Part IV: Retailing Strategy

Concepts and Theories of Retail Strategies

Slides
THE IMPORTANCE OF COMPANY GROWTH
 (Store-based) Retailing almost always starts with independent, single outlet operations
 Entering into retailing is relatively easy and does not require high capital resources (compared
to the manufacturing sector)
 The desire to grow business and increase (company) value is usually a fundamental objective
from the beginning of the operations
 For companies, sales growth provides economies of scale in operations (e.g., IT, logistics,
production and administration) and from purchasing from suppliers in large quantities
 Strategic management has analysed alternative routes for company growth

DEFINING STRATEGY
 The term strategy has its origins in the military field (lat. Strategos – the art of military
leadership)
 General concept of strategy: A precise plan of one's own action, which serves to develop a
military, political, psychological, economic or similar strategy. This plan is used to achieve a
military, political, psychological, economic or similar goal, and in which one tries to take into
account from the outset those factors which could play a role in one's own action
 Economic concept of strategy (Game theory):
 Explanation for a certain action, which is pursued by the actors (players) under
consideration of framework conditions (rules)
 Strategies are a sequence of interdependent individual steps that are geared towards a
specific goal. Classical experiments on strategic behaviour: e.g., prisoner's dilemma;
ultimatum game
 In a business context, strategic decisions always focus on changing/improving critical success
factors
 Characteristics of strategic decisions:
 Determine the fundamental direction of the company's development
 Ensure the long-term success of companies by building and maintaining competitive
advantages
 Creation of opportunities for action for the future development of the company
 Are mostly defined by the top management

STRATEGIES AS CONTROL MECHANISM

 Any target-oriented control of the use of instruments requires the derivation and realisation of
future- and potentialoriented strategies
 Strategies are routes (courses of action) to be taken for entrepreneurial action, they direct the
use of (marketing) measures
RETAIL MARKET STRATEGY: DEFINITION
A retail strategy is a statement identifying (1) the retailer’s target market, (2) the format and
resources the retailer 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 (Porter 1996)
Central Concepts
(1) The target market is the market segment(s) toward which the retailer plans to focus its
resources and retail mix.
(2) Retail format describes the nature of the retailer’s operations—its retail mix (e.g.,
merchandise, pricing policy, advertising, store design, typical locations, and customer
services)—that it will use to satisfy the needs of its target market
(3) A sustainable competitive advantage is an advantage that can not easily be copied by
competitors and thus can be maintained over a long period of time

TARGET MARKET AND RETAIL FORMAT

A retail market is a group of consumers with similar needs and a group of retailers that satisfy those
needs using a related channel and retail format
Examples:
BUILDING A SUSTAINABLE COMPETITIVE ADVANTAGE
Sources of Competitive Advantage

 Customer loyalty (due to a strong brand image, unique positioning, unique merchandise,
customer relationship management programme and building a retail community using social
media)
 Customer service
 Efficiency of internal operations (Human resource management, store management,
distribution and information systems
 Relationships with suppliers
 Location
To build an advantage that is sustainable for a long period of time, retailers typically use multiple
approaches to build as high a wall around their position as possible

SUSTAINABLE COMPETITIVE ADVANTAGE: SUSTAINABILITY COOP (CH)

Private labels:

Sustainability seal of approval

INFLUENCING FACTORS OF COMPETITIVE RETAIL STRATEGIES

BASIC STRATEGIC ORIENTATIONS IN RETAILING

MARKET SUCCESS AND MARKET DYNAMICS: EXAMPLE APPLE

ALTERNATIVE ROUTES TO COMPANY GROWTH – ANSOFF‘S MATRIX (1988)

ANSOFF‘S MATRIX (1988)
Market Penetration (present products and in present markets)

 Higher sales can either be obtained by attracting current non-customers, who either do not
buy products in the offered categories (cross-selling) at all or who buy them from competitors
 Loyalty of the existing customers of the retailer can be improved and the value of their
shopping baskets increased (e.g., loyalty programs)
Product development (offering new products to existing markets)

 Providing the existing customer base with new product categories in existing stores (e.g.,
merchandise and category management)
 Product development in retailing often means introducing new retail formats in existing
markets (e.g., convenience stores, online shops, click-and-collect)
Market development (current products can be targeted to a new customer segment)

