Retail Management

BRAND IMAGE
- Retailers build customer loyalty by developing a
well-known, attractive image
CHAPTER 5: RETAIL MARKET STRATEGY - Facilitate customer loyalty because they reduce
RETAIL STRATEGY the risk associated with purchases
- A statement identifying: - Assure customers that they will receive a
o Retailer’s target market consistent level of quality and satisfaction
o Format and resources the retailer plans - Create an emotional tie with customers that leads
to use to satisfy the target market’s them to trust the retailer.
needs - Reflects positioning strategy
o The bases on which the retailer plans to
build a sustainable competitive POSITIONING
advantage - Design and implementation of a retail mix to
create an image of the retailer in the customer’s
TARGET MARKET mind relative to its competitors
- Retail market segment
- Group of consumers with similar needs and a PERCEPTUAL MAP
group of retailers that satisfy those needs using - Represent the customer’s image and preferences
similar retail channels and format
- Geographic, demographic, lifestyle, buying
situation benefits sought
- Describes the nature of the retailer’s operations
(its retail mix)
o Type of merchandise and services
offered
o Pricing policy
o Advertising and promotion programs
o Store design and visual merchandising
o Typical locations
o Customer services

SUSTAINABLE COMPETITIVE ADVANTAGE

- One of the retailer maintains over its competition
that is not easily copied by competitors, can last
over a long period of time
- Final element in a retail strategy UNIQUE MERCHANDISE
- Approach to building a sustainable competitive - Victoria’s Secret, Apple, and Lululemon create
advantage loyalty by offering specific items that customers
- Retailer builds a wall around its battle position cannot find anywhere else
(around its present and potential customers and - Providing dedicated in-store experiences that
its competitors) match the unique products
- High walls = hard for external competitors - Private-label, store brands, own brands
- Approaches for developing a sustainable
competitive advantage: CUSTOMER SERVICE
o Building strong relationships with - Consistently offering good services is difficult
customers - Retail employees will always be less consistent
o Building strong relationships with than machines
suppliers - Employees will never provide a completely
o Achieving efficient internal operations consistent level of service, (vary in their training,
- Involves developing an asset motivation, and mood)
o Loyal customers - It takes considerable time and effort to build a
o Strong vendor relationships tradition and reputation for customer service
o Committed effective human resources - Once a retailer earned a service reputation, it can
o Efficient systems sustain this advantage for a long time
o Attractive locations
CUSTOMER RELATIONSHIP MANAGEMENT PROGRAMS
- Customer relationship management (CRM)
RELATIONSHIPS WITH CUSTOMERS – CUSTOMER LOYALTY
programs – loyalty or frequent-shopper programs
CUSTOMER LOYALTY
- Focus on identifying and building loyalty with a
- Customers are committed to buying merchandise
loyalty with a retailer’s most valued customers
and services from a particular retailer
- Involve offering customers rewards based on the
- Customers will be reluctant to switch and
amount of services or merchandise they purchase
patronize a competitive retailer
 - Airlines offer free tickets to travelers who have GROWTH OPPORTUNITIES
flown a prescribed number of miles
- Retailers have the greatest competitive
- Local sandwich shops give customers a free
advantage and most success when they engage
sandwich for each 10 they purchase
in opportunities that are similar to their present
retail operations and markets
RETAIL COMMUNITY
MARKET PENETRATION
- Some retailers use their websites and social media
- Directed toward existing customers using the
to develop retail communities
retailer’s present retailing format
- Group of consumers who have shared
involvement with a retailer - Involve either attracting new customers from the
retailer’s current target market who don’t
- Members share information with respect to the
patronize the retailer currently or devising
retailer’s activities
approaches that get current customers to visit
- Increased involvement in the community by its
and/or buy more merchandise on each visit
members leads to a greater emotional feeling and
- Include opening more stores in the target market
loyalty toward the retailer
and/or keeping existing stores open for longer
hours
RELATIONSHIPS WITH SUPPLIERS - Displaying merchandise to increase impulse
- Develop strong relationships with companies that purchases and training salespeople to cross-sell
provides merchandise and services to the retailer - Have the greatest chances of succeeding
o Real estate developers, advertising - Build on the retailer’s present bases of advantage
companies, transportation companies and don’t involve entering new, unfamiliar
- Most important are relationships with vendors markets or operating new, unfamiliar retail
- Like relationships with customers, developed over formats
a long time and may not easily offset by a
competitor CROSS-SELLING
- Sales associates in one department attempt to sell
EFFICIENCY OF INTERNAL OPERATIONS complementary merchandise from other
departments
- Enable retailers to have a cost advantage over - Sales associate who just sold a Blu-ray player
competitors or offer customers more benefits might walk the customer to the accessories
than customers at the same cost department to sell special cables to improve the
performance of the player
HUMAN RESOURCE MANAGEMENT
- Employees play a major role providing services to MARKET EXPANSION
customers and building customer loyalty - Using retailer’s existing retail format in new
- Some retailers view employees as an expense that
market segments
needs to be reduced over the long run
- Highly successful retail chains invest heavily in RETAIL FORMAT DEVELOPMENT
their store employees while still achieving low - An opportunity in which a retailer develops a new
prices, solid financial performance, and better retail format – a format with a different retail mix
