Identifying Major Alternatives

Having defined its channel objectives, the firm then identifies its major channel alternatives in terms of the types and number of intermediaries to use and the responsibilities of each channel member.

• Types of Alternative Channel A number of options exist:
• Direct marketing. A number of direct marketing approaches can be used, ranging from direct-response selling via advertisements in print media, on radio or television, by mail order and catalogues to telephone and Internet selling. These methods are discussed further in Chapter 22.
• Salesforce. The company can sell directly through its own salesjjyrce or deploy another firm's sales force, as Glaxo did with its best-selling anti-ulcer drug. Zantac. Alternatively, a contract sales force might be used. This method of selling to customers is discussed in Chapter 20.
• Intermediaries, These arc independent organizations that will carry out a number of activities. Merchants, which include wholesalers and retailers, buy, take title to and resell the firm's goods, whereas brokers and agenls do not buy or carry the producer's products, but help to sell these to customers by negotiating prices and sales terms and conditions on the supplier's behall. Other intermediaries - transport companies, independent warehouses, finance companies, banks - perform a range of channel functions to facilitate the flow of goods or services from producer to user.

WHOLESALERS. Wholesalers render important services to producers and resellers. Wholesalers' sales forces help manufacturers reach any small customers at a low cost. The wholesaler has more contacts and is often more trusted by the buyer than the distant manufacturer. Wholesalers can select items and build assortments needed by their customers, thereby saving the consumers a considerable amount of work. They save their customers money by buying in huge lots and breaking bulk (breaking large lots into small quantities). Wholesalers hold inventories, thereby reducing the inventory costs and risks of suppliers and customers. Wholesalers can provide quicker delivery to buyers because they are closer than the producers. They finance their customers by giving credit, and they finance their suppliers by ordering early and paying bills on time. Wholesalers absorb risk by caking title and bearing the cost ol' theft, damage, spoilage and obsolescence. They give information to suppliers and customers about competitors, new products and price developments. Wholesalers also provide management services and advice - they often help retailers train their sales assistants, improve store layouts and displays, and set up accounting and inventory control systems.

There are many types of wholesaler. They are classified according to the breadth and depth of their product/service lines and the range of services they offer. Full-service wholesalers provide a full set of services, such as carrying

stock, using a sales force, offering credit, making deliveries and providing technical advice and management assistance. They are either wholesale rnerchanta or industrial distributors. Wholesale merchants sell mostly to retailers. General merchandise wholesalers carry several lines of goods - for example, hardware, cosmetics, detergents, non-perishable foods and household goods - to meet the needs of both general-merchandise retailers and single-line retailers. Limited-line wholesalers carry one or two lines of goods, but offer a greater depth of assortment. Examples are hardware wholesalers, drug wholesalers and clothing wholesalers. Some specicdity-line-wholesalers carry only part of a line in great depth, such as health-food wholesalers, seafood wholesalers and automotive parts wholesalers. They offer customers deeper choice and greater product knowledge.

Industrial distributors sell mainly to producers rather than to retailers. They provide inventory, credit, delivery, technical advice and other services. They may handle a wide, limited or special line of products. Industrial distributors concentrate on lines such as maintenance and operating supplies, original-equipment goods (such as ball bearings and motors) and equipment (such as power tools and forklift trucks).

Limited-service wholesalers perform a limited number of functions and offer fewer services to their suppliers and customers. There are several types of limited-service wholesaler. Cash-and-carry wholesalers have a limited line of fast-moving goods, such as groceries, toys, household goods, clothes, electrical supplies, office supplies and building materials. They sell to small retailers and industrial firms for cash and normally do not deliver. A small fish-store retailer, for example, normally drives at dawn to a cash-and-carry fish wholesalers and buys several crates of fish, pays on the spot, drives the merchandise back to the store and unloads it. Cash-and-carry wholesalers are important to some small retailers and industrial customers that are not .served by the bigger wholesalers. They may not benefit from the services that full-service wholesalers can offer, but they do get lower-priced merchandise and immediate aeeess to goods. An example of a cash-and-carry wholesaler is Makro. although Makro is a hybrid operator, servicing both individual consumers and small retailers.

