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Think Global Act Local;What Does 'Act Local' Mean in Retail

Think Global Act Local;What Does 'Act Local' Mean in Retail

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Published by Manoj Nakra
Retail, Globalization, Strategy
Retail, Globalization, Strategy

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Published by: Manoj Nakra on Jul 18, 2010
Copyright:Attribution Non-commercial


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Think Global Act Local: What Does ‘Act Local’ Really Mean in Retail?

I am often asked a question as to why it is necessary for a retailer in the Middle East to understand issues involved in transplanting retail brands from other countries to the region. The question is prompted by the assumption that since most retail brands we see in our markets are franchises, it is the responsibility of franchisors, and not franchisees, to tackle issues involved with successful global migration of brands. Retailers in the region, both the home grown brands and the franchisees of global corporations, can benefit from a deeper understanding of how retail brands globalize. Home grown brands benefit by becoming aware of the potential competitive moves global retail brands may or may not make to realize domestic market opportunity, and develop pre-emptive strategies to counter potential threats to their businesses. Whereas franchisees benefit by identifying issues that they need to influence in their relationships with the franchisors for the domestic success of the brand. How do retail brands globalize? Branding has always been and continues to be an important part of a manufacturers’ strategy for durable and packaged goods. Whereas retail branding, which used to be less important for clothing and other soft goods because maintaining brand-based distinctions in these products was viewed as just too difficult, has in the 90s become the sine quo non of doing retail business. A retail brand is significantly different from a product brand like Lux, and managing successful globalization of retail brands is a more complex endeavor. For an FMCG brand like Lux, beyond the product, branding predominantly relies on advertising to create a sense of identification with the brand, and successful globalization requires managing the four Ps in new markets. The globalization paradigm requires positioning the product to the new target segment, and the entire execution of the branding process is product-centric i.e. globalization starts with the product as given and rarely is their consumer pressure for becoming locally responsive beyond changing the packaging and / or marketing communication. In contrast the retail brand experience is more multisensory. The customer rarely purchases a single product but makes a choice from amongst an array of options available. The customer purchases products in an ambience created by the retailer and factors like service and in-store experience are integral to the total brand experience. The globalization of a retail brands is much more complex process and starts with re-positioning the brand in the new market which in turn requires re-assessing competition (retail competitors change with a change in geography), the product assortment, product styling, product quality, merchandising, understanding how customers shop, staff interaction, in-store and post sales service, etc. Globalization of retail brands, therefore, requires managing three more Ps to the 4Ps of marketing (people, processes, and physical ambience) and requires a much more customer-centered approach. Retailers have traditionally followed two strategies while globalizing. At one end are retailers like Zara and Starbucks, who have developed successful retail formulae that

consist of a retail format and associated codified operational systems, and they export these virtually unchanged. The successful replication of the retail brand requires new organizational capabilities to be successful – the capability of implementing the same business system in new markets (i.e. how to explain brand standards to frontline workers, and suppliers, etc. and how to ensure conformity), and how to select and manage franchisees. The benefits of such a rigid approach are many - one global management structure that controls merchandising, new product development, and marketing, and associated economies of scale in sourcing and manufacturing. The challenges of a rigid system are the difficulty of identifying good yet subservient franchisees (owner-managers who will listen), and motivating staff to deliver results through a process whose inflexibility discounts individual creativity and innovation. The rigid replication of retail concepts implicitly assumes that the brand will be ‘automatically’ repositioned in the new market i.e. the target customer and the brand-customer value proposition will fall into place. On the other end are retailers like Carrefour who have a grasp of what it takes to run hypermarkets, and whose key capabilities are developing an understanding of new markets, adapting formats to fit new markets, and linking formats to a standardized look. Carrefour leverages these capabilities in new locations by replicating hypermarkets to suit local tastes. This flexible approach is entirely customer-focussed, is based upon repositioning the hypermarket value proposition in the new geography, and its implementation requires skill, patience, time and deep pockets. Fast food chains like McDonald’s fall somewhere in between – it has rigid operational systems that it implements worldwide but makes small changes in menu in every country while maintaining its core value proposition – low cost and quality fast food. McDonald’s approach of localization is often cited as an example of ‘Think global (international best practices) and act local (adaptation to local tastes)’. In the globalization process retail brands are concurrently challenged by two contradictory impulses – to be creative and adaptive to local tastes to maximize opportunity, which puts an upward pressure on costs, and execution of concepts through standardized operational processes that reduces costs through economies of scale. Key issues in retail brand migration – repositioning, differentiation, and competition Positioning is the starting point of retail strategy, and consists of identifying customer segments of a practical size (i.e. accessible in a cost-effective manner), and understanding consumers in terms of their needs that trigger a demand for goods, how they shop for goods, how they make brand / store choice, and what services they expect when they shop. The outcome of the positioning exercise is an identification of the ‘unique customer value’ that the retail brand will provide and then engineering the multiple dimensions of the retail brand to identify and explain the store to the customer through consistent communication. The true test of correct positioning is that customers must be able to discern the value proposition and have ‘real’ reasons for consistently choosing the retail brand / store over another. A retail brand is able to achieve differentiation when a brand