customer service than their competitors – for the same target market
- Underinvesting in employees makes operations
more inefficient and is much less profitable DIVERSIFICATION
- Retailer introduces a new retail format directed
DISTRIBUTION AND INFORMATION SYSTEMS toward a market segment that’s not currently
- Offers an opportunity for retailers to reduce served by the retailer
operating costs - Related or unrelated
- Purchase data collected provide an opportunity to - Least opportunity to exploit a competitive
tailor store merchandise assortments to the advantage
market served by each of its stores and to tailor
promotion to the specific needs of individual RELATED
customers - Retailer’s target market and retail format share
something in common with the new opportunity
LOCATION - Purchasing from the same vendors, operating in
- Most pervasive form of advantage similar locations, using the same distribution or
- Critical opportunity for developing competitive management information system, advertising in
advantage the same newspapers to similar target markets
- Most important factor determining which store a
consumer patronizes. UNRELATED
- Sustainable competitive advantage because it is - Little commonality between the retailer’s present
not easily duplicated
business and the new growth opportunity
VERTICAL INTERGRATION o Auchan, Carrefour, Ito-Yokado, Metro,
- Describes diversification by retailers into Tesco, Walmart, Seven & I
wholesaling or manufacturing - Doing business in China is challenging, operating
- Some retailers go beyond designing their private- costs are increasing, managerial talent is
label merchandise to owning factories that becoming more difficult to find and retain,
manufacture the merchandise underdeveloped and inefficient supply chain
- Integrating backward = risky investment – predominates
requisite skills to make are different from those
associated retailing them BRAZIL
- Retailers and Manufacturers have different - Largest population and strongest economy in
customers Latin America
o Manufacturers – Retailers - A country of many poor people and a few very
o Retailers – Consumers wealthy families
- Brazilian retailers developed some very
ATTRACTIVENESS OF INTERNATIONAL MARKETS innovative practices for retailing to low-income
families (offering credit and installment practices)
- Three factors used to determine this: - Very wealthy Brazilians provide a significant
o Potential size of the retail market in the market for luxury goods and retailers
country - Market is just a little smaller than Australia
o Degree to which the country does and
can support the entry of foreign
RUSSIA
retailers engaged in modern retail - Impediments to market entry are less visible but
practices more problematic
o Risks or uncertainties in sales and - 2015, ranked as one of the countries in terms of
profits retail growth
- Economic and political issues challenge its retail
INDIA growth prospects
- Retail industry is divided into organized and - Market is too big for retail firms to ignore
unorganized sectors - Corruption is rampant, and various administrative
authorities can impede operations if they do not
UNORGANIZED RETAILING receive what they regard as appropriate bribe
- Includes small independent retailers payments
o Local kirana (grocery - small - Severe logistical challenges in supporting their
neighborhood) operations including long delays at borders and
o Owner-operated general stores ports and a scarcity of containers
o Paan/beedi shops (cigarettes, tobacco, - Quality of domestic products tends to be poor,
yung nginunguyang dahoon) retailers cannot rely on local suppliers
o Convenience stores - A solution might come in the form of Russia’s
o Handcart and street vendors booming e-commerce, which attracts retailers
- Most Indians shop in open markets and the such as Amazon and Alibaba
millions of independent kirana - Russia’s internet market is Europe’s largest
- World’s largest pluralistic democracy - International sanctions, in response to its
- Conglomeration of discrete markets aggressive international involvements, combined
- Previously, government regulations greatly with fluctuations in oil prices, threaten to push it
restricted foreign investments in retailing into a financial crisis
- Today, though some of the restrictions have been - Uncertain international relations can create
relaxed, foreign retailers still must comply with a further challenges for retailers
myriad of regulations before opening stores and
shipping merchandise
o Taxes for moving goods to different KEYS TO SUCCESS IN GLOBAL RETAILING
states and even within states GLOBALLY SUSTAINABLE COMPETITIVE ADVANTAGE
- Entry into nondomestic markets is most
CHINA successful when the expansion opportunity builds
- Government regulations are much less onerous on the retailer’s core bases of competitive
than in India advantage
- Direct foreign investment is encouraged
- Ranked at the top emerging retail market in A.T. ADAPTABILITY
Kearny’s annual Global Retail Development Index - Recognize cultural differences and adapt their
(GRDI) core strategy to the needs of local markets
- Even as growth in its gross domestic product has
slowed, China maintains a thriving retail market GLOBAL CULTURE
- 7 global food retailers maintain strong operations - To be global, retailers must think globally
- It is not sufficient to transplant a home-country
culture and infrastructure to another country
FINANCIAL RESOURCES - Describes how retailers select target market
- Expansion into international markets requires a segments, determine the appropriate retail
long term commitment and considerable up-front format, and build sustainable competitive
planning advantages
- Retailers find it very difficult to generate short- - It is not always necessary to go through the entire
term profits when they make the transition to process each time a strategy and plan are
global retailing developed
- Have the ability to keep investing in projects long - Can be used formulate strategic plans at different
enough to become successful levels within a retail corporation

