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CHAPTER 5

RETAIL MARKET STRATEGY
CONVERSION NOTES
Berman & Evans

Chapters 2, 3, 17, 19, & 20

CASES AND ANCILLARY CASES
CASE 3: Gadzooks Targets the Teen Market
Synopsis:

Gadzooks is a specialty retailer of casual clothing and accessories targeted specifically to
teenagers. The case describes Gadzook's positioning, vision and merchandizing strategies
and demonstrates how Gadzook's is taking advantage of specific niche opportunities in the
teenage market.

CASE 4: Sears Looks for a New Direction
Synopsis:

Sears is a well-known department store, in operation since its beginnings as a watch
merchant in 1886 and as a store in 1925. The case traces the history of Sears, including
some prominent ups and downs, as well as the competitive environment, including recent
competition from discount stores. It describes Sears' strategy in the 1990s to emerge from
bankruptcy and regain the prominence it once had in American retailing.

CASE 8: Dollar General and Family Dollar Buy Low and Sell Low
Synopsis:

Dollar General and Family Dollar are exemplars of the retail category known as value
retailers. The case describes the target market, location, merchandising, buying and
operations strategies of value retailers and also identifies some trends.

CASE 9: Ahold: The Biggest Supermarket You Have Never Heard Of
Synopsis:

Ahold is a large global supermarket chain headquartered in the Netherlands. It is the
second largest food retailer in the world with sales of over $60 billion in 2002, but its name
does not appear on any of the several supermarket chains it owns and operates in countries
around the world. The case describes Ahold's global and U.S. strategies and competitive
strengths vis-à-vis other large food retailers such as Wal-Mart and Carrefour.

CASE 10: American Eagle and Abercrombie & Fitch Battle for the Teen/College Market

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Synopsis:

American Eagle and Abercrombie & Fitch are rival retailers vying for a competitive
leadership position among the same segment of the teenage/college student market. Each,
however, pursues a slightly different strategy, even though some similarities have been the
issues for legal contestation. The case details the strategies, merchandising, operations,
and competitive positions of the two retailers.

CASE 14: Home Depot: New Directions
Synopsis:

Home Depot is the largest home improvement specialty retailer in the world and the second
largest retailer in the United States. The case documents recent changes at the Home
Depot after the installation of a new CEO. The case highlights Home Depot's growth
plans, competitive considerations and shifts in corporate culture.

CASE 15: Avon Embraces Diversity
Synopsis:

Avon, the largest cosmetics firm in the United States, sells primarily through the direct
selling method using about 3.5 million sales representatives in about 143 countries around
the world. The case describes Avon's turnaround strategy since the 1970s when it started
actively promoting diversity, by including more women and minorities in the top and
middle management levels.

CASE 22: Enterprise Builds on People
Synopsis:

Enterprise is the largest and the most profitable U.S. car rental business. Enterprise's
primary target customer segment is the in-town renter. Its human resource strategy is key
to its success. The case describes the human resources strategy at Enterprise.

CASE 26: Sephora
Synopsis:

Sephora is a beauty products retailer, headquartered in France and operating retail stores
in multiple countries in Europe and the United States. It has expanded rapidly in the
United States since the first store opening in mid-1998. The case describes the
phenomenal success of Sephora retail stores, its philosophy and strategy as well as the
success of its Internet retail site.

CASE 28: Customer Service and Relationship Management at Nordstrom
Synopsis:

Nordstrom is an upscale department store known for its superior customer service. The
case details several aspects of Nordstrom's philosophy and strategy of providing superior
customer service and demonstrates how customer service is the cornerstone as well as the
primary source of Nordstrom's competitive advantage.

CASE 30: Lindy's Bridal Shoppe
Synopsis:

Owner of a specialty shop (hypothetical company) must decide whether she wants the
business to grow and how to achieve growth. This case can generate a discussion of
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organizational and personnel issues associated with running a small specialty store. It can
also illustrate strategic and implementation decisions made by a retail entrepreneur.

Ancillary Case A1: The Gap and Old Navy
Synopsis:

The Gap is a multinational apparel manufacturing and retailing conglomerate. In an effort
to expand and diversify its appeal, the company has in recent years opened up Old Navy,
and Banana Republic. All of the company’s stores have customers of their own, but they
all compete with one another to some extent.

Ancillary Case A3: Cleveland Clinic
Synopsis:

The Cleveland Clinic is a well-respected health care provider facing a changing
competitive environment. In response to this changing environment, the Cleveland Clinic
is opening facilities in South Florida.

Ancillary Case A4: Niketown
Synopsis:

Nike, the manufacturer of the leading brand of athletic shoes, has opened retail outlets to
showcase their products. These outlets have a unique and highly entertaining store
environment.

Ancillary Case A5: Simon and Smith
Synopsis:

Two partners in a medium-sized women's specialty store look at potential changes in
customer base and discuss opportunities to attract younger customers.

Ancillary Case A6: Mustafa Center: Singapore’s All-in-One Retailer
Synopsis:

Mustafa Center is a well-known retailer in Singapore that provides one-stop shopping.
The store combines a department store, grocery store, pharmacy, hotel, and services
retailing including currency exchange and travel agency.

Ancillary Case A7: Marquette Army/Navy Surplus Store
Synopsis:

Army/Navy surplus store is considering various new strategic directions

Ancillary Case A8: Monarch Department Stores
Synopsis:

Monarch Department Stores is experiencing the prospect of a declining rate of sales
growth. The company president sets up a top management committee to evaluate the
possibility of increasing the growth rate through becoming more involved in nonstore
retailing. The team has made its report. The president must now choose from among the
nonstore alternatives proposed by the management committee. (Note: Monarch stores is a
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The First Department Store is an actual store in Suzhou. they met with the managers of several department stores in the area. and Dillards. Can be used with computer disks accompanying the textbook. Ancillary Case A12: Sinbad’s Men and Boy’s Store Synopsis: The case helps to illustrate marketing philosophy. 1995. During this time. meaning that the local authorities and individual entrepreneurs determine business conditions. positioning decision. and receives extensive support from the central government to develop its economy and stimulate business.fictitious company. who spent several weeks in the Shanghai Suzhou area of China in summer. a regional department store chain. and Dillard Department Stores. Its growth has been the result of a steadfast commitment to customer satisfaction – providing the best selection of photo and video products and accessories. Ancillary Case A35 – Wolf Camera Synopsis: Wolf Camera was founded in 1974. Suzhou is considered to be a secondary market in China.) Ancillary Case A11: Toys “R” Us Synopsis: Describes changes made by Toys "R' Us to its retail market strategy and explores issues of adaptation to changing consumer needs and growth strategies. a city such as Shanghai is considered to be first tier economic area. In contrast. Ancillary Case A13: Retailing in China Synopsis: The case is based on the experiences of the authors. followed by the best service at the lowest possible prices. Inc. Ancillary Case A15: Winn-Dixie Stores. VIDEO CASES Video Segment 1: Wal-Mart: The Largest Retailer in The World 128 . The case also supports that a low cost strategy is not always the most profitable avenue on a long-term basis. It is now one of the two largest specialty photo retailers in the country. have different retail strategies that result in the firms having different financial performance standards. The development of the case was guided by the author's administrative experience in department store retailing. and geographic location. but the name has been changed. a supermarket chain. Inc.: Comparing Strategic Profit Models Synopsis: Winn Dixie.

