UF MAR 3023 - Channels and Retailing

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MAR3023 Exam 3 Material: Live Lecture April 1st, 2014 Part 1 and 2Now Focusing on PLACE: How do we get the product to the consumer?Channels and RetailingCoke Overall Market Share: 43%Pepsi Overall Market Share: 31%Coke Fountain Channel/Non-Fountain Channel: 70%/36%Pepsi Fountain Channel/Non-Fountain Channel: 20%/35%*Pepsi needs to focus on PLACE- where the consumer can buy it!Outline:- Channels and channel strategyo Direct and indirect channelso Channel members and functionso Channel conflict- Retailingo Retail types and functionso Retail productivity measureso Non-store retailingChannels and Channel Strategy- Why are channels important to consider? If you think about what you are doing and how products and services get to the right placeat the right time, then you can understand the entire process and make it run the most efficient way.- What do we mean by “channel”?o A set of interdependent organizations involved in making a product or service available for use or consumption (everyone involved in making the shipment happen)Channel Strategy- Channels provide an efficient means of getting your products to your customers… and your customers to your products.- Where will the consumers find the product?- How will it get there?- How will the consumer get there? (Store, online, etc.)- Producer and consumer are part of every channelWhat Type of Channel?- Direct (From producer to consumer, no one else) – have most control, good because no risk of having a middleman, bad because it requires a lot of resources- Indirect – Good because customer can get your product easily (one-stop shopping), bad because less control because of the middlemano Typical indirect channel:o Manufacturer  wholesaler  retailer  consumer- Why use intermediaries at all? Transaction efficiency! If the consumer can go through a retailer, it reduces the number of transactions for the consumer and producer.Channel Members (Intermediaries/middleman)- Wholesalers (who buys from the manufacturer and sells to the retailer)o Merchant wholesalers – 80% of wholesalers, buy inventory, take ownership, then sell to retailero Agents – don’t take ownership, sell on behalf of manufacturer, make the deal and get paid for ito Manufacturer’s sales branch vs. sales office – owned by manufacturero Sales Branch (takes possession) is owned by the manufacturer, act likes a wholesaler, carries inventoryo Sales Office (NO possession) is owner by manufacturer, don’t hold the inventory, still makes the sale- Retailers (more on this later)o Sales – physical entitieso Non-store – online shopping, catalog shoppingHow do channel members help your firm?- Logistics functionso Assorting (where to put products)o Transporting (move the product)- Transactional functionso Sellingo Risk taking (they buy your product expecting to sell it)- Facilitating functionso Financingo Market research – what is selling and what is not- Assign functions to the channel member who can most efficiently and effectively perform themHow do channel members help your customers?- Information – provide info on a complex product so customer understands what it is and how to use it - Lot size – customers want smaller quantities most of the time- Assortment – retailer provides a broad range of products (Pens with paper)- After-sales service – consumer might need help with repairs or installation - Logistics – makes it easier for the customer to get the product- Time utility (convenience, speed) - Place Utility (convenience, prestige – being at a luxurious store)- Make decisions about channel with these considerations in mindChannel Conflict- Horizontal – conflict between all different entities all trying to get the same product to the consumer (Movie Studio sends a movie todifferent theatres, Netflix, cable, etc.) – all of these compete with each other to sell the movie to the consumer- Vertical – conflict between different levels within the channel (Movie Theatre is angry at the studio for giving the movie to Netflix too soon)Part 2Example of two Starbucks next to each otherPRICE: RETAILINGWhat is Retailing?- All activities involved in selling, renting, and providing goods and services to ultimate consumers- Retailers sell primarily to final customers for personal use.- Wholesalers sell primarily to other forms for resale or business useScope of Retailing- Annual sales - $4.9 Trillion in sales- Number of stores – 3 million retail stores- Number of employees 26 million- Percentage of US workforce - 10-17%How do retailers ADD value?- Providing assortments – offer a variety of products- Breaking bulk – allows consumer to buy smaller amounts- Holding inventory – have it for you when you run out- Providing services – repair, preparation, etc.Types of General Merchandise Retailers- Discount storeso Wal-Mart, Targeto Very low price, low serviceo Broad, shallow selection- Department storeso Macy’s, JC Penney, Belko Moderate-high price, serviceo Broad, average to deep selection- Specialty storeso Gap, Limited, Foot Lockero Generally high price, serviceo Narrow, average to deep selection- Power retailers/ Category Killerso Best Buy, Home Depot, Office Depoto Low price, service varieso Narrow, very deep selection- Convenience storeso 7-Eleven, Circle Ko Higher prices than discount stores, low serviceo Limited selection of high-turnover products- Trends in the prevalence of these storesRetail Locations- Types of Locations- Lifestyle center – open air, not a strip mall, storefronts face each other, smaller than a traditional mall, provides a nicer shopping experience- Regional mall – multiple anchor stores, specialty stores, food court, sales are slowing because it’s less convenient to get there- Power Center- Mix of all big stores- Strip center- small stores by each other- Central business district – downtown- Stand-alone store – single storeRetail Productivity Measures- New Sales Per Square Footo Used to compare departments or storeso Net sales = Total sales minus returnso Net sales per square foot example:o Total Sales: $350,000o Returns: $50,000o Net Sales = ($350,000-$50,000)= $300,000o Size of store = 600 square feeto Net Sales per square food = ($300,000 / 600 square foot) = $500/square foot- Stockturn Rate (SR): Used to compare products or brands with one store – how quickly you turnover your stocko SR = (Cost of Goods Sold (COGS)) / (Average Inventory (AI) (at cost)o Average Inventory (AI) =

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UF MAR 3023 - Channels and Retailing

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