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BY ARUN PRAKASH. J & MALINI. P STUDENTS RVS INSTITUTE OF MANAGEMENT STUDIES KUMARAN KOTTAM, KANNAMPALAYM, COIMBATORE.
An exploding economy, a business-minded government, and a burgeoning middle class with a love for all things western makes India the ideal market for retail organizations looking to expand global operations. In 2006 AT Kearney¶s Global Retail Development Index ranked Asia as the region with the most promising prospects. Among 30 emerging countries worldwide, India ranked number one and China ranked number five. India¶s retail sector is quite fragmented with the top five retailers accounting for less than 2 percent of the $350 billion market, one of the ten largest in the world. There are over four million retail outlets in the country with one million located in urban areas. Single-brand foreign retailers can now own 51% of an India operation. Indian and foreign companies are making highly ambitious plans for large multi-brand retail operations. Foreign retailers entered China some year ago and today about 45 companies from Japan, Korea and the West operate in the country.
The Global Retail Scenario
Large format retail businesses dominate the retail landscape in the United States and across Europe, in terms of retail space, categories, range, brands, and volumes. Indian retail industry cannot hope to learn much by merely looking at the Western success stories in retail. Their scales of operations are very huge, the profit margins that they earn are also much higher and they operate in multiple formats like discount stores, warehouses, supermarkets,
departmental stores, hyper-markets, convenience stores and specialty stores.. The economy and lifestyle of the West is not in line with that of India and hence the retailing scene in India has not evolved in the same format as the West nor can we learn valuable lessons from their style of operations. In retailing, the conventional wisdom used to be, that, the critical success factor was location. But precise location no longer matters and geo-demographics is increasingly becoming irrelevant. The leading multiple chain retailers, superstores and malls create their own centers of gravity, attracting customers by car, bus, train or even by plane to wherever they are located. The growth of multiple chain retailers has been relentless for many years in the west and this has been accompanied by the development of retail names as brands in their own right. Discount retailer Walmart has catapulted to the top of the Fortune 500 rankings in the U.S. with a turnover of $258 billions (2003 revenues ± the basis for 2004 rankings), ahead even of oil major Exxon Mobil and the mammoth manufacturing giant General Electric. A ruthless policy, of, µAlways Low prices. Always.¶ has brought Walmart to the top. On the day after Thanksgiving in November 2002, Wal -Mart sales hit $1.43 billion in one single day. Walmart and Nordstrom in the U.S. and Sainsbury¶s and Marks & Spencer in the U.K. have grown by rapid geographic expansion in their own countries. Specialists like Benetton of Italy and IKEA of Sweden and The Body Shop of the UK are international and the fast food chains like McDonald¶s and Pizza Hut are everywhere. The same products are increasingly available from the same names on every continent. Retailers worldwide have immensely benefited from the sustained growth of the disposable income of their global consumers.
The Indian Retail Scene India is the country having the most unorganized retail market. Traditionally it is a family¶s livelihood, with their shop in the front and house at the back, while they run the retail business. More than 99% retailers function in less than 500 square feet of shopping space. Global retail consultants KSA Technopak, have estimated that organized retailing in India is expected to touch Rs 35,000 crore in the year 2005-06. The Indian retail sector is estimated at around Rs 900,000 crore, of which the organized sector accounts for a mere 2 per cent indicating a huge potential market opportunity that is lying in the waiting for the consumersavvy organized retailer. Purchasing power of Indian urban consumer is growing and branded merchandise in categories like Apparels, Cosmetics, Shoes, Watches, Beverages, Food and even Jewellery, are slowly becoming lifestyle products that are widely accepted by the urban Indian consumer. Indian retailers need to advantage of this growth and aiming to grow, diversify and introduce new formats have to pay more attention to the brand building process. The emphasis here is on retail as a brand rather than retailers selling brands. The focus should be on branding the retail business itself. In their preparation to face fierce competitive pressure, Indian retailers must come to recognize the value of building their own stores as brands to reinforce their marketing positioning, to communicate quality as well as value for money. Sustainable competitive advantage will be dependent on translating core values combining products, image and reputation into a coherent retail brand strategy. There is no doubt that the Indian retail scene is booming. A number of large corporate houses ² Tata¶s, Raheja¶s, Piramals¶s, Goenka¶s ² have already made their foray into this arena, with beauty and health stores, supermarkets, self-service music stores, new-age book stores, every-day-low-price stores, computers and peripherals stores, office equipment stores and home/building construction stores. Every retail category has been attacked, by the organized players today. The Indian retail scene has witnessed too many players in too short a time, crowding several categories without looking at their core competencies, or having a well thought out branding strategy. To illustrate, the Indian lifestyle/fashion retail scene is already exhibiting the following characteristics, which do not augur well for its future: Lack of store differentiation : Leading retail stores like Shoppers Stop, Lifestyle, Ebony,
