketing, sales, or research/development) communicate frequently and are synchronized with the parts of the business charged with fulfilling the created demand (purchasing, manufacturing, and logistics). This type of alignment enhances customer satisfaction by ensuring that, for example, salespeople make promises to customers that can actually be delivered on by the company's logistics arm, or that raw materials being purchased actually meet customer specifications before they are placed into production. Simultaneously, the company gains efficiencies from ordering and using only those materials that lead directly to sales. In short, companies operating under a DSI philosophy are better at their business because all of the different divisions within the company "play from the same sheet of music."* When firms practice good supply chain management, their functional departments or areas, such as marketing, research and development, and/or production, are integrated both within and across the linked firms.
Integration, then, is "how" excellent supply chain management works.
The business processes on which the linked firms work together represent the "what" of supply chain management—they are the objects of focus on which firms, departments, areas, and people work together when seeking to reduce supply chain costs or to generate additional revenues.
customer service management process- presents a multi-company, unified response system to the customer whenever complaints, concerns, questions, or comments are voiced
Whereas the CRM process is designed to identify and build relationships with good customers, the customer service management process is designed to ensure that those customer relationships remain strong. The customer service management process presents a multi-company, unified response system to the customer whenever complaints, concerns, questions, or comments are voiced. When the process is well executed, it can have a strong positive impact on revenues, often as a result of quick positive response to negative customer feedback, and sometimes even in the form of additional sales gained through the additional customer contact. Customers expect service from the moment a product is purchased until it is disposed of, and the customer service management process allows for touch points between the buyer and seller throughout this life cycle. The use of customer care software enables companies to enhance their customer service management process. Dell's customer support software, Clear View, enables staff members at the tech company's customer service command centers to view information from Dell's internal systems (as well as that of its partners) in real-time. This information is combined with a geographical system that allows Dell to match each customer's complaint with the proper service dispatch center, making its response both rapid and effective.*
Demand Management- seeks to align supply and demand throughout the supply chain by anticipating customer requirements at each level and creating demand-related plans of action prior to actual customer purchasing behavior
he demand management process seeks to align supply and demand throughout the supply chain by anticipating customer requirements at each level and creating customer-focused plans of action prior to actual purchases being made. At the same time, demand management seeks to minimize the costs of serving multiple types of customers who have variable wants and needs. In other words, the demand management process allows companies in the supply chain to satisfy customers in the most efficient and effective ways possible. Activities such as collecting customer data, forecasting future demand, and developing activities that smooth out demand help bring available inventory into alignment with customer desires.
Though it is very difficult to predict exactly what items and quantities customers will buy prior to purchase, demand management can ease pressure on the production process and allow companies to satisfy most of their customers through greater flexibility in manufacturing, marketing, and sales programs. One key way this occurs is through the sharing of customer demand forecasts and data during sales and operations planning (S&OP) meetings. During these meetings, the demand-generating functions of the business (marketing and sales) work together with the production side of the business (procurement, production, and logistics) in a collaborative arrangement designed to both satisfy customers and minimize waste. When work boot manufacturer Red Wing Shoes implemented S&OP in 2013, it was able to reduce inventory by 27 percent while simultaneously increasing customer service rates by 8 to 10 percent, leading to significant costs savings that were passed along to customers.*
Order Fulfillment- a highly integrated process, often requiring persons from multiple companies and multiple functions to come together and coordinate to create customer satisfaction at a given place and time
One of the most fundamental processes in supply chain management is the order fulfillment process, which involves generating, filling, delivering, and providing on-the-spot service for customer orders. The order fulfillment process is a highly integrated process, often requiring persons from multiple companies and multiple functions to come together and coordinate to create customer satisfaction at a given place and time.
Overall, the order fulfillment process involves understanding and integrating the company's internal capabilities with customer needs, and matching these together so that the supply chain maximizes profits while minimizing costs and waste. Amazon now uses Kiva robots to help workers pack three to four times more orders per hour than before. These robots bring shelves of products to the human packers based on what is in each customer's order. The packers then pick out the correct items, pack them, and send the complete box off to another robot to be shipped. This process has greatly increased the speed of Amazon's order fulfillment process: recent research found that the work robots do at Amazon shaves more than an hour off the time needed to pick and pack the average order.*
supplier relationship management process- supports manufacturing flow by identifying and maintaining relationships with highly valued suppliers
The supplier relationship management process is closely related to the manufacturing flow management process and contains several characteristics that parallel the customer relationship management process. The manufacturing flow management process is highly dependent on supplier relationships for flexibility. Furthermore, in a way similar to that found in the customer relationship management process, supplier relationship management provides structural support for developing and maintaining relationships with suppliers. Thus, by integrating these two ideas, supplier relationship management supports manufacturing flow by identifying and maintaining relationships with highly valued suppliers.
just as firms benefit from developing close-knit, integrated relationships with customers, close-knit, integrated relationships with suppliers provide a means through which performance advantages can be gained. For example, careful management of supplier relationships is a key step toward ensuring that firms' manufacturing resources are utilized to their maximum potential. It is clear, then, that the supplier relationship management process has a direct impact on each supply chain member's bottom-line financial performance. In certain instances, it can be advantageous for the supply chain to integrate via a formal merger. American pharmaceutical company Bayer HealthCare recently purchased German-based Steigerwald Arzneimittelwerk, a partnering pharmacy supplier that specializes in herbal medicines. Purchasing a supplier gave Bayer HealthCare access to new medications. At the same time, purchasing a supplier based in Germany gave Bayer HealthCare enhanced access to European markets. Managing supplier relationships not only gave Bayer HealthCare better access to supplies, it also offered a chance to increase its customer base. The acquisition of one by the other simply sealed the deal by making the partnership permanent.*
Product Development and Commercialization process -includes the group of activities that facilitates the joint development and marketing of new offerings among a group of supply chain partner firms
The product development and commercialization process (discussed in detail in Chapter 11) includes the group of activities that facilitate the joint development and marketing of new offerings among a group of supply chain partner firms. In many cases, more than one supply chain entity is responsible for ensuring new product success. Commonly, a multi-company collaboration is used to execute new-product development, testing, and launch, among other activities. The capability for developing and introducing new offerings quickly is key for competitive success versus rival firms, so it is often advantageous to involve many supply chain partners in the effort. The process requires the close cooperation of suppliers and customers, who provide input throughout the process and serve as advisers and co-producers for the new offering(s).
Designing a new product with the help of suppliers and customers can enable a company to introduce features and cost-cutting measures into final products. Customers provide information about what they want from the product, while suppliers can help to design for quality and manufacturability. Research has shown that when each supply chain partner shares responsibility for the design and manufacture of a new product, more obstacles can be identified early and opportunities for cost reduction are made possible. For example, Boeing involved a team of suppliers early in the development phase of its 787 Dreamliner aircraft, leading to a shift to a lighter composite material for the fuselage's outer shell. The lighter material is expected to make the aircraft substantially cheaper to operate on long haul flights.*
returns management process- enables firms to manage volumes of returned product efficiently while minimizing returns-related costs and maximizing the value of the returned assets to the firms in the supply chain
The final supply chain management process deals with situations in which customers choose to return a product to the retailer or supplier, thereby creating a reversed flow of goods within the supply chain. The returns management process enables firms to manage volumes of returned product efficiently while minimizing returns-related costs and maximizing the value of the returned assets to the firms in the supply chain. Returns have the potential to affect a firm's financial position in a major and negative way if mishandled. In certain industries, such as apparel eretailing, returns can amount to as much as 40 percent of sales volume.
