002 - retail institutions
TRANSCRIPT
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Retail Institutions
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Retail Management 2
Objectives of the Chapter
Theories of Institutional Change
Wheel of Retailing
Dialectic Process
Retail Accordion
Natural Selection
Classification of Retailers Store-Based Retailer
Non Store Retailer
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Retail Management 3
Introduction
Varied Retail store formats
Reasons for the diversity in store formats
Retail format influences the entire retail business
model Retail format plays a key role in the retail strategies
being formulated
New retail formats are getting framed around different
pricing and service strategies. This chapter covers the various theories explaining
the reasons for institutional change and alsoexamines the classification of retailers.
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Theories of Institutional Change
Wheel of Retailing
Dialectic process
Retail accordion
Natural selection
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Wheel of Retailing
Proposed by Malcolm. P. McNair
This theory states that in a retail institutionchanges take place in a cyclical manner.
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Wheel of Retailing
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Wheel of Retailing
Entry Phase Trading Up phase Vulnerability Phase
Positioning of Store Low status – Low
price format Higher status – Higher
price format Declining ROI
Size of Store Small Bigger
Type of products
provided High Demand Customer conveniencenot necessarily high
demand
Service to customers Minimal Maximum
Shopping Atmosphere Modest Posh
Store Location Low rental area High cost, moreaccessible to
customers
Product Mix Minimal Differentiated
Type of retailer Innovative retailer Traditional retailer Conservatism
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Dialectic Process
“Melting pot” theory
Two institutional forms with different advantagesmodify their formats till they develop a format thatcombines the advantages of both formats.
Thomas. J. Maronick and Bruce J. Walker in "TheDialectic Evolution of Retailing."
Implies that retailers mutually adapt in the face ofcompetition from "opposites." Thus, when challengedby a competitor with a differential advantage, anestablished institution will adopt strategies and tacticsin the direction of that advantage.
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The Dialectic Process
•High margin•Low turnover•High price•Full service
•Downtown location•Plush facilities
•Low margin
•High turnover•Low price•Self service•Low Rent location•Spartan facilities
•Average margin•Average turnover•Modest price•Suburban Location•Model facilities
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Retail Accordion
The theory of 'retail institutional change' states thatinstitutions evolve over time from outlets offering awide variety of merchandise to stores offeringspecialized products, and then eventually these
stores begin to offer a wide variety of merchandise. The merchandise mix strategies of retailers change,
while the retail prices and margins remain the same.
Strategies ranging from stores that offer multiplemerchandise categories with a shallow assortment
of goods and service to others that offer limitedmerchandise with a deep assortment of goods andservices.
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The Retail Accordion Theory
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Natural Selection
Based on Darwin's theory of evolution.
According to this theory, a firm or retailinstitution should be flexible enough toadapt to the changing environment andshould adapt its behavior.
Success depends on the degree offlexibility enjoyed by the firm.
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Classification of Retailers
Store based retailers
Ownership
Strategy Mix
Service Vs Goods retail mix
Non – Store based retailer
Traditional Non – traditional
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Types of Retailers
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Based on Ownership
Independent Stores
Chain Stores
Franchise Stores
Leased Department Stores
Vertical Marketing System
Consumer Cooperatives
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Independent Store
A store, which is owned by a single retailer.This retailer does not own any other store.
The entry barriers are low
Licensing procedures are simple
Low initial investment.
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Independent Store - Advantages
Freedom to select a convenient location and suitable storeformat.
Can concentrate on a small target market to achieve itsbusiness objectives.
Decide on the timing, product assortment and price basedon target market.
The cost of setting up an independent store is low.
Employ a few people, have modest fixtures and do notcarry much merchandise.
No excess stock or duplication of store functions. Reduced time lag in Decision making.
Specialization is possible as focus is on a particularconsumer segment.
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Independent Store – Disadvantages
Bargaining power is less.
Reduced ability of retailers to negotiate withsuppliers
Productivity is low Lack exposure to modern tools and
techniques for managing various retailfunctions
Increased operational costs Cannot promote their product aggressively in
the media.
