Course presentation

Retail Management and Technology (FTec7071)

ECTS Credit: 5

By
Mulat Alubel ABTEW,
(PhD in Automation, Textile engineering and
Industrial Engineering)
Email: mulat_a@yahoo.com
Link : https://www.researchgate.net/profile/Mulat_Abtew
By Mulat A (PhD) 1
Jan 28, 2021
 Topics to be covered

Session I
• Introduction & Principles of Retailing & Retailers
• Type/Format/Classifications of Retailers
• Type of retailers ownership
• Retailers Channel system
• Retail store location & site selection

Session II
Retail store management (Design & layout)
• Visual Merchandising
• E – Retailing
• Technological innnovation in Retailing
• Planning Merchandise Assortment & pricing
• Buying Systems
Consumer Buying Behaviour (CBB)

Session III
•

• Retail mix, Financial & market Strategy ( RFS)

• Human Resource Management (HRM)
• Retail supply chain (RSC)
• Customer relationship management (CRM)
By Mulat A (PhD) 2
 Introduction to Retailing & Retailers
Retailing

• Retailing may be understood as

the final step in the distribution
of merchandise for consumption
by the end consumers.

• The business/activities where an organization (including manufacturing or a

wholesalers) directly sells its products/services to an end consumer for its
personal, non-business use.

• Is responsible for matching final consumer demand with supplies of different

marketers.

• Is high competition industry, where its popularity lie in its ability to provide
easier access to variety of products, freedom of choice and other services to
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consumers (refund, parking, coupon, loyality card etc.)
Retailer or Retail store

• is a business enterprise which sells primarily to the ultimate consumers for

non business use.
• Business whose sales products which come primarily from retailing.

Retail management
• The various processes which help the customers to procure the desired
merchandise from the retail stores for their end use refer to retail
management.

• It includes all the steps required to bring the customers into the store and
fulfill their buying needs.

Why retail management?

• Saves time and ensures the customers easily locate their desired
merchandise and return home satisfied.

• Avoids unnecessary chaos at theBystore.

Mulat A (PhD) 4
Characteristics of Retailing

• Direct Interaction with Customer.

• Lower average amount of Sale Transaction.

• Point of Purchase, Display and Promotion.

Importants of Retailing
For wholesalers and Producers
a) Arrangement to sell the goods (Primary task)

b) Advertisement of new products.

c) Information about consumer habits, tastes and needs.

d) Sharing of Risks.
For consumers

a) Selection

b) Variety of goods

c) Demand creation

d) Credit/coupon Facility By Mulat A (PhD) 5

 Functions of Retailing
• Sorting
• Breaking Bulk
• Holding Stock
• Channel of Communication
• Transport and Advertising Functions

Main Activities involved in retailing

• Choosing of the Store Location/Store Positioning.
• Sourcing/buying /supply chain management.
• Merchandising and category Management
• Visual Merchandising (Display)
• Sales Promotion & Store Operations
• IT application for efficient retail Operations
• Inventory Management

Variety and Assortment

• Variety - The number of different merchandise categories a retailer
offers (breadth). (food, jewlery, apparel, cosmotic…)
• Assortment - The number of different items in a merchandise
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category (depth) (kids, women, men apparel)
Retail development theories

The thoeries were revolve about:

➢ Importance of competitive pressures
➢ The investments in organizational capabilities
➢ Creation of a sustainable competitive advantage

Different Theories
Cyclical (wheel ) of retailing theory- McNair
1. Environmental Theory (Darwin theory)
2. Cyclical Theory (accordian theory)
3. Conflictual Theory
➢ Combining of 2 opposites retailer
to create a new format.
(Ex. Department Stores+ Individual store =
Hypermarkets and Supermarkets)

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 Principles of Retailing
There are 5 principles underpinning retail:
1. The customer - Most important person in retail business.
The customer holds the key to every successful retail
operation. There is no business without the customer.

2. Retail is Detail - One of the most famous principles in

retailing is, “retail is detail” To run a successful business you
must address and improve your understanding of your
customer. To do this, every retailer must focus on the detail
and get the detail right the majority of the time.

3. Go the Extra Mile -

➢ Not only understanding customer but also delivering more
than just customer service is required.
➢ The retailer team has to “go the extra mile for the
customer”, each time delivering just a little more than they
expect.
➢ Always interact with the customers will
By Mulat win them over and
A (PhD) 8
make them loyal over a long period of time.
4. The 4 P’s
• Product: Products that your customers want to buy & product
range that will satisfy your customers’ needs & also makes
you successful (profit).
• Price: It should be consistent across the marketing mix,
correct level for the customers and meet all requirements of a
business.
• Place: Should be somewhere convenient for your customers.
• Promotion: Once you have a product — at the right price, in a
place where the customer can access it — you need to tell
them about it and promote your business and products; make
sure your customers know that you and your products exist
and are available for them to enjoy.

