Retailer Positioning: Strategy is in Detail Positioning in retail is the basis of how one store competes with another retail

store; it starts by defining target consumers in terms of distinctive needs, and ends when unique set of executable action steps are identified to achieve an identity in the minds of customers, an identity that customers experience in the store and distinguish in their minds. A retail identity could be like Wal-Marts Every Day Low Price (note not the lowest price) or Whole Food Supermarkets (the fastest growing grocer in USA) Worlds Leading Natural and Organic Foods Supermarket. I am a believer that positioning is best based upon value provided to customers and not on price. Price is a positioning option only and only if a retailer has an innovative approach to being the lowest cost operator. Wal-Marts pricing is based upon the competitive landscape. Where it has head-to-head competition in geographic proximity, it avoids price discounting versus competition, a potentially mutually destructive strategy. But where it has low competition, pricing often is above average. And where it has somewhat distant competition, it discounts to attract consumers within the proximate geography. Note, however, that it defines competition very carefully K-Mart or Target. Wal-Mart is always cheaper than the traditional supermarkets, an option it can exercise based upon its low-cost structure. Retailing looks very different when viewed from the perspective of a manufacturer or a consumer. For manufacturers retailers are a link in the distribution chain that takes goods to consumers; channel members who need to stock what manufacturers make, and who are managed using economic incentives like margins, incentives, and promotions. Consumers usually dont articulate what they want from retailers but vote with their feet through store loyalty, making some stores more successful than others. Retailers, sandwiched between consumers and manufacturers, continuously strive to ensure that the goods they stock are liked by their customers, and successful retailers are more adept at selecting correct stocks. A retailer adds economic value by matching diversity of consumer demand with appropriately priced and quality suppliers. Retailers are agents of consumers whom they serve by first understanding their needs, and then searching for products to stock. Not only are consumer needs are very diverse, but consumers exhibit different purchase behaviors even for purchasing the same product; a consumer buys milk from a hypermarket, a convenience store, and also a neighborhood grocery. It is this diversity that gives an opportunity to retailers to create different retail environments to serve different consumer needs; retail formats that range from hypermarkets to specialized niche stores like exclusive shirt or tie or socks shops or even coffee cafes all serving a single product, albeit in different manifestations. Achieving retail differentiation Creating a distinctive store has two goals one, to attract customers to visit the store, and second, to create an image and experience of the store visit in the minds of customers so that the memory of the store (and the products) is aroused when the need for similar products is aroused. Traditional retailing talks of product assortment and location as few of the means of differentiation amongst stores. In an over-retailed environment the role of

distinctive product assortments and location as a differentiator has weakened; products (and brands) can be rapidly copied (e.g. Zara), and are easily available on the net (e.g. eBay, Amazon). Newer choices of achieving retail differentiation have emerged based upon a deeper understanding of consumer behavior; how consumers shop, understand and evaluate products on display, and make product / brand choices. Each step of consumer evaluation and choice-making offers an opportunity to retailers to influence purchase behavior. Research suggests that product (and often brand) choice is constructed in the store, rather than retrieved from memory based upon prior experience and / or a priori evaluation of alternatives. A critical first step in developing a differentiating plan is to understand what happens when a customer interacts with the product assortment. Three potential levels of influence exist - assortment width / diversity / quality / price, assortment presentation (static - as visual merchandising, and dynamic - as staff-customer interactions) impacting how consumers experience products in the store, and marketing mix variables like price and promotions (see inset). This emphasizes the need of assortment management as different from assortment planning. Assortment management is based upon planning assortments recognizing that consumers usually make product choice decisions on the shop floor, and the behavior and choice process they manifest lends itself to influence. Presented hereunder are a series of steps that guide the creation of a differentiation plan. The steps are based upon a differentiation of products into two categories functional (products that fulfill a functional need e.g. kitchen tools, appliances, luggage) and symbolic (products that consumers use to express themselves in their social circle e.g. fashion clothing, Cartier watch, Tiffany jewelry, Prada handbag). To locate a position on the quadrant reflect upon the consumer behavior of the targeted consumer - what do customers want when they buy the product, how do they shop for it, and what do they expect from the product (and store) in terms of added features, benefits, and services. A consumer buying Giordano fashion is purchasing a basic functional product, and does not use the brand to express a lifestyle statement, whereas a consumer purchasing a Gucci handbag is willing to pay a premium. Step 1: In table 1 identify which quadrant you are in (for an existing retailer) or desire to be (for a new retailer searching for market space). Examples of the different products that lie in the different quadrants are identified. Key thoughts to be borne in mind high margin businesses are an exception and not the rule, customers concern for value doesnt imply that customers will not be willing to pay a higher price for quality, and opportunities exist in creating value through services in both low-margin and high margin businesses. Step 2: If we have a idea about the quadrant we wish to be in, we can use table 2 to detail how retail differentiation will be implemented in practice using differentiation at the product level, in-store (and post purchase) services, lifestyle and price strategies. The basis of this