Truck ^wholesalers (also called truck jobbers) perform a selling and delivery function. They carry a limited line of goods (such as milk, bread or snack foods) that they sell for cash as they make their rounds of supermarkets, small groceries, hospitals, restaurants, factory1 cafeterias and hotels. Drop shippers operate in bulk industries such as coal, oil, chemicals, lumber and heavy equipment. They do not carry inventory or handle the product. They receive orders from retailers, industrial buyers or other wholesalers and then forward these to producers, which ship the goods directly to the customer. The drop shipper takes title and risk from the time the order is accepted to the time it is delivered to the customer. Because drop shippers do not carry inventory, their costs are lower and they can pass on some savings to customers. Rack jobbers serve grocery and general merchandise retailers, mostly in the area of branded non-food items, such as books, magazines, toys, stationery, housewares, health and beauty aids, and hardware items. These retailers do not want to order and maintain displays of hundreds of non-food items. Rack jobbers send delivery trucks to stores and the delivery person sets up display racks for the merchandise. They price the goods, keep them fresh and maintain inventory records. Rack jobbers sell on consignment - they retain title to the goods and bill the retailers only tor the goods sold to consumers. Thus they provide services such as delivery, shelving, inventory and financing. They do little promotion because they carry many branded items that are already highly advertised.

Other limited-service wholesalers include producers' co-operatives, owned by farmer-members, who assemble farm produce to sell in local markets, and

limited-service wholesalers

Those -whi.1 offer only limited services to their suppliers and customers.

cash-and-carry

wholesalers

Wholcstdcrs that stock a limited line of fast-moving goods - such as groceries, toys, household gootis, c'/ot/K'N, ck-ctriQul supplies and building materials - and that sell tn nrnall retailers and industrial firms Jar cash and normally do not provide a delivery

self-service retailers

Retailers that provide few or no services to shoppers: shoppers perform their oian locate-compare-select process,

self-service retailors

Retailers that provide few or no services to shopper*; shoppers perform their own tocate-e-ompare-select process.

limited-service retailers Retailers (hat provide only a limited number of to shoppers.

full -service retailers Retailers that provide a full range of services to shoppers.

speciality store A retail .store that curries a narrows product line with a deep assortment 'within that line.

de partin en t store A retail organisation that carries a wide variety of product lines -typically clothing, home furnishings and household goods; each line is operated as a separate department managed by specialist buyers or m e rc-hai idisers.

variety store Self-service store that specialises in a wide range of merchandise. It offers a wider range than spccialisr stores, but a narrower variety than department stores.

mail-order -wholesalers, which use catalogues lo sell to retail, industrial and institutional customers and give discounts for large orders. Their main customers are businesses located in small outlying areas. They have no sales forces to call on customers and provide very few services. The orders are filled and goods are sent to customers by mail, truck or other means.

Although wholesalers play an important channel role, retailers are also critical intermediaries as they provide the final link between the consumer and provider.

RETAILERS. Retail stores come in all shapes and sizes, and new retail types keep emerging. Generally, they can be distinguished by the amount of service they offer, the product line and relative price emphasis.

Different products require different amounts of service and customer service preferences vary. Self-service retailers cater for customers who are willing to perform their own 'locate-compare-select' process to save money. Today, selfservice is the basis of all discount operations and is typically used by sellers of grocery and convenience goods (e.g. supermarkets) and nationally branded, fast-moving shopping goods (e.g. discount stores). Limited-service retailers, such as department stores, provide more sales assistance because they carry more shopping goods about which customers need information. They also offer additional services such as credit and merchandise return not usually offered by low-service stores. Their increased operating costs, however, result in higher prices. Full-scrvice retailers, such as speciality stores and first-class department stores, assist customers in every phase of the shopping process. They usually earn' more speciality goods and slower-moving items, such as cameras, jewellery and fashions, for which customers like to be 'waited on'. They provide more services, resulting in much higher operating costs, which are invariably passed along to customers as higher prices.

