Chapter 13 Retailing

The Role of Retailing

Retailing

Retailing—all the activities directly related to the sale of goods and services to the ultimate consumer for personal, nonbusiness use—has enhanced the quality of our daily lives.

Classification of Retail Opertations

A retail establishment can be classified according to its ownership, level of service, product assortment, and price. Specifically, retailers use the later three variables to position themselves in the competitive marketplace. (As noted in Chapter 7, positioning is the strategy used to influence how customers perceive one product in relation to all competing products.) These three variables can be combined in several ways to create distinctly different retail operations. Exhibit 13.2, page 425, lists the ten largest U.S. retailers.

Ownership

Retailers can be broadly classified by form of ownership: independent, part of a chain, or franchise outlet.

Independent Retailers

Retailers owned by a single person or partnership and not operated as part of a larger retail institution are independent retailers. Around the world, most retailers are independent, operating one or a few stores in their community. Local florists, shoe stores, and ethnic food markets typically fit this classification.

Chain Stores

Chain stores are owned and operated as a group by a single organization. Under this form of ownership, many administrative tasks are handled by the home office for the entire chain. The home office also buys most of the merchandise sold in the stores.

Franchises

Franchises are owned and operated by individuals but are licensed by a larger supporting organization. Franchising combines the advantages of independent ownership with those of the chain store organization. Franchising is discussed in more detail later in the chapter.

Level of Service

The level of service that retailers provide can be classified along a continuum, from full service to self-service. Some retailers, such as exclusive clothing stores, offer high levels of service. They provide alterations, credit, delivery, consulting, liberal return policies, layaway, gift wrapping, and personal shopping. Discount stores usually offer fewer services. Retailers like factory outlets and warehouse clubs offer virtually no services.

Product Assortment

The third basis for positioning or classifying stores is by the breath and depth of their product line. Specialty stores—for example, Hallmark card stores, Lady Foot Locker, and TCBY yogurt shops—are the most concentrated in their product assortment, usually carrying single or narrow product lines but in considerable depth. On the other end of the spectrum, full-line discounters typically carry broad assortments of merchandise with limited depth. For example, Target carries automotive supplies, household cleaning products, and pet food. However, Target may carry only four or five brands of canned dog food; a supermarket may carry as many as twenty.

Other retailers, such as factory outlet stores, may carry only a part of a single line. Liz Claiborne, a major manufacturer of women’s clothing, sells only certain items of its own brand in its many outlet stores. Discount specialty stores like Home Depot or Toys “R” Us carry a broad assortment in concentrated product lines, such as building and home supplies or toys.

Price

Price is a fourth way to position retail stores. Traditional department stores and specialty stores typically charge full “suggested retail price.” In contrast, discounters factory outlets, and offprice retailers use low prices as a major lure for shoppers.

Gross Margin

The last column in Exhibit 13.2, page 426, shows the typical gross margin—how much the retailer makes as a percentage of sales after the cost of goods sold is subtracted. The level of gross margin and the price level generally match. For example, a traditional jewelry store has high prices and high gross margins. A factory outlet has low prices and low gross margins. Markdowns on merchandise during sale periods and price wars among competitors, in which stores lower prices on certain items in an effort to win customers, cause gross margins to decline….

Major Types of Retail Operations

There are several types of retail stores. Each offers a different product assortment, type of service, and price level, according to its customers’ shopping preferences.

Department Stores

Housing several departments under one roof, a department store carries a wide variety of shopping and specialty goods, including apparel, cosmetics, housewares, electronics, and sometimes furniture. Purchases are generally made within each department rather than at one central check-out area. Each department is treated as a separate buying center to achieve economies in promotion, buying, service, and control.

Buyer

A buyer usually heads each department, a department head that not only selects the merchandise for his or her department but may also be responsible for promotion and hiring personnel. For a consistent, uniform store image, central management sets broad policies about the types of merchandise carried and price strategies. Central management is also responsible for the overall advertising program, credit policies, store expansion, customer service, and so on.

Specialty Stores

Specialty store formats allow retailers to refine their segmentation strategies and tailor their merchandise to specific target markets. A specialty store is not only a type of store but also a method of retail operations—namely, specializing in a given type of merchandise. Examples include children’s clothing, men’s clothing, candy, baked goods, gourmet coffee, sporting goods, and pet supplies. A typical specialty store carries a deeper but narrower assortment of specialty merchandise than does a department store. Generally, specialty stores’ knowledgeable sales clerks offer more attentive customer service. The format has become very powerful in the apparel market and other areas. Waldenbooks, Victoria Secret, The Body Shop, Foot Locker, and Crate & Barrel are several successful chain specialty retailers.

Supermarkets

U.S. consumers spend about a tenth of their disposable income in supermarkets—large, departmentalized, self-service retailers that specialize in food and some non-food items.

A decade ago, industry experts predicted the decline of the supermarket industry, whose slim profit margins of just 1 to 2 percent of sales left it vulnerable. These experts originally felt that supermarkets would merely need an ever-growing customer base to sustain volume and compensate for low margins. Although the annual population growth averaged less than 1 percent a year, supermarkets still experienced declining sales. As a result, experts were forced to examine not only population trends but also demographic and lifestyle changes of consumers….

Superstores

As stores seek to meet consumer demand for one-stop shopping, conventional supermarkets are being replaced by bigger superstores, which are usually twice the size of supermarkets. Superstores meet the needs of today’s customers for convenience, variety, and service. Superstores offer one-stop shopping for many food and nonfood needs, as well as many services—including pharmacies, flower shops, salad bars, in-store bakeries, takeout food sections, sit-down restaurants, health food sections, video rentals, dry-cleaning services, shoe repair, photo processing, and banking. Some even offer family dentistry or optical shops.

Scrambled Merchandising

This tendency to offer a wide variety of nontraditional goods and services under one roof is called scrambled merchandising. Canada’s largest supermarket chain Loblaw exemplifies this trend: along with dry cleaning, a liquor store, a coffee shop, pharmacy, and banking center it also offers video game and cell phone sales outlets, leases space to a clothing chain and fitness club complete with a sauna, tanning beds, and daycare center. Loblaw’s ancillary services aim to attract today’s time-strapped customers by providing one-stop shopping.

Loyalty Marketing Programs

Many supermarket chains are tailoring marketing strategies to appeal  to specific consumer segments to help them stand out in an increasingly competitive marketplace. Most notably is the shift toward loyalty marketing programs that reward loyal customers carrying frequent-shopper cards with discounts or gifts.

Drugstores

Drugstores stock pharmacy-related products and services as their main draw. Consumers are most often attracted to a drugstore by its pharmacy or pharmacist, its convenience, or because it honors their third-party prescription drug plan. Drugstores also carry an extensive selection of over the counter (OTC) medications, cosmetics, health and beauty aids, seasonal merchandise, specialty items such as greeting cards and a limited selection of toys, and some nonrefrigerated convenience foods. As competition has increased from mass merchandisers and supermarkets with their own pharmacies, as well as from direct-mail prescription services, drugstores have been adding value-added services such as twenty-four-hour operations and drive-through pharmacies. Even more competition is expected as Wal-Mart rolls out its newest retailing concept, the Wal-Mart Neighborhood Market, a smaller store format featuring general grocery items, health and beauty aids, and a drive-through pharmacy. Its pharmacy business has doe exceptionally well in test markets with the drive-through pharmacy window proving very popular. Already, about 20 to 25 percent of total pharmacy sales at Neighborhood Market stores come from the drive-through.

Convenience Stores

A convenience store can be defined as a miniature supermarket, carrying only a limited line of high-turnover convenience goods. These self-service stores are typically located near residential areas and are open twenty-four hours, seven days a week. Convenience stores offer exactly what their name implies: convenient location, long hours, fast service. However, prices are almost always higher at a convenience store than at a supermarket. Thus the customer pays for the convenience.

Discount Stores

A discount store is a retailer that competes on the basis of low prices, high turnover, and high volume. Discounters can be classified into four major categories: full-line discount stores, discount specialty stores, warehouse clubs, and off-price discount retailers.

Full-Line Discount Stores

Compared to a traditional department store, full-line discount stores offer consumers very limited service and carry a much broader assortment of well-known, nationally branded “hard goods,” including housewares, toys, automotive parts, hardware, sporting goods, and garden item, as well as clothing, bedding, and linens. Some often carry limited nonperishable food items such as soft drinks, canned goods, and potato chips. As with department stores, national chains dominate the discounters. Full-line discounters are often called mass merchandisers.

Mass Merchandisers

Mass merchandising is the retailing strategy whereby retailers use moderate to low prices on large quantities of merchandise and lower service to stimulate high turnover of products….

