Chapter 16: Managing Retailing

Welcome to Last Minute Lecture.

This free chapter overview is designed to help students review and understand key concepts.

These summaries supplement not replaced the original textbook and may not be redistributed or resold.

For complete coverage, always consult the official text.

Welcome to the Deep Dive.

Today we're diving into, well, the really dynamic world of how we all buy things.

You know, everything from high fashion down to the milk and bread we grab every week.

Absolutely.

And to frame it, think about this, a company back in 2000 that decided to sell high -end luxury fashion online.

Sounds risky, right?

Totally.

Especially back then.

But they did it and became a global leader.

That story really sets the stage for our topic today.

The fascinating world of modern retailing and wholesaling.

We're drawing heavily from the managing retailing chapter in Kotler, Keller, and Trinev's marketing management.

Right.

And our goal here is pretty simple.

We want to break down the key ideas, the frameworks, the strategies from this classic text, make them really accessible for you, and crucially, link them to what's happening now, real businesses, current trends.

Exactly.

Think of it as getting the core knowledge without reading the whole chapter, but understanding how it applies today.

And you'll see how this connects back to things like marketing channels and understanding customers and sets us up for future talks on strategy.

So let's kick off with that example you mentioned, Net -a -Porter.

Yeah, Net -a -Porter, founded in London in 2000 by Natalie Massanet, a fashion journalist.

This was pretty groundbreaking.

Luxury brands were very wary of the internet.

Understandably so, I guess.

They're worried about image.

Precisely.

But Massanet saw this gap.

She combined the feel of a high -end fashion magazine, that editorial content, with actual online shopping.

So it wasn't just a catalog online.

It was more immersive.

Exactly.

Really stunning photos, videos.

The layout felt like through Vogue, but you could click and buy Gucci or Prada.

And then Delivery came in beautiful, luxurious packaging.

They meticulously recreated that exclusive experience just, you know, digitally.

And it worked.

Oh, absolutely.

They were profitable within four years, which was remarkable.

Later acquired, merged, became the biggest online luxury fashion retailer globally.

It just powerfully demonstrates how innovation, really understanding that customer experience, drives retail success.

Okay, so let's get into the nuts and bolts.

Retailing, at its core, is just all the activities involved in selling stuff directly to us, the final consumers, for our own use.

Right.

It doesn't matter if it's in a store, online, a vending machine.

If you're the end user buying for personal use, that's retailing.

Simple definition.

But the environment where all this happens,

that's changed massively.

Dramatically.

The textbook points out seven key shifts that are really reshaping things.

This isn't your grandparents' shopping experience anymore.

Not even close.

One of the first things is these new retail forms and combinations.

The old lines are just blurring.

You see bookstores with coffee shops built right in, gas stations that are practically mini -grocers, supermarkets like Whole Foods adding bars.

And pop -up shops, too.

Like Google doing temporary stores.

Right.

Creates buzz, a physical touch point, maybe for a specific launch or season.

It's much more fluid.

And alongside that, you've got retailer consolidation.

Think about the sheer power of giants like Walmart.

Huge influence.

Immense.

They use sophisticated information systems, logistics.

They move massive volumes at low prices.

And that gives them leverage over manufacturers.

They can demand fees just to get products on the shelf, effectively pushing marketing costs back onto the supplier.

Then there's the way we shop.

Mobile retailing knocks.

It's just exploded.

Hasn't it just?

Over half of Google searches are on mobile now.

And in Asia, they were way ahead.

Remember Tesco in Seoul?

Setting up virtual stores and subway stations?

Oh yeah, the QR code shopping walls.

Snap a picture while you wait for the train.

Groceries arrive at home.

Genius.

Pure convenience driving commerce.

That convenience factor also links to the growth of omnichannel retailing.

This is a big one.

It really is.

And it's more than just having a website and a store.

It's about making the experience totally seamless across all the ways a customer might interact with you.

Like Best Buy or Target.

