Dunne, Lusch, & Carver

Chapter 1

Perspectives on Retailing
 Primer to Retailing*
• What is Marketing?
• “Marketing is the process of planning and executing the conception, pricing,
promotion, and distribution of ideas, goods, and services to create the
exchanges that satisfy individual and organizational goals.” (1985 AMA Definition)

• “Marketing is an organizational function and a set of processes for creating,

communicating, and delivering value to customers and for managing customer
relationships in ways that benefit the organization and its stakeholders.” (Lusch and
Marshall 2004 AMA Definition)

• “Competition for a Differential Advantage.” (Wroe Alderson 1957)

 Primer to Retailing*
• What is the Marketing Concept?
• It’s a marketing-management philosophy which
advocates that business organizations…
1. Exist to identify & satisfy the needs of their customers (i.e.,
Customer Orientation)

2. That a customer orientation is accomplished through an

integrative effort throughout the firm (i.e., Integrated Effort)

3. The firm’s focus should be long-term & seek to provide a

satisfactory ROI (i.e., Long-Term Profit Orientation)
 What is Retailing?
• Consists of the final activities and steps needed to
place merchandise made elsewhere into the hands of
the consumer or to provide services to the consumer.
• Notice this is a verb. Thus …
• Any firm that sells a product or provides a service to the
final consumer is performing the act of retailing.

• A retailer is a noun:
• It is any firm that generates a majority of its revenues or
business from the act of retailing
 Distinguishing Between
a Retailer and Retailing
• If you go to the local Walmart to buy a loaf of bread is this a
retail activity? from a retailer?
• Yes. And Yes.

• Say you buy the same loaf of bread from Costco or Sam’s.
What are your answers?
• Should be 1) yes, and 2) no.
• Sam’s & Costco are wholesalers. The majority of their business comes from
selling to other businesses; yet, it’s retailing because you’re the consumer.

• If the chef of a local restaurant bought the same loaf of bread

for her business from Walmart, what would be your answers?
• Should be 1) no, and 2) yes.
• The chef buying for her business is a wholesale activity, but Walmart is a
retailer because the majority of its business comes from the act of retailing.
 The Nature of
Change in Retailing Today
• Change is a result of at least four different
catalysts:
1. E-tailing
2. Price competition
3. Demographic shifts
4. Store size
 What is 'Electronic Retailing?
E-tailing'
• Electronic retailing is the sale of goods and services
through the internet. Electronic retailing, or e-tailing,
can include business-to-business (B2B) and business-
to-consumer (B2C) sales of products and services,
through subscriptions to website content, or through
advertising. E-tailing requires businesses to tailor
traditional business models to the rapidly changing
face of the internet and its users.

Source: Investopedia.com
 Characteristics of Successful Electronic
Retailing
• Successful e-tailing requires strong branding. Websites must be
engaging, easily maneuverable and regularly updated to meet
consumers' changing demands. Products and services need to
stand out from competitors' offerings and add value to
consumers' lives. In addition, a company's offerings must be
competitively priced so consumers do not favor one business
over another based on cost alone.

• E-tailers need strong distribution efficiency so consumers are not

waiting long periods of time for the products or services they
purchase. Transparency in business practices is also important so
consumers trust and stay loyal to a company. As consumers
continue buying from the business, revenue increases.
Source: Investopedia.com
 What is Mobile retailing?
M-tailing
• Purchase of goods and services through
smartphones.
• The purchase are made through a virtual
service provider which is commonly known as
apps.
• The fastest growing form of e-tailing.
 Examples of m-tailing retailers
• Groupon
• Uber/Grab
• Food Panda
• Zalora
• 11th Street
• Lazada
• E-bay
 Price Competition
• Americans are naturally price conscious,
whether shopping online or at a brick-and-
mortar store.
• Price conscious consumers are naturally price
sensitive*
• Price sensitivity*
• The degree to which price is a deciding factor in a consumer’s
purchase decision

• High (low) price sensitivity occurs when the percentage

change in demand is greater (lower) than the percentage
change in price
 Price Competition (cont.)
• So if Americans are naturally price conscious,
is having the lowest price key to success in
retailing?
• No. Cost management is key.
• Retailers that are able to cut costs in order to provide
lower prices will be the winners.

