Identifying Major Alternatives

Identifying Major Alternatives

Direct marketing Marketing through

Having defined its channel objectives, the firm then identifies its major channel •variant* adttertisinfi

alternatives in terms of the types and number of intermediaries to use and the UK din that interact

responsibilities of each channel member.

directly 'with consumers, generally calling for [he

cortsiimer to make a

• Types of Alternative Channel

direct response.

A number of options exist:

Broker

A wholesaler who does • Direct marketing. A number of direct marketing approaches can be used, not lakt; tide to goods

ranging from direct­response selling via advertisements in print media, on and whose Junction is to

radio or television, by mail order and catalogues to telephone and Internet luring buyers and sellers

selling. These methods are discussed further in Chapter 22. together and assist in

• Sales jbrce. The company can sell directly through its own salesjjyrce or negotiation. deploy another firm's sales force, as Glaxo did with its best­selling anti­ulcer

drug. Zantac. Alternatively, a contract sales force might be used. This A wholesaler who

Agent

method of selling to customers is discussed in Chapter 20. represents buyers or

• Intermediaries, These arc independent organizations that will carry out a sellers on n relatively

number of activities. Merchants, which include wholesalers and retailers, permanent basis,

buy, take title to and resell the firm's goods, whereas brokers and agenls do performs only a few

not buy or carry the producer's products, but help to sell these to customers functions, and does not

by negotiating prices and sales terms and conditions on the supplier's take title to goods. behall. Other intermediaries ­ transport companies, independent

Intermediaries

warehouses, finance companies, banks ­ perform a range of channel Distribution channel

functions to facilitate the flow of goods or services from producer to user. firms tluit help the company jttnd customers

WHOLESALERS. Wholesalers render important services to producers and or make sates to them,

resellers. Wholesalers' sales forces help manufacturers reach any small customers including wholesalers

at a low cost. The wholesaler has more contacts and is often more trusted by the and retailers that buy

buyer than the distant manufacturer. Wholesalers can select items and build and resell goods.

assortments needed by their customers, thereby saving the consumers a con­

siderable amount of work. They save their customers money by buying in huge Afinn engaged

wholesaler

lots and breaking bulk (breaking large lots into small quantities). Wholesalers primarily in selling

hold inventories, thereby reducing the inventory costs and risks of suppliers and gowls and services to

customers. Wholesalers can provide quicker delivery to buyers because they are those buying for resale

closer than the producers. They finance their customers by giving credit, and or business use.

they finance their suppliers by ordering early and paying bills on time. Wholesalers absorb risk by caking title and bearing the cost ol' theft, damage,

full­service wholesalers spoilage and obsolescence. They give information to suppliers and customers Wholesalers chiit provide

about competitors, new products and price developments. Wholesalers also a fu!I set of services such

provide management services and advice ­ they often help retailers train their as carrying stuuk, using

a sales force, offering sales assistants, improve store layouts and displays, and set up accounting and

credit, muking deliveries

inventory control systems.

and providing There are many types of wholesaler. They are classified according to the management axs is tanve.

breadth and depth of their product/service lines and the range of services they offer. Full­service wholesalers provide a full set of services, such as carrying

Qhannel Design Decisions • 911

stock, using a sales force, offering credit, making deliveries and providing tech­ nical advice and management assistance. They are either wholesale rnerchanta or industrial distributors. Wholesale merchants sell mostly to retailers. General merchandise wholesalers carry several lines of goods ­ for example, hardware, cosmetics, detergents, non­perishable foods and household goods ­ to meet the needs of both general­merchandise retailers and single­line retailers. Limited­line wholesalers carry one or two lines of goods, but offer a greater depth of assort­ ment. Examples are hardware wholesalers, drug wholesalers and clothing whole­ salers. Some specicdity­line­wholesalers carry only part of a line in great depth, such as health­food wholesalers, seafood wholesalers and automotive parts whole­ salers. They offer customers deeper choice and greater product knowledge.

Industrial distributors sell mainly to producers rather than to retailers. They provide inventory, credit, delivery, technical advice and other services. They may handle a wide, limited or special line of products. Industrial distributors concen­ trate on lines such as maintenance and operating supplies, original­equipment

goods (such as ball bearings and motors) and equipment (such as power tools and forklift trucks).

