Introduction to Retailing

Chapter 1

1 Introduction to Retailing
 Introduction to Retail

Unit I
Introduction to Retail: what is Retail, The
functions of retail, retailing in India. The
evolution of retail in India, retail Change in
India

2 Introduction to Retailing
 Learning Objectives

To Understand:
• The concept of retail
• Place of retailing in a distribution channel
• Functions of Retailers

3 Introduction to Retailing
 Introduction:

 The word retail has its origin in French word retaillier and
means “to cut a piece’’ or “to break bulk’.

 “Retailing is the sale of goods and services to the

ultimate consumer for personal, family or
household use.”

4 Introduction to Retailing
• According to Kotler: “Retailing includes all
the activities involved in selling goods or
services to the final consumers for personal,
non business use”

5 Introduction to Retailing
 “’Wheel of Retailing”

6 Introduction to Retailing
 Functions/ Job Profile of a retailer

 customer point - providing the goods that he needs in the

required assortment, at the required place and time.
 economic standpoint- to provide real added value or utility to
the customer
Apart from these functions retailer also performs like:
1. Form
2. Time
3. place
4. ownership
5. Arranging Assortment
6. Breaking Bulk
7. Holding stock
8. Promotional support

7 Introduction to Retailing
 •Enjoy Substantial Channel Power

Retailer

8 Introduction to Retailing
• Retailers Act as Buying Agents
for Customers Rather than as
Selling Agents for Suppliers

9 Introduction to Retailing
 • Retailers Often Operate on Low
Price / Low Margin Model

10 Introduction to Retailing
• Retailers Operate in Saturated
Markets and Fight for Market
Share

11 Introduction to Retailing
Power or Dominant Retailers are therefore
the “Gatekeepers” into the Consumer
Marketplace

Thus, Effective Channel Strategy

for Dealing with
Power Retailers is Crucial
12 Introduction to Retailing
 The Need to Reduce Distribution Costs

Distribution
Costs

13 Introduction to Retailing
Role of Retailer in Distribution Channel

1. Last Link in distribution channel

2. Deals in small quantities

3. Less capital requirement

4. Availability of varieties

14 Introduction to Retailing
 Concerns For the Retailers to Survive

1. Customer Satisfaction
2. Product Presentation
3. Traffic Building
4. Layout
5. Location
6. Keeping Pace with Technology

15 Introduction to Retailing
 The Marketing – Retail Equation

Manufacturer Manufacturer Manufacturer

Wholesaler

Retailer
Feedback

Retailer

Consumer Consumer Consumer

16 Introduction to Retailing
 Retailing in India.
• The new buzzword
• global Retail development Index has ranked India twentieth, among the top
30 emerging markets in the world.
• India has the potential to deliver the fastest growth over the next 50 years.
• barter would be considered to be oldest form of retail trade
• Second largest sector after Agriculture
• The estimated size of the organized retail industry in India is Rs. 16,000
crores. This is 2 % of the total estimated retail trade.
• India's first true shopping mall was inaugurated as lately as in 1999 in
Mumbai.

17 Introduction to Retailing
 The Evolution of Retail in India

• Haats, Mandis and Melas

• PDS- FPS

• CSD
• Post Offices

• KVIC

18 Introduction to Retailing
 The Evolution of retail in India

Emerging
Traditional Established Formats
Formats formats Exclusive retail outlets
Itinerant Salesman Kirana shops Hypermarket
Haats Convenience/ Internal retail
Melas department stores/ Malls / Specialty Malls
Mandis etc. fair price shops Multiplexes
Pan/ Beedi shops Fast food outlets
Service galleries

19 Introduction to Retailing
 Drivers of Retail change in India

major drivers :

1. Increase in per capita income

2. Diminishing difference between Rural and urban India
3. Changes in Consumption patterns
4. Demographical changes
5. High standard of living
6. Availability of low-cost customer credit
7. Improvements in Infrastructure
8. Entry to various sources of financing

20 Introduction to Retailing
1. Increase in per capita income: Steady economic growth fuelled the increase in
disposable income in India. The average middle class family's disposable income
rose by more than 30%.

2. Diminishing difference between Rural and urban India: Rural India accounts for
over 75% of India population and this in itself offers a tremendous opportunity for
generating volume driven growth.

3. Changes in Consumption patterns: Occupational changes, changes in income and

expansion of media have caused a significant change in the way the consumer lives
and spends his money. This brought about changes in the aspirations and the
spending patterns of the consumers. The buying basket of the consumer changed.

21 Introduction to Retailing
4. Demographical changes: Nearly 70% of the Indian working population is below
the age of 34 which is generating huge income. For any developing country young age
group income is the key factors for its growth. taking advantages of employment
opportunity in the booming service sector it has helped in attracting big giants.

5. High standard of living: People have changed their misconception and have
adopted Mall culture.

6. Availability of low-cost customer credit: Sales generated on credit are more as

compare to cash sales. Gives both seller & buyer flexibility to transact. Due to lack
of cash buyers use to postpone their purchases.

7. Improvements in Infrastructure : With huge infrastructure spending which has

entered the country in form of FDI more retail giants have proposed to enter Indian
market.

8. Entry to various sources of financing: An economy gets finance in the form of

FDI. The ways are opened up for retail sector.