• Example:
• Sam Walton forever changed the face of retailing by realizing
that most of any product’s cost gets added after the item is
produced, which is why he computerized Walmart (i.e., to
reduce expenses).
 Demographic Shifts
• Several changes in demographic factors over
the last decade have impacted retail strategy.
1. The fluctuating birthrate,

2. The growing importance of Generation Y consumers,

3. The movement of Generation X into middle age,

4. The growing number of Baby Boomers entering

retirement,

5. And the increasing number of immigrants.

 Demographic Shifts (cont.)
• To meet these ever changing and increasing
number of needs, successful retailers will be
those that…
1. become more service-oriented
2. offer better value in price and quality
3. are more promotion-oriented, and
4. are better attuned to their customers’ needs.
 Store Size
• Prior to the recession, emphasis on increasing
store size
• Why?
• “The more merchandise customers see, the more they
will buy.”

• Result:
• Growth in scrambled merchandising
• When a retailer handles many different and unrelated items.
 Scrambled merchandising
• Retailers carrying additional unrelated
merchandise as the result of the pressure to
increase profits.
• E.g: Petrol station shop has courier service,
café, bakery, fast food chains etc
 Category killer
• Retailers that carries such large amount of
merchandise in a single category at good price
that makes it impossible for customers to walk
out without purchase anything, thus ‘killing’
the competition
 Example of category killer
• Toys ‘R’ Us
• IKEA
• Daiso
• Kinokuniya
 Store Size (cont.)
• Yet supersized stores raise several major costs,
namely:
1. Rent
2. Inventory Carrying Costs (ICCs)
3. Labor Costs
 Experience and Niche Retailing
• Revival of uniqueness and novelty centered on
creating unique, not mass produced,
merchandising and shopping experience. For
example:
Uniqlo and British fashion designer Hana Tajima
Coach handbags and Disney
 Experience and Niche Retailing
• Renovation of shopping malls into more
exciting experience platform. For example:
- Times Square at Bukit Bintang
-KLCC
- Paradigm Mall
 External Environmental
Forces Confronting Retail Firms
 Categorizing Retailers
• The four most popular schemes to categorize
retailers:
1. Number of outlets
2. Margin versus Turnover
3. Location
4. Size
 Number of Outlets
• Advantages of Several • Advantages of Single Units:
Units:
• More motivated employees
• Spread fixed costs
• Attune to change in market
• Economies of scale in
purchasing • Tailor their merchandise
buying to fit local needs
• Channel Captain status
• Possible economies from
• Private label products joint-purchasing (IGA)

•Greatest Shortcomings of This Approach:

•Only considers traditional (brick-and-mortar) retailers
•Overlooks online retailers and non-traditional retailers
 Margin Versus Turnover
• Categorizing based upon:
• Gross margin percentage
• Gross margin divided by net sales or what percent of each
sales dollar is gross margin
• Inventory turnover
• The number of times per year, on average, that a retailer sells
its inventory

• Using a 2x2 matrix, what is…

• The best position?
• The least likely to exist, much less succeed?
• An example in each of the remaining three cells?
 Location
• Retailers are now aware that opportunities
exist in new, non-traditional retail areas.
• Retailers are reaching out to alternative retail
sites, rather than simply renovating existing
stores.
• Today, the most significant of the new,
nontraditional shopping locations could be the
one which combines culture with
entertainment or shopping.
 Size
• Refers to either sales volume or the number of
employees
• Operating performance tends to vary according to
size
• Larger firms usually have lower operating costs per
sales dollar.

• While size has been useful in the past, technology

advances bring this logic into question.
• For example:
• The fully automated retailer
 A Retailing Career
• Exposure to all business disciplines…
• Economics - Forecasting sales growth
• Fashion – Predicting behavior and future trends.
• Marketing - Determining which styles will be "in," ordering and
stocking these styles, promoting them and properly pricing them.
• Finance - Reducing store expenses.
• Management – Managing schedules & hiring employees
• Logistics – Managing the flow of merchandise
• Information Systems - Analyzing sales and other data to
determine opportunities for improved management practices.
• Accounting - Obtaining bottom line sales and profit figures.
The Study and Practice of Retailing

Analytical Method Creative Method

Manager is finder and Manager is conceptual
investigator of facts. and very imaginative.

Two-Pronged Method
Manager who employs both
approaches.
 What You Should Have Learned…
Chapter’s Learning Objectives
1. What retailing is and why it is undergoing so
much change today.
2. The five methods used to categorize retailers.
3. What is involved in a retail career and be able
to list the prerequisites necessary for success
in retailing.
4. The different methods for the study and
practice of retailing.