analysis will be an understanding consumers based upon research (or intuitive insight) and analysis of competition. Step 3: If the quadrant and positioning options does not conform to being the best (cost-effective) option, alternatives need to be developed by changing position or fine-tuning implementation options. Table 3 identifies examples of retailers and their location in the quadrants. Step 4: Retail is detail, and stage 4 requires detailing the implementation of the positioning strategy by developing an assortment plan and an assortment management strategy.

Table 1 Retail Positioning Map 1 High Margin Symbolic Products High Margin Functional Products Fine Jewelry Specialty stores e.g. sophisticated stereo, Expensive Watches Samsonite stand alone store High Crystal Convenience stores Silver DIY Designer Clothing

G R O S S

Functional

MERCHANDISE M A R G I N

TYPE

Symbolic

Low Margin Functional Products Health & beauty sold in a supermarket Cameras and unbranded white goods Hardware Samsonite luggage in a supermarket

Low

Low Margin Symbolic Products Super-market clothing as a brand Discounted brands

Table 2 Detailing of Retail Mix for Positioning 1 Retail Mix Options for implementation Unique products (exclusive location in a retail district) Hard to find products (getting 110 Volt appliances in Dubai) Selectively distributed brands (exclusive distribution of brands or certain SKUs) Product differentiation Tailored or edited assortments (assortments exclusive to an outlet / chain) small bookshop Wide range breadth and depth category killer Borders Merchandise combinations (an electronic store that carries different brands one-stopstore for electronics) Jackys Location convenience Store ecology (convenience associated with parking, complementary stores, childrens play area, banks, etc.) In-store ambience and experience (ease and speed of transaction, ease of product evaluation, presentation convenience, comfortable fitting rooms, alteration, etc.) Service offerings Time convenience (opening hours and queuing) Sales person (product knowledge, accessibility, and interaction) Ordering and delivery Product advice (staff, website, and in-store signage & material) Returns process and refunds After sales service Based upon perceptive insight into what customers would like to experience Customers co-create the experience in the store Positioning based upon lifestyle. (like Crate Lifestyle differentiation & Barrel, Williams Sonoma, Home Depot as a lifestyle DIY in the USA or Ikea) Achieved through complex interplay of all elements of retail-mix to enable customer experience the lifestyle in the store Price range of products to suit target customer Price differentiation Low feature low price ranges High feature top-of-line

Table 3 Retail Positioning Strategies - Examples 1 High Product differentiation Achieved through unique merchandise Based upon product innovation Narrow & specialized products Rivoli, Tavola Widest product lines Brantano shoes G R O S S Functional MERCHANDISE TYPE

Product differentiation Achieved through unique merchandise by unique designers, ever changing distinctive merchandise tied to lifestyle Vila Moda, Carte & Barrel, Williams Sonoma. Edited assortments, and merchandise coordination TableArt, Liz Claiborne, Nayomi

Symbolic

M Most overcrowded sector A Offer surprise merchandise based upon R manf. relationships - (AED 5 and 10 G stores) I Offer predictable merchandise N - Wal-Mart / Carrefour Provide fast and convenient shopping - EPPCO convenience stores Provide knowledgeable shopping - Circuit City / Best Buy Price leadership, minimal service, and limited product range warehouse clubs COSTCO Price leadership, high knowledge, and wide Low range category killer Home Depot

