18.1 Retailing and the Role of Retailers in the Distribution Channel
3 min read•june 25, 2024
is the final step in getting products from manufacturers to consumers. Retailers offer a variety of goods, purchases into smaller quantities, and provide services to enhance the shopping experience. They're the crucial link between producers and buyers.
Distribution channels can be direct or indirect, with strategies like intensive, selective, or . Retailers also manage supply chains, segment markets, choose store locations, and use data to make smart decisions about inventory and pricing.
Retailing Fundamentals
Concept of retailing in distribution
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- Retailing involves selling products and services to consumers for personal or household use
- Retailers serve as the final business in a that connects manufacturers to consumers
- Distribution channel represents the path a product travels from manufacturer to consumer and may include wholesalers, distributors, and retailers
- Retailers are the last link in this chain before the product reaches the end consumer (Walmart, Target, Amazon)
Key functions of retailers
- Provide an assortment of products and services
- Retailers offer a wide variety of goods and services, enabling customers to select from multiple brands and products in a single location (department stores, supermarkets)
- Break bulk
- Retailers purchase large quantities of goods from manufacturers and break them down into smaller quantities for individual consumers
- Hold inventory
- Retailers maintain a stock of goods to ensure they are readily available for customers
- Provide services
- Many retailers offer additional services to enhance customer experience and product value
- Services may include gift wrapping, delivery, installation, alterations, and returns (Nordstrom, Best Buy)
- Implement
- Retailers use CRM strategies to build and maintain long-term relationships with customers, improving loyalty and retention
Distribution Channel Strategies
Distribution channel strategies
- Direct distribution
- Manufacturer sells directly to the end customer, eliminating intermediaries such as wholesalers and retailers
- Direct distribution methods include manufacturer-owned stores, online sales, and catalog sales (Apple Stores, Nike.com)
- Indirect distribution
- Manufacturer sells through intermediaries, including wholesalers and retailers, to reach the end customer
- Types of indirect distribution:
- : Selling a product through the maximum number of outlets possible to achieve extensive market coverage
- Commonly used for convenience goods (soft drinks, snacks, toiletries)
- : Selling through a limited number of retail outlets
- Provides greater control over pricing, , and customer service
- Frequently used for shopping goods (clothing, furniture, electronics)
- Exclusive distribution: Selling through only one or a few retail outlets in a specific market area
- Creates a prestigious image and allows for stricter control over pricing and customer service
- Often used for specialty or luxury goods (high-end fashion, luxury cars)
- : Selling a product through the maximum number of outlets possible to achieve extensive market coverage
Supply Chain and Retail Management
- : Coordinating the flow of goods, information, and finances from suppliers to manufacturers to retailers to consumers
- : Dividing the market into distinct groups of consumers with similar needs and preferences to tailor retail strategies
- : Selecting optimal store locations based on factors such as demographics, competition, and accessibility
- : Selling products through various channels, including physical stores, online platforms, and mobile apps
- : Organizing products into categories and managing them as strategic business units
- : Using data analysis to improve decision-making in areas such as , pricing, and customer behavior
Key Terms to Review (34)
Break Bulk: Break bulk refers to the process of breaking down large shipments or cargo into smaller, more manageable units for distribution or retail sale. This is a critical function in the distribution channel, particularly for retailers, as it allows them to receive and stock products in quantities that match their specific needs and customer demand.
Brick-and-Mortar: Brick-and-mortar refers to a physical, traditional retail store or business that has a physical presence and location, as opposed to an online or e-commerce business. The term reflects the tangible, physical nature of these establishments, which are typically constructed with brick and mortar materials.
Category Management: Category management is a strategic approach used by retailers to manage product categories as business units. It involves analyzing consumer needs, optimizing product assortment, and coordinating marketing efforts to meet those needs and drive profitability within a specific product category.
