CHAPTER 10: CHANNEL INSTITUTIONS: RETAILING

I. RETAILING –Any business entity selling to consumers directly

- Includes all activities involved in selling or renting products or services to
consumers for their home or personal consumption

Characteristics:

a. Order sizes tend to be small but many

b. Caters to a wide variety of customers. Keeps a large assortment of goods
c. Lot of buying in the outlet is ‘impulse’- inventory management is critical
d. Selling personnel and displays are important elements of the selling process
e. Strengths in ‘availability’ and ‘visibility’
f. Targeted customer mix decides the marketing mix of the retailer

Functions of Retailers:

a. Marketing functions to provide consumers a wide variety

b. Helps create time, place and possession utilities
c. May add form utility (alteration of a trouser bought by a customer)
d. Helps create an ‘image’ for the products he sells
e. Add value through:
i. Additional services – extended store timings, credit, home delivery
ii. Personnel to identify and solve customer problems
iii. Location in a bazaar to facilitate comparison shopping

Retail Store Life Cycle:

1. Innovation
2. Quick Growth
3. Maturity
4. Decline

How do Customers Decide on a Retailer?

a. Price
b. Location

DISMAN Page 1
 c. Product selection
d. Fairness in dealings
e. Friendly sales people
f. Specialized services provided

Kinds of Retailers

Type of retailer Characteristics

Specialty store Narrow product line with deep assortment – apparel, furniture,
books

Department store Several product line in different departments – Shoppers Stop, Big
Bazaar

Supermarket Large, low-cost, low-margin, high volume, self-service operation

with a wide offering

Convenience store Small stores in residential areas, open long hours all days of the
week – limited variety of fast moving products like groceries, food

Discount store Standard merchandise sold at lower prices for low margins -
Subhiksha

Corporate chains More outlets owned and controlled by one firm – Globus

Voluntary chain Wholesaler sponsored group of independent retailers

Retailer co-ops Independent retailers with centralized buying operations and

common promotions

Consumer co-ops Co-op societies of groups of consumers operating their own stores
– farmers, industrial workers etc

Franchise organization Contractual arrangement between the producer and retailers –

selling products exclusively – Kemp Toys

Retailers’ Strengths
a. Choice of merchandise is their prerogative – put pressure on producer suppliers
b. Many new products on offer. Can charge penalty if products do not do well

DISMAN Page 2
 c. New developments in IT help them run operations optimally and keep track of loyal
customers. Also helps them identify profitable store locations.

Types of Shoppers

1. Task focused shopper – visits the store to buy specific things he has planned for

– Convenience, minimum time, easily accessible goods,

pleasing store format

– Grocery shopping is an example

2. Leisure shopper – more interested in the ambience and environment

– Has plenty of time, wants to have a good time while

shopping

– Lifestyle stores are examples

3. Convenience goods (low value): probable gain from shopping and making
comparisons is small compared to the time, effort and mental discomfort
required in the search –toothpaste
4. Shopping goods (high value): gain is large – refrigerator
5. Specialty goods: clearly distinguished by brand preferences – Maruti Zen car or
Tag-Heuer watch

Category A - These are customers who contribute the maximum to the company
volumes and revenue and obviously gets special treatment.
Category B - Are the next set of customers who contribute regularly but in moderate
levels to the business.
Category C - These are customers who are low contributors and not even be regular.

Trading Area

 Catchment area from where most of the customers of a retail store come
- Corner grocery store caters to the locality in which it is situated
- Discount stores have a wider area. Subhiksha locations for consumers in 2 km radius
- Specialty stores have a much wider trading area – MTR, Shoppers’ Stop etc
 Trading area increases with the size of the store and the variety it offers

DISMAN Page 3
Retail Strategy

• Positioning of the retailer

Wide range with a high value add – Lifestyle brand of stores
Limited range but a high value add – Tanishque jewelry store
Limited range with a limited value add – Bata stores
Wide range of goods but a limited value add – a Food World outlet

• Merchandising
- A set of activities involved in acquiring goods and services and making them
available at the places, times and prices and the quantity that enable a retailer to
reach his goals
- The most critical function in retail
- Directly effects the revenue and profitability of the store
- Also takes into account the assortment of goods and their quality

• Customer service
- Developed to create ‘stickiness’ in customers
- Personal data collected using IT – including purchasing practices and preferences
- Customer loyalty programs planned
- Create ‘customer’ delight
- Location strategy to give competitive advantage
- Understanding the buying profile of the customers

• Customer communication
- The manner in which the retailer makes himself known to his customers. Has
two parts to it:
o The messages which the retailer sends to his customers and prospects
o The word of mouth support which satisfied customers give to the
retailer by talking to others

- Retailer communicates about:

o Announcing the opening of a store
o Promotions running in the store
o Additional facilities introduced by the stores

Pricing Strategy
• Premium and indicating high value
• Reasonable pricing with good value
• Low pricing but high value for money
• All strategies are focused on giving value to the customer

Product Differentiation
• Feature exclusive national brands not available in competing retailers – unlikely

DISMAN Page 4
 • Exclusivity of products – specialty stores
• Mostly private labels – Westside
• Feature, big, specially planned merchandising events – Kemp Fashion sows
• Introduce new products before competition - -again unlikely

Franchising
• Franchisor is the firm which wants to sell its goods or services
• Franchisee is the firm or group that are willing to sell the products or services on behalf
of the franchisor
– The first party gives advice and help to the second to find good locations, blue
prints for a store, financial, marketing and management assistance

Benefits to Franchisor
• Faster expansion
• Local franchisee pays lower advertising rates than a national firm
• Owners motivated to work more hours than mere employees
• Local taxes and licenses are responsibility of franchisees

Benefits to Franchisee
• Quick recognition among potential customers
• Management training provided by principal
• Principal may buy ingredients and supplies and sell to franchisee at lower prices
• Financial assistance
• Promotional aids, in-store displays etc

Retailing on the Internet

• Unlimited assortment
• Items may not be on hold – someone has to deliver the product – delays
• No product touch or feel
• More info makes the customer a better shopper
• Comparison shopping possible
• Consumer has to plan purchases ahead
• No need to handle cash – payment can be on-line
• Shopping is 24X7

E-tailing Issues
• Logistics support to selling
• Payment gateway
• Customer product returns
• Conflicts with Brick &Mortar – overcome by selling separate products

DISMAN Page 5