VIJEESH MOHAN

Module-I
Retailing
According to Philip Kotler, the term Retailing includes all the activities involved in
selling goods or services directly to final consumers for personal, non-business use. A retailer
or retail store is any business enterprise whose sales volume comes primarily from retailing.
Retail is the process of selling the consumer goods and/or services to customers
through multiple channels of distribution to earn a profit. Demand is created through diverse
target markets and promotional tactics, satisfying consumers' wants and needs through a lean
supply chain.
Retailing encompasses the business activities involved in selling goods & services to
consumers for their personal, family, or household use.
It includes every sale to the final consumer ranging from cars to apparel to meals at
restaurants to movie tickets
Retailer is a person or an agent or an agency or a company or an organization that is
instrumental in reaching the goods or merchandise or services to the end user or ultimate
consumer." Retailers are often referred as middlemen 0r intermediaries, i.e., they occupy a
middle position - receiving and passing -or products from producers and wholesalers to
customers.
The word 'retail' is derived from the French word 'retaillier' meaning 'to cut a
piece off' or 'to break bulk'. In simple terms it involves activities whereby product or
services are sold to final consumers in small quantities.
Features / Nature of Retailing
1. Customer orientation (Determines the attributes and needs of the customers)
2. Coordinated effort (integrates all plans and activities to maximize efficiency)
3. Value driven (offers good value to customers)
4. Goal orientation (sets goals and then uses strategies to attain goal)
5. Small / Large quantities (Retailers buy and sell goods in small / large quantity)
6. Sell to ultimate consumers (Retailers sell goods to ultimate final consumers)
7. Varieties of goods (A retailer can sell various necessary goods to consumers)
8. Personal contact (A retailer establishes direct and personal contact with customers)
9. Shop display (Retailers decorate and display goods to attract customers)
10. Last link (Retailers work as the last link of distribution channel)

VIJEESH MOHAN

Retailing scenario in India

India has often been called a nation of shopkeepers. Presumably the reason for this
is;that, a large number of retail enterprises exist in India. In 2004, there were 12 million such
units of which 98% are small family businesses, utilizing only household labour. Even among
retail enterprises, which employ hired workers, a majority of them use less than three
workers.
Retailing in India is one of the pillars of its economy and accounts for about 22% of
its GDP
Indian retail market - US$ 500 billion and one of the top five retail markets in the
world by economic value
93% of the total market dominated by traditional brick & mortar stores, Branded
retailing contributes 7%
E- Tailing contributes only 0.1%.
India's retail and logistics industry employs about 40 million Indians (3.3% of Indian
population)
By 2018, the Indian retail sector is likely to grow at a CAGR of 13% to reach a size of
US$ 950 bn
The present value of the Indian retail market is estimated by the India Retail Report to
be around Rs. 12,00,000 crore($270 billion)
The annual growth rate is 5.7%
Retail market for food and grocery with a worth of Rs. 7, 43,900crore is the largest of
the different types of retail industries present in India.
As of 2013, India's retailing industry was essentially owner manned small shops.In
2010, larger format convenience stores and supermarkets accounted for about 4% of the
industry, and these were present only in large urban centers.
India's retail and logistics industry employs about 40 million Indians (3.3% of Indian
population). As a major source of employment retailing offers a wide range of career
opportunities including; store management, merchandising and owning a retail business.

VIJEESH MOHAN

Until 2011, Indian central government denied foreign direct investment (FDI) in
multi-brand retail, forbidding foreign groups from any ownership in supermarkets,
convenience stores or any retail outlets. As the Indian retailing is getting more and more
organized various retail formats are emerging to capture the potential of the market.

Mega Malls
Multiplexes
Large and small supermarkets
Hypermarkets
Departmental stores are a few formats which flourishing in the both big and small
regional markets

As the major cities have made the present retail scenario pleasant, the future of the
Indian Retailing industry lies in the rural regions. Catering to these consumers will bring
tremendous business to brands from every sector

VIJEESH MOHAN

Wheel of Retailing
According to this theory new retailers enter the market as, low margin, low
price, low status institutions. The cycle begins with retailers attracting customers by offering
low price and low service. Over a period of time these retailers want to expand their markets
and begin to stock more merchandise, provide more services, and open more convenient
locations.
This trading up process. increases the retailers costs and prices, creating opportunities
for new low price retailers to enter the market. The evolution of the department store
illustrates the "wheel of retailing" theory. In its entry phase, the department store was a low
cost-low service venture. With time it moved up into the trading-up phase. It upgraded its
facilities, stock selection, advertising and service. The same department store then moves into
the vulnerability phase, because it becomes vulnerable to low cost/low service formats, such
as full line discount stores and category specialists
A process observed

