Economic and social aspects of marketing

Sometimes criticized for its impact on personal economic and social well-being, marketing has been said to affect not only individual consumers but also society as a whole. This section briefly examines some of the criticisms raised and how governments, individuals, and marketers have addressed them.

 

Marketing and individual welfare

Criticisms have been leveled against marketers, claiming that some of their practices may damage individual welfare. While this may be true in certain circumstances, it is important to recognize that, if a business damages individual welfare, it cannot hope to continue in the marketplace for long. As a consequence, most unfavourable views of marketing are criticisms of poor marketing, not of strategically sound marketing practices.
Others have raised concerns about marketing by saying that it increases prices by encouraging excessive markups. Marketers recognize that consumers may be willing to pay more for a product—such as a necklace from Tiffany and Co.—simply because of the associated prestige. This not only results in greater costs for promotion and distribution, but it allows marketers to earn profit margins that may be significantly higher than industry norms. Marketers counter these concerns by pointing out that products provide not only functional benefits but symbolic ones as well. By creating a symbol of prestige and luxury, Tiffany's offers a symbolic benefit that, according to some consumers, justifies the price. In addition, brands may symbolize not only prestige but also quality and functionality, which gives consumers greater confidence when they purchase a branded product. Finally, advertising and promotions are often very cost-effective methods of informing the general public about items and services that are available in the marketplace.
A few marketers have been accused of using deceptive practices, such as misleading promotional activities or high-pressure selling. These deceptive practices have given rise to legislative and administrative remedies, including guidelines offered by the Federal Trade Commission (FTC) regarding advertising practices, automatic 30-day guarantee policies by some manufacturers, and “cooling off” periods during which a consumer may cancel any contract signed. In addition, professional marketing associations, such as the Direct Marketing Association, have promulgated a set of professional standards for their industry.

 

Marketing and societal welfare

Concern also has been raised that some marketing practices may encourage excessive interest in material possessions, create “false wants,” or promote the purchase of nonessential goods. For example, in the United States, children's Saturday morning television programming came under fire for promoting materialistic values. The Federal Communications Commission (FCC) responded in the early 1990s by regulating the amount of commercial time per hour. In many of these cases, however, the criticisms overstate the power of marketing communications to influence individuals and portray members of the public as individuals unable to distinguish between a good decision and a bad one. In addition, such charges cast marketing as a cause of social problems when often the problems have much deeper societal roots.
Marketing activity also has been sometimes criticized because of its control by strong private interests and its neglect of social and public concern. While companies in the cigarette, oil, and alcohol industries may have significant influence on legislation, media, and individual behaviour, organizations that focus on environmental, health, or education concerns are not able to wield such influence and often fail to receive appropriate recognition for their efforts. While there is clearly an imbalance of power between private interests and public ones, in the late 20th century, private companies have received more praise for their marketing efforts for social causes.

