RETAILING AND WHOLESALING:Customer Service, Product Line, Discount Stores

<< LOGISTIC MANAGEMENT:Push Versus Pull Strategy, Goals of the Logistics System

KEY TERMS:Distribution channel, Franchise organization, Distribution center >>

Principles of Marketing MGT301

Lesson 30

Lesson overview and learning objectives:

Today's Lesson will cover the roles of retailers and wholesalers in the distribution channel, the

major types of retailers, Identify the major types of wholesalers and the marketing decisions facing

retailers and wholesalers.

RETAILING AND WHOLESALING.

A. Retailing

What is retailing? Retailing includes all the activities involved in selling goods or services directly to

final consumers for their personal, nonbusiness use. Many institutions--manufacturers,

wholesalers, and retailers--do retailing. But most retailing is done by retailers: businesses whose

sales come primarily from retailing.

Although most retailing is done in retail stores, in recent years nonstarter retailing has been growing

much faster than has store retailing. Nonstore retailing includes selling to final consumers through

direct mail, catalogs, telephone, home TV shopping shows, home and office parties, door-to-door

contact, vending machines, online services and the Internet, and other direct retailing approaches.

a. Types of Retailers:

Retail stores come in all shapes and sizes, and new retail types keep emerging. The most important

types of retail stores are described in Table 13.1 and discussed in the following sections. They can

be classified in terms of several characteristics, including the amount of service they offer, the breadth

and depth of their product lines, the relative prices they charge, and how they are organized.

Amount of Service

Different products require different amounts of service, and customer service preferences vary.

Retailers may offer one of three levels of service--self-service, limited service, and full service.

Self-service retailers serve customers who are willing to perform their own "locate-compare-select"

process to save money. Self-service is the basis of all discount operations and is typically used by

sellers of convenience goods (such as supermarkets) and nationally branded, fast-moving shopping

goods (such as Best Buy or Service Merchandise).

Limited-service retailers provide more sales assistance because they carry more shopping goods about

which customers need information. Their increased operating costs result in higher prices. In full-

service retailers, such as specialty stores and first-class department stores, salespeople assist customers

in every phase of the shopping process. Full-service stores usually carry more specialty goods for

which customers like to be "waited on." They provide more services resulting in much higher

operating costs, which are passed along to customers as higher prices.

Customer Service: Why is it Becoming Scarce

Increasingly, customers complain about the poor state of retail customer service. What we expect

from retail stores is to get the products we want when we want them, where we want them, and to

have them delivered in a pleasingly professional manner at a reasonable price. This ideal may be

slipping further from our reach.

Unfortunately, as the economy improved, retailers found customers balking at paying higher prices

for improved service.

Experts have pointed to a host of other reasons for the drop in retail service levels. Some argue

that such problems begin at the top. They argue that top executives responsible for fostering a

culture of customer service often do not understand their business or their customers, nor do they

have proper ordering procedures or effective employee training programs.

Product Line

Retailers also can be classified by the length and breadth of their product assortments. Some

retailers, such as specialty stores, carry narrow product lines with deep assortments within those

148

Principles of Marketing MGT301

lines. Today, specialty stores are flourishing. The increasing use of market segmentation, market

targeting, and product specialization has resulted in a greater need for stores that focus on specific

products and segments.

In contrast, department stores carry a wide variety of product lines. In recent years, department

stores have been squeezed between more focused and flexible specialty stores on the one hand,

and more efficient, lower-priced discounters on the other. In response, many have added "bargain

basements" and promotional events to meet the discount threat. Others have set up store brand

programs, "boutiques" and "designer shops" within department stores), and other store formats

that compete with specialty stores. Still others are trying mail-order, telephone, and Web site

selling. Service remains the key differentiating factor.