In December 2000. Video Segment 2: Rainforest Café Teaching Use: Retail Strategy for a theme restaurant Featured Retailer: Rainforest Cafe Summary Rainforest Cafe is a theme restaurant in which the customers are seated in a tropical rainforest environment. The growth strategy of Rainforest Café focused the development of Rainforest Café restaurants in both high-profile concentrated tourist areas. When Ben Franklin decided not to support his concept. the launching of Sam’s Club warehouse clubs. Video Segment 3: Build a Bear Teaching Use: Retail strategy for a specialty retailer 129 . Arkansas. At the time. and international expansion. is still open. Most of the mall locations had high initial revenues that was followed by prolonged revenue declines. and the merchandise sold in the restaurant. and in enclosed shopping mall locations. This segment discusses the history of the firm up to the present. Featured Retailer: Wal-Mart Summary: Wal-Mart is the largest retail merchant in the world.Teaching Use: Illustration of retail strategy – factors leading to Wal-Mart's success. This video complements Case 1 in the textbook. Sam Walton started his retailing career by opening a Ben Franklin franchised variety store in a small town in Arkansas. This store. Then he attempted to convince Ben Franklin to allow him to sell his merchandise at lower prices so he could open discount stores in small rural communities. The video stresses the importance Wal-Mart places on people. the types of food served. Rainforest Café was experiencing some financial problems due to over expansion.) While these mall locations generate revenues significantly greater than typical casual dining restaurants. The video then traces the evolution of Wal-Mart – national expansion of general merchandise discount stores. Walton proceeded on his own to open his first discount store in 1960 in Rodgers. Rainforest Café was purchased from the founders by Landry’s Seafood Restaurants. store #1. both customers and employees. they also had higher operating costs. The use of proprietary animal figures on the merchandise and in the restaurant design is discussed. (The repeat business was not high. The video shows the unique design of the restaurant.

S. Chairman and CEO. It pioneered the movement of department stores into suburban enclosed malls.S. about how Sears needs to build the image of its brand. beans. Japan. the company was the largest retailer in the world. This video complements Case 2 in the textbook.Featured Firm: Build a Bear Workshop Summary: Build a Bear Workshop is a national mall-based specialty store retailer with over 100 locations in the U. the current CEO. Over the last 10 years. Barnes & Noble Booksellers. and increase of 29% over the previous year.8 billion. and Great Britain. related food and merchandise. The video discusses the critical issues such as employee training and human resource management for a retailer that provide a high level of customer service. Howard Schultz. In addition to its direct retailing activities. and his senior management team were focusing on how to sustain their phenomenal growth and maintain their market leadership position. Featured Retailer: Sears Summary: Sears is really an icon of U. Video Segment 4: Starbucks Teaching Use: Example of a retail strategy Featured Retailer: Starbucks Summary: By 2002. The unique aspect of the firm’s retail offering is that children can create their own unique animals and clothes them. Starbucks was the leading retailers of specialty coffee beverages. The stores target children and sell store stuffed animals. Capital Records. Pepsi-Co.500 retail stores and licensed an additional 300 airport stores in the US. and Nordstrom to expand its product and distribution portfolios. This segment presents the views of Alan Lacy. The major portion of the video is an interview of Howard Schultz. retailing. Starbucks had formed strategic alliances with Dreyer’s Grand Ice Cream. Sears’s market share began declining in the 1970’s due to the growth of discounters such as Kmart and Wal-Mart and various specialty retailers. Video Segment 10: Sears Revitalizes a Brand Teaching Use: Illustration of a retail strategy. During most of the 20 th century. The video complements Case 31 in the textbook. Starbucks owned and operated 3. the company faced the challenge of regaining its position of leadership and prominence in American retailing. Wal-Mart overtook Sears to become the largest retailer in the country. Its annual sales were $3. Fortune Magazine selected Starbuck’s as one of the 100 Best Companies to Work For. In 1990. The video also emphasizes the importance in 130 . But.

outlining the new brand strategy for the division. a division of Federated Department Store Summary: Rich’s/Lazarus/Goldsmith’s (RLG) is a regional department store chain headquartered in Atlanta.Sears’ human resource management efforts in reinforcing the brand image. This video can be used with Case 4 in the textbook. Arnie Orlick. It employs 17. Video Segment 11: McDonalds: A Global Retailer Teaching Use: Illustrates issues in expanding globally. It is one of the world's most wellknown and valuable brands and holds a leading share in the globally branded quick service restaurant segment of the informal eating-out market in virtually every country in which it does business. Quarter Pounder. The division was formed in 1995 when Federated Department Stores merged three regional department store chains.2 billion. While the stores in each region continue to carry the name of the regional chains. Chicken McNuggets and Egg McMuffin. This video demonstrates how McDonald’s adopts its approach in different countries specifically India. and owned by Federated Department Stores.000 restaurants in 121 countries serving 46 million customers each day. Video Segment 21: Building a Brand at Rich’s/Goldsmith/Lazarus Teaching Use: Illustration of a positioning strategy within a competitive market Featured Retailer: Rich’s/Goldsmiths. The video shows the former CEO.200 people in 76 stores located in nine Midwestern and southeastern states with annual sales of $2. It is the world's leading food service retailer with more than 30. Video Segment 22: Positioning Burdines: The Florida Store Teaching Use: Illustrate retail strategy pursued by a regional department store chain Featured Retailer: Burdines 131 . Georgia. Some of offerings also are well-known brands themselves -. Featured Retailer: McDonalds Summary: McDonald's is truly a global company. Rather than using the full name of the division.Serves Big Mac. there’s only one headquarters office.

however. However. compete against Burdines in Florida. Featured Company: Host Marriott Riverside Methodist Hospital Summary: This video describes the approaches used to develop a competitive advantage based on service by two service retailers. and understanding the jobs performed by employees. Burdines’ long-term strategy always included the possibility of expanding into other Southeast states either through acquisition or by opening new stores. not developing innovative treatment for curing patients. and advertising. Burdines sacrificed the opportunity to expand into other states. a 1. it has developed unique private-label FLA merchandise tailored to the needs of Floridians. Burdines decided to position itself as The Florida Store and concentrate just on the Florida market. Thus this part of the video devotes more attention to the Knowledge GAP and motivating service providers to close the Delivery GAP. a new department store competitor entered the south Florida market. To strengthen its position in Florida. At the beginning of the video.Summary: Burdines is a regional department store chain division of Federated stores located in Florida. describes the hospital strategy has providing the best health care service. Federated acquired Macy’s. This repositioning is communicated to customers through the merchandise mix. divisions of Federated. Thus it focuses on closing the Standards and Delivery GAPS in the GAPS model shown in Chapter 19. store design. By identifying itself as the Florida store. Then the video outlines some programs used by the hospital to implement this strategy including market research. Ohio. The video begins with a discussion of Host Marriott’s operation of retail outlets (food and gift/book stores) in airports. Burdines is repositioning its regional department store chain as The Florida Store.100-bed hospital in Columbus. Eric Chapman. When Macy’s opened two stores. both Macy’s and Blooomingdales. Host Marriott focuses on set standards for high quality services that are communicated to employees. the President. listening to patients and employees. Note that in 1992. The second half of the video focuses on Riverside Methodist Hospital. Video Segment 28: Closing the Service GAPS Teaching Use: Illustrate steps that retailers can take to develop competitive advantage based on high quality customer service. Burdines began to re-evaluate its long-term strategy. in 1988. COMPUTER EXERCISES Market Position Matrix 132 .