Globus, and Piramyd, offer common brands, similar ambience, and a commitment to
improved service. Where is the scope for differentiation and brand building? Can these retailers hope that location and ambience alone will do the trick? Merchandising muddle : Mumbai¶s original retailers of Mumbai ², Amarsons,
Akbarallys, Benzer, Premsons ² have experienced no decrease in traffic in their stores, even after Piramyd and Westside opened shop. These retailers exploit what they know best ² what the customer wants with regard to product, selection and price ² and ensure their customers do not go back disappointed. Consumer insights built over their years of experience in business is helping them to hold the fort against the onslaught of the new players on the horizon. The organized new generation Indian retailers (Shoppers Stop and Westside) have recruited senior retail persons from abroad, who have the expertise in setting up systems and procedures, but they are going to take a long while to tune into the psyche of the Indian consumer. With the permutations and combinations of seasons, fashions and regional preferences, merchandising is at the best of times a complex task. India¶s cultural diversity poses additional challenges to the merchandisers requiring them to be aware of local tastes and to be able to compete with the local retailer in terms of market knowledge and speed of response. While technology and systems are no doubt enablers, there can be little substitute for experience and insight. Lack of labels/suppliers: Organized Indian retailing has to face the situation of lack of professional suppliers who are accustomed to deadlines, systematic in their production and consistent with their quality. Often, the local suppliers do not have financial strength or production infrastructure or discipline. Indian merchandisers are forced to compromise due to a true lack of choice ² which leads to huge unsold stocks and reduced profitability to the retailers. Discounting: Given widespread availability of the same brands, large retailers have to cope with the phenomenon of discounts offered by the smaller retailers. Large stores are able wrangle larger margins from most suppliers, but these margins are retained to meet the higher operating cost. Small retailers are tempted to pass on the lower overhead in the form of a discount to the customer to get them to their stores. In a middle class-dominated, pricesensitive market like India, price manipulation is a strong weapon in the arsenal of the small independent retailer. The large retailers themselves further dilute the strength of the retail market. With promotions becoming the order of the day, they too have entered into price
wars against each other. µUp to 50% off¶ sales and µTwo for one¶ price offers have now become commonplace even at the top retail outlets across our country. Deep price cuts may not be the answer to maintain their relevance against the small retailers nor does it auger well for the brand building of the store. Limited margins and high real estate costs: It is well accepted that Indian retailers work on low margins compared to international chains The . retail margins in India are a meager 30 to 35 per cent for fashion brands (as, say, compared to 50 to 100 per cent across Europe). With overheads and allowance for dead stock, the Indian retailer is not left with much scope for error. Cost of prime land for the retail store is prohibitive. Land prices in prime localities across the metros have themselves become a major deterrent to sustaining a profitable retailing model for organized players. A number of the new chains have therefore preferred to spread in smaller metros, hoping to offset lower revenue potential with lower real estate costs. µTime abundant¶ consumers?: In recent years, it would seem that the consumer has thrown the adage µtime is money¶ to the winds. The customer is willing to spend more time if he/she is getting a better deal. Scarcity of time seems to be the prerogative only of a few
consumers. The crowds inside Sarvana Stores or Jayachandran textiles in Pondy Bazaar in Chennai, drive home the point that consumers are prepared to travel to reach stores that promise best prices. The Indian model of organized retailing is still in a stage of evolution, and retailers need to understand the value of retail as a brand rather than remaining as retailers selling brands. However, the characteristics of the branding process, which are of interest to the retailers, are still the characteristics of the traditional product brands ± they are simply extended to the intangible part of the business. Thus, the characteristics of a branded product, are simply applied in a different space. What are the fundamental characteristics of a brand? While a myriad of characteristics have been catalogued by several researchers on this subject, five characteristics deserve mention: (1) Recognizability: A true brand is instantly recognized and identified. The brand name passes into every day use (Nike¶s µJust do it¶) or becomes satirized (µDon¶t be such a
Duracell¶) or appropriated (µMake a Xerox of this document¶). Indian retailers like Shoppers Stop, the RPG Group¶s Food World and Music World have already earned national recognition. Subiksha in Tamilnadu and µMargin Free¶ supermarkets in Kerala are household names in the two states.