Supermarkets are the most frequently shopped type of retail store. Today, however, they are

facing slow sales growth because of slower population growth and an increase in competition from

convenience stores, discount food stores, and superstores. Supermarkets also have been hit hard

by the rapid growth of out-of-home eating. Thus, most supermarkets are making improvements to

attract more customers. In the battle for "share of stomachs," most large supermarkets have

moved upscale, providing from-scratch bakeries, gourmet deli counters, and fresh seafood

departments. Others are cutting costs, establishing more efficient operations, and lowering prices

in order to compete more effectively with food discounters.

Convenience stores are small stores that carry a limited line of high-turnover convenience goods.

In the 1990s, the convenience store industry suffered from overcapacity as its primary market of

young, blue-collar men shrunk. As a result, many chains have redesigned their stores with female

customers in mind. They are dropping the image of a "truck stop" where men go to buy beer,

cigarettes, and magazines, and instead offer fresh, prepared foods and cleaner, safer environments.

Many convenience chains also are experimenting with micromarketing--tailoring each store's

merchandise to the specific needs of its surrounding neighborhood. Superstores are much larger

than regular supermarkets and offer a large assortment of routinely purchased food products,

nonfood items, and services. Stores, the so-called category killers. They feature stores the size of

airplane hangers that carry a very deep assortment of a particular line with a knowledgeable staff.

Category killers are prevalent in a wide range of categories, including books, baby gear, toys,

electronics, home improvement products, linens and towels, party goods, sporting goods, even pet

supplies. Another superstore variation, hypermarkets, are huge superstores, perhaps as large as six

football fields. Finally, for some retailers, the product line is actually a service. Service retailers

include hotels and motels, banks, airlines, colleges, hospitals, movie theaters, tennis clubs, bowling

alleys, restaurants, repair services, hair care shops, and dry cleaners.

Relative Prices

Retailers can also be classified according to the prices they charge. Most retailers charge regular

prices and offer normal-quality goods and customer service. Others offer higher-quality goods and

service at higher prices. The retailers that feature low prices are discount stores, "off-price"

retailers, and catalog showrooms:

Discount Stores:

A discount store sells standard merchandise at lower prices by accepting lower margins and

selling higher volume. The early discount stores cut expenses by offering few services and

operating in warehouse like facilities in low-rent, heavily traveled districts. In recent years, facing

intense competition from other discounters and department stores, many discount retailers have

"traded up." They have improved decor, added new lines and services, and opened suburban

branches, which have led to higher costs and prices.

Off-Price Retailers

When the major discount stores traded up, a new wave of off-price retailers moved in to fill the

low-price, high-volume gap. Ordinary discounters buy at regular wholesale prices and accept lower

margins to keep prices down. In contrast, off-price retailers buy at less-than-regular wholesale

149

Principles of Marketing MGT301

prices and charge consumers less than retail. Off-price retailers can be found in all areas, from

food, clothing, and electronics to no-frills banking and discount brokerages.

The three main types of off-price retailers are independents, factory outlets, and warehouse clubs.

Independent off-price retailers are either owned and run by entrepreneurs or are divisions of

larger retail corporations. Although many off-price operations are run by smaller independents,

most large off-price retailer operations are owned by bigger retail chains. Factory outlets--

sometimes group together in factory outlet malls and value-retail centers, where dozens of outlet stores

offer prices as low as 50 percent below retail on a wide range of items. Whereas outlet malls

consist primarily of manufacturers' outlets, value-retail centers combine manufacturers' outlets with

off-price retail stores and department store clearance outlets. Factory outlet malls have become one

of the hottest growth areas in retailing.

The malls now are moving upscale, narrowing the gap between factory outlets and more traditional

forms of retailers. As the gap narrows, the discounts offered by outlets are getting smaller.

Manufacturers counter that they send last year's merchandise and seconds to the factory outlet

malls, not the new merchandise that they supply to the department stores. The malls are also

located far from urban areas, making travel to them more difficult. Still, the department stores are

concerned about the growing number of shoppers willing to make weekend trips to stock up on

branded merchandise at substantial savings.