Hypermarket

A hybrid of the full-line discounter is the hypermarket, a concept adapted from the Europeans. The flashy hypermarket format combines a supermarket and full-line discount store in a space ranging from 200,000 to 300,000 square feet. Although they have enjoyed widespread success in Europe, where customers have fewer retailing choices, hypermarkets have been much less successful in the United States. Most Europeans still need to visit several small stores just for their food needs, which makes hypermarkets a good alternative. Americans, on the other hand, can easily pick among a host of stores that offer large selections of merchandise. According to retailing executives and analysts, American customers have found hypermarkets to be too big.

Supercenter

Similar to the hypermarket, but only half the size, is the supercenter, which combines groceries and general merchandise goods with a wide range of services including pharmacy, dry cleaning, portrait studios, photo finishing, hair salons, optical shops, and restaurants—all in one location. For supercenter operators like Wal-Mart, food is a customer magnet that sharply increases the store’s overall volume, while taking customers away from traditional supermarkets. Wal-Mart now operates over 600 supercenters and plans to replace many older Wal-Marts with this format….

Extreme-Value Retailing

An increasingly popular variation of off-price retailing at full-line discount stores is extreme-value retailing, the most notable examples being Dollar General and Family Dollar. Extreme-value retailers have grown in popularity as major discounters continue to shift toward the supercenter format, broadening their customer base and increasing their offerings of higher-priced goods aimed at higher-income consumers. This has created an opening for extreme-value retailers to entice shoppers from the low-income segment. Low and fixed income customers are drawn to extreme-value retailers, whose stores are typically located within their communities. Extreme-value retailers also build smaller stores (a typical store is about the size of one department at a Wal-Mart superstore).

Specialty Discount Stores

Another discount niche includes the single-line specialty discount stores—for example, stores selling sporting goods, electronics, auto parts, office supplies, and toys. These stores offer a nearly complete selection of single line merchandise and use self-service, discount prices, high volume, and high turnover to their advantage.

Category Killers

Specialty discount stores are often termed category killers because they so heavily dominate their narrow merchandise segment. Examples include Toys “R” Us in toys, Circuit City and Best Buy in electronics, Staples and Office Depot in office supplies, Home Depot in home improvement supplies, IKEA in home furnishings, and Bed, Bath & Beyond in kitchen and bath accessories.

Warehouse Membership Clubs

Warehouse membership clubs sell a limited selection of brand-name appliances, household items, and groceries. These are usually sold in bulk from warehouse outlets on a cash-and-carry basis to members only. Individual members of warehouse clubs are charged low to no membership fees.

Warehouse clubs have had a major impact on supermarkets. With 90,000 square feet or more, warehouse clubs offer 60 to 70 percent general merchandise and health and beauty care products, with grocery-related items making up the difference. Warehouse club members tend to be more educated and more affluent and have a larger household than regular supermarket shoppers. These core customers use warehouse clubs to stock up on staples; then they go to specialty outlets or food stores for perishables….

Off-Price Retailers

An off-price retailer sells at prices 25 percent or more below traditional department store prices because it pays cash for its stock and usually doesn’t ask for return privileges. Off-price retailers by manufacturers’ overruns at cost or even less. They also absorb goods from bankrupt stores, irregular merchandise, and unsold end-of-season output. Nevertheless, much off-price retailer merchandise is first quality, current goods. Because buyers for off-price retailers purchase only what is available or what they can get a good deal on, merchandise styles and brands often change monthly. Today there are hundreds of off-price retailers, the best known being T.J. Max, Ross Stores, Marshall’s, Home Goods, and Tuesday Morning.

Factory Outlet

Factory outlets are an interesting variation on the off-price concept. A factory outlet is an off-price retailer that is owned and operated by a manufacturer. Thus it carries one line of merchandise—its own. Each season, from 5 to 10 percent of a manufacturer’s output does not sell through its regular distribution channels because it consists of closeouts (merchandise being discontinued), factory seconds, and canceled orders. With factory outlets, manufacturers can regulate where their surplus is sold, and they can realize higher profit margins than they would by disposing of the goods through independent wholesalers and retailers. Factory outlet malls typically locate in out-of-the-way rural areas or near vacation destinations. Most are situated at least thirty miles from urban or suburban shopping areas so manufacturers don’t alienate their department store accounts by selling the same goods virtually next door at discount.

Restaurants

Restaurants straddle the line between a retailing establishment and a service establishment. Restaurants do sell tangible products, food and drink, but they also provide a valuable service for consumers in the form of food preparation and food service. Most restaurants could even fall into the definition of a specialty retailer given that most concentrate their menu offerings on a distinctive type of cuisine—for example, Olive Garden Italian restaurants, Starbucks coffee houses, Popeye’s Fried Chicken, and Pizza Hut pizza restaurants.

As a retailing institution, restaurants must deal with many of the same issues as a more traditional retailer, such as personnel, distribution, inventory management, promotion, pricing, and location. Restaurants and food service retailers run the spectrum from those offering limited service and inexpensive food, such as fast-food chains or the local snack bar or coffee house, to those that offer sit-down service and moderate to high prices, such as the likes of the Outback Steakhouse & Saloon chain or a local trendy Italian bistro.

Nonstore Retailing

The retailing methods discussed so far have been at the origin in-store methods, in which customers must physically shop at stores. In contrast, nonstore retailing is shopping without visiting a store. Because consumers demand convenience, nonstore retailing is currently growing faster than in-store retailing. The major forms of nonstore retailing are automatic vending, direct marketing, and electronic retailing….

Automatic Vending

A low-profile yet important form of retailing is automatic vending, the use of machines to offer goods for sale—for example, the cola, candy, or snack vending machines found in college cafeterias and office buildings. Vending is the most pervasive retail business, with about six million vending machines in the United States selling $30 billion annually. Food and beverage account for about 85 percent of all sales from vending machines. Due to their convenience, consumers are willing to pay higher prices for products from a vending machine than for the same products in traditional retail settings….

Direct Retailing

In direct retailing, representatives sell products door-to-door, office-to-office, or at home sales parties. Companies like Avon, Mary Kay Cosmetics, the Pampered Chef, Usbourne Books, and World Book Encyclopedia depend on these techniques. Even personal computers are now being sold through direct retailing methods. Hand Technologies, based in Austin, Texas, sells computers using a team of consultants to sell computer products via demonstrations in the home and local seminars for schools and families. The company targets new users of technology who need more support with the purchase, setup, and learning of computers and the Internet. The company now has over a thousand part-time consultants to sell personal computers directly to the customer….

Direct Marketing (or Direct-response marketing)

Direct marketing, sometimes called direct-response marketing, refers to the techniques used to get consumers to make a purchase from their home, office, or other nonretailing setting. Those techniques include direct mail, catalogs and mail order, telemarketing, and electronic retailing. Shoppers using these methods are less bound by traditional shopping situations. Time-strapped consumers and those who live in rural or suburban areas are most likely to be direct response shoppers, because they value the convenience and flexibility that direct marketing provides.

Direct Mail

Direct mail can the most efficient or the least efficient retailing method, depending on the quality of the mailing list and the effectiveness of the mailing piece. With direct mail, marketers can precisely target their customers according to demographics, geography, and even psychographics. Good mailing lists come from an internal database or are available from list brokers for about $35 to $150 per thousand names. For example, a Los Angeles computer software manufacturer selling programs for managing medical records may buy a list of all the physicians in the area. The software manufacturer may then design a direct-mail piece explaining the benefits of its system and send the piece to each physician. Today, direct mailers are even using video cassettes in place of letters and brochures to deliver their sales message to consumers….

Catalogs and Mail Order

Consumers can now buy just about anything through the mail, from the mundane like books, music, and polo shirts to the outlandish, such as the $5 million diamond-and-ruby-studded bra available through the Victoria Secret Catalog. Although women make up the bulk of catalog shoppers, the percentage of male catalog shoppers has soared within the recent years. As changing demographics has shifted more of the shopping responsibility onto men, shopping via catalog or mail order is seen as a more sensible solution to men than a trek to a mall….

Telemarketing

Telemarketing is the use of telephone to sell directly to consumers. It consists of outbound sales calls, usually unsolicited, and inbound calls—that is, orders through toll-free 800 numbers or fee-based 900 numbers.

Outbound Telemarketing

Outbound telemarketing is an attractive direct-marketing technique because of rising postage rates and decreasing long distance phone rates. Skyrocketing field sales costs also have put pressure on marketing managers to use outbound telemarketing. Searching for ways to keep costs under control, marketing managers are discovering how to pinpoint prospects quickly, zero in on serious buyers, and keep in close touch with regular customers. Meanwhile, they are reserving expensive, time-consuming, in-person calls for closing sales.

Inbound Telemarketing

Inbound telemarketing programs, which use 800 and 900 numbers, are mainly used to take orders, generate leads, and provide customer service. Inbound 800 telemarketing has successfully supplemented direct-response TV, radio, and print advertising for more than twenty-five years….