Limited­service wholesalers perform a limited number of functions and offer limited­service fewer services to their suppliers and customers. There are several types of

wholesalers

limited­service wholesaler. Cash­and­carry wholesalers have a limited line of fast­ Those ­whi.1 offer only moving goods, such as groceries, toys, household goods, clothes, electrical

limited services to their supplies, office supplies and building materials. They sell to small retailers and

suppliers and industrial firms for cash and normally do not deliver. A small fish­store retailer,

customers. for example, normally drives at dawn to a cash­and­carry fish wholesalers and

buys several crates of fish, pays on the spot, drives the merchandise back to the cash­and­carry store and unloads it. Cash­and­carry wholesalers are important to some small wholesalers

Wholcstdcrs that stock a retailers and industrial customers that are not .served by the bigger wholesalers.

limited line of fast­ They may not benefit from the services that full­service wholesalers can offer, but

moving goods ­ such as they do get lower­priced merchandise and immediate aeeess to goods. An

groceries, toys, example of a cash­and­carry wholesaler is Makro. although Makro is a hybrid

household gootis, operator, servicing both individual consumers and small retailers.

c'/ot/K'N, ck­ctriQul Truck ^wholesalers (also called truck jobbers) perform a selling and delivery

supplies and building function. They carry a limited line of goods (such as milk, bread or snack foods)

materials ­ and that sell that they sell for cash as they make their rounds of supermarkets, small groceries,

tn nrnall retailers and

industrial firms Jar cash bulk industries such as coal, oil, chemicals, lumber and heavy equipment. They and normally do not do not carry inventory or handle the product. They receive orders from retailers, provide a delivery

hospitals, restaurants, factory 1 cafeterias and hotels. Drop shippers operate in

service. industrial buyers or other wholesalers and then forward these to producers,

which ship the goods directly to the customer. The drop shipper takes title and risk from the time the order is accepted to the time it is delivered to the customer. Because drop shippers do not carry inventory, their costs are lower and they can pass on some savings to customers. Rack jobbers serve grocery and general merchandise retailers, mostly in the area of branded non­food items, such as books, magazines, toys, stationery, housewares, health and beauty aids, and hard­ ware items. These retailers do not want to order and maintain displays of hundreds of non­food items. Rack jobbers send delivery trucks to stores and the delivery person sets up display racks for the merchandise. They price the goods, keep them fresh and maintain inventory records. Rack jobbers sell on consign­ ment ­ they retain title to the goods and bill the retailers only tor the goods sold to consumers. Thus they provide services such as delivery, shelving, inventory and financing. They do little promotion because they carry many branded items that

are already highly advertised. Other limited­service wholesalers include producers' co­operatives, owned by farmer­members, who assemble farm produce to sell in local markets, and

Chapter 21 Managing Marketing Channels

mail­order ­wholesalers, which use catalogues lo sell to retail, industrial and insti­ tutional customers and give discounts for large orders. Their main customers are businesses located in small outlying areas. They have no sales forces to call on customers and provide very few services. The orders are filled and goods are sent to customers by mail, truck or other means.

self­service retailers Although wholesalers play an important channel role, retailers are also criti­ Retailers that provide

cal intermediaries as they provide the final link between the consumer and few or no services to

provider.

shoppers: shoppers perform their oian

locate­compare­select RETAILERS. Retail stores come in all shapes and sizes, and new retail types process,

keep emerging. Generally, they can be distinguished by the amount of service they offer, the product line and relative price emphasis.

self­service retailors Different products require different amounts of service and customer service Retailers that provide

preferences vary. Self­service retailers cater for customers who are willing to few or no services to

perform their own 'locate­compare­select' process to save money. Today, self­ shopper*; shoppers

service is the basis of all discount operations and is typically used by sellers of perform their own

grocery and convenience goods (e.g. supermarkets) and nationally branded, fast­ tocate­e­ompare­select

moving shopping goods (e.g. discount stores). Limited­service retailers, such as process.

department stores, provide more sales assistance because they carry more shop­ limited­service retailers

ping goods about which customers need information. They also offer additional Retailers (hat provide

services such as credit and merchandise return not usually offered by low­service only a limited number of

stores. Their increased operating costs, however, result in higher prices. Full­ to shoppers.

scrvice retailers, such as speciality stores and first­class department stores, assist customers in every phase of the shopping process. They usually earn' more

full ­service retailers speciality goods and slower­moving items, such as cameras, jewellery and fash­ Retailers that provide a

ions, for which customers like to be 'waited on'. They provide more services, full range of services to

resulting in much higher operating costs, which are invariably passed along to shoppers.

customers as higher prices.