In addition to the value of managing returns from a pure asset-recovery perspective, many firms are discovering that returns management also creates additional marketing and customer service touch points that can be leveraged for added customer value above and beyond normal sales and promotion-driven encounters. Handling returns quickly creates a positive image, and gives the company an additional opportunity to please the customer, and customers who have positive experiences with the returns management process can become very confident buyers who are willing to reorder, since they know any problems they encounter with purchases will be quickly and fairly rectified. In addition, the returns management process allows the firm to recognize weaknesses in product design and/or areas for potential improvement through the direct customer feedback that initiates the process.
The mobile phone industry has been able to use returns management to its advantage. In a typical year, almost 100 million mobile phones are returned to manufacturers. With a return of between 35 and 75 percent of their original value in the secondary market, reselling 250,000 out of the 100 million returned phones would result in more than $20 million in additional revenue. Returns management also allows mobile phone companies to reclaim rare materials, such as gold, silver, and palladium. For example, reclaimed metals from one million mobile phones returned to one company brought in more than $2.8 million.*
Partnering organizations are becoming increasingly efficient at dividing responsibility for supply chain management. Outsourcing, or contract logistics, is a rapidly growing initiative in which a manufacturer or supplier turns over an entire logistical function (often buying and managing transportation, warehousing, and/or light postponed manufacturing) to an independent third-party logistics company (3PL).
Outsourcing, or contract logistics- a manufacturer's or supplier's use of an independent third party to manage an entire function of the logistics system, such as transportation, warehousing, or order processing
Outsourcing enables companies to cut inventories, locate stock at fewer plants and distribution centers, and still provide the same level of service or even better. The companies then can refocus investment on their core business. In the hospitality industry, Avendra negotiates with suppliers to obtain virtually everything a hotel might need, from food and beverages to golf course maintenance. For example, by relying on Avendra to manage many aspects of the supply chain, companies like Fairmont Hotels & Resorts and Inter-Continental Hotels Group can concentrate on their core function—providing hospitality. The most progressive companies are engaging in vested outsourcing relationships, whereby both parties collaborate deeply to find mutually beneficial arrangements that allow both parties to "win" by reducing overall costs while achieving better performance.*
public-private partnerships (PPPs) -Critical to the satisfaction of both company and societal interests and provide a mechanism by which very-large scale problems or opportunities can be addressed
ometimes, the magnitude of a supply chain dilemma is too great for a company and its suppliers or outsourcing partners to handle alone. Increasingly, this is leading firms to work together with government agencies in the form of public-private partnerships (PPPs). PPPs are critical to the satisfaction of both company and societal interests and provide a mechanism by which very-large scale problems or opportunities can be addressed.
Though it is often assumed that industries and governments work poorly together (or in fact work against one another) when problems common to both emerge, a number of successful PPPs have formed over the past decade to diminish the negative impacts of potentially hazardous supply chain situations. For example, immediately following the September 11, 2001, terror attacks on the United States, representatives from both industry and government collaborated to develop the Customs-Trade Partnership Against Terrorism (C-TPAT) in an effort to protect U.S.-based supply chains from terrorist disruption. The program currently has more than 10,000 company participants and has, in general terms, been successful at protecting cargo inbound for the United States while only minimally impacting the performance of its members' supply chains. Similarly, governmental agencies like the Federal Emergency Management Agency (FEMA) and non-government organizations like the Red Cross have benefitted from the inclusion of commercial logistics expertise in their disaster response systems.* Efforts involving.
PPPs will likely factor into the solution of future national and global supply chain problems as well. For example, the dangerous combination of population growth and overuse of aging infrastructure has led to a situation whereby congestion and deterioration of roads imperils the timely shipment of goods. The U.S. Federal Highway Administration is openly soliciting proposals that would take some of the stress off of the U.S. highway network, including collaborating on building new toll roads and extending railways dedicated to cargo. These sorts of PPP-led advancements will play a critical role in the price of retail goods in upcoming years due to the costs associated with product and material delays.*
three-dimensional printing (3DP)- the creation of three-dimensional objects via an additive manufacturing (printing) technology that layers raw material into desired shapes
In the near future, however, electronic distribution will not be limited only to products and services that are mostly composed of information that can therefore be easily digitized. Experiments with three-dimensional printing (3DP) have been successful in industries such as auto parts, biomedical, and even fast food. Using 3DP technology, objects are built to precise specifications using raw materials at or near the location where they will be consumed. Charge Bikes prints customized titanium bicycle parts based on customer specifications, thus reducing the need to transport complete frames around the world before they can be assembled and sold. Shipping raw materials such as powdered titanium is cheaper than shipping finished bicycles because it can be packaged in a perfectly cubic container, making transportation much more efficient and cost effective. Powdered titanium is used only when it is needed, so virtually no waste is produced during printing. Web sites like 3DLT.com offer consumers templates for toys, dishes, and furniture that can be printed using the 3DP technology that is becoming increasingly available.
Many industry experts project that 3DP (sometimes referred to as additive manufacturing) will radically transform the ways global supply chains work by changing the basic platforms of business. With 3DP, smaller, localized supply chains will become the norm and small manufacturers will produce many more custom products than ever before over very short lead times. And because such platforms will remove much of the need for transportation of finished goods to distribution centers and retailers, 3DP is expected to have a very positive impact on businesses' carbon footprints and the environment at large. At the same time, these platforms should make it possible to deliver unique goods more quickly, creating perceptions of better service.*
Global markets present their own sets of challenges for supply chain managers. Strategically, there are many reasons why a company might wish to globalize its supply chain. The allure of foreign markets is strong, due to increasing demand for imported products worldwide. Cheap labor advantages and trade barriers/tariffs have encouraged firms to expand their global manufacturing operations. At the same time, globalization has brought about great uncertainty for modern companies, and specifically, their supply chains. Moving operations offshore exposes companies to risks associated with geopolitical conflict, foreign nationalization of assets and knowledge diffusion, and highly variable quality standards. Foreign suppliers are often less reliable, and due to the lengthening of the supply chain, variability in transportation service can lead to service failures. It is important to consider how sourcing and logistics will be impacted by supply chain globalization.
From a supply management standpoint, it often makes sense to procure goods and services from offshore suppliers. From an economic perspective, lower labor rates, government subsidies, and low materials costs are attractive, but are sometimes outweighed by the costs of quality variation and loss of intellectual property. Still, moving offshore also exposes the company to new technologies, introduces competition to domestic suppliers who have become lackadaisical, and build brand equity. Companies moving offshore must carefully consider the pros and cons, and build supply management systems that can manage very diverse tasks. Logistically, it is critical for importers of all sizes to understand and cope with the legalities of trade in other countries. Shippers and distributors must be aware of the permits, licenses, and registrations they may need to acquire, and depending on the types of product they are importing, the tariffs, quotas, and other regulations that apply in each country. Sometimes, the complexities of handling overseas logistics are too great to overcome. As companies lengthen their global supply chains in search of cost advantages, other less obvious risks emanating from outside the immediate supply chain are also starting to come into play. Longer shipping lanes can expose shipments to natural disasters and extreme weather; political instability and trade restrictions can abruptly halt or slow shipments; fluctuations in currency values and border delays can diminish the value of products while they are on the path to the customer; and theft and piracy can present a greater threat due to increased time of exposure. For these reasons, many companies are now creating contingency plans so they can react quickly when something goes wrong.*
Offshoring differs from nearshoring in that offshoring:
results in lower labor costs and high fuel costs.
disadvantage offshore suppliers
leads to the loss of intellectual property of companies
Indeed, as the world continues to globalize, supply chain management will undoubtedly continue to take on a globalized flavor. Worldwide, the resources needed to manufacture and sell increasingly demanded goods are becoming scarcer, and market boundaries are melting together. Free trade is expanding, and consumers in nations where demand has been traditionally low are viewing goods and placing orders via the Internet. Efforts to achieve world-class global supply chain management mean that the balancing of supply and demand—and the satisfaction of more and more customers worldwide—are becoming a reality for many companies.