Electronic Retailing

Electronic retailing includes the twenty-four-hour, shop-at-home television networks and online retailing.

Shop-At-Home Networks

The shop-at-home television networks are specialized forms of direct-response marketing. These shows display merchandise, with the retail price, to home viewers. Viewers can phone in their orders directly on a toll-free line and shop with a credit card. The shop-at-home industry has quickly grown into a billion-dollar business with a loyal customer following. Shop-at-home networks have the capability of reaching nearly every home that has a television set….

Online Retailing

For years, shopping at home meant looking through catalogs and then placing an order over the telephone. For many people today, however, it now means turning on a computer, surfing retail Web sites, and selecting and ordering products online with the click of a mouse. Online retailing, or e-tailing, is a type of shopping available to consumers with personal computers and access to the Internet. Roughly four out of every ten households today has a personal computer, with about a quarter of those connected to the Internet….

Franchising

Franchise

A franchise is a continuing relationship in which a franchiser grants to a franchisee the business rights to operate or to sell a product.

Franchiser

The franchiser originates the trade name, product, methods of operation, and so on.

Franchisee

The franchisee, in return, pays the franchiser for the right to use its name, product, or business methods. A franchise agreement between the two parties usually lasts for ten to twenty years, at which time the franchisee can renew the agreement with the franchiser if both parties are agreeable.

To be granted the rights to a franchise, a franchisee usually pays an initial, one-time franchise fee. The amount of this fee depends solely on the individual franchiser, but it generally ranges from $5,000 to $150,000. In addition to this initial franchise fee, the franchisee is expected to pay weekly, biweekly, or monthly royalty fees, usually in the range of 3 to 7 percent of gross revenues. The franchisee may also be expected to pay advertising fees, which usually cover the cost of promotional materials and, if the franchise organization is large enough, regional or national advertising. A McDonald’s franchise, for example, costs an initial $45,000 per store plus a monthly fee based upon the restaurant’s sales performance and base rent. In addition, a new McDonald’s franchise can expect startup costs for equipment and pre-opening expenses to range from $433,000 to $715,000. The size of the restaurant facility, area of the country, inventory, selection of kitchen equipment, signage, and style of décor and landscaping affect new restaurant costs. While the dollar amount will vary depending on the type of franchise format, fees such as these are typical for all major franchisers, including Burger King, Jani-King, Athlete’s Foot, and Subway….

Product And Trade Name Franchising

There are two basic forms of franchises today: product and trade name franchising and business format franchising. In product and trade name franchising, a dealer agrees to sell certain products provided by a manufacturer or wholesaler. This approach has been used most widely in the auto and truck, soft-drink bottling, tire, and gasoline service industries. For example a local tire retailer may hold a franchise to sell Michelin tires. Likewise, the Coca-Cola bottler in a particular area is a product and trade name franchisee licensed to bottle and sell Coca-Cola’s soft drinks.

Business Format Franchising

Business format franchising is an ongoing business relationship between a franchiser and a franchisee. Typically, a franchiser “sells” a franchisee the rights to use the franchiser’s format or approach to doing business. Fast-food restaurants like McDonald’s, Wendy’s, and Burger King use this kind of franchising, as well as other companies such as Hyatt Corporation, Unocal Corporation, and Mobil Corporation. Prospective McDonald’s franchisees must be willing to train at least a year and work in restaurants without pay before they are granted a franchise to operate. Months of training teaches franchisees how to adhere to the detailed business system that made McDonald’s famous for consistency around the world….

Retail Marketing Strategy

Retailers must develop marketing strategies based on overall goals and strategic plans. Retailing goals might include more traffic, higher sales of a specific item, a more upscale image, or heightened public awareness of the retail operation. The strategies that retailers used to obtain their goals might include a sale, an updated décor, or a new advertisement. The key tasks in strategic retailing are defining and selecting a target market and developing the “six Ps” of the retailing mix to successfully meet the needs of the chosen target market: the traditional four Ps plus personnel and presentation, as discussed below.

Defining a Target Market

The first and foremost task in developing a retail strategy is to define the target market. This process begins with market segmentation, the topic of Chapter 7. Successful retailing has always been based on knowing the customer. Sometimes retailing chains have floundered because management loses sight of the customers the stores should be serving. For example, The Limited experienced phenomenal growth in the 1980s selling trendy apparel to young women. As their customer base matured, however, The Limited missed the opportunity to provide them with fashion options that better reflected the sensibilities of an older customer. Furthermore, The Limited moved into career ware, an unsuccessful strategy that only confused its remaining customers and forced the company to close some units.

Target markets in retailing are often defined by demographics, geographics, and psychographics. Claire’s Stores, for instance, targets twelve- to fourteen-year-old girls who may get most of their wardrobe at The Gap but spend their allowances accessorizing at Clare’s. To keep up with the fashion trends of its target market, Claire’s executives read teen magazines, watch teen-oriented shows like Friends and Beverly Hills 90210, and listen to a lot of music.

Determining a target market is a prerequisite to creating the retailing mix. For example, Target’s merchandising approach for sporting goods is to match its product assortment to the demographics of the local store and region. [the marketing mix will remain the same for a test preparation product, however] The amount of space devoted to sporting goods, as well as well as in-store promotions, also varies according to each store’s target market. Similarly, Ann Taylor caters to working women in their thirties and forties—a group of customers notoriously pressed for time. Consequently, its stores offer a one-stop wardrobe solution with color-coordinated blouses, sweaters, skirts, and trousers that make it easy to create a wardrobe with just a few purchases.

Choosing the Retailing Mix

Retailers combine the elements of the retailing mix to come up with a single retailing method to attract the target market.

Retailing Mix

The retailing mix consists of six Ps: the four Ps of the marketing mix (product, place, promotion, and price) plus presentation, and personnel. (see Exhibit 13.4)

Exhibit 13.4 The Retailing Mix

The combination of the four Ps projects a store’s image, which influences consumers’ perceptions. Using these impressions of stores, shoppers position one store against another. A retail marketing manager must make sure that the store’s positioning is compatible with the target customers’ expectations. As discussed at the beginning of the chapter, retail stores can be positioned on three broad dimensions: service provided by store personnel, product assortment, and price. Management should use everything else—place, presentation, and promotion—to fine tune the basic positioning of the store.

The Product Offering

The first element in the retailing mix is the product offering, also called the product assortment or merchandise mix. Retailers decide what to sell on the basis of what their target market wants to buy. They can base their decision on market research, past sales, fashion trends, customer requests, and other sources. For example, Ames Department Store’s core customer base is made up of households with $30,000 to $45,000 in annual income. Through target market research, the company found a significant correlation between lower income and heavier weight. As a result, Ames offers $8.99 acrylic sweaters and $5.99 sweat pants, along with “husky” merchandise for kids and few, if any, petite sizes for model-thin women.

Developing a product offering is essentially a question of width and depth of the product assortment. Width refers to the assortment of products offered; depth refers to the number of different brands offered within each assortment. Price, store design, displays, and service are important to consumers in determining where to shop, but the most critical factor is merchandise selection. This reasoning also holds true for online retailers. Amazon.com, for instance, has ambitious plans to build the world’s largest online department store so shoppers can get whatever they want with one click on their Web browsers. As with a traditional department store or mass merchandiser, Amazon offers considerable width in its product assortment with millions of different items, including books, music, toys, videos, tools and hardware, health and beauty aids, electronics, and software. Recently, Amazon invited thousands of small merchants to do business in a new section on its Web site, called zShops. Conversely, online specialty retailers, such as eToys, Garden.com, CDNow, and Blockbuster’s Reel.com, focus on a single category of merchandise, hoping to attract loyal customers with a larger depth of products at lower prices and better customer service. Many online retailers purposely focus on single product line niches that could never garner enough foot traffic to support a traditional brick-and-mortar store. Mustardstore.com, for instance, offers 660 different gourmet mustards, while Fridgedoor.com sells 1,500 different types of refrigerator magnets to collectors.

After determining what products will satisfy target customers’ desires, retailers must find sources of supply and evaluate the products. When the right products are found, the retail buyer negotiates a purchase contract. The buying function can either be performed in-house or be delegated to an outside firm. The goods must then be moved from the seller to the retailer, which means shipping, storing, and stocking the inventory. The trick is to manage the inventory by cutting prices to move slow goods and by keeping adequate supplies of hot-selling items in stock. As in all good systems, the final step is to evaluate the entire process to seek more efficient methods and eliminate problems and bottlenecks….

Private-Label Brands

As margins drop and competition intensifies, retailers are becoming ever more aware of the advantages of private-label brands, or those brands that are designed and developed using the retailer’s name. Because the cost of goods typically makes up between 70 and 85 percent of a retailer’s expenses, eliminating middlemen can shave costs. As a result, prices on private-label goods are typically lower than for national brands, giving customers greater value.

