RETAIL MANAGEMENT

LECTURE 5: RETAIL MARKET STRATEGY

More Attention to Long-term Strategic Planning Than Ever Before

• Due to the emergence of
• New competitors
• New formats
• New technologies
• Shifts in customer needs

TARGET MARKET AND RETAIL FORMAT

• RETAILING CONCEPT
• retail management orientation that focuses on determining the needs of the retailer’s target market and
satisfying those needs more effectively and efficiently than competitors do.
• Successful retailers are customercentric.
• They focus on the needs of their customers and satisfy those needs better than their competitors do.
• RETAIL MARKET
• group of consumers with similar needs (a market segment) and a group of retailers that satisfy those needs using
a similar retail format.

Elements in Retail Strategy

• Target Market
• the market segment(s) toward which the retailer plans to focus its resources and retail mix
• Retail Format
• the nature of the retailer’s operations—its retail mix
• Sustainable Competitive Advantage
• an advantage over the competition

Criteria For Selecting A Target Market

• Attractiveness -- Large, Growing, Little Competition More Profits
• Consistent with Your Competitive Advantages

BUILDING A SUSTAINABLE COMPETITIVE ADVANTAGE

• The final element in a retail strategy is the retailer’s approach to building a sustainable competitive advantage.
• The retailer, in effect, builds a wall around its position in a retail market, that is, around its present and potential
customers and its competitors.
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LECTURE 5: RETAIL MARKET STRATEGY

Methods of Developing Sustainable Competitive Advantage

• The final element in a retail strategy is the retailer’s approach to building a sustainable competitive advantage.
• The retailer, in effect, builds a wall around its position in a retail market, that is, around its present and potential
customers and its competitors.

Sources of Competitive Advantage

BUILDING A SUSTAINABLE COMPETITIVE ADVANTAGE

• Three Approaches for Developing a Sustainable Competitive Advantage
• building strong relationships with customers,
• building strong relationships with suppliers,
• achieving efficient internal operations.

• Customer Loyalty
• customers are committed to buying merchandise and services from a particular retailer.
• More than simply liking one retailer over another
• Customers will be reluctant to patronize competitive retailers
• Retailers Build Loyalty By:
• Developing a strong brand image
• Having a clear and consistent positioning
• Providing outstanding customer service
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LECTURE 5: RETAIL MARKET STRATEGY

• Undertaking Customer Relationship Management (CRM) programs.

• Retail Branding
• stores use brand (store’s name and store brands – private label brands) to build customer loyalty

• Retail Brand
• Can create an emotional tie with customers that build their trust and loyalty
• Facilitates store loyalty because it stands for a predictable level of quality

Brand Image
• Retailers build customer loyalty by developing a well-known, attractive image of their brand, their name.
• Strong brand images facilitate customer loyalty because they reduce the risks associated with purchases.
• They assure customers that they will receive a consistent level of quality and satisfaction from the retailer.
• The retailer’s image can also create an emotional tie with a customer that leads the customer to trust the
retailer.
Positioning
• A retailer’s brand image reflects its positioning strategy.
• The design and implementation of a retail mix to create an image of the retailer in the customer’s mind relative to its
competitors.
• PERCEPTUAL MAP is frequently used to represent the customer’s image and preferences for retailers.
• developed so that the distance between two retailers’ positions on the map indicates how similar the stores
appear to consumers.
• Example of Positioning

Unique Merchandise
• It is difficult for a retailer to develop customer loyalty through its merchandise offerings because most competitors can
purchase and sell the same popular national brands.
• PRIVATE-LABEL BRANDS (AKA store brands or own brands)
• products developed and marketed by a retailer and available only from that retailer.

Customer Service
• Retailers also can develop customer loyalty by offering consistent excellent customer service.
• “WOW Stories”—true stories of employees who have gone above and beyond conventional customer service
expectations.

Customer Relationship Management Programs

• AKA loyalty or frequent shopper programs
• Activities that focus on identifying and building loyalty with a retailer’s most valued customers
• Involve offering customers rewards based on the amount of services or merchandise they purchase.
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LECTURE 5: RETAIL MARKET STRATEGY

Relationships with Suppliers

• A second approach for developing competitive advantage is developing strong relationships with companies that provide
merchandise and services to the retailer.
• By strengthening relationships with each other, both retailers and vendors can develop mutually beneficial assets and
programs that will give the retailer-vendor pair an advantage over competing pairs.

