Chapter 15 Retailing Multichannel Marketing Retailing sits at the end of the supply chain where marketing meets the consumer It is primarily the retailer s responsibility to make sure that these customers expectations are fulfilled Retailing is defined as the set of business activities that add value to products and services sold to consumers for their personal or family use Our definition includes products bought at stores through catalogs and over the Internet as well as services like fast7food restaurants airlines and hotels Some retailers claim they sell at wholesale prices but if they sell to customers for their personal use they are still retailers regardless of their prices Wholesalers buy products from manufacturers and resell them to retailers or industrial or business users Retailing today is changing both in the United States and around the world Manufacturers no longer rule many supply chains as they once did Retailers like Walmart Carrefour a French hypermarket Home Depot Tesco Metro a German retail conglomerate and Kroger the largest retailers in the world dictate to their suppliers what should be made how it should be configured when it should be delivered and to some extent what it should cost These retailers are clearly in the driver s seat The manufacturer s strategy depends on its overall market power and how consistent a new product or product line is with current offerings Exhibit 15 1 illustrates four factors manufacturers consider to establish their strategy for working with retailers In choosing retail partners the first factor manufacturers assess how likely it is for certain retailers to carry their products Manufacturers also consider where their target customers expect to find the products because those are exactly the stores in which they want to place their products The overall size and level of sophistication of the manufacturer will determine how many of the supply chain functions it performs and how many it will hand off to other channel members Finally the type and availability of the product and the image the manufacturer wishes to portray will determine how many retailers within a geographic region will carry the products For the second factor manufacturers identify the types of retailers that would be appropriate to carry their products Although the choice is often obvious such as a supermarket for fresh produce manufacturers may have a choice of retailer types for some products A hallmark of a strong marketing channel is one in which manufacturers and retailers coordinate their efforts In the third factor manufacturers and retailers therefore develop their strategy by implementing the four Ps Finally many retailers and some manufacturers use a multichannel strategy which involves selling in more than one channel e g store catalog and Internet The fourth factor therefore consists of examining the circumstances in which sellers may prefer to adopt a particular strategy Although these four factors are listed consecutively manufacturers may consider them all simultaneously cid 14 cid 13 cid 17 or in a different order Choosing Retailing Partners When choosing retail partners manufacturers look at the basic channel structure where their target customers expect to find the products channel member characteristics and distribution intensity 1 Channel Structure o The level of difficulty a manufacturer experiences in getting retailers to purchase its products is determined by the degree to which the channel is vertically integrated the degree to which the manufacturer has a strong brand or is otherwise desirable in the market and the relative power of the manufacturer and retailer o o o Scenario 1 described above represents a corporate vertical marketing system Because MWAWC is made by Est e Lauder and operates its own stores when the new mascara line gets introduced the stores receive the new line automatically with no decision on the part of the retailer In contrast Revlon would have a much more difficult time getting CVS to buy a new mascara line because these supply chain partners are not vertically integrated o When an established firm like Est e Lauder enters a new market with scarves leather goods and accessories as is the case in Scenario 2 it cannot place the products with any retailer It must determine where its customers would expect to find higherWend scarves leather goods and accessories and then use its established relationships with cosmetics buyers the power of its brand and its overall reputation to leverage its position in this new product area o Britt Scenario 3 would have an even more difficult time convincing a retailer to buy and sell her green cosmetics line because she lacks power in the marketplace she is small and her brand is unknown She would have trouble getting buyers to see her let alone consider her line But like Est e Lauder in Scenario 2 Britt should consider where the end customer expects to find her products as well as some important retailer characteristics 2 Customer Expectations o Retailers should also know customer preferences regarding manufacturers Manufacturers in contrast need to know where their target market customers expect to find their products and those of their competitors o Customers generally expect to find certain products at some stores but not at others 3 Channel Member Characteristics o Several factors pertaining to the channel members themselves will help determine the channel structure o Generally the larger and more sophisticated the channel member the less likely that it will use supply chain intermediaries o Britt will probably use a group of independent salespeople to help sell her line of green cosmetics whereas a large manufacturer like Est e Lauder will use its own sales force that already has existing relationships in the industry o In the same way an independent grocery store might buy merchandise from a wholesaler but Walmart the world s largest grocer only buys directly from the manufacturer Larger firms often find that by performing the channel functions themselves they can gain more control be more efficient and save money 4 Distribution Intensity o When setting up distribution for the first time as is the case with Britt s green cosmetics Scenario 3 or introducing a new product line as is the case with Est e Lauder s new line of scarves leather and accessories Scenario 2 firms decide the appropriate level of distribution intensity the number of channel members to use at each