Types of Marketing

Services marketing

A service is an act of labour or a performance that does not produce a tangible commodity and does not result in the customer's ownership of anything. Its production may or may not be tied to a physical product. Thus, there are pure services that involve no tangible product (as with psychotherapy), tangible goods with accompanying services (such as a computer software package with free software support), and hybrid product-services that consist of parts of each (for instance, restaurants are usually patronized for both their food and their service).
Services can be distinguished from products because they are intangible, inseparable from the production process, variable, and perishable. Services are intangible because they can often not be seen, tasted, felt, heard, or smelled before they are purchased. A person purchasing plastic surgery cannot see the results before the purchase, and a lawyer's client cannot anticipate the outcome of a case before the lawyer's work is presented in court. To reduce the uncertainty that results from this intangibility, marketers may strive to make their service tangible by emphasizing the place, people, equipment, communications, symbols, or price of the service. For example, consider the insurance slogans “You're in good hands with Allstate” or Prudential's “Get a piece of the Rock.”
Services are inseparable from their production because they are typically produced and consumed simultaneously. This is not true of physical products, which are often consumed long after the product has been manufactured, inventoried, distributed, and placed in a retail store. Inseparability is especially evident in entertainment services or professional services. In many cases, inseparability limits the production of services because they are so directly tied to the individuals who perform them. This problem can be alleviated if a service provider learns to work faster or if the service expertise can be standardized and performed by a number of individuals (as H&R Block, Inc., has done with its network of trained tax consultants throughout the United States).
The variability of services comes from their significant human component. Not only do humans differ from one another, but their performance at any given time may differ from their performance at another time. The mechanics at a particular auto service garage, for example, may differ in terms of their knowledge and expertise, and each mechanic will have “good” days and “bad” days. Variability can be reduced by quality-control measures. These measures can include good selection and training of personnel and allowing customers to communicate dissatisfaction (e.g., through customer suggestion and complaint systems) so that poor service can be detected and corrected.
Finally, services are perishable because they cannot be stored. Because of this, it is difficult for service providers to manage anything other than steady demand. When demand increases dramatically, service organizations face the problem of producing enough output to meet customer needs. When a large tour bus unexpectedly arrives at a restaurant, its staff must rush to meet the demand, because the food services (taking orders, making food, taking money, etc.) cannot be “warehoused” for such an occasion. To manage such instances, companies may hire part-time employees, develop efficiency routines for peak demand occasions, or ask consumers to participate in the service-delivery process. On the other hand, when demand drops off precipitously, service organizations are often burdened with a staff of service providers who are not performing. Organizations can maintain steady demand by offering differential pricing during off-peak times, anticipating off-peak hours by requiring reservations, and giving employees more flexible work shifts.

 

Business marketing

Business marketing, sometimes called business-to-business marketing or industrial marketing, involves those marketing activities and functions that are targeted toward organizational customers. This type of marketing involves selling goods (and services) to organizations (public and private) to be used directly or indirectly in their own production or service-delivery operations. Some of the major industries that comprise the business market are construction, manufacturing, mining, transportation, public utilities, communications, and distribution. One of the key points that differentiates business from consumer marketing is the magnitude of the transactions. For example, in the mid-1990s, a Boeing 747 airliner, selling for about $155 million, could take up to four years to manufacture and deliver once the order was placed. Often, a major airline company will order several aircraft at one time, making the purchase price as high as a billion dollars.
Customers for industrial goods can be divided into three groups: user customers, original-equipment manufacturers, and resellers. User customers make use of the goods they purchase in their own businesses. An automobile manufacturer, for example, might purchase a metal-stamping press to produce parts for its vehicles. Original-equipment manufacturers incorporate the purchased goods into their final products, which are then sold to final consumers (e.g., the manufacturer of television receivers buys tubes and transistors). Industrial resellers are middlemen—essentially wholesalers but in some cases retailers—who distribute goods to user customers, to original-equipment manufacturers, and to other middlemen. Industrial-goods wholesalers include mill-supply houses, steel warehouses, machine-tool dealers, paper jobbers, and chemical distributors.

 

Nonprofit marketing

Marketing scholars began exploring the application of marketing to nonprofit organizations in 1969. Since then, nonprofit organizations have increasingly turned to marketing for growth, funding, and prosperity.
Although it is difficult to define “nonprofit” organizations because of the existence of a number of quasi-governmental organizations, a study in the mid-1990s found more than one million private, nonprofit organizations in the United States. Some experts believe that the way to distinguish between organizations is according to their sources of funding. The three major sources are profits, government revenues (such as grants or taxes), and voluntary donations. In addition, a legally defined nonprofit organization is one that has been granted tax-exempt status by the Internal Revenue Service. However, while nonprofit groups can be defined legally, it is more helpful to focus on the specific marketing activities that need to be performed within the organization's environment. Museums, hospitals, universities, and churches are all examples of nonprofit organizations. Although many individuals may believe that nonprofit organizations have only a small impact on the economy, the operating expenditures of private nonprofit organizations now represent a significant percentage of the U.S. gross national product. In addition, many of these are substantial enterprises. For example, Girl Scout cookies, sold by Girl Scouts of America, constitute 10 percent of all cookies sold in the United States.