22 Introduction to Retailing
 Learning Outcomes

• The concept of retail

• Place of retail in distribution channel
• Various functions of retailer

23 Introduction to Retailing
 Retailers and Retail Formats

Chapter 2

1 Retailers and Retail Formats

 Learning objectives

To understand:
• Organized retail marketing
• Classification of retail firms

2 Retailers and Retail Formats

 Categories of Retailers/ Retail Formats

1.Store Based 2. Non-Store Based 2. Service Retailer

Merchandise •Direct Selling • Banks

Ownership Based Based •Direct Marketing • Car Rentals
• Independent •Online Shopping • Service
• Super Markets Mall Contracts
Single
• Hyper Markets •Television Shopping • Providers of
ownership
• Specialty •Vending Machines various
Retailer
Stores services
• Chain • Departmental
Retailer/Corpor Stores
ate chains • Off Price
• Leased Retailers
Departments • Factory Outlets
• Consumer • Catalogue
Cooperatives Showrooms
• Franchising

5 Retailers and Retail Formats

 I] Ownership Forms

a) Independent Single ownership store Retailer: An independent Retailer

owns & operates only one retail outlet.
Eg. Any retailer who has monopoly in your locality.
Kirana store, panwala, Local Baniya
Benzer, Instyle, Premsons, Amarsons etc.

b) Chain Retailer or Corporate Chain: When two or more outlets are under
a common ownership, & control, centralized buying & merchandising
operations, & similar lines of merchandise. Strongest in the food, drug,
shoe, variety & women clothing Industries.
Eg. Louis Phillippe, Van Heusen, Arrow, Globus, Pantaloon, Westside,
Shopper’s Stop etc. Could operate in various formats like discount stores
(Subhiksha), hypermarket (Hypercity), Supermarket (Big Bazaar) etc.

6 Retailers and Retail Formats

 c) Leased Departments: Also termed as shop-in-shops.

d) Consumer Cooperatives: Retail institution owned by its member

customers. These are outlets that are owned & operated by consumers
for their mutual benefit. These are based on open consumer
membership, equal voting among members, limited customer services &
shared profits among members.
Eg. Sahakari Bhandar, Apna Bazar.

e) Franchising: A contractual agreement between a franchiser and a

retail franchisee.
Eg. Dominos Pizza, McDonalds, Subway, KFC, Subway, Monginis.

7 Retailers and Retail Formats

 Franchise Formats
Product/ Trademark Business Format
franchisee acquires the franchisee receives assistance:
identity of a franchisor by location, quality control,
agreeing to sell products accounting systems, start-up
and/or operate under the practices, management
franchisor name training
franchisee operates common for restaurants, real
autonomously estate
Dealer agrees to sell certain Dealer must sell the
products provided by a franchiser’s product in the
manufacturer, but can use exact way the franchiser
any sales tactics he chooses. prescribes.
Ex – McDonalds
Ex – Avon, Archies stores
8 Retailers and Retail Formats
 Competitive State of Franchising

Advantages Disadvantages

 small capital required  oversaturation could

 acquire well-known names occur
 operating/management  franchisors may overstate
skills taught potential
 cooperative marketing  locked into contracts
possible  agreements may be
 exclusive selling rights cancelled or voided
 less costly per unit  royalties are based on
sales, not profits

9 Retailers and Retail Formats

 From the Franchisor’s Perspective

Benefits Potential Problems

 national or global
presence possible
 qualifications for
franchisee/ operations are
set and enforced
 money obtained at
delivery
 royalties represent
revenue stream
 potential for harm to
reputation
 lack of uniformity may
affect customer loyalty
 ineffective franchised
units may damage resale
value, profitability
 potential limits to
franchisor rules

10 Retailers and Retail Formats

 II. Merchandise Based

Convenience Stores

Supermarkets

Hypermarket

Specialty Stores

Department Stores

Off-price Retailers

Factory Outlets

11 Retailers and Retail Formats

 Merchandise Based
1. Convenience stores: defined as a miniature supermarket, carrying only a limited line of convenience goods. 3,000- 8,000 sq.ft.
E.g. HP Speed mart, In & Out, 7-Eleven, Albert Heijn, SPAR.

2. Supermarkets: Large, low cost, low margin, high volume. Self-service operations, U.S. consumers spend about a tenth of
income in supermarkets. Trends: the growth of prepared foods and time-saving products, and the need for convenience.
8,000-20,000sq.ft. E.g. Safeway, Tesco, Subhiksha, Food Bazaar.

3. Hypermarket: Combination of Supermarket & a department store. 80,000-2,20,000sq.ft. offer variety of products. One stop
shopping. Eg. Wal-Mart, Tesco, Big Bazaar, Star India Bazaar.

4. Specialty stores: Store specializing in a particular type of merchandise, merchandise is tailored to specific target markets.
Narrow product line with deep assortment. Under 8,000sq.ft. e.g.. Ikea, Gap, Proline fitness Station, Gautier furniture.

5. Department stores: carries a wide variety of shopping and specialty goods. Purchases are made within each department.
Averaging 20,000-40,000sq.ft, stocks b/w 50,000-1,00,000 SKU’s. e.g.. Marks & Spencer, Globus, Westside, Lifestyle.

6. Off price Retailers: Merchandise is sold at less than retail prices. Odd sizes, unpopular colours, minor defects, off seasons. E.g.
Pantaloons Factory Outlets, Levis Factory Outlets, etc.

7. Catalogue showrooms: specialize in hard goods such as housewares, jewellery & consumer electronics. 20,000- 2,00,000sq.ft.

8. Discount stores: a retailer that competes on the basis of low prices, high turnover, and high volume.

9. Restaurants: straddle the line between retailing establishments and service establishments.

12 Retailers and Retail Formats

 2. Forms of Non-store Retailing
High
Active customer involvement

Direct
selling
Tele-
marketing
On-line
retailing
Television
home
shopping
Automatic
vending
Direct mail
and
catalogs
Low
Low Active retailer involvement High
13 Retailers and Retail Formats
 Direct Selling

• Direct selling involves direct sales of goods and

services to consumers through personal interactions
and demonstrations in their home or office, involves
one-to-one or one-to-many selling.
• E.g. AMWAY, Oriflame, Herbalife etc.

14 Retailers and Retail Formats

 ii) DIRECT MARKETING- Involves direct response
marketing.
Eg. Dell Computer

Direct Mail
Direct
Marketing needs
no personal Catalogs & Mail Order
interaction
Telemarketing

15 Retailers and Retail Formats

 Electronic/Online Shopping

• Online retailing allows consumers to search for,

evaluate, and order products through the Internet.
• The advantages of online retailing are:
– ability to compare
– privacy
– Variety
E.g. eBay, Homeshop, Rediff shopping etc.