You can browse online, pick up in store, return online orders easily.

Exactly.

Home Depot lets you check online if your local store has that specific screw you need.

It breaks down those old silos between physical and digital.

And while the pandemic just put that transition into hyperdrive for almost everyone.

We're also seeing the rise of fast retailing, particularly in fashion.

Think H &M, Zara, Uniqlo.

Their whole model is built on speed and freshness.

They have incredibly agile supply chains.

New styles hit the stores constantly.

Catches that desire for novelty, right?

Something new now.

Absolutely.

It's about capturing trends almost instantly and offering value.

And underpinning all of this technology.

It's everywhere.

In almost every part of retail.

Forecasting demand better.

Managing inventory to cut down on sales.

Electronic shelf labels.

Virtual try -on screens.

And Amazon's cashierless go stores.

Just walk out.

Using AI, cameras.

It's transforming the fundamental act of checking out.

But while all this innovation is happening, there's also this trend.

The decline of middle market retailers.

Yeah, the hourglass market shape.

Growth is strong.

At the top end, luxury like Tiffany.

And at the bottom end, discounters like Walmart, Dollar General.

But the middle.

Stores like maybe JCPenney or Sears historically, they've really struggled.

They have.

Part of it is consumers trading down for value.

Part of it is shrinking middle class spending power.

They're getting squeezed from both sides.

It's a tough spot to be in.

So the lesson seems to be adapt or, well, struggle.

It's about digital integration, supply chain speed, creating a unique experience.

Precisely.

Which brings us to the strategic decisions retailers have to make in this environment.

And the absolute first step, the foundation for everything else, is defining your target market.

You have to know who you're selling to.

Couldn't be more critical.

Without that clarity, how do you decide on products?

Store design, pricing, anything.

Whole Foods Market is a classic success story.

Right.

They knew exactly who they were after.

Yeah.

The shopper focused on organic, natural foods, and they built an experience around that.

They really did.

Contrast that with Zales, the jeweler.

They tried to move upscale, away from their traditional base.

Didn't work out so well, did it?

No.

They lost their core customers and didn't really attract the new ones they wanted.

A costly mistake.

It underlines why you see retailers getting more granular, slicing markets, find specific stores for high -end kids' clothes or plus -size fashion.

Okay, so target market first.

Then what?

Then it's product assortment and procurement.

Matching the range and depth of products to what that target market expects.

Some retailers even develop destination categories.

Categories so strong or unique, they alone pull customers into the store.

And again, technology is key here.

Scan our data.

RFID tags.

Helping forecast demand precisely.

And Trader Joe's is kind of a master class in unique procurement.

Absolutely.

They do things very differently.

Much narrower assortment than a typical supermarket, maybe 3 ,000 items versus 50 ,000 plus.

Wow.

That's a huge difference.

It is.

And around 80 % of it is their own private label.

They source directly from hundreds of suppliers, many overseas, and constantly bring in new, often quirky,

items based on what their customers seem to want.

They tell stories about their products too, don't they?

Yes.

That storyteller approach.

It's all about curated value.

A unique mix that keeps people coming back for the treasure hunt.

Very profitable model.

Beyond products, services are a big differentiator.

Definitely.

Retailers position themselves partly based on service level.

You've got basic self service like discount stores, limited service help if you ask, maybe returns,

and full service dedicated salespeople, more assistance.

And the mix of services matters too.

Pre -purchase advice, post -purchase like delivery, gift wrapping.

All part of the overall offering and customer experience.

And speaking of experience, the store atmosphere itself is huge.

Oh yeah.

Engaging the senses, the music speed, the smells.

Bloomingdale's famously used different scents in different departments.

Victoria's Secret has that signature smell.

It creates a mood and identity.

And some retailers are taking this way further into experiential retail.

Think Dye -I -C's sporting goods.

With the climbing walls and batting cages.

Exactly.

Indoor golf ranges, tracks to test running shoes, archery ranges.