(2) Meaning, story, value: This is the second characteristic of a brand. The brand must have a value proposition. It must stand for something and one of the most effective ways is to have a story to transmit those values. Examples abound of effective leaderships that have helped to build corporate brand values in other sectors, but few retailers have succeeded in building a story to carry brand meaning. When they do so, their power will increase. (3) Legitimacy: The meaning of the brand should be obviously appropriated by the target customer group. Legitimacy rests on authority, earned by the brand and granted by the customers. Lessons can be learned from social organizations like Greenpeace, Medicins sans frontiers, CRY and Helpage India. In this case, legitimacy rests on moral authority. In retail businesses it may rest on an emotional authority (a unique shopping experience, a store filled with warmth and friendliness.) (4) Consistency, alignment: A brand story should contain no internal contradictions and should be appear to be consistent over time. It should be applicable across the business and attempt at total brand integration. (5) Proximity: The brand building process should culminate with assuring the brand¶s proximity to the consum er. The brand¶s definition gets expanded by opening stores in a number of locations to make it convenient to the consumer.
BUT WHAT IS REALITY They say change is the only constant in life. That adage is certainly well reflected in the considerable and continuous movement in our industry ± a result of frequently changing consumer's demands, purchasing trends and the focus on time management in merchandising to enhance value for existing buyers, which are becoming more demanding and rationaleoriented. So, what are the constants that can anchor retailers in this chaotic environment? Indian vs global customer There are distinct types of Indian customers; these are classified according to the analytical partitioning of a product's target consumer group, either according to their socio-demo types or according to psychological typing. They can be labelled as: The pleasure seekers The value seekers
The novelty seekers The bargain hunters Whichever label a customer falls under, he is likely to be more sophisticated and demanding. India's consumption growth is at the margin that always drives powerful macro and market trends. It is accelerating growth off a low base. The potential comes from the structure of the Indian economy: private consumption currently accounts for 64 per cent of Indian GDP. This is higher than shares in Europe (58 per cent), Japan (55 per cent), and especially China (42 per cent). India's transition to an 8 per cent growth path in recent years is very much an outgrowth of the emerging consumerism of one of the world's youngest populations. The increased vigour of private consumption provides a powerful leverage to the Indian growth dynamic rarely found in the externally-dependent developing world. The global customer, on the other hand, is a shopper who demands honesty and respect from retailers and brand manufacturers, more than the highest-quality merchandise or the lowest prices.
Human values have become the contemporary currency of commerce. A chasm exists between what consumers want and what retailers offer, particularly when it comes to price, product, service, access and shopping experience. The majority of consumers are hard-pressed to identify their favourite stores in many retail channels. Retailers in general are not well differentiated in the minds of consumers in terms of their value propositions. Demographics make a difference: Throughout most of the countries studied, women were much more likely than men to rate the factors related to shopping satisfaction as extremely important, while younger consumers were less apt than older shoppers to do so. Changing expectations The new consumer is a butterfly, less likely to remain loyal. They are changing their mind about brand choices very often, fluttering from one product to another, operating like ³butterflies´. Modern consumers are educated and experienced, and familiar with a growing choice of products and services. They take for granted the competitive trading environment that operates in most markets and expect high-quality service and value for money, as well as good marketing and information provision.