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Chain Stores
Chain stores have two or more retail outletsthat are commonly owned and controlled.
Have a centralized buying and merchandising
system and sell similar lines of merchandise.
Eg: Musicworld, Titan, Tanishq, etc
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Chain Stores – Advantages
Low costs because of bulk purchases
High Bargaining power
Efficiency is more because of centralized
decision making system and use of latesttechnology
Can afford aggressive and expensive
promotion Full time experts employed for long term
planning
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Chain Stores - Disadvantages
Cannot customize strategies for everylocation
High cost of establishment
Requires multiple stores with additionalfixtures, product assortments and a largenumber of store personnel.
Difficult to control Centralized management is difficult
No personal interest in management of stores
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Franchise Store
A store based on a contractual arrangement between a franchiser (manufacturer) and afranchisee, which allows the franchisee toconduct a given form of business under anestablished name and according to a givenpattern of business. Eg: McDonalds
Franchising is of two types – Product / Trademark franchising
Business format franchising
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Franchising Models
Master Franchising System
Area Development Franchising System
Exclusive Showrooms
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Product / Trademark Franchising
Franchised dealers acquire the identities oftheir suppliers by agreeing to sell the latter'sproducts and/or operate under the suppliers
name.
In this format, franchisees are relativelyindependent from their suppliers.
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Business format Franchising
The franchiser, gives the right to sell goodsand services, and also helps franchisees invarious aspects of store management.
Under this type of ownership pattern, thefranchiser and its franchisees work togetherlike a chain store.
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Franchising - Advantages
Franchiser Can own and operate retail businesses with relatively
small capital investment
Franchisees Get well- known brands and goods / service lines
Exposure to standard operating procedures
Benefit from the nation-wide promotional activities
Enjoy exclusive rights to sell the franchiser's products Better bargain per unit purchase
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Franchising – Disadvantages
Over saturation
Franchisers projects higher returns on investment
Restrictions on purchase of raw materials or goods
only from their franchiser
Termination of the franchisee license
Royalty payable is linked to gross sales
Have to renew their franchisee rights when thecontract expires.
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Leased Department
A department in a retail store that is rented to an outside party iscalled a leased department.
The volume of sale depends on the existing store's customer baseand store's reliability.
The lessee is accountable for all the activities of the leased
department. The lessee pays a part of the sales turnover to the store as rent.
should ensure that the merchandise of the leased department doesnot cannibalize the sales of the store.
Operations of the leased department should be in line with the
image and overall strategy. Objective is to add variety to the merchandise offered.
Leased departments offer products/services that complement theprimary product/service offering of the store.
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Leased Department - Advantages
Advantage to Lessor
Reduce their cost by leasing departments.
Shortcomings in handling certain goods andspecialized services can be overcome.
Regular monthly income in the form of rent.
Advantages to Lessee
Increase in customer traffic be of the established
name of lessor. The initial cost of establishing an outlet is reduced
as a result of leasing is less
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Leased Department - Disadvantages
Disadvantages to Lessor
Disputes may badly affect the image of the established store.
Customer will blame the store for any disputes/deficiencies.
Leased department may not attract additional customers.
Disadvantages to Lessee
Has to function within working hours and operating pattern ofthe store.
Restriction on the goods and service lines offered by the leaseddepartments.
The store may increase the rent if the leased department is
successful. The in-store location of the leased department may negatively
affect its sales.
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Vertical Marketing System
A vertical marketing system is a distributionsystem in which the producers, wholesalers,and retailers act in a unified manner to
facilitate the smooth flow of goods andservices from producer to end-user. Onechannel member owns the others or hascontracts with them, or has the power to
control them.
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Types of Vertical Marketing System
Independent Vertical Marketing System:
Consists of independent businesses likemanufacturers, wholesalers and retailers.
Required when customers are scattered, Manufacturers and retailers are small,
Product sales are high, and
Products require extensive distribution.
used by stationery stores, gift shops, hardwarestores, food stores, drug stores etc.
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Types of VMS
Partially integrated vertical marketingsystem:
Only two independent business units in adistribution channel work together.