The matrix indicates that the greatest investments should be made in the opportunities where the retailer has a strong competitive position in the most attractive markets. or any other retailing investment opportunity. 133 .A market attractiveness/competitive position matrix provides a method for analyzing opportunities that explicitly considers both the retailer’s capabilities and the retail market’s attractiveness. 178. 180. and the retailer’s competitive position indicates the profit potential for the opportunity. You can experiment with Exhibit 5-8 on p. The matrix’s underlying premise is that a market’s attractiveness determines its long-term profit potential for the opportunity. This exercise is designed to go with the Appendix to chapter 5 and the Get Out & Do It CD Exercise on p. You can also demonstrate the use of the matrix to evaluate a retailer’s decision to invest in various merchandise categories using the second template in the module using the hypothetical example (see computer tutorial and interactive exercises section in this Instructor's Manual). evaluate different merchandise categories in a store.

See PPT 6-7 See PPT 5-5 to PPT 5-8 A retail strategy is a statement identifying 1) the retailer's target market 2) the format the retailer plans to use to satisfy the target market's needs. and typical location). 5-4 Ask students to list all the decisions a retailer makes. and private-brand strategy. What Is A Retail Strategy?  The term strategy is frequently used in retailing. Definition of Retail Market Strategy   See PPT 5-2. Almost all employees (called Autozoners) have prior automotive repair experience. They're encouraged to go out to the store parking lot with a customer to check on the exact part needed and even help the customer install simple items like headlights and hoses. Why? Ask students what are strategic decisions (type of job) they make when looking for a job after graduation and what are tactical decisions (making up and sending out resumes). pricing policy. promotion strategy.  A sustainable competitive advantage is an advantage over competition that can be maintained over a long time. Discuss the retail strategy of the retailers listed below. Stores are located in neighborhoods near their customers and stay open until midnight. Autozone. approach to store design and visual merchandising.  Retail strategy isn’t just another expression for retail management. location strategy. A. The company has entered into some creative partnerships to put its cafes in Nordstrom and Barnes & Nobles stores and serve its coffee on United Airlines 134 .ANNOTATED OUTLINE INSTRUCTOR NOTES I. a Memphis-based auto parts retailer with annual sales exceeding $2 billion. is the largest auto supply retailer in the US. Now determine which are strategic and which are tactical. Its target market is lower-income people who repair their cars themselves out of economic necessity--they can't afford to have their cars repaired by others. For example. The target market is the market segments(s) toward which the retailer plans to focus its resources and retail mix. Starbucks.  A retail format is the retailer's type of retail mix (nature of merchandise and services offered. The friendly and knowledge counter servers called "baristas" (Italian for bartenders) educate customers about Starbuck's products. Starbucks is a national chain of over gourmet coffee cafes generating annual sales over $500 million. retailers talk about their merchandise strategy. Autozone has builds loyalty in this segment by providing exceptional convenience and service. advertising and promotion programs. Then compare with the information listed below. and 3) the bases upon which the retailer plans to build a sustainable competitive advantage. 5-3. Put the names of each of the retailers listed below on the board and ask the students to identify the retail format and the target markets for each.

Target Market And Retail Format See PPT 5-10. 5-13   Review different ways that market can be segmented -. 5-11  The retailing concept is a management orientation that focuses a retailer on determining the needs of its target market and satisfying those needs more effectively and efficiently than its competitors. buying situation. We define a retail market. PPT 5-11 shows the competition across retail formats for various segments of the women's apparel market. Ask students for local retailers that compete directly against each other. not as a specific place where buyers and sellers meet. 135 .II. which a retailer will compete. psychographic.geographic. See PPT 5-12. demographic. but as a group of consumers with similar needs (a market segment) and a group of retailers using a similar retail format to satisfy those consumer needs.  The selection of a retail format outlines the retail mix to be used to satisfy needs of customers in the target market. What is the target market of the retailers? What is the retail format used?  The selection of a target market focuses the retailer on a group of consumers whose needs it will attempt to satisfy.target market can be defined (see The retail strategy determines the markets in chapter 4) -.

What is the effect of cutting prices in the long-term? What will competitors do? What happens if they also cut prices? The inventor of a new key-sized garage door opener feels that her invention would be copied very soon by new competitors. (2) location. Why are they loyal to that outlet? What can a retailer do to build loyalty? . (2) creating an emotional attachment with customers through loyalty programs. Building A Sustainable Competitive Advantage See PPT 5-14. (3) human resource management. indicate which methods are sustainable -.  Over time. 5-15  The final element in a retail strategy is the retailer's approach to building sustainable competitive advantage.  Seven important opportunities for retailers to develop sustainable competitive advantages are (1) customer loyalty.difficult for competitors to match easily. (4) distribution and information systems. 5-20  Customer Loyalty means that customers are committed to shopping at retailer's locations. Having sales. Customer Loyalty See PPT 5-17.  Some ways that retailers build customer loyalty are by (1) developing clear and precise positioning strategies. Why? See PPT 5-16 A. Now. all advantages will be eroded due to these competitive forces. and (7) customer service. 136 Ask students if they are loyal to any retail outlet. Loyalty means that customers will be reluctant to patronize competitive retailers. What is the best retail format for the invention? [Note that similar such inventions are often promoted heavily through infomercials to capture sales very early] Ask students to list the number of ways a retailer can get customers to buy from them rather than their competitors. cutting prices. 5-18. attracts more customers and increases sales.  Some advantages are sustainable over a long period of time while others can be duplicated by competitors almost immediately.III. Loyalty is more than simply liking one retailer over another. Establishing a competitive advantage means that a retailer builds a wall around its position in the retail market.