The butterfly existence in most cases does not arise out of choice, but confusion due to the tremendous amount of choices available. When people are overwhelmed by choices, they are left watching as all those things spin past them. As a result, decisions are deferred or even discarded. The famous American thinker Ralph Waldo Emerson once wrote: ³Life is frittered away by detail. Simplify, simplify.´ The key is about management of choice ± helping the consumer make informed decisions.
As customer expectations change, so does a retailer's approach to service. Several retailers who have kept pace with the evolving customer say the most important thing that has remained constant is the belief that personal attention to customers is the key to repeat business and ultimate success. The considerable movement in the industry is a result of frequently changing consumer's demands, purchasing trends, and the focus on time management in merchandising to enhance value for existing buyers. Thus, the below factors need to be considered during the conception of strategies for innovation.
Price gains importance over service: However, it is imperative to have consistent and professional service. When dealing with buyers, one should convey a consistently professional image. Give the buyer confidence that you are reliable. Communicate clearly and honestly. Make eye contact. Put time and energy into establishing and maintaining a long-term relationship with retail. Most people approach retail sales by thinking about their own needs to sell their products at a certain price within a specified time frame. But you may have better success if you try to solve a buyer's problems or point out a new opportunity your product offers. If you are marketing with a co-op, dedicate one person to be the co-op's retail representative and be certain that this person can project the image your co-op wants to convey. Give your representative plenty of information for answering questions about products and the farms that produce them. Technology brings transformation: Technology has been a great facilitator of retail enterprise. From the earlier days of scanning, technology has soared to where we can capture everything in real time instantaneously. We are now wireless, seamless, cashless, and everything less ± and can get any information we want and require. Retail technology has gone beyond being the enabler. For many organisations, intelligent application of technology
takes the mind-boggling amount of data, translating and transforming it to information, then synthesising and transmogrifying it to intelligence. And after all of the investment and effort, it is converted to superior performance and competitive advantage.
Enhanced store experience: Today, with the emergence of several shopping malls, supermarkets and hypermarkets, there is an immense competition for retaining customers. There are greater choices available to consumers than ever before. It is inevitable for retailers to develop business strategies that focus on creating and maintaining customers. A differentiated shopping experience is an important step in this direction. Visual merchandising and store layout are key functions that need serious attention in enhancing customer shopping experience. Merchandising is much more than simply the arrangement of products on the shelf; it is also about understanding the way customers shop.
Price and value relationship: Price is important, but value is more important. While value is in the eye of the beholder, there are things you can do to increase the value of your products. There are all sorts of marketable characteristics that demand a premium. Is a product organic? Is it produced on a farm? Does it have other production characteristics or nutritional advantages that you can document? Can one tell a story about the product or business that makes it unique? All of these characteristics can increase the perceived value of a product. When the perceived value is greater, one can expect to receive a better price for the product in the case of a retail outlet. In the case of a discount supermarket, however, one will need to have rock-bottom prices.
Product marketing and communication: It is important to approach product marketing with the right blend of strategic thinking and creative execution to help influence consumer purchase behaviours and build long-term loyalty to products. In addition, creating content that persuades is the single-most important function of any business. Intelligent customers are making buying decisions for products and services worth millions on the basis of the information offered to them about products that are becoming increasingly similar. Right communication makes an impact that not only captures attention, but also ensures recall and builds brands.
Conquest of customer satisfaction lies in quick and efficient customer service. Retailers have to invest in a quick response system. Instead of predicting months before a season starts,
retailers have to closely observe what's selling and what's not, and continuously adjust what they produce and merchandise. In a move to fulfill consumer's demands, the product assortments need to be continuously modified or even created. Thus, convenience and innovation are constant elements retailers need to take into account in order to remain at a competitive edge in today's global marketplace.