In addition to outsourcing, globalization, PPPs, and 3D printing, other advancements in data and technology are beginning to exert an impact on the effectiveness and efficiency of the supply chain. First, a rapidly increasing prevalence of powerful computers and methods for capturing customer, supplier, and company information over the past two decades has resulted in the appearance of big data, a colloquial term for the explosive availability of data that has traditionally been hard to capture, store, manage, and analyze. marketing channel (also called a channel of distribution- a set of interdependent organizations that eases the transfer of ownership as products move from producer to business user or consumer
marketing channel can be viewed as a canal or pipeline through which products, their ownership, communication, financing and payment, and accompanying risk flow to the consumer. A marketing channel (also called a channel of distribution) is a business structure of interdependent organizations that reaches from the point of production to the consumer and facilitates the downstream physical movement of goods through the supply chain. Channels represent the "place" or "distribution" element of the marketing mix (product, price, promotion, and place), in that they provide a route for company products and services to flow to the customer. In essence, the marketing channel is the "downstream" portion of the supply chain that connects a producer with the customer. Whereas "upstream" supply chain members are charged with moving component parts or raw materials to the producer, members of the marketing channel propel finished goods toward the customer, and/or provide services that facilitate additional customer value.
Because customers, like businesses, are specialized, they also rely on other entities for the fulfillment of most of their needs. Imagine what your life would be like if you had to grow your own food, make your own clothes, produce your own television shows, and assemble your own automobile! Luckily, members of marketing channels are available to undertake these tasks for us. However, not all goods and services produced by channel members exist in the form we'd most prefer, at least at first. Marketing channels are valuable because they aid producers in creating time, place, and exchange utility for customers, such that products become aligned with their needs.
form utility -the elements of the composition and appearance of a product that make it desirable
Producers, who sit at the top of the supply chain, provide form utility when they transform oats grown on a distant farm into the Cheerios that we like to eat for breakfast.
time- the increase in customer satisfaction gained by making a good or service available at the appropriate time
place utility- the usefulness of a good or service as a function of the location at which it is made available
Time and place utility are created by channel members, when, for example, a transport company hired by the producer physically moves boxes of cereal to a store near our homes in time for our next scheduled shopping trip.
exchange utility -the increased value of a product that is created as its ownership is transferred
And the retailer, who is often the closest channel member to the customer, provides a desired product for some amount of money we are reasonably willing to give, creates exchange utility in doing so.
Merchant wholesalers -an institution that buys goods from manufacturers and resells them to businesses, government agencies, and other wholesalers or retailers and that receives and takes title to goods, stores them in its own warehouses, and later ships them
They provide time and place utility and contact efficiency to retailers.
Merchant wholesalers are organizations that facilitate the movement of products and services from the manufacturer to producers, resellers, governments, institutions, and retailers. All merchant wholesalers take title to the goods they sell, and most of them operate one or more warehouses where they receive finished goods, store them, and later reship them to retailers, manufacturers, and institutional clients. Since wholesalers do not dramatically alter the form of a good nor sell it directly to the consumer, their value hinges on their providing time and place utility and contact efficiency to retailers.
wholesaling intermediaries who do not take title to a product but facilitate its sale from producer to end user by representing retailers, wholesalers, or manufacturers
Other intermediaries do not take title to goods and services they market but do facilitate exchanges of ownership between sellers and buyers. Agents and brokers facilitate the sales of products downstream by representing the interests of retailers, wholesalers, and manufacturers to potential customers. Unlike merchant wholesalers, agents or brokers only facilitate sales and generally have little input into the terms of the sale. They do, however, get a fee or commission based on sales volume. For example, grocery chains often employ the services of food brokers, who provide expertise for a range of products within a category. The broker facilitates the sale of many different manufacturers' products to the grocery chain by marketing the producers' stocks, but the broker never actually takes ownership of any food products.
which of the following is true of intermediaries that take title to a product.
They own the merchandise and control the terms of the sale.
Many different variations in channel structures are possible, with choices made based in large part on the numbers and types of wholesaling intermediaries that are most desirable. Generally, product characteristics, buyer considerations, and market conditions determine the types and number of intermediaries the producer should use, as follows:
Customized or highly complex products such as computers, specialty foods, or custom uniforms are usually sold through an agent or broker, who may represent one or multiple companies. In contrast, standardized product such as soda or toothpaste are often sold through a merchant wholesaler and retailer channel.
Buyer considerations such as purchase frequency or customer wait time influence channel choice. When there is no time pressure, customers may save money on books by ordering online and taking direct distribution from a wholesaler. However, if a book is needed immediately, it will have to be purchased at retail—at the school bookstore—and will include a markup.
Market characteristics such as how many buyers are in the market and whether they are concentrated in a general location also influence channel design. In a home sale, the buyer and seller are localized in one area, which facilitates the use of a simple agent/broker relationship, whereas mass-manufactured goods such as automobiles may require parts from all over the world and therefore many intermediaries.
Retailers- a channel intermediary that sells mainly to consumers
Retailers are those firms in the channel that sell directly to consumers as their primary function. A critical role fulfilled by retailers within the marketing channel is that they provide contact efficiency for consumers. Suppose you had to buy your milk at a dairy, your meat at a stockyard, and so forth. You would spend a great deal of time, money, and energy just shopping for just a few groceries. Retailers simplify distribution by reducing the number of transactions required by consumers, and by making an assortment of goods available in one location. Consider the example illustrated in Exhibit 13.1. Four consumers each want to buy a tablet computer. Without a retail intermediary like Best Buy, tablet manufacturers Samsung, Asus, Microsoft, Apple, and Lenovo would each have to make four contacts to reach the four consumers who are in the target market, for a total of twenty transactions. But when Best Buy acts as an intermediary between the producer and consumers, each producer needs to make only one contact, reducing the number to nine transactions. This benefit to customers accrues whether the retailer operates in a physical store location or online format.
Transactional functions contracting/promtoin, negotiating, risk taking.
Transactional functions involve contacting and communicating with prospective buyers to make them aware of existing products and to explain their features, advantages, and benefits.
logistical functions- Physicall disturbing, storing, Sorting.
Intermediaries in the channel also provide logistical functions. Logistical functions typically include transportation and storage of assets, as well as their sorting, accumulation, consolidation, and/or allocation for the purpose of conforming to customer requirements.
Facilitating functions researching, financing
The third basic channel function, facilitating, includes research and financing. Research provides information about channel members and consumers by getting answers to key questions: Who are the buyers? Where are they located? Why do they buy? Financing ensures that channel members have the money to keep products moving through the channel to the ultimate consumer. Although individual members can be added to or deleted from a channel, someone in the channel must perform these essential functions. Producers, wholesalers, retailers, or consumers can perform them, and sometimes nonmember channel participants such as service providers elect to perform them for a fee.