Efficiency of Internal Operations

• Retailers can develop competitive advantages by having more efficient internal operations.
• Efficient internal operations enable retailers to have a cost advantage over competitors or offer customers more benefits
than do competitors at the same cost.
• Low Cost - Efficiency Through Coordination
• Electronic Data Interchange (EDI)
• Collaborative Planning and Forecasting to Reduce Inventory and Distribution Costs
• Exclusive Sale of Desirable Brands
• Special Treatment
• Early Delivery of New Styles
• Shipment of Scare Merchandise

Efficiency of Internal Operations: Human Resources Management

• Retailing is a labor-intensive business
• Employees play a major role providing services for customers and building customer loyalty.
• Knowledgeable and skilled employees committed to the retailer’s objectives are critical assets that support the success of
many retailers.
• “Employees are key to build a sustainable competitive advantage”
• Strategies for Recruiting and Retaining Talented Employees
• Employee Branding
• Develop positive organizational culture
Efficiency of Internal Operations: Distribution and Info Systems
• All retailers strive to reduce operating costs—the costs associated with running the business—and make sure that the
right merchandise is available at the right time and place.
• The use of sophisticated distribution and information systems offers an opportunity for retailers to achieve these
efficiencies.

Location
• What are the three most important things in retailing?
• “location, location, location”
• Location is a critical opportunity for competitive advantage:
• location is the most important factor determining which store a consumer patronizes.
• location is a sustainable competitive advantage because it is not easily duplicated.
• A high density of Starbucks stores
• Creates a top-of-mind awareness
• Makes it very difficult for a competitor to enter a market and find a good locations

Multiple Sources of Advantage

• To build an advantage that is sustainable for a long period of time, retailers typically cannot rely on a single approach,
such as good locations or excellent customer service.
• Instead, they use multiple approaches to build as high a wall around their position as possible.
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LECTURE 5: RETAIL MARKET STRATEGY

Growth Strategies
• Market Penetration
• Market Expansion
• Retail Format Development
• Diversification
• Related vs. Unrelated

Growth Opportunities

Market Penetration
• Growth opportunity directed toward existing customers using the retailer’s present retailing format.
• Such opportunities involve either attracting new consumers from the retailer’s current target market who don’t patronize
the retailer currently or devising approaches that get current customers to visit the retailer more often or buy more
merchandise on each visit.
• Opening more stores in the target market
• Keeping existing stores open for longer hours
• Displaying merchandise to increase impulse purchases
• Training salespeople to cross-sell.
• CROSS-SELLING means that sales associates in one department attempt to sell complementary
merchandise from other departments to their customers.

Market Expansion
• Market expansion growth opportunity involves using the existing retail format in new market segments

Retail Format Development

• An opportunity in which a retailer develops a new retail format—a format with a different retail mix—for the same target
market.

Diversification
• Introduces a new retail format toward a market segment that is not currently served by the retailer
• RELATED DIVERSIFICATION: the retailer’s present target market or retail format shares something in common
with the new opportunity
• UNRELATED DIVERSIFICATION: has little commonality between the retailer’s present business and the new
growth opportunity.
• designing private-label merchandise is a related diversification because it builds on the retailer’s knowledge of its
customers, but actually making the merchandise is an unrelated diversification.
• VERTICAL INTEGRATION describes diversification by retailers into wholesaling or manufacturing.
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LECTURE 5: RETAIL MARKET STRATEGY

• Forward Vertical Integration

• Backward Vertical Integration

Growth Opportunities and Competitive Advantage

• MARKET PENETRATION GROWTH OPPORTUNITIES have the greatest chances of succeeding because they build on the
retailer’s present bases of advantage and don’t involve entering new, unfamiliar markets or operating new, unfamiliar
retail formats.
• When retailers pursue MARKET EXPANSION OPPORTUNITIES, they build on their advantages in operating a retail format
and apply this competitive advantage in a new market.
• A retail format DEVELOPMENT OPPORTUNITY builds on the retailer’s relationships and loyalty of present customers.
• Even if a retailer doesn’t have experience and skills in operating the new format, it hopes to attract its loyal
customers to it.
• Retailers have the least opportunity to exploit a competitive advantage when they pursue DIVERSIFICATION
OPPORTUNITIES.