Promotion Strategy

Retail promotion strategy includes advertising, public relations and publicity, and sale promotion. The goal is to help position the store in customers’ minds. Retailers design intriguing ads, stage special events, and develop promotions aimed at their target markets. For example, today’s grand openings are a carefully orchestrated blend of advertising, merchandising, goodwill, and glitter. All the elements of an opening—press coverage, special events, media advertising, and store displays—are carefully planned.

Retailers’ advertising is carried out mostly at the local level, although retail giants like Sears and JC Penny can advertise nationally. Local advertising by retailers is more specific communication about their stores, such as location, merchandise, hours, prices, and special sales. On the other hand, national advertising by retailers generally focuses on image. The “Softer Side of Sears” national advertising campaign, for example, was used to help reposition Sears as a low-priced but fashion conscious apparel retailer. An accompanying campaign, “Come See the Many Sides of Sears,” was used to promote the retailer’s non-apparel merchandise, such as tools, paint, and car parts….

The Proper Location

Another element in the retailing mix is place, or site location. Selecting a proper site is a critical decision. First, it is a large, long-term commitment of resources that can reduce a retailer’s future flexibility. Whether the retailer leases or purchases, the location decision implies some degree of permanence. Second, the location will affect future growth. The chosen area should be growing economically so it can sustain the original store and any future stores. Last, the local environment may change over time. If the location’s value deteriorates, the store may have to be relocated or closed.

Site location begins by choosing a community. This decision depends largely on economic growth potential and stability, the competition, political climate, and so on. Some of the savviest location experts in recent years have been T.J. Max and Toys “R” Us. Both retailers put the majority of their new locations in rapidly growing areas where the population closely matches their customer base….

After settling on a geographic region or community, retailers must choose a specific site. In addition to growth potential, the important factors are neighborhood socioeconomic characteristics, traffic flows, land costs, zoning regulations, and public transportation. Retailers should also consider where competitors are located as well as their own stores. A particular site’s visibility, parking, entrance and exit locations, accessibility, and safety and security issues are other variables contributing to site selection success. Additionally, retail synergy, or how well a store’s format meshes with the surrounding retail environment, is also important. Retail decision makers probably would not locate a Dollar General store next door to a Neiman Marcus department store….

Freestanding Stores

An isolated, freestanding location can be used by large retailers like Wal-Mart, Kmart, or Target and sellers of shopping goods like furniture and cars, because they are “destination” stores, or those stores consumers will purposely plan to visit. In other words, customers will seek them out. An isolated store location may have the advantages of low site cost or rent and no nearby competitors. On the other hand, it may be hard to attract customers to a freestanding location, and no other retailers are around to share costs….

Shopping Centers

The tremendous boom in shopping centers began after World War II, as the U.S. population started migrating to the suburbs. The first shopping centers were strip centers, typically located along a busy street. They usually included a supermarket, a variety store, and perhaps a few specialty stores. Essentially unplanned business districts, these strip centers remain popular.

Community Shopping Centers

Next, the small community shopping centers emerged, with one or two small department store branches, more specialty shops, one or two restaurants, and several apparel stores. These centers offer a broader variety of shopping, specialty, and convenience goods, provide large off-street parking lots, and usually span 75,000 to 300,000 square feet of retail space.

Regional Malls

Finally, along came the huge regional malls. Regional malls are either entirely enclosed or roofed to allow shopping in any weather. Many are landscaped with trees, fountains, sculptures, and the like to enhance the shopping environment. They have acres of free parking. The anchor stores or generator stores (JC Penny, Sears, or major department stores) are usually located at opposite ends of the mall to create heavy foot traffic….

Retail Prices

Another important element in the retailing mix is price. It is important to understand that retailing’s ultimate goal is to sell products to consumers and that the right price is critical in ensuring sales. Because retail prices are usually based on the cost of merchandise, an essential part of pricing is efficient and timely buying.

Price is also a key element in a retail store’s positioning strategy and classification. Higher prices often indicate a level of quality and help reinforce the prestigious image of retailers, as they do for Lord & Taylor, Saks Fifth Avenue, Gucci, Cartier, and Neiman Marcus. On the other hand, discounters and off-price retailers, such as Target and TJ Max, offer a good value for the money. There are even stores, such as Dollar Tree, where everything costs shoppers one dollar. Dollar Tree’s single-price-point strategy is aimed at getting higher-income customers to make impulse purchases through what analysts call the “wow factor”—the excitement of discovering an item costs only a dollar.

Everyday Low Pricing (EDLP)

A pricing trend among American retailers that seems to be here to stay is everyday low pricing, or EDLP. Introduced to the retail industry by Wal-Mart, EDLP offers customers a low price all the time rather than holding periodic sales on merchandise. Even large retail giants, like Federated Department Stores, parent of Macy’s and Bloomingdale’s, have phased out deep discounts and sales in favor of lower prices every day. Similarly, the GAP reduced prices on denim jeans, denim shirts, socks, and other items to protect and broaden the company’s share of the casual clothes market. Supermarkets such as Albertson’s and Winn Dixie have also found success in EDLP.

Presentation of the Retail Store

The presentation of a retail store helps determine the store’s image and positions the retail store in consumer’s minds. For instance, a retailer that wants to position itself as an upscale store would use a lavish or sophisticated presentation.

Atmosphere

The main element of a retail store helps determine the store’s image and positions its atmosphere, the overall impression conveyed by a store’s physical layout, décor, and surroundings. The atmosphere might create a relaxed or busy feeling, a sense of luxury or efficiency, a friendly or cold attitude, a sense of organization or clutter, or a fun or serious mood. For example, the look at Express stores is designed to make suburban shoppers feel as though they have just strolled into a Parisian boutique. Signage is often in French, and the background music has a European flair. Likewise, retail stores based on the colorful, quirky world of Nickelodeon television feature cabinets covered with green slime, garbage cans at the end of aisle, tilted walls, purple ceilings, and bright hues and bold patterns. Nickelodeon stores include plenty of interactive features, making the space a fun place for children of all ages….

Market-Based Analysis

Layout also includes where products are placed in the store. Many technologically advanced retailers are using a technique called market-based analysis to analyze the huge amounts of data collected through their point-of-purchase scanning equipment. The analysis looks for products that are commonly purchased together to help retailers remerchandise their stores to place products in the right places. Wal-Mart uses market-based analysis to determine where in the store to stock products for customer convenience. Bananas are placed not only in the produce section but are also in the cereal aisle. Kleenex tissues are in the paper-goods aisle and also mixed in with the cold medicines. Measuring spoons are in the housewares and also hanging next to Crisco shortening. During October, flashlights are not only located in the hardware aisle but also with the Halloween costumes. These are the most influential factors in creating a store’s atmosphere:

·        Employee type and density: Employee type refers to an employee’s general characteristics—for instance, neat, friendly, knowledgeable, or service oriented. Density refers to the number of employees per thousand square feet of selling space….

·        Merchandise type and density: They type of merchandise carried and how it is displayed add to the atmosphere the retailer is trying to create. A prestigious retailer like Saks or Marshall Field’s carries the best brand names and displays then in a neat, uncluttered arrangement….

·        Fixture type and density: Fixtures can be elegant (rich woods), trendy (chrome and smoked glass), or consist of old, beat-up tables, such as in an antique store….

·        Sound: Sound can be pleasant or unpleasant for a customer. Classical music at a nice Italian restaurant helps create ambience, just as country-and-western music does at a truck stop….

·        Odors: Smell can either stimulate or detract from sales. The wonderful smell of pastries and breads entices bakery customers. Conversely, customers can be repulsed by bad odors such as cigarette smoke, musty smells, antiseptic odors, and overly powerful room deodorizers….

·        Visual factors: Colors can create a mood or focus attention and therefore are an important factor in atmosphere. Red, yellow, and orange are considered warm colors and are used when a feeling of warmth and closeness is desired. Cool colors like green, blue, and violet are used to open up closed-in places and create an air of elegance and cleanliness. Some colors are better for display. For instance, diamonds appear most striking when against black or dark blue velvet….

Personal and Customer Service

People are a unique aspect of retailing. Most retail sales involve a customer-salesperson relationship, if only briefly. When customers shop at a grocery store, the cashiers check and bag their groceries. When customers shop at a prestigious clothier, the sales clerks may help select the styles, sizes, and colors. They may also assist in the fitting process, offer alteration services, wrap purchases, and even offer a glass of champagne. Sales personnel provide their customers with the amount of service prescribed in the retail strategy of the store….

Global Retailing

It is no accident that U.S. retailers are now testing their store concepts on a global basis. With the battle for market share among domestic retailers showing no sign of abating and growth prospects dismal, mature retailers are looking for growth opportunities in the growing consumer economies of other countries. American retailers have made quite an impact on the global market, as Exhibit 13.5, page 453, displays. Four of the top ten global retailers are from the United States, with Wal-Mart holding the top spot with sales about three times that of its nearest competitors….