1. Direct channel
Direct channel- a distribution channel in which producers sell directly to consumers
When possible, producers use a direct channel to sell directly to consumers in order to keep purchase prices low. Direct marketing activities—including telemarketing, mail order and catalog shopping, and forms of electronic retailing such as online shopping and shop-at-home television networks—are good examples of this type of channel structure. There are no intermediaries. Producer-owned stores and factory outlet stores—like Sherwin-Williams, Polo Ralph Lauren, Oneida, and WestPoint Home—are also examples of direct channels.
By contrast, when one or more channel members are small companies lacking in marketing power, an agent/broker channel may be the best solution. Agents or brokers bring manufacturers and wholesalers together for negotiations, but they do not take title to merchandise. Ownership passes directly from the producer to one or more wholesalers and/or retailers, who sell to the ultimate consumer.
producer, agents or brokers, wholesalers, retailers, consumers
Most consumer products are sold through distribution channels similar to the other two alternatives: the retailer channel and the wholesaler channel.
3.. Retialer channel
A retailer channel is most common when the retailer is large and can buy in large quantities directly from the manufacturer. Walmart, Sears, and car dealers are examples of retailers that often bypass a wholesaler.
producer, retailers, consumers
4. Wholesaler channel
A wholesaler channel is commonly used for low-cost items that are frequently purchased, such as candy, cigarettes, and magazines.
producer, wholesalers, retailers, consumers
1. Direct cannel
Producer, Industrial users
2. Direct channel
Producer, Government buyers
3. Industrial distributor
Producer, Industrial distributor, industrial users,
producer, agents or brokers, industrial users
5.Agent/broker industrial distribution
producer, agents or brokers, industrial distribution, industrial users
As Exhibit 13.3 illustrates, five channel structures are common in business and industrial markets. First, direct channels are typical in business and industrial markets. For example, manufacturers buy large quantities of raw materials, major equipment, processed materials, and supplies directly from other producers. Manufacturers that require suppliers to meet detailed technical specifications often prefer direct channels. For instance, Apple uses a direct channel to purchase high-resolution retina displays for its innovative iPad tablet line. To ensure sufficient supply for iPad manufacturing, Apple takes direct shipments of screens from Sharp, LG, and Samsung.*
Alternatively, companies selling standardized items of moderate or low value often rely on industrial distributors. In many ways, an industrial distributor is like a supermarket for organizations. Industrial distributors are wholesalers and channel members that buy and take title to products. Moreover, they usually keep inventories of their products and sell and service them. Often small manufacturers cannot afford to employ their own sales force. Instead, they rely on manufacturers' representatives or selling agents to sell to either industrial distributors or users. Additionally, the Internet has enabled virtual distributors to emerge and has forced traditional industrial distributors to expand their business models. Many manufacturers and consumers are bypassing distributors and going direct, often via the Internet.
Industrial distributors are used by
companies selling standardized items of moderate or low value
strategic channel alliances- a cooperative agreement between business firms to use the other's already established distribution channel
Furthermore, companies often form strategic channel alliances that enable them to use another manufacturer's already-established channel. Alliances are used most often when the creation of marketing channel relationships may be too expensive and time consuming. For example, U.S.-based Vera Bradley, Inc. signed a deal with Mitsubishi Corporation and its partner Look, Inc. to distribute the former's handbags, luggage, and accessories in the Japanese department stores and boutiques in their respective networks. This alliance helps Vera Bradley reach new markets in foreign cities and diversifies its revenue base, while minimizing its risks of going abroad.*
In addition to using primary traditional and nontraditional channels to flow products toward customer markets, many businesses also employ secondary channels, using either an active or passive approach. For example, though most automobile manufacturers sell their finished products to end users through networks of owned or franchised dealers, they also sell cars to rental agencies such as Enterprise or Hertz, who then rent them to potential customers. Similarly, fashion apparel companies might distribute their premium products, such as silk ties or branded watches, through primary channels such as department stores or specialty stores, while using an off-brand or discount outlet for distribution of low-end products. In each case, the goal of the company is the same: to engage a segment of customers who might otherwise never experience the product by offering it at a more easily affordable price or under trial conditions.
reverse channels- channels that enable customers to return products or components for reuse or remanufacturing
Along with marketing channels that move products downstream to end customers, retailers and manufacturers also manage channels that move products upstream, in the direction of the producer. These reverse channels enable consumers to return products to the retailer or manufacturer in the event of a product defect, or at the end of the product's useful life to the consumer. The retailers or manufacturers can then recycle the product and use components to manufacture new products, or refurbish and resell the same product in a secondary market. Several large companies, including Apple, Best Buy, and Walmart, offer opportunities to recycle items ranging from plastic bags and batteries to televisions and Christmas trees. Consumers and companies alike view reverse channels as not just a way to reduce the firm's environmental impact, but also as a means to gain some financial benefits as well. For example, Apple will pay consumers for their old Apple products if they qualify for resale, or if their component parts are valuable for manufacturing new products. Drop and shop programs use convenience to get consumers to recycle products, like batteries or cell phones, during a regular trip to the store.
M-commercet- the ability to conduct commerce using a mobile device for the purpose of buying or selling goods or services
In response to the growth of digital channels, customers are turning in droves to M-commerce, whereby a mobile device is used to assess, compare, and/or buy products. For example, suppose you need a ride from one point in Chicago to another. Instead of having to hail a cab or walk to the nearest elevated train station, you can use Uber's smartphone app to contact a local driver who will take you directly to your destination. A key advantage of Uber and similar apps is their frictionless payment interface. When you are done with your ride, you just get out of the car and walk away while the app charges your credit or debit card and pays the driver.* M-commerce is currently experiencing the largest growth in both retail and channel decision-making, in part because of its more than $20 billion annual revenue.
M-commerce also enables consumers using wireless mobile devices to connect to the Internet and shop. Essentially, M-commerce goes beyond text message advertisements to allow consumers to purchase goods and services using wireless mobile devices. M-commerce users adopt the new technology because it saves time and offers more convenience in a greater number of locations. The use of M-commerce has become increasingly important as users grow in both number and purchasing power. Consumers have become more reliant on digital technologies, as shown in the world's first fully digital generation, the Millennials, and firms that fail to react to this trend risk losing a rapidly growing group of M-commerce customers*.
Many major companies, ranging from Polo Ralph Lauren to Sears, already offer shopping on mobile phones, and the growth potential is huge. Along with smartphone use, consumers are shopping with tablets just as much, if not more, than with company Web sites. One study even found that tablets accounted for twice as much in Web-based sales as smartphone purchases. M-commerce in the United States will exceed $41 billion by 2017 and sales made on mobile devices on a global scale will exceed $110 billion in the same time frame. In the United States, 87 percent of adults own a cellphone, 45 percent own a smartphone, 31 percent own a tablet, and 26 percent own an e-reader. Fifty-five percent of adults use the Internet on their mobile devices, and 31 percent report that they go online with their mobile device more than they do with a desktop or laptop computer. The gap between the number of smartphones owned and smartphones used for purchases is closing rapidly. During the holiday season, about 30 percent of smartphone owners check prices using some kind of price comparison app or read reviews online while inside a store, and almost 50 percent use their smartphones to call a friend or family member for purchase advice. Overall, more than two-thirds of Americans use their mobile devices to obtain shopping information.