 

Social marketing

Social marketing employs marketing principles and techniques to advance a social cause, idea, or behaviour. It entails the design, implementation, and control of programs aimed at increasing the acceptability of a social idea or practice that would benefit the adoptors or society. Social ideas can take the form of beliefs, attitudes, and values, such as human rights. Whether social marketers are promoting ideas or social practices, their ultimate goal is to alter behaviour. In order to accomplish this behaviour change, social marketers set measurable objectives, research their target group's needs, target their “products” to these particular “consumers,” and effectively communicate their benefits. In addition, social-marketing organizations have to be constantly aware of changes in their environments and must be able to adapt to these changes.

 

Place marketing

Place marketing employs marketing principles and techniques to advance the appeal and viability of a place (town, city, state, region, or nation) to tourists, businesses, investors, and residents. Among the “place sellers” are economic development agencies, tourist promotion agencies, and mayors' offices. Place sellers must gain a deep understanding of how place buyers make their purchasing decisions. Place-marketing activities can be found in both the private and public sectors at the local, regional, national, and international levels. They can range from activities involving downtrodden cities trying to attract businesses to vacation spots seeking to attract tourists. In implementing these marketing activities, each locale must adapt to external shocks and forces beyond its control (intergovernmental power shifts, increasing global competition, and rapid technological change) as well as to internal forces and decline cycles.

Consumer-goods marketing

Convenience goods

Convenience goods are those that the customer purchases frequently, immediately, and with minimum effort. Tobacco products, soaps, and newspapers are all considered convenience goods, as are common staples like ketchup or pasta. Convenience-goods purchasing is usually based on habitual behaviour, where the consumer will routinely purchase a particular product. Some convenience goods, however, may be purchased impulsively, involving no habit, planning, or search effort. These goods, usually displayed near the cash register in a store in order to encourage quick choice and purchase, include candy, razors, and batteries. A slightly different type of convenience product is the emergency good, which is purchased when there is an urgent need. Such goods include umbrellas and snow shovels, and these are usually distributed at a wide variety of outlets so that they will be readily available when necessary.

 

Shopping goods

A second type of product is the shopping good, which usually requires a more involved selection process than convenience goods. A consumer usually compares a variety of attributes, including suitability, quality, price, and style. Homogeneous shopping goods are those that are similar in quality but different enough in other attributes (such as price, brand image, or style) to justify a search process. These products might include automobile tires or a stereo or television system. Homogeneous shopping goods are often sold strongly on price.
With heterogeneous shopping goods, product features become more important to the consumer than price. Such is often the case with the purchase of major appliances, clothing, furniture, and high-tech equipment. In this situation, the item purchased must be a certain size or colour and must perform very specific functions that cannot be fulfilled by all items offered by every supplier. With goods of this sort, the seller has to carry a wide assortment to satisfy individual tastes and must have well-trained salespeople to provide both information and advice to consumers.

 

Specialty goods

Specialty goods have particularly unique characteristics and brand identifications for which a significant group of buyers is willing to make a special purchasing effort. Examples include specific brands of fancy products, luxury cars, professional photographic equipment, and high- fashion clothing. For instance, consumers who favour merchandise produced by a certain shoe manufacturer or furniture maker will, if necessary, travel considerable distances in order to purchase that particular brand. In specialty-goods markets, sellers do not encourage comparisons between options; buyers invest time to reach dealers carrying the product desired, and these dealers therefore do not necessarily need to be conveniently located.