Warehouse clubs (or wholesale clubs, or membership warehouses), operate in huge, drafty, warehouse

like facilities and offer few frills. Customers themselves must wrestle furniture, heavy appliances,

and other large items to the checkout line. Such clubs make no home deliveries and accept no

credit cards, but they do offer rock-bottom prices.

b. Retailer Marketing Decisions

Retailers are searching for new marketing strategies to attract and hold customers. In the past,

retailers attracted customers with unique products, more or better services than their competitors

offered, or credit cards. Today, national-brand manufacturers, in their drive for volume, have

placed their branded goods everywhere. Thus, stores offer more similar assortments--national

brands are found not only in department stores but also in mass-merchandise and off-price

discount stores. As a result, stores are looking more and more alike.

Service differentiation among retailers has also eroded. Many department stores have trimmed

their services, whereas discounters have increased theirs. Customers have become smarter and

more price sensitive. They see no reason to pay more for identical brands, especially when service

differences

are

shrinking. For all

these reasons, many

Rettailler Marketting

ai e r Marke in g

retailers today are

Rettailler Sttrattegy

ai e r S ra egy

Miix

rethinking

their

marketing strategies.

Product

As shown in Figure,

and Service

T arget Market

retailers face major

Assortment

marketing decisions

Prices

about their

target

Retail Store

markets

and

Posit ion ing

Promot ion

positioning,

product

assortment and services,

Place

price, promotion, and

(Location)

place.

150

Principles of Marketing MGT301

Target Market and Positioning Decision

Retailers first must define their target markets and then decide how they will position themselves in

these markets. Should the store focus on upscale, miscalled, or downscale shoppers? Do target

shoppers want variety, depth of assortment, convenience, or low prices? Until they define and

profile their markets, retailers cannot make consistent decisions about product assortment,

services, pricing, advertising, store decor, or any of the other decisions that must support their

positions.

Too many retailers fail to define their target markets and positions clearly. They try to have

"something for everyone" and end up satisfying no market well. In contrast, successful retailers

define their target markets well and position themselves strongly.

ii.

Product Assortment and Services Decision

Retailers must decide on three major product variables: product assortment, services mix, and store

atmosphere.

The retailer's product assortment should match target shoppers' expectations. In its quest to

differentiate itself from competitors, a retailer can use any of several product-differentiation

strategies. For one, it can offer merchandise that no other competitor carries--its own private

brands or national brands on which it holds exclusives. Retailers also must decide on a services mix

to offer customers. The old mom-and-pop grocery stores offered home delivery, credit, and

conversation--services that today's supermarkets ignore. The services mix is one of the key tools

of nonprime competition for setting one store apart from another.

The store's atmosphere is another element in its product arsenal. Every store has a physical layout that

makes moving around in it either hard or easy. Each store has a "feel"; one store is cluttered,

another charming, a third plush, a fourth somber. The store must have a planned atmosphere that

suits the target market and moves customers to buy.

Increasingly, retailers are turning their stores into theaters that transport customers into unusual,

exciting shopping environments. All of this confirms that retail stores are much more than simply

assortments of goods. They are environments to be experienced by the people who shop in them.

Store atmospheres offer a powerful tool by which retailers can differentiate their stores from those

of competitors.

iii.

Price Decision

A retailer's price policy is a crucial positioning factor and must be decided in relation to its target

market, its product and service assortment, and its competition. All retailers would like to charge

high markups and achieve high volume, but the two seldom go together. Most retailers seek either

high markups on lower volume (most specialty stores) or low markups on higher volume (mass

merchandisers and discount stores).

iv.

Promotion Decision

Retailers use the normal promotion tools--advertising, personal selling, sales promotion, public

relations, and direct marketing--to reach consumers. They advertise in newspapers, magazines,

radio, and television. Advertising may be supported by newspaper inserts and direct-mail pieces.

Personal selling requires careful training of salespeople in how to greet customers, meet their

needs, and handle their complaints. Sales promotions may include in-store demonstrations,

displays, contests, and visiting celebrities. Public relations activities, such as press conferences and

speeches, store openings, special events, newsletters, magazines, and public service activities, are

always available to retailers. Many retailers have also set up Web sites, offering customers

information and other features and sometimes selling merchandise directly.