Trends in Retailing

Predicting the future is always risky, but the use of entertainment to lure customers, a shift toward providing greater convenience to receive the patronage of today’s precision shoppers, and the emergence of customer management programs to foster loyalty and enhance communication with a retailer’s best customers are three of the more important trends for retailing’s future.

Entertainment

Adding entertainment to the retail environment is one of the most popular strategies in retailing in recent years. Small retailers as well as national chains are using entertainment to set themselves apart from the competition.

Entertainment is not limited to music, videos, fashion shows, or guest appearances by soap opera stars or book authors. Entertainment includes anything that makes shoppers have a good time, that stimulates their senses or emotions, and that gets them into a store, keeps them there, and encourages them to buy and to keep coming back. The quiet and comfortable couches and cafes of bookstores and combination book and music retailers such as Barns & Nobel, Books-a-Million, Boarders, and Media Play are entertaining just as the Gershwin tunes coming from the piano in a Nordstrom’s atrium. Catching the attention of many younger consumers, however, involves the flash and glitz of video screens on walls in clothing stores, hair saloons, and theme restaurants….

Convenience and Efficiency

Today’s consumer is increasingly looking for ways to shop more quickly and efficiently. With 75 percent of women working full- or part-time, consumers no longer have the time to devote to shopping as they once did. A recent study found the number of trips that consumers take to the mall, for instance, has declined by more than 50 percent since the early 1990s. On top of that, the number of stores that they visit when they get there is down by two-thirds. Consumers are also spending less time when they do visit a mall. Today, the average mall visits lasts just an hour, down from ninety minutes in 1982….

Customer Management

Today, prime locations and unique merchandise are not the primary indicators of success they once were in the retail environment. Instead, retailers are recognizing that customer equity is one of the only ways to sustain true competitive advantage. Through customer management strategies, leading retailers are intensifying their efforts to identify, satisfy, retain, and maximize the value of their best customers. Enabled by database technology, these forward-focused retailers are employing strategies designed to capture customers’ share of mind, wallet, and time. Using database technology to manage customer relationships, called one-to-one marketing, is the topic of Chapter 20.

Three emerging customer management strategies retailers are embracing include customer relationship marketing, loyalty programs, and clienteling. Regardless of the strategy used, the intent is the same—to foster loyalty and develop an ongoing dialogue with a retailer’s best customers.

Customer Relationship Marking (CRM)

Customer relationship marketing (CRM) originated out of the need to more accurately target a fragmented customer base that was becoming increasingly more difficult to reach with mass advertising vehicles like television and newspapers. True CRM links customer information to transaction data collected through point-of-sale scanning systems to glean knowledge about the customer purchase histories, shopping preferences, motivations, and triggers and leverages that knowledge throughout the organization to make customer-centric business decisions. After Camelot Music analyzed the data it keeps on customers, it discovered that a large number of seniors were purchasing rap and alternative music as gifts for younger relatives. In response, Camelot targeted a mailing to those seniors identifying music selections and genres that would appeal to the youngsters on their holiday shopping lists. Camelot received a 17 percent response rate to the mailer, which accounted for a sales increase of 37 percent more than for a control group that did not receive the mailer. The seniors cam in and bought merchandise, thanking Camelot for making their gift-buying decisions easy for them….

Clienteling

Another approach to managing and building long-term relationships with best customers is clienteling. Saks Fifth Avenue, for example strongly emphasizes personal contact on the part of managers and sales associates with customers. Associates collect and maintain detailed electronic client profiles that can be used to provide enhanced service….

Summary

1.                 Discuss the importance of retailing in the U.S. economy. Retailing plays a vital role in the U.S. economy for two main reasons. First, retail businesses contribute to our high standard of living by providing a vast number and diversity of goods and services. Second, retailing employs a large part of the U.S. working population—over 20 million people.

2.                 Explain the dimensions by which retailers can be classified. Many different kinds of retailers exist. A retail establishment can be classified according to its ownership, level of service, product assortment, and price. On the basis of ownership, retailers can be broadly differentiated as independent retailers, chain stores or franchise outlets. The level of service retailers provide can be classified along a continuum of high to low. Retailers also classify themselves by the breath and depth of their product assortment; some retailers have concentrated product assortments whereas others have extensive product assortments. Last, general price levels also classify a store, from discounters offering low prices to exclusive specialty stores where high prices are the norm. Retailers use these latter three variables to position themselves in the marketplace.

3.                 Describe the major types of retail operations. The major types of retail stores are department stores, specialty retailers, supermarkets, drugstores, convenience stores, discount stores, and restaurants. Department stores carry a wide assortment of shopping and specialty goods, are organized into relatively independent departments, and offset higher prices by emphasizing customer service and décor. Specialty retailers typically carry a narrower but deeper assortment of merchandise, emphasizing distinctive products and a high level of customer service. Supermarkets are large self-service retailers that offer a wide variety of food products and some nonfood items. Drugstores are retail formats that sell mostly prescription and over-the-counter medications, health and beauty aids, cosmetics, and specialty items. Convenience stores carry a limited line of high-turnover convenience goods. Discount stores offer low-priced general merchandise and consist of four types: full-line discounters, discount specialty retailers, warehouse clubs, and off-price retailers. Finally, restaurants sell a product, food and drink, to final consumers, they also can be considered service marketers because they provide consumers with the service of preparing food and providing table service.

4.                 Discuss nonstore retailing techniques. Nonstore retailing, which is shopping outside a store setting, has three major categories. Automatic vending uses machines to offer products for sale. In direct retailing, the sales transaction occurs in a home setting, typically through door-to-door sales or party plan selling. Direct marketing refers to the techniques used to get consumers to buy from their homes or place of business. Those techniques include direct mail, catalogs and mail order, telemarketing, and electronic retailing, such as home shopping channels and online retailing using the Internet.

5.                 Define franchising and describe its two basic forms. Franchising is a continuing relationship in which a franchiser grants to a franchisee the business rights to operate or to sell a product. Modern franchising take two basic forms. In product and trade name franchising, a dealer agrees to buy or sell certain products or product lines from a particular manufacturer or wholesaler. Business format franchising is an ongoing business relationship in which a franchise uses a franchiser’s name, format, or method of business in return for several types of fees.

6.                 List the major tasks involved in developing a retail marketing strategy. Retail management begins with defining the target market, typically on the basis of demographic, geographic, or psychographic characteristics. After determining the target market, retail managers must develop the six variables of the retailing mix: product, promotion, place, price, presentation, and personnel.

7.                 Discuss the challenges of expanding retailing operations into global markets. With increased competition and slow domestic growth, mature retailers are looking for growth opportunities in the developing consumer economies of other countries. The homogenization of tastes and product preferences around the world, the lowering of trade barriers, and the emergence of underserved markets have made the prospects of expanding across national boarders more feasible for many retailers. Retailers wanting to expand globally should first determine what their core complexity is and determine whether this differentiation is what the local market wants. Retailers also need to skillfully make adjustments in product mix to meet local demands.

8.                 Describe the future trends in retailing. Three major trends are evident in retailing today. First, adding entertainment to the retail environment is one of the most popular strategies in retailing in recent years. Small retailers as well as national chains are using entertainment to set themselves apart from the competition. Second, retailers of the future will offer more convenience and efficiency to consumers as consumers become more precise on their shopping trips. Staples won’t be sold in stores but instead will be delivered directly to the consumer, freeing shoppers to visit stores for products they enjoy buying. Advances in technology will make it easier for consumers to obtain the products they want. Last, more and more retailers are using the information they collect about their customers at the point of sale to develop customer management programs, including customer relationship marketing, loyalty programs, and clienteling.

Chapter 14 Integrated Marketing Communications

The Role of the Promotion in the Marketing Mix

Promotion

Few goods or services, no matter how well developed, priced, or distributed, can survive in the marketplace without effective promotion—communication by marketers that informs, persuades, and reminds potential buyers of a product in order to influence their opinion or elicit a response.

Promotional Strategy

Promotional strategy is a plan for the optimal use of the elements of promotion: advertising, public relations, personal selling, and sales promotion.

Exhibit 14.1 Role of Promotion in the Marketing Mix

As Exhibit 14.1 shows, the marketing manager determines the goals of the company’s promotional strategy in light of the firm’s overall goals for the marketing mix—product, place (distribution), promotion, and price. Using these three overall goals, marketers combine the elements of the promotional strategy (the promotional mix) into a coordinated plan. The promotional plan then becomes an integral part of the marketing strategy for reaching the target market.