Retailers vary in the length and breadth of their product assortments. A speciality store carries a narrow product line with a deep assortment within that line. Examples arc stores selling outdoor leisure garments, furniture, books, cosmetics, jewellery, electronics, flowers or toys (e.g Rohan, Hermes & Mauritz, Benetton, Foyles, Intert'lora). Today, speciality stores are flourishing for several reasons. The increasing use of market segmentation, market targeting arid product specialization has resulted in a greater need for specialist stores that focus on specific products and segments. Because of changing consumer lifestyles and the increasing number of two-income households, many consumers have greater incomes but less time to spend shopping. They are attracted to speciality stores that provide high-quality products, convenient locations, excellent service and quick entry and exit.

A department store carries a wide variety of product lines - typically, clothing and fashion accessories, cosmetics, home furnishings and household goods - each operated as a separate department managed by specialist buyers or merchandisers. Examples of well-known department stores arc llarrods and Harvey Nicholls (in the United Kingdom), >Sogo, Takashimaya and Isetan (in Japan and south-east Asia), Saks Fifth Avenue and Bloomingdale (in the United States), El Gorte Ingles (in Spain), Galeries Lafayette (in France) and Karlstadt (in Germany). Variety stores tend to be low-cost, self-service scores. They specialize in a wider range of goods than specialist stores, but have a narrower range compared to department stores and are more basic in terms of the level of extra amenities offered. Woolworth, for example, sells a variety of products - compact discs, records, cassettes, household goods, children's clothes and confectionery -but, except for a cafe/restaurant, does not offer the extra facilities and services provided by a huge department store. However, some variety stores like Marks &

Spencer, which sells clothing and accessories, food, cosmetics, household goods, home furnishing and financial services, have not only focused on quality, but also differentiated themselves from the competition by providing extra services for customers, including store cards, special events and mail order. Convenience stores are small stores that carry a limited line of high- turn over convenience goods - essential groceries, toiletries, cigarettes and newspapers. Examples are Happy Shopper, Spar, Mace and VG stores. These locate near residential areas and remain open for long hours, seven days a week. They satisfy an important consumer need in a niche segment - shoppers in this segment use convenience stores for emergency or 'fill-in' purchases outside normal hours or when time is short, and they are willing to pay for the convenience of location and opening hours.

Supermarkets are large, low-cost, low-margin, high -volume, self-service stores that carry a wide variety of food, laundry and household products. Their growth in Europe, since the 1960s, and more recently in industrializing Asian markets, has been phenomenal. Many of these supermarkets were located in town or city-centre high streets with ample ear parking and, for a while, offered a good range and value-for-money to consumers. However, with town and city centres becoming increasingly congested and car ownership rising fast in the 1980s and 1990s, people were keen to shop outside towns and cities. Many supermarkets started to close unprofitable high-street stores and build big edge-of-town stores. These superstores typically occupy 2,000-4,000 square metres and sell everything from baked beans to fine wines, aspirins to ankle socks. They also offer a range of services such as dry cleaning, post offices, film developing and photo finishing, cheque cashing, petrol forecourts and self-service car-washing facilities. Many arc cutting costs, establishing more efficient and effective operations through rigid quality control, centralized distribution and electronic technologies, and lowering prices in order to compete more effectively with discount stores, such as the German Aldi, Norma and Lidl, the Danish Netto and the French Carrefour. which have expanded aggressively across Europe in recent years. These discount stores regularly sell national brands at lower prices by accepting lower margins and selling higher volume.

Superstores are well developed in many parts of Europe, where they account for a sizeable share of total retail sales. Most are located out-of-town, frequently in

convenience store A small store located near a residential area that is open long hours seven days a

supermarkets Large, low-cost, (ow-margin, high-volume, self-service stores that carry a *wid,e variety of food, laundry and household products.

superstore

A store almost twice the size of a regular supermarket that carries a large assortment of routinely purchased food and non-food items and offers such services as dry cleaning, post offices, film develfiping, photo finishing, cheque cashing, petrol forecourts and selfservice car-washing facilities.

discount store A retail institution lhai Kclls standard merchandise at lower prices by accepting lower margins and selling at higher volume.

discount store A retail institution lhai Kclls standard merchandise at lower prices by accepting lower margins and selling at higher volume.