Discuss how employee commitment to the retailer appears to be varied at different stores frequented by students. Who was in the location first? Describe that specific locale in terms of traffic patterns. Members of loyalty programs use some type of loyalty card. how did this employee respond? Evaluate and . See PPT 5-21 Loyalty programs are part of an overall customer relationship management program (CRM) program (detailed in Chapter 11). interactions with employees. what can management do to maintain effective. Loyalty Programs. committed employees.  Knowledgeable and skilled employees committed to the retailer's objectives are critical assets that support the success of several companies. Distribution and Information Systems  All retailers strive for efficient operations. D. Ask students what retailer do customers in segment 5 prefer most? What store is seen as most similar to Neiman Marcus? Most similar to Kmart? A perceptual map is frequently used to represent the customer's image and preference for retailers. In tight labor markets. 2. and since retailing offers relatively low-paying jobs. Ask student whether or not they are members of frequent shopper clubs. in 137 Ask students to describe their experience at a store where they could not find the product/brand they wanted. Positioning   See PPT 5-19 A retailer builds customer loyalty by developing a clear and distinctive image of its retail offering and consistently reinforcing that image through its merchandise and service. Ask students how they would use customer purchase information collected. Human Resource Management  Retailing is a labor-intensive business. to attract repeat buying. when they want it. Why can location provide a sustainable advantage? Which local retailers have a good location? A poor location? Why? C. as evident by employee turnover. If they contacted a store employee. Purchase information is stored in a huge database known as a data warehouse. It is also a competitive advantage that is not easily duplicated. Positioning is the design and implementation of a retail mix to create an image of the retailer in the customer's mind relative to its competitors. etc.1. etc. They want to get their customers the merchandise they want. say. B. Have they received any direct mail based on their membership in the clubs? Ask the class to identify in their locale where is the nearest McDonald's.  PPT 5-19 shows a hypothetical perceptual map of women's apparel market. Location is the critical factor in consumer selection of a store. Wendy's. over the past year. at least at the lower levels. and Burger King. Location  Describe the positions of the retailers and segment ideal points.

Ask students if they buy private-label brands from their local supermarket. for which product categories? If not. Retailers can achieve these efficiencies by developing sophisticated distribution and information systems. how does their view of private-label brands sold at stores like Radio Shack and Sharper Image differ from the private-label brands sold at supermarkets and discount stores? F.Discuss. which are products developed. and available only at that retailer. (2) to buy merchandise at lower prices or with better terms than competitors who lack such relations. at a lower delivered cost than their competitors. By developing computer links with its vendors. If so. are developed over a long time and may not be easily offset by a competitor. or (3) to receive merchandise in short supply. 138 Discuss the example of Kmart's strategy of having electronic links with its vendors and provides many of its vendors with point-of-sale data. like relationships with customers. .  Relationships with vendors. Kmart increases its opportunity to have the right merchandise at the right store when the customer wants it. why not? Also. Discuss how this can be an important competitive advantage. many retailers realize a sustainable competitive advantage by developing private-label brands (also called store brands). marketed. Vendor Relations See PPT 5-22  By developing strong relations with vendors. the quantities that are required. E. Unique Merchandise  While it is difficult for many retailers to develop a competitive advantage through merchandise. retailers may gain exclusive rights (1) to sell merchandise in a region.

locations in schools. Customer Service See PPT 5-23  Retailers also build a sustainable competitive advantage by offering excellent customer service. market expansion. Multiple Sources of Advantage  See PPT 5-24 To build a sustainable advantage. Customer service is provided by retail employees – and humans are less consistent than machines. and diversification.  It takes considerable time and effort to build a tradition and reputation for customer service. IV. Ask students about their experiences of good and bad customer service with various retailers. locations in office building. but good service is a valuable strategic asset. Identify its competitors. They need multiple approaches to build as high a wall around their position as possible. adding salads to the menu. opening up seafood restaurants to compete against Red Lobster.G. How would you classify these opportunities McDonald's pursued: breakfasts. 139 PPT 5-26 charts the four types of growth opportunities. Ask students what its sustainable sources of advantage are over its competitors. retailers typically don't rely on a single approach such as low cost or excellent service. Pick a successful local retailer. 5-26 Four types of growth opportunities that retailers may pursue are: market penetration.  Offering good service consistently is difficult. . Growth Strategies  See PPT 5-25. adding pizza to the menu. McDonald's original market was families with young children and its format was selling hamburgers and french fries in stand alone stores at lunch and dinner time. Discuss how customer expectations of service varies with various retail formats. retail format development.

Builders Square. Market Expansion  A market expansion opportunity employs the existing retailing format in new market segments. Lands End opening retail stores. Example of market expansion is Wal-Mart opening stores in large cities. Consider The Gap. C. . What type of financial investment would it take. What would be examples of format development opportunities they could pursue? Example of format development is Kmart starting a discount home improvement center -.  Cross-selling means that sales associates in one department attempt to sell complementary merchandise from other departments to their customers. and Kmart. Consider The Gap. Consider The Gap. and Kmart. 140 Have the class discuss examples of a retailer adding additional merchandise categories or altering the breadth and depth of the assortment in its stores. Retail Format Development  A retail format development opportunity involves offering customers a new retail format--a format involving a different retail mix--to the same target market.  Adjusting the type of merchandise or services offered typically involves a small investment. What would be examples of diversification opportunities they could pursue? Example of diversification is Kmart buying Walden Books. Diversification  Consider The Gap.A. Then discuss the pros and cons of this strategy. Lands End. Approaches for increasing market penetration include attracting new customers by opening more stores in the target market or opening the stores for longer hours. Lands' End. Lands End. What would be examples of market expansion opportunities they could pursue? B. The Gap starting Gap Kids. Market Penetration  A market penetration opportunity involves directing investments toward existing customers using the present retailing format. and Kmart. What would be examples of market penetration opportunities they could pursue? A diversification opportunity involves a new retail format directed toward a market segment that is not presently being served. Describe their target markets. require a much larger and riskier investment. while providing an entirely different format. What retailers would benefit from this. More crossselling increases sales from existing customers. and Kmart. D. Lands End. such as a store-based retailer going into electronic retailing.

 In a related diversification opportunity. the Television Shopping Channel was a related diversification because it offers predominantly Penney merchandise shipped through its mail-order catalog distribution system. Related versus unrelated diversification  Diversification opportunities are either related or unrelated. retailers have the greatest competitive advantage in opportunities that are similar to their present retail strategy. they build on their strengths in operating a retail format and apply this competitive advantage in a new market. Since little of the merchandise was sold through the Penney stores or catalog. Vertical integration Why is vertical integration a diversification?  Vertical integration is diversification by retailers into wholesaling or manufacturing. For The Gap. what would be examples of related versus unrelated diversification opportunities? What about Sears buying a manufacturer of home appliances? 2. Strategic Opportunities and Competitive Advantage  Typically. E. Thus. Lands End. and Kmart. it is engaging in backward integration. an unrelated diversification lacks any commonalty between the present business and the new business. It's like an electronic catalog TV show. or advertising in the same newspapers to similar target markets. from food to ticket reservations. 141 . unfamiliar markets or operating new.  Some manufacturers and designers forwardintegrate into retailing. unfamiliar retail formats. Discuss the example of JCPenney's two investments in electronic shopping (TeleAction and JCPenney Television Shopping Channel). the present target market and/or retail format shares something in common with the new opportunity. using the same distribution and/or management information system.  When a retailer integrates by purchasing or otherwise partnering with distribution or manufacturing concerns. This commonality might entail purchasing from the same vendors. retailers would be most successful engaging in market penetration opportunities that don't involve entering new.  In contrast. the system was an unrelated diversification because it didn't involve Penney's catalog ordering and distribution system.  When retailers pursue market expansion opportunities. On the other hand. TeleAction was an interactive electronic home shopping system selling a variety of merchandise.1.