Differential Advantage

The main function of a marketer’s promotional strategy is to convince target customers that the goods and services offered provide a differential advantage over the competition. A differential advantage is the set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition. Such features can include high product quality, rapid delivery, low prices, excellent service, or a feature not offered by the competition.

The Promotional Mix

Most promotional strategies use several ingredients—which may include advertising, public relations, sales promotion, and personal selling—to reach a target market.

Promotional Mix

That combination is called the promotional mix. The proper promotional mix is the one that management believes will meet the needs of the target market and fulfill the organization’s overall goals. The more funds allocated to each promotional ingredient and the more managerial emphasis placed on each technique, the more important that element is though to be in the overall mix.

Advertising

Almost all companies selling a good or a service use some form of advertising, whether it be in the form of a multimillion-dollar campaign or a simple classified ad in a newspaper. Advertising is any form of paid communication in which the sponsor or company is identified. Traditional media—such as television, radio, newspaper, magazines, books, direct mail, billboards, and transit cards (advertisements on buses and taxis and at bus stops)—are most commonly used to transmit advertisements to consumers. With the increasing fragmentation of traditional media choices, marketers are finding many new and innovative ways to send their advertisements to consumers, such as with interactive video technology located in department stores and supermarkets and through the Internet Web sites and electronic mail.

One of the primary benefits of advertising is the ability to communicate to a large number of people at one time. Cost per contact, therefore, is typically very low. Advertising has the advantage of being able to reach the masses (for instance, through national advertising networks), but it can also be microtargeted to small groups of potential customers, such as television ads on a targeted cable network or through print advertising in a trade magazine.

Public Relations

Concerned about how they are perceived by their target markets, organizations often spend large sums to build a positive public image. Public relations is the marketing function that evaluates public attitudes, identifies areas within the organization that the public may be interested in, and executes a program of action to earn public understanding and acceptance. Public relations helps an organization communicate with its customers, suppliers, stockholders, government officials, employees, and the community in which it operates….

Publicity

A solid public relations program can generate favorable publicity—public information about a company, good, or service appearing in the mass media is a news item. The organization is not generally identified as the source of the information. The soy industry received favorable publicity and an increase in sales after the Food and Drug Administration approved a health claim for food labeling suggesting a link between soy protein and the reduced risk of coronary heart disease. This incident underscores a peculiar reality of marketing: No matter how many millions are spent in advertising, nothing sells a product better than free publicity.

Sales Promotion

Sales promotion consists of all marketing activities—other than personal selling, advertising, and public relations—that stimulate consumer purchasing and dealer effectiveness. Sales promotion is generally a short-run tool used to stimulate immediate increases in demand. Sales promotion can be aimed at end consumers, trade customers, or a company’s employees. Sales promotions include free samples, contests, premiums, trade shows, vacation giveaways, and coupons. A major promotional campaign might use several of these sales promotion tools. For example, a joint marketing campaign by two milk producer interest groups, Dairy Management and the National Fluid Milk Processors, developed an under-the-cap “Milk Mustache Fame Game” sweepstakes. The winner would get the opportunity to become a “Milk Mustache” celebrity on 200 million gallons of milk.

Personal Selling

Personal selling is a purchase situation in which two people communicate in an attempt to influence each other. In this dyad, both the buyer and seller have specific objectives they wish to accomplish. The buyer may need to minimize cost or assure a quality product, for instance, while the salesperson may need to maximize revenue and profits.

Marketing Communication

Communication

Promotional strategy is closely related to the process of communication. As humans, we assign meaning to feelings, ideas, facts, attitudes, and emotions. Communication is the process by which we exchange or share meanings through a common set of symbols. When a company develops a new product, exchanges an old one, or simply tries to increase sales of an existing good or service, it must communicate its selling message to potential customers. Marketers communicate information about the firm and its products to the target and various publics through it promotion programs.

Interpersonal Communication

Communication can be divided into two major categories: interpersonal communication and mass communication. Interpersonal communication is direct, face-to-face communication between two or more people. When communicating face-to-face, people see the other person’s reaction and can respond almost immediately. A sales person speaking directly with a client is an example of marketing communication that is interpersonal.

Mass Communication

Mass communication refers to communicating a concept or message to large audiences. A great deal of marketing communication is directed to consumers as a whole, usually through a mass medium such as television or newspapers. When a company advertises, it generally does not personally know the people with whom it is trying to communicate. Furthermore, the company is unable to respond immediately to consumers’ reactions to the message. Instead, the marketing manager must wait to see whether people are reacting positively or negatively to the mass communicated promotion. Any clutter from competitors’ messages or other distractions in the environment can reduce the effectiveness of the mass communication effort.

The Communication Process

Marketers are both senders and receivers of messages. As senders, marketers attempt to inform, persuade, and remind the target market to adopt courses of action compatible with the need to promote the purchase of goods and services. As receivers, marketers attune themselves to the target market in order to develop the appropriate messages, adapt existing messages, and spot new communication opportunities. In this way, marketing communication is a two-way, rather than a one-way, process. The two-way nature of the communication process is shown in Exhibit 14.3.

Exhibit 14.3 Communication Process

The Sender and Encoding

Sender

The sender is the originator of the message in the communication process. In an interpersonal communication, the sender may be a parent, a friend, or a salesperson. For an advertisement or press release, the sender is the company itself. Daimler Chrysler, for example, is the sender of a message introducing and promoting its novel PT Cruiser. The car, aimed at young Generation Y and X consumers, combines elements of a minivan, and SUV, a London cab, and a ’38 Chevy Tudor sedan.

Encoding

Encoding is the conversion of the sender’s ideas and thoughts into a message, usually in the form of words or signs. Daimler Chrysler might encode its PT Cruiser message into an advertisement, or a Chrysler salesperson might encode the promotional message as a sales presentation to a prospective car buyer taking a test drive. A basic principle of encoding is that what matters is not what the source says but what the receiver hears. One way of conveying a message that the receiver will hear properly is to use concrete words and pictures. For example, detailed print advertising for the PT Cruiser shows off its distinctive appearance and explains its unique features. Television advertising demonstrates the versatility and practicality of its interior, comparing its design and ease of use to a Swiss Army knife.

Message Transmission

Channel

Transmission of a message requires a channel—a voice, radio, newspaper, or other communication medium. A facial expression or gesture can also serve as a channel.

Reception occurs when the message is detected by the receiver and enters his or her frame of reference. In a two-way conversation such as a sales pitch given by a sales representative to a potential client, reception is normally high.

Noise

In contrast, the desired receivers may or may not detect the message when it is mass communicated, because most media are cluttered by noise—anything that interferes with, distorts, or slows down the transmission of information. In some media overcrowded with advertisers, such as newspapers and television, the noise level is high and the reception level is low. For example, reception of the PT Cruiser’s ads may be hampered by competing car-related ads, other advertisements, or by stories in a magazine or newspaper. Transmission can also be hindered by situational factors such as physical surroundings like light, sound, location, and weather; the presents of other people; or the temporary moods consumers might bring to the situation. Mass communication may not even reach all the right consumers. Some members of the target audience may be watching television when the PT Cruiser is advertised, but others may not be.

The Receiver and Decoding

Receivers

Marketers communicate their message through a channel to customers, or receivers, who will decode the message.

Decoding

Decoding is the interpretation of the language and symbols sent by the source through a channel. Common understanding between two communicators, or a common frame of refercnexc, is required for effective communication. Therefore, marketing managers must ensure a proper match between the message to be conveyed and the target market’s attitudes and ideas. Even though a message has been received, it will not necessarily be properly decoded—or even seen, viewed, or heard—because of selective exposure, distortion, and retention (refer to Chapter 5). Even when people receive a message, they tend to manipulate, alter, and modify it to reflect their own biases, needs, knowledge, and culture. Factors that can lead to miscommunication are differences in age, social class, education, culture, and ethnicity. Further, because people don’t always listen or read carefully, they can easily misinterpret what is said or written….

Feedback

In interpersonal communication, the receiver’s response to a message is direct feedback to the source. Feedback may be verbal, as in saying “I agree,” or nonverbal, as in nodding, smiling, frowning, or gesturing.

Because mass communication like Daimler Chrysler are often cut off from direct feedback, they must rely on market research or analysis of sales trends, such as the number of PT Cruisers sold, for indirect feedback, Daimler Chrysler might use such measurements as the percentage of television viewers or magazine readers who recognize, recall, or state they have been exposed to the PT Cruiser message….

The Communication and the Promotional Mix

The four elements of the promotional mix differ in their ability to affect the target audience. For instance, promotional mix elements may communicate with the consumer directly or indirectly. The message may flow one way or two ways. Feedback may be fast or slow, a little or a lot. Likewise, the communicator may have varying degrees of control over message delivery, content, and flexibility. Exhibit 14.4 on page 483 outlines the difference among the promotional mix elements with respect to the mode of communication, marketer’s control over the communication process, amount of and speed of feedback, direction of message flow, marketers control over the message, identification of the sender, speed in reaching large audiences, and message flexibility.