 

Unsought goods

Finally, an unsought good is one that a consumer does not know about—or knows about but does not normally think of buying. New products, such as new frozen-food concepts or new communications equipment, are unsought until consumers learn about them through word-of-mouth influence or advertising. In addition, the need for unsought goods may not seem urgent to the consumer, and purchase is often deferred. This is frequently the case with life insurance, preventive car maintenance, and cemetery plots. Because of this, unsought goods require significant marketing efforts, and some of the more sophisticated selling techniques have been developed from the challenge to sell unsought goods.

Marketing facilitators

Because marketing functions require significant expertise, it is often both efficient and effective for an organization to use the assistance of independent marketing facilitators. These are organizations and consultants whose sole or primary responsibility is to handle marketing functions. In many larger companies, all or some of these functions are performed internally. However, this is not necessary or justifiable in most companies, which usually require only part-time or periodic assistance from marketing facilitators. Also, most companies cannot afford to support the salaries and operating expenses required to maintain marketing facilitators as a permanent part of their staff. Furthermore, independent marketing contractors can be more effective than an internal department because nonemployee facilitators can have broader expertise and more objective perspectives. In addition, independent contractors often are more motivated to perform at high standards, because competition in the facilitator market is usually aggressive, and poor performance could mean lost business.
There are four major types of marketing facilitators: advertising agencies, market research firms, transportation firms, and warehousing firms.

 

Advertising agencies

Advertising agencies are responsible for initiating, managing, and implementing paid marketing communications. In addition, some agencies have diversified into other types of marketing communications, including public relations, sales promotion, interactive media, and direct marketing. Agencies typically consist of four departments: account management, a creative division, a research group, and a media planning department. Those in account management act as liaisons between the client and the agency, ensuring that client needs are communicated to the agency and that agency recommendations are clearly understood by the client. Account managers also manage the flow of work within the agency, making sure that projects proceed according to schedule. The creative department is where advertisements are conceived, developed, and produced. Artists, writers, and producers work together to craft a message that meets agency and client objectives. In this department, slogans, jingles, and logos are developed. The research department gathers and processes data about the target market and consumers. This information provides a foundation for the work of the creative department and account management. Media planning personnel specialize in selecting and placing advertisements in print and broadcast media.

 

Market research firms

Market research firms gather and analyze data about customers, competitors, distributors, and other actors and forces in the marketplace. A large portion of the work performed by most market research firms is commissioned by specific companies for particular purposes. However, some firms also routinely collect a wide spectrum of data and then attempt to sell some or all of it to companies that may benefit from such information. For example, the A.C. Nielsen Co. in the United States specializes in supplying marketing data about consumer television viewing habits, and Information Resources, Inc. (IRI), has an extensive database regarding consumer supermarket purchases.
Marketing research may be quantitative, qualitative, or a combination of both. Quantitative research is numerically oriented, requires significant attention to the measurement of market phenomena, and often involves statistical analysis. For example, when a restaurant asks its customers to rate different aspects of its service on a scale from 1 (good) to 10 (poor), this provides quantitative information that may be analyzed statistically. Qualitative research focuses on descriptive words and symbols and usually involves observing consumers in a marketing setting or questioning them about their product or service consumption experiences. For example, a marketing researcher may stop a consumer who has purchased a particular type of detergent and ask him why that detergent was chosen. Qualitative and quantitative research each provides different insights into consumer behaviour, and research results are ordinarily more useful when the two methods are combined.
Market research can be thought of as the application of scientific method to the solution of marketing problems. It involves studying people as buyers, sellers, and consumers, examining their attitudes, preferences, habits, and purchasing power. Market research is also concerned with the channels of distribution, with promotion and pricing, and with the design of the products and services to be marketed.