These units take care of all the production anddistribution functions,
A manufacturer and a retailer alone managethe shipping, warehousing and distribution
functions without the help of a wholesaler. Generally used in furniture stores, appliance
stores, restaurants, computer retailers etc.
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Types of VMS
Fully integrated vertical marketing system: Only one player manages all the activities In this system, several channel members at
different levels in the channel are owned by thesame company.
The company/store exercises full control overchannel operations like production, wholesalingand retailing.
The initial cost of setting up a fully integratedmarketing system is very high.
The company owning the entire marketing systemmay have difficulty handling some specializedchannel activities.
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Consumer Cooperatives
Consumer cooperatives are retail operationsowned and managed by its customermembers.
In many cases, consumer cooperatives arestarted by the residents of an area.
These residents believe that the existingretailers in that area are not serving them well(either charging too much or providing poor-quality goods/services).
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Retailers based on Strategic Mix -- 1
Food Oriented Retailers
Convenience Stores
Conventional Supermarket
Food-based supermarket
Combination Store
Box (limited-line) store
Warehouse stores
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Convenience Store
Relatively small stores located near residential areas. Open long hours, seven days a week and carry a
variety of products with limited assortment ofmerchandise. They generally carry high-turnoverconvenience products.
charge relatively high prices and operate in a 3000 to8000 square foot area.
Cater to customers who prefer 'convenience ofbuying or shopping'.
May not carry all the items that are available insupermarkets, but they are very conveniently locatedfor customers.
Customers can get their products billed faster
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Conventional Supermarket
Focus on food and household maintenanceproducts.
Earn very limited revenues from the sale of
non-food or general merchandise goods. Self-service operation.
Self-service enhances impulse buying.
Every day low price (EDLP) policy may befollowed.
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Food based supermarket
Larger and more diversified than aconventional supermarket, but smaller andless diversified than a combination store.
The size of the store ranges from 25,000 to50,000 square feet and the store earns 20 to25 percent of its revenue from generalmerchandise goods
It provides the full range of grocery items.
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Combination Store
A blend of a super market and a generalmerchandise store,
Maintains the identity of both a food store anddrug store.
Size of a combination store ranges from30,000 to 100,000 square feet.
Designed to allow customers to have a one-
stop shopping experience. Prices are less than those in a general
merchandise store.
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Box (limited-line) Store
A food-based discount store that concentrates on asmall selection of goods.
Has limited shopping hours, limited services, andlimited stocks.
Offers a limited number of national brands.
Prices are displayed on the shelf or on overheadsigns.
Customers have to serve themselves and are notallowed to examine products.
Sells private label brands, priced 20 to 30 percentbelow market prices.
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Warehouse Stores
Warehouse stores are discount food retailerswith an average size of 100,000 square feet.
They cater to customers who look for low
price deals. Merchandise is often displayed in cut boxes
or shipping pallets and services are limited.
Availability of the goods assured as thewarehouse retailer's buy only deep price orquantity discount is offered.
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Types of Warehouse Stores
Depending on their functioning style
Warehouse showroom
Catalog showroom
Hypermarket
Warehouse club
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Warehouse Showroom
Owned by a single-line hard-good retailer.
Usually sell well-known brands of furnitureand appliances
As soon as a customer makes the selectionand places an order, the goods are shippedfrom the nearest warehouse.
offers different services like credit, delivery
and installation for extra charge. located in freestanding sites that are adjacent
to busy roads.
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Catalog Showrooms
Discount operations that offer merchandise througha catalog or a showroom.
Catalog showrooms generally offer hard goods likehouse ware, jewelry, consumer electronics etc.
Customer orders by mentioning the correspondingnumber of product in the showroom or catalog.
Delivery a few days after the order is placed.
Retailers compete on price. Concentrate on high margin merchandise
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Hyper Market
A large retail store that offers products at alow price.
A combination of a discount store and a food
based supermarket. Spread over 300,000 square feet and offers
over 50,000 different items for sale.