Personal selling, on the other hand, is personal, two-way communication. The salesperson is able to receive immediate feedback from the consumer and adjust the message in response. Personal selling, however, is very slow in dispersing the marketer’s message to large audiences. Because a salesperson can only communicate to one person or a small group of persons at one time, it is a poor choice if the marketer wants to send a message to many potential buyers.

The Goals and Tasks of Promotion

People communicate with one another for many reasons. They seek amusement, ask for help, give assistance or instructions, provide information, and express ideas and thoughts. Promotion, on the other hand, seeks to modify behavior and thoughts in some way. For example, promoters may try to persuade consumers to eat at Burger King rather than McDonald’s. Promotion also strives to reinforce existing behavior—for instance, getting customers to continue to dine at Burger King once they have switched. The source (the seller) hopes to project a favorable image or to motivate purchase of the company’s goods and services.

Promotion can perform one or more of three tasks: inform the target audience, persuade the target audience, or remind the target audience. Often a marketer will try to accomplish two or more of these tasks at the same time. Exhibit 14.5, page 484, lists the three tasks of promotion and some examples of each.

Informing

Informative promotion may seek to convert an existing need into a want or stimulate interest in a new product. It is generally more prevalent during the early stages of the product life cycle. People typically will not buy a product service or support a nonprofit organization until they know its purpose and its benefits to them. Informative messages are important for promoting complex and technical products such as automobiles, computers, and investment services. Informative promotion is also important for a “new” brand being introduced into an “old” product class—for example, a new brand of detergent entering the well-established laundry detergent product category dominated by well-known brands such as Tide and Cheer. The new product cannot establish itself against more mature products unless potential buyers are aware of it, understand its benefits, and understand its positioning in the marketplace.

Persuading

Persuasive promotion is designed to stimulate a purchase or an action—for example, to drink more Coca-Cola or to use H&R Block tax services. Persuasion normally becomes the main promotion goal when the product enters the growth stage of its life cycle. By this time, the target market should have general product knowledge of how the product can fulfill their wants. Therefore the promotional task switches from informing consumers about the product category to persuading them to buy the company’s brand rather than the competitor’s. At this time, the promotional message emphasizes the product’s real and perceived differential advantages, often appealing to emotional needs such as love, belonging, self-esteem, and ego satisfaction….

Reminding

Reminder promotion is used to keep the product and brand name in the public’s mind. This type of promotion prevails during the maturity stage of the lifecycle. It assumes that the target market has already been persuaded of the good’s or service’s merits. Its purpose it simply to trigger a memory. Crest toothpaste, Tide laundry detergent, Miller beer, and many other consumer products often use reminder promotion.

Promotional Goals and the AIDA Concept

AIDA

The ultimate goal of any promotion is to get someone to buy a good or service or, in the case of nonprofit organizations, to take some action (for instance, donate blood). A classic model for reaching promotional goals is called the AIDA concept. The acronym stands for attention, interest, desire, and action—the stages of consumer involvement with a promotion message.

This model proposes that consumers respond to marketing messages in a cognitive (thinking), affective (feeling), and conative (doing) sequence. First, the promotion manager attracts a person’s attention by (personal selling) a greeting and approach or (in advertising and sales promotion) loud volume, unusual contrasts, bold headlines, movement, bright colors, and so on. Next, a good sales presentation, demonstration, or advertisement creates an interest in the product and then, by illustrating how the product’s features will satisfy the customer’s needs, desire. Finally, a special offer or a strong closing sales pitch may be used to obtain purchase action.

The AIDA concept assumes that promotion propels consumers along the following four steps in the purchase-decision process:

1.                 Attention: The advertiser must gain the attention of the target market. A firm cannot sell something if the market does not know that the good or service exists.

2.                 Interest: Simple awareness of a brand seldom leads to a sale. The next step is to create interest in the product.

3.                 Desire: Even though owners (and their cats) may like Stripes, they may not see any advantage over competing brands, especially if owners are brand loyal.

4.                 Action: Some members of the target market may now be convinced to by Stripes but have yet to make the purchase. Displays in grocery stores, coupons, premiums, and trial-size packages can often push the complacent shopper into purchase.

Most buyers involved in high-involvement purchase situations pass through the four stages of the AIDA model on the way to making a purchase. The promoter’s task is to determine where on the purchase ladder most of the target consumers are located and design a promotion plan to meet their needs. For instance, if Acme has determined that about half its buyers are in the preference or conviction stage but have not bought Stripes cat food for some reason, the company may mail cents-off coupons to cat owners to prompt them to buy….

AIDA and the Promotional Mix

Exhibit 14.6, page 487, depicts the relationship between the promotional mix and the AIDA model. It shows that, although advertising does have an impact in the later stages, it is most useful in gaining attention for goods or services. In contrast, personal selling reaches fewer people at first. Sales people are more effective at creating customer interest for merchandise or service and at creating desire. For example, advertising may help a potential computer purchaser gain knowledge and information about competing brands, but the salesperson in an electronics store may be the one who actually encourages the buyer to decide a particular brand is the best choice. The salesperson also has the advantage of having the computer physically there to demonstrate its capabilities to the buyer.

Public relations has its greatest impact in gaining attention for a company, good, or service. Many companies can attract attention and build goodwill by sponsoring community events that benefit a worth cause such as antidrug and antigang programs. Such sponsorships project a positive image of the firm and its products into the minds of consumers and potential consumers. Good publicity can also help develop consumer desire for a product. Book publishers push to get their titles listed on the best-seller lists of major publications such as Publisher’s Weekly or the New York Times. Book authors also make appearances on talk shows and at bookstores to personally sign books and speak to fans….

Factors Affecting the Promotional Mix

Promotional mixes vary a great deal from one product and one industry to the next. Normally, advertising and personal selling are used to promote goods and services, supported and supplemented by sales promotion. Public relations helps develop a positive image for the organization and the product line. However, a firm may choose not to use all four promotional elements in its promotional mix, or it may choose to use them in varying degrees. The particular promotional mix chosen by a firm for a product or service depends on several factors: nature of the product, stage in the production lifecycle, target market characteristics, type of buying decision, available funds for promotion, and use of either a push or a pull strategy.

Nature of the Product

Characteristics of the product itself can influence the promotional mix. For instance, a product can be classified as either a business product or a consumer product (refer to Chapter 9). As business products are often custom-tailored to the buyer’s specifications, they are often not well suited to mass promotion. Therefore, producers of most business goods, such as computer systems or industrial machinery, rely more heavily on personal selling than on advertising. Informative personal selling is common for industrial installations, accessories, and component parts and materials. Advertising, however, still serves a purpose in promoting business goods. Advertisements in trade media may be used to create general buyer awareness and interest. Moreover, advertising can help locate potential customers for the sales force. For example, print media advertising often includes coupons soliciting the potential customer to “fill this out for more detailed information.”

On the other hand, because consumer products generally are not custom made, they do not require the selling efforts of a company representative who can tailor them to the user’s needs. Thus consumer goods are promoted mainly through advertising to create brand familiarity. Broadcast advertising, newspapers, and consumer-oriented magazines are used extensively to promote consumer goods, especially non-durables. Sales promotion, the brand name, and the product’s packaging are about twice as important for consumer goods as for business products. Persuasive personal selling is important at the retail level for shopping goods such as automobiles and appliances….

Stage in the Product Lifecycle

The product’s stage in its lifecycle is a big factor in designing a promotional mix (See Exhibit 14.7, page 489). During this introduction stage, the basic goal of promotion is to inform the target audience that the product is available. Initially, the emphasis is on the general product class—for example, personal computer systems. This emphasis gradually changes to awareness of specific brands, such as IBM, Apple, and Compaq. Typically, both extensive advertising and public relations inform the target audience of the product class or brand and heighten awareness levels. Sales promotion encourages early trial of the product, and personal selling gets retailers to carry the product.

When the product reaches the growth stage of the lifecycle, the promotion blend may shift. Often a change is necessary because different types of potential buyers are targeted. Although advertising and public relations continue to be major elements of the promotional mix, sales promotion can be reduced, because consumers need fewer incentives to purchase. The promotional strategy is to emphasis the product’s differential advantage over the competition. Persuasive promotion is used to build and maintain brand loyalty to support the product during the growth stage. By this stage, personal selling has usually succeeded in getting adequate distribution for the product.

As the product reaches the maturity stage of its lifecycle, competition becomes fiercer, and thus persuasive and reminder advertising are more strongly emphasized. Sales promotion comes back into focus as product sellers try to increase their market share.

All promotion, especially advertising, is reduced as the product enters the decline stage. Nevertheless, personal selling and sales promotion efforts may be maintained, particularly at the retail level.

