CHAPTER 11 W H O LESALING Wholesale Trade The sale, and all activities directly related to the sale, of goods and

d services to businesses and other organizations for: - resale - use in producing other goods and services - operating in organization Includes sales by any firm to any customer EXCEPT an ultimate consumer who is buying for personal, nonbusiness use. Is a business activity that can be carried out by various types of firms. Wholesaling Middleman A business institution that concentrates on wholesaling. Economic Justification for Wholesaling Most manufacturers are small and specialized. A wholesaling middleman can fill the gap between the seller(producer) and the buyer (retailer or final user). -Buying and Assortment Building A wholesalers activity creates time, place, and/or possession utility. Wholesaling brings to the distribution system the economies of skill, scale and transactions. Wholesaling skills It saves the duplication of effort that would occur if many producers had to perform wholesaling functions themselves. Economies of scale Results from the specialization of wholesaling middlemen performing functions that might otherwise require several small departments run by producing firms. Transaction economies It will come into play when retailers and/or wholesaling middlemen are introduced between producers and their costumers. Size of Wholesaling Market A wholesale trade exceeds a retailer trade by a wide margin. Wholesale trade includes sales of business goods and successive sales of consumer goods at wholesale level. Operating Expenses and Profits Total operating expenses for wholesaling middlemen average about 11% of wholesale sales, while in retailers run about 28% of retail sales. Operating Expenses may vary across the several categories of wholesaling middlemen. Selling and Promoting Bulk Breaking Warehousing Transportation Financing Risk-bearing Market Information Management Services and Advice Major Categories of Wholesaling Middlemen Merchant Wholesaler Agent Wholesaling Middlemen Manufacturers Sales Facility -Manufacturers Sales Branch -Manufacturers Sales Office

Types of Wholesalers MERCHANT WHOLESALERS -Independent owned businesses that take title to the merchandise they handle. -Called as jobbers, distributors or mill supply houses. -Include Full-service wholesalers and Limited-service wholesalers. Full-Service Wholesalers Provide a full line of services such as: a) Carrying stock b) Maintaining a sales force c) Offering credit d) Making deliveries and providing management assistance Types of Full-Service Wholesalers: Wholesale Merchants - Sell primarily to retailers and provides a full range of services. (ex. General Merchandise Wholesalers, Specialty Wholesalers) Industrial Distributors -Sell to manufacturer rather than to retailers. Provide several services such as carrying stock, offering credit, and providing delivery. -Limited-Service Wholesalers Offer few services than full service wholesalers. Types of Limited-service wholesalers: 1. Cash-and-Carry Wholesalers - Carry a limited line of fast-moving goods and sell to small retailers for cash. 2. Truck Wholesalers (Truck Jobbers) - Perform primarily a selling and delivery function. -Carry a limited line of semi-perishable which they sell for cash as they make rounds to supermarkets, supermalls, etc. 3. Drop Shippers - Do not carry inventory or handle the product. They select a manufacturer who ships directly to the customer. The drop shipper takes title and risk from the time the order is accepted to its delivery to the customer. 4. Rack Jobber - Serve grocery and drug retailers, mostly in nonfood items. They send truck to stores where the delivery people set up items like toys, paperbacks, hardware items, etc. They retain title to the goods and bill the retailers only for the goods sold to consumers 5. Producers Cooperative - Owned by farmer members and assemble farm produce to sell in local markets. The coops profit are distributed to members at the end of the year. 6. Mail-Order Wholesalers - Send catalogs to retail, industrial, and industrial customers featuring jewelry, cosmetics, foods, and other small items. Maintain no outside sales force. Main customers are businesses in small outlying areas. Orders are filled and sent by trucks, mail, or other transportation BROKERS and AGENTS -Main function is to facilitate buying and selling which they earn a commission on the selling price. Brokers - Main function is to bring buyers and sellers together and assisting in negotiation. They are paid by the party who hired them and do not carry the inventory, get involved in financing, or assume risks.