is not just different but significantly more attractive. The attractiveness of a retail brand and its strategic differentiation is a function of how different a brand is with reference to its closest competitors. Let us hypothetically review the evolution of a globalization strategy for retail brand. A retail brand usually evolves in its home country where its positioning and strategic differentiation is fine tuned. As soon a brand is transplanted into a new geography it’s positioning and differentiation can be expected to be in a state of imbalance influenced by differences in consumer demographics, consumer behavior, and competition etc. Successful transplantation, therefore, requires the retail brand to be repositioned based upon redefining the target customer segment in the new geography, and adequately modifying the dimensions of the retail brand based consumer purchase and buying behaviors, to achieve strategic differentiation from competition. This repositioning and differentiating process is usually difficult to execute for retail brands that follow replication strategy. Their inflexibility often enables the agile domestic retailers to beat the international retail brands at their own game. In our markets Home Center versus Ikea is a classic example. Ikea carved a distinctive niche in the global furniture market by offering products with North European styling, merchandised in life style settings in large format stores where customers could spend time seeing various permutations and combinations of furniture in real home like settings. Ikea products were sold at discount prices based upon effective sourcing, savings on freight based upon the flat packs, and the do-it-yourself furniture assembly (Ikea transferred assembly costs to the customer). Ikea products are not of exceptional quality. They work well in economies where a large percentage of the population moves every year, and can afford to treat furniture as disposable. Ikea replicated its concept in the region with strict adherence to global standards. Walking into an Ikea in the region is like walking into any Ikea store overseas. In the replication of its successful global formulae Ikea exhibited a poor understanding of the buyer behavior of the local multi-ethnic community. For a majority of South Asians furniture purchase is a long term capital investment and they are not attracted to disposable furniture. The regional customers also prefer more ornate furniture and North European styling is too plain. Ikea’s adaptive rigidity has enabled many domestic competitors to upgrade their retail formats taking the best of Ikea’s model. Home Center, a home grown retailer, which operated from a warehouse in Sharjah in 1995, has evolved into a major furniture and household retailer by cloning the Ikea model. It showcases furniture of a better quality, more appropriate designs and at comparable prices to Ikea – a very strong value proposition. Carrefour, even though it follows a reasonably flexible model of developing hypermarkets to suit local tastes, underestimated the potential of local retailers in not only replicating the model but even bettering it. As per newspaper estimates Lu Lu chain of supermarkets and hypermarkets has a sales revenue of AED 1.75 billion in 2004 whereas Carrefour sales are estimated at AED 0.75 billion for the same period. Carrefour entered the UAE market around the same time as the Lu Lu group was embarking on a growth path. Carrefour and Lu Lu differ in a very simple positioning strategy. Whereas Carrefour is predominantly positioned as destination stores in shopping malls, Lu Lu center has

taken the Carrefour formula to the neighborhood through a variety of formats – supermarkets, department stores, hypermarkets, etc. demonstrating a flexibility of format to give convenience and value to customers. Same value at more convenient location in a traffic congested world is a strong value proposition. Implications for action In a retail buying and merchandising class I teach I ask the students whether a retailer is an agent of the retail brand owner or the an agent of the customer. It is rare that students answer that a retailer is an agent of the customer. The economic reality is that retail industry exists because it serves an economic purpose – the role of accumulating merchandise in one location that fulfills needs of consumers, needs that each manufacturer / supplier cannot efficiently fulfill on their own. This perspective change requires a 180 degrees shift in operational emphasis – from being distributors and implementing what the retail brand owner wants to achieve, to serving customers in a cost-effective manner, and often influencing the retail brand owner to become more responsive to both local customer needs, and domestic competition. This will require negotiating more wiggle room in franchise agreements that often dictate merchandise, merchandising, and promotion decisions. Retailers, who have abdicated much of their stores’ marketing and positioning responsibilities to the manufacturers or suppliers, conditioned by the marketing and promotional allowances they can negotiate, may need to take a more active interest and influence the retail brand owners to appreciate ground reality and support proper brand positioning. I often wonder why no local distributor / retailer have influenced foreign retail brands to launch a range of footwear for Arab men. Retail brands also need to pressurize the franchisees to become more responsive to positioning the brand. Brand managers or buyers often tend to cherry-pick high sales potential assortments, ignoring those with low volume potential, and destroying the brand image. I am always unable to get relaxed fit Levi’s jeans and relaxed Dockers in the brand stores in the Gulf. Conclusions ‘Act local’ in retail business requires brand repositioning that creates a distinctive ‘pull’ in the minds of consumers. Traditional paradigms of globalization, replication or reinvention, are useful but weak concepts for the retail brand migration. Successful migration of retail brands requires focus upon the details of brand re-positioning and strategic differentiation while balancing the contradictory pressures of how much to adapt and how much to standardize.

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