THE MAJOR FEATURES THAT THE REAL RETIAL MARKET POSSESS IN THE PRESENT SCENARIO ARE 1) Near is not always dear As per our survey report, location matters, but it is not the be-all and end-all. 72 per cent of the respondents shop at an outlet close to their home or office. However, there is still a significant 28 per cent who believe that location does not matter. In fact, 64 per cent of the total respondents said that they would travel quite a long distance for their grocery shopping if it meant getting a good deal. Of these, 74 per cent shop at modern trade outlets. With grocery chains fast expanding their presence through more number of outlets, location will soon no longer be an issue. However, till then, there are clearly other ways to get shoppers to travel the distance!
2) Price is not a factor MRP is no longer a benchmark. 68 per cent of the respondents said that they expect lower prices than MRP - especially on branded items. 79 per cent of these shoppers shop at modern retail outlets. However, even amongst predominantly kirana shoppers, 50 per cent confessed that they look for prices lower than MRP. There is an underlying feeling of guilt associated with paying MRP among most of the housewives, as they feel that they are taking the easy way out instead of looking for a more value-for-money option. This is where unorganised retail suffers most at the hands of modern trade. Organised chains have centralised sourcing and buying which enables them to buy in bulk and sell at prices 1 to 2 per cent lower than MRP. Strategically and tactically the customer's bill at these outlets reinforces the fact by calculating and displaying the resultant saving on MRP! 3) Plan for the unplanned Shopping at a kirana or on the phone is still largely done by the 'list'. Self -service and walk-
throughs, by their very nature, encourage the unplanned additions. Stroll through the aisles and you invariably end up picking up more than what you had originally planned for! 58 per cent of predominantly modern trade shoppers either disagreed that they stuck to a fixed shopping list or said it did not matter. Parallelly, 72 per cent of them agreed that they liked to browse around and add unplanned items to their shopping basket. The same question when asked to 'kirana' shoppers revealed different responses. Over 85 per cent of them plan their shopping list in advance and adding unplanned items is not too common. Modern retailers have already learnt these lessons and thus strategically place impulse buying and low-value items near the Check-out counters or in highly visible gondolas near popular aisles. The trolleys they provide also invariably facilitate more browsing than shopping baskets and the large-format stores enable easy walk-throughs.
4) The sky is the limit on deals Customers are now getting used to feeling cheated if they do not get a deal. Some of the respondents commented that modern retail has spoilt us with offers of 'Buy two Tropicana packs - get one free' or 'Buy two kilograms of Daawat basmati rice for the price of 1' or 'Buy Heinz ketchup and get Top Ramen noodles free'. What is more, deals get changed every week giving the customer something to look forward to - giving them a reason to return. Once a month grocery shopping is no longer the norm - once a week is more common practice among most of the respondents. The Cartesian study showed that 64 per cent of the customers consciously look for deals and discounts while shopping for grocery.
5) The here and now matters more than the future Instant gratification is the need of the hour. 52 per cent of the respondents look for instant rewards, deals and offers while shopping against accumulation of points. And this seems to be the same for all age groups. However, it is also a fact that the housewives do value their grocery 'loyalty card' that they flash at the check out counter to earn points and get special recognition. Apart from the points and redemptions, they want good offers, deals on-the-spot and pleasant surprises that make them feel they have done 'smart shopping'.
6) Ambience and comfort are hygiene Air-conditioned shopping with comfort and clean, spacious surroundings are expected by 72 per cent of modern trade shoppers, and 50 per cent of kirana shoppers agreed with this. Interesting to note that the remaining 50 per cent of the kirana shoppers did not disagree with
the statement, rather they believe it does not matter either way!
7) Grocery shopping is an experience - not a chore 40 per cent of the respondents agreed that they spend more time on grocery shopping today than they did 6 months ago. No longer is it a chore that replenishes household stocks every week or month. Modern retail has ensured that is has become an outing that is looked forward to and an experience that can be enjoyed. Grocery shopping has virtually become a voyage of discovery. Every other day something new is offered - new products, new flavours, new deals and new promotions. The only thing the housewives need to prove is that they have earned the most value out of their money. And this is a phenomenon across the board - regardless of income levels.