16 Retailers and Retail Formats

 Television shopping

• Shopping takes place by watching a product on

television.
E.g. Home Shop 18, Asian Sky Shop.

17 Retailers and Retail Formats

 Automatic Vending

• Non-store retailing that makes it possible to serve

customers where stores cannot.
• Maintenance and operating costs are high.
• Small convenience products are available in
vending machines.

18 Retailers and Retail Formats

 Direct Mail & Catalogs

• Marketing efficiency is improved through

segmentation and targeting.
• Customer value is enhance by providing a
fast and convenient means of making a
purchase.

19 Retailers and Retail Formats

 3. Service Retailer

i)Banks

ii) Car Rentals

iii) Service Contracts

iv) Providers of various services

20 Retailers and Retail Formats

The dictionary meaning of Inventory is STOCK OF
GOODS.

The word inventory is understood differently by

various authors. In accounting it may mean stock of
finished goods only.

 In a manufacturing concern, it may include raw

materials, work in progress and stores, etc.

In Retail, the amount of stock present in a retail outlet

and ready to be distributed.
Inventory Management is a Science primarily about
specifying the shape and percentage of stocked goods.

A proper planning of purchasing, storing, and

accounting should form a part of inventory management.

An efficient system of inventory management will

determine:

1)What to purchase
2) How much to purchase

3) From where to purchase.

4)Where to Store.

The purpose of inventory management is to keep the

stock in such a way that neither there is over- stocking nor
under- stocking.
EOQ is a quantity of
inventory which can
reasonably be ordered
economically at time.

In determining this

point, ordering costs and
Carrying Costs are taken
into consideration.

Ordering costs are

basically the cost of
placing an order.
Carrying cost includes costs of storage facilities and loss
of value through physical deterioration, cost of
obsolescence.

The balancing point is known as

Economic Order Quantity.
 It means Always Better Control
Under this the inventory is classified into 3 categories
viz. A B and C. These categories are based upon the
inventory value and cost significance .

Items of High value and small in no. are termed as A.

Items of moderate value and moderate in no. are
termed as B.
Items of small value and large in no. are in category C
The cost of each item is multiplied by the no. used in a
given period and then these items are tabulated in
descending numeric value order.
In this, the items are classified on the basis of their
criticality to the production process or other services.

In this classification of materials, V stands for Vital

items without which the production process would come to
standstill.

E denotes Essential items whose stock out would

adversely affect the efficiency of the production system.
Their non availability might cause temporary losses.

The D items are the Desirable items which are

Required but do not immediately cause a loss of
production.

 The VED analysis is done mainly in respect of spare

parts.
It is a philosophy that focuses attention on eliminating
waste by purchasing or manufacturing just enough of
the right items just in time.

It is a Japanese management philosophy applied in

manufacturing which involves having the right items of
the right quality and quantity in the right place and at the
right time.

It involves having products arrive as soon as the

customers order them.
This ratio is computed by dividing the cost of goods
sold by the average inventory.

Stock Turnover Ratio= Cost of goods sold

Average inventory

It is way of measuring how many times a business use

inventory in a given time period.

Business use inventory turnover to assess

competitiveness, project profits , and generally figure out
how well they are doing in their industry.
Stores and Spares term which commonly covers all kinds
of supplies necessary to keep production equipment
operating.

The firm should keep each and every component of

stores and spares to a reasonable level.

 Stores and Spares inventory turnover:

Annual Consumption of Stores and Spares

Stores and spares inventory
Every product at the store has a unique code. This
code helps in identification and tracking of the products
at the retail store.

The retailer feeds each and every SKU in the master

computer and can easily track the product in the stock
just by entering the SKU no.
It is a regular analysis of stock versus projected future
needs. This can be done through a manual review of stock
or by using inventory software.
EXTERNAL ATMOSPHERICS
 STOREFRONT
 MARQUEE
 ENTRANCES
 DISPLAY WINDOWS
 SIZE OF BUILDING
 VISIBILITY
 PARKING
 ACCESSIBILITY
 INTERIOR ATMOSPHERICS

 FLOORING
DEAD/SHADOW AREA
 LIGHTING
PERSONNELS
 ODOUR
CLEANLINESS
 FIXTURES
 WALLS AND COLOUR
 TEMPERATURE
 AISLES
 TRIAL ROOM
STORE DESIGN

Factors that a retailer needs to take into account while

designing a store:

1. Store Location
2. Store’s Layout
3. Storefront Design
4. Interior Design
5. Lighting
6. Sounds & smells
7. Visual Merchandising
8. Displays

store layout 4
STORE LAYOUT
FLOOR SPACE ALLOCATION
TRAFFIC FLOW
DEPARTMENT LOCATION
MERCHANDISE CATEGORY
SIGNAGE - # Commodity Indicator
# Directional Signs
# Instructional Signs
# Courtesy Signs
Store layout 6
store layout 7
 Where do retailers use visual merchandising?

Four areas of display in a retail store

• Storefront
• Store Layout
– Store Interior
– Interior Displays

Store layout 8
 Store Layout

• The store layout is the arrangement of

floor space to promote the sale of fashion
products.

• A retailer can be arranged as a series of

departments or groupings of merchandise.

Store layout 9
 Store Layout
Purpose:
• Generate Sales

• Provide for ease of customer movement

through the store (Circulation)

• Provide for maximum product exposure and

attractive display of merchandise

• Prevent Shrinkage

Store layout 10
 STORE LAYOUT

• Selling space • Personnel space

– For employees
– Interior displays
– Break room
– Sales demonstrations – Restrooms
– Sales transactions – Lockers
• Merchandise space • Customer space
– Inventory storage – For their comfort
– Dressing rooms
– Backrooms
– Restaurants
– Drawers, shelves – lounges
Store layout 11
 Store Layout Cont

Traffic: The number of customers that

enter a store.