5. Location, Location, Location

• The final retail principle is: Location, location, location.
• History has dictated that this is one of the most important
factors in the success of a physical store, and still to this
day it will have a major impact on your success.
• The best location of your store will be dictated by your
brand and product strategies.
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 Type/Classifications of Retailers
A) Amount of service
• Self-service retailers
➢ Customers are willing to self-serve to
save money
➢ Discount stores

• Limited-service retailers
➢ Most department stores

• Full-service retailers
➢ Sales people assist customers in
every aspect of shoping experience

➢ High-end department stores

➢ Specialty stores
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B) Product/merchandise lines • Specialty stores
➢ Narrow product lines with
deep assortments (Ex. Wills
Lifestyle, Zodiac Electronics- Croma, Bose)

• Department stores
➢ Broad variety & deep
assortment (Marks & Spencer, J.C.
Penny, Westside, Pantaloons, Shopper’s
Stop, Lifestyle)

• Supermarkets
• Convenience stores
➢ Limited variety & assortment
of merchandise. (modern
mom & pop store)

• Superstores
➢ Food, nonfood, textile, and
services
• Category killers (Pantaloons)

➢ Giant specialty stores with

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narrow but deep assortment
C) Relative prices
• Discount stores (Ex. Wal-Mart)
It conveys the image of high volume, low cost, fast turnover outlet selling a broad
merchandise for less than conventional prices.
➢ Products are sold via self service.
➢ Less fashion sensitive merchandise.

• Off-price retailers
➢ Independent off-price Retailers (TJ Maxx, Marshall’s)
❖ Sometime designer labels of women wear, cosmetics, accessories, footwear,etc could be
sold at low prices in an efficient, limited service environment. They have centralized
check-outs, no gift wrapping and charge separately for alterations.

➢ Factory outlets (Levis factory outlet, Pantaloon factory outlet , Reebok)

• Manufacturer-owned store selling manufacturer closeouts, discontinued, irregulars,
cancelled orders and sometime fresh merchandise at lower rate. Sold up to 60% less
than MRP due to low cost & rent, limited display and cheap fixtures.

➢ Warehouse/membership clubs (Sam’s Club, Costco)

• Consumers have to be members (with certain amount of annual fee) to be able to buy
merchandise at a wholesale price.
• Their operating strategy includes inexpensive isolated locations, opportunistic buying,
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D) Organizational approach
• Corporate chain stores
➢ Commonly owned / controlled

• Voluntary chains
➢ Wholesaler-sponsored groups off independent retailers

• Retailer cooperatives
➢ Groups of independent retailers who buy in bulk

• Franchise organizations
➢ Based on somethiing unique

• Merchandiisiing congllomerates
➢ Diversified retailiing

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E) Means of retailing service

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Summery of major Types of Retailers

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By Mulat A (PhD) 16
 Type of ownership
1) Independent retailer
(E.g. local Shop)
By Mulat A (PhD) to long-run planning
ADVANTAGES:
• Very flexible in choosing retail formats
and locations
• React to quickly to market changes and
customers needs (since managed by
owner and management has direct contact
with customers)
• Decision making is centralized
• Low investment cost
• Easily sustain consistency
DISADVANTAGES:
• Less bargain power with suppliers
• Cannot gain economies of scale
• Very little computerization
• Relatively high cost of advertising
• Owner highly dependant
• Limited amount of time and resources
allotted
17
2) Corporate Retail Chains

▪ Operates multiple retail units under

common ownership.
▪ Centralized decision making for defining
and implementing strategy.
▪ May be two stores or many thousand
stores.

E.g. Hotels, Foodcenter,

ADVANTAGES: DISADVANTAGES:
• Bargaining power with suppliers
• Lesser flexibility
• Achieve cost efficiencies by being
wholesales themselves • Investments may be high
• Computerized
• Managerial control can be hard
• Can take advantage of variety of
media options • Limited independence in jobs
• Defined management philosophies
• Long term planning, opportunities
and threats are carefully monitored
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 3) Franchising
• It is a retail organization form in which small businesses can benefit by
being a part of a large, multiunit chain-type retail Institution.

• It is a contractual agreement between a franchisor and a franchisee that

allows a franchisee to operate a retail outlet using two types of
franchising (Product/Trade name and Business format) developed by the
franchisor.

• The franchisee pays a lump sum plus royalty on all sales for the right to
operate the outlet in accordance with procedures prescribed by the
franchisor.

• The franchisor provides assistance in locating and building the store

developing the products or services sold, training managers and
advertising

• To maintain each franchisee’s reputation, the franchisor also makes sure

that all outlets provide the same quality of services and product. E.g. KFC,
Mc Donels, Haldiram, Dominoz, Pizza
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Some franchise business model retailers

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 4) Leased department
From the stores perspective

ADVANTAGES:
•Skilled manpower to handle
merchandise
•Market can be enlarged by providing For leased operator’s
one stop customer shopping % of ADVANTAGES:
•Immediate sales because of store’s
revenues is received regularly established image
•Stock servicing, display etc. is the •Some costs are reduced through shared
facility.
responsibility of the licensee •Volume saving in print/ media ads