Place Decision

Retailers often cite three critical factors in retailing success: location, location, and location! A retailer's

location is key to its ability to attract customers. The costs of building or leasing facilities have a

major impact on the retailer's profits. Thus, site-location decisions are among the most important

151

Principles of Marketing MGT301

the retailer makes. Small retailers may have to settle for whatever locations they can find or afford.

Large retailers usually employ specialists who select locations using advanced methods.

vi.

Site Selection for Retail Location

Site selection is an important decision for retailers planning to open new stores. Not only do they

have to decide whether they want to locate in a mall or as a standalone store, they also have to

assess the site's potential in terms of likely sales and profitability.

Most stores today cluster together to increase their customer pulling power and to give consumers

the convenience of one-stop shopping. A shopping center is a group of retail businesses planned,

developed, owned, and managed as a unit. It normally contains a branch of a department store or

variety store, a supermarket, specialty stores, professional offices, and sometimes a bank. Most

shopping centers are neighborhood shopping centers or strip malls that generally contain between 5 and

15 stores. They are close and convenient for consumers. They usually contain a supermarket,

perhaps a discount store, and several service stores--dry cleaner, self-service laundry, drugstore,

video-rental outlet, barber or beauty shop, hardware store, or other stores.

c. The Future of Retailing

Retailers operate in a harsh and fast-changing environment, which offers threats as well as

opportunities. Consumer demographics, lifestyles, and shopping patterns are changing rapidly, as

are retailing technologies. To be successful, then, retailers will have to choose target segments

carefully and position themselves strongly. They will have to take the following retailing

developments into account as they plan and execute their competitive strategies.

New Retail Forms and Shortening Retail Life Cycles

New retail forms continue to emerge to meet new situations and consumer needs, but the life cycle

of new retail forms is getting shorter. Department stores took about 100 years to reach the mature

stage of the life cycle; more recent forms, such as warehouse stores, reached maturity in about 10

years. To remain successful, they must keep adapting.

Many retailing innovations are partially explained by the wheel of retailing concept According to

this concept; many new types of retailing forms begin as low-margin, low-price, low-status

operations. They challenge established retailers that have become "fat" by letting their costs and

margins increase. The new retailers' success leads them to upgrade their facilities and offer more

services. In turn, their costs increase, forcing them to increase their prices. Eventually, the new

retailers become like the conventional retailers they replaced. The cycle begins again when still

newer types of retailers evolve with lower costs and prices. The wheel of retailing concept seems to

explain the initial success and later troubles of department stores, supermarkets, and discount

stores, and the recent success of off-price retailers.

· Growth of Nonstore Retailing

Although most retailing still takes place the old-fashioned way across countertops in stores,

consumers now have an array of alternatives, including mail order, television, phone, and online

shopping. "

· Increasing Intertype Competition

Today's retailers increasingly face competition from many different forms of retailers. For example,

a consumer can buy CDs at specialty music stores, discount music stores, electronics superstores,

general merchandise discount stores, video-rental outlets, and through dozens of Web sites. They

can buy books at stores ranging from independent local bookstores to discount stores The

competition between chain superstores and smaller, independently owned stores has become

particularly heated. Because of their bulk buying power and high sales volume, chains can buy at

lower costs and thrive on smaller margins. The arrival of a superstore can quickly force nearby

independents out of business.

· The Rise of Mega retailers

The rise of huge mass merchandisers and specialty superstores, the formation of vertical marketing

systems and buying alliances, and a rash of retail mergers and acquisitions have created a core of

152

Principles of Marketing MGT301

superpower mega retailers. Through their superior information systems and buying power, these

giant retailers are able to offer better merchandise selections, good service, and strong price savings

to consumers. As a result, they grow even larger by squeezing out their smaller, weaker

competitors. The mega retailers also are shifting the balance of power between retailers and

producers. A relative handful of retailers now control access to enormous numbers of consumers,

giving them the upper hand in their dealings with manufacturers.