V.S. particularly among young people. retailers may have a competitive advantage in global markets because the American culture is emulated in many countries. Discuss why different opportunities might be attractive to each of these retail chains. Latin America. Global Growth Opportunities See PPT 5-27  International expansion is one form of a market expansion strategy.  Some large European and Japanese retailers have considerably more experience operating retail stores in nondomestic markets. These opportunities are generally risky and often don't work. and a regional grocery store chain. (3) global culture. 1. (4) focused communications due to narrow assortment and focused strategy. different supply chain considerations. may have a strong competitive advantage when competing globally. Keys to Success  See PPT 5-28 Four characteristics of retailers that have successfully exploited international growth opportunities are: (1) globally sustainable competitive advantage. Globally sustainable competitive advantage Consider a retailer such as Wal-Mart. B.  International expansion is risky because retailers using this growth strategy must deal with differences in government regulations.?  Some U. Europe. Who is Successful and Who Isn't  Which U.S. and Japan. (3) development of unique systems and standardized formats facilitating better control. Retailers have the least competitive advantage when they pursue diversification opportunities. WalMart.S. A. control global logistical systems and tailor merchandise assortments. The Wet Seal. These reasons include: (1) experienced use of technology to manage inventories.S. based retailers have been successful going global? Retailers. particularly store retailers with strong brand names.  Category killers and hypermarket retailers may be particularly suited to succeed internationally because of the expertise they’ve already developed at home. (2) adaptability. efficient 142 . What are international market conditions necessary for Wal-Mart to succeed with its low costs. Ask students to generate international growth opportunities for The Gap. and language. China. based retailers have been successful in the U. The most commonly targeted regions are Mexico. and (4) deep pockets. and (5) willingness of global consumers to forgo service for lower prices. Discuss the reasons why category killers and hypermarkets may be more successful internationally. (2) buying economies of scale and efficient distribution systems. Which non-U. cultural traditions.

Adaptability Wal-Mart has stumbled in some international markets because they underestimated the differences in cultures.g. What cultural adaptations need to be made before these products are marketed in nondomestic markets? To be global. and regulations governing parttime employees and terminations are easy to identify. Four approaches that retailers take when entering non-domestic markets are direct investment. Deep Pockets  What can smaller retailers do to succeed internationally? Expansion into international markets requires a long-term commitment and considerable up front planning. strategic alliance. Other factors require a deeper understanding 3. they also recognize cultural differences and adapt their core strategy to the needs of local markets. Ask them to choose and justify an entry strategy.  Government regulations and cultural values also affect store operations. 4. such as holidays. It is not sufficient to transplant a home-country culture and infrastructure into another country. joint venture. and franchising. but has the highest potential 143 . e.  This entry strategy requires the highest level of investment and exposes the retailer to significant risks. Entry Strategies  Have the students choose a retailer who has or could go global. 1.. Argentina. Direct Investment Identify the products/services/conditions for which the retailer would prefer direct control over global operations offered by a direct investment strategy. one has to think global. Global Culture  Ask students to think of some products that could be considered uniquely American.  Direct investment involves a retail firm investing in and owning a division or subsidiary that builds and operates stores in a foreign country. operations strategy? 2. hours of operations. Some differences.  While successful global retailers build on their core competencies. See PPT 5-29 C. Entry into nondomestic markets is most successful when the expansion opportunity is consistent with the retailer's core bases of competitive advantage.

 The planning process can be used to formulate strategic plans at different levels PPT 5-36 to PPT 5-44 detail the application of the planning process for Gifts To Go. and profits are shared. control. 2.  Problems with this entry approach can arise if the partners disagree or the government places restrictions on the repatriation of profits. However.  A joint venture reduces the entrant’s risks. and build sustainable competitive advantages. The Strategic Retail Planning Process  The strategic retail planning process is the set of steps that a retailer goes through to develop a strategic retail plan. Go through the various stages of the planning process for the example of Gifts To Go given in text. Franchising  Franchising offers the lowest risk and requires the least investment. Would a retailer more likely to use a joint venture when entering Canada or when entering China? Discuss. 4. 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. and the risk of assisting in the creation of a local domestic competitor is increased. 3. Joint Venture  A joint venture is formed when the entering retailer pools its resources with a local retailer to form a new company in which ownership. Go through the various stages of the planning process for a local retailer or pick an idea for a new retail business and develop a strategic plan for the business. determine the appropriate retail format. the entrant has limited control over the retail operations in the foreign country.  It describes how retailers select target market segments. The local partner understands the market and access to resources – vendors and real estate. 144 . Strategic alliances are often used for learning about a country's unique environment and other business conditions. Strategic Alliance  A strategic alliance is a collaborative relationship between independent firms. profit potential is reduced.returns. VI. PPT 5-30 charts the steps in the strategic planning process.

A. How attractive over the long-term is the elderly market? Minorities? .  Large markets are attractive to large retail firms. Define a mission for Wal-mart. insurance company. typically measured in retail sales dollars. competitor analysis. Growing markets are typically more attractive than mature or declining markets. and seasonality. It should define the general nature of the target segments and retail formats that the firm will consider. but they are also attractive to small entrepreneurs because they offer more opportunities to focus on a market segment. B. Why does a retailer need to have a formal mission statement? Define a mission for Sears. 1. Market size.within a retail corporation.  A situation audit is composed of three elements: market attractiveness analysis.  In general. and real estate brokerage. sales cyclicality. managers must answer five questions: (1) What business are we in? (2) What should be our business in the future? (3) Who are our customers? (4) What are our capabilities? (5) What do we want to accomplish? . Market Factors  Some critical factors related to consumers and their buying patterns are market size and growth. Define a mission for your college or university. which includes its financial services. Conduct a situation audit for any department store most familiar to students. and self-analysis. Step 2: Conduct a Situation Audit See PPT 5-31  A situation audit is an analysis of the opportunities and threats in the retail environment and the strengths and weaknesses of the retail business relative to its competitors. Step 1: Define the Business Mission   The mission statement is a broad description of a retailer's objectives and the scope of activities it plans to undertake. is important because it indicates a firm's opportunity for generating revenues to cover its investment. In developing the mission statement. markets with highly seasonal sales are unattractive because a lot of resources are needed to accommodate the 145 What makes a market attractive? Ask for examples of attractive and unattractive.

