Transcript Chapter 1
Chapter 4
Retail Institutions by Ownership
Dr. Pointer
Chapter Objectives
To show the ways in which retail
institutions can be classified
To study retailers on the basis of
ownership type and examine the
characteristics of each
To explore the methods used by
manufacturers, wholesalers, and
retailers to exert influence in the
distribution channel
4-2
Figure 4.1 A Classification
Method for Retail Institutions
I
Ownership
II
Store-based
Retail Strategy Mix
III
Nonstore-based
Retail Strategy Mix
4-3
Ownership Forms
Independent
Chain
Franchise
Leased department
Vertical marketing system
Consumer cooperative
4-4
Each Ownership Form
Serves a Unique Marketing Niche
• Independents are targeted and have loyal followers
based on friendly appeal
• Chains benefits from widely known image and
economies of scales and mass promotions
• Franchisors have strong geographic coverage
• Vertical integrated channels gives firms greater
control
• Leased departments is a good partnership for
outside parties and store operators to accomplish
mutual goals
4-5
Independent Retailers
2.1 million independent U.S. retailers
50% of these are run by owners and their
families
Account for 40% of total stores and 3% of
U.S. store sales
Why so many? Ease of entry
So market is very competitive and very high
failure rate
4-6
Competitive State of Independents
Advantages
Disadvantages
Flexibility in formats,
Lack of bargaining
locations, and strategy
power
Control over investment Lack of economies of
costs and personnel
scale
functions, strategies
Labor intensive
Personal image
operations
Consistency and
Over-dependence on
independence
owner
Strong entrepreneurial Limited long-run
leadership
planning
4-7
Store-based Retail Strategy Mix
Convenience store
Conventional
supermarket
Food-based
superstore
Combination store
Box store
Warehouse store
Specialty store
4-8
Variety store
Traditional
department store
Full-line discount
store
Off-price chain
Factory outlet
Membership club
Flea market
Chain Retailers
Operates multiple outlets under common
ownership
Engages in some level of centralized or
coordinated purchasing and decision
making
In the U.S., there are roughly 100,000 retail
chains operating about 750,000
establishments (-5%) of all retail stores
Account for about 60% of Retail Sales
4-9
Competitive State of Chains
Advantages
Bargaining power
Cost efficiencies
Efficiency from
computerization,
sharing warehouse
and other functions
Defined management
philosophy
Considerable efforts
in long-run planning
4-10
Disadvantages
Limited flexibility
Higher investment
costs
Complex managerial
control
Limited
independence among
personnel
Nonstore-based Retail Strategy
Mix and Nontraditional Retailing
Direct marketing
Direct selling
Vending machine
World Wide Web
Other emerging retail formats
4-11
Franchising
A contractual agreement between a
franchisor and a retail franchisee, which
allows the franchisee to conduct business
under an established name and according
to a given pattern of business
Franchisee pays an initial fee and a monthly
percentage of gross sales in exchange for
the exclusive rights to sell goods and
services in an area
4-12
Franchise Formats
Product/ Trademark
franchisee acquires
the identity of a
franchisor by
agreeing to sell
products and/or
operate under the
franchisor name
franchisee operates
autonomously
2/3 of retail
franchising sales
4-13
Business Format
franchisee receives
assistance: location,
quality control,
accounting systems,
start-up practices,
management training
common for
restaurants, real
estate
Figure 4.5 Business Qualifications Sought by
McDonald’s for Potential Franchisees
Personal Integrity
Entrepreneurial
Spirit
Ability to motivate
and train
Financial
resources
Ideal
Franchisee
Ability to manage
finances
4-14
Willingness to
complete training
Willingness to
devote time
Figure 4.6 Structural Arrangements in
Retail Franchising
Auto/truck dealer
Petroleum products
Manufacturerretailer
Voluntary
WholesalerRetailer
Cooperative
Service type
-retailer
4-15
Consumer electronics
Auto Accessories
Consumer electronics
Auto Accessories
Auto rentals
Hotels/motels
fast foods
Wholesaler-Retailer
Structural Arrangements
Voluntary: A wholesaler sets up a franchise
system and grants franchises to individual
retailers
Cooperative: A group of retailers sets up a
franchise system and shares the ownership
and operations of a wholesaling
organization
4-16
Figure 4.7 Franchises and
Business Opportunities
At the FTC franchising site
www.ftc.gov/bcp/franchise/netfran.htm
There are many free downloads about
franchise opportunities
4-17
Competitive State of Franchising
Advantages
small capital required
acquire well-known
names
operating/manageme
nt skills taught
cooperative
marketing possible
exclusive selling
rights
less costly per unit
4-18
Disadvantages
oversaturation could
occur
franchisors may
overstate potential
locked into contracts
agreements may be
cancelled or voided
royalties are based
on sales, not profits
From the Franchisor’s Perspective
Benefits
Potential Problems
national or global
presence possible
qualifications for
franchisee/ operations
are set and enforced
money obtained at
delivery
royalties represent
revenue stream
potential for harm to
reputation
lack of uniformity may
affect customer loyalty
ineffective franchised
units may damage
resale value,
profitability
potential limits to
franchisor rules
4-19
Leased Departments
• A leased department is a department in a
retail store that is rented to an outside party
– The proprietor is responsible for all
aspects of its business and pays a
percentage of sales as rent
– The department store sets operating
restrictions to ensure consistency and
coordination
4-20
Competitive State of Leased
Departments
Benefits
Potential Pitfalls
provides one-stop
lessees may negate
shopping to
store image
customers
procedures may
lessees handle
conflict with
management
department store
reduces store costs problems may be
blamed on
provides a stream of
department store
revenue
rather than lessee
4-21
Vertical Marketing Systems
• VMS consists of all the levels of
independently owned businesses along a
channel of distributions
• Three functions and ownership
●Independent systems
● Partially integrated systems
● Fully integrated systems
4-22
Figure 4.8 Vertical Marketing
Systems
Independent Channel System
Functions:
Manufacturing
Wholesaling
Retailing
Ownership:
Independent Manufacturer
Independent Wholesaler
Independent Retailer
4-23
Figure 4.8 Vertical Marketing
Systems
Partially Integrated Channel System
Functions:
Manufacturing
Wholesaling
Retailing
Ownership:
Two channel members own all facilities and
perform all functions
4-24
Figure 4.8 Vertical Marketing
Systems
Fully Integrated Channel System
Functions:
Manufacturing
Wholesaling
Retailing
Ownership:
All production and distribution functions
are performed by one channel member
4-25
Other Factors to Consider
• Dual distribution channel (dual marketing)
engages in multi channels distribution to
reach different consumers
• Channel control – usually one member of
channel dominates the decisions made in
channel
4-26
Figure 4.9 Sherwin-Williams’ Dual
Vertical Marketing System
Sherwin William
brand of paint
Co-owned shores
sell to consumers
Dutch Boy
brand of paints
Independent
Wholesalers
Retailers and others
Customers
4-27
Web-Based Exercise
Subway is one of the largest retail
franchisors in the world
Based on the information found under
Franchise Opportunities on the Subway
website, would you be interested in
becoming a Subway franchisee?
4-28
Questions
4-29