 

Transportation firms

As a product moves from producer to consumer, it must often travel long distances. Many products consumed in the United States have been manufactured in another area of the world, such as Asia or Mexico. In addition, if the channel of distribution includes several firms, the product must be moved a number of times before it becomes accessible to consumers. A basic home appliance begins as a raw material (iron ore at a steel mill, for example) that is transported from a processing plant to a manufacturing facility.
Transportation firms assist marketers in moving products from one point in a channel to the next. An important matter of negotiation between companies working together in a channel is whether the sender or receiver of goods is responsible for transportation. Movement of products usually involves significant cost, risk, and time management. Thus, when firms consider a transportation option, they carefully weigh its dependability and price, frequency of operation, and accessibility. A firm that has its own transportation capabilities is known as a private carrier. There are also contract carriers, which are independent transportation firms that can be hired by companies on a long- or short-term basis. A common carrier provides services to any and all companies between predetermined points on a scheduled basis. The U.S. Postal Service is a common carrier, as are Federal Express and the Amtrak railway system.

 

Warehousing firms

Because products are not usually sold or shipped as soon as they are produced or delivered, firms require storage facilities. Two types of warehouses meet this need: storage warehouses hold goods for longer periods of time, and distribution warehouses serve as way stations for goods as they pass from one location to the next. Like the other marketing functions, warehouses can be wholly owned by firms, or space can be rented as needed. Although companies have more control over wholly owned facilities, warehouses of this sort can tie up capital and firm resources. Operations within warehouses usually require inspecting goods, tracking inventories, repackaging goods, shipping, and invoicing.

channel systems

Department stores

Department stores carry a wider variety of merchandise than most stores but offer these items in separate departments within the store. These departments usually include home furnishings and household goods, as well as clothing, which may be divided into departments according to gender and age. Department stores in western Europe and Asia also have large food departments, such as the renowned food court at Harrods in the United Kingdom. Departments within each store are usually operated as separate entities, each with its own buyers, promotions, and service personnel. Some departments, such as restaurants and beauty parlours, are leased to external providers.
Department stores generally account for less than 10 percent of a country's total retail sales, but they draw large numbers of customers in urban areas. The most influential of the department stores may even be trendsetters in various fields, such as fashion. Department stores such as Sears, Roebuck and Company have also spawned chain organizations. Others may do this through mergers or by opening branch units within a region or by expanding to other countries.

 

Supermarkets

Supermarkets are characterized by large facilities (15,000 to 25,000 square feet [1,394 to 2,323 square metres] with more than 12,000 items), low profit margins (earning about 1 percent operating profit on sales), high volume, and operations that serve the consumer's total needs for items such as food (groceries, meats, produce, dairy products, baked goods) and household sundries. They are organized according to product departments and operate primarily on a self-service basis. Supermarkets also may sell wines and other alcoholic beverages (depending on local licensing laws) and clothing.
The first true supermarket was opened in the United States by Michael Cullin in 1930. His King Kullen chain of large-volume food stores was so successful that it encouraged the major food-store chains to convert their specialty stores into supermarkets. When compared with the conventional independent grocer, supermarkets generally offered greater variety and convenience and often better prices as well. Consequently, in the two decades after World War II, the supermarket drove many small food retailers out of business, not only in the United States but throughout the world. In France, for example, the number of larger food stores grew from about 50 in 1960 to 4,700 in 1982, while the number of small food retailers fell from 130,000 to 60,000.

 

Convenience stores

Located primarily near residential areas, convenience stores are relatively small outlets that are open long hours and carry a limited line of high-turnover convenience products at high prices. Although many have added food services, consumers use them mainly for “fill-in” purchases, such as bread, milk, or miscellaneous goods.

 

Superstores

Superstores, hypermarkets, and combination stores are unique retail merchandisers. With facilities averaging 35,000 square feet, superstores meet many of the consumer's needs for food and nonfood items by housing a full-service grocery store as well as such services as dry cleaning, laundry, shoe repair, and cafeterias. Combination stores typically combine a grocery store and a drug store in one facility, utilizing approximately 55,000 square feet of selling space. Hypermarkets combine supermarket, discount, and warehousing retailing principles by going beyond routinely purchased goods to include furniture, clothing, appliances, and other items. Ranging in size from 80,000 to 220,000 square feet, hypermarkets display products in bulk quantities that require minimum handling by store personnel.

