What is Retailing?

Retailing involves selling products and services to consumers for their

personal or family use. Department stores, like Burdines and Macy's,
discount stores like Wal-Mart and K-Mart, and specialty stores like The
Gap, Zales Jewelers and Toys 'R' Us, are all examples of retail stores.
Service providers, like dentists, hotels and hair salons, and on-line stores,
like Amazon.com, are also retailers.
Many businesses, like Home Depot, are both wholesalers and retailers
because they sell to consumers and building contractors. Other
businesses, like The Limited, are both manufactures and retailers.
Regardless of other functions these businesses perform, they are still
retailers when they interact with the final user of the product or service

The Future of Retailing

Advances in technology, like the Internet, have helped make retailing an
even more challenging and exciting field in recent years. The nature of the
business and the way retailing is done are currently undergoing
fundamental changes. However, retailing in some form will always be
necessary. For example, even though the Internet is beginning to make it
possible for manufacturers to sell directly to consumers, the very vastness
of cyberspace will still make it very difficult for a consumer to purchase
every product he or she uses directly. On-line retailers, like Amazon.com,
bring together assortments of products for consumers to buy in the same
way that bricks-and-mortar retailers do.
In addition, traditional retailers with physical stores will continue to be
necessary. Of course, retailers who offer personal services, like hair
styling, will need to have face-to-face interaction with the consumer. But
even with products, consumers often want to see, touch and try them
before they buy. Or, they may want products immediately and won't want
to wait for them to be shipped. Also, and perhaps most importantly, in
many cases the experience of visiting the retailer is an important part of the
purchase. Everything that the retailer can do to make the shopping
experience pleasurable and fun can help ensure that customers come
back.
What is Retailing?
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, in a direct marketing system, where 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.

Retailers are faced with many issues as they attempt to be successful. The key issues include:
•

Customer Satisfaction – Retailers know that satisfied customers are loyal customers.
Consequently, retailers must develop strategies intended to build relationships that result
in customers returning to make more purchases.
•

Ability to Acquire the Right Products – A customer will only be satisfied if they can
purchase the right products to satisfy their needs. Since a large percentage of retailers do
not manufacture their own products, they must seek suppliers who will supply products
demanded by customers. Thus, an important objective for retailers is to identify the
products customers will demand and negotiate with suppliers to obtain these products.
•

Product Presentation – Once obtained products must be presented or merchandised to customers in a way that generates interest. Retail merchandising
often requires hiring creative people who understand and can relate to the market.
•

Traffic Building – Like any marketer, retailers must use promotional methods to build
customer interest. For retailers a key measure of interest is the number of people visiting
a retail location or website. Building “traffic” is accomplished with a variety of promotional
techniques such as advertising, including local newspapers or Internet, and specialized
promotional activities, such as coupons.
•

Layout– For store-based retailers a store’s physical layout is an important component in

creating a retail experience that will attract customers. The physical layout is more than
just deciding in what part of the store to locate products. For many retailers designing the
right shopping atmosphere (e.g., objects, light, sound) can add to the appeal of a store.
Layout is also important in the online world where site navigation and usability may be
deciding factors in whether of a retail website is successful.
•

Location – Where to physically locate a retail store may help or hinder store traffic. Well placed stores with high visibility and easy access, while possibly
commanding higher land usage fees, may hold significantly more value than lower cost sites that yield less traffic. Understanding the trade-off between
costs and benefits of locations is an important retail decision.
•

Keeping Pace With Technology – Technology has invaded all areas of retailing including
customer knowledge (e.g., customer relationship management software), product
movement (e.g., use of RFID tags for tracking), point-of-purchase (e.g., scanners, kiosks,
self-serve checkout), web technologies (e.g., online shopping carts, purchase
recommendations) and many more.

Target Markets Served

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.

Products Carried
Under this classification retailers are divided based on the width (i.e., number of different
product lines) and depth (i.e., number of different products within a product line) of the
products they carry.
•

General Merchandisers – These retailers carry a wide range of product categories (i.e.,
broad width) though the number of different items within a particular product line is
generally limited (i.e., shallow depth).
•
Multiple Lines Specialty Merchandisers - Retailers classified in this category stock a limited
number of product lines (i.e., narrow width) but within the categories they handle they
often offer a greater selection (i.e., extended depth) than are offered by general
merchandisers. For example, a consumer electronics retailer would fall into this category.
•

Single Line Specialty Merchandisers – Some retailers limit their offerings to just one
product line (i.e., very narrow width), and sometimes only one product (i.e., very shallow
depth). This can be seen online where a relatively small website may sell a single product
such as computer gaming software. Another example may be a small jewelry store that
only handles watches.

Pricing Strategy
Retailers can be classified based on their general pricing strategy. Retailers must decide whether their approach is to
use price as a competitive advantage or to seek competitive advantage in non-price ways.
•

Discount Pricing – Discount retailers are best known for selling low priced products that
have a low profit margin (i.e., price minus cost). To make profits these retailers look to
sell in high volume. Typically discount retailers operate with low overhead costs by
vigorously controlling operational spending on such things as real estate, design issues
(e.g., store layout, website presentation), and by offering fewer services to their
customers.
•

Competitive Pricing – The objective of some retailers is not to compete on price but
alternatively not to be seen as charging the highest price. These retailers, who often
operate in specialty markets, aggressively monitor the market to insure their pricing is
competitive but they do not desire to get into price wars with discount retailers. Thus,
other elements of the marketing mix (e.g., higher quality products, nicer store setting) are
used to create higher value for which the customer will pay more.
•

Full Price Pricing – Retailers targeting exclusive markets find such markets are far less
price sensitive than mass or specialty markets. In these cases the additional value added
through increased operational spending (e.g., expensive locations, more attractive design,
more services) justify higher retail prices. While these retailers are likely to sell in lower
volume than discount or competitive pricing retailers, the profit margins for each product
are much higher.

Promotional Focus
Retailers generate customer interest using a variety of promotional technique, yet some
retailers rely on certain methods more than others as their principle promotional
approach.
•

Advertising – Many retailers find traditional mass promotional methods of advertising, such
as through newspapers or television, continue to be their best means for creating
customer interest. Retailers selling online rely mostly on Internet advertising as their
promotional method of choice.
•

Direct Mail – A particular form of advertising that many retailers use for the bulk of their
promotion is direct mail – advertising through postal mail. Using direct mail for promotion
is the primary way catalog retailers distribute their materials and is often utilized by
Personal Selling – Retailers selling expensive or high-end products find a considerable
amount of their promotional effort is spent in person-to-person contact with customers.
While many of these retailers use other promotional methods, in particular advertising, the
consumer-salesperson relationship is key to persuading consumers to make purchase
decisions.