Traffic Pattern: The path customers take

through a store while shopping.

Store layout 12
store layout 13
 TYPES OF LAYOUT

GRID LAYOUT

RACE TRACK LAYOUT

MOUSE TRAP LAYOUT

BLOCK LAYOUT

EXPRESS LAYOUT
FREE FORM
 Store Planning
Grid layout The counters and fixtures are placed in long rows or ‘‘runs,’’
usually at right angles, throughout the store.
Free-flow Fixtures and merchandise are grouped into free-flowing patterns
layout on the sales floor.

Loop layout A major customer aisle begins at the entrance, loops through the
store—usually in the shape of a circle, square, or rectangle—and
then returns the customer to the front of the store.
Spine layout A single main aisle runs from the front to the back of the store,
transporting customers in both directions, and where on either
side of this spine, merchandise departments using either a free-
flow or grid pattern branch off toward the back side walls.
TYPES OF LAYOUT
Grid Layout
Grid (Straight) Design
• Best used in retail environments in
which majority of customers shop the
entire store

• Can be confusing and frustrating

because it is difficult to see over the
fixtures to other merchandise

• Should be employed carefully;

forcing customers to back of large
store may frustrate and cause them to
look elsewhere

• Most familiar examples for

supermarkets and drugstores

store layout 18
 • Disadvantages

store layout 19
FREE FORM LAYOUT

CASHIER
Free-Flow Layout

LO 2
 Free-Flow Layout
• Fixtures and
merchandise grouped
Storage, Receiving, Marketing
into free-flowing patterns
on the sales floor – no
defined traffic pattern

Hats and Handbags

Underwear Dressing Rooms
•Works best in small
Stockings

Accessories

stores (under 5,000

Tops
square feet) in which
customers wish to
Checkout counter browse
Casual Wear

• Works best when

Pants

Tops
Clearance Items merchandise is of the

Skirts and Dresses

same type, such as
fashion apparel
• If there is a great
Jeans

Feature Feature variety of merchandise,

fails to provide cues as to
where one department
Open Display Window Open Display Window stops and another starts

store layout 22
 • Disadvantages

store layout 23
store layout 24
TYPES OF LAYOUT
Loop Layout
TYPES OF LAYOUT
Curving/Loop (Racetrack) Design

• Major customer aisle(s) begins

at entrance, loops through the
store (usually in shape of circle,
square or rectangle) and returns
customer to front of store

• Exposes shoppers to the

greatest possible amount of
merchandise by encouraging
browsing and cross-shopping

store layout 28
store layout 29
Spine Layout
Spine Layout
• Variation of grid, loop and free-form layouts
Based on single main aisle running from the
front to the back of the store (transporting
customers in both directions)
• On either side of spine, merchandise
departments branch off toward the back or
side walls
• Heavily used by medium-sized specialty
stores ranging from 2,000 – 10,000 square
feet
• In fashion stores the spine is often subtly
offset by a change in floor coloring or surface
and is not perceived as an aisle

store layout 31
5: SPINE

It is similar to loop except that the customer returns by the

same path. It is therefore better suited to medium-sized
specialist store with a narrow front but deep interior

• Advantage: • Disadvantage:

 The layout can use the  The retailer may need to

benefits of free flow,
grid and loop systems
as appropriate
vary the shape of the
central walkway and
increase expenditure on
fixtures and fittings in
order to break monotony

32 store layout
TYPES OF LAYOUT
TYPES OF LAYOUT

EXPRESS LAYOUT
THE CIRCULATION PLAN (The “Silent Guide”)

While designing the store layout, circulation

planning is done to lead the customer from area to
area with the aisles that weave through the
merchandise area.

Focal points are highlighted with accent lighting.

The area occupied by the aisles is normally 12-15%

of the store carpet area.

store layout 35
WALL RACK
GONDOLA
GONDOLA END
CHECK OUTS
DUMP BINS
WALL BROWSERS

BROWSERS
MANNEQUINS
TROLLEYS

BASKETS
COOLERS CHILLERS DEEP FRIDGERS
 FLOORING
IDEAL FLOORING
Economical

Aesthetic

Joint Free or Lesser Joints

Can withstand Heavy Customer Traffic

Non slippery

Maintenance free

Easy Fixing

Easy Availability

Durable
CEILING & COLOUR
VENTILATION- COOLING & HEATING
 LIGHTING
TYPES AND PRINCIPLES
• Ambient lighting
• Accent lighting
• High-activity lighting
Trail Room
CCTV
COMPUTERISATION
POS
COMPUTERISATION
BARCODING
COMPUTERISATION
Weighing Scale cum Bar Code printer
COMPUTERISATION
RFID
 Learning outcomes

• Concept of store layout

• Types of layout
• Importance of store layout

Store layout 56
Retail Location Model
Structure

– Importance of location for retailer

– Trading area analysis
– Chief factor to consider in evaluating an area
– Weightages given to a criteria
– Analyzing retail trade area
– Model applied
Importance of location

– Critical importance - can make or break the business

– Must be consistent with its mission and goals
– Some basic questions to be answered:
– Target customer?
– What are you selling?
– Retail space or storage space size of your store
Type of goods

– Convenience goods
– Specialty goods
– Infrequent goods
Population and Customer

– Research the area thoroughly before making a final decision.

– Obtain location demographics on the area's population,
income and age.
– Find a location where your customers live, work and shop.
Accessibility, Visibility and
Traffic

– Don't confuse a lot of traffic for a lot of customers.

– How many people walk or drive past the location.
– Is the area served by public transportation?
– Can customers and delivery trucks easily get in and out of the
parking lot?
– Is there adequate parking?
Cont...