category killers A modern 'breed'of except tonally aggressive 'off-price' retailers that offer branded merchandise in dearly defined product categories at heavily discounted price;;.

hyperinnrkets Huge stores [hat combine supermarket, discount and warehouse retailing; in addition to food, they carry furniture, appliances, clothing and many other products.

cash-and-carry retailers 1-jirge, 'no-frills'stores that sell an extensive assortment of goods, and are noted particularly for their hulk discounts.

retail parks, with vast free car parks. In recent years, non-grocery retailers, such as the US Toys 'Jl' Us. the UK Specialist Computer Holdings (SCI1) and IKEA, have also opened -superstores in out-of-town sites. SOU sells leading hardware and software brands such as IBM, Toshiba, Compaq, Apple, Microsoft, Lotus and Borland, and offers finance, training and maintenance packages. Analysts report that superstores will account for more than 40 per cent of computer sales by the mid-1990s.11

The latter group of retailers are also known as category killers. They arc a new breed of exceptionally aggressive discounters, offering a wide range of branded products in a clearly defined category. Their predatory pricing strategy -pile them high, sell them cheaper than the competition - and ability to decimate much of the competition in their sector explains their name. Their price advantage is generally based on scale economies, hulk buying power and a rigorous attention to costs. Category killers have, in recent years, been one of the most dynamic growth sectors in retailing. Leading US and European category killers have been successful in penetrating overseas markets, with long-term growth potential predicted for the format as well as for its leading players (see Table 21,1), Importantly, the American market is near saturation, and Europe is now a focus for expansion for many more of those leading players - K Mart, T J Maxx, Blockbuster Video, Staples and Sports Authority, to name but a few (see Marketing Highlight 21.2).

Hypermarkets arc even bigger than superstores. A typical hypermarket occupies alxmt 10,000 square metres of space, almost as big as six football fields. They carry more than just routinely purchased goods, for they also sell furniture, appliances, clothing and many other things. The hypermarket operates like a warehouse. Products in wire 'baskets' are stacked high on metal racks; forklifts move through aisles during selling hours to restock shelves. The store gives discounts to customers who carry their own heavy appliances and furniture out of the -store. Examples are the French Carrefour and Casino, and Savacentre which is owned by the British Salisbury's. Hypermarkets have been successful in world markets. For example, Carrefour. the large French retailer, successfully operates hundreds of these giant stores in Europe, South America and Asia. There is a continuing trend towards large-scale retail development, particularly in south-east Asia, Japan and South America.1- Other retail stores that feature low prices include cash-and-carry stores, warehouse clubs and catalogue .showrooms. Cash-and-carry retailers are large stores (around 3,000-4,000 square metres] selling an extensive assortment of goods, ranging from groceries to office furniture. For example, Makro, the Dutch-based retailer, whose European self-service cash-and-carry outlets were sold to the Metro retailing group of Germany in 1997, operates vast warehouses across Europe, selling food, beverages, wines and spirits, confectionery, household goods, clothes and other assortments to a dual customer base - consumers and trade (resellers/retailers). It has also expanded rapidly in Asian markets.

Table 21.1

Forecast number of category killers in selected markets in the year

number op stores

ELECTRICALS/CONSUMKR electronics/iiom E

toys AM) games DIY furnishings OFFICE SUPPLIES

Australia	20	41	2C>	25
Austria	5	8	6	6
Belgium	6	8	7	5
Brazil	20	30	25	20
Canada	45	40	35	35
Denmark	5	8	7	6
France	27	33	30	30
Germany	56	84	69	60
Indonesia	20	-	-	-
Italy	27	44	35	30
Japan	117	200	153	140
Mexico	30	45	40	40
Netherlands	14	17	15	15
Norway	4	4	4	4
Philippines	10	-	-	-
Portugal	3	3	3	3
South Korea	40	-	-	-
Spain	35	50	42	40
Sweden	4	6	5	5
Switzerland	5	5	5	5
Taiwan	15	-	-	-
Thailand	10	-	-	-
United Kingdom	45	60	55	55