ENTRY STRATEGIES 1. DEFINE THE BUSINESS MISSION

DIRECT INVESTMENT 2. CONDUCT A SWOT ANALYSIS
- Occurs when a retail firm invests in and owns a 3. IDENTIFY STRATEGIC OPPORTUNITIES
retail operation in a foreign country 4. EVALUATE STRATEGIC OPPORTUNITIES
- Requires the highest level of investment and 5. ESTABLISH SPECIFIC OBJECTIVES AND ALLOCATE
exposes the retailer to the greatest risks RESOURCES
- Also has the highest potential returns 6. DEVELOP A RETAIL MIX TO IMPLEMENT
- Key advantage: retailer has complete control of STRATEGY
the operations 7. EVALUATE PERFORMANCE AND MAKE
ADJUSTMENTS
JOINT VENTURE
- Formed when the entering retailer pools its STEP 1: DEFINE THE BUSINESS MISSION
resources with a local retailer to form a new - MISSION STATEMENT – broad description of a
company in which ownership , control, and profits retailer’s objectives and the scope of activities it
are shared plans to undertake
- Reduces the entrant’s risks - Attempts to answer 2 main questions:
- Local provides an understanding of the market o What type of business are we?
and has access to local resources (vendors, real o What do we need to do to accomplish
estate) our goals and objectives?
- Many foreign countries require that foreign - Must be answered at the highest corporate levels
entrants partner with domestic firms - Principle objective of a publicly held firm is to
- Problems arise if the partners disagree or the maximize its stockholders’ wealth, firm also are
government places restrictions on the concerned about their impact on society
repatriation of profits
STEP 2: CONDUCT A SWOT ANALYSIS
STRATEGIC ALLIANCE - Involves an analysis of a retailer’s internal
- A collaborative relationship between environment (strengths and weaknesses) and
independent firms external (opportunities and threats)
- A retailer might enter an international market
through direct investment but use independent INTERNAL ENVIRONMENT
firms to facilitate its local logistical and - Unique strategic capabilities relative to its
warehousing activities competition
o Assets, knowledge, skills that the
FRANCHISING retailer possess
- Offers the lowest risk and requires the least o Loyalty of its customers, quality of its
investment relationships with its vendors
- Also has the lowest potential return on - Reflect the retailer’s ability to develop a strategic
investment advantage as an opportunity it is considering
- Retailer has limited control over the retail
operations in the foreign country ELEMENTS IN A STRENGTHS AND WEAKNESSES
- Any potential profits must be split with the ANALYSIS
franchisee - Capabilities and
- Once the franchise is established, there is also the experience of top
threat that the franchisee will break away and management
operate as a competitor under a different name MANAGEMENT - Depth of management –
- Expanding retailer runs the risk of creating its own CAPABILITY capabilities of middle
local competitor management
- Management’s
commitment to firm
STRATEGIC PLANNING PROCESS
- Cash flow from existing
- Set of steps a retailer goes through to develop a FINANCIAL RESOURCES business
strategy and plan - Ability to raise debt
equity financing
 - Overhead cost structure - Market’s dominated by
- Quality of operating large competitors with
systems scale economies are
- Distribution capabilities typically unattractive
- Management because the dominant
OPERATIONS information systems firms have sustainable cost
- Loss prevention systems advantages
- Inventory control - Bargaining power of
systems vendors – markets are less
attractive when only a few
- Knowledge and skills of vendors control the
buyers merchandise sold in the
- Relationships with market
vendors - Vendors have the
MERCHANDISING - Capabilities in opportunity to dictate
CAPABILITIES developing private prices and other terms
brands COMPETITIVE FACTORS reducing the retailer’s
- Advertising and profit
promotion capabilities - Competitive rivalry –
- Management frequency and intensity of
capabilities reactions to actions
STORE MANAGEMENT - Quality of sales undertaken by
CAPABILITIES associates competitors
- Commitment of sales - High rivalry = price wars
associates to firm - Retailers attempt to
“steal” employees from
LOCATIONS one another
CUSTOMERS - Loyalty - Advertising expense
increase
EXTERNAL ENVIRONMENT - Profit potential falls
- Aspects of the environment that might positively - Conditions include: large
or negatively affect the retailer’s performance number of competitors
- Factors associated with the market, competition, that are all about the same
and environmental dynamics are typically size, slow growth, high
beyond the retailer’s control fixed costs, lack of
perceived differences
ELEMENTS IN OPPORTUNITIES AND THREATS ANALYSIS between competing
- Attractiveness of a target retailers
market in which a retailer - Technological,
is involved or considering economic/consumer/social
is affected by the size of and regulatory changes
the market, market - Retailers need to answer
growth, cyclicality of sales, three main questions:
MARKET FACTORS and seasonality.
- Market size indicates a 1.What new developments
retailer’s opportunity to or changes may occur,
generate revenues to such as new technologies
cover its investment and regulations or
- Affected by barriers to different social factors and
entry, bargaining power of ENVIRONMENTAL economic conditions?
vendors, competitive DYNAMICS 2.What is the likelihood that
rivalry these environmental
COMPETITIVE FACTORS - Retail markets are more changes will occur? What
attractive when barriers to key factors affect whether
entry are high these changes will occur?
- Barriers to entry – 3.How will these changes
conditions that make it affect each retail market,
difficult for other firms to the firm, and its
enter the market. competitors?
- Scale economies – cost
advantages due to a STEP 3: IDENTIFY STRATEGIC OPPORTUNITIES
retailer’s size - Kelly Bradford presently competes in gift retailing
using a specialty store format
 - The strategic alternatives she is considering are CUSTOMER LOYALTY - Customers’ commitment to
defined in terms of the growth opportunities shopping at a store.