 Regional retailers expanding their traditional store formats into other regions or national
retailers expanding into new countries attempt to increase revenue for the company with this
strategy
 Possibility to target new customer segments in the given geographic market (e.g., “retailto-
business” R2B)
Diversification: new products in new markets There are several strategic approaches in the context of
diversification
Horizontal diversification

 Diversification into a related business field on the same level of the value chain as before
 For example, a (retail) company opens up stores (or acquires stores) that are dedicated to new
product categories
 distinction between “product development” is blurred, since offering new products (retail
formats) often attracts new customer segments
Vertical diversification: moving into business at the level of the customer (forward diversification)
or suppliers (backward diversification)

 Since retailers are usually the last commercial stage in the value chain, forward diversification
is seldom
 Backward diversification, however, i.e. taking over activities that have traditionally been
carried out by the suppliers, is a frequent strategy (verticalisation)
 operating e.g., manufacturing facilities in which retailers produce their own products
Conglomerate diversification: offering new products or services to new markets unrelated to the
company‘s core business

 An archetype of conglomerate diversification is the Virgin Group(started as a record store,

owning Virgin Megastores, Virgin Airlines, Virgin Finance etc.)
 E.g., retail companies (e.g. Tesco, Migros, Auchan) are active in banking
 E.g., for many years the REWE Group (Germany) is very successful in the travel and tourism
market
INCREASING SALES BY ENLARGING THE OUTLET NETWORK
Options for enlarging the outlet network

 Organic growth
 Joint Ventures
 Franchising
 Mergers & Acquisition
 Mixed Strategies

ORGANIC GROWTH THROUGH OUTLET MULTIPLICATION

 Establishment of their own new outlets is usually the primary method for retailers to expand
their businesses (called organic or internal growth)
 The resulting chain stores operate multiple retail stores under common ownership and usually
engage in some level of centralised decision-making
 Large retail chain stores comprise up to several thousand stores (e.g., Walmart, Tesco)

ADVANTAGES OF OUTLET MULTIPLICATION

 Retailer’s concept can be transferred to the new store right from the beginning
 Location decisions and store layout and all attributes of the new store can be tailored to the
existing strategy
 Store managers are company employees, which enables activities to be monitored closely and
decisions to be made centrally
 Necessary adaptations can be identified early and new outlets can then be modified during the
process
 Financing is sequential, i.e., the existing outlets contribute with their cash flows to the
financing of the new outlets

CONSTRAINTS OF OUTLET MULTIPLICATION

 Considerable financial resources become successively tied up in the store network

 Opening of branches requires substantial capital investment, which is a major constraint to
growth § Organic growth is slow because of zoning restrictions, planning permission, the
search for sites, including the acquisition and development of the premises and so on
 Risk that the critical mass is not reached fast enough and other retailers with similar concepts,
but not similar constraints, might expand faster
 Problem particularly affects retailers that require large sites for their outlets, e.g. category
killers and hypermarkets, because approval for these sites is restricted in many countries
 Potential loss of flexibility over time
COOPERATIVE ARRANGEMENTS: JOINT VENTURES
Combining Resources

 A major advantage of forming a joint venture is the combination of the resources of two
companies
 Both companies bring financial and management resources, know-how, store outlets or other
assets to the deal
 market knowledge of a joint venture partner is valuable and can facilitate expansion (e.g.,
Internationalisation in cultural distinct markets)
Risk Reduction for each company by splitting the risk between the participating companies
Coordination Costs and Conflicts of Interest

 major drawbacks of joint ventures are the high coordination costs

 Opportunism may emerge if one of the companies can gain a profit at the expense of the other
 managing a joint venture is more complex than is managing a wholly owned company

COOPERATIVE ARRANGEMENTS: FRANCHISING

 Franchising is a frequently used growth strategy in retailing (e.g., 7-Eleven)
 Franchising is defined as a contractual agreement between two legally and financially
separate companies, the franchisor and the franchisee
 The franchisor enters into a relationship with a number of franchisees who are allowed to use
the franchisor’s brand and must operate their business according to the franchisor’s specified
format and processes
 The franchisor provides ongoing commercial and technical assistance
 The franchisees typically pay an initial fee as well as fees (royalties), which average about 5
% of gross sales, plus some advertising fees