Note: Based on current category killer sectors. Sou rob: Buromonitor,

Makro opened its cash-and-cany store (the size of about two football fields) in Bangkok, Thailand in 1989. It is heaped from floor to ceiling with discounted goods of every kind. Open from 6 a.m. to 10 p.m. every day, it is packed with shoppers wheeling giant trolleys filled with an eclectic assortment of goods, ranging from office furniture and TV sets to soft drinks and live eels. It has been the trail-blazer in bulk discount retailing in Asia. It now has six stores in Thailand and continues to spread to other parts of Asia, including Taiwan, Indonesia and Malaysia, South Korea and China. Makro's success in Thailand was helped by its alliance with Charoen Pokphand. a powerful local conglomerate, which opened doors to Thai manufacturers. Makro was also helped by demand from small shopkeepers, its main customers. Makro gives these small buyers the chance not just to by-pass the traditional distributors and buy their own selection of merchandise, but to do so in bulk and at lower prices.13

Invasion of the Retail Giants: Coming to Terms with the Global Marketplace

Store retailing is a business worth over S5 trillion a year worldwide, but one that once proved difficult to transfer across national frontiers. However, as the major retailers have consolidated into corporate giants and found that their domestic markets have become ever more crowded, the big stores are crossing borders for growth opportunities.

Large retailers are spreading out in all directions: east, svest, north, south. Dutch retailer Ahold has bought 11 supermarkets in the Czech Republic; Germany's Obi, the do-it-yourself chain and part of the Tengeimann Group, has targeted Italy, Hungary and the Czech Republic. After making its mark in the UK, with the discount chain Ed and the warehouse club Gostco, Carrefour is looking beyond Europe and targeting the emerging markets of Latin America and the Far East. Indeed Ahold, Aldi and Tengeimann, Belgium's Dclhaize and Carrefour are among" those with more than 30 per cent of sales coming from outside their domestic markets. The United Kingdom's Tesco operates the Cattemi chain of supermarkets in northern France, while Mainsbury's, through acquisitions, has become the eleventh-largest grocer in the United States. Migros, the Swiss grocery retailer, until recently active only in Switzerland, now operates in France, Germany and Austria, where it is committed to taking a leading position. French fashion chains like Pimkie, Froraod, Camieu and Naf Naf have made a substantial impact on the Belgian market; Sweden's fashion retailer Ilennes & Mauritz has taken the German market by storm; so has Marks & Spencer in French, Spanish and Far Eastern markets. To this list can be added fashion and furnishing chains whose international businesses arc already well advanced - the Dutch C & A (arguably the oldest retail chain in Europe), Italy's Benetton, the Swedish IKEA and America's McDonald's, Gap (clothing) and Toys ' R' Us. And the global march

continues, as seen in the recent acquisition of Germany's Wertfeauf hypermarket chain by the world's largest retailer, the US Wal-Mart Stores - a deal that has sent a shockwave through the European retail industry.

The extent of cross-border retailing is highlighted by research conducted by the Oxford Institute of Retail Management (UK). The study reported that retailers made 530 internfitional moves between 1991 and 1993, of which 381 or 72 per cent involved European firms expanding into other European countries. A further 676 moves were made in Europe by non-European, including US, retailers. The move to eastern European countries was also very popular, with the Czech Republic, Slovakia, Poland and Hungary being the most favoured destinations outside the EU. Another study published by market analyst Corporate Intelligence in Retail (C1R) reinforced the unsettling pace of internationalization by retailers, reporting that European retailers made 610 cross-border moves in the first four years of the 1990s, compared with 611 cross-border deals in the whole of the 1980s.

Asian retailers with international ambitions are also emerging. Japanese store groups, such as •Sogo, Mitsukoshi, Takashimaya, Isetan and Yaohan, have spread across Japan, Singapore, Hong Kong and Thailand. Isutan has stores in Europe. Yaohan is set to open 170 department stores in Chinn, Hong Kong and Macau by the end of the decade. Hong Kong's Bossini and Giordano have spread to Malaysia, Taiwan and Singapore, and are making the running in China. Similarly, Asia's industrializing countries have attracted western retailers, which have been scrambling to meet the increasingly sophisticated demands of consumers eager to buy products ranging from deodorants and frozen food to luxury accessories and designer fashion brands. Leading retailers that have set up stores across the region include Carrefour, Galeries Lafayette, Makro, Marks & Spencer, IKEA, Toys 'M' Us, The Body Shop, KMart and Wal-Mart.