Ex. Food Brokers, Real Estate Brokers, Insurance Brokers, and Security Brokers Agents Represents either buyers or sellers on a more permanent basis than brokers do. Manufacturers Agent - Represent 2 or more manufacturers of complementary lines. A formal written agreement with each manufacturer covers pricing, territories, order-handling, delivery service and warranties, and commission rates. Often used in lines of apparel, furniture, and electrical goods. Most manufacturers agents are small businesses with only a few skilled salespeople as employees. Selling Agents - Have contractual authority to sell a manufacturers entire output. The manufacturer is either is not interested in the selling functions or feels unqualified. The selling agent serves as a sales department and has a significant influence over prices, terms, and condition of sale. Purchasing agents - Generally have a long term relationship with buyers and make purchases for them, often receiving, inspecting, warehousing, and shipping the merchandise to the buyers. They provide helpful market information to clients and help them obtain the best goods and prices available. Commission Merchants - Take physical possession of products and negotiate sales. Used most often in agricultural marketing by farmers who do not want to sell their own output and do not belong to producers. Manufacturers and Retailers Branches and Offices Wholesaling operations conducted by sellers or buyers themselves rather than through independent wholesalers. Separate branches and offices can be dedicated to either sales or purchasing. Purchasing Offices -Perform a role similar to that of brokers or agents but are part of the buyers organization. Sales Branches & Offices -Set up by manufacturers to improve inventory control, selling, and promotion. Sales Branches -Carry inventory and are found in industries such as lumber. Sales Offices -Do not carry inventory and are most prominent in dry goods and notions industries. AGENT WHOLESALING MIDDLEMEN Middlemen - Individuals or business concerns who specialize in performing the various marketing functions involved in the purchase and sale of goods as they are moved from producers to consumers. Major Types: Merchant Wholesalers take title Agent Wholesaling Middleman do not take title Types of Agents Manufacturers Agents Sell part/ all of a producers product mix Operate in geographically limited areas Represent two or more non-competing manufacturers *principal Specialize in selling and work on commission Used by firms too small to afford own sales force

Also used to: Cover areas with low market potential Introduce new products/ penetrate new geographic markets

Brokers

Brings buyers & sellers together May assist in contractual negotiations Work more for the seller because commission is paid by the seller Used only when needed Selling Agents Similar to manufacturers agents Have exclusive rights to manufacturers products in all geographic areas Authority to make decisions in all areas of marketing mix Function as independent marketing department Auction Companies Bring buyers & sellers together Sell goods through auction or bid process Agricultural products such as tobacco, live stock, fruit Used cars, farm &industrial equipment, Internet auction houses Commission Merchants Similar to brokers, but given certain powers brokers do not possess Represent sellers of agricultural goods Grain Produce Livestock Trends in Wholesaling Challenges: More demanding customers New Sources of Competition: Large Retailers Groceries and pharmaceuticals Mass merchandising Industrial supplies Buy direct, provide own services New Technologies Middlemen (wholesalers & retailers) eliminated Specialty products Electronic catalogs Virtual malls Convenience goods Internet grocery stores Middlemen will strive to differentiate themselves Solidify their positions in channels they serve Attempt to provide more and better services Cut costs to improve profitability Find unique niches Strive to build better relationships with retail customers CHAPTER 12 NATURE AND IMPORTANCE OF RETAILING Retailing is the sale of goods and services to ultimate consumers for personal and nonbusiness use. Retailers serve as purchasing agents for consumers and as sales specialists for producers and wholesaling middlemen. They perform many specific activities.