MERGERS AND ACQUISITIONS

 Expansion through mergers & acquisitions (M&A) involves the consolidation or purchasing
of existing retail companies or retail outlets
 M&A constitute a well-established growth mechanism
 in the case of diversification, also refer to the purchase of companies in other sectors than
retailing
 In a merger, two companies are combined and at least one of them loses its legal
independence
 In an acquisition, one company acquires a majority interest in another or takes over certain
assets (stores) of another company
Literature

Levy, M., Weitz, B., and Grewal, D. (2019). Retailing Management, 10th ed.,
McGrawHill: New-York (Chapter 5: Retail Market Strategy, pp. 120-135)

Research studies consistently show that the more time people spend in a store, the more they buy. In
the past, high-end department stores embodied this concept, providing fancy restaurants and tea rooms
that allowed shoppers to take a break halfway through an all-day visit to the stores. Even local
drugstores encouraged people to linger, offering soda fountains or lunch counters.
The appealing in-store experience also can attract people who have never shopped with the brand
before. Urban Outfitters thus seeks to extend its reputation as a funky retailer of unusual items by
hosting concerts to get music fans in its shops.
A retail strategy is a statement identifying (1) the retailer’s target market, (2) the format and resources
the retailer 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 of 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.
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.
After selecting a target market and a retail mix, the final element in a retail strategy is the retailer’s
approach to building a sustainable competitive advantage. Establishing a competitive advantage
means that the retailer, in effect, builds a wall around its battle position—that is, around its present
and potential customers and its competitors. When the wall is high, it will be hard for external
competitors (i.e., retailers operating in other markets or entrepreneurs) to scale the wall and enter the
market to compete for the retailer’s target customers.
Any business activity that a retailer engages in can be the basis for a competitive advantage. But some
advantages are sustainable over a long period of time, while others can be duplicated by competitors
almost immediately.
Approaches for developing a sustainable competitive advantage:

Over time, all advantages erode due to competitive forces, but by building high walls, retailers can
sustain their advantage for a longer time. Thus, establishing a sustainable competitive advantage is the
key to long-term financial performance. Three approaches for developing a sustainable competitive
advantage are (1) building strong relationships with customers, (2) building strong relationships with
suppliers, and (3) achieving efficient internal operations. Each of these approaches involves
developing an asset— loyal customers, strong vendor relationships, committed effective human
resources, efficient systems, and attractive locations—that is not easily duplicated by competitors.

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.
Retailers build customer loyalty by developing a well known, attractive image of their brands and of
the name over their doors. Strong brand images facilitate 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.
A retailer’s brand image reflects its positioning strategy. 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. A
perceptual map is frequently used to represent the customer’s image and preferences for retailers.
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 customers
cannot find anywhere else. 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.
Retailers also can develop customer loyalty by offering excellent customer service. 11 Consistently
offering good service is difficult because retail employees will always be less consistent than
machines.
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 a comparable reputation.
Customer relationship management (CRM) programs, 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.
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.
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.

Relationships with suppliers

A second approach for gaining a competitive advantage is to develop strong relationships with
companies that provide merchandise and services to the retailer, such as real estate developers,
advertising agencies, and transportation companies. Of these relationships with suppliers, the most
important are relationships with vendors.
Relationships with vendors, like relationships with customers, are developed over a long time and
may not be easily offset by a competitor.

Efficiency of Internal Operations

In addition to strong relationships with external parties, customers, and suppliers, retailers can
develop competitive advantages by having more efficient internal operations. Efficient internal
operations enable retailers to have a cost advantage over competitors or offer customers more benefits
than competitors at the same cost. Larger companies typically have greater internal operations
efficiency.
Larger retailers can invest in developing sophisticated systems and spread the fixed cost of these
systems over more sales. In addition to size, other approaches for improving internal operating
efficiencies are human resource management and information and supply chain management systems.
Retailers can increase employee productivity and retention through recruiting, training, and
leadership.
The use of sophisticated distribution and information systems offers an opportunity for retailers to
reduce operating costs—the costs associated with running the business—and make sure that the right
merchandise is available at the right time and place.
In addition to using information systems to improve supply chain efficiency, purchase data collected
by information systems provide an opportunity for retailers to tailor store merchandise assortments to
the market served by each of its stores and to tailor promotions to the specific needs of individual
customers.
Committed relationships with customers and vendors and efficient internal operations are important
sources of advantage, but location is perhaps the most pervasive form of advantage in retailing.
To build an advantage that is sustainable for a long period of time, retailers typically cannot rely on a
single approach, such as good locations or excellent customer service. Instead, they use multiple
approaches to build as high a wall around their position as possible.

