Introduction to Merchandising Chp 3

V. Services Retailing A. Types of Services Retailers • Many organizations that offer services to consumers such as banks, hospitals, health spas, doctors, legal clinics, entertainment firms and universities traditionally haven’t considered themselves as retailers. Due to increased competition, these organizations are adopting retailing principles to attract customers and satisfy their needs. • All retailers provide goods and services for their customers. Some firms , such as dry cleaners primarily provide services. Optical centers and restaurants lie somewhere in the middle of the merchandise/services continuum. Supermarket and warehouse clubs primarily provide goods. V. Services Retailing (Cont.) B. Differences Between Services and Merchandise Retailers 4 Important differences in the nature of the offering provided by services and merchandise retailers are: 1. Intangibility 2. Simultaneous Production and Delivery 3. Perishability 4. Inconsistency of the Offerings V. Services Retailing (Cont.) 1. Intangibility: Services are generally intangible. Customers can not see, touch, or feel them. On the other hand, services are performances or actions rather than objects. Service retailers often have difficulty in evaluating the quality of services they are providing. They must solicit customer evaluations and complaints. 2. Simultaneous production and delivery: Service providers create and deliver the service as the customer is consuming it. V. Services Retailing (Cont.) 3. Perishability: Because the creation and consumption of services is inseparable, services are perishable. They can not be saved, stored, or resold. In addition the demand for services varies over time. 4. Inconsistency: Merchandise is often produced by machines with very tight quality control. Because services are performed by people, no two services will be identical. VI. Types of Ownership Another way to classify retailers is by their ownership. The major classification of retail ownership are: 1. Independent, Single-Store Establishment 2. Corporate Chains 3. Franchises VI. Types of Ownership (Cont.) A. Independent-single-store establishments • In 1998, over 60,000 new retail business were started in the US and many stores are owner-managed. • While single stores can tailor their offering to their customers needs, corporate chains can more effectively negotiate lower prices for merchandise and advertising due to their larger size. • To better compete against corporate chains, some independent retailers join a retail-sponsored cooperative group or wholesale-sponsored voluntary chain. VI. Types of Ownership (Cont.) B. Corporate Retail Chain • A retail chain is a company operating multiple retail units under common ownership and usually having some centralization of decision making in defining and implementing strategy. • Due to economies of scale and an efficient distribution system, corporate chains can sell at lower prices. This forces some directly competing local retailers out of business and alters the community fabric. • On the other hand, local retailers offering complementary merchandise and services can prosper. Often, all stores in a chain have the same merchandise and services, while local retailers can provide merchandise compatible with local market needs. • In addition, to mergers and acquisitions leading to consolidation, the retail chains are focusing their expertise on managing a specific retail format rather than operating as a holding company for a diverse set of retail formats. VI. Types of Ownership (Cont.) C. Franchising • Franchising is a contractual agreement between a franchiser and a franchisee that allows the franchisee to operate a retail outlet using a name and format developed and support by the franchiser. Approximately one-third of all US retail sales are made by franchisees. • The franchising ownership format attempts to combine advantages of owner-managed businesses with efficiencies of centralized decision making in chain store operations. • Franchisees are motivated to make their store successful because they receive the profits after the royalty is paid. The franchiser is motivated to develop new products and systems to promote the franchise because it receives a royalty on all sales. VI. Types of Ownership (Cont.) D. Other Forms of Ownership • Some retail outlets are owned by their customers and others are owned by government agencies. In consumer cooperatives, customers own and operate the retail establishment. Consumers have ownership shares, hire full-time managers, and share in the store’s profits through price reductions or dividends. Local, state and federal government agencies sometime own retail establishments.