It's about letting you feel the sport, connect emotionally.

Every season starts at Dye -I -C's.

It builds that connection.

And then there's Bass Pro Shops.

They're almost theme parks.

They really are.

Outdoor world superstores are destinations.

Giant aquariums, waterfalls, wildlife displays, classes on fishing or hunting.

They even have turnstiles sometimes, right?

Like entering an attraction.

They do.

It signals you're entering something more than just a shop.

It's about mirroring that outdoor experience authentically.

It proves brick and mortar can offer something tangible, immersive that online just can't replicate fully.

Okay, so we've got target market, product, services, experience.

What about pricing?

Always a critical piece.

Price is a key positioning tool.

It has to align with the target market, the product mix, the competition.

Everyone wants high volume and high margins, but usually it's a trade -off.

High markup, lower volume or low markup, higher volume?

Generally, yes.

You see the whole range.

You've got Bijan on Rodeo Drive appointment only, suits costing tens of thousands.

That's extreme high markup, low volume.

And then target, kind of hip discount, known for those designer collaborations at lower prices.

Exactly.

Or lumber liquidators, very low margin, high volume, achieved by sourcing directly, cutting costs everywhere.

But it's not just the price number itself, is it?

It's the price image.

That's a really important distinction.

Price image is that overall perception you have is this store generally expensive, inexpensive, moderate.

Like Walmart has seen as inexpensive, target may be more moderate.

Right.

And that image is shaped by lots of things.

The average price level, sure, but also prices on things we all know, like milk or soda, those known value items, the range of prices, even how often they have sales.

Wait, having lots of sales can make you seem cheaper.

Counterintuitively, sometimes, yes.

A high -low strategy with frequent big sales can sometimes create a lower price image than steady everyday low pricing.

It's also influenced by the store's feel, the service level, policies like price matching.

So the price tag is only part of the story.

The whole brand experience shapes how we perceive the price.

Absolutely.

Which leads into incentives or sales promotions.

Retailers use discounts, BOGO offers, coupons, all to drive traffic and encourage buying now.

And there's that big debate, EDLP versus high -low pricing.

Right.

Everyday low pricing consistently low prices, fewer sales, think Walmart, very successful for them,

versus high -low, higher regular prices, but frequent deep discounts.

Didn't JCPenney try to switch to EDLP under Ron Johnson?

They did, got rid of sales and coupons, and it was a disaster.

People like low prices, right?

They do, but especially in fashion, people also love the thrill of getting a deal.

They didn't just want a fair price, they wanted a great deal.

The strategy just didn't fit their customer or product category.

Lesson learned.

And now, so many incentives are digital.

Mobile coupons.

Much higher redemption rates than paper.

And geofencing is becoming common.

That's targeting based on location.

Yeah.

Send an offer when someone walks near your store, or even enters it.

Neiman Marcus uses it to alert staff when a high -value customer arrives.

Kiehl's offered free lip balm if you signed up for alerts when you were near a store.

Very targeted.

Okay.

And finally, how do retailers talk to us?

Communication and shopper marketing.

It's a huge range of tools.

Ads, email, social media, loyalty programs.

CVS has like 90 million members in theirs.

And then there's shopper marketing influencing you right at the shelf.

That's the first moment of truth.

That's P &G's term for it, yeah.

When you're in the store looking at options, manufacturers and retailers work together on displays, promotions.

Like P &G setting up those Pampers baby centers in Walmart.

Grouping all the baby stuff together.

Exactly.

Made it easier for parents, encouraged them to browse, probably spend more.

Or CoverGirl doing smokey eye kits tied to trends with how -to guides right there.

And in -store tech helps, too.

Apps to find things.

Mondaloos using smart shelves near checkout to detect age and sex and show targeted ads.

It's all about influencing that decision right at the point of purchase.

Okay.

Let's loop back to omnichannel retailing.

We know it's important.

But how do companies manage it well?

It's about true integration.

