Retailing Tutorial

In an ideal business world, most marketers would prefer to handle all their distribution activities by way of the corporate channel arrangement we discussed in the Distribution Decisions tutorial. Such an arrangement provides the marketer with two important benefits. First, being responsible for all distribution means the marketing organization need only worry about making decisions concerning their product. When others, such as resellers, are involved in distribution attention is not given to a single supplier but is stretched across all products the reseller carries. Second, having control on all distribution means the marketer is always in direct contact with buyers of their products, which can make it easier to build strong, long-term relationships with customers.

Unfortunately, as we saw in the last tutorial, for many marketing organizations a corporate channel arrangement is not feasible. Whether due to high cost or lack of experience needed to run a channel efficiently, the majority of marketing organizations rely on third parties to get their products into the hands of customers.

In the next two sections of the Principles of Marketing Tutorials we examine the key parties through which marketers seek distribution assistance. Choosing which parties to aid in product distribution is important since a distributor’s actions can affect how customers view the marketer and the products they offer. As we discussed in the Targeting Markets tutorial, a customer’s perception of a product affects how they mentally position the product in relation to competitive products. How a product is distributed, including where it is located (e.g., reputation of resellers from whom they purchase) and customer experience with the purchasing process (e.g., how long to receive, condition when received), will impact a customer’s feelings about the product which in turn affects how a customer positions the product in their mind.

In this tutorial we examine retailers as resellers of a marketer’s products. In terms of sales volume and number of employees, retailing is one of the largest sectors of most economies. We will see that retailing is quite diverse and marketers, who want to distribute through retailers, must be familiar with the differences that exist among different retail options.

Retailing is a distribution channel function where one organization buys products from supplying firms or manufactures the product themselves, and then sells these directly to consumers. A retailer is a reseller (i.e., obtains product from one party in order to sell to another) from which a consumer purchases products. In the US alone there are over 1,100,000 retailers according to the 2002 US Census of Retail Trade.

In the majority of retail situations, the organization from which a consumer makes purchases is a reseller of products obtained from others and not the product manufacturer. But as we discussed in the Distribution Decisions tutorial, some manufacturers also operate their own retail outlets in a corporate channel arrangement. While consumers are the retailer’s buyers, a consumer does not always buy from retailers. For instance, when a consumer purchases from another consumer (e.g., eBay) the consumer purchase would not be classified as a retail purchase. This distinction can get confusing but in the US and other countries the dividing line is whether the one selling to consumers is classified as a business (e.g., legal and tax purposes) or is selling as a hobby without a legal business standing.

As a reseller, retailers offer many benefits to suppliers and customers as we discussed in the Distribution Decisions tutorial. For consumers the most important benefits relate to the ability to purchase small quantities of a wide assortment of products at prices that are considered reasonably affordable. For suppliers the most important benefits relate to offering opportunities to reach their target market, build product demand through retail promotions, and provide consumer feedback to the product marketer.

There are many ways retailers can be categorized depending on the characteristics being evaluated. For our purposes we will separate retailers based on six factors directly related to major marketing decisions:

  • Target Markets Served
  • Product Offerings
  • Pricing Structure
  • Promotional Emphasis
  • Distribution Method
  • Service Level

and one operational factor:

  • Ownership Structure

However, these groups are not meant to be mutually exclusive. In fact, as we will see in some way all retailers can placed into each category.

As a reseller, retailers offer many benefits to suppliers and customers as we discussed in the Distribution Decision Tutorial.  The major benefits for each include:

  • Access to Customers – For suppliers, the most valuable benefits provided by retailers are the opportunities they offer for reaching the supplier’s target market, building product demand through retail promotions, and providing consumer feedback.  The knowledge and skills offered by retailers are key for generating sales, profits, and customer loyalty for suppliers.
  • Access to Product – For consumers, the most significant benefits offered by retailers relate to the ability to purchase products that may not otherwise be easily available if the consumers had to deal directly with product suppliers.  In particular, retailers provide consumers with the ability to purchase small quantities of a wide assortment of products at prices that are considered reasonably affordable.  Additionally, when it comes to retailers with physical locations (e.g., retail store), these are likely to be located near the retailer’s target market; thereby, enabling consumers to make purchases and take home the product much more conveniently than if they had to visit a product supplier’s facility or purchase via the Internet.

The first classification looks at the type of markets a retailer intends to target. These categories are identical to the classification scheme we saw in the Distribution Decisions tutorial when we discussed the levels of distribution coverage.

  • Mass Market – Mass market retailers appeal to the largest market possible by selling products of interest to nearly all consumers. With such a large market from which to draw customers, the competition among these retailers is often fierce.
  • Specialty Market – Retailers categorized as servicing the specialty market are likely to target buyers looking for products having certain features that go beyond mass marketed products, such as customers who require more advanced product options or higher level of customer service. While not as large as the mass market, the target market serviced by specialty retailers can be sizable.
  • Exclusive Market – Appealing to this market means appealing to discriminating customers who are often willing to pay a premium for features found in very few products and for highly personalized services. Since this target market is small, the number of retailers addressing this market within a given geographic area may also be small.