such as delivery dates.  Scale economies are cost advantages due to a retailer's size. which is the frequency and intensity of reactions to actions undertaken by competitors.  Retail markets dominated by a wellestablished retailer that has developed a loyal group of customers offer limited profit potential.  Barriers to entry are conditions in a retail market that make it difficult for firms to enter the market. but unattractive for retailers not already in that market. but are underutilized the rest of the year. Retail markets are more attractive when competitive entry is costly. and availability of locations. (2) slow growth. the bargaining power of vendors. These conditions include scale economies. and thus reduce the retailer's profits. Competitive Factors See PPT 5-33  The nature of the competition in retail markets is affected by barriers to entry. customer loyalty.  The availability of locations may impede competitive entry.peak season. In these situations. Markets are unattractive when a few vendors control the merchandise sold in it.  A retail market with high entry barriers is very attractive for retailers presently competing in that market. the vendors have an opportunity to dictate prices and other terms. and (4) 146 . Markets dominated by large competitors with scale economies are typically unattractive. What are examples of retail markets that have high entry barriers? Low entry barriers? Are there entry barriers for a new fast food franchise in the local community? A new department store? a new discount store specializing in toys? Take a set of local competitors and evaluate how intense the rivalry is. (3) high fixed costs. 2. Conditions that may lead to intense rivalry include: (1) a large number of competitors that are all about the same size. and competitive rivalry. Compare competitive issues for a bricks and mortar retailer versus a clicks and mortar and clicks only retailer.  The final industry factor is the level of competitive rivalry in the retail market.  Another competitive factor is the bargaining power of vendors.

economic. the next step is to identify opportunities for increasing retail sales. Analyze some potential changes in the environment such as people becoming more health conscious about the food they eat. Ask students how these changes will affect specific retailers? Government regulations reduce the attractiveness of a retail market by making it costly to build stores (zoning laws) and hire employees (wage regulations). A strengths and weaknesses analysis indicates how well the business can seize opportunities and avoid harm from threats in the environment. This could be applied to a capabilities in terms of its strengths and local retailer. Have students evaluate the market attractiveness 147 . 5-46 The evaluation of strategic opportunities identified in the situation audit determines the retailer's potential to establish a sustainable competitive advantage and reap long-term profits from the opportunities under evaluation. Review some of the changes discussed in Chapter 4. Strengths and Weakness Analysis  See PPT 5-34 The most critical aspect of the situation audit PPT 5-34 details a format of strengths and is for a retailer to determine its unique weakness analysis. C.  Government regulations can reduce the attractiveness of a retail market.the lack of perceived differences between competing retailers. 4. and personal values affect retail markets' attractiveness. The strategic alternatives are defined in terms of the squares in the retail market matrix. attitudes. more interested in having experiences rather than buying products. present competitors are vulnerable to new entrants that are skilled at using the new technology. more concerned about the environment.  Some retailers are more affected by economic conditions than others. Step 3: Identify Strategic Opportunities  See PPT 5-35 After completing the situation audit. weaknesses relative to the competition. regulatory. 3. and social changes. Step 4: Evaluate Strategic Opportunities  See PPT 5-45. D. trends in demographics. Go through the example in the text evaluating the merchandise categories in a department store.  When a retail market is going through significant changes in technology.  Finally. Environmental Factors See PPT 5-32  Environmental factors that affect market attractiveness are technological. lifestyles.

clothing with the college name on it. college textbooks. Ask students which opportunities the bookstore should pursue. fashionable brand name clothing. and (3) the level of investment needed to achieve the objective. e. The greatest investments should be made in market opportunities where the retailer has a strong competitive position. (2) a time frame within which the goal is to be achieved. renting video tapes. Step 7: Evaluate Performance and Make Adjustments  The final step in the planning process is evaluating the results of the strategy and implementation program. a. . Both the market attractiveness and the strengths and weaknesses of the retailer need to be considered in evaluating strategic opportunities. Relate these opportunities to the competitive advantages the bookstore has. E. Step 6: Develop a Retail Mix to Implement Strategy  The next step is to develop a retail mix for each opportunity in which investment will be made and to control and evaluate performance. Have students list the factors and go through the ratings. b. F. G. 148 c. fast food. the performance levels are financial criteria such as return on investment. The specific objectives are goals against which progress toward the overall objective can be measured. Step 5: Establish Specific Objectives and Allocate Resources  The retailer's overall objective is included in the mission statement. including a numerical index against which progress may be measured. a retailer must focus on opportunities that utilize its strengths and its area of competitive advantage.  Specific objectives have three components: (1) the performance sought. sales. or profits.  Typically.   and competitive position of some opportunities the local college bookstore is presently pursuing and is considering: Thus. d.

and finally. After the business mission is defined. This conclusion would result in starting a new planning process. For example. This reanalysis starts with reviewing the implementation programs. resources are allocated. reanalysis is needed.  4. the situation audit is performed. the implementation plan is developed. Rate each strategic investment opportunity on the attractiveness of its market and the retailer's competitive position 149 .  But. even though this alternative is not included in the mission statement. objectives are set. actual planning processes have interactions among the steps. but it may indicate that the strategy (or even the mission statement) needs to be reconsidered. Define the strategic opportunities to be evaluated. the situation audit may uncover some logical alternative for the firm to consider. H. performance is evaluated and adjustments are made. Assign weights to each factor used to determine market attractiveness and competitive position. If the retailer fails to meet its objectives. Ask students to relate the strategic decision making process to the strategy they used for seeking a job after graduation.  3. including a new situation audit. strategic opportunities are identified.  2. alternatives are evaluated. Summary Appendix 5A: Using The Market Attractiveness-Competitive Position Matrix See PPT 5-45 to 5-55  There are six steps in using the matrix to evaluate opportunities for strategic investments:  1. Strategic Planning in the Real World  Strategic decisions are made in a sequential manner. Identify key factors determining market attractiveness and the retailer's competitive position. Did they go through all the steps? Why or why not? Did their strategy change as they were looking? Why? VII.

Plot each opportunity on the matrix. Calculate each opportunity's score for market attractiveness and competitive position.  5.  6. 150 .in that market.