Along with smartphone technology, companies are starting to look into other digital channels with which to connect with their customers. Social shopping allows multiple retailers to sell products to customers through social media sites. Aaramshop brings hundreds of neighborhood grocery stores to customers through Facebook. Customers makes their purchases online and their specific neighborhood stores take care of delivering the items directly to customers' homes.* Home delivery extends beyond groceries in many heavily populated areas. In China and India, McDonald's has started delivering directly to its customers instead of making consumers come to them.
which of the following is a similarity between traditional advertising and social media?
Both forms of advertising lack hard evidence as to the relative effectiveness of advertising goods.
Firms are also using social media Web sites as digital channels—even in some cases without offering a purchasing opportunity. Companies create profiles on Web sites like Pinterest or Facebook and use them not only to give customers information about their products, but also to collect customer information. According to one recent study, 38 percent of all online customers follow at least one retailer on a social networking site. Many customers use these Web sites to find product information or get information on special deals, and those who follow a company's blog or profile on a social media site often end up clicking through to the firm's Web site.*
While some services group retailers together in order to bring products to customers, others allow consumers to combine and order larger amounts. Web sites like Groupon and Livingsocial give customers the opportunity to fulfill their individual needs at group prices. Many of these sites are organized and managed by intermediaries between manufacturers and customers, but others may be customer initiated or even created by firms to better promote their own products and manage demand.*
Marketing managers must answer many questions before choosing a marketing channel. A book manufacturer must decide, for example, what roles physical and electronic distribution will play in the overall marketing strategy and how these two paths will fare against each other. In addition, managers must decide what level of distribution intensity is appropriate and must ensure that the channel strategy they choose is consistent with product, promotion, and pricing strategies. The choice of channels depends on a holistic analysis of market factors, product factors, and producer factors.
1. market factors
Among the most important market factors affecting distribution channel choices are market considerations. Specifically, managers should answer the following questions: Who are the potential customers? What do they buy? Where do they buy? When do they buy? How do they buy? Additionally, the choice of channel depends on whether the producer is selling to consumers directly, or through other industrial buyers, due to differences in the buying routines of these groups. The geographic location and size of the market are also important factors guiding channel selection. As a rule, if the target market is concentrated in one or more specific areas, then direct selling through a sales force is appropriate, whereas intermediaries would be less expensive in broader markets.
2. Product factors
Complex, customized, and expensive products tend to benefit from shorter and more direct marketing channels. These types of products sell better through a direct sales force. Examples include pharmaceuticals, scientific instruments, airplanes, and mainframe computer systems. On the other hand, the more standardized a product is, the longer its distribution channel can be and the greater the number of intermediaries that can be involved without driving up costs. For example, with the exception of flavor and shape, the formula for chewing gum is fairly standard from producer to producer. As a result, the distribution channel for gum tends to involve many wholesalers and retailers.
The stage in the product life cycle
The product stage in the life cycle is also an important factor in choosing a marketing channel. In fact, the choice of channel may change over the life of the product. As products become more common and less intimidating to potential users, producers tend to look for alternative channels. Similarly, perishable products such as vegetables and milk have a relatively short life span, and fragile products like china and crystal require a minimum amount of handling. Therefore, both require fairly short marketing channels. Online retailers such as eBay facilitate the sale of unusual or difficult-to-find products that benefit from a direct channel.
3. Producer factors
Several factors pertaining to the producer itself are important to the selection of a marketing channel. In general, producers with large financial, managerial, and marketing resources are better able to perform their own marketing, and thus will use more direct channels. These producers have the ability to hire and train their own sales forces, warehouse their own goods, and extend credit to their customers. Smaller or weaker firms, on the other hand, must rely on intermediaries to provide these services for them. Compared to producers with only one or two product lines, producers that sell several products in a related area are able to choose channels that are more direct. Sales expenses then can be spread over more products.
A producer's desire to control pricing, positioning, brand image, and customer support also tends to influence channel selection. For instance, firms that sell products with exclusive brand images, such as designer perfumes and clothing, usually avoid channels in which discount retailers are present. Manufacturers of upscale products, such as Gucci (handbags) and Godiva (chocolates), may sell their wares only in expensive stores in order to maintain an image of exclusivity. Many producers have opted to risk their image, however, and test sales in discount channels. For example, Levi Strauss expanded its distribution network to include JCPenney, Sears, and Walmart.
Organizations have three options for intensity of distribution:
Intensive distributiona form of distribution aimed at having a product available in every outlet where target customers might want to buy it
Intensive distribution is a form of distribution aimed at maximum market coverage. Here, the manufacturer tries to have the product available in every outlet where potential customers might want to buy it. If buyers are unwilling to search for a product, it must be made very accessible to buyers.
selective distribution- a form of distribution achieved by screening dealers to eliminate all but a few in any single area
The next level of distribution, selective distribution, is achieved by screening dealers and retailers to eliminate all but a few in any single area. Because only a few are chosen, the consumer must seek out the product. For example, HBO selectively distributes its popular television shows through a series of its own subscription-based channels (HBO, HBO on Demand, and HBO Go for mobile devices) and sells subscriptions or single episodes through Apple, Amazon.com, and Sony's online stores but does not stream them through Netflix or Hulu Plus.
3. exclusive distribution
exclusive distribution- a form of distribution that establishes one or a few dealers within a given area
The most restrictive form of market coverage is exclusive distribution, which entails only one or a few dealers within a given area. Because buyers may have to search or travel extensively to buy the product, exclusive distribution is usually confined to consumer specialty goods, a few shopping goods, and major industrial equipment. Products such as Rolls-Royce automobiles, Chris-Craft powerboats, and Pettibone tower cranes are distributed under exclusive arrangements.
In recent years, rapid changes in technology and communication have led to the emergence of new, experimental distribution methods and channel structures. For example, fashion flash sale sites like Gilt, JackThreads, and Ruelala have recently boomed in popularity. On these sites, new designer clothing items are made available every day—often at a discount from 15 to 80 percent, and always for an extremely limited time. The average fashion flash sale shopper is between 25 and 40 years of age and makes $100,000 a year—an ideal demographic for many marketers.
Another emerging channel structure involves renting items that are usually only sold to end consumers. For example, some Web sites allow customers to rent and return high fashion products (renttherunway.com and fashionrenting.com), handbags and accessories (lovemeandleaveme.com), and even furniture (fashionfurniture.com). Rental versus retail channels open up an entirely new customer base for certain products that were once reserved for a much smaller group.
For many years, subscription services such as book-of-the-month clubs have provided customers products periodically over time. More recently, subscription services have expanded far beyond books and magazines to include clothing (bombfell.com), shoes (shoedazzle.com), crafting kits (craftaholicsanonymous.net), and wine (www.clubw.com). Many Web sites require subscriptions to view premium content, and streaming media services like Spotify, Netflix, and OnLive offer a wholly new type of subscription service.
Digital marketplaces like Steam and the Google Play Store constitute another recent trend in marketing channels. Digital licensing adds an interesting facet to customer sales; instead of selling a tangible product, digital marketplaces sell the rights to songs, movies, and television shows through their Web sites and applications. Instead of leaving home to purchase a physical album, game, or movie, consumers can select specific media and download them directly to their computers or mobile devices.