– Visibility
– A specialty retail store located six miles out of town in a free
standing building will need more marketing than a shopping
store located in a mall.
Location Costs

– Besides the base rent, consider all costs involved when choosing a
retail store location.
– Who pays for lawn care, building maintenance, utilities and security?
– Who pays for the upkeep and repair of the heating/air units?
– If the location is remote, how much additional marketing will it take
for customers to find you?
– How much is the average utility bill?
– Will you need to make any repairs, do any painting or remodeling to
have the location fit your needs?
– Will the retailer be responsible for property taxes?
Other considerations

– Your retail shop may require special considerations. Make a list of any
unique characteristic of your business that may need to be addressed.
– Will the store require special lighting, fixtures or other hardware
installed?
– Are restrooms for staff and customers available?
– Is there adequate fire and police protection for the area?
– Is there sanitation service available?
– Does the parking lot and building exterior have adequate lighting?
– Does the building have a canopy that provides shelter if raining?
– What is the crime rate in the area?
Trading-Area Analysis

– Trading area- geographic area containing the customers of

a particular firm or group of firms for specific goods or
services

– First step in the choice of a retail store location is to

describe and evaluate alternate trading areas and then
decide the most desirable one
Benefits of thorough trading
area analysis

– Reveals opportunities
– Focus on promotional activities is ascertained
– New customers or take business from existing stores
– Anticipate- whether competitors want to open nearby
stores if the firm doesn't do so itself
Cont...

– Best number of stores for a chain to operate in a given area

is calculated.
– Geographic weaknesses are highlighted
– The impact of the internet is taken into account.
– Other factors (transportation, labour availability etc.) are
reviewed.
Primary, Secondary and
Fringe trading areas
Destination and parasite
store

– Destination store: better assortment, promotes more and

creates a stronger image
– Parasite store: does not create its own traffic and has no
real trading area of its own
Analyzing
retail trade
areas
Model

Objective - Maximize total

demand at Client's side
Assumptions

– We are working for Big Bazaar

– Determining location for opening 4th store in Ahmedabad
– Some data are fuzzy ( randomly generated to demonstrate
the model). To do actual analysis we needs primary
research to determine various data and POS (point of sale)
data
Comparison of different
Model

Characterisitics Huff’s Law Reilly’s Law OurModel

Law/Model Law of shopper Law of retail Competition

attraction gravitation Ignoring Model
Formula Pij=(Sj/(Tij)^λ)/( Dab=d/1+ ��/�� Min
�
��/(���)^λ ��� �� ���
� ���∪�

Pij= Probability of Dab = Limit of city Aij = 1, if demand

consumer travelling A’s Trading area, point I is allocated to
from home I to measured in miles site j.
shoping location j along the road to Wi = weightage of
Sij = square footage city B each
of selling space in d = distance in miles Wards(location)
shopping location j along a major Dij = [(xi-uj)^2+(yi-
Tij = travel time roadway between vj)^2)]^(1/2)
λ= parameter used cities A & B Distance from all
to measure effect of Pa = population of demand points to all
travel time city A sites
N= number of Pb = population of
shopping location city B
Criteria - Overview
– Population Size and
Characteristic –
– No. of houses
– Total population
– Total literate population
– Availability of Store
location
– Transportation Access
– Traffic Conditions
– Closeness to source of
supply
– Delivery Costs
– Timelineness
– Availability of Labor
– Clerical
– Managerial
– Competitive Situation
– Size of Existing Competitors
– Level of Saturation
Criteria

– Population Size and characteristics

– Extensive knowledge about an area’s population characteristics
can be gained from secondary sources such as AMC
(Ahmedabad Municipality Corporation)
– After converting, 0-0.4 –poor, 0.4-0.7 – moderate, 0.7-1 – good
– Map of Ahmedabad is shown on next slide with 57 wards
– Xi & Yi are the coordinates of the centroid of the wards.
Criteria

– Availability of store location

– Transportation Access provides the ease of availability of public
transportation to that ward. Such data can be obtained from
AMTS ( Ahmedabad Municipality transportation service ) as
well as BRTS ( Bus rapid transit system) along with the data of
traffic conditions. It is a secondary source of data and is
provided in Sheet amts in Excel file provided.
Criteria

– Closeness to sources of supply

– Two criteria such as delivery costs : depends upon the truck
load and the location within the city. Prices fluctuate based on
the location of the ward where the delivery is to be made.
– Timeliness shows the constraints that suppliers faced while
making deliveries in the city during day. There are some
restriction of the truck size that cannot be entered in the city
during day.
Criteria

– Availability of Labor
– Staff – shop floor workers working at POS or stocking the
merchandise.
– Managerial – Managers such as operations and merchandise
manager required at location. Their availability depends upon
the type of location, its risk associated and the distance from
the city center or their home.
Criteria

– Competitive Situation
– Size of existing competitors can be determine by primary study
by calculating the assortment’s value.
– Level of saturation depends upon the various type of retailers
present in that particular ward ranging from Kirana shops to big
Bazzar.
Calculating weights Wi using
AHP(analytical Hierarchy
Process)
– To calculate weight for each location (wards) refer sheet
weight of excel sheet provided,
– 1 st step – determine maximum value of each column. Then divide
every cell value to its respective maximum value found. We will get
output ranging from 0 to 1
– 2 nd step – add the row value of each wards separately.
– 3 rd step divide each total row value with the sum of all the value.
Thus we obtain weights corresponding to each location (wards)

– AHP is pairwise comparison on ratio scale method to

determine the ranking or weightage of various demand points.
 Location of existing &
Proposed site

A (iscon ) B (himalaya mall) T Uj Vj

existing sites F 800 700 940 458 a 800 700

c(shahibaugh) d (kankaria) e(RTO) b 940 458

optimized sites S 1240 580 1300 800 1020 380 c 1240 580

f (satellite) g(bodakdev) d 1300 800

competitive
sites C 980 680 820 620 e 1020 380

f 980 680

complete set
of sites T g 820 620
Running Model

– Refer to excel sheet distance

– Location Shahibaugh shows least distance 2.06 out of
proposed three location. Hence it should be selected.