Target Market Characteristics

A target market characterized by widely scattered potential customers, highly informed buyers, and brand-loyal repeat purchasers generally requires a promotional mix with more advertising and sale promotion and less personal selling. Sometimes, however, personal selling is required even when buyers are well informed and geographically dispersed. Although industrial installations and component parts may be sold to extremely competent people with extensive product education and work experience, salespeople must still be present to explain the product and work out the details of the purchase agreement.

Often firms sell goods and services in markets where potential customers are hard to locate. Print advertising can be used to find them. The reader is invited to call for more information or to mail in a reply card for a detailed brochure. As the calls or cards are received, salespeople are sent to visit the potential customers.

Type of Buying Decision

The promotional mix also depends on the type of buying decision—for example, a routine decision or a complex decision. For routine consumer decisions like buying toothpaste or soft drinks, the most effective promotion calls attention to the brand or reminds the consumer about the brand. Advertising and, especially, sales promotion are the most productive promotion tools to use for routine decisions.

If the decision is neither routine nor complex, advertising and public relations help establish awareness for the good or service. Suppose a man is looking for a bottle of wine to serve to his dinner guests. As a beer drinker, he is not familiar with wines, yet he has seen advertising for Sutter Home wine and has also read an article in a particular magazine about the Sutter Home winery. He may be more likely to buy this brand because he has already been made aware of it.

In contrast, consumers making complex buying decisions are more extensively involved. They rely on large amounts of information to help them reach a decision. Print advertising may also be used for high-involvement purchase decisions because it can often provide a large amount of information to the consumer.

Available Funds

Money, or the lack of it, may easily be the most important factor in determining the promotional mix. A small, undercapitalized manufacturer may rely heavily on free publicity if its product is unique. If the situation warrants a sales force, a financially strained firm may turn to manufacturer’s agents, who work on a commission basis with no advances or expense accounts. Even well-capitalized organizations may not be able to afford the advertising rates of publications like Better Homes and Gardens, Reader’s Digest, and the Wall Street Journal. The price of a high-profile advertisement in these medial could support a salesperson for a year….

Push and Pull Strategies

The last factor that affects the promotional mix is whether a push or a pull promotional strategy will be used. Manufacturers may use aggressive personal selling and trade advertising to convince a wholesaler or a retailer to carry and sell their merchandise.

Push Strategy

This approach is known as a push strategy (See Exhibit 14.8, page 491). The wholesaler, in turn, must often push the merchandise forward by persuading the retailer to handle the goods. The retailer then uses advertising, displays, and other forms of promotion to convince the consumer to buy the “pushed” products. This concept also applies to services. For example, the Jamaican Tourism Board targets promotions to travel agencies, which in turn tell their customers about the benefits of vacationing in Jamaca.

Pull Strategy

At the other extreme is a pull strategy, which stimulates consumer demand to obtain product distribution. Rather than trying to sell to the wholesaler, the manufacturer using a pull strategy focuses its promotional efforts on end consumers or opinion leaders. For example, Colgate Palmolive sent thirty million samples of it new Colgate Total toothpaste to dental practitioners nationwide to create demand. As consumers began demanding the product, the retailer orders the merchandise from the wholesaler. The wholesaler, confronted with rising demand, then places an order for the “pulled” merchandise from the manufacturer….

Integrated Marketing Communications

Ideally, marketing communications from each promotional mix element (personal selling, advertising, sales promotion, and public relations) should be integrated—that is, the message reaching the consumer should be the same regardless of whether it is from an advertisement, as salesperson in the field, a magazine article, or a coupon in a newspaper insert.

From the consumers’ standpoint, a company’s communications are already integrated. Consumers do not think in terms of the four elements of promotion: advertising, sales promotion, public relations, and personal selling. Instead, everything is an “ad.” The only people who can disintegrate these communications elements are the marketers themselves. Unfortunately, many marketers neglect this fact when planning promotional messages and fail to integrate their communication efforts from one element to the next. The most common rift typically occurs between personal selling and the other elements of the promotional mix.

Integrated Marketing Communication (IMC)

This unintegrated, disjointed approach to promotion has propelled more companies to adopt the concept of integrated marketing communication (IMC). IMC is the method of carefully coordinating all promotional activities—medial advertising, sales promotion, personal selling, public relations, as well as direct marketing, packaging, and other forms of communication—to produce a consistent, unified message that is customer focused….

Summary

1.                 Discuss the role of promotion in the marketing mix. Promotion is communication by marketers that informs, persuades, and reminds potential buyers of a product in order to influence an opinion or elicit a response. Promotional strategy is the plan for using the elements of promotion—advertising, public relations, sales promotion, and personal selling—to meet the firm’s overall objectives and marketing goals. Based on these objectives, the elements of the promotional strategy become a coordinated promotion plan. The promotion plan then becomes an integral part of the total marketing strategy for reaching the target market along with product, distribution, and place.

2.                 Discuss the elements of the promotional mix. The elements of the promotional mix include advertising, public relations, sales promotion, and personal selling. Advertising is a form of impersonal, one-way mass communication paid for by the source. Public relations is the function of promotion concerned with a firm’s public image. Firms can’t buy good publicity, but they can take steps to create a positive company image. Sales promotion is typically used to back up other components of the promotional mix by stimulating immediate demand. Finally, personal selling typically involves direct communication, in person or by telephone; the seller tries to initiate a purchase by informing and persuading one or more potential buyers.

3.                 Describe the communication process. The communication process has several steps. When an individual or organization has a message it wishes to convey to a target audience, it encodes that message using language and symbols familiar to the intended receiver and sends the message through a channel of communication. Noise in the transmission channel distorts the source’s intended message. Reception occurs if the message falls within the receiver’s frame of reference. The receiver decodes the message and usually provides feedback to the source. Normally, feedback is direct for impersonal communication and indirect for mass communication.

4.                 Explain the goals and tasks of promotion. The fundamental goals of promotion are to induce, modify, or reinforce behavior by informing, persuading, and reminding. Informative promotion explains a good’s or service’s purpose and benefits. Promotion that informs the consumer is typically used to increase demand for a general product category or to introduce a new good or service. Persuasive promotion is designed to stimulate a purchase or an action. Promotion that persuades the consumer to buy is essential during the growth stage of the product lifecycle, when competition becomes fierce. Reminder promotion is used to keep the product and brand name in the public’s mind. Promotions that remind are generally used during the maturity stage of the product lifecycle.

5.                 Discuss the AIDA concept and its relationship to the promotional mix. The AIDA model outlines the four basic stages in the purchase decision-making process, which are initiated and propelled by promotional activities: (1) attention, (2) Interest, (3) desire, and (4) action. The components of the promotional mix have varying levels of influence at each stage of the AIDA model. Advertising is a good tool for increasing awareness and knowledge of a good or service. Sales promotion is effective when consumers are at the purchase stage of the decision-making process. Personal selling is most effective in developing customer interest and desire.

6.                 Describe the factors that affect the promotional mix. Promotion managers consider many factors when creating promotional mixes. These factors include the nature of the product, product lifecycle stage, target market characteristics, the type of buying decision involved, availability of funds, and feasibility of push or pull strategies. Because most business products tend to be custom-tailored to the buyer’s exact specifications, the marketing manager may choose a promotional mix that relies more heavily on personal selling. On the other hand, consumer products are generally mass-produced and lend themselves more to mass promotional efforts such as advertising and sales promotion. As products move through different stages of the product lifecycle, marketers will choose to use different promotional elements. For example, advertising is emphasized more in the introductory stage of the product lifecycle than in the decline stage. Characteristics of the target market, such as geographic location of potential buyers and brand loyalty, influence the promotional mix as does whether the buying decision is complex or routine. The amount of funds a firm has to allocate to promotion may also help determine the promotional mix. Small firms with limited funds may rely more heavily on public relations, whereas larger firms may be able to afford broadcast or print advertising. Last, if a firm uses a push strategy to promote the product or service, the marketing manager may choose to use aggressive advertising and personal selling to wholesalers and retailers. If a pull strategy is chosen, then the manager often relies on aggressive mass promotion, such as advertising and sale promotion, to stimulate consumer demand. [the push/pull strategies could be centered around the guidance councilors. The product could be pushed to the individual school guidance counselors who would then push to the individual students.]

7.                 Discuss the concept of integrated marketing communications. Integrated marketing communications is the method of carefully coordinating all promotional activities—advertising, sales promotion, personal selling, public relations, as well as direct marketing, packaging, and other forms of communication—to produce a consistent, unified, customer-focused message. Marketing managers carefully coordinate all promotional activities to ensure that consumers see and hear one message. Integrated marketing communications has received more attention in recent years due to the proliferation of media choices, the fragmentation of mass markets into more segmented niches, and the decrease in advertising spending in favor of promotional techniques that generate an immediate sales response.