In 1990 Japan's 'Large Scale Retail Law', which controlled planning consent for new stores

Marketing

Highlight 21.2

Retail giants rapping the re-wards in cross-border retailing

Retail giants rapping the re-wards in cross-border retailing

and opening hours in order to protect small retailers from new high-street competitors, was deregulated. This has created new opportunities for superstore retailers, which can now open -stores with floor space of up to ] ,01)0 square metres without the approval of the Ministry of International Trade and Industry. Retailing law reforms have also enabled foreign retailers to break the links between the manufacturers and the high-street stores. Toys '>f Us bypassed the intricate web of wholesalers to deal directly with one of its suppliers, Nintendo, the video game maker, and was thus able to undercut Japanese toy prices. Large supermarket chains with bulk purchasing power are also bypassing the traditional raultilayered wholesale network that has kept prices high, and are procuring merchandise direct from manufacturers or producers. Stronger antitrust laws in Japan have overturned manufac

turers' grip on retail prices. Large manufacturers .had controlled retail prices and prevented discounting of their products by threatening to stop supplies. Now retailers can discount prices without fear of losing supply contracts. More importantly, deregulation in Japan is making the market more accessible to foreign retailers.

According to a report by Braxton Associates, the global strategy arm of Deloitte and Tone he Consulting, those that do cross frontiers must fulfil six criteria that arc critical for international retailer planning. First, the successful internationalist inn si have a strong corporate philosophy. Like IKEA or Hennes & Mauri tz, they must bring a strong corporate identity, brand image or style that they can implant or adapt in international markets. Second, they must provide something that does not currently exist in the market - offering something genuinely new to

consumers is a tedious truism of business, yet it is frequently forgotten when retailers take their concepts overseas. Third, they must select an appropriate format for export, B rax ton Associates suggests several alternative formulae;

(a) The high-end luxury retailer such as Gucci and LVMII, whose brands are strong products in their own right. M & S outlets in mainland Europe, with a slightly up-market positioning, sit at the Sower edge of this category.

(b) The second exportable format is the category killer that has carved a place in n single sector, such as Toys'%' Us and IKEA,

(c) High-quality speciality retailers are also eminently exportable, as seen in the fashion and cosmetics brands of Benetton, Gap and The Body Shop.

(d) The final format is discount retailing. Discounters such as Garrefour, Aldi and MetroGruppe are appealing to the lowest common denominator force in consumerism - value at low cost — and thus have a universal appeal.

Fourth, retailers using whatever format must identify a clear target market. Arguably, young, affluent, internationally oriented, as a broad group, defines the market of most successful international retailers from Benetton to Body Shop to Virgin Megastores. Fifth, international expansion has to be backed by the commitment and hands-on attention of senior executives. Finally, short-termism is the kiss of death for international retailers, IKEA waited eight years until its US store eventually went into profit, just as M & S took & long time to get its format right in the French market. By persevering and taking a

long-term view of international expansion, these companies reaped rewards from their initial investments.

The future shape of European and indeed global retailing is still evolving. The long-term view required to make it happen means that the single European high street will not happen overnight. But one thing is certain. The winners will be retailing groups which are prepared to play the long game. Isetan in Volgograd or Migros in Shanghai may still he years away. Nonetheless, one of the world's biggest but most localized industries - retailing - is finally coming to terms with the global marketplace. And, of course, even those companies with no ambition to eross borders cannot be complacent. One retailer's domestic market is another's foreign opportunity.