T Uj Vj Dij Model

iscon(51) a 800 700 254.6625 3.603339

f
himalaya(14) b 940 458 10.44031 0.221969

shahibaugh(53) c 1240 580 83.35466 2.067215

s kankaria (9) d 1300 800 639.151 12.04332

rto(24) e 1020 380 192.0104 3.332077

satellite(59) f 980 680 63.32456 1.328803

c
bodakdev (49) g 820 620 902.3464 19.66612
Thank you
RETAIL STRATEGY
A retail strategy would mean a clear and definite plan that the
retailer outlines to tap the market and build a long-term
relationship with the consumer.
WHY RETAIL STRATEGY??
• It provides rough analysis of requirement for
different types of retailing
• It outlines the goals of the retailer
• Firm learns how to differentiate
• Retailer studies the legal, economic and
competitive environment
• Firm’s total efforts are coordinated
• Crises are anticipated and often
avoided.
S T E P S INVOLVED IN DEVELOPING
A RETAIL STATEGY
ST E P S IN DESIGNING RETAIL
STRATEGY
KEY ELEMENTS IN RETAIL
STRATEGY
 Target Market
 the market segment(s) toward which the
retailer plans to focus its resources and retail
 mix
Retail Format
 the n a t u re of the retailer’s
operations—its retail mix
 Sustainable Competitive
Advantage
 a n advantage over the
competition
 CRITERIA FOR SELECTING A TARGET
MARKET

 Attractiveness-- Large,
Growing, Little
Competition, M o r e
Profits
 Consistent with Your
Competitive
Advantages
SOURCES OF COMPETITIVE ADVANTAGE

More S u s t a i n a b le Le s s S u s t a in a b l e

• Location • Better Computers

• Customer Loyalty • More Employees
• Customer Service • More Merchandise
• Exclusive Merchandise • Greater Assortments
• Low Cost Supply • Lower Prices
Chain Management • More Advertising
• Information Systems • More Promotions
• Buying Power • Cleaner Stores
with Vendors
• Committed Employees
DEFINE THE MISSION OR THE PURPOSE OF
THE ORGANISATION

The mission statement is a statement of the long term purpose of

the organization.
A retailer’s mission statement would normally highlight the
following elements:
•The products and services that will be offered
•The customers who will be served
•The geographic areas that the retailers chooses to be in
•The manner in which the firm intends to compete in its chosen
markets
OWNERSHIP & MANAGEMENT
ALTERNATIVES

A sole proprietorship is an retail firm owned by one person

A partnership is an retail firm owned by two or more

persons, each with a financial interest

A corporation is a retail firm that is formally incorporated

under state law; it is a legal entity apart from its officers
CHECKLIST FOR NEW BUSINESS
CHECKLIST FOR PURCHASING AN
EXISTING RETAIL BUSINESS
ELEMENTS IN A SITUATION AUDIT
MARKET FACTORS
Market size – large markets attractive to large retail firms
Growth – typically more attractive than mature or declining
Seasonality – can be an issue as resources are necessary
during peak season only
Business cycles – retail markets can be affected by economic
conditions
COMPETITIVE FACTORS
 Barriers to entry
 Scale economies of big box retailers
 Service and unique, high-end products of small
retailers
 Bargaining power of vendors
 Markets are less attractive when only a few vendors
control the merchandise sold within it
COMPETITIVE FACTORS
 Competitive rivalry
 Defines the frequency and intensity of reactions to
actions undertaken by competitors
 Conditions leading to intense rivalry: a large number of
same size retailers, slow growth, high fixed costs, a lack
of perceived differences between competing retailers
 QUESTIONS FOR ANALYZING T H E
ENVIRONMENT

 New developments or changes -- technologies, regulations,

social factors, economic conditions
 Likelihood changes will occur

 Key factors determining change

 Impact of change on retail market firm, competitors

PERFORMING A SELF-ANALYSIS
 At what is our company good?
 In which of these areas is our company better than our
competitors?
 In which of these areas does our company’s unique
capabilities provide a sustainable advantage or a basis for
developing one?
 STRATEGIC ALTERNATIVES

MARKET SEGMENTS
EXISTING NEW
RETAIL FORMATS

EXISTING Market Market

Penetration Development/
Expansion

NEW Retail Format Diversification

Development

Igor Ansoff matrix for growth opportunities for a retailer

MARKET PENETRATION

INCREASE THE BASKET SIZE

INCREASE THE CUSTOMERS

INCREASE THE PURCHASE FREQUENCY

MARKET DEVELOPMENT

NEW MARKET SEGMENTS WITH EXISTING FORMATS

NEW CUSTOMER BASE

EXAMPLE: Mc DONALDS
RETAIL FORMAT DEVELOPMENT

INTRODUCING NEW FORMATS FOR EXISTING CUSTOMERS

Eg. Crosswords Opening Smaller Format Stores by The Name Of Crosswords Corner.

CCD Opening CCD Express

RETAIL FORMAT DEVELOPMENT
 Develops a new retail format with a different retail mix
for the same target market
 Multi-channel retailing
 UK based TESCO:
Tesco Express: small stores located close to where
customers live and work
Tesco Metro: bring convenience to city center
location by specializing in ready-to-eat meals
Tesco Superstores: traditional stores
Tesco Extra: one-stop destination with the widest
range of food and non-food products
DIVERSIFICATION

NEW RETAIL FORMATS DIRECTED AT NEW MARKET

SEGMENTS BY DEVELOPING NEW PRODUCTS

Eg: ITC Going Into Apparel And Now Into Greeting Cards.
 SET OBJECTIVES

Objectives helps mould a strategy and translates the

organisational mission into action.

