Roberto Vona » 1.Retail services and distribution formulae

Lesson content

Learning outcomes:


Provide students with basic knowledge of distribution formulas and their classification, and the way innovation develops in the retail industry.

Lesson content:

• Evolution of role of distribution in creating value for client: from proximity to adaptation.
• Distribution formulae.
• Retail services: logistics and information.
• Horizontal and vertical differentiation.
• Purchasing behaviour for everyday consumer goods and for problematic goods.
• Effect of brand notoriety on the buying process.
• Leibenstein model for non-functional consumer motivation.
• Innovation in retail: wheel of retailing and product life cycle.
• Other theories for interpreting innovation in retail; trading-up theory, accordion theory, dialectic model for sales formula, limited space theory.
• Primary and secondary innovation

From adapatation to proximity

Before studying distribution phenomena, we need to look at what services are required by customers when they decide what products to buy and who, or where, to buy them from.
Distribution basically consists in:

• the transfer of goods from where they are produced to where they are consumed;
• the storing of goods over time and gradually putting them on to the market;
• making goods available to customers in terms of assortment, payment and delivery.

Distribution does not involve logistics (use of time and space),but it does have an information component (to direct the market).

 From adaptation to proximity (cont.)

There has been a move away from the concept of proximity to one of adaptation.

Qualitative-quantitative adaptation process of goods on offer:

• Analyse and monitor market goods and services;
• Define distribution formula,  form and manage the assortment and set sales price;
• Transfer goods from where they are produced to where they are consumed in the desired quantities and within the desired time frame  (transport, storage and handling);
• Promotion and commercialisation of goods;
• Develop sales point image and foster customer loyalty.

Evolution of sales channels and distribution formulas

Distribution refers to a set of different economic institutions (producers, distributors and consumers) who together ensure that goods move from where they are produced to where they are consumed in line with demand.
This group of players is referred to as the distribution channel.

• Increase in inter-channel conflict;
• growing importance of marketing component;
• vertical integration forward from producers is difficult

significant contractual power related to retail distribution

Retail services are:
“a group of basic services that are combined in such a way as to satisfy the needs of a particular market sector”. 

A distribution formula is
“a combination of basic services that offers the market an alternative way of buying something”.  

Basic services can be grouped as follows:

• logistics services;
• information services.

Logistics and Information Services

Logistics servicesProximity services
Relates to how easy access is to concentration and distribution points for goods (transport costs and times)

Storage services
Especially with reference to:

• splitting  sales units;
• extending opening hours;
• assortment width.

Information services
Depth of assortment
In other words, the selection of the variety of product, which needs to be done in such a way that customer search costs are reduced.

Information on specific characteristics of goods
A service that is particularly important for problematic goods. 

Aspects of “retail” buying process.

Environmental variables: phenomena and their effect

Social-demographic system

Phenomena:

• ageing population
• emigration to richer areas
• average educational levels higher
• non-traditional family nuclei

Effects:

• fewer necessary purchases and more free time
• more complex needs where goods and services are concerned
• tougher differentiation policy

role of retail business:  image of logo, signs and brand

Environmental variables: phenomena and their effect (cont.)

Institutional-Political system

Phenomena:

• authorisations for retail operations, financial support
• opening hours, legal norms regarding transparency
• 1971 retail planning

1998 Bersani decree: measures encouraging development of large-scale modern retailing and a turnaround strategy for traditional retailing.

Environmental variables: phenomena and their effect (cont.)

Economic System.

Phenomena:

• Increase in complexity of demand
  • demand for differentiation of supply
  • effective techniques for segmenting demand (lifestyle, buying behaviour, consumer preference, etc.)
  • need to develop new methods for analysing demand for retail services
• Social pressure as consumer motivator:
  • bandwagon effect (desire to do what everyone else is doing)
  • snob effect (desire to stand out from the crowd)
  • Veblen effect (conspicuous, prestige purchase)
• Integration of shopping with other leisure activity

Process of innovation in retail industry

• Life cycle theory for distribution formula 
  • Innovation (cost leadership), development, maturity and decline
• Wheel of retailing theory 
  • A new distribution formula is created that is advantageous for the consumer
  • Competition increases:
    • better service offered at same price
    • better service offered at higher price
  • opportunity for new distribution formulas which are low on services to enter the market
• Trading-up theory
  • distribution formula differentiation
• Accordion theory
  • de-specialized assortment alternating with deep, specialised assortments
• Dialectic model
  • mutual adaptation of diametrically opposed distribution formulas
• Limited space theory
  • turbulence, opportunity, competitive advantage
• Dynamic models for analysing expectations 

Filser’s model for analysing different distribution formulas