Because of these varying preferences through different stages of the shopping cycle, many companies have begun to employ a multichannel marketing strategy, whereby customers are offered information, goods, services, and/or support through one or more synchronized channels. Recent studies have demonstrated that customers who use multiple channels when shopping become more engaged during the purchase process, and tend to spend more than customers who shop one channel only. The exception is when customers are buying simple, utilitarian products that are well known and intended for frequent use. Since customers are already familiar with these product types, single-channel designs are just as effective.*
Because consumers use multiple channels during the shopping experience, it has become important for channel members to create a seamless shopping experience across all physical and digital channels. Facilitating such customer activities as checking a store's inventory online, purchasing an item through an app for in-store pickup, allowing online purchases to be returned in-store, and enabling mobile payment while shopping in-store are only a few strategies that producers and retailers are using to give customers the appearance that multiple channels are behaving as one.*
However, it is important to understand that the multichannel design does create redundancy and complexity in the firm's distribution system. Selling through multiple channels is typically accompanied by the construction of multiple, parallel supply chains, each with its own inventory, processes, and performance metrics. Multichannel systems typically have meant that each channel would operate different transportation and distribution systems, hold and account for its own inventory, and otherwise act as independent sales and profit centers, with little knowledge of the operations of the other. This proved problematic for one retailer who was selling its products both in physical stores and on its Web site. The company had a distribution center in Kentucky for its Internet retailing business, and another near Chicago for its physical stores located there. When a customer in Chicago visited the local store looking for a certain product, the shelves were empty, and he was directed to order products from the company's Web site if he wanted one in time for the holidays. He did so, and the product was shipped to his home—at significant expense—from the Kentucky distribution center, while unused product sat only miles from his home in the Chicago distribution center, waiting to be stocked on local store shelves.
true of multichannel marketing
It requires each channel to hold and account for its own inventory
13-1Define the terms supply chain and supply chain management and discuss the benefits of supply chain management.
Management coordinates and integrates all of the activities performed by supply chain members into a seamless process from the source to the point of consumption. The benefits of supply chain management include reduced inventory, transportation, warehousing, and packaging costs; greater supply chain flexibility; improved customer service; and higher revenues.
13-2 Discuss the concepts of internal and external supply chain integration and explain why each of these types of integration is important.
In the modern supply chain, integration can be either internal or external. Internally, the very best companies develop a managerial orientation toward demand-supply integration. Externally, five types of integration are sought by firms interested in providing top-level service to customers: relationship integration, measurement integration, technology and planning integration, material and service supplier integration, and customer integration.
13-3 Identify the eight key processes of excellent supply chain management and discuss how each of these processes affects the end customer.
The key processes that leading supply chain companies focus on are (1) customer relationship management, (2) customer service management, (3) demand management, (4) order fulfillment, (5) manufacturing flow management, (6) supplier relationship management, (7) product development and commercialization, and (8) returns management. When firms practice excellent supply chain management, each of these processes is integrated from end to end in the supply chain.
13-4 Understand the importance of sustainable supply chain management to modern business operations.
Sustainable supply chain management involves the integration and balancing of environmental, social, and economic thinking into all phases of the supply chain management process.
13-5 Discuss how new technology and emerging trends are impacting the practice of supply chain management.
Several emerging trends are changing the job of today's supply chain manager. Some of the business trends affecting supply chain management include outsourcing logistics, public-private partnerships, electronic distribution, maintaining a secure supply chain, and new analytics tools. While these changes exert pressure on managers to change the way their supply chains function, they also help make supply chain management more integrated and easier to track.
13-6 Explain what marketing channels and channel intermediaries are and describe their functions and activities.
A marketing channel is a business structure of interdependent organizations that reach from the point of production to the consumer. Intermediaries negotiate with one another, buy and sell products, and facilitate the change of ownership between buyer and seller. Retailers are those firms in the channel that sell directly to consumers.
13-7 Describe common channel structures and strategies and the factors that influence their choice.
When possible, producers use the direct channel to sell directly to consumers. When one or more channel members are small companies, an agent/broker channel may be the best solution. Most consumer products are sold through distribution channels similar to the retailer channel and the wholesaler channel. Dual distribution may be used to distribute the same product to target markets, and companies often form strategic channel alliances to use already-established channels. Managers must decide what role distribution will play in the overall marketing strategy. In addition, they must be sure that the channel strategy chosen is consistent with market factors, product factors, and producer factors. Organizations have three options for intensity of distribution: intensive distribution, selective distribution, or exclusive distribution.
13-8Discuss multichannel and omnichannel marketing in both B-to-B and B-to-C structures and explain why these concepts are important.
Many companies have begun employing multichannel marketing strategies, whereby customers are offered information, goods, services, and/or support through one or more synchronized channels. While it can promote better consumer behavior, the multichannel design also creates redundancy and complexity in the firm's distribution system. Selling through multiple channels is typified by multiple parallel supply chains, each with its own inventory, processes, and performance metrics. Many companies are transitioning to omnichannel distribution operations that support their multichannel retail operations and unify their retail interfaces. With omnichannel operations, every customer receives equally efficient service.
retailing affects everyone, both directly and indirectly. The retailing industry is one of the largest employers in the United States, with almost 3.8 million U.S. retailers employing more than 29 million people—about one in five American workers. And the industry is expected to grow to more than 16 million by 2018. In addition, almost 10 percent of all businesses are classified as retailers..* Yet, retailing is still largely a mom-and-pop industry. Almost nine out of ten retail companies employ fewer than twenty employees, and according to the National Retail Federation, over 95 percent of all retailers operate just one store.*
Most retailers are quite small, but a few giant organizations such as Walmart dominate the industry. Walmart's annual U.S. sales are greater than the combined sales of the four next largest U.S. retailers. As the retail environment changes, so too do retailers. Trends and innovations relating to customer data, social media, and alternative forms of shopping are constantly developing, and retailers have no choice but to react. The best retailers actually lead the way by anticipating change and developing new and exciting ways to interact with customers. We discuss each of these issues and more in this chapter.
Depending on its ownership arrangement, a retailer can gain advantages from having a broad brand identity, or from having the freedom to take risks and innovate. Retail ownership takes one of three forms—they can be independently owned, part of a chain, or a franchise outlet.
1. independent retailer- a retailer owned by a single person or partnership and not operated as part of a larger retail institution
An independent retailer is owned by a person or group and is not operated as part of a larger network. Around the world, most retailers are independent, with each owner operating a singular store within a local community.
2. chain store- a store that is part of a group of the same stores owned and operated by a single organization
A chain store is a group of retailers (of one or more brand names) owned and operated by a single organization. Under this form of ownership, a home office for the entire chain handles retail buying; creates unified operating, marketing, and other administrative policies; and works to ensure consistency across different locations. The Gap and Starbucks are retail chains.
3. franchise- a relationship in which the business rights to operate and sell a product are granted by the franchisor to the franchisee
A franchise is a retail business where the operator is granted a license to operate and sell a product under the brand name of a larger supporting organizational structure, such as Subway or Supercuts. Under this arrangement, a franchisor originates the trade name, product, methods of operation, and so on. A franchisee, in return, pays the franchisor for the right to use its name, product, and business methods, and takes advantage of the franchisor's brand equity and operational expertise. The most successful franchises are increasingly services retailers. Three of the top five franchises recognized by Entrepreneur Magazine are primarily service rather than goods providers.*
franchisor- the originator of a trade name, product, methods of operation, and the like that grants operating rights to another party to sell its product
franchisee- an individual or business that is granted the right to sell another party's product
which of the following is true of franchisees
they take advantage of the franchisors brand equity and operational expertise
Supermarkets have a broad product assortment
Off-price retailers have a low level of service.