Growth Opportunities
Four types of growth opportunities that retailers may pursue—market penetration, market expansion,
retail format development, and diversification:

The vertical axis indicates the synergies between the retailer’s present markets and the growth
opportunity—whether the opportunity involves markets the retailer is presently pursuing or new
markets. The horizontal axis indicates the synergies between the retailer’s present retail mix and the
retail mix of the growth opportunity—whether the opportunity exploits the retailer’s skills and
knowledge in operating its present format or requires new capabilities to operate a new format.
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
consumers 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.
A market expansion growth opportunity involves using the retailer’s existing retail format in new
market segments.
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.
A diversification growth opportunity is one in which a retailer introduces a new retail format directed
toward a market segment that’s not currently served by the retailer. Diversification opportunities are
either related or unrelated.
In a related diversification growth opportunity, the retailer’s present target market and retail format
share something in common with the new opportunity. This commonality might entail purchasing
from the same vendors, operating in similar locations, using the same distribution or management
information system, or advertising in the same newspapers to similar target markets.
In contrast, an unrelated diversification growth opportunity has little commonality between the
retailer’s present business and the new growth opportunity.
Vertical integration describes diversification by retailers into wholesaling or manufacturing. Note that
designing private-label merchandise is a related diversification because it builds on the retailer’s
knowledge of its customers, whereas actually making the merchandise is an unrelated diversification.

Growth Opportunities and Competitive Advantage

Typically, retailers have the greatest competitive advantage and most success when they engage in
opportunities that are similar to their present retail operations and markets. Thus, market penetration
growth opportunities have the greatest chances of succeeding because they build on the retailer’s
present bases of advantage and don’t involve entering new, unfamiliar markets or operating new,
unfamiliar retail formats.
When retailers pursue market expansion opportunities, they build on their advantages in operating a
retail format and apply this competitive advantage in a new market. A retail format development
opportunity builds on the retailer’s relationships and loyalty of present customers. Even if a retailer
lacks experience or skills operating in the new format, it hopes to attract its loyal customers to it.
Retailers have the least opportunity to exploit a competitive advantage when they pursue
diversification opportunities.

Zentes, J., Morschett, D., and Schramm-Klein, H. (2017). Strategic Retail

Management, 3rd ed., Springer-Gabler: Wiesbaden (Chapter 7: Growth Strategies)

Growth Options
Store-based retailing almost always starts with independent, single outlet operations. Compared with
other business sectors, such as manufacturing, entering into retailing by opening a retail store is
relatively easy and does not require high capital resources.

With existing products in existing markets, growth can be achieved by market penetration. Higher
sales from existing markets can be obtained by attracting current non-customers, who either do not
buy products in the offered categories or who buy them from competitors. Alternatively, the loyalty of
existing customers can be improved and the value of their shopping baskets increased.
Product development involves offering new products to existing markets. This can be done by
providing the existing customer base with new product categories in existing stores. Product
development in retailing often means introducing new retail formats in existing markets.
An existing product can be targeted at a new customer segment, often in a new geographic area
(market development). Examples include regional retailers expanding their traditional store formats
into other regions or national retailers expanding into new countries.
Diversification involves offering new products to new markets and includes several sub-strategies:
horizontal diversification, vertical diversification and conglomerate diversification.
Horizontal diversification involves diversifying into a related business field at the same value chain
level. In the case of a retailer, this would involve opening (or acquiring) stores dedicated to new
product categories.
Vertical diversification involves moving into business at the level of customers (forward
diversification) or suppliers (backward diversification). Since retailers are usually the last commercial
stage in the value chain, forward diversification is rare.
Finally, conglomerate diversification involves offering new products or services to new markets
unrelated to the company’s core business.
Diversification often takes retailers outside of traditional retail markets, and the management literature
warns of the dangers that arise when a company’s core competence lies in other fields. Diversification
into unrelated domains can often lead to low performance and even failure.
Growth strategies for retailers can basically take two different forms:

