18.1 Retailing and the Role of Retailers in the Distribution Channel

Retailing is the final step in getting products from manufacturers to consumers. Retailers offer a variety of goods, break bulk purchases into smaller quantities, and provide services to enhance the shopping experience. They're the crucial link between producers and buyers.

Distribution channels can be direct or indirect, with strategies like intensive, selective, or exclusive distribution. Retailers also manage supply chains, segment markets, choose store locations, and use data to make smart decisions about inventory and pricing.

Retailing Fundamentals

Concept of retailing in distribution

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• Retailing involves selling products and services to consumers for personal or household use
• Retailers serve as the final business in a distribution channel that connects manufacturers to consumers
• Distribution channel represents the path a product travels from manufacturer to consumer and may include wholesalers, distributors, and retailers
  • Retailers are the last link in this chain before the product reaches the end consumer (Walmart, Target, Amazon)

Key functions of retailers

• Provide an assortment of products and services
  • Retailers offer a wide variety of goods and services, enabling customers to select from multiple brands and products in a single location (department stores, supermarkets)
• Break bulk
  • Retailers purchase large quantities of goods from manufacturers and break them down into smaller quantities for individual consumers
• Hold inventory
  • Retailers maintain a stock of goods to ensure they are readily available for customers
• Provide services
  • Many retailers offer additional services to enhance customer experience and product value
  • Services may include gift wrapping, delivery, installation, alterations, and returns (Nordstrom, Best Buy)
• Implement customer relationship management (CRM)
  • Retailers use CRM strategies to build and maintain long-term relationships with customers, improving loyalty and retention

Distribution Channel Strategies

Distribution channel strategies

• Direct distribution
  • Manufacturer sells directly to the end customer, eliminating intermediaries such as wholesalers and retailers
  • Direct distribution methods include manufacturer-owned stores, online sales, and catalog sales (Apple Stores, Nike.com)
• Indirect distribution
  • Manufacturer sells through intermediaries, including wholesalers and retailers, to reach the end customer
  • Types of indirect distribution:
    1. Intensive distribution: Selling a product through the maximum number of outlets possible to achieve extensive market coverage
       • Commonly used for convenience goods (soft drinks, snacks, toiletries)
    2. Selective distribution: Selling through a limited number of retail outlets
       • Provides greater control over pricing, merchandising, and customer service
       • Frequently used for shopping goods (clothing, furniture, electronics)
    3. Exclusive distribution: Selling through only one or a few retail outlets in a specific market area
       • Creates a prestigious image and allows for stricter control over pricing and customer service
       • Often used for specialty or luxury goods (high-end fashion, luxury cars)

Supply Chain and Retail Management

• Supply chain management: Coordinating the flow of goods, information, and finances from suppliers to manufacturers to retailers to consumers
• Market segmentation: Dividing the market into distinct groups of consumers with similar needs and preferences to tailor retail strategies
• Retail location strategy: Selecting optimal store locations based on factors such as demographics, competition, and accessibility
• Multichannel retailing: Selling products through various channels, including physical stores, online platforms, and mobile apps
• Category management: Organizing products into categories and managing them as strategic business units
• Retail analytics: Using data analysis to improve decision-making in areas such as inventory management, pricing, and customer behavior