retailers can build customer loyalty by (1) emphasizing a unique positioning. such as Barnes & Noble. For each of the four retailers discussed at the beginning of the chapter. Kohl's Corporation attempts to utilize the best feature of department stores with those of discount stores. What approaches can a retailer use to develop a competitive advantage? There are seven basic approaches for retailers to develop a sustainable competitive advantage. 151 . Location: Location is one of the most important factors in retailing. and a high-quality customer service with emphasis on person-to-person relationship with each customer. The merchandise assortment of whimsical. Or. 2. customers can try to design a retail mix that creates an image in the customer’s mind of the store. retailers can develop strategies that would create and maintain a loyal customer base. Restoration Hardware target a niche market of wealthy consumers willing to spend money on nostalgic and high price home furnishings. They have a competitive advantage with their loyal customers. They retain a competitive advantage in terms of attracting customers to locations away from the mall. and (2) developing loyalty programs. by implementing customer loyalty programs. and maintaining and analyzing customer purchasing data. For example. either individually located or located within other stores. the store has a competitive advantage over its competitors. Their primary retail format remains their retail stores. (3) human resource management. in order to keep on attracting customers to such away-from-mall locations. but the convenience. as part of a broader customer relationship management (CRM) program. Customer Loyalty: In order to keep customers committed to shopping at their store(s). a strong customer loyalty program. and ensure not only repeat sales. and (7) customer service. easy-to-wear apparel designed for women in the age group of 35-55 years old. but also provide service to customers by informing and educating them about coffee and related products. which will keep them committed to the store. Starbucks’ target market are those people who appreciate gourmet coffee and a certain café-style lifestyle. The merchandise and brands offered are those that may be available at department stores. and thereby precluding consumers from price comparison shopping. describe their strategy and basis of competitive advantage. or is set in a highly trafficked area with a visible store front. including location and store design factors are similar to those in discount stores.ANSWERS TO DISCUSSION QUESTIONS AND PROBLEMS 1. These include: (1) customer loyalty. differentiate the retailer from other competitors. but also a higher transaction size among its loyal patrons. and other nontraditional locations. such as airports. nostalgic and retro items ensures competitive differentiation from other retailers in the area. college campuses and within airplanes. (2) location. The emphasis on private labels. (4) distribution and information systems. Chico's specializes in comfortable. For example. Kohl's ensures that access to the store as well as to the merchandise within is as convenient as possible. However. if a retailer is the only one of its kind in a certain area. The company sells only its own brand and has complete control over its supply chain.

This involves instilling the importance of good customer service in employee training and performance and consciously developing a reputation for good service. Retailers should not rely on just one single approach to gain a sustainable competitive advantage. and a diversification growth strategy for Circuit City. Retail Format Development: Circuit City already offers a new format to the same target market in their online retailing at www.Human Resource Management: Since retailing is a labor-intensive business and also has high levels of contacts between employees and customers.com. like the one shown in Exhibit 5-3 for the retailers and customer segments (ideal points) for your favorite retailer. enable retailers to provide same or similar merchandise at lower prices as compared to their competitors. and managing diversity. These are usually done by providing appropriate incentives for employees. 3. fostering a strong and positive organizational culture environment. Draw and explain a positioning map. while opening retail stores for automobile service and repair would represent an unrelated diversification strategy. tandems. to buy merchandise at lower prices. or to receive popular merchandise in short supply. Diversification: Backward integration into electronics manufacture would represent a related diversification strategy for Circuit City. lots of accessories) and narrow assortment (road bikes only) on the other dimension. should use multiple approaches. a market expansion. a retail format development. chairs. However. to increase sales among existing customers using its present format. purchase promotions. but instead. kids. Vendor Relations: Retailers may gain exclusive rights to sell merchandise in a region.circuitcity. For a bicycle retailer. they could offer additional merchandise categories such as more types of accessories including computer desks. frequent purchase promotions. and thus. Market Expansion: Circuit City with its existing retail format could geographically expand (international) and or target promotions to specific market segments that it may not currently be targeting (senior citizen and or student discounts). retailers need to develop programs to motivate and coordinate employee efforts. Students’ answers will depend on the market in which they live and their preference of retailer. Unique Merchandise: Retailers can develop sustainable competitive advantage by offering privatelabel brands. Distribution and Information Systems: Retailers can achieve significant operational efficiencies through developing sophisticated distribution and information systems. television stands etc. Market Penetration: Circuit city could offer coupons. 152 . Give an example of a market penetration. road bikes. 4. the dimensions could be: High price/service and low price/service for one dimension and broad assortment (mountain bikes. etc. Efficient operations reduce retailer costs. Customer Service: Retailers can build competitive advantage by offering excellent customer service.

in general. may not be perceived to be nutritious or healthy by some consumers. Their prices are higher than those charged by other retailers for similar product categories. a hamburger with more onions. and selecting a target market and a retail mix for the restaurant. Some weaknesses include: Narrow menu option Limited customization option – patrons typically do not have the option to customize a specific item (e. location in upscale malls or neighborhoods so as to be closer to target market segments. They might not have the best food. Its strengths include: Well known brand name with a loyal group of customers. 6..) Fast foods. What is its mission? What are its strengths and weaknesses? What environmental threats might it face over the next 10 years? How could it prepare for these threats? McDonalds' mission is to provide hygienic food with the minimum waiting time to customers through conveniently located outlets. What are Neiman Marcus' and Saks Fifth Avenue's bases for sustainable competitive advantage? Are they really sustainable? Neiman Marcus and Saks Fifth Avenue offer extensive service and stock fashion merchandise that could be called "fashion forward. Excellent locations across the US and world. To prepare for this threat. Consistency in offering over time and at different location. more beef. less lettuce. Assume you are interested in opening a restaurant in your town. identifying alternatives. unique merchandise. etc. Environmental Threats People become more health conscious about what they eating. The quality and convenience of frozen food might make it easy for people prepare a quick frozen meal at home or at the office. therefore limiting future market expansion. 153 ." since these may be offered first and/or exclusively at these retailers. The combination of these sources of competitive advantages make their strategy quite sustainable.g. but you know what you are getting when you go to a McDonald's. and a heavy emphasis on customer service. Do a situation analysis for McDonalds. McDonald's might add more healthy items to the menu like veggie burgers and salads. Focus on doing a situation audit of the local restaurant market. McDonald's might sell frozen meals in grocery stores. Excellent systems for delivery a limited menu with consistent quality and low cost. but both Neiman Marcus and Saks Fifth Avenue cater to a wealthier than average target market of customers for whom fashion and service may be more important than low price. Go through the steps in the strategic planning process shown in Exhibit 5-5. To prepare for this. 7. evaluating alternatives.5. The multiple bases for competitive advantages used by Neiman Marcus and Saks are unique positioning.

my need to build customer loyalty. like spaghetti sauce. Is there a growing trend in those people eating out? With the shifting roles of women in society. advertising and promotional programs. Diversification: Manufacture Spaghetti Sauce under the restaurant name. store design. (7) Evaluate Performance and Make Adjustments: The final step of the planning process is evaluating the results of the strategy and implementation program. the availability of a good location. or open an Italian food grocery store. (3) Identify Strategic Opportunities: Market Penetration: Can I increase the variation on my menu. The strengths and weaknesses in this situation could include my financial resources. and the amount of other Italian Restaurants in the area along with alternatives. The economy is also in a boom. 154 . resources must be allocated to each opportunity. Market Expansion: Open a to-go style restaurant. the pricing will be medium to high to attract the upscale customer and show the value of the food. my target market would be those customers in the my local town and surrounding towns interested in paying money for an authentic Italian meal in a romantic setting.(1) Define the Business’s mission: Looking to be in the Italian restaurant business. Competitive factors include how hard it is to enter the Italian Restaurant Market including the start up costs. The environmental factors would include the social and economic. the time frame needed. The mission of this restaurant would be to have high quality food. a retail mix can be developed for the growth opportunities. open a restaurant in another geographic area Retail Format Development: Sell candles with the restaurant name on them. the size of the market interested in Italian food and the growth potential of this particular market. opening a to-go restaurant. open another restaurant in another neighborhood. we must look at both the market attractiveness and the competitive position. elegant. or develop an online ordering format for to-go style meals. The analysis of strengths and weaknesses allows a retailer to judge their potential success. in a romantic setting. merchandise pricing. while avoiding being too expensive for those interested in a special meal. this might include opening additional restaurants. and people have extra money to spend on dining out. and romantic with many tables for two and private tables. (4) Evaluate Strategic Opportunities: In evaluating the alternatives. the advertising will start with publicity on the opening of the business and then focus on word of mouth. store design will be small. my restaurant management experience. (5) Establish Specific Objectives and Allocate Resources: After finding growth opportunities. (2) Conduct a situation audit: Market Factors include. A section of the restaurant business focuses on the social aspect of dining out. and the location would be in a downtown area. This is done by looking at the performance sought. In the restaurant business. (6) Develop a Retail mix to implement strategy: (Merchandise and services offered. Retailers can maximize their growth opportunities by investing in areas that have high market attractiveness and a low competitive position. and manufacturing their own food products. there is often less time for cooking. and my prospects of good operations. and convenience of the store’s location): The restaurant will offer a large variety of Italian dishes with a large experience waiting staff. promotional programs may be implemented to those frequent eaters. After this strategy is implemented. and the level of investment needed to accomplish the objective. which may in turn increase dining out.