 Increasing sales in existing retail outlets. This is mainly achieved via improved application of
the retail marketing instruments
 Increasing sales by enlarging the outlet network
Most important options for outlet growth:

 Organic growth
 Joint ventures
 Franchising
 Acquisition
 Mixed strategies

Organic growth through outlet multiplication

Retailers primarily expand their businesses by establishing their own new outlets. This is also called
organic or internal growth. The resulting chain stores operate multiple retail stores under shared
ownership and usually engage in some level of centralised decision making. Large retail chain stores
can comprise up to several thousand stores.
Advantages of Outlet Multiplication
Opening new branches has the advantage that the retailer’s concept can be applied to the new store
from the start. Location decisions, store layout and all the attributes of the new store can be tailored to
fit an existing strategy. Store managers are company employees, which allows activities to be
monitored closely and decisions to be made centrally. Risk is limited as expansion is gradual. By
opening new outlets, necessary changes can be identified early, allowing the process for subsequent
outlets to be modified. In addition, financing is sequential (i. e., the existing outlets can contribute to
financing new outlets).
Constraints of Outlet Multiplication
At the same time, outlet multiplication can tie up considerable financial resources in the store
network. Opening branches requires substantial capital investment, which is a major constraint on
growth. In many markets, organic growth is slow because of zoning restrictions, planning permission,
the search for sites, including the acquisition and development of premises, and so on. This runs the
risk of not reaching critical mass fast enough, letting other retailers with similar concepts – but not
constraints – expand faster. This problem particularly affects retailers that require large sites for their
outlets (e. g., category killers and hypermarkets), because approval for these sites is restricted in many
countries. Another drawback is the loss of flexibility over time. However, modern retail information
systems increasingly allow centralised decision-making to be combined with locally adapted
marketing, including a locally adapted merchandise mix or prices.

Cooperative arrangements
Joint ventures are one of the most popular of the wide range of possible cooperative arrangements.
Since joint ventures are not retail-specific, they will only be outlined briefly here. A joint venture is
formed when two or more parties decide to undertake economic activity together and create a new
enterprise as a legal entity in order to pursue a set of agreed goals. The parties agree to contribute
equity and share the revenue, expenses and control of the enterprise.
A major advantage of forming a joint venture is combining two companies’ resources. Both
companies bring financial and management resources, expertise, store outlets or other assets to the
deal. When a retailer enters a new retail or service sector or a culturally distant foreign market, the
market knowledge of a joint venture partner is particularly valuable and can facilitate expansion.
Another benefit of joint ventures is reduced risk, with risk split between the participating companies.
The larger the retail company, the more likely it is to expand on its own, because larger companies
can more easily manage the associate expenses and risk, while smaller companies may appreciate the
support of a partner.
The major drawbacks of joint ventures are the high coordination costs involved when two
independent partners with potentially conflicting objectives have to work together. Opportunism can
emerge if one of the companies can profit at the expense of the other. Thus, managing a joint venture
is more complex than managing a wholly owned company. Full control over the strategy of the joint
venture is impossible, because all decisions must consider the interests of all participating companies.
As a consequence, the stability of joint ventures is often rather low.
Franchising is defined as a contractual agreement between two legally and financially separate
companies, the franchisor and the franchisee. The franchisor, who has established a market-tested
business concept, enters into a relationship with a number of franchisees, typically small business
owners, who are allowed to use the franchisor’s brand and must operate their business according to
the franchisor’s specified format and processes. The franchisor provides ongoing commercial and
technical assistance. In return, the franchisees typically pay an initial fee as well as ongoing fees
(royalties), which average about 5 % of gross sales, plus some advertising fees.
A fundamental characteristic of franchising is that it always involves two separate and independent
companies that assume distinct roles and a strict division of tasks in order to achieve a joint objective.
Since the franchisee owns their business, they are entitled to all profits that are generated. Franchising
thus combines the benefits of a large, efficient retail system, including economies of scale in
procurement, logistics, national advertising, IT systems and administrative activities, with the strength
of an independent entrepreneur managing the outlet, including customer contact and supervising store
employees.
There are two main forms of franchising:

