RETAILING MANAGEMENT

RETAIL MARKET STRATEGY

Learning Objectives:

At the end of the chapter, you are expected to:

5
1. Define retail strategy.
2. Illustrate how retailers build a sustainable competitive advantage.
3. Describe the retail strategies and the concepts in the retail market strategy.

WHAT IS A RETAIL STRATEGY?

The retail strategy indicates how a retailer will deal
effectively with its environment, customers and
competitors. The term strategy is frequently used in
retailing. For example, retailers talk about their
merchandise strategy, promotion strategy, location
strategy, channel strategy, or branding strategy.
A retail strategy is a statement identifying:
1. The retailer’s target market;
2. The format and resources the retailers plans to use to satisfy the target market’s
needs; and
3. The bases on which the retailer plans to build a sustainable competitive
advantage.

The target market is the market segment(s) toward which the retailer plans to
focus its resources and retail mix. A retail format describes the nature of the retailer’s
operations – its retail mix (type or merchandise and services offered, pricing policy,
advertising and promotion programs, store design and visual merchandising, typical
locations and customer services) – that it will use to satisfy the needs of its target
market. A sustainable competitive advantage is one the retailer maintains over its
competition that is not easily copied by competitors and thus can last over a long
period of time. The following are a few examples of retail strategies:
1. Sephora is a French multinational retailer of personal care and beauty
products. Featuring nearly 3,000 brands, along with its own private label,
Sephora offers beauty products including cosmetics, skincare, body, fragrance,
nail color, beauty tools, body lotions and haircare. Rather than visiting their local
drugstore to grab inexpensive, questionable quality cosmetics or heading to a
department store to visit high-end makeup counters, customers shopping at
Sephora encounter fun in-store environments that encourage them to play with
the products, which include both store brands and famous names. They can
consider various options, without having to visit separate stores or counters.

2. Lululemon Athletica. Lululemon Athletica is a Canadian specialty store chain

selling apparel and accessories that support the practice of yoga. The products
it sells include headbands, bamboo blocks, and yoga mats printed with
encouraging healthy-living slogans like “Drink fresh water.” Lululemon has also
recently started targeting male customers with its yoga attire to merchandise
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for all types of athletes, including runners and customers who practice Crossfit.
Lululemon stores are a community hub where people can learn about and
discuss the physical aspects of healthy living, from yoga and diet to running
and cycling, as well as the spiritual aspects of life.

3. Save-A-Lot. Save-a-lot offers only the most popular items in each category,
most of which are private-label merchandise. Due to its buying power, Save-
A-Lot also is able to develop customized product specifications that provide
high quality, private-label merchandise at low prices. Because the stores
generally do not feature grocery store-style shelving, items instead are
available in specially printed, cut-out shipping containers. Finally, most
customers bring their own bags; the stores charge those customers who forget
their own and need to obtain bags from the retailer.

CENTRAL CONCEPTS IN A RETAIL MARKET STRATEGY

Each of the retail strategies described in the preceding section involves:

1. The selection of target market segment(s)

2. The selection of a retail format (the elements in the retailer’s retail mix)
3. The development of a sustainable competition it faces

Target Market and Retail Format

A retail market segment is a group of consumers with similar needs and a group of
retailers that satisfy those needs using similar retail channels and format. The matrix below
describes the battlefields on which women’s apparel retailers compete – that is, the set of
retail market segments for women’s clothing. It lists various retail formats in the left-hand
column. Each format offers a different retail mix to its customers.

Retail Market Segments for Women’s Apparel

Market segments are listed in top row. These segments could be defined in
terms of the customer’s geographic location, demographics, lifestyle, buying situation,
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or benefits sought. In the illustration, we divide the market into three fashion-related
segments: (1) conservative – consumers who place little important on fashion; (2)
traditional – those who want classic styles; and (3) fashion forward – those who want
the latest fashions.
Each square of the matrix in the illustration describes a potential retail market
in which retailer’s battle for consumers with similar needs. For example, Walmart and
Kmart stores is the same geographic area fight each other by offering a full-line
discount store format that targets conservative consumers.
The women’s clothing market in the illustration is just one of several
representations that we could have used. For example, the retail formats might be
expanded to include off-price stores and category specialists. But this exhibit and the
battlefield analogy help illustrate how retail market segments can be defined in terms
of retail format and customer market segments.