versus home decorating and furniture for kids. DVDs. a focused merchandising strategy would help Disney train and assign employees most familiar with the specific types of products – toys and clothing for kids. Since the costs associated with entry and set up are less than in conventional retailing and most products carried by Amazon. What competitive advantages does Amazon. with a greater focus on apparel and lifestyle goods like sheets. A nonstore retailer such as Amazon. An example that would readily come to mind to most students are frequent flyer programs of various airlines. with the more frequent users elevated to higher levels where the reward points offered are higher. Amazon. such an expansion strategy would have to await infrastructure development in various countries. electronics.e. The effectiveness of such programs depend on the extent to which there are various levels of rewards and bonuses and the multiple opportunities to earn points towards a reward. less susceptible to varied customer tastes in different countries. 9. operational efficiencies and customer purchasing information better for each of these broad product types more easily. Explain why you think it would be successful. Disney Kids at Home. the disadvantage includes the fact that frequently customers may wish to obtain both types of products at the same time. Disney Play. The second group. Do you believe this is a good strategy? Advantages of such a strategy includes a focused attention on merchandise at each store. successful in other countries. The first group. 11. but is not yet.com's global strategy would come from utilizing technological and global efficiencies in scale. and mirrors for kids. Moreover. enhanced customer service at lower costs due to better customer information and relationship management.com is poised to be successful globally with the increasing spread and prevalence of the Internet and World Wide Web. consumers can earn Delta SkyMiles when they charge their purchases to American Express. and better adaptability to local tastes and preferences due to superior information collection and analysis. toys as well as furniture for their kids.com. For example. Walt Disney Co. Choose a retailer that you believe would be.com bring to each of these new businesses? 155 . Better and focused customer service could be provided at each location and Disney would be able to track and manage distribution. The success of Amazon. or dial long distance using AT&T. furniture. Delta has several tiers to its program.com started as an Internet retailer selling books. lower costs of operations.com are quite standardized and hence. 10. For example.8.com could pursue a cost-efficient and effective global expansion strategy. is targeted toward parents. i. Then it expanded to music. Amazon. which enables the target market for each to self-select the store they need for the merchandise they desire. On these scores. is aimed at kids. Many airlines not only award frequent flyer miles on airline travel but also carry out these programs in partnership with credit card companies and retailers. is splitting its Disney Stores chain into two separate retail concepts. Gap and Gap Kids are frequently located closer to each other in most markets. However. The strategy would provide enhanced convenience to customers if both stores are located adjacent to each other. Explain why it is effective. Evaluate the growth opportunities in terms of the probability they will be profitable businesses for Amazon. However. software. Identify a store or service provider that you believe has an effective loyalty program.. and travel services.

Electronics and DVDs: These growth opportunities will most likely be profitable because. So the issue of profitability will be discussed in relative terms. Adobe.com companies. Real Networks. larger software manufacturers. Internet Travel Site: This market expansion to a new service has its strengths and weaknesses. Software: Since software is an information product. Amazon could simply offer the product for immediate download. Most customers will feel very comfortable ordering these two categories over the Internet without previous viewing or experience. including airline travel is now viewed as a commodity. such as Microsoft. Amazon. Music. There is more intense competition and the prices may not be much lower on Amazon's site as compared to those offered directly by the service providers. like books. Amazon has an amazing database system that will be able to better target their customers and keep track of their purchases. could render this category quite profitable for Amazon. Amazon’s distribution system will be able to deliver the goods in minimal time at a minimal cost. The lower costs of distribution coupled with the already lower costs of operations. Broderbund. at the time of writing. most travel. they do not need to be touched and felt to buy them. instead of costly packaging and stocking at retail stores.First. already have their own retail and distribution site and may use Amazon only for expansion to market segments that they are not currently serving. etc.com has only shown modest profits. 156 . with consumers often deciding more on price than on brand name. Amazon. Also. However. Thus. However. thereby also providing the immediate gratification that is typically lacking for most products purchased over the Internet. Amazon may attract a larger customer base by offering this new service.com will bring a competitive advantage to selling these items mainly through their name recognition over many other dot. even the distribution of the product could be over the Internet.

ANCILLARY LECTURES AND EXERCISES Ancillary Exercise Use PPT 5-7 to discuss McDonald's strategy. and the potential threats it faces. 157 . analyze its competitive position.

However. What is McDonald's offer (retail format in the language used in the text)? The initial response will probably be the benefits that McDonald's offers its customers such as convenience. What is McDonald's basis of competitive advantage? What growth opportunities might McDonald's consider? What threats does McDonald's face?  a well recognized and highly regarded international brand name  customer loyalty arising from the consistency with which its service is provided  good locations  a skill in providing using an industrial-like process to provide a highly consistent food offering  market penetration—increase meals served at breakfast and dinner to the same customer that eat at lunch. low price meal. and probably the biggest benefit is consistency. Get more customers to buy French fires when they buy a hamburger. Another market might be people on the go how need to pick up something to eat as they go from on task or appointment to another. but it will not be the worst—it will typically be the same from location to location. 158 . It might not be the best hamburger. Sell food the parents when they bring kids in for a meal.  market extension—expand to more countries in the world.Question Potential Responses What is McDonald's target market? While McDonald's has a broad market. its principle target market is probably families with young children. at a strategic level what McDonald's is providing is fast food—food that can be prepared with an industrial-like process—a process that does not required skilled employees (chefs).  retail format extension—drive in one-hour film processing stores McDonalds is really in a strong competitive position and its is unlikely that firms using similar formats like Burger King and Wendy's will be able to seriously challenge McDonalds for industry leadership.

However. there might be threats in the environment such as people becoming more health conscious and decline to eat fast food. Another threat might be the development of higher quality take-out food from a convenient location and the higher quality frozen food. 159 .

NOTES 160 .