 Direct unit franchising is the basic form. In a unit franchise, the franchisor grants the
franchisee the right to engage in a single franchised business operated at a specified location.
 In a master franchising agreement, the franchisor grants the master franchisee a territory, and
within this territory the master franchisee is allowed to establish unit franchises
There are a number of benefits to being a franchisee compared with running a non-franchised
independent business. Upon opening the franchise store, the franchisee enjoys instant goodwill in the
market because they can use an established brand name, exploit a tried-and-tested business concept
and carry out standard operating procedures. The franchise headquarters will also take on certain
tasks, e. g., organising a central logistics system, developing IT systems, negotiating with suppliers,
developing national advertising, etc. The franchisee also receives comprehensive information on the
business concept before starting, including information on necessary investment and likely profits.
They obtain training and support, and belonging to the franchise system usually provides the
franchisee with easier access to financing, because from a bank’s perspective it is less risky to extend
credit to a franchisee, since it can provide a business plan based on the example of existing
franchisees.
Franchising also conveys considerable benefits to the:

 Franchising facilitates rapid growth, particularly when the success of a concept depends upon
rapid market coverage. Franchising is a way of multiplying a concept without the usual
financial constraints, as franchisees finance the investment for establishing stores.
 Franchisees are highly motivated, because they manage their own stores.
 Franchisees have knowledge of local markets and customer and employee contact is direct
and personal. Franchisees usually develop close relationships with their customers and local
communities.
 Written franchise agreements require franchisees to adhere to stringent operating rules set by
the franchisor.
One major disadvantage for the franchisor is that it has no direct hierarchical control over its
franchisees. Franchisees are independent contract partners, not employees. Franchisees can harm the
overall reputation of the franchise if they do not maintain company standards. From a transaction cost
perspective, this means that a franchisor must conduct tight monitoring to avoid such freeriding.
Representatives of the franchisor will often have to 148 7 Growth Strategies regularly visit the
franchisees, both to advise and monitor them. Changes in the franchisor’s strategy may be slow to
implement because franchise contracts usually run for three to five years and substantial changes are
only possible by changing the contracts. Competition between different outlets leads to stronger
conflicts than in chain store outlets, because profits are shifted from one franchisee to another. Also,
franchisees can ally to restrict the influence of the franchisor and attempt to change the rules. Another
drawback is that, under European law, the franchisor is not allowed to fix final consumer prices for
products.
Often, the balance between the benefits and drawbacks of franchising leads to an evolving growth
strategy during the retailers’ lifecycle.
Franchising is rarely used exclusively; franchisors usually own a substantial number of retail outlets
themselves. The complexity of managing such plural-form networks is higher than that of managing
monolithic systems of company-owned stores or franchises.

Mergers and acquisitions

Companies also have the option of external growth, namely expanding by acquiring resources from
other companies. Expansion through mergers and acquisitions (M&A) involves consolidating or
purchasing existing retail companies or retail outlets. Like diversification, it can also involve
purchasing companies in other sectors than retailing. In a merger, two companies are combined and at
least one of them loses its legal independence. In an acquisition, one company acquires a majority
interest in another or takes over certain assets (stores) from another company. The term “acquisition”
is often restricted to a full takeover.
M&A allow rapid expansion by overcoming the bottleneck created by the difficulty of establishing
and developing adequate retail locations, which can take years from site selection to finally opening a
store. M&A provides a company with substantial turnover in a new market from the outset, which can
help pay for the investment. After an acquisition, the original retail brand of the acquired retail outlets
can be changed or retained. The brand is often kept when the acquisition is used to expand into other
retail sectors or formats. A food retailer entering the DIY market, or a supermarket company
acquiring a discount chain, for example, could be well advised to keep the acquired chain’s
established retail brand, because the acquired company’s existing resources – management expertise,
personnel, sites and so forth – will be focused on its established field of business. Thus, one objective
of an acquisition is to exploit the expertise and dedicated assets of the acquired company.
However, integration costs following an acquisition can be high. Incompatibility of company
strategies, capabilities, resources and cultures often results in insufficient exploitation of existing
potential for synergies. The takeover and associated cultural change in the acquired company may
also lead to brain drain and the loss of significant management skills. Also, in many markets it is
difficult to find suitable takeover candidates. Successful retailers are usually not available for
acquisition and the retail locations, stores and premises of less successful retailers are often
insufficiently attractive for acquisition. However, properly evaluating the value of a retail company is
difficult, and the real value and quality of the acquired company can often only be correctly assessed
after the acquisition.