Victoria's Secret, for example, used their catalogs, website, and physical stores together seamlessly for years to build that powerful brand image.

Each channel supported the others.

And Walmart had to catch up, right?

They were a bit slow initially.

They were, but they've made massive strides.

They've bought tech companies like Cosmix, Jet .com, set up at Walmart Labs for innovation.

They rolled out Ship from Store using their thousands of stores as mini distribution centers for online orders.

Beat things up.

Massively.

And their app shifts into store mode when you're inside, helps you find things, suggests items.

It's a huge transformation.

Best Buy did something similar, too, didn't they?

They faced that showrooming problem head on.

They really did.

People looked in store, bought online cheaper.

So Best Buy introduced a price match guarantee.

They partnered with brands like Samsung for dedicated store within a store areas.

They revamped logistics, boosted customer service with the Geeks squad, used data better.

They turned a threat into an advantage.

Shows that adapting is possible, even for big established players.

What about private labels?

Store brands?

Also known as house brands or store brands, they're brands owned by the retailers or wholesalers themselves.

And they are huge.

In Europe, especially the UK, they can be like 40 % of grocery sales.

And people generally trust them now.

Increasingly, yes.

Many consumers see them as good as or sometimes even better than national brands.

Retailers push them because they're usually more profitable, lower R &D advertising costs.

Plus, they offer differentiation and appeal to value shoppers.

And they're not just cheap generics anymore.

Kroger has fancy private label pizzas.

Exactly.

Quality and packaging have improved dramatically.

Loblaws in Canada is often seen as the gold standard with their president's choice line.

Oh yeah, PC products are everywhere.

Highly innovative, high quality, they compete directly with national brands.

Loblaws even licenses it out.

They also have their basic no -name brand and a premium black label line.

They've built real brand equity there.

Which must worry the national brands.

It does.

They're responding by investing more in R &D, trying to innovate faster, using strong advertising to build brand preference, a pull strategy, and working closely with distributors.

But the power balance has definitely shifted.

Remember the hefty glad example at Walmart?

They tried to remove them.

Yeah, and customers complained so much, Walmart had to bring them back.

Shows consumer loyalty still matters.

Okay, one last piece of this puzzle.

Wholesaling.

Right.

Wholesaling covers all the activities in selling goods or services to those who buy either for resale, like retailers, or for business use.

So different from retailing because it's usually B2B, bigger transactions.

Exactly.

Less focus on store atmosphere, more on efficiency and logistics.

There are different types merchant wholesalers actually buy and own the goods they sell.

They can be full service or more limited like cash and carry.

Then you have brokers and agents who don't own the goods.

They just facilitate sales for a commission.

And they provide essential functions, right?

They're not just middlemen.

Absolutely vital.

Think about it.

They give manufacturers access to thousands of retailers efficiently.

They buy in bulk from manufacturers and break it down into smaller quantities retailers want.

They handle warehousing, transportation, financing, assume risk, provide market info.

They perform functions that would be really costly for manufacturers or retailers to do themselves.

Companies like Amerisource Bergen and Pharmaceuticals or Aeroelectronics.

Perfect examples.

Huge sophisticated operations.

And the best wholesalers constantly adapt, adding services like inventory management or technical support to provide more value and lock in relationships.

Wow.

So when you pull it all together, retailing, wholesaling, all these strategies and shifts,

it's an incredibly complex but fascinating ecosystem.

It really is constantly changing, constantly innovating, driven by technology, by consumer behavior, by competition.

It's never static.

And the big takeaway seems to be that success isn't just about what you sell anymore.

It's really about how you sell it, how well you understand that target customer, how you create the right experience, manage your image, use every channel.

Exactly.

The how is becoming increasingly critical.

Which leads to a final thought to leave you with.

As retailers and wholesalers keep navigating this constant change,

what new, maybe unexpected forms of value do you think we as consumers will start demanding next?

And how might technology make those new experiences possible?

Something to think about.

A warm thank you from the Deep Dive team.