 

Discount stores

Selling merchandise below the manufacturer's list price is known as discounting. The discount store has become an increasingly popular means of retailing. Following World War II, a number of retail establishments in the United States began to pursue a high-volume, low-profit strategy designed to attract price-conscious consumers. A key strategy for keeping operating costs (and therefore prices) low was to locate in low-rent shopping districts and to offer minimal service assistance. This no-frills approach was used at first only with hard goods, or consumer durables, such as electrical household appliances, but it has since been shown to be successful with soft goods, such as clothing. This practice has been adopted for a wide variety of products, so that discount stores have essentially become department stores with reduced prices and fewer services. In the late 20th century, discount stores began to operate outlet malls. These groups of discount stores are usually located some distance away from major metropolitan areas and have facilities that make them indistinguishable from standard shopping malls. As they gained popularity, many discount stores improved their facilities and appearances, added new lines and services, and opened suburban branches. Coupled with attempts by traditional department stores to reduce prices in order to compete with discounters, the distinction between many department and discount stores has become blurred. Specialty discount operations have grown significantly in electronics, sporting goods, and books.

 

Off-price retailers

Off-price retailers offer a different approach to discount retailing. As discount houses tried to increase services and offerings in order to upgrade, off-price retailers invaded this low-price, high-volume sector. Off-price retailers purchase at below-wholesale prices and charge less than retail prices. This practice is quite different from that of ordinary discounters, who buy at the market wholesale price and simply accept lower margins by pricing their products below retail costs. Off-price retailers carry a constantly changing collection of overruns, irregulars, and leftover goods and have made their biggest forays in the clothing, footwear, and accessories industries. The three primary examples of off-price retailers are factory outlets, independent carriers, and warehouse clubs. Stocking manufacturers' surplus, discontinued, or irregular products, factory outlets are owned and operated by the manufacturer. Independent off-price retailers carry a rapidly changing collection of higher-quality merchandise and are typically owned and operated by entrepreneurs or divisions of larger retail companies. Warehouse (or wholesale) clubs operate out of enormous, low-cost facilities and charge patrons an annual membership fee. They sell a limited selection of brand-name grocery items, appliances, clothing, and miscellaneous items at a deep discount. These warehouse stores, such as Wal-Mart-owned Sam's, Price Club, and Costco (in the United States), maintain low costs because they buy products at huge quantity discounts, use less labour in stocking, and typically do not make home deliveries or accept credit cards.

 

Nonstore retailers

Some retailers do not operate stores, and these nonstore businesses have grown much faster than store retailers. With some market observers predicting that by the year 2000 nonstore retailing will handle 30 percent of all general merchandise sold, nonstore channels may become a powerful force in the retailing industry. The major types of nonstore retailing are direct selling, direct marketing, and automatic vending.

 

Brokers and agents

Manufacturers may use brokers and agents, who do not take title possession of the goods, in marketing their products. Brokers and agents typically perform only a few of the marketing flows, and their main function is to ease buying and selling—that is, to bring buyers and sellers together and negotiate between them. Brokers, most commonly found in the food, real estate, and insurance industries, may represent either a buyer or a seller and are paid by the party who hires them. Brokers often can represent several manufacturers of noncompeting products on a commission basis. They do not carry inventory or assume risk.
Unlike merchant wholesalers, agent middlemen do not take legal ownership of the goods they sell; nor do they generally take physical possession of them. The three principal types of agent middlemen are manufacturers' agents, selling agents, and purchasing agents. Manufacturers' agents, who represent two or more manufacturers' complementary lines on a continuous basis, are usually compensated by commission. As a rule, they carry only part of a manufacturer's output, perhaps in areas where the manufacturer cannot maintain full-time salespeople. Many manufacturers' agents are businesses of only a few employees and are most commonly found in the furniture, electric, and apparel industries. Sales agents are given contractual authority to sell all of a manufacturer's output and generally have considerable autonomy to set prices, terms, and conditions of sale. Sometimes they perform the duties of a manufacturer's marketing department, although they work on a commission basis. Sales agents often provide market feedback and product information to the manufacturers and play an important role in product development. They are found in such product areas as chemicals, metals, and industrial machinery and equipment. Purchasing agents, who routinely have long-term relationships with buyers, typically receive, inspect, store, and ship goods to their buyers.