Most overcrowded sector Offer unique products to supplement Everyday line organic foods in Supermarkets Wide assortment is narrow categories Vitamin shops

Conclusions The basis of developing a unique retail positioning requires two inputs; one, a perceptive understanding of consumer behavior, and two, a change of retailer mindset - shift from behaving as a distributor of manufacturers and thinking like agents of retail consumers. The knowledge of consumer behavior needs to encompass an understanding of how consumers buy at the store. Positioning is detailed using four dimensions products and their attributes, services to be provided, lifestyle experience and price. The ability to translate a positioning plan into winning strategy requires consumers to experience the positioning, and relate to it. Successful positioning implementation requires great attention to detail, and continuing attention to consumer experience, as different from merchandise. Positioning is not a static phenomenon. Retail is a very dynamic business, open to copying, commoditization and threat of changing consumer tastes, and needs continuous re-invention.

Assortment Planning versus Assortment Management Role of options as consumers make choice: Consumers usually focus upon the set of product choice options they observe on the shelf that may be a sub-set of all options available. They rarely think of all the options in the category, and the sub-set is more important than category. Williams-Sonoma, the US retailer of home products, offered one bread maker of a particular design at a price X. Then added a new larger unit at nearly 50% higher price nearly with no other difference. The sales volume of the first bread maker more than doubled. In another experiment two branded home appliances, Panasonic and Emerson were available at the same percentage of discount over the tag price. A new lower feature and priced Panasonic was added. The sales of the more expensive Panasonic picked up. The first example suggests that customers may have difficulty in assessing value of a brand / product in isolation. We may expect that customers decide based upon past experience by retrieving from memory the attractiveness of a product. Research suggests that prior knowledge is less salient. Comparisons are usually more current. The second example suggests total product assortment, as different from the specific comparison options, influences choice. Introduction of a lower quality and lower priced Panasonic brand increases choice of the higher quality and priced Panasonic. Both examples suggest that options enable consumers to use the lower quality and price product as a basis of comparison while making choice. Choice of compromise options unpredictable: Consider three ice cream choices best taste (implicitly high fat), low fat, and a middle option. It is a lot easier for consumers to respond to the two extreme choices reflected in higher sales versus the middle choice. In an experiment two cameras were presented to consumers, and then a third option of mid-level features and quality was introduced. It was observed that the share of the expensive & features increased. Number of quality levels in the assortment: Number of quality levels influences consumer selection. If a third, higher quality option is introduced, consumers may shift to the higher quality, higher priced option with the cheapest option losing the most. Adding a lowest quality option may not shift choices to lower quality levels because stores dont start attracting new customers. Similarly adding an intermediate option may shifts the maximum choices away from the lowest tier i.e. consumers graduate up. One value offer versus two value offers: When consumers are confronted with two value offers they perceive a decision conflict and may often delay the purchase. It is best to design one good offer that is superior for the customer. Affect of assortment presentation: Consumers evaluate options the way they are presented in the store and dont re-organize options in their minds based on earlier knowledge. Nature of display - side by side or separately: For well recognized brands of discernible quality and price end-aisle displays i.e. separate displays work. Lower quality and lower priced brands are better when placed next to other brands within the category to make comparison easy. In comparing two choices, one higher priced of a well known brand name, and another of a lesser known brand with higher features at a lower price, consumers preferred the weaker brand. Nature of display - assortment display by model or brand: When models are displayed, consumers are more likely to select the mid or top brand whereas when brands are displayed then less likely to buy the cheapest option. Choice of options using three tiers of customers for national, private label and generic: Low tier consumers switch to a promoted higher level brand whereas higher tier dont switch to a lower tier promoted brand. Role of promotions perception of value of the offer: Value offerings have no impact if consumers are unable to discern value

Adapted from Wortzel, Lawrence H., Retailing Strategies For Todays Mature Marketplace, Journal of Business Strategy, Spring 87, Vol. 7, Issue 4.

Manoj Nakra 2006