Growing Importance of Retail Technology

Retail technologies are becoming critically important as competitive tools. Progressive retailers are

using computers to produce better forecasts, control inventory costs, order electronically from

suppliers, send e-mail between stores, and even sell to customers within stores. They are adopting

checkout scanning systems, online transaction processing, electronic funds transfer, electronic data

interchange, in-store television, and improved merchandise-handling systems.

One innovative scanning system now in use is the shopper scanner, a radar like system that counts

store traffic. Perhaps the most startling advances in retailing technology concern the ways in which

today's retailers are connecting with customers:

B. Wholesaling

Wholesaling includes all activities involved in selling goods and services to those buying for resale

or business use. We call wholesalers those firms engaged primarily in wholesaling activity.

Wholesalers buy mostly from producers and sell mostly to retailers, industrial consumers, and

other wholesalers. But why are wholesalers used at all? For example, why would a producer use

wholesalers rather than selling directly to retailers or consumers? Quite simply, wholesalers are

often better at performing one or more of the following channel functions:

· Selling and promoting: Wholesalers' sales forces help manufacturers reach many small

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

buyer than the distant manufacturer.

· Buying and assortment building: Wholesalers can select items and build assortments needed by

their customers, thereby saving the consumers much work.

· Bulk-breaking: Wholesalers save their customers money by buying in carload lots and

breaking bulk (breaking large lots into small quantities).

· Warehousing: Wholesalers hold inventories, thereby reducing the inventory costs and risks of

suppliers and customers.

· Transportation: Wholesalers can provide quicker delivery to buyers because they are closer

than the producers.

· Financing: Wholesalers finance their customers by giving credit, and they finance their

suppliers by ordering early and paying bills on time.

· Risk bearing: Wholesalers absorb risk by taking title and bearing the cost of theft, damage,

spoilage, and obsolescence.

· Market information: Wholesalers give information to suppliers and customers about

competitors, new products, and price developments.

· Management services and advice: Wholesalers often help retailers train their salesclerks, improve

store layouts and displays, and set up accounting and inventory control systems.

a. Types of Wholesalers

Wholesalers fall into three major groups : merchant wholesalers, brokers and agents, and manufacturers'

sales branches and offices. Merchant wholesalers are the largest single group of wholesalers, accounting

for roughly 50 percent of all wholesaling. Merchant wholesalers include two broad types: full-

service wholesalers and limited-service wholesalers. Full-service wholesalers provide a full set of

services, whereas the various limited-service wholesalers offer fewer services to their suppliers and

customers. The several different types of limited-service wholesalers perform varied specialized

functions in the distribution channel.

153

Principles of Marketing MGT301

Merchant wholesalers

Independently owned businesses that take title to the merchandise they handle. In different trades

they are called jobbers, distributors, or mill supply houses. Include full-service wholesalers and limited-

service wholesalers:

· Full-service wholesalers

Provide a full line of services: carrying stock, maintaining a sales force, offering credit, making

deliveries, and providing management assistance. There are two types:

Wholesale merchants: Sell primarily to retailers and provide a full range of services. General-

merchandise wholesalers carry several merchandise lines, whereas general-line wholesalers carry one or two

lines in greater depth. Specialty wholesalers specialize in carrying only part of a line. (Examples: health

food wholesalers, seafood wholesalers.)

Industrial distributors: Sell to manufacturers rather than to retailers. Provide several services,

such as carrying stock, offering credit, and providing delivery. May carry a broad range of

merchandise, a general line, or a specialty line.

· Limited-service wholesalers:

Offer fewer services than full-service wholesalers. Limited-service wholesalers are of several types:

Cash-and-carry wholesalers: Carry a limited line of fast-moving goods and sell to small retailers

for cash. Normally do not deliver. Example: A small fish store retailer may drive to a cash-and-

carry fish wholesaler, buy fish for cash, and bring the merchandise back to the store.