Retailers vary in the length and breadth of their product assortments. A speciality store

A retail .store that curries speciality store carries a narrow product line with a deep assortment within that

a narrows product line line. Examples arc stores selling outdoor leisure garments, furniture, books, with a deep assortment

cosmetics, jewellery, electronics, flowers or toys (e.g Rohan, Hermes & Mauritz, 'within that line.

Benetton, Foyles, Intert'lora). Today, speciality stores are flourishing for several reasons. The increasing use of market segmentation, market targeting arid

de par tin en t store product specialization has resulted in a greater need for specialist stores that A retail organisation

focus on specific products and segments. Because of changing consumer lifestyles that carries a wide

and the increasing number of two­income households, many consumers have variety of product lines ­

greater incomes but less time to spend shopping. They are attracted to speciality typically clothing, home

stores that provide high­quality products, convenient locations, excellent service furnishings and

and quick entry and exit.

A department store carries a wide variety of product lines ­ typically, clothing separate department

household goods; each line is operated as a

and fashion accessories, cosmetics, home furnishings and household goods ­ each managed by specialist

operated as a separate department managed by specialist buyers or merchan­ buyers or

disers. Examples of well­known department stores arc llarrods and Harvey m e rc­hai idisers.

Nicholls (in the United Kingdom), >Sogo, Takashimaya and Isetan (in Japan and south­east Asia), Saks Fifth Avenue and Bloomingdale (in the United States), El

variety store Gorte Ingles (in Spain), Galeries Lafayette (in France) and Karlstadt (in Self­service store that

Germany). Variety stores tend to be low­cost, self­service scores. They specialize specialises in a wide

in a wider range of goods than specialist stores, but have a narrower range range of merchandise. It

compared to department stores and are more basic in terms of the level of extra offers a wider range

amenities offered. Woolworth, for example, sells a variety of products ­ compact than spccialisr stores, discs, records, cassettes, household goods, children's clothes and confectionery ­ but a narrower variety

than department stores. but, except for a cafe/restaurant, does not offer the extra facilities and services

provided by a huge department store. However, some variety stores like Marks &

Channel Design Decisions • 913

Spencer, which sells clothing and accessories, food, cosmetics, household goods, home furnishing and financial services, have not only focused on quality, but also

differentiated themselves from the competition by providing extra services for customers, including store cards, special events and mail order. Convenience stores are small stores that carry a limited line of high­ turn over convenience

convenience store goods ­ essential groceries, toiletries, cigarettes and newspapers. Examples are

A small store located Happy Shopper, Spar, Mace and VG stores. These locate near residential areas

near a residential area and remain open for long hours, seven days a week. They satisfy an important

that is open long hours seven days a <weck and

consumer need in a niche segment ­ shoppers in this segment use convenience carries a limited line of stores for emergency or 'fill­in' purchases outside normal hours or when time is

high­turnover short, and they are willing to pay for the convenience of location and opening

convenience goods. hours.

Supermarkets are large, low­cost, low­margin, high ­volume, self­service supermarkets stores that carry a wide variety of food, laundry and household products. Their

Large, low­cost, (ow­ growth in Europe, since the 1960s, and more recently in industrializing Asian

margin, high­volume, markets, has been phenomenal. Many of these supermarkets were located in town

self­service stores that or city­centre high streets with ample ear parking and, for a while, offered a good

carry a *wid,e variety of range and value­for­money to consumers. However, with town and city centres

food, laundry and becoming increasingly congested and car ownership rising fast in the 1980s and

household products. 1990s, people were keen to shop outside towns and cities. Many supermarkets

superstore started to close unprofitable high­street stores and build big edge­of­town stores.