Specialty store have a high gross margin.
Drug stores have moderate prices.
Restaurants have a narrow product assortment.
The service levels that retailers provide range from full-service to self-service. Some retailers, such as exclusive clothing stores, offer very high or even customized service levels. They provide alterations, credit, delivery, consulting, liberal return policies, layaway, gift-wrapping, and personal shopping. By contrast, retailers such as factory outlets and warehouse clubs offer virtually no service. After stock is set out for sale, the customer is responsible for any information gathering, acquisition, handling, use, and product assembly. At the extreme low end of the service continuum, a retailer may take the form of a product kiosk or vending machine. retailers can also be categorized by the width and depth of their product lines.
Width refers to the assortment of products offered
depth refers to the number of different brands offered within each assortment.
Specialty stores such as Best Buy, Staples, and GameStop have the thinnest product assortments, usually carrying single or narrow product lines that are considerably deep. For example, a specialty pet store like PetSmart is limited to pet-related products, but may carry as many as twenty brands of dog food in a large variety of flavors, shapes, and sizes. On the other end of the spectrum, full-line discounters typically carry very wide assortments of merchandise that are fairly shallow.
Stores often modify their product assortments in order to accommodate factors in the external environment. Petitions started by concerned patrons in Australia and the United States caused major retailers to remove the Grand Theft Auto 5 video game and action figures from the popular television show Breaking Bad from store shelves. These patrons believed that the products' violent nature and association with the illegal drug culture were harmful to society.* Similarly, food products ranging from milk to vitamins to dog treats have been excluded from retail product lines in order to better ensure customer safety.
which of the following is a difference between specialty sores and full-line discounters?
Specialty stores have the thinnest product assortments, while full-line discounters have a wide assortment of merchandise.
Traditionally, retailers fall into one of several distinct types of retail stores, each of which features a product assortment, types of services, and price levels that align with the intended customers' shopping preferences. Recently, however, retailers began experimenting with alternative formats that blend the features and benefits of the traditional types. For instance, supermarkets are expanding their nonfood items and services, discounters are adding groceries, drugstores are becoming more like convenience stores, and department stores are experimenting with smaller stores. Nevertheless, many stores still fall into the traditional archetypes:
1.Department stores- a store housing several departments under one roof
Department stores such as JCPenney and Macy's carry a wide range of products and specialty goods, including apparel, cosmetics, housewares, electronics, and sometimes furniture. Each department acts as a separate profit center, but central management sets policies about pricing and the types of merchandise carried.
2. Specialty stores- a retail store specializing in a given type of merchandise
Specialty stores typically carry a deeper but narrower assortment of merchandise within a single category of interest. The specialized knowledge of their salesclerks allows for more attentive customer service. The Children's Place, Williams-Sonoma, and Foot Locker are well-known specialty retailers.
3. Supermarkets- a large, departmentalized, self-service retailer that specializes in food and some nonfood items
Supermarkets are large, departmentalized, self-service retailers that specialize in food and some nonfood items. Some conventional supermarkets are being replaced by much larger superstores. Superstores offer one-stop shopping for food and nonfood needs, as well as services such as pharmacists, florists, salad bars, photo processing kiosks, and banking centers.
4.Drugstores- a retail store that stocks pharmacy-related products and services as its main draw
Drugstores primarily provide pharmacy-related products and services, but many also carry an extensive selection of cosmetics, health and beauty aids, seasonal merchandise, greeting cards, toys, and some non-refrigerated convenience foods. As other retailer types have begun to add pharmacies and direct mail prescription services have become more popular, drugstores have competed by adding more services such as 24-hour drive-through windows and low-cost health clinics staffed by nurse practitioners.
5. convenience store- a miniature supermarket, carrying only a limited line of high-turnover convenience goods
A convenience store resembles a miniature supermarket but carries a much more limited line of high-turnover convenience goods. These self-service stores are typically located near residential areas and offer exactly what their name implies: convenient locations, long hours, and fast service in exchange for premium prices. In exchange for higher prices, however, customers are beginning to demand more from convenience store management, such as higher quality food and lower prices on staple items such as gasoline and milk.
6. Discount stores -a retailer that competes on the basis of low prices, high turnover, and high volume
Discount stores compete on the basis of low prices, high turnover, and high volume. Discounters can be classified into several major categories:
A. Full-line discount storesa discount store that carries a vast depth and breadth of product within a single product category
Full-line discount stores such as Walmart offer consumers very limited service and carry a vast assortment of well-known, nationally branded goods such as housewares, toys, automotive parts, hardware, sporting goods, garden items, and clothing.
B. Supercenters- a large retailer that stocks and sells a wide variety of merchandise including groceries, clothing, household goods, and other general merchandise
Supercenters extend the full-line concept to include groceries and a variety of services, such as pharmacies, dry cleaning, portrait studios, photo finishing, hair salons, optical shops, and restaurants. For supercenter operators such as Target, customers are drawn in by food but end up purchasing other items from the full-line discount stock.
C.specialty discount storesa retail store that offers a nearly complete selection of single-line merchandise and uses self-service, discount prices, high volume, and high turnover
Single-line specialty discount stores such as Foot Locker offer a nearly complete selection of merchandise within a single category and use self-service, discount prices, high volume, and high turnover to their advantage. A category killer such as Best Buy is a specialty discount store that heavily dominates its narrow merchandise segment.
category killer- a large discount store that specializes in a single line of merchandise and becomes the dominant retailer in its category
D. warehouse cluba large, no-frills retailer that sells bulk quantities of merchandise to customers at volume discount prices in exchange for a periodic membership fee
A warehouse club sells a limited selection of brand name appliances, household items, and groceries. These are sold in bulk from warehouse outlets on a cash-and-carry basis to members only. Currently, the leading stores in this category are Sam's Club, Costco, and BJ's Wholesale Club.
E. Off-price retailers- Off-price retailersa retailer that sells at prices 25 percent or more below traditional department store prices because it pays cash for its stock and usually doesn't ask for return privileges
Off-price retailers such as TJ Maxx, Ross, and Marshall's sell at prices 25 percent or more below traditional department store prices because they buy inventory with cash and they don't require return privileges. These stores often sell manufacturers' overruns, irregular merchandise, and/or overstocks that they purchase at or below cost. A factory outlet is an off-price retailer that is owned and operated by a single manufacturer and carries one line of merchandise—its own. Manufacturers can realize higher profit margins using factory outlets than they would by disposing of the goods through independent wholesalers and retailers. Used goods retailers turn customers into suppliers: pre-owned items bought back from customers are resold to different customers. Used goods retailers can be either brick-and-mortar locations (such as Goodwill stores) or electronic marketplaces (such as eBay).
factory outlet- an off-price retailer that is owned and operated by a manufacturer
Used goods retailers- a retailer whereby items purchased from one of the other types of retailers are resold to different customers
6. Restaurants- a retailer that provides both tangible products—food and drink—and valuable services—food preparation and presentation
Restaurants provide both tangible products—food and drink—and valuable services—food preparation and presentation. Most restaurants are also specialty retailers in that they concentrate their menu offerings on a distinctive type of cuisine—for example, Olive Garden Italian restaurants and Starbucks coffeehouses.