 Economic Justification for retailing It is relatively easy to become a retailer. No large investment in production equipment is required, merchandise can often be purchased on credit, and store space can be leased with no down payment or a simple website can be set up at modest cost. Size of Market and Firms There are about 1.1 retail firms in the US; collectively they generated almost $3.2 trillion in sales during 2001. Most retail firms are small-- either single stores or several stores under common ownership. Some retailers can survive if they remain flexible and pay careful attention to personally serving customer's needs. Operating Expenses and Profits Total operating expenses for retailers average is 28% of retail sales. In comparison, wholesaling expenses run about 11% of wholesale sales or 8% of retail sales. Thus, retailing costs are about 2 times the costs of wholesaling when both are stated as a percentage of the sales of the specific type of middleman. Higher retailing costs are the results of dealing directly with ultimate consumers like answering their questions, showing them different products, and so on. Compared to wholesale customers, ultimate consumers typically expect more convenient locations. Retailers typically have lower total sales and lower rates of merchandise turnover. Retailers buy smaller quantities of merchandise. Compared to wholesalers, their overhead costs are spread over a smaller base of operations. Furthermore, retail sales people often cannot be used efficiently because customers do not come into stores at a steady rate. Retailers' costs and profits vary depending on their type of operation and major product line. Assorted kinds of retailers earn wide-ranging gross margins. Healthy gross margins do not necessarily translate into high levels of net profits. Some retailers have large gross margins but incur heavy operating expenses resulting in meager profits, Conversely, other retailers whith small gross margins are able to serve customers well with low operating expenses, thereby winding up with substantial net profits. Four Aspects of Physical Facilities: LOCATION Considerations such as surrounding population, traffic, and cost determine where a store should be located. SIZE This factor refers to the total square footage of the physical store, not the magnitude of the firm operating it. DESIGN This factor refers to a store's apperance, both exterior and interior. LAYOUT The amount of space alloted to various product lines, specific locations of product, and a floor plan of display tables. Physical Facilities: Shopping center Consists of planned grouping of retail stores that lease space in a structure that is typically owned by a single organization.

Can be classified by such attributes as size, market served, and types of tenants. Kinds of Shopping Store: Power center Its distinguishing attribute is a tenant mix that includes several large, popular limited- line stores that stress value, but not a department store anchor. Lifestyle center Combines the feel of a village square with extensive landscaping and a collection of retail stores that are well known and appeal to upscale shoppers. Regional center Anchored by one or more department stores and complemented by many smaller retail outlets.

Retailers Classified By Forms of Ownership Retailers Classified by Marketing Strategies: Limited-line Stores -which typically sell products Clothing Baked goods Furniture -identify by the name of the primary product line Furniture store Hardware store Clothing store Specialty Stores -concentrates on a particular product line Example Athletic foot wear Meat markets Dress shops -should not be confused with specialty goods. In a sense, specialty stores are misnamed because they may carry not just specialty goods but any of the categories of consumer goods Successful specialty store chains Zyny Brainy Batteries Plus Sunglass Hut International Off-price Retailers -positioned themselves below discount stores with lower prices on selected product lines -are most common in the area apparel Rose Dress for Less footwear Payless Shoe Source -concentrate on well-known producers brands Factory outlets -usually sell single companys merchandise -this type of institution gives manufactures another channel for their products-one over which they have complete control Many popular brands: Polo Ralph Lauren Nike Crate & Barrel Dansk

Category-killer stores -aims to capture a large portion of sales in a specific product category and in so doing, kill the competition -is the combination of low prices and many different sizes, models, styles and colors of the products Successful category-killers: Ikea in home furnishing Circuit City in consumer electronics Home Depot and Lowes in building supplies Bed Bath & Beyond in soft goods for the home Toys R Us Other product areas with category-killers Housewares Recorded music Sporting goods -took sales and consumers away from long-standing retailers, especially specialty stores and department stores -the format has been extended to other products Example CarMax and AutoNation established megastores featuring very large inventories of used cars and trucks. CarMax has opened only about three dozen outlets Auto Nation has closed its used-car megastores Convenience stores -emerged in the latter half of the past century -besides selected groceries and non foods (especially beverages, snacks and cigarettes), gasoline, fast foods and selected services (such as car washes and automated teller machines) can be found in many convenience stores Example 7-Eleven Circle K Convenient Food Mart -complete to some extent with both supermarkets and fast food restaurants Further, petroleum companies have modified many of their service station by phasing out auto repairs and adding a convenience section and perhaps a fast-food counter as well Example Arco gas AM/PM Mini Marts Texaco has Star Marts -to boost their competitiveness, convenience stores have adjusted their marketing mixes Example 7-Eleven chain has added fresh foods, notably sandwiches and is experimenting with in-store kiosks for financial services and limited online purchases Warehouse clubs -is a combined retailing and wholesaling operation -are open only to member who pay annual fee of about $25 to $50 Their target markets are small business (some purchasing merchandise for resale), select groups (such as government personnel and credit union members), and to an increasing degree-individual consumers -primary advantage of a warehouse club is its extremely low prices -prices for household consumers typically are about 5% higher than prices offered to business members Leading Warehouse Clubs Costco