Channel Conflict: Channel conflict refers to the tension or disagreement that can arise between different members of a marketing distribution channel, such as manufacturers, wholesalers, and retailers, due to competing goals, interests, or decision-making processes. This term is particularly relevant in the context of the key topics covered in this chapter: 17.1 The Use and Value of Marketing Channels, 17.2 Types of Marketing Channels, 17.3 Factors Influencing Channel Choice, 17.4 Managing the Distribution Channel, and 18.1 Retailing and the Role of Retailers in the Distribution Channel.
Customer Relationship Management (CRM): Customer Relationship Management (CRM) is a strategy and set of processes that businesses use to manage their interactions with customers and potential customers. It involves using technology and data to organize, automate, and synchronize all business activities related to customer acquisition, customer retention, and customer support across different channels.
Department Store: A department store is a large retail establishment that offers a wide variety of merchandise, typically organized into different departments or sections, such as clothing, home goods, electronics, and more. These stores cater to a broad range of customer needs and provide a one-stop shopping experience.
Discount Store: A discount store is a retail establishment that offers merchandise at prices lower than traditional retail stores. These stores typically achieve lower prices by purchasing in bulk, negotiating with suppliers, and minimizing overhead costs, allowing them to pass the savings on to consumers.
Distribution Channel: A distribution channel is the path a product or service takes from the producer or manufacturer to the final consumer. It involves the various intermediaries, such as wholesalers, retailers, and online platforms, that facilitate the movement of goods and services from the point of origin to the point of consumption.
E-commerce: E-commerce refers to the buying and selling of goods or services over electronic networks, primarily the internet. It encompasses a wide range of online transactions and activities that facilitate the exchange of value between businesses, consumers, and other entities.
Everyday Low Pricing: Everyday low pricing (EDLP) is a retail pricing strategy where a retailer offers consistently low prices on products throughout the year, rather than relying on frequent sales, promotions, or temporary price reductions. This approach aims to provide customers with a simple, straightforward, and predictable pricing structure, in contrast to high-low pricing strategies that involve regularly changing prices.
Exclusive Distribution: Exclusive distribution is a marketing strategy where a manufacturer or supplier grants the right to sell its products to a single retailer or distributor within a specific geographic area or market segment. This type of distribution arrangement limits the availability of the product to a select number of authorized outlets, creating a sense of exclusivity and control over the product's distribution and pricing.
High-Low Pricing: High-low pricing is a pricing strategy where a retailer or manufacturer sets a high initial price for a product, then periodically offers discounts or sales to attract customers. This approach aims to balance the need for high profit margins with the desire to remain competitive and appealing to price-sensitive consumers.
Intensive Distribution: Intensive distribution is a marketing strategy where a product is made available in as many retail outlets as possible, maximizing its presence and accessibility to consumers. This approach aims to ensure that the product is readily available to the target market, making it convenient for them to purchase the item when the need or desire arises.
Inventory Management: Inventory management is the process of overseeing and controlling the ordering, storage, and use of components that an organization will use to produce a final product or offer a service. It is a critical function in logistics, retailing, and wholesaling, ensuring that the right products are available in the right quantities at the right time to meet customer demand efficiently and cost-effectively.
Inventory Turnover: Inventory turnover is a measure of how quickly a company sells and replaces its inventory over a given period of time. It is a crucial metric for managing the distribution channel and understanding the role of retailers in the distribution process.
Loss Leader: A loss leader is a product or service that a retailer sells at a price below its market cost to attract customers and stimulate other sales. The goal is to generate additional revenue from the sale of other, more profitable items in the store.
Market Segmentation: Market segmentation is the process of dividing a broad consumer or business market into subsets of consumers or businesses that have, or are perceived to have, common needs, interests, and priorities. Marketers can then design and implement strategies to target these specific segments with offerings that match their unique needs and characteristics.
Merchandising: Merchandising refers to the various activities and strategies employed by retailers and wholesalers to promote and sell products effectively to consumers. It encompasses the display, pricing, and promotion of merchandise in order to maximize sales and profitability.