A store almost twice the These superstores typically occupy 2,000­4,000 square metres and sell every­

size of a regular thing from baked beans to fine wines, aspirins to ankle socks. They also offer a

supermarket that carries range of services such as dry cleaning, post offices, film developing and photo

a large assortment of finishing, cheque cashing, petrol forecourts and self­service car­washing facilities.

routinely purchased food Many arc cutting costs, establishing more efficient and effective operations

and non­food items and through rigid quality control, centralized distribution and electronic technol­

offers such services as ogies, and lowering prices in order to compete more effectively with discount

dry cleaning, post stores, such as the German Aldi, Norma and Lidl, the Danish Netto and the

offices, film develfiping, French Carrefour. which have expanded aggressively across Europe in recent

photo finishing, cheque years. These discount stores regularly sell national brands at lower prices by cashing, petrol forecourts and self­

accepting lower margins and selling higher volume. service car­washing Superstores are well developed in many parts of Europe, where they account

facilities. for a sizeable share of total retail sales. Most are located out­of­town, frequently in

914 • Chapter 21 Managing Marketing Channels

retail parks, with vast free car parks. In recent years, non­grocery retailers, such

discount store

A retail institution lhai

as the US Toys 'Jl' Us. the UK Specialist Computer Holdings (SCI1) and IKEA,

Kclls standard

have also opened ­superstores in out­of­town sites. SOU sells leading hardware and

merchandise at lower

software brands such as IBM, Toshiba, Compaq, Apple, Microsoft, Lotus and

prices by accepting

Borland, and offers finance, training and maintenance packages. Analysts report

lower margins and

that superstores will account for more than 40 per cent of computer sales by the

selling at higher volume.

mid­1990s. 11

The latter group of retailers are also known as category killers. They arc a

category killers

new breed of exceptionally aggressive discounters, offering a wide range of

A modern 'breed'of

branded products in a clearly defined category. Their predatory pricing strategy ­

except tonally aggressive 'off­price' retailers that

pile them high, sell them cheaper than the competition ­ and ability to decimate

much of the competition in their sector explains their name. Their price advan­

offer branded

merchandise in dearly

tage is generally based on scale economies, hulk buying power and a rigorous

defined product

attention to costs. Category killers have, in recent years, been one of the most

categories at heavily

dynamic growth sectors in retailing. Leading US and European category killers

discounted price;;.

have been successful in penetrating overseas markets, with long­term growth potential predicted for the format as well as for its leading players (see Table

hyper inn rkets

21,1), Importantly, the American market is near saturation, and Europe is now a

Huge stores [hat

focus for expansion for many more of those leading players ­ K Mart, T J Maxx,

combine supermarket,

Blockbuster Video, Staples and Sports Authority, to name but a few (see

discount and warehouse

Marketing Highlight 21.2).

retailing; in addition to

Hypermarkets arc even bigger than superstores. A typical hypermarket occu­

food, they carry furniture, appliances,

pies alxmt 10,000 square metres of space, almost as big as six football fields. They

clothing and many other

carry more than just routinely purchased goods, for they also sell furniture, appli­

products.

ances, clothing and many other things. The hypermarket operates like a ware­ house. Products in wire 'baskets' are stacked high on metal racks; forklifts move

cash­and­carry retailers

through aisles during selling hours to restock shelves. The store gives discounts to

1­jirge, 'no­frills'stores

customers who carry their own heavy appliances and furniture out of the ­store.

that sell an extensive

Examples are the French Carrefour and Casino, and Savacentre which is owned

assortment of goods, and

by the British Salisbury's. Hypermarkets have been successful in world markets.

are noted particularly

For example, Carrefour. the large French retailer, successfully operates hundreds

for their hulk discounts.

of these giant stores in Europe, South America and Asia. There is a continuing trend towards large­scale retail development, particularly in south­east Asia, Japan

and South America. 1 ­ Other retail stores that feature low prices include cash­and­ carry stores, warehouse clubs and catalogue .showrooms. Cash­and­carry retailers are large stores (around 3,000­4,000 square metres] selling an extensive assort­

ment of goods, ranging from groceries to office furniture. For example, Makro, the Dutch­based retailer, whose European self­service cash­and­carry outlets were

sold to the Metro retailing group of Germany in 1997, operates vast warehouses across Europe, selling food, beverages, wines and spirits, confectionery, house­

hold goods, clothes and other assortments to a dual customer base ­ consumers and trade (resellers/retailers). It has also expanded rapidly in Asian markets.

Channel Design Decisions • 915

Table 21.1 Forecast number of category killers in selected markets in the year