STEP 4: EVALUATE STRATEGIC OPPORTUNITIES CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

- Determines the retailer’s potentials to establish a PROGRAM - The set of activities designed to identify and
sustainable competitive advantage and reap build the loyalty of the retailer’s most valuable customers.
long-term profits from the opportunities being Also called loyalty program or frequent-shopper program.
evaluated
- Retailer must focus on opportunities that utilize DIVERSIFICATION GROWTH OPPORTUNITY - A strategic
its strengths and its competitive advantage investment opportunity that involves an entirely new retail
format directed toward a market segment not presently
STEP 5: ESTABLISH SPECIFIC OBJECTIVES AND ALLOCATE being served.
RESOURCES
- Retailer’s overall objective is included in the FREQUENT SHOPPER PROGRAM - Activities designed to
mission statement identify and build the loyalty of the retailer’s most valuable
- The specific objectives are goals against which customers. Also called loyalty program.
progress toward the overall objective can be
measured JOINT VENTURE - In the case of global expansion, an entity
- 3 components of specific objectives: formed when the entering retailer pools its resources with
o Performance sought including a a local retailer to form a new company in which ownership,
numerical index against which progress control, and profits are shared.
may be measured
o Time frame within which the goal is to LOYALTY PROGRAM - Activities designed to identify and
be achieved build the loyalty of the retailer’s most valuable customers.
o Level of investment needed to achieve Also called frequent-shopper program.
the objective
- Performance levels are financial criteria (ROI, MARKET EXPANSION GROWTH OPPORTUNITY - A
sales, or profits) strategic investment opportunity that employs the existing
retail format in new market segments.
STEP 6: DEVELOP A RETAIL MIX TO IMPLEMENT THE
STRATEGY MARKET PENETRATION GROWTH OPPORTUNITY - An
- Develop a retail mix for each opportunity in investment opportunity strategy that focuses on increasing
which an investment will be made and control sales to present customers using the present retailing
and evaluate performance format.