Sams Club (owned by Wal-Mart) BJs Wholesale Major Forms of Ownership in Retailing Corporate chains - organization of two or more centrally owned and managed stores that generally handle the same lines of products o Two or more stores constitute a chain o Has central ownership o Individual units have little economy Independent stores - a single store that is not affiliated with a contractual VMS small retailers About 80% of all retail stores are independents, accounting for 2/3 of retail sales Contractual VMS (Vertical Marketing System) - independently owned firms joined together under a contract specifying how they will operate 1. Retailer Cooperatives and Voluntary Chains Retailer cooperative - formed by a group of small retailers that agree to establish and operate a wholesale warehouse Voluntary chain - sponsored by a wholesaler that enters into a contract with interested parties 2. Franchise Systems Franchising - a parent company (franchisor) provides management assistance and the right to use its trademark in return for payments from the owner of the individual business unit (franchisee) Types of Franchising Product and trade name franchising - the focus is on what is sold Business format franchising - the focus is on how the business is run Advantages in Selling Franchise Rapid expansion is expedited Relatively less risk because franchisees typically would adhere to the franchisors policies Advantages in Buying Franchise Use of the companys well-known trade name Provision of various forms of management assistance Non-Store Retailing Direct Selling- direct sales of goods and services to consumers through personal interactions and demonstrations in their home or office. 2 Kinds: 1. Door-to-Door- ex. AVON 2. Party Plan- ex. Public demos on how to use the product especially if the product is so technical , kitchenware Telemarketing- using the telephone to interact with and sell directly to consumers. Automatic Vending - Non-store retailing that makes it possible to serve customers where stores cannot. Online Retailing- Online retailing allows consumers to search for, evaluate, and order products through the Internet. Direct marketing- Using advertising to contact consumers who, in return, buy products without using a retail store 3 kinds: 1. Direct Mail- ex. send mails to home 2. Catalog Retailing-ex. display catalog in stores, give catalogs to people

3. Televised Shopping/ TV marketing Other Notes: Location is the most essential factor of physical distribution element of marketing mix Automatic vending requires the least amounts of retailer and customers active involvement while direct selling requires the most amounts. SPECIAL TOPIC Integrated Marketing Communication A strategic business process used to plan, develop, execute and evaluate coordinated communication with an organizations public. An Audience Perspective customers or prospects are exposed to information about the company or brand promotional efforts must be highly coordinated and complementary to have an impact opportunities anticipated and appropriate messages effectively communicated through them Elements of IMC awareness of target audiences information sources and media habits and preferences understanding of what audience knows and believes use of mix promotional tools that are linked to a common overall goal coordinated promotional effort communicating a constant message flow of information adopted to audience needs Implementing IMC a company must coordinate its advertising, personal selling, sales promotion, public relations, and direct marketing to accomplish specific objectives Evaluating IMC examining how it is implemented rigorous evaluation of its results outcome of each promotional component is compared with the set objectives Promotional Objective Common Measures

awareness of company or brand interest in product or brand action

competitive brand position

website traffic

usage of sales support

Barriers to IMC separate units of promotion diminish internal communication and coordination belief that promotion is an imprecise activity resistance to alternative form of promotion. The Communication Process and Promotion verbal or nonverbal transmission of information between someone wanting to express and someone else expecting to get an idea Fundamental Elements of Communication Message, source, communication channel, receiver Communication Process and Promotion: encoding reminds us that messages can take many forms