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Warehouse Club
A general merchandise retailer who offers alimited merchandise assortment with limitedservice at low prices to consumers as well as
small businesses. Store is located in remote locations in an area
of 100,000 sft.
Interiors are simple and services are limited.
Warehouse clubs operating on a membershipbasis are known as membership clubs.
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Retailers based on Strategic Mix -- 2
General Merchandise Retailers
Classified based on location, merchandise,price, store atmosphere, service andpromotion mix:
Specialty Stores
Variety Stores
Department stores
Off price retailer Membership Club
Flea Market
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Specialty Stores
A type of general merchandise store Sells limited lines of closely related products or
services to a select group of customers. Types - Single line specialty stores and Limited line
specialty stores. Major variable in a specialty store's strategy is the
merchandise assortment. Both high margin and low margin operators can be
found in the specialty store category.
The size of the specialty store varies based on thenature of merchandise and mode of operation. Specialty stores are located in high traffic areas like
shopping centers, downtown malls etc.
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Specialty Store -- 2
The promotional activities emphasize theuniqueness of the store and the deepassortment they provide to customers.
Category killer: It offers enormous selectionin a product category at relatively low prices.A category killer offers not only low price but
also variety within a narrow product line.
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Variety Stores
Variety stores offer a deep assortment ofinexpensive and popular goods likestationery, gift items, women's accessories,
house wares etc.
Also called 5 and 10-cent stores
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Department Stores
Department stores are large retail units thatoffer wide variety and a deep assortment ofgoods and services.
Organized into separate departments
Provide a one-stop shopping experience tocustomers.
C i i f l ifi i
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Criterion for classification as
Department Store
i. A department store should employ a minimum of fifty people.
ii. The store should generate at least 20 percent of its totalrevenue from the sale of apparel and soft goods.
iii. The store should have the following product lines: furniture
and home furnishings; appliances, radio and TV sets; ageneral line of apparel for the family; household products anddry goods.
iv. The annual sales of the department store should be under $10million, where no single product line should contribute more
than 80 percent of the total sales.-- U S Bureau of Census
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Types of Department Stores
A traditional department store offersmerchandise of average quality priced aboveaverage, with minimum customer service.
A full-line discount department store offers abroad merchandise assortment at less thanprevailing prices. Full-line discount
department stores are popular because theyoffer well-known brands at competitive prices.
F f F ll Li D
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Features of a Full – Line Department
Store
High volume, low cost, fast turnover outletwith a wide merchandise assortment.
Centralized checkout service
Self-service store A low cost model
Offers private brands for non-durables and
well-known brands for durables.
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Off-price Retailer
Offer an inconsistent assortment of branded fashion-oriented soft goods at low prices.
Purchases from manufacturers who have excessinventory
Off-price retailers get special prices frommanufactures by agreeing to order goods in the off-season.
Off price retailers sell unsuccessful samples and
products. Off-price chains do not carry out many promotional
activities.
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Classification of Off-price retailers
Outlet stores
Close outlet stores
Single-price retailers
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Membership Club
Cater to price conscious customers.
Customers pay an annual fee to become members
Very large and located in isolated areas.
Characterized by little or no advertising, plain fixtures,wide aisles, concrete floors, limited or no deliveryservices, little or no credit, and very low prices.
Get merchandise directly from manufacturers.
Also known as wholesale clubs, warehouse clubsand wholesale centers.
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Flea Market
The term "flea market" is a literal translationof the French marche aux puces, an outdoorbazaar in Paris, France.
A flea market is an outdoor or indoor facilitythat rents out space to vendors
Entrepreneurs can start business with lowinvestment.
Consists of many retail vendors offering avariety of products at discount prices.
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Service Vs Goods retail mix
As competition increased, serviceorganizations started providing services at aconvenient time and location.
Service retailing consists of the sale or rentalof an intangible activity, which usually cannotbe stored or transported, but satisfies the
need of the user/ customer.
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Types of Services
Two types:
Services along with goods,
Rental Goods Service
Owned Goods Service Non goods Service
Services without any goods (pure service).
Services that are provided without any physicalproduct or good are called pure services.