Truck wholesalers (or truck jobbers): Perform primarily a selling and delivery function. Carry a

limited line of semi perishable merchandise (such as milk, bread, snack foods), which they sell for

cash as they make their rounds to supermarkets, small groceries, hospitals, restaurants, factory

cafeterias, and hotels.

Drop shippers: Do not carry inventory or handle the product. On receiving an order, they select a

manufacturer, who ships the merchandise directly to the customer. The drop shipper assumes title

and risk from the time the order is accepted to its delivery to the customer. They operate in bulk

industries, such as coal, lumber, and heavy equipment.

Rack jobbers: Serve grocery and drug retailers, mostly in nonfood items. They send delivery

trucks to stores, where the delivery people set up toys, paperbacks, hardware items, health and

beauty aids, or other items. They price the goods, keep them fresh, set up point-of-purchase

displays, and keep inventory records. Rack jobbers retain title to the goods and bill the retailers

only for the goods sold to consumers.

Producers' cooperatives :Owned by farmer members and assemble farm produce to sell in local

markets. The co-op's profits are distributed to members at the end of the year. They often attempt

to improve product quality and promote a co-op brand name, such as Sun Maid raisins, Sunkist

oranges, or Diamond walnuts.

Mail-order wholesalers: Send catalogs to retail, industrial, and institutional customers featuring

jewelry, cosmetics, specialty foods, and other small items. Maintain no outside sales force. Main

customers are businesses in small outlying areas. Orders are filled and sent by mail, truck, or other

transportation.

ii.

Brokers and agents

Do not take title to goods. Main function is to facilitate buying and selling, for which they earn a

commission on the selling price. Generally, specialize by product line or customer types.

· Brokers:

Chief function is bringing buyers and sellers together and assisting in negotiation. They are paid by

the party who hired them, and do not carry inventory, get involved in financing, or assume risk.

Examples: food brokers, real estate brokers, insurance brokers, and security brokers.

· Agents:

Represent either buyers or sellers on a more permanent basis than brokers do. There are several

types:

154

Principles of Marketing MGT301

Manufacturers' agents: Represent two or more manufacturers of complementary lines. A formal

written agreement with each manufacturer covers pricing, territories, order handling, delivery

service and warranties, and commission rates. Often used in such lines as apparel, furniture, and

electrical goods. Most manufacturers' agents are small businesses, with only a few skilled

salespeople as employees. They are hired by small manufacturers who cannot afford their own field

sales forces, and by large manufacturers who use agents to open new territories or to cover

territories that cannot support full-time salespeople.

Selling agents: Have contractual authority to sell a manufacturer's entire output. The

manufacturer either is not interested in the selling function or feels unqualified. The selling agent

serves as a sales department and has significant influence over prices, terms, and conditions of sale.

Found in product areas such as textiles, industrial machinery and equipment, coal and coke,

chemicals, and metals.

Purchasing agents :Generally have a long-term relationship with buyers and make purchases for

them, often receiving, inspecting, warehousing, and shipping the merchandise to the buyers. They

provide helpful market information to clients and help them obtain the best goods and prices

available.

Commission merchants: Take physical possession of products and negotiate sales. Normally,

they are not employed on a long-term basis. Used most often in agricultural marketing by farmers

who do not want to sell their own output and do not belong to producers' cooperatives. The

commission merchant takes a truckload of commodities to a central market, sells it for the best

price, deducts a commission and expenses, and remits the balance to the producer.

iii.

Manufacturers' and retailers' branches and offices

Wholesaling operations conducted by sellers or buyers themselves rather than through

independent wholesalers. Separate branches and offices can be dedicated to either sales or

purchasing.

Sales branches and offices: Set up by manufacturers to improve inventory control, selling, and

promotion. Sales branches carry inventory and are found in industries such as lumber and

automotive equipment and parts. Sales offices do not carry inventory and are most prominent in

dry-goods and notions industries.