Global Growth Opportunities

• China
• Increasing operating costs
• Lack of managerial talent
• Underdeveloped and inefficient supply chain
• India
• Prefers small family-owned stores
• Restricts foreign investment

Key to Success in Global Retailing

• Globally sustainable competitive advantage
• Adaptability
• Global Culture
• Financial Resources

Globally Sustainable Competitive Advantage

• Entry into nondomestic markets is most successful when the expansion opportunity builds on the retailer’s core
bases of competitive advantage.
• Low cost, efficient operations
• Strong private label brands
• Fashion Reputation
• Category dominance
Adaptability
• Recognize cultural differences and adapt their core strategy to the needs of local markets.

Global Culture
• To be global, retailers must think globally.
• Key to Success in Global Retailing

Entry Strategy
• Direct Investment
• occurs when a retail firm invests in and owns a retail operation in a foreign country.
• This entry strategy requires the highest level of investment and exposes the retailer to the greatest risks,
but it also has the highest potential returns.
• A key advantage of direct investment is that the retailer has complete control of the operations.
• Joint Venture
• Formed when the entering retailer pools its resources with a local retailer to form a new company in
which ownership, control, and profits are shared.
• Reduces the entrant’s risks.
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LECTURE 5: RETAIL MARKET STRATEGY

• In addition to sharing the financial burden, the local partner provides an understanding of the market
and has access to local resources, such as vendors and real estate.
• Problems with this entry approach can arise if the partners disagree or the government places
restrictions on the repatriation of profits.
• Strategic Alliance
• Collaborative relationship between independent firms.
• Franchising
• Offers the lowest risk and requires the least investment.
• Retailer has limited control over the retail operations in the foreign country, its potential profit is
reduced, and the risk of assisting in the creation of a local domestic competitor increases.

Strategic Retail Planning Process

• Set of steps a retailer goes through to develop a strategy and plan.
• It describes how retailers select target market segments, determine the appropriate retail format, and build sustainable
competitive advantages.
• The planning process can be used to formulate strategic plans at different levels within a retail corporation.

Stages in the Strategic Retail Planning Process

Step 1: Define the Business Mission

• MISSION STATEMENT is a broad description of a retailer’s objectives and the scope of activities it plans to undertake.
• Defines the general nature of the target segments and retail formats on which the firm will focus.
• Answers:
• What business are we in?
• What should our business be in the future?
• Who are our customers?
• What are our capabilities?
• What do we want to accomplish?

Step 2: Conduct a Situation Audit

• An analysis of the opportunities and threats in the retail environment and the strengths and weaknesses of the retail
business relative to its competitors.
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LECTURE 5: RETAIL MARKET STRATEGY

• Elements in a Situation Audit

• Market Factors
• Market size – large markets attractive to large retail firms
• Growth – typically more attractive than mature or declining
• Seasonality – can be an issue as resources are necessary during peak season only
• Business cycles – retail markets can be affected by economic conditions – military base towns
• Competitive Factors
• Barriers to entry
• Scale economies of big box retailers
• Service and unique, high-end products of small retailers
• Bargaining power of vendors
• Markets are less attractive when only a few vendors control the merchandise sold within it
• Competitive Factors
• Competitive rivalry
• Defines the frequency and intensity of reactions to actions undertaken by competitors
• Conditions leading to intense rivalry: a large number of same size retailers, slow growth, high fixed costs,
a lack of perceived differences between competing retailers
• Questions for Analyzing the Environment
• New developments or changes -- technologies, regulations, social factors, economic conditions
• Likelihood changes will occur
• Key factors determining change
• Impact of change on retail market firm, competitors

Performing a Self-Analysis
• At what is our company good?
• In which of these areas is our company better than our competitors?
• In which of these areas does our company’s unique capabilities provide a sustainable advantage or a basis for developing
one?