STEP 7: EVALUATE PERFORMANCE AND MAKE MISSION STATEMENT - A broad description of the scope of
ADJUSTMENTS activities a business plans to undertake.
- Final step
- If the retailer is meeting or exceeding its OPPORTUNITIES AND THREATS ANALYSIS - Assessments of
objectives, changes aren’t needed features of the environment that might positively or
- If retailers fail to meet objectives, reanalysis is negatively affect the retailer’s performance.
required
- Reanalysis starts with reviewing the OWN BRAND - Products developed and marketed by a
implementation programs retailer and available for sale only by that retailer. Also
- May indicate that the strategy (or even the called store brand, private-label brand, or house brand.
mission statement) needs to be reconsidered
- Conclusion would result in starting a new PERCEPTUAL MAP - A graphic depiction of customers’
planning process (new SWOT) images of and preferences for retailers.

KEY TERMS: POSITIONING - The design and implementation of a retail

BARGAINING POWER OF VENDORS - A characteristic of a mix to create in the customer’s mind an image of the
market in which retailers are so dependent on large, retailer relative to competitors.
important vendors that their profits are adversely affected.
PRIVATE-LABEL BRAND - Products developed and
BARRIERS TO ENTRY - Conditions in a retail market that marketed by a retailer and available for sale only by that
make it difficult for firms to enter the market. retailer. Also called store brand, house brand, or own
brand.
COMPETITIVE RIVALRY - The frequency and intensity of
reactions to actions undertaken by competitors. RELATED DIVERSIFICATION GROWTH OPPORTUNITY - A
diversification opportunity strategy in which the retailer’s
CROSS-SELLING - When sales associates in one department present offering and market share something in common
attempt to sell complementary merchandise from other with the market and format being considered.
departments to their customers.
RETAIL COMMUNITY - A group of consumers who have a of a retailer relative to its competitors that can be
shared involvement with the retailer. maintained over a considerable time period.

RETAIL FORMAT - The retailer’s type of retail mix (nature

of merchandise and services offered, pricing policy,
advertising and promotion program, approach to store
design and visual merchandising, and typical location).

RETAIL FORMAT DEVELOPMENT GROWTH OPPORTUNITY

- An investment opportunity strategy in which a retailer
offers a new retail format – a format involving a different
retail mix – to the same target market.

RETAIL MARKET SEGMENT - A group of customers whose

needs will be satisfied by the same retail offering because
they have similar needs and go through similar buying
processes.

RETAIL STRATEGY - A statement that indicates (1) the

target market toward which a retailer plans to commit its
resources, (2) the nature of the retail offering that the
retailer plans to use to satisfy the needs of the target
market, and (3) the bases on which the retailer will
attempt to build a sustainable competitive advantage.

SWOT ANALYSIS - An assessment of the retailer’s internal

and external environment, as represented by strengths,
weaknesses, opportunities, and threats.

STORE BRAND - Products developed and marketed by a

retailer and available for sale only by that retailer. Also
called private-label brand, house brand, or own brand.

TARGET MARKET - The market segment(s) toward which

the retailer plans to focus its resources and retail mix.

UNRELATED DIVERSIFICATION GROWTH OPPORTUNITY

- Diversification in which there is no commonality between
the present business and the new business.

VERTICAL INTEGRATION - An example of diversification by

retailers involving investments by retailers in wholesaling
or manufacturing merchandise.

STRATEGIC ALLIANCE - Collaborative relationships

between independent firms. For example, a foreign retailer
might enter an international market through direct
investment but develop an alliance with a local firm to
perform logistical and warehousing activities.

STRATEGIC RETAIL PLANNING PROCESS - The steps a

retailer goes through to develop a strategic plan. It
describes how retailers select target market segments,
determine the appropriate retail format, and build
sustainable competitive advantages.

STRENGTHS AND WEAKNESSES ANALYSIS - A critical

aspect of the situation audit in which a retailer determines
its unique capabilities – its strengths and weaknesses
relative to competition.

SUSTAINABLE COMPETITIVE ADVANTAGE - A distinct

competency