Relationships with Customers – Customer Loyalty

Customer loyalty means that customers are committed to buying merchandise
and services from a particular retailer. Loyalty is more than simply liking one retailer
over another. It means that customers will be reluctant to switch and patronize a
competitive retailer. For example, loyal customers will continue to have their hair
arranged/fixed by David Salon, even if a competitor opens a salon nearby and charges
slightly lower prices. Approaches for developing loyalty include building a strong brand
image, creating a unique positioning in the target market, offering unique merchandise,
providing excellent customer service, implementing a customer relationship
management program, and building a retail community.
Brand Image. Retailers build customer loyalty by developing a well-known, attractive
image of their brands and of the name over their doors. For example, when most
consumers think about fast food or hamburgers or French fries, they immediately think
of McDonald’s. Their image of McDonald’s may include many favorable beliefs, such
as fast service, consistent quality, and clean restrooms. If their image of the
McDonald’s is less favorable, though, they may prefer and exhibit loyalty to Burger
King, which they regard as more innovative or entertaining in its brand image. In these
cases, customers are unlikely to visit the other chain and perhaps even would drive a
little farther to get to their preferred source of burgers. Strong brand image facilitates
customer loyalty because they reduce the risk associated with purchases. They
assure customers that they will receive a consistent level of quality and satisfaction
from the retailer. The retailer’s image can also create an emotional tie with a customer
that leads the customer to trust the retailer.
Positioning. Positioning is the design and implementation of a retail mix to create an
image of the retailer in the customer’s mind relative to its competitors. Positioning is
the concept of associating and developing a mental position in the public
consciousness about your brand and its products and services. Since minds are so
stuffed with information it becomes important in choosing a unique position in the mind.
For example: A handbag maker may position itself as a luxury status symbol. A TV
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maker may position its TV as the most innovative and cutting-edge. A fast-food
restaurant chain may position itself as the provider of cheap meals.

Unique Merchandise. It is difficult for a retailer to develop customer loyalty through

its merchandise offerings, because most competitors can purchase and sell the same
popular national brands. Specialty stores such as Victoria’s Secret, Apple and
Lululemon create loyalty by offering specific items that cannot find anywhere else; they
also reinforce that appeal by providing dedicated in-store experiences that match the
unique products. Many retailers thus develop private-label brands (also called store
brands or own brands) that are marketed by and available only from that retailer to
keep customers loyal.

Customer Service. Retailers also can develop customer loyalty by offering excellent
customer service. Consistently offering good service is difficult because retail
employees will always be less consistent than machines. Machines can be
programmed to make every box of Toblerone chocolate identical, but employees will
never provide a completely consistent level of service, because they vary in their
training, motivation and mood. It takes considerable time and effort to build a tradition
and reputation for customer service. But once a retailer has earned a service
reputation, it can sustain this advantage for a long time because it’s hard for a
competitor to develop comparable reputation.

Customer Relationship Management Programs. Customer Relationship

Management (CRM) program, also called loyalty or frequent-shopper programs, are
activities that focus on identifying and building loyalty with a retailer’s most valued
customers. These programs typically involve offering customers rewards based on
the amount of services or merchandise they purchase. For example, airlines offer free
tickets to travelers who have flown a prescribed number of miles, and local sandwich
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shops might give customers a free-sandwich for each P10 they purchase. The
discounts offered by these programs may not create loyalty. Customers may join
loyalty programs of competing retailers and continue to patronize multiple retailers.
However, the data collected about customer shopping behavior by these programs
can provide insights that enable retailers to build and maintain loyalty.

Building a Retail community using social media. Some retailers use their websites
and social media to develop retail communities. A retail community is a group of
consumers who have shared involvement with a retailer. The members of the
community share information with respect to the retailer’s activities. Involvement in
the community can range from simply becoming a fan of a retailer’s Facebook page
to meeting face-to-face with community members to share experiences. Increased
involvement in the community by its members lead to a greater emotional feeling and
loyalty toward the retailer.

GROWTH STRATEGIES AND GROWTH OPPORTUNITIES

There are four types of growth opportunities that retailers may pursue – market
penetration, market expansion, retail format development, and diversification.
▪ Market Penetration: A market penetration growth opportunity is a growth
opportunity directed toward existing customers using the retailer’s present
retailing format. Such opportunities involve either attracting new customers
from the retailer’s current target market who don’t patronize the retailer currently
or devising approaches that get current customers to visit the retailer more often
and/or buy more merchandise on each visit. Market penetration approaches
include opening more stores in the target market and/or keeping existing stores
open for longer hours. Other approaches involve displaying merchandise to
increase impulse purchases and training salespeople to cross sell. Cross-
selling means that sales associates in one department attempt to sell
complementary merchandise from other departments to their customers. For
example, a sales associate who has just sold a Sony Playstation player to a
customer might walk the customer over to the accessories department to sell
controller, webcam, headset, charging station and other accessories to improve
the performance of the player.

▪ Market Expansion: A market expansion growth opportunity involves using

the retailer’s existing retail format in new market segments. These include
leading footwear firms like Adidas, Nike and Reebok, which have entered
international markets for expansion. These companies continue to expand their
brands across new global markets.

▪ Retail Format Development: A retail format development growth

opportunity is an opportunity in which a retailer develops a new retail format –
a format with a different retail mix – for the same target market. For example,
Amazon.com began selling electronic items such as CDs, videos, pen drives
and other electronic items in addition to books and literature.
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▪ Diversification: A diversification growth opportunity is one in which a retailer

introduces a new retail format directed towards a market segment that’s not
currently served by the retailer. Diversification opportunities are either related
or unrelated. Growth strategies in business also include diversification, where
a small company will sell new products to new markets. This type of strategy
can be very risky. A small company will need to plan carefully when using a
diversification growth strategy. Marketing research is essential because a
company will need to determine if consumers in the new market will potentially
like the new products. For example, an auto company may diversify by adding
a new car model or by expanding into a related market like trucks. An advantage
to this approach is the synergy that can be created due to the complementary
products and markets. Additionally, expansion can be relatively easy because
the skills and knowledge to run the new business are similar to those the
company already possesses.