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Non – Store Retailer
Differ in the retailing methods from store retailers. Reach customers and market merchandise using
various methods like "infomercials," direct-response advertising, paper and electroniccatalogs, door-to-door selling, in-homedemonstrations, portable stalls (street vendors),and vending machines.
Non store retailing takes place in two ways: Traditional
Non traditional
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Traditional non store retailers
Direct Marketing
Direct Selling
Vending Machines
Catalog marketing Telemarketing
TV Home shopping
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Direct Marketing
"Interactive marketing system that uses one or moreadvertising media to yield a measurable responseand/or transaction at any location".
-- Direct Marketing Association (DMA)
Customer is informed about the product through nonpersonal media and the customer places an orderthrough the mail or phone.
In direct marketing, responses can be measured.
Company can concentrate its promotional activitieson potential customers.
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Direct Marketing - Advantages
The initial cost or investment for directmarketers is comparatively less
A wide geographic area is covered by the
direct marketer's promotional activities. This form of shopping allows the customer to
make purchases without having to look for aparking place or waiting in line at the cash
register.
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Direct Marketing - Disadvantages
Customers do not have the opportunityto see and feel the goods beforepurchasing them.
Cost of developing, printing and mailingthese catalogs can be very high.
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Direct Selling
"Marketing and retailing consumer goodsdirectly to the consumer that relies neither ondirect mail, product advertising nor fixed retail
outlets". -- Direct Selling Association
Encourages convenience shopping as well aspersonal touch or feel of a product.
Can also be called door- to- door selling
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Types of Direct Selling
Person to Person
Multilevel (network) marketing
Party plan
Direct selling benefits both consumers andsellers.
From the consumers' point of view goods areavailable at their convenience.
Direct selling is advantageous for retailers as itis an effective, low cost channel.
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Vending Machines
Involves coin or card-operated dispensing ofproducts.
Eliminates the use of sales personnel and
facilitates round-the- clock sales. Vending machines help customers avoid the
inconvenience of shopping in a store.
High Installation costs
Also called Automatic Merchandising.
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Catalog Marketing
Catalog marketing refers to sales madethrough catalogs mailed to a select list ofcustomers or made available in a store.
Basic product and pricing information is givenalong with instructions for placing an order.
The kind of delivery (mail, express service,
parcel post) that the customer wants can bementioned in the order
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Telemarketing
Provide more convenience and servicesatisfaction to customers,
Useful for customers who want to avoid traffic
congestion and parking problems. Allows retailers to provide customers
information on new merchandise andupcoming sales events.
Deliver merchandise to the customers'residence or hold it till it is picked up by thecustomer at a later date.
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TV Home Shopping
TV home shopping works in the followingmanner:
The merchandise items are displayed,
described and demonstrated on television. Using the toll-free number provided,
customers can place orders.
Payments are done through credit cards.
The goods are delivered by courier servicealong with a guarantee.
Non traditional non store based
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Non-traditional non store based
retailers – World Wide Web
Retailers' websites allow customers to orderwith a click of the mouse.
To attract potential customers, retailers alsosend details of new products through email tocustomers.
Use of Internet as a medium for promotingtheir goods and services all over the globe atminimum cost.
Can conduct research also on customers
Internet reduces the costs of retailers
Non-traditional non store based
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Non-traditional non store based
retailers – Video Kiosk
The term kiosk is derived from a Turkish word which means open summer house orpavilion.
Kiosks are often placed near the entrances ofshopping malls.
A video kiosk is a freestanding interactive
computer terminal that displays product andrelated information on a video screen
Non-traditional non store based
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Non-traditional non store based
retailers – Video Catalog
A video catalog is a retail catalog on a CD-ROM disk to be viewed on a computermonitor.
After viewing the catalog, the consumer cancall up the retailer to order the goods.
The disk allows the customer to quickly
gather information about the retailer'sproducts.
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Summary
Theories of Institutional Change
Wheel of Retailing
Dialectic Process
Retail Accordion Natural Selection
Classification of Retailers
Store-Based Retailer
Non Store Retailer