Minority Investment in Retail Companies

Acquiring partial ownership of another retail company involves similar advantages and disadvantages
to an acquisition strategy, but it also shares similarities with equity joint ventures. However,
successful retail companies generally prefer for another company to buy an equity stake in their
company rather than be fully acquired. Equity participation by a larger company can add resources to
support further expansion. The strategy can also be useful in situations where full-scale acquisitions
are difficult because of the particular market conditions or government control. At the same time, the
remaining equity stake in the initial company reduces the risk of a brain drain, since the established
management team of the acquired company often retains control, frequently only supplemented by
additional management capacity from the acquiring company.

Divestment – Reduction of Store Networks

While most companies focus on growth, some authors point out that strategic planning and analysis
should also include the strategic withdrawal options from certain product or geographical markets.
Sometimes closing down or divesting (selling-off) the unprofitable parts of a business or those that do
not match the current strategy can help the retail company as a whole. divestment can occur
internationally or domestically.
Generally, divestment means a retailer expects a better opportunity for investment and growth
elsewhere. Retailer portfolios are often reassessed in terms of their stores, store formats and country
markets, and strategic withdrawal from one retail format, region or national market often provides the
starting point for expanding into other markets or for opening additional stores in the remaining
markets.
Conclusion
Growth is highly relevant for the success of a retail company, but is has become harder to achieve, for
several reasons. Large retailers hold a lot of power, crowding out independent retailers and small
chains, and there is already a high and increasing level of concentration in many retail markets,
combined with market saturation in many product categories. Flexible growth strategies are more
important than ever. Retail companies do not normally use these strategies in isolation.
If a retail company wants to enter a completely new country or establish a new store format (e. g., a
food company entering into electronics retailing), an initial acquisition can help quickly achieve
critical mass. From there, the company can grow by establishing new sites and opening stores. In
addition, companies often gain a major boost by acquiring smaller chains who are leaving the market.
Larger, divisionalised retail store groups with different retail formats often implement different
growth strategies for different formats and/or markets.

The Internationalisation of Retailing

Slides

DEFINITION: INTERNATIONAL MANAGEMENT AND INTERNATIONAL

MARKETING
International Management deals with the maintenance and development of a multinational
operation across national borders, whose manager has the knowledge and the skills to manage and
handle cross-cultural processes, stakeholders and environments in a right way.
International marketing is the process by which individuals and companies identify needs and wants
of customers in different international markets; provide products, services, technologies and ideas
competitively to satisfy needs and wants of different customer groups in different country markets;
communicate information about the assets being transferred across political and cultural boundaries;
deliver the products and services internationally using one or a combination of foreign entry modes
(Bradley 2005, p. 3.).
CHARACTERISTICS OF INTERNATIONAL MANAGEMENT

„One of the main characteristics of International Management are activities in more than one market.
The tension between country-specific and cross-national planning and acting is the main challenge.“
(Zentes 1995)

MARKET RELATIONSHIPS IN DOMESTIC MARKETS

INTERCONNECTEDNESS IN INTERNATIONAL MARKETS

SUCCESS FACTORS OF INTERNATIONALISATION
“Going International“

 Transfer of business management culture and concepts

 Transfer of capabilities to adapt to market requirements („Value for the Customer“)
 Transfer of person dependant knowledge and person independent technology
“Being International“

 Setting of international knowledge and configuration of value added activities (adaptation to

the markets being the basis of effectiveness)
 Use of interdependencies between markets and coordination of cross-country activities (being
the basis of effectiveness)

DRIVING FORCES OF INTERNATIONALISATION

MOTIVES OF INTERNATIONALISATION

STANDARDISATION VS. ADAPTION OF OPERATIONS AS MAJOR DECISIONS

Standardisation

 Developing standardised products marketed worldwide or at least within a specific region

(e.g., Europe, Asia) with a standardised marketing mix
 Mass marketing
Localisation (Adaptation)

 Customisation of the marketing mix to specific local customer needs

 Importance of (market) segmentation
 (Think globally) act locally
DETERMINANTS OF A MARKET-ORIENTED INTERNATIONAL STRATEGY