DISADVANTAGES: DISADVANTAGES:
•Operating procedures may be conflicting •Inflexibility since working style may
differ
•Store’s image may get adversely affected
•Goods/services line are restricted
•Customers tend to blame the store for •Store may raise the rent or may not
renew lease
any pitfall
•In-store location may not generate
expected sales.
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 Retailers Channels

1) Store channel
• Stores offer a number of benefits to
customers over catalogue or internet
➢ Comprehensive Browsing, Touch & Feel
➢ Personal Service
➢ Cash Payment
➢ Entertainment & Social Experience
➢ Immediate Gratification & Risk Reduction

2) Catalogue Channel
• provides some benefits over store or the
internet
➢ Convenience
➢ Safety
➢ Quality of visual presentations

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3) Internet Channel
Provides advantages over store and
catalogue channels:
➢Broader Selection & more information
to evaluate merchandise
➢Personalization & Personalised
Customer Service
➢Personalised Offering
➢Selling merchandise with “touch &
feel” attributes
Demerit
➢Security of card transactions & Potential
privacy violations

4) Multichannel Retailers

• They are retailers that sell merchandise or services

through more than one channel.
• By using a combination of channels, retailers can
leverage the unique benefits provided by each to
attract and satisfy more customers.

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 Retail Store Location

• Retail store is a place , real or virtual, where the shoppers comes to buy
goods & services, and sales transaction occurs.”
• Location of retail store has been considered the most important ‘P’ in
retailing. ‘ Location, Location and Location’
• Locating the retail store in the right place was considered to be adequate
for success.
• It becomes a critical decision for a retailer for several reasons. As like;
➢ It is the most important factors customers consider to choose a store.
➢ A bad location may cause a retailer to fail even if its strategic mix is excellent. On the
other hand , a good location may help a retailer succeed even if is strategic mix is
mediocre.

• It is least flexible element of retailer’s strategic mix due to its fixed nature,
the amount of investment, and the length of lease agreements.

• Change in location gives three potential problems

➢ Loss of loyal customers and employers
➢ New location may not have the same characteristics of old location
➢ Store fixtures cannot be moved to new location

By Mulat A (PhD) 24
Location, Location, Location

• The final retail principle is: Location, location, location.

• History has dictated that this is one of the most important factors
in the success of a physical store, and still to this day it will have a
major impact on your success.

• The best location of your store will be dictated by your brand and
product strategies.

By Mulat A (PhD) 25
 Factors affecting location

• Size and characteristics of market (population)

• Types of goods (Convenience, Shopping, Specialty)
• Level of competition

• Attributes of nearby stores

• Access to transportation

• Parking space availability

• Location/property costs

• Population trends

• Building Infrastructure

• Legal restrictions etc.

By Mulat A (PhD) 26
 Types of Retail Location
• Various option are available to the retailer for choosing the location of
store, but mainly depends on the target audience and kind of
merchandise to be sold.

• A retailer has to choosing an alternate types of retail locations available .

• It may locate in an isolated place and pull the customer to the store on its
own strength, such as a small grocery store in a colony which attracts
the customers staying close by.

Generally a store location can be classified as:

1. Freestanding /Isolated store.

2. Part of Business District/Centers (unplanned Business Districts).

3. Part of a Shopping Center (Planned Shopping Centers)

By Mulat A (PhD) 27
1) Freestanding /Isolated store

• This retailer is located where there are no other outlets in the vicinity
of the store and therefore store depends on its own pulling power and
promotion to attracts customers.
• –
Apparel Cosmetics
• Neighborhood Stores; 4.05 km
2.5Km
(colony shops serves small locality).
• Highway Stores Books
(Ebony store in Ludhiana) Music – 2.74km
2.54 km

Jwellery –
1.5 km

Grocery – 4 km

Source : KSA – Technopac consumer Outlook, 2004

By Mulat A (PhD) 28
Freestanding /Isolated store

Advantages Disadvantages

• No competition around • Initial Difficulty in attracting

• Low costs/rent costumers

• Flexibility • Most people like variety in

• No group rules shopping

• Larger space • Travel time

• Location by choice • Advertising costs

• Better road and visibility • Operating cost are not shared

• Customization • Built than renting

• Easy parking • Unplanned and planned business

centers
• –
• are preferred by costumers
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2) Unplanned Business Districts
A retail store can also be located as a part of a business district. Or we can refer this as unplanned
business centers
A business district is place of commerce in a city which developed historically as the center of
trade and commerce in the city or town.
Advantages Disadvantages
• Excellent goods/service assortment • Inadequate parking
• Variety of store types • Traffic congestion
• Wide range of prices • Travel time for sub urban
• Variety of customer services customers
• High level of pedestrian traffic • Aging retail facilities
• Near to commercial or social facilities • Decline condition of central
cities
• High rent and taxes
• Movement of popular stores to
suburbs
• Discontinuity of offering

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 3) planned Business Districts
A shopping center has been defined as “ a group of retail and other commercial establishments that
is planned , developed, owned and managed as a single property”
Advantages
• Excellent goods/service assortment for long term plan

• strong sub-urban population

• One stop shopping preferred by customers

• Co-operative planning and sharing of common costs

• Creation of unified, distinctive shopping center image

• Maximization of pedestrian traffic

• Access to high ways and parking spaces

• More appealing than city shopping centers

• Reasonable rent ( excluding enclosed malls)

• Lower theft rates etc

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3) Planned Business Districts
Disadvantages
– Reduced operating flexibility
– Higher rents
– Restriction on goods and services sold by stores
– Competitive environment within malls
– Membership in associations – which may of little
use
– Too many malls in an area
– Domination by large anchor
stores

By Mulat A (PhD) 32
 Retail space management
• It is the process of managing the floor
space adequately to facilitate the
customers and to increase the sale.
• It is very crucial in retail as the sales
volume and gross profitability depends on
the amount of space used to generate
those sales.
• Managing retail space - today’s crucial
challenges for retail managers.
• Store space a very limited resource –
Needs wise use.

• A well-organized shopping place increases

➢ Productivity of inventory,

➢ Enhances customers’ shopping experience,

➢ Reduces operating costs, and

➢ Increases financial performance of the retail store.

➢ It also elevates the chances of customer loyalty

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Optimum Space Use

Parameters to be considered by managers to allocate products

Product Category

➢ Profit builders: High profit margins-low sales products. Allocate

quality space rather than quantity.

➢ Star performers: Products exceeding sales and profit margins.

Allocate large amount of quality space.

➢ Space wasters: Low sales-low profit margins products. Put them

at the top or bottom of shelves.

➢ Traffic builders: High sales-low profit margins products. These

products need to be displayed close to impulse products.
Size, shape, and weight of the product

Product adjacencies –Which products can coexist on display?

Product life on the shelf.

By Mulat A (PhD) 34
Steps for using floor space effectively
Measure the total area of space available

Divide this area into selling and non-selling areas (storage, promotional displays,
customer support cell (trial rooms) and billing counters.

Create a Planogram (pictorial diagram shows how and where to place specific retail
products on displays to increase customer purchases).

Allocate the selling space to each product category considering historical and
forecasted sales data. (Non-selling space, billing counter space, based on historical
customer volume data and trial rooms near the product display but away from the
billing area).

Determine the location of the product categories within the space. This helps the
customers to locate the required product easily.

Logical product adjacencies display – To facilitates multiple product purchase. Ex., Suit
and shirt or shoes and socks

Make use of irregular shaped corner space wisely. Some products such as domestic
cleaning devices or garden furniture can stand in a corner.

Allocate space for promotional displays and schemes facing towards road to notify and
attract the customers. Use glass walls By
orMulat
doors wisely for promotion.
A (PhD) 35
Store Lay-out and Design

While designing store layout – Based on not only the space available but also
Customer buying behavior should be considered.

➢ Tells a customer what the store is all about.

➢ Is very strong tool to communicating and creating the image of the store in
the mind of the customers.

➢ The environment in the retail store - Is a combination of the exterior look of

the store, the store interiors, the atmosphere in the store and the events,
promotions and the themes.

The objectives of store layout and design:

➢ It should attract customers.

➢ It should help the customers to locate the products effortlessly.

➢ It should help the customers spend longer time in the store.

➢ It should motivate customers to make unplanned, impulsive purchases.

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➢ It should influence the customers’ buying behavior.
Store Layout Formats
➢ The retail store layouts - To use the space efficiently.
There are broadly three popular layouts for retail stores:

Grid Layout: Mainly used in grocery stores.

• Long gondolas in repetitive pattern & easy to locate merchandise
• Does not encourage customers to explore store
– Limited site lines to merchandise
• Allows more merchandise to be displayed
• Cost efficient
• Used in grocery, discount, and drug stores

By Mulat A (PhD) 37
Loop (Racetrack) Layout
• Loop with a major aisle that has access
to departments and store’s multiple
entrances.
• Draws customers around the store.
• Provide different site lines and
encourage exploration, impulse buying
• Used in department stores and malls

JCPenney Racetrack Layout

By Mulat A (PhD) 38
Free-Form (Boutique) Layout
• Fixtures and aisles arranged asymmetrically

• Pleasant relaxing ambiance doesn’t come cheap –

small store experience

• Inefficient use of space

• More susceptible to shoplifting – salespeople can not

view adjacent spaces.

• Used in specialty stores and upscale department

stores

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Store Design

➢ Both internal and external factors matter when it comes to store design

Elements of Store Design

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Interior Design
It is the area where customers actually look for products and make purchases. It
directly contributes to influence customer decision making.

It includes:
➢ Clear and adequate walking space, separate from product display area.

➢ Free standing displays: Fixtures, rotary displays, or mannequins installed to

attract customers’ attention and bring them to the store.

➢ End caps displays – It used to display promotional offers.

➢ Windows and doors can provide visual messages about merchandise on sale.

➢ Proper lighting at the product display. For example, jewelry retail needs more
acute lighting.

➢ Relevant signage with readable typefaces and limited text for product
categories promotional schemes, and at Point of Sale (POS) that guides
customers’ decision-making process and hanging signage for enhancing
visibility.

➢ Sitting area for a few differently abled people or senior citizens. 41

By Mulat A (PhD)
Exterior Design
It is the area in the outside of the store where it is as much important as the
interior of the store. It communicates with the customer on who the retailer is
and what it stands for.

It includes:

• Name of the store (which tells the world that it exists) – which can be a plain
painted board or as fancy as an aesthetically designed digital board of the
outlet.

• The store entrance - Standard or automatic, glass, wood, or metal, width of the
entrance.

• The cleanliness of the area around the store.

• The aesthetics used to draw the customers inside the store.

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Visual merchandising

“Can be termed as the orderly, systematic, logical and intelligent way of putting stock
on the floor”

• VM is the art of presentation, which puts the merchandise in focus.

• It educates the customers, creates desire and finally augments the selling
process.

METHODS OF DISPLAYS
• Color Dominance
• Co-ordinated Presentation
• Presentation by price

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By Mulat A (PhD) 44
 Topics for discussion

• E-commerce (E – Retailing)

• Innnovation in Retailing

• Consumer Buying Behaviour (CBB)

Session I
• Customer relationship management in Retail (CRM)

• Customer communications

• Retail pricing and strategy

• Retail mix, Financial & market Strategy ( RFS)

• Merchandise Assortment Planning

Session II
• Human Resource Management in Retail (HRM)

• Retail supply chain (RSC)

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 E-COMMERCE

▪ It is marketing system which consist of buying and selling of goods/ services

over an electronic system (internet).
▪ It is the purchasing , selling & exchanging of goods/services over computer
network (or internet) through which transactions or terms of sale are
performed electronically.

Different types of e-commerce

• Business-to-business (B2B)
• Business-to-Consumer (B2C)
• Business-to-government (B2G)
• Consumer-to-consumer (C2C)
• Government to consumer (G2C)
• Government-to-business (G2B)

46
By Mulat A (PhD)
 E–Retailing
Electronic retailing (e-tailing) - Conducted online, over the Internet
E-tailers - Retailers who sell over the Internet
E-tailing - It is the process of selling or purchasing the products using Internet
for B2B or B2C transactions.

• E-tailing includes:
➢ The customer’s visit to the website,
➢ purchasing products by choosing a mode of payment,
➢ product delivery by the retailer and
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➢ The customer’s review or feedback. By Mulat A (PhD)
 Traditional Retailing Vs. E-retailing

▪ Involves selling to a final customer ▪ The Internet has allowed a new

through a physical outlet
▪ involves a fairly extensive chain from ▪
a manufacturer to wholesaler to the
retailer
Ex. Malls, generalized stores, specialized ▪
stores, franchise stores
kind of specialization to emerge.
Example: lastminute.com -- allows
last minute purchases of travel,
gift and entertainment
New kind of specialization:
▪ not in a product line but in a
class of purchasers and a class of
sellers.

Mapping Traditional Retailing -> e-retailing

▪ Generalized stores -> Generalized e-stores
▪ Specialized stores -> specialized e-stores
▪ Malls -> E-malls
▪ New form of business : e-broker By Mulat A (PhD)
48
Benefits of E-retailing
To the Customer
▪ convenience
▪ better information
▪ competitive pricing
▪ customization
▪ shopping anywhere, anytime
To the Business
▪ global reach
▪ better customer service
▪ low capital cost
▪ mass customization
▪ targeted marketing
▪ more value added services
▪ specialized stores and niche marketing

Disadvantages of E-retailing

▪ Unable to examine products personally

▪ Not everyone is connected to the Internet
▪ There is the possibility of credit card number theft
▪ Mechanical failures can cause unpredictable effects on the total processes.
49
By Mulat A (PhD)
Essentials of E-Retailing

▪ Attractive business-to-consumer (B2C) e-commerce portal

▪ Right revenue model & penetration of the Internet
▪ E-Catalog (database of products with prices & available stock)
▪ Shopping Cart (customers selected product & calculates its price to be paid)
▪ Payment gateway (Customer makes payments through credit card with full
security.

50
By Mulat A (PhD)
Classifications of E-Tailing based on Distribution Channel
Direct marketing from manufacturer - Marketing takes place without
intermediaries between manufacturers and buyers (online marketing between
any seller and buyer)

Virtual (pure-play) e-tailers - Firms that sell directly to consumers over the
Internet without maintaining a physical sales channel.

Click-and-mortar retailers - Brick-and-mortar retailers that offer a

transactional Web site from which to conduct business

Brick-and-mortar retailers - Retailers who do business in the non-Internet,

physical world in traditional brick-and-mortar stores

Multichannel business model - A business model where a company sells in

multiple marketing channels simultaneously (e.g., both physical and online
stores)

Online Malls - referring directories and malls with shared services

Representative B2C Services - includes Postal Services, Services and Products
for Adults, Wedding Channels, Gift Registries etc. 51
By Mulat A (PhD)
Products can be sold by E- tailing
• Travel
• Computer Hardware and
Software
• Consumer Electronics
• Office Supplies
• Sport and Fitness Goods
• Books and Music
• Toys
• Health and Beauty
• Entertainment
• Apparel and Clothing
• Jewelry
• Cars
• Services
• Pet Supplies
By Mulat A (PhD)
Successful E-Tailing Characteristics
▪ High brand recognition
▪ A guarantee provided by highly reliable or
well-known vendors
▪ Digitized format
▪ Relatively inexpensive items
▪ Frequently purchased items
▪ Commodities with standard specifications
▪ Well-known packaged items
Mapping Traditional Retailing -> e-retailing
▪ Generalized stores -> Generalized e-stores
▪ Specialized stores -> specialized e-stores
▪ Malls -> E-malls
52
▪ New form of business : e-broker
E-Tailing issues
Traditional B2C Supply Chain – All
relevant organizations or business
process layers responsible are
responsible for a given supply
chain

Cybermediation(electronic
intermediation) -The use of
software (intelligent) agents
to facilitate intermediation

Disintermediation - The removal

of organizations or business process
layers responsible for certain
intermediary steps in a given supply
chain

Hypermediation - Extensive use of

both human and electronic
intermediation to provide
assistance in all phases of an e-
commerce venture

Reintermediation - The process

whereby intermediaries (either
new ones or those that had been
disintermediated) take on new
intermediary roles 53
By Mulat A (PhD)
 Innnovation in Retailing
Some modern innovations in retail:

• Modern retail businesses such as malls, specialty stores, and hypermarkets

are using micro development and contemporary technology to increase
customers’ shopping experience and in turn generate business revenue.

• Around the year 2000, online retail startups started changing the face of
retail businesses around the world.

• Social media websites such as Facebook changed consumer behavior as well

as made retailers sweat out to take the benefits and develop their brands.

• Modern e-commerce facilities enable faster transactions and allow purchase

on a simple 30-day credit facility.
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Payment

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Delivery

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Experience

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 Consumer Buying Behavior (CBB)

• Refers to the BUYING BEHAVIOR of final consumers or market

• It is a study of how individuals make decision to spend their available

resources (time, money and effort) or consumption related items.

• It is also the study of individuals/organizations and the processes

consumers use to search, select, use and dispose of products, services,
experience, or ideas to satisfy needs and its impact on the consumer and
society.

• The activities directly involved in obtaining, consuming and disposing of

products and services, including the decision processes that precede and
follow these actions. (Basic questions related to buying such as: what we
buy, why we buy and how we buy)

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Buyer involvements

1. Complex Buying behavior: Consumer engages in complex buying behavior

when they are highly involved in a purchase and aware of significant
differences among brands. Consumers are highly involved in a purchase when
it is expensive, bought frequently and risky.

2. Dissonance-Reducing Buying behavior: Consumers are highly involved but

see little differences in the brands. Buyer will shop around to learn what is
available but will buy fairly quickly responding primarily to a good price or to
purchase convenience.

3. Habitual Buying behavior: Consumers have low involvement with the low
cost frequently purchased goods/ services.

4. Variety Seeking Buying behavior: Consumer does a lot of brand switching.

Some buying situations are characterized by low consumer involvement but
significant brand difference and vice versa.

By Mulat A (PhD) 59
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Social Factors

Reference Groups: Small group of people (work colleagues, friends etc.)

influence values and choices of other members, E.g. Mobiles

Family: Family members influence buying decision (Parents for children but
not nowadays).

Roles and Status: A person performs certain roles in a particular group in the
organization. (E.g. Person of senior executive in a firm might enjoys higher
status (Ex. branded clothes, cars, shoes etc.)
61
By Mulat A (PhD)
Cultural Factors

Religion: E.g. alcohol, tobacco or meat products etc.

Sub-culture: E.g nationalities, racial groups, language etc.
Social Class: Human societies exhibit social stratification, sometimes take the
form of a caste system where members share similar values, interest and
behaviour.

By Mulat A (PhD) 62
Psychological Factors

Motivation: the inner drive that motivates a person to act or behave in a certain
manner.

Perception: It is the impression, which one forms about a certain situation or

object. ( E.g. student may perceive Sports Day as an important event to purchase
of new shoes, jersey etc. other may be interest in casual

Learning: takes place through information and experience. E.g. when customer
buys a new brand of suits and is satisfied with it, he is likely to be brand loyal.

Attitude: Tendency to respond to particular situation, object or idea (Consumers

may have positive, negative or neutral attitude towards certain products) 63
Personal Factors

Age : Teenagers - trendy but office executives may prefer formal ones

Gender: Girls - feminine colours (pink), boys - blue, brown colours

Education: Highly educated persons - spend on books and personal care products
than the people with low education.

Income Level: Higher income people – spending on higher level and vice-versa.

Status in Society: Persons enjoying higher status in society spend good amount on
luxury items such as luxury cars, watches, premium brands clothing etc.
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Marketing Factors
The consumer buying behavior are greatly influenced by Marketing-mix variables
• Product: The features of the product, its uniqueness, packaging etc. should
appeal to the customers
• Pricing: It is a very sensitive decision(e.g Premium pricing strategy is for
upper income customers & discount pricing may appeal to price sensitive.
• Promotion: It greatly influences buyer choice. The elements of promotion mix
include publicity, advertising, sales promotion, salesmanship etc.
• Place: The number of middlemen involved, type of channels, area coverage etc.

Model of consumer behavior

By Mulat A (PhD) 65
Customer Relationship Management (CRM)

• It is identification, satisfaction, and management of customers’ stated and

unstated needs and demands by the retailer for mutual benefit.

• It integrates all stakeholders (including customer) into a company’s

product design and development through strategies and tools including
technology.

It include four prominent phases:

• Develop and Customize: Develop products or services to meet customers’

requirements. Customize the same according to customer segments.

• Interact and Deliver: Communicate with existing and prospective

customers and deliver the product or service with the added value.

• Acquire and Retain: Acquire new customers and retain the loyal ones.

• Understand and Differentiate: Understand customers’ needs, differentiate

policies and products depending on customer behavior and preferences
By Mulat A (PhD) 66
 Merits of CRM

• Software systems can make sense of huge

amounts of data

• Simplifies complex business processes

• CRM can be used at two different levels

– On-demand

– On-premises

Demerit of CRM

• Requires companywide commitment and

knowledge to use the CRM system

• Failure to effectively reorganize firm’s people and

processes to take advantage of benefits a CRM
system offers
By Mulat A (PhD) 67
 Retail Communication
Retailers communicate with the customers about their products or services,
new product updates, and upcoming events regarding retail business via print,
audio, video, or Internet media.

It involves the following strategies:

• Providing retail information based on stored data about celebration dates of

the customers.

• Holding contests to gain new customers and keep existing ones.

• Posting retail information on social websites to increase followers.

• Sending coupons on mobile so that customers can avail the benefits of the
schemes right when they enter the store.

• Conducting customer surveys and reviews. Rewarding participating

customers.

• Using automated retail communication.

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 RETAIL PRICING
It is the price at which the product is sold to the end customer.

It is the summation of the manufacturing cost and all the costs that retailers
incur at the time of charging the customer.

Factors Influencing Retail Prices: INTERNAL & EXTERNAL Factor

INTERNAL FACTORS – It includes

Manufacturing Cost: Considers both fixed and variable costs of the product.
Fixed costs - does not depend on production volume (Ex. property tax)

Variable costs - depends on volume of production (Ex. Raw material cost).

The Predetermined Objectives: Retail company objective varies with time

and market situations . (Ex. If the objective is to increase ROI, then company
may charge a higher price, but the objective is to increase market share, then it
may charge a lower price)

Image of the Firm: The retail company image in the market. (Ex. companies
with large goodwill- PRADA, ARMANI may increase a price for their products.
69
By Mulat A (PhD)
Product Status: The stage at which the product is in its product life cycle
determines its price.

Product market introduction stage - Company may charge lower price to attract
new customers.

Product market accepted stage - Company may increases the price.

Promotional Activity: If the company is spending high cost on advertising and

sales promotion, then it keeps product price high in order to recover the cost of
investments.

EXTERNAL FACTORS – It includes

Competition: In case of high competition, the prices may be set low to face the
competition effectively, and if there is less competition, the prices may be kept
high.

Buying Power of Consumers: The sensitivity of the customer towards price

variation and purchasing power of the customer contribute to setting price.
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Government Policies: Government rules and regulation about
manufacturing and announcement of administered prices can increase the
price of product.

Market Conditions: If market is under recession, the consumers buying

pattern changes. To modify their buying behavior, the product prices are
set less.

Levels of Channels Involved: The retailer has to consider number of

channels involved from manufacturing to retail and their expectations.
The deeper the level of channels, the higher would be the product prices.

By Mulat A (PhD) 71
 Retail pricing Strategy

Demand-Oriented Pricing Strategy

High product demand – high charged price and vice versa

Methods employed while pricing the product on the basis of demand:

▪ Price Skimming: Initially the product is charged at a high price that the
customer is willing to pay and then it decreases gradually with time.

▪ Odd Even Pricing: The customers perceive prices like 99.99, 11.49 to be
cheaper than 100.

▪ Penetration Pricing: Price is reduced to compete with other similar

products to allow more customer penetration.

▪ Prestige Pricing: Pricing is done to convey quality of the product.

▪ Price Bundling: The offer of additional product or service is combined

with the main product, together with special price.

By Mulat A (PhD) 72
Cost-Oriented Pricing Strategy

Product pricing based on retail company’s profit objectives and production costs.

These methods include the following:

Cost plus Pricing: The company sets prices little above the manufacturing cost.

Mark-up Pricing: The mark-ups are calculated as a percentage of the selling price
and not as a percentage of the cost price.

Break-even Pricing: The retail company determines the level of sales needed to
cover all the relevant fixed and variable costs. They break-even when there is
neither profit nor loss.

Target Return Pricing: The retail company sets prices in order to achieve a
particular Return On Investment (ROI).
Early Cash Recovery Pricing: Investment has to be return for the price sensitive
product segments ( fashion and technology) before it disappears to shorten the
risks and maximize short-term profit. 73
By Mulat A (PhD)
Competition-Oriented Pricing Strategy

Retail company sets the prices for its product depending on how much the
competitor is charging for a similar product.

Competitor’s Parity: The retail company may set the price as close as the giant
competitor in the market.

Discount Pricing: A product is priced at low cost if it is lacking some feature than
the competitor’s product.

Differential Pricing Strategy

The company may charge different prices for the same product or service.

Customer Segment Pricing: price may differently for customers from different
customer segments (Ex. customers who purchase online may be charged less)
Time Pricing: Price depends upon time, season, occasions, etc. (Ex, Summer
clothes may charged less price during winter)
Location Pricing: The retailer price depends on where the retail is located. (Ex.
Retail in the city center may charge higher price than outside)
By Mulat A (PhD) 75
 Retail Marketing Mix
It is the combination of marketing activities that the retailers carry out to
meet the target market’s requirements in the best possible way.

Retail marketing mix is a combination of 7 Ps:

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• Product – The quality and range of variants of
the product or service.

• Place – It is the location where the product or

service is sold (online, type of store, location of
store), time taken and the mode of transport to
reach the retail place.

• Price – Cost of product for different customer

segments by considering various price
affecting factors.

• People –Includes internal stakeholders

(customers, sales staff, management staff), and
external stakeholders (suppliers and supply
chain management force).

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• Promotion – It is raising customers’
awareness about the product or service
and driving customers to buy the
products

• Process –Activities involved in manufacturing and delivering the

product to the customer.

• Physical Environment –Product presentation in a well-organized and

attractive manner to elevate customers’ shopping experience.

By Mulat A (PhD) 78
 ASSORTMENT PLANNING

High Inventory Costs

Long Manufacture
New lines & Products
Lead Times

Stock outs & non-availability

romotions Fluctuate Excessive Inventory New customers
emand
Low Service Levels Planning
Promotion’s negative ROI
Lost of Revenue

Sell in Vs Sell through

Poor collaboration
between Sales,
Marketing, Demand
Management, Multiple
Operations Product
and with attributes make Demand
CUSTOMERS Planning challenging

By Mulat A (PhD) 79
COMPONENTS of Merchandise and Assortment Planning (MAP)
Strategic Created on the highest level for the whole company but also
Planning
for individual distribution channels

Assortment Used to create assortments and define which products are

Planning
listed for which stores and the quantity of these that should
be allotted to individual stores.

Merchandise It is used to create a more detailed structure for higher-level

Planning
strategic guidelines.

It takes into account different factors such as regional

Location marketing, competition, demographic changes and
Planning
preferences, as well as particular events

It is used to ensure that at the end of the selling period for

Slow –seller
Management merchandise - particularly for fashion and high fashion
80
merchandise - only a small amount of stock remains.
Human ressource Management (HRM)
• Retail is a labor intensive industry & labor costs hold significant % of retailers
total expenses, so effective employee management is a cost advantage.

• Most employees spent on select, display merchandise, provide information and

assistance, stock display and shelves, thus, they play a major role in
differentiating its retail offering from that of the customers.

• It involves recruiting, selecting, training, compensating, and supervising

personnel in a manner consistent with the retailer’s organization structure and
strategy mix.
Activities of Human Resource Management in Retailing
• Recruiting retail personnel

• Selecting retail personnel

• Training retail personnel

• Compensating retail personnel

• Supervising personnel
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Challenges of Retailers human resource environment

Work Environment Employees

• Open Long Hours
• Peak Sales Periods
• Emphasis on Cost Control
• Variable customer demand
• Large number of Unskilled people
• Many Part-Time workers
• Diverse Backgrounds of workers
• Highly visible employees

• Changing demographics of the work

force
High Turnover
These factors complicate employee hiring, staffing
and supervision

By Mulat A (PhD) 82
Motivating Retail Employees

One of the critical tasks of HRM is to motivate employees to work towards

achieving employee goals and implementing its strategy.

Retailers use three methods to motivate their employee activities

Policies and Supervision: Policies should indicate what employees should do,
behavior enforced by managers. Written policies lead to actions consistent with
retailers strategy;

Incentives: Used to encourage employees to perform activities consistent with

retailers objectives. E.g. Commission, Bonus, Stock Options etc.

Organization Culture: The set of values, traditions, and customs of a firm that
guides employee behavior and the behavior enforced by social pressure.

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 Retail supply chain (RSC)

• It is an end to end process in merchandise planning and movement, from

planning the inventory (preparing the purchase order) to the point of reaching
the merchandise to the customer.

• It is an integrated process where every activity is interlinked with the system

for information throughout the cycle time of each step of the process so that
timely action can be taken.

• Supply chain is a network of facilities and distribution options that performs

the functions of procurement of materials. transformation of these material in
to intermediate and finished products and distribution of these products to the
customers.

• Its main objective is to ensure reaching right product at right place at right
time and for the right price and profit for the retailer .

By Mulat A (PhD) 84