in

retail marketing when

store improves its services and products in order to

what

is

originally

boost prices once

a discount
it

has

become established.
As

it cycles through

the

wheel

of

retailing,

a discount retail

business

might develop into a higher end department store, leaving its former niche to be filled by
newer discount businesses.
The wheel of retailing was proposed by Malcomb McNair at Harvard University.
It is basically a theory of cyclical or circular development. The wheel of retailing concept
describes how retail institutions transform during their evolutionary life cycles.
Assumptions
1. New retailers often enter the market place with low prices, margins, and status. The
low prices are usually the result of some innovative cost-cutting procedures and soon
attract competitors.
2. With the passage of time, these businesses strive to broaden their customer base and
increase sales. Their operations and facilities increase and become more expensive.
3. They may move to better up market locations, start carrying higher quality products or
add services and ultimately emerge as a high cost price service retailer.
4. By this time newer competitors as low price, low margin, low status emerge and
these competitors too follow the same evolutionary process.
5. The wheel keeps on turning and department stores, supermarkets, and mass
merchandise went through this cycles.
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VIJEESH MOHAN

Types of Retailing
The major types of retailing includes,
1. Ownership Based Retailing
2. Store based Retailing
3. Non store based Retailing

VIJEESH MOHAN

1. Ownership Based Retailing

A retail business like any other type of business, can be owned by a sole
proprietor,partners or a corporation. A majority of retail business in India are sole
proprietorships and partnerships. It is divided in to
a)
b)
c)
d)

Independent Retailer.
Retail Chain
Retail Franchising
Cooperatives

a) Independent Retailer
Generally operates one outlet and offers personalized service, a convenient location
and close customer contact. Roughly 98% of all the retail businesses in India are managed
and run by independents, including barber shops, drycleaners, furniture stores, bookshops,
LPG Gas Agencies and neighbourhood stores. This is due to the fact that entry into retailing
is easy and it requires low investment and little technical knowledge. This obviously results
in a high degree of competition. Most independent retailers fail because of the ease of entry,
poor management skills and inadequate resources.
b) Retail Chain
It involves common ownership of multiple units. In such units, the purchasing and
decision making are centralized. Chains often rely on, specialization, standardization and
elaborate control- systems. Consequently chains are able to serve a large dispersed target
market and maintain a well-known company name. Chain stores have been successful,
mainly because they have the opportunity to take advantage of "economies of scale" in
buying and selling goods.
They can maintain their prices, thus increasing their margins, or they can cut prices
and attract greater sales volume. Unlike smaller, independent retailers with lesser financial
means, they can also take advantage of such tools as computers and information technology.
c) Retail Franchising
Is a contractual arrangement between a "franchiser" (which may be a manufacturer,
wholesaler, or a service sponsor) and a "franchisee" or franchisees, which allows the latter to
conduct a certain form of business under an established name and according to a specific set
of rules.

VIJEESH MOHAN

The franchise agreement gives the franchiser much discretion in controlling the
operations of small retailers. In exchange for fees, royalties and a share of the profits, the
franchiser offers assistance and very often supplies as well. Classic examples of franchising
KFC, Dominos Pizza, Mc Donalds.
d)Cooperatives
A retail cooperative is a group of independent retailers that have combined their
financial resources and their expertise in order to effectively control their wholesaling needs.
They share purchases, storage, shopping facilities, advertising planning and other functions.
The individual retailers retain their independence, but agree on broad common policies.
Amul and Milma are typical example of a cooperative in India.

2. Store based Retailing/Store retailing

A retail store comes in all sizes, from very small to very large. A store retailer may be
classified by one or more of several characteristics.

Store retailers are found in a retail outlet performing retail activities. Store retailers
can be classified according to the extent of the service they provide, the variety of the product
assortment they sell, the pricing structures they implement, control of outlets and according
to store cluster. An example of classifying retailers according to pricing structures is a
discount store in which well-known national brands are sold and lower prices are
automatically applied to the product range.

VIJEESH MOHAN

3. Non store based Retailing

Retailing activities resulting in transactions that occur way froma physical store are
called non store retailing. It is guesstimated that sales volume through non-store retailing
sales account for almost 20%of total retail trade. We will consider five types of non-store
retailing;
1. Direct selling
2. Direct marketing
3. Automatic vending
1. Direct selling
Direct selling is the marketing and selling of products directly to consumers away
from a fixed retail location. Peddling is the oldest form of direct selling. Modern direct
selling includes sales made through the party plan, one-on-one demonstrations, and other
personal contact arrangements as well as internet sales.
Direct selling takes place when retailers sell products from door to door. Direct selling
docs not take place within the store set-up. Examples of direct selling are Tupperware parties.
2. Direct marketing
Direct marketing uses the advertising media to call upon the customer to respond to
advertisements. These forms include catalogue marketing where catalogues are mailed to
selected customers, telemarketing where the telephone is used to sell to the customer, and
electronic shopping where orders are placed at retailers electronically with aids such as the
computer.
A. Telemarketing
Telemarketing (sometimes known as inside sales, or telesales in the UK and Ireland)
is a method of direct marketing in which a salesperson solicits prospective customers to buy
products or services, either over the phone or through a subsequent face to face or Web
conferencing appointment scheduled during the call.