 

Manufacturers' and retailers' branches and offices

Wholesaling operations conducted by the sellers or buyers themselves rather than by independent wholesalers comprise the third major type of wholesaling. Manufacturers may engage in wholesaling through their sales branches and offices. This allows manufacturers to improve the inventory control, selling, and promotion flows. Numerous retailers also establish purchasing offices in major market centres such as Chicago and New York City that play a role similar to that of brokers and agents. The major difference is that they are part of the buyer's own organization.

 

Retailers

Retailing, the merchandising aspect of marketing, includes all activities required to sell directly to consumers for their personal, nonbusiness use. The firm that performs this consumer selling—whether it is a manufacturer, wholesaler, or retailer—is engaged in retailing. Retailing can take many forms: goods or services may be sold in person, by mail, telephone, television, or computer, or even through vending machines. These products can be sold on the street, in a store, or in the consumer's home. However, businesses that are classified as retailers secure the vast majority of their sales volume from store-based retailing.

 

The history of retailing

For centuries most merchandise was sold in marketplaces or by peddlers. In many countries, hawkers still sell their wares while traveling from one village to the next. Marketplaces are still the primary form of retail selling in these villages. This was also true in Europe until the Renaissance, when market stalls in certain localities became permanent and eventually grew into stores and business districts.

Retail chains are known to have existed in China several centuries before the Christian era and in some European cities in the 16th and 17th centuries. However, the birth of the modern chain store can be traced to 1859, with the inauguration of what is now the Great Atlantic & Pacific Tea Company, Inc. (A&P), in New York City. During the 15th and 16th centuries the Fugger family of Germany was the first to carry out mercantile operations of a chain-store variety. In 1670 the Hudson's Bay Company chartered its chain of outposts in Canada.
Department stores also were seen in Europe and Asia as early as the 17th century. The famous Bon Marché in Paris grew from a large specialty store into a full-fledged department store in the mid-1800s. By the middle of the 20th century, department stores existed in major U.S. cities, although small independent merchants still constitute the majority of retailers.

 

 

• Underground mall at the main railway station in Leipzig, Ger.

Shopping malls, a late 20th-century development in retail practices, were created to provide for a consumer's every need in a single, self-contained shopping area. Although they were first created for the convenience of suburban populations, they can now also be found on main city thoroughfares. A large branch of a well-known retail chain usually serves as a mall's retail flagship, which is the primary attraction for customers. In fact, few malls can be financed and built without a flagship establishment already in place.

 

 

• Amusement park rides at the Mall of America, Bloomington, Minn.

Other mall proprietors have used recreation and entertainment to attract customers. Movie theatres, holiday displays, and live musical performances are often found in shopping malls. In Asian countries, malls also have been known to house swimming pools, arcades, and amusement parks. Hong Kong's City Plaza shopping mall includes one of the territory's two ice rinks. Some malls, such as the Mall of America in Bloomington, Minn., U.S., may offer exhibitions, sideshows, and other diversions.
Although there is a great variety of retail enterprises, with new types constantly emerging, they can be classified into three main types: store retailers, nonstore retailers, and retail organizations.

 

Store retailers

Several different types of stores participate in retail merchandising. The following is a brief description of the most important store retailers.

 

Specialty stores

A specialty store carries a deep assortment within a narrow line of goods. Furniture stores, florists, sporting-goods stores, and bookstores are all specialty stores. Stores such as Athlete's Foot (sports shoes only) and Tall Men (clothing for tall men) are considered superspecialty stores because they carry a very narrow product line.