the number of channels or methods of transmitting a message are limited only by the imagination and creativity of sender how the message is decoded depends on its form and the capability and interest of recipient every promotion should have a measurable objective The Promotion Budget and Regulation of Promotion The Promotional Budget -A specified amount of money set aside to promote a business' or organization's products or beliefs Promotional Budget are created to anticipate the essential costs associated with growing a business or maintaining a brand name Promotional Budgeting Methods : Percentage of Sales - the most widely used budgeting method. - it sets the cost of promotion in relation to sales income, making it variable rather than a fixed expense. All Available Funds - plows all available funds into its promotional program. Following Competition -a weak method of determining the promotional budget, match the promotional expenditures of competitors or to spend in proportion to market share. Task or Objective -often called the buildup method - The task approach involves setting marketing objectives based on the tasks that the advertising has to complete. Limitations of Percentage of Sales Method: Management is effectively making promotion a result of sales when, in fact, it is a cause of sales. Reduces promotional expenditures when sales are decliningjust when promotion usually is most needed. Disadvantages of Following Competition : 1. Firms competition may be as much in the dark regarding how to set a promotional budget. 2. Companys promotional goals may be quite different from its competitors because of differences in strategic marketing planning. The Regulation of Promotion Advertising is regulated through: 1.Federal Regulation -Applies to firms engaged in interstate commerce. Three major pieces of legislation : THE FEDERAL TRADE COMMISSION ACT -measure that has the broadest influence on promotional messages. - prohibits unfair methods of competition such as : false advertising misleading advertising deceptive advertising Wheeler-Lea Amendment -strengthened the original act by specifying that an unfair competitive act violates the law if it injures the public. ROBINSON-PATMAN ACT - best known for outlawing price discrimination. LANHAM TRADEMARK ACT - regulates claims about where a product is manufactured. - made false claims about ones own products illegal. Other Federal Agencies involved in the Regulation of Promotions are : -Federal Communications Commissions (FCC) -Food and Drug Administration ( FDA ) - Postal Service

2. State and Local Regulation -regulate promotional activities in intrastate commerce. 3. Regulation by Private Organizations ( Self Regulation ) Self Regulation is done by: -advertisers and agencies -trade associations -businesses, Media -National advertising review board Determining the Promotional Mix Promotion Mix an organizations combination of personal selling, advertising, sales promotion and public relations Factors on designing an effective promotional mix 1. Target Audience Push strategy Pull strategy 2. Promotion objective Hierarchy of effects: Awareness Knowledge Liking Preference Conviction Purchase 3. Nature of the product Unit value Degree of customization Presale and postsale service 4. Stage in the product life cycle Introduction Growth Maturity Decline 5. Funds available Virtual marketing The Role of Promotion in Marketing Imperfect Competition - characterized by incomplete market information, product differentiation, and emotional buying behavior. In economic terms, the role of promotion is to change the location and shape of the demand curve for a companys product. A firm also hopes that promotion will affect the demand elasticity for its product. Promotion and Marketing In a marketing perspective, promotion is intended to further the objectives of an organization. It makes use of various tools to perform three essential promotional roles informing, persuading , and reminding target audiences. Informing Beyond simply being aware of a product or brand, customers must understand what benefits it provides, how it works, and how to get it. Persuasion In an economy with an abundant supply of products, consumers have many alternative ways of satisfying even basic psychological needs. As a result, persuasive promotion is essential. Reminding target audiences Consumers also must be reminded about a products availability and its potential to satisfy.

Promotion is all personal and impersonal efforts by a seller or a sellers representative to inform, persuade, and remind a target audience. Promotion Methods Personal selling is the direct presentation of a product to a prospective customer by a representative of the organization selling it. Advertising is nonpersonal communication paid for by a clearly identified sponsor promoting ideas, organizations, or products. Sales promotion is sponsor-funded, demand-stimulating activity designed to supplement advertising and facilitate personal selling. Public relations encompasses a wide variety of communication efforts to contribute to generally favorable attitudes and opinions toward an organization and its products.