Purchasing offices: Perform a role similar to that of brokers or agents but are part of the buyer's

organization. Many retailers set up purchasing offices in major market centers

Brokers and agents differ from merchant wholesalers in two ways: They do not take title to goods,

and they perform only a few functions. Like merchant wholesalers, they generally specialize by

product line or customer type. A broker brings buyers and sellers together and assists in

negotiation. Agents represent buyers or sellers on a more permanent basis. Manufacturers' agents

(also called manufacturers' representatives) are the most common type of agent wholesaler. The

third major type of wholesaling is that done in manufacturers' sales branches and offices by sellers

or buyers themselves rather than through independent wholesalers.

b. Wholesaler Marketing Decisions

Wholesalers have experienced mounting competitive pressures in recent years. They have faced

new sources of competition, more demanding customers, new technologies, and more direct-

buying programs on the part of

Wh ollesaler Marketiing large industrial, institutional, and

Wh o esaler Market ng

Whollesa ler Sttrategy

esa ler S rategy

retail buyers. As a result, they

Miix

Who

have had to improve their

Product and

strategic decisions on target

Service

Assortment

markets and positioning, and on

T arget Market

the marketing mix--product

Prices

assortments and services, price,

Retail Store

Promot ion

Posit ion ing

promotion, and place (see Figure).

Place

(Location)

155

Principles of Marketing MGT301

Target Market and Positioning Decision

Like retailers, wholesalers must define their target markets and position themselves effectively--

they cannot serve everyone. They can choose a target group by size of customer (only large

retailers), type of customer (convenience food stores only), need for service (customers who need

credit), or other factors. Within the target group, they can identify the more profitable customers,

design stronger offers, and build better relationships with them. They can propose automatic

reordering systems, set up management-training and advising systems, or even sponsor a voluntary

chain. They can discourage less profitable customers by requiring larger orders or adding service

charges to smaller ones.

ii.

Marketing Mix Decisions

Like retailers, wholesalers must decide on product assortment and services, prices, promotion, and

place. The wholesaler's "product" is the assortment of products and services that it offers. Wholesalers

are under great pressure to carry a full line and to stock enough for immediate delivery. But this

practice can damage profits. Wholesalers today are cutting down on the number of lines they carry,

choosing to carry only the more profitable ones. Wholesalers are also rethinking which services

count most in building strong customer relationships and which should be dropped or charged for.

The key is to find the mix of services most valued by their target customers.

Price is also an important wholesaler decision. Wholesalers usually mark up the cost of goods by a

standard percentage--say, 20 percent. Expenses may run 17 percent of the gross margin, leaving a

profit margin of 3 percent. In grocery wholesaling, the average profit margin is often less than 2

percent. Wholesalers are trying new pricing approaches. They may cut their margin on some lines

in order to win important new customers. They may ask suppliers for special price break when

they can turn them into an increase in the supplier's sales.

Although promotion can be critical to wholesaler success, most wholesalers are not promotion

minded. Their use of trade advertising, sales promotion, personal selling, and public relations is

largely scattered and unplanned. Many are behind the times in personal selling--they still see

selling as a single salesperson talking to a single customer instead of as a team effort to sell, build,

and service major accounts. Wholesalers also need to adopt some of the nonpersonal promotion

techniques used by retailers. They need to develop an overall promotion strategy and to make

greater use of supplier promotion materials and programs.

Finally, place is important--wholesalers must choose their locations and facilities carefully.

Wholesalers typically locate in low-rent, low-tax areas and tend to invest little money in their

buildings, equipment, and systems. As a result, their materials-handling and order-processing

systems are often outdated. In recent years, however, large and progressive wholesalers are reacting

to rising costs by investing in automated warehouses and online ordering systems. Orders are fed

from the retailer's system directly into the wholesaler's computer, and the items are picked up by

mechanical devices and automatically taken to a shipping platform where they are assembled. Most

large wholesalers use computers to carry out accounting, billing, inventory control, and forecasting.

Modern wholesalers are adapting their services to the needs of target customers and finding cost-

reducing methods of doing business.

156

Table of Contents: