Chapter 2

Retail Management: A Strategic
Approach
Thirteenth Edition
Chapter 2
Building And
Sustaining
Relationships In
Retailing
Copyright @ 2018, 2014, 2012 Pearson Education, Inc. All Rights Reserved
Learning Objectives
2.1 To explain what “value” really means and to highlight its pivotal role
in retailers’ building and sustaining relationships
2.2 To describe how both customer relationships and channel
relationships may be nurtured in today’s highly competitive
marketplace
2.3 To examine the differences in relationship building between goods
and services retailers
2.4 To discuss the impact of technology on relationships in retailing
2.5 To consider the interplay between retailers’ ethical performance and
relationships in retailing

Definition of Value
• Value = Results + Process Quality
Price + Customer Access Costs
• Results = Overall quality, instructions, ease of assembly, taste/
quality/health, warranty, product testing by retailer
• Process Quality = Wide aisles, ease of finding, high in-stock position,
fun experience, short waiting times
• Price = Costs + delivery + assembly + credit
• Customer access costs = Warehouse club membership fees,
inconvenient location, poor store hours, inadequate parking.

What is Value?
Channel Perspective Customer Perspective
• Value is a series of activities • Value is a perception that
and processes (the “value the shopper has of the value
chain”) that provide a certain chain.
value for the consumer.
• It is the view of all the
benefits from a purchase
versus the price paid.

Retail Value Chain

• Represents the total bundle of benefits offered to consumers through a
channel of distribution
• Store location and parking, retailer ambience, customer service,
brands/products carried, product quality, retailer’s in-stock
position, shipping, prices, image, and other elements
• Three aspects of a value-oriented retail strategy:
• Expected retail strategy represents the minimum value chain
elements given customer expects from a type of retailer
• Augmented retail strategy includes the extra elements in a value
chain that differentiate one retailer from another
• Potential retail strategy comprises value chain elements not yet
perfected by a competing firm in the retailer’s category

Potential Pitfalls to Avoid in Planning a

Value-Oriented Retail Strategy
• Planning value solely from a price perspective
• Providing value-enhanced services that customers do not want or will
not pay extra for
• Competing in the wrong value/price segment
• Believing augmented elements alone create value
• Paying lip service to customer service

Retailer Relationships
Customer
Base
Loyalty Customer Customer

Programs Relationships Service
Customer
Satisfaction
Customer Service
• Expected customer service • Augmented customer
is the service level that service includes the activities
customers want to receive that enhance the shopping
from any retailer such as experience and give retailers
basic employee courtesy. a competitive advantage.
The Customer Base
•
Retailers must analyse their customer base in terms of
•
Population and lifestyle trends
•
Gender roles are changing, shoppers demand more, consumers are more diverse, there
is less interest in shopping, and time-saving goods and services are desired.
•
Attitudes toward and reasons for shopping
•
Future retail trends will be driven by the Millennials in which they have an elevated sense
of idealism and are concerned how brands and retailers perform on social responsibility,
sustainability, gender equality, and fair trade.
•
The level of loyalty
•
Identify the core customers (loyal, satisfied customers who get high value from retailer,
and generate high profits for the retailer), then determine how much of effort should be
allocated from the different customer type.
•
The mix of new vs loyal customer
•
A mature firm rely on core customers and supplement its revenue with new shoppers,
while a new firm faces dual tasks of attracting shoppers and building a loyal following.

Customer Service (CS)

•
Retailers must apply 2 elements of customer service:
•
Expected CS — Must-have elements; do not differentiate retailer. While absence of
these expected values provides anguish, presence does not provide satisfaction
•
Augmented CS — Services that can provide a competitive advantage. Double
warranty, special delivery, product demonstrations
•
Some retailers realise CS is better if they utilise employee empowerment, whereby
workers have the discretion to do what they believe is necessary — within reason — to
satisfy the customer, even if this means bending the rules.

Customer Satisfaction
•
Customer satisfaction occurs when the value and customer service provided through a
retailing experience meet or exceed consumer expectations. If the expectations of value
and customer service are not met, the consumer will be dissatisfied.
•
Retail satisfaction consists of 3 categories:
•
Shopping systems satisfaction — which includes availability and types of outlets
•
Buying systems satisfaction — which includes selection and actual purchasing of
products
•
Consumer satisfaction — which is derived from the use of product
•
Most consumers don’t complain to the retailer when dissatisfied; they just shop elsewhere.
Reasons they don’t complain more: 1) Most people feel complaining produces little or no
positive results, so they don’t bother to complain, and 2) complaining is not easy.
•
To obtain more feedback, retailers must make it easier for shoppers to complain, make
sure shoppers believe their concerns are addressed, and sponsor ongoing customer
satisfaction surveys.

Loyalty Programs
•
Consumer loyalty (frequent shopper) programs reward a retailer’s best customers,
those with whom it wants long-lasting relationships.
•
These programs have been shown to enhance consumer’s purchase frequencies and
volumes.

Rewards Program Categories

•Economic rewards include price reductions and purchase vouchers. These
rewards attract price-sensitive customers and induce them to buy more.
•Hedonistic rewards include things i.e. points that can be exchanges for spa
services or participation in games or sweepstakes. These rewards have more
emotional value and will attract people who shop for pleasure.
•Social-relational rewards include things i.e. mailings about special events or
the right to use special waiting areas at the airports. Consumers who want to
be identified with a privileged group will value these kinds of rewards.
•Informational rewards include things i.e. personalised beauty advice or
information on new goods or services. These rewards will attract consumers
who like to stick with one brand or store.
•Functional rewards include things i.e access to priority checkout counters or
home delivery. Consumers who want to reduce the time they spend shopping
will value these most.

Elements Contributing to Effective Channel

Relationships
Three Kinds of Service Retailing
• Rented goods services– leased cars, hotel rooms, carpet cleaning
equipment
• Owned goods services– plumbing, appliance repair,
• Non-goods services– haircut, professional services (physician,
lawyer)

Four Characteristics of Services Retailing

• Intangibility
• Inseparability
• Perishability
• Variability

Figure 2.8a Managing Unique

Characteristics of Service Retailing
Intangibility
• Display/distribute customer testimonials.
• Explain in detail how the service will be performed and what
the expected results will be.
• Have strong, clearly stated guarantees of performance.
• Be competitively priced.

Figure 2.8b Managing Unique

Inseparability
• Prominently promote major points of distinction with
competition
• At the time a service is completed, encourage customers to
schedule appointments for a follow-up service visit or call.
• If possible, rotate employees who interact with customers
each time they buy a service so that customers do not leave if
a popular employee goes elsewhere.
• Call customers after a service is performed to demonstrate
the firm’s interest in them.

Figure 2.8c Managing Unique

Perishability
• Carefully plan each work day to optimize service visits or
calls.
• Be prepared to do alternative tasks if the weather is bad.
• Offer appropriate other services that are popular during off-
season.
• Be willing to work longer hours during peak periods and fewer
hours during slower times.
Figure 2.8d Managing Unique

Variability
• Develop and implement systematic procedures for performing
each service—including a series of steps to be undertaken
every time the same service is requested.
• Train employees well.
• Computerize as many steps as possible, such as inputting
customer information, verifying that each step has been
completed, and billing.
• Regularly observe employee actions to be sure they are done
correctly.

Figure A2.1 Lessons in Service Retailing
Technology and Relationships in Retailing
•
Technology is beneficial to retailing relationships if it facilitates a better communication
flow between retailers and their customers, as well as between retailers and their
suppliers, and there are faster, more dependable transactions.
•
Two key points in studying technology and its impact on relationships in retailing:
1. In each firm, the roles of technology and “humans” must be clear and consistent
with the goals and style of that business. Although technology can facilitate
customer service, it may become overloaded and breakdown. It is also viewed as
impersonal by some consumers. New technology must be set up efficiently with
minimal disruptions to suppliers, employees, and customers.
2. Shoppers expect certain operations to be in place, so they can rapidly complete

transactions, get feedback on product availability, and so on. Firms have to
deploy some advances (i.e. a computerised checkout system) simply to be
competitive. By enacting other advances, they can be distinctive.

Ethical Performance and Relationships in

Retailing
•
Ethical challenges fall into 3 interconnected categories:
•
Ethics relates to the retailer’s moral principles and values.
•
Social responsibility involves acts benefiting society.
•
Consumerism entails protecting consumer rights.
•
The right to safety
•
The right to be informed
•
The right to choose
•
The right to be heard

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Retail Management: A Strategic

Retail Value Chain

Potential Pitfalls to Avoid in Planning a

Loyalty Customer Customer

Customer Service (CS)

Rewards Program Categories

Elements Contributing to Effective Channel

Four Characteristics of Services Retailing

Figure 2.8a Managing Unique

Figure 2.8b Managing Unique

Figure 2.8c Managing Unique

Figure 2.8d Managing Unique

Figure A2.1 Lessons in Service Retailing

2. Shoppers expect certain operations to be in place, so they can rapidly complete

Ethical Performance and Relationships in

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