1. Automatic vending -the use of machines to offer goods for sale
Automatic vending entails the use of machines to offer goods for sale—for example, the soft drink, candy, or snack vending machines commonly found in public places and office buildings. Retailers are continually seeking new opportunities to sell via vending. As a result, modern vending machines today sell merchandise such as DVDs, digital cameras, perfumes, and even ice cream. A key aspect of their continuing success is the proliferation of cashless payment systems in response to consumers' diminishing preference for carrying cash.
2.Self-service technologies (SST)technological interfaces that allow customers to provide themselves with products and/or services without the intervention of a service employee
Self-service technologies (SST) comprise a form of automatic vending where services are the primary focus. Automatic teller machines, pay-at-the-pump gas stations, and movie ticket kiosks allow customers to make purchases that once required assistance from a company employee. However, as with any sort of self-service technology, automatic vending comes with failure risks due to human or technological error. Unless customers expect that they can easily recover from such errors, they may end up shopping elsewhere.
3.Direct retailing- the selling of products by representatives who work door-to-door, office-to-office, or at home sales parties
Direct retailing representatives sell products door-to-door, in offices, or at in-home sales parties. Companies like Avon, Mary Kay, and The Pampered Chef have used this approach for years. Man Cave, a new home sales party developed for men, has been described as "like Mary Kay on steroids." Man Cave representatives invite male friends and family over for testosterone-fueled parties at which Man Cave products are used and Man Cave foods are eaten. Affiliates earn commissions for the sale of beer mugs, grilling tools, frozen steaks, and other Man Cave products.*
4. Direct marketing (DM)techniques used to get consumers to make a purchase from their home, office, or other nonretail setting
Direct marketing (DM) includes techniques used to elicit purchases from consumers' homes, offices, and other convenient locations. Common DM techniques include telemarketing, direct mail, and mail-order catalogs. Shoppers using these methods are less bound by traditional shopping situations. Time-strapped consumers and those who live in rural or suburban areas are most likely to be DM shoppers because they value the convenience and flexibility it provides. DM occurs in several forms:
A. Telemarketing- the use of the telephone to sell directly to consumers
Telemarketing is a form of DM that employs outbound and inbound telephone contacts to sell directly to consumers. Telemarketing is a highly effective marketing technique; recent estimates indicate that 5,000 U.S. companies will spend over $15 billion on inbound and outbound calls by 2015.*
B. Direct mail- direct mailthe delivery of advertising or marketing material to recipients of postal or electronic mail
true of direct mail
it allows marketers to precisely target their customers according to demographic, geographic, and/ or psychographic characteristics.
Alternatively, direct mail can be a highly efficient or highly inefficient retailing method, depending on the quality of the mailing list and the effectiveness of the mailing piece. With direct mail, marketers can precisely target their customers according to demographic, geographic, and/or psychographic characteristics. Direct mailers are becoming more sophisticated in targeting the right customers. Microtargeting based on data analytics of census data, lifestyle patterns, financial information, and past purchase and credit history allows direct mailers to pick out those most likely to buy their products. U.S. companies spend more than $45 billion annually on direct marketing—a larger share of advertising expenditures than any other media except television. More than $11.5 billion of that is spent on data and software solutions intended to heighten customer responsiveness.
Microtargeting- the use of direct marketing techniques that employ highly detailed data analytics in order to isolate potential customers with great precision
C. Shop-at-home television networks- a specialized form of direct response marketing whereby television shows display merchandise, with the retail price, to home viewers
Shop-at-home television networks such as HSN and QVC produce television shows that display merchandise to home viewers. Viewers can phone in their orders directly on toll-free lines and shop with their credit cards. The shop-at-home industry has quickly grown into a multi-billion-dollar business with a loyal customer following and high customer penetration.
5. Online retailing, or e-tailinga type of shopping available to consumers with personal computers and access to the Internet
Online retailing, or e-tailing, enables a customer to shop over the Internet and have items delivered directly to her door. Global online shopping accounts for more than $1.3 trillion in sales today and is expected to reach $2.5 trillion by 2018.* Interactive shopping tools and live chats substitute for the in-store interactions with salespeople and product trials that customers traditionally use to make purchase decisions. Shoppers can look at a much wider variety of products online because physical space restrictions do not exist. While shopping, customers can take their time deciding what to buy.
Alternatively, specialty shops generally adopt a high-service approach that is supported by an agile approach to inventory. By keeping a greater amount of floor stock (inventory displayed for sale to customers) and back stock (inventory held in reserve for potential future sale in a retailer's storeroom or stockroom) on hand, a broader range of customer demands can be accommodated. This operating model also implies higher prices for customers, however, so retail managers must make sure that they deliver on the promises their firms make to customers in order to secure their loyalty. At the same time, these retail managers must control demand via promotions and other sales events in order to sell off slow moving and perishable items, thereby making more room for items that are more popular.
These sorts of tradeoffs have been partially responsible for the recent emergence of hybrid retail operating models. As an example of a hybrid strategy, the Spanish women's fashion retailer Zara employs a specialty retail format with a twist: It uses a mass merchandising inventory strategy. Zara offers high quality products and excellent customer service to draw customers into its stores but never replenishes specific inventory items that are sold. Rather, its designers and buyers are continually introducing new products in small or medium quantities. Once a product sells out, a new one replaces it, allowing for a very lean operation. This strategy not only lowers inventory costs (and thereby increases profitability) but also creates an aura of exclusivity around each piece that the retailer sells: Each skirt, blouse, and accessory is effectively a limited edition item. This strategy also has the ancillary benefit of driving customers back to the store in order to see what new products have arrived, and thus has the potential to increase repurchases.*
The tradeoffs inherent to retail operating models have both spurred the recent success of online-only retailers and led to a surge in online storefront development among retailers who have traditionally operated in physical formats only. A key advantage of online retail is that no physical retail store space is needed for displaying and selling merchandise. Lower cost remote distribution centers can be used since all of the showcasing occurs on the company's Web site. By moving online, a specialty store can gain the operational benefits of a mass merchandiser. It can showcase exclusive or trendy items in an almost-free space to potential customers located around the world, and can then fulfill demand from one of several localized distribution centers in a very short time. Fulfillment times are specified by the customer (according to their willingness to pay for greater shipping and delivery speed), and even this tradeoff is becoming less of a sticking point every year. Amazon's Prime subscription program, for example, includes free two-day shipping. The company recently revealed that it is experimenting with same day delivery via unmanned drones, and is already offering same-day delivery by traditional means within several limited geographic areas. Startup company Deliv positioned itself in 2015 as a cutting-edge crowdsourced courier service. Deliv provides its more than 250 national and regional U.S. retail partners (such as Macy's and Footlocker) a means of competing with Amazon by offering same-day home delivery. It will be very exciting to see how these advances continue to change retail strategies and operations in the years to come.
Today, most retail stores remain operationally and tactically similar to those that have been in business for hundreds of years; with one or more physical locations that the customer must visit in order to purchase a stocked product, and with strategies in place to attract customers to visit. The sorts of differences we have described among retail operating models imply that managing one type of store instead of another can involve very different experiences. But most of the decisions that retail managers make can be distilled down to six categories of activity, referred to as the retailing mix. These categories, described in the next section, are relatively universal to all forms of retailing, but are applied in different ways based on the retail format.
which of the following is true of a retailing mix.
it projects a stores image and influences customers perceptions