These objectives can be:

sales (growth, market share)
profit (level, ROI, efficiency)
satisfaction of publics (stockholders and consumers)
and image (customer and industry perception).
POSITIONING APPROACHES

Mass Retailer is a positioning approach whereby retailers

offer a discount or value-oriented image, a wide or deep
merchandise selection, and large store facilities

Differentiated Retailer positioning approach is when

retailer segments the customers in clusters and targets each
segment with a different approach

Niche retailer approach is when retailers identify specific

customer segment and deploy unique strategies to address
the desires of those segment rather than the mass market
IMAGE AND POSITIONING

An image represents
how a given retailer is
perceived
by consumers and others
SELECTED RETAIL POSITIONING
STRATEGIES
IDENTIFICATION OF CONSUMER CHARACTERISTICS
AND NEEDS

Strategic Mass Concentrated Differentiated

Implications marketing Marketing Marketing
Retailer’s near a large near a small or near a large
Location population base medium population population
base base
Goods/ wide assortment deep assortment of high distinct
Services of medium quality quality or low quality goods/services
items items aimed at each
segment

Price popular prices High or Low High, Medium

Orientation and Low
Strategy General Specific Specific
Promotion mass advertising Direct mail/ Different Media for
Efforts subscription each segment
WAL-MART’S RETAIL MIX

Customer Location
Service

Store Design Merchandise

And Display Retail Strategy Assortment

Communication Pricing
Mix
 WAL-MART’S RETAIL MIX

Location Strategy

Free-standing Stores

Customer
Service

Store Display Merchandise

And Design Assortment

Communication
Mix Pricing
 WAL-MART’S RETAIL MIX
Assortment Strategy

Customer
Service Location

Large Number
Store Design
and Display
of Categories
Few Items
Communication in Each Category
Mix Pricing
WAL-MART’S RETAIL MIX
Location
Pricing Strategy
Customer
Merchandise
Service
Assortment

Store Design
and Display

Communication
Mix Low, EDLP
 WAL-MART’S RETAIL MIX
Customer
Service Location

Communication Mix
Store Design Merchandise
and Display Assortment

Pricing

TV and Newspaper
Insert Ads
WAL-MART’S RETAIL MIX

Store Design and Display

Customer
Service Location

Basic, Special
Merchandise
Displays Assortments
for Products
Communication
Mix Pricing
WAL-MART’S RETAIL MIX

Customer Service

Limited

Location

Merchandise
Assortment

Store Design
and Display Pricing

Communication
Mix
OBTAIN AND ALLOCATE RESOURCES
NEEDED TO COMPETE

Human as well as Financial

VENDOR RELATIONSHIPS
 Low Cost - Efficiency Through Coordination
 Electronic Data Interchange (EDI)
 Collaborative Planning and Forecasting to Reduce
Inventory and Distribution Costs
 Exclusive Sale of Desirable Brands
 Special Treatment

 Early Delivery of New Styles

 Shipment of Scare Merchandise
HUMAN RESOURCES MANAGEMENT
 “Employeesare key to build a sustainable
competitive advantage”

 Strategiesfor Recruiting and Retaining Talented

Employees
 Employee Branding

 Develop positive organizational culture

DISTRIBUTION AND INFO SYSTEMS

Flow of Information By decreasing costs here,

Vendor is the more money
available to invest in:
Distribution Center
-Better services
Store -Increase in breadth and
depth
-Decrease in prices
LOCATION
 What are the three most important things in
retailing?
 “location, location, location”

 Location is a competitive advantage

 A high density of stores

 Creates a top-of-mind awareness

 makes it very difficult for a competitor to enter a
market and find a good locations
 OVERALL STRATEGY

Controllable Variables Uncontrollable Variables

•Store location •Consumer
•Managing business •Competition
•Merchandise mgmt. •Technology
•Pricing •Economic conditions
•Communicating with •Seasonality
customer •Legal restrictions

Retail
Strategy
CONTROLLABLE VARIABLES
STORE LOCATION:
General location and specific site, competitors, transportation
access, population density, type of neighborhood, nearness to
suppliers, etc
Build/ buy/ rent
CONTROLLABLE VARIABLES…
 MANAGING A BUSINESS:

 Human Resource Management and Operation

Management
 Employee hiring, training, compensation, supervision,
rewards. Job descriptions are detailed and communicated.
 Financial dynamics involve asset management,
budgeting, resource allocation.
 Store size and format, personnel use, store maintenance,
energy management, store security, insurance, credit
management, computerisation and crisis management.
 CONTROLLABLE VARIABLES….

MERCHANDISE MANAGEMENT & PRICING:

Width and depth of merchandise, quality of goods & services
offered, buying decisions, budgeting, forecasting, retail
accounting, level of inventory.
Pricing techniques, range of price.

COMMUNICATING WITH CUSTOMERS:

Building & maintaining image as well as promotional techniques.
Store exteriors, layouts, displays, wall and floor colors, lights,
music, smell, temperature, kind of sales personnel, customer
service.
Flyers, ad campaigns, sales promotion.
Free publicity through stories written, televised or broadcast.
U N CON TROLLAB LE VARIABLES

CONSUMERS:

COMPETITION:

TECHNOLOGY:

ECONOMIC CONDITIONS:
Unemployment, Tax rates, Inflation, Interest rates, GDP.

SEASONALITY:

LEGAL RESTRICTIONS:
LEGAL ENVIORNMENT AND
RETAILING
Store Location Merchandise Management and Pricing
zoning laws trademarks
environmental laws merchandise restrictions
direct selling laws product liability laws and sales taxes
local ordinances sale prices
leases and mortgages price discrimination laws

Managing the Business Communicating with the Customer

licensing provisions truth-in-advertising and selling laws
personnel laws truth-in-credit laws
antitrust laws telemarketing laws
franchise agreements labeling laws
business taxes
recycling laws
FACTORS TO CONSIDER WHEN
ENGAGING IN GLOBAL RETAILING
 GLOBAL GROWTH OPPORTUNITIES

 China

 Increasing operating costs

 Lack of managerial talent
 Underdeveloped and
inefficient supply chain
 India

 Prefers small family-owned

stores
 Restricts foreign
investment
KEY TO SUCCESS IN GLOBAL RETAILING

 Globally sustainable competitive advantage

 Low cost, efficient operations - Wal-Mart, Carrefour
 Strong private label brands: Starbucks, KFC
 Fashion Reputation - The Gap, Zara, H&M
 Category dominance – Best Buy, IKEA, Toys R Us
 Adaptability

 GlobalCulture
 Financial Resources
 INTEGRATING OVERALL STRATEGY

Elements are coordinated to have a consistent, integrated

strategy and to systematically account for uncontrollable
variables.