Multichannel Retailing: Multichannel retailing refers to the practice of selling products and services through multiple distribution channels, such as physical stores, online platforms, mobile apps, and catalogs, to provide customers with a seamless and integrated shopping experience across various touchpoints.
Omnichannel Retailing: Omnichannel retailing is an approach to sales that focuses on providing customers with a seamless and integrated shopping experience across multiple channels, including physical stores, online platforms, mobile apps, and social media. It aims to create a cohesive and consistent brand experience for the customer, regardless of the touchpoint they use to interact with the retailer.
Point-of-Sale System: A point-of-sale (POS) system is a computerized system used to process customer transactions at the location where goods or services are sold. It serves as the central hub for managing and recording sales data in the retail environment.
Private Label: Private label, also known as store brand or own brand, refers to products that are manufactured and branded by a retailer to be sold exclusively through their own stores. These products are designed to compete with national brands while offering consumers a more affordable alternative.
Retail Analytics: Retail analytics refers to the collection, analysis, and interpretation of data related to the retail industry. It involves leveraging data-driven insights to optimize various aspects of the retail business, including inventory management, customer behavior, sales performance, and marketing strategies.
Retail Location Strategy: Retail location strategy refers to the process of selecting the optimal locations for retail stores or outlets to maximize visibility, accessibility, and profitability. It involves carefully analyzing various factors to determine the most strategic placement of retail businesses within a specific geographic area or market.
Retail Mix: The retail mix refers to the combination of factors that a retailer uses to satisfy the needs of its target market and achieve its business objectives. It encompasses the various elements that a retailer can control and manipulate to create a unique and compelling shopping experience for customers.
Retailing: Retailing refers to the process of selling goods and services directly to consumers for their personal, non-business use. It involves the final stage of the distribution channel, where products are made available to end-users through various retail outlets and platforms.
RFID: RFID, or Radio Frequency Identification, is a technology that uses radio waves to wirelessly identify, categorize, and track various objects. It is a crucial component in the distribution and retailing sectors, enabling efficient inventory management, supply chain optimization, and enhanced customer experiences.
Sales per Square Foot: Sales per square foot is a retail metric that measures the total sales generated within a given retail space, typically over a specific time period. It provides insight into the productivity and efficiency of a retail location by analyzing the revenue generated per unit of physical space.
Selective Distribution: Selective distribution is a marketing strategy where a manufacturer or producer limits the number of retailers or wholesalers authorized to sell their products. This approach aims to maintain control over the distribution and presentation of the brand, ensuring a consistent brand image and customer experience across the selected channels.
Showrooming: Showrooming refers to the practice of consumers visiting a physical retail store to examine a product in person, but then ultimately making the purchase online, often from a different retailer, typically at a lower price. This behavior has become more prevalent with the rise of e-commerce and the ability to easily compare prices across multiple vendors.
Specialty Store: A specialty store is a retail establishment that focuses on selling a specific category of products or services, catering to a niche market with unique and specialized offerings. These stores are typically smaller in size compared to general merchandise retailers and offer a deep assortment of items within their specialized domain, providing customers with a curated and personalized shopping experience.
Supply Chain Management: Supply chain management is the coordination and management of the flow of goods, services, information, and finances across an entire supply chain, from the sourcing of raw materials to the delivery of products to the end consumer. It involves the planning, implementation, and control of all activities related to the movement and storage of goods, as well as the effective management of relationships with suppliers, intermediaries, and customers to maximize value and achieve a sustainable competitive advantage.
Visual Merchandising: Visual merchandising is the practice of designing and arranging physical retail spaces and product displays to create an engaging, visually appealing, and customer-centric shopping environment. It aims to enhance the overall in-store experience and influence consumer behavior and purchasing decisions.
Wheel of Retailing: The wheel of retailing is a model that describes the cyclical nature of retail formats, where new, low-margin retailers enter the market and eventually evolve into higher-margin, more established retailers over time. This cycle is driven by the constant need for retailers to adapt to changing consumer preferences and competitive pressures.