SOURCES: Noil Ruekley, 'Retailers' global shopping spree', Financial Times (12 October 1994), p. 25; Clivy Branson, 'Find what the customer likes before opening doors abroad', Thv European (18-24 March 1994), p. 22; Wilf Altaian, 'Customers pick up rewards from cross-border retailing', Jfte European (18-24 February 1994), p. 20; Richard Halstead, 'Let oompetitiofi commence', BitsinessAge Magwine (July 1994), pp. 84-6; Hronwyn fiosgrsve, 'France fills the T-shirt gap', The European tlan (6-12 May 1994), p. 14; Neil Herndon, 'Wal-Mart goes to Hong Kong, looks at China', Marketing News, 28, 24 (21 November 1994), p. 2; Guy du Jonqi'ieres, Temptations along the eastern aisle'. Financial Time* (6 April 1994), p. 19; 'Japanese industry: inefficient structnru'. Financial Time.-: (fi December 1994), p. IV; William Dawkins. 'Japanese industry: progress will be painfully slow'. Financial Times (6 Deeemlxir 1994), p. VI: 'Japanese retailing', The Economist (25 January 1997), pp. 92, 95; Simon Watkins, 'Invasion of tbe retail giants', The European (30 October-5 November 1997), pp. 26-7: Riehard Tomkins, 'Wal-Mart makes foray into F.urope with Wenkauf buy', Fina-iicial Times (19 December 1997), p. 21.

Warehouse club (wholesale dub, membership warehouse)

Off-price retailer that sells a limited selection of brand-nama grocery items, appliances, clothing und a hodgepodge of other gvods at dtxp discounts to members who pay annual membership fees

Warehouse clubs (also known as wholesale clubs or membership warehouses) sell huge volumes of a narrow range of goods — typically, brand-name grocery items, appliances and clothing - at rock-bottom prices from low-cost, edge-of-town, warehouse-like facilities to customers, mainly small retailers, which pay an annual membership fee.

An example is Costco. Because its margins are so low, Costco relies on bulk buying and the annual membership fee for profit. It selects its target customers carefully - individuals are allowed to join provided they are professionals, operate their own business and have an above-average income and stable employment. Costco goes for doctors and solicitors with Volvos and big houses to store things in; the ABs looking for bargains. Lower social groups are catered for by discount supermarkets such as Kwik Save and Netto.14

A catalogue showroom sells a wide selection of high-mark-up, fast-moving, brand-name goods at discount prices. Catalogue .showrooms make their money by

cutting costs and margins to provide low prices that will attract a higher volume of sales. Products on sale arc all listed in catalogues, which are placed on counters in the store. Consumers fill in order forms tor goods they want and pass these to sales assistants, who complete the transaction. The customer collects the merchandise from the sales assistants or picks it up from a collection point in the store. Argos and Index are examples of catalogue retailers that operate on British high streets.

We have looked at the types of retailer. Next, let us address brokers and agents.

catalogue showroom A retail operation tliat sells a wide selection of high mark-up, Jast-m tiving, bra ml-linine goods at discount priees.

BROKERS AND AGENTS. Brokers and agents differ from merchant wholesalers in two ways: they do not take title to goods, and they perform only a few functions. Their main function is u> help in buying and selling, and for these services they earn a commission on the selling price. Like merchant wholesalers, they generally specialize by product line or customer type. Because they are specialists, they can offer valuable sales advice and expertise to clients.

A broker brings buyers and sellers together and assists in negotiation. Brokers are employed temporarily and paid by the parties hiring them. They do not carry inventory, get involved in financing, or assume risk. The most lainiliar examples are food brokers, real estate brokers, insurance brokers and security brokers. Agents represent buyers or sellers on a more permanent basis. There are several types:

Manufacturers' agents or representatives arc the most common type of agent. They represent two or more manufacturers of related lines. They have a formal agreement with each manufacturer, covering prices, territories, order-handling procedures, delivery, warranties and commission rates. They know each manufacturer's product line and use their wide contacts to sell the products. They do not, however, have much influence over prices and other marketing decisions, and provide limited, if any, technical, product or service support. Manufacturers' agents are used in lines such as clothing, furniture and electrical goods. Most manufacturers' agents are small businesses, with only a few employees who are skilled salespeople. They are hired by small producers that cannot afford to maintain their own field sales forces and by large producers that want to open new territories to sell in areas that cannot support a full-time salesperson. Manufacturers' agents therefore help producers to minimize selling costs for current and new products and market territories.