 

Management of channel systems

Although middlemen can offer greater distribution economy to producers, gaining cooperation from these middlemen can be problematic. Middlemen must continuously be motivated and stimulated to perform at the highest level. In order to gain such a high level of performance, manufacturers need some sort of leverage. Researchers have distinguished five bases of power: coercive (threats if the middlemen do not comply), reward (extra benefits for compliance), legitimate (power by position—rank or contract), expert (special knowledge), and referent (manufacturer is highly respected by the middlemen).
As new institutions emerge or products enter different life-cycle phases, distribution channels change and evolve. With these types of changes, no matter how well the channel is designed and managed, conflict is inevitable. Often this conflict develops because the interests of the independent businesses do not coincide. For example, franchisers, because they receive a percentage of sales, typically want their franchisees to maximize sales, while the franchisees want to maximize their profits, not sales. The conflict that arises may be vertical, horizontal, or multichannel in nature. When General Motors Corporation comes into conflict with its dealers, this is a vertical channel conflict. Horizontal channel conflict arises when a franchisee in a neighbouring town feels a fellow franchisee has infringed on its territory. Finally, multichannel conflict occurs when a manufacturer has established two or more channels that compete against each other in selling to the same market. For example, a major tire manufacturer may begin selling its tires through mass merchandisers, much to the dismay of its independent tire dealers.

 

Wholesalers

Wholesaling includes all activities required to sell goods or services to other firms, either for resale or for business use, usually in bulk quantities and at lower-than-retail prices. Wholesalers, also called distributors, are independent merchants operating any number of wholesale establishments. Wholesalers are typically classified into one of three groups: merchant wholesalers, brokers and agents, and manufacturers' and retailers' branches and offices.

 

Merchant wholesalers

Merchant wholesalers, also known as jobbers, distributors, or supply houses, are independently owned and operated organizations that acquire title ownership of the goods that they handle. There are two types of merchant wholesalers: full-service and limited-service.

 

Full-service wholesalers

Full-service wholesalers usually handle larger sales volumes; they may perform a broad range of services for their customers, such as stocking inventories, operating warehouses, supplying credit, employing salespeople to assist customers, and delivering goods to customers. General-line wholesalers carry a wide variety of merchandise, such as groceries; specialty wholesalers, on the other hand, deal with a narrow line of goods, such as coffee and tea, cigarettes, or seafood.

 

Limited-service wholesalers

Limited-service wholesalers, who offer fewer services to their customers and suppliers, emerged in order to reduce the costs of service. There are several types of limited-service wholesalers. Cash-and-carry wholesalers usually handle a limited line of fast-moving merchandise, selling to smaller retailers on a cash-only basis and not delivering goods. Truck wholesalers or jobbers sell and deliver directly from their vehicles, often for cash. They carry a limited line of semiperishables such as milk, bread, and snack foods. Drop shippers do not carry inventory or handle the merchandise. Operating primarily in bulk industries such as lumber, coal, and heavy equipment, they take orders but have manufacturers ship merchandise directly to final consumers. Rack jobbers, who handle nonfood lines such as housewares or personal goods, primarily serve drug and grocery retailers. Rack jobbers typically perform such functions as delivery, shelving, inventory stacking, and financing. Producers' cooperatives—owned by their members, who are farmers—assemble farm produce to be sold in local markets and share profits at the end of the year.
In less-developed countries, wholesalers are often the sole or primary means of trade; they are the main elements in the distribution systems of many countries in Latin America, East Asia, and Africa. In such countries the business activities of wholesalers may expand to include manufacturing and retailing, or they may branch out into nondistributive ventures such as real estate, finance, or transportation. Until the late 1950s, Japan was dominated by wholesaling. Even relatively large manufacturers and retailers relied principally on wholesalers as their intermediaries. However, in the late 20th century, Japanese wholesalers have declined in importance. Even in the most highly industrialized nations, however, wholesalers remain essential to the operations of significant numbers of small retailers.