Indian Retail Brand Building ± the road map ahead
There is no doubt that the Indian retail shopping experience has been enhanced by giant superstores and shopping malls across our country. They should however learn quickly to build the retail brand directly and not look to factors like prime location, value pricing or product assortment to build their businesses. Indian retailers, to build a strong retail brand presence, can use the following strategies. Relationship management to enhance in-store shopping experience: Competition will force retailers to think about their customers as individuals, analyze their shares of customers and calculate their customer lifetime values. Retailers need to build data bases using in-store data collection and launch frequent shopper rewards, carry on an interactive communication with them, make special offers, drive traffic and add value outside the in-store relationship. Retail brands get built by developing personal relationships with consumers rather than only through product and pricing. For example, staff should be trained to recognize their V.I.P customers. µSoft¶ rewards for V.I.P customers include priority service, free gift wrapping, enhanced guarantees and sales pre-notifications. µHard¶ benefits include privileged rewards and extra value offers as well as straight discounts. The quality of management of the customer is becoming an increasingly important source towards building the retail brand. Education and training of staff needs to be done to enhance customer service. Local store management can be empowered to maximize the value of each customer visit. Analysis of customer behavior can guide store merchandising to match the profile of their customers and even the needs of the shoppers at different times of the day.
External communication to add value outside the store: Retailers use advertising to build their brands and promotions to drive store traffic. Retailers have, still not felt the concept of individual customer communication outside the stores as a necessity. It is necessary that they seek to add a new form of dialogue with their customers. Retail chain Subiksha, for examples, mails a broadsheet to its customers giving them details of the promotional offers available and price comparisons across brands that helps its customers to take more informed decisions. Motivating the staff to volunteer value : The quality of in-store service is a key factor in differentiating the retailer and winning a higher share of customer spend. In one survey, shoppers were asked, would they ask for the same salesperson on their next purchase visit; the µyes¶ respondents were found to more likely give the store a 8 -10 rating. On the other hand, shoppers unhappy with the salesperson gave the store a very low performance on overall service and performance. Staff must be trained and motivated to recognize their best customers and to offer them superior service. Successful retailing has always been said to be, about getting the nitty-gritty right of merchandising, forecasting, the supply chain, training and recruitment of high quality personnel and category management. Building retail brands that offer value will, in future, overshadow all these areas, and emerge as the dominant reason for the success of the organized Indian retailer. Indian retailers should also understand that the retail experience has become a popular leisure activity and they are vulnerable to any new competition for customers¶ entertainment. Indian retailers must build their brands with images that seek to entertain and involve their customers. It is the quality and value of the retail brands that they have sought to establish that will determine the loyalty of the retail shopper in future.
1. Pearson Stewart (1996) Building Brands Directly, Macmillan Press, London. 2. Knapp Duane E. ( 2000 ) The Brand Mindset, McGraw Hill New York NY. 3. Crane Tony ( 2004) µBattling the price chasm¶, The Ashridge 360o Jounal. 4. van Tongeren Michel (2002) Retail branding/Platform Development: The holistic approach to retail branding. 5. Christopher Knee (2002) Learning from experience: five challenges for retailers, International Journal of Retail and Distribution Management, Vol.30 No. 11, pp. 519-29. 6. Tony Kent (2003) Management and design perspectives on retail branding, International Journal of Retail and Distribution Management, Vol.31 No.3, pp. 131-42. 7. Henderson, Terilyn A; Mihas,Elizabeth A Building Retail brands The Mckinsey Quarterly 2000 Issue 3 8. µWhat¶s eating Indian retailing?¶ Business Standard , 10 July 2001. 9. µRetail Hotspot¶ The Hindu Business Line, 22 August 2002 Building Successful Indian Brands 10. µRetail detail¶ The Hindu Business Line, Praxis January 2002. 11. Building Successful Indian Brands by Sundar . 12. µThe Benetton Make over¶ The Hindu Business Line, 07 August 2003 13. µRetail niches in Bangalore see 40% growth¶ , Economic Times, 11 February 2004. 14. Fortune 500 rankings. USA Today.com. 22 March 2004. 15. µMall Wonder¶, Economic Times, 1 Apri l 2003
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