Selling agents contract to sell a producer's entire output - either the manufacturer is not interested in doing the selling or feels unqualified. The selling agent serves as a sales department and has considerable influence over prices, terms and conditions of sale, as well as packaging, product development, promotion and distribution policies. Unlike other manufacturers' agents, the selling agent normally has no territory limits. Selling agents arc 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. They make purchases for buyers and often receive, inspect, warehouse and ship goods to the buyers. One type of purchasing agent is a resident buyer in big clothing markets - purchasing specialists who look for apparel lines that can be carried by small retailers located in small cities. They know a great deal about their product lines, provide helpful market information to clients, and can also obtain the best goods and prices available.

Commission merchants (or houses) arc agents that take physical possession of products, grade, store and transport them, and negotiate sales with buyers in the market. They are normally not used on a long-term basis. They are used most

broker

A wholesuler who dues nnt take title to goods and -whose jkiriction ix to bring buyers and sellers together and assist in negotiation.

agent

A -wholesaler who represents buyers or sellers on a relatively permanent basis, performs only a few functions, and does not take title to goods.

often in agricultural marketing by farmers who do not want to sell their own output and who do not belong to cooperatives. Typically, the commission merchant will take a truckload ol farm products to a central market, sell it for the best price, deduct expenses and a commission, ,-ind pay the balance to the fanner. Commission merchants have more power than the small producer over prices and terms of sale. Not only do they obtain the best price possible in the market for the producer, but they may also offer planning and financial assistance.

We have disciissed the types of channel member, Nest we look at decisions concerning the number of channels to use.

Number ofMarketing intermediaries

intensive distribution Slocking the product in ay many outlets as possible.

exclusive distribution Giving a limited number of dealer* the exclusive right to distribute the company's products in their territories.

selective distribution The use of more than one, but lens than all of the intermediaries thm are willing to carry thv company's products.

Companies must also decide on channel breadth: that is, how extensive their market coverage should be and, therefore, the number of channel members to use at each level. Three strategies are available: intensive distribution, exclusive distribution and selective distribution.

Producers of convenience products and common raw materials typically seek intensive distribution - a strategy whereby they stock their products in as many outlets as possible. These goods must be available where and when consumers want them. For example, sweets, chewing gum. disposable razors, soft drinks, batteries, camera film and other similar items are sold in myriad outlets to provide maximum brand exposure and consumer convenience. Bic, Coca-Cola, Nestle, Duracell, Fuji, Kodak and many consumer-goods companies distribute their products in this way.

By contrast, some producers purposely limit the number of intermediaries handling their products. The extreme form of this practice is exclusive distribution, in which the producer gives only a limited number of dealers the exclusive rights to distribute its products in their territories. Exclusive distribution is often found in the distribution of luxury cars (e.g. Rolls-Royce, Lexus) and prestige clothes for men and women (e.g. Giorgio Armani, Hugo Boss, Yves St Laurent, Christian Dior). By granting exclusive distribution, the manufacturers gain strong selling support from the outlet and more control over dealer prices, promotion, credit and services. Exclusive distribution also enhances brand image and allows for higher mark-ups.

Between intensive and exclusive distribution lies selective distribution - the use of more than one, but fewer than all of the intermediaries that are willing to carry a company's products. Many electronics and other small household ap-

pliance brands are distributed in this manner. For example, Philips-Whirlpool, Braun, Electrolux. and Hoover sell their major appliances through dealer networks and selected large retailers. By using selective distribution, they do not have to spread their efforts over many outlets, including many marginal ones. They can develop good working relationships with selected channel members and expect a better-than-average selling effort. Selective distribution gives producers good market coverage with more control and less cost than does intensive distribution.

• Responsibilities of Channel Members

The producer and its intermediaries need to agree on the terms and responsibilities of each channel member. The producer should establish a list price and a fair set of discounts for intermediaries. It must define each channel member's territory, and it should be careful about where it places new resellers. Mutual services and duties need to be spelled out carefully, especially in franchise and exclusive distribution channels. For example, McDonald's provides franchisees with promotional support, a record-keeping system, training and general management assistance. In turn, franchisees must meet company standards for physical facilities, co-operate with new promotion programmes, provide requested information, and buy and supply specified food products.

Continue reading here: Designing International Distribution Channels

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