VIJEESH MOHAN

B. Online retailing / e-tailing

Online retailing is the sale of goods and services through the Internet.
Electronic retailing, or e-tailing, can include business-to-business and business-to-consumer
sales.
3. Automatic vending
Automatic vending is a 24-hour method of selling convenience products such as
cigarettes, cold drinks and snacks with the aid of a vending machine. A vending machine is a
machine that dispenses items such as snacks, beverages, alcohol, cigarettes, lottery tickets to
customers automatically, after the customer inserts currency or credit into the machine.

Vertical marketing system

A vertical marketing system (VMS) is one in which the main members of a
distribution channelproducer, wholesaler, and retailerwork together as a unified group in
order to meet consumer needs.
In conventional marketing systems, producers, wholesalers, and retailers are separate
businesses that are all trying to maximize their profits.
When the effort of one channel member to maximize profits comes at the expense of
other members, conflicts can arise that reduce profits for the entire channel. To address this
problem, more and more companies are forming vertical marketing systems.
Vertical marketing systems can take several forms. In a corporate VMS, one member
of the distribution channel owns the other members. Although they are owned jointly, each
company in the chain continues to perform a separate task. In an administered VMS, one
member of the channel is large and powerful enough to coordinate the activities of the other
members without an ownership stake.
Finally, a contractual VMS consists of independent firms joined together by contract
for their mutual benefit.
1. One type of contractual VMS is a retailer cooperative, in which a group of retailers buy
from a jointly owned wholesaler.
2. Another type of contractual VMS is a franchise organization, in which aproducer
licenses a wholesaler to distribute its products.

VIJEESH MOHAN

The concept behind vertical marketing systems is similar to vertical integration. In

vertical integration, a company expands its operations by assuming the activities of the next
link in the chain of distribution. For example, an auto parts supplier might practice forward
integration by purchasing a retail outlet to sell its products. Similarly, the auto parts supplier
might practice backward integration by purchasing a steel plant to obtain the raw materials
needed to manufacture its products.
Vertical marketing should not be confused with horizontal marketing, in which members
at the same level in a channel of distribution band together in strategic alliances or joint
ventures to exploit a new marketing opportunity.
In a vertical marketing system, distinct pieces in the distribution channel, typically
producers, wholesalers and retail outlets, work together as a unit to deliver products to end
users. Under a conventional system, each piece in the distribution channel functions as an
independent business and tries to increase its own profits, often at the expense of other
businesses in the channel. Vertical marketing systems help to reduce these kinds of conflicts
to the mutual benefit all parties.

Types of Vertical marketing system

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VIJEESH MOHAN

1. Corporate System
A corporate vertical marketing system streamlines the process by bringing all of the elements
of the distribution channel, from manufacturing to the stores, under the ownership of a single
business. Firestone, for example, manufactures tires and owns the service centers that sell the
tires to customers. The ownership of the distribution channel can happen from any point in
the chain. A well-financed retail outlet might buy a wholesaler and production facilities, or a
producer could purchase its main wholesaler and retail outlets.
2. Contractual System
Under contractual vertical marketing systems, the pieces of the distribution channel continue
to operate as individual entities. The businesses enter into contractual relationships with other
elements in the distribution channel with their respective obligations and benefits spelled out
ahead of time. This approach allows all of the participants to leverage economies of scale that
enable more competitive pricing. Variations on contractual vertical marketing systems exist,
such as retail co-ops that only deal with a wholesaler. For example, if 15 independently
owned restaurants enter into an agreement with a produce wholesaler, the total costs go down
for everyone thanks to bulk ordering and shipping.
3. Administered System
Administered vertical marketing systems employ neither formal contractual obligation nor
corporate ownership of the distribution channel. Instead, one member of the distribution
channel wields enough power, generally though sheer size, to effectively control the activities
of the other members of the distribution channel. Massive retail chain stores, such as
Walmart, often preside over administered vertical marketing systems. Most smaller business
cannot exert the necessary influence to run such a system but may find it necessary to deal
with a wholesaler or producer that operates under such a system.

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VIJEESH MOHAN

Channels of VMS

SCOPE OF RETAILING
It breaks the bulk that comes from vendor into small manageable forms for customer
It provides an assortment of products to customer.
Not only product is what customers want, they also want service that is being
provided by customer
Sometimes it also manages the inventory and warehouses
It also studies customer's needs and wants and provides the sales pattern to the
customer
It acts as a link between vendor and the end user
It provides information as well as convenience to the customers.

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