CONTROL
Retail audit

FEEDBACK
Introduction

The right price is one consumers are willing and able to pay
and retailers are willing to accept in exchange for merchandise
and services!

The right price allows the retailer to make a fair profit while
providing the consumer with value satisfaction before, during,
and after the sale!
External Influences on Pricing Strategy

Competitors

Pricing
Suppliers Government
strategy

Customers
Freemium
Freemium is a revenue model that works by offering a product or service
free of charge (typically digital offerings such as software, content, games,
web services or other) while charging a premium for advanced features,
functionality, or related products and services. The word "freemium" is a
portmanteau combining the two aspects of the business model: "free" and
"premium". It has become a highly popular model, with notable successes.
 Retail Pricing Elements

 Retail objectives:
- Sales (Rs / $)
- Profit (Rs. / $ / %)
- ROI

 Dependent variables:
- Target market
- Retail image
- Retail mix
- Pricing policy

 Pricing orientation:
- Demand based
- Cost based
- Competitive
- Integrated
Retail Pricing (contd…)
 Pricing strategies
- Customary pricing
- Variable pricing
- Flexible pricing
- One price policy
- Price lining
- Multiple – unit pricing
- Bundling
- Leader price

 Price adjustments
- Mark UPS
- Mark downs
 Pricing strategies
Customary pricing – retailer sets price & seeks to maintain those
prices over an extended period. Prices that
customers can take for granted & stable.

Variable pricing – when differences in demand & cost necessitate

a change, with a view to increase demand, off
season discount.

Flexible pricing – offering same products & quantities to different

customers at different prices.

Price lining – retailers establish specified number of price points

for each merchandise type & retailers purchase
goods to fit the price points
– makes price comparisons easier
– can help store to upgrade / down grade customer s preference.
Multiple unit pricing
 Price of each unit in a multiple pack is less than the price of each
unit if it were sold individually.

 Suitable for products with high consumption rates.

Bundling
 Retailers combine several elements in one basic price, invariably
closely related items.
 Leader pricing

When a high demand item is priced low & is heavily

advertised to attract customers into the store .

Loss leader pricing – Where an item is sold below cost to

build traffic & encourage purchase of other items.

EDLP – When a retailer charges the same low price everyday

for long periods and seldom offers the item on sale – stable but
lower than prevailing prices but not the lowest.
Skimming Pricing

 It is a pricing strategy wherein firms change

premium prices and attract customers less
sensitive to price than to service , assortment
and status.
Penetration Pricing

 It is a pricing strategy in which the retailer seeks

to achieve large revenues by setting low prices
and selling high unit volume.
Psychological pricing

 Pychological pricing is used when prices are set to a

certain level where the consumer perceives the price
to be fair. The most common method is odd-
pricing using figures that end in 5, 7 or 9. It is believed
that consumers tend to round down a price of Rs.
99.95 to Rs. 99, rather than Rs.10.
Cost oriented pricing

 Markup pricing….a retailer sets prices by adding

per unit merchandise costs, retail operating
expenses & desired profit. The difference between
the merchandise cost and selling price is the
markup.

- Item cost Rs.20 ; it sells for Rs.25

- Markup is Rs.5 or 25% of the cost or 20% on selling price
- Margin is Rs.5 or 20% of the selling price
Markdown pricing…. Downward adjustments in the original
selling price or Reduction in the initial retail price.

# Markdown % = (original price – reduced price) /

reduced price
Ex. You bought 100 sweaters and 80% sell at $50 each while
the remainder sell at $30 each
Ans.: Markdown amount – 20 sweaters were marked down
$20 each so $20 X 20 = $400
Net Sales Revenue is (80 X $50) + (20 X $30) = $4600
Markdown % = $400
$4600 X 100 = 8.69%

Remember: Retail Reductions = Markdowns + shortages +

employee discounts + customer discounts
 Dynamic pricing

Dynamic pricing -referred to as surge pricing, demand pricing, or time-based pricing:- It is a pricing
strategy in which businesses set flexible prices for products or service based on current market
demands.

Businesses are able to change prices based on algorithms that take into account competitor
pricing, supply and demand, and other external factors in the market.

This is a common practice in several industries such as hospitality, travel, entertainment, retail,
electricity, and public transport. Each industry takes a slightly different approach to repricing based
on its needs and the demand for the product.

Dynamic pricing can be unpopular with consumers and favours the wealthy, who are less likely to be
priced out of a market when there is high demand, such as for electricity during a heat wave or for
food during a famine.

It allows online companies to adjust the prices of identical goods to correspond to a

customer's willingness to pay.

The airline industry is often cited as a dynamic pricing success story. In fact, it employs the
technique so artfully that most of the passengers on any given airplane have paid different ticket
prices for the same flight.
Decoy pricing
Method of pricing where the seller offers at least three products, and where
two of them have a similar or equal price. The two products with the similar
prices should be the most expensive ones, and one of the two should be less
attractive than the other. This strategy will make people compare the options
with similar prices, and as a result sales of the more attractive high-priced item
will increase.

Premium decoy pricing

Method of pricing where an organization artificially sets one product price
high, in order to boost sales of a lower priced product.
Double ticketing
A form of deceptive pricing strategy that sells a product at the higher
of two prices communicated to the consumer on, accompanying, or
promoting the product.

Keystone pricing
A retail pricing strategy where retail price is set at double the
wholesale price. For example, if a cost of a product for a retailer is
£100, then the sale price would be £200. In a competitive industry,
it is often not recommended to use Keystone Pricing as a pricing
strategy due to its relatively high profit margin and the fact that
other variables need to be taken into account.