CHALLENGES OF INTERNATIONAL MANAGEMENT

INTERNATIONALISATION STRATEGIES: I/R-FRAMEWORK

(BARTLETT/GHOSHAL 1998)
Companies are in a conflict between the requirements of global integration and local responsiveness:
“Global Integration“: Centralisation of the management of geographically spread activities

 resulting from the pressure to reduce cost and to maximise the return on investments, from
high technology intensity and reputation orientation
 strategic coordination is essential to reach the balance between resource investment and target
competitive advantages
“Local Responsiveness“: autonomous decisions of the foreign units, which are necessary to
adequately address local requirements
  special relevance in industries in which an adaption of services to the local market
requirements is necessary, e.g. due to differences in customer preferences, in the market
structure, the existence of local competitors or legal regulations in the foreign market

BASIC ORIENTATIONS IN INTERNATIONAL MANAGEMENT

BRAND IMAGE DIMENSIONS IN AN INTERNATIONAL CONTEXT

STEREOTYPES AS DRIVERS IN INTERNATIONAL MANAGEMENT

Heaven is:

 where the police are British,

 the cooks are Spanish,
 the mechanics are German,
 the lovers Italian
 and it is all managed by the Swiss.
Hell is:

 where the cooks are British,

 the mechanics are Spanish,
 the lovers are Swiss,
  the police German
 and it is all managed by the Italian

DRIVERS OF GLOBALISATION

Market drivers

 Common consumer needs

 Global customers and distribution channels
 Transferable marketing
 Lead countries
Cost drivers

 Global Economies of Scale and Economies of Scope

 Effects of experience curve
 Global acquisition advantages
 Global logistic systems
 Differences in cost structures of the country markets
 High product development costs
 Short product life-time cycles

Political-legal drivers

 Advantageous trade policy (liberalisation)

 Compatibility of technical standards
 WTO
 Deregulation/ privatisation of sectors
Competition drivers

 High export and import

 Competitors from different continents and countries
 Global competitors
CULTURAL-BOUNDEDNESS OF PRODUCTS

THE GLOCALISATION FRAMEWORK

MARKET SELECTION AND TIMING: EXAMPLE METRO

INTERNATIONAL MARKET APPRAISAL CHECKLIST

MULTI-STAGE-PROCESS OF MARKET SELECTION: PRINCIPLE

STRATEGIC SEQUENCING OF MARKET ENTRY

Literature

Levy, M., Weitz, B., and Grewal, D. (2019). Retailing Management, 10th ed.,
McGrawHill: New-York (Chapter 5: Retail Market Strategy, pp. 135 -142)
Attractiveness of International Markets
Three factors that are often used to determine the attractiveness of international opportunities are (1)
the potential size of the retail market in the country, (2) the degree to which the country does and can
support the entry of foreign retailers engaged in modern retail practices, and (3) the risks or
uncertainties in sales and profits.
Most retailers considering entry into foreign markets are successful multinational retailers that use
sophisticated management practices. Thus, they would find countries that have modern retailing, more
advanced infrastructures, and significant urban populations to be more supportive. In addition,
countries that lack strong domestic retailers but have stable economic and political environments
would be more appealing.
In India and most emerging economies, the retail industry is divided into organized and unorganized
sectors. The unorganized retailing sector includes small independent retailers —local kirana (small
neighbourhood) shops, owner-operated general stores, paan/beedi shops, convenience stores, and
handcart and street vendors. Most Indians shop in open markets and the millions of independent
kirana.
When it comes to retailing at least, government regulations are much less onerous in China than in
India, and direct foreign investment is encouraged. China thus was ranked at the top emerging retail
market in A.T. Kearney’s annual Global Retail Development Index (GRDI). Even as growth in its
gross domestic product has slowed, China maintains a thriving retail market, likely to reach the $8
trillion mark soon and surpass the United States as the world’s largest. However, doing business in
China is challenging. Operating costs are increasing, managerial talent is becoming more difficult to
find and retain, and an underdeveloped and inefficient supply chain predominates.
Brazil has the largest population and strongest economy in Latin America. It is a country of many
poor people and a few very wealthy families. Brazilian retailers have developed some very innovative
practices for retailing to low-income families, including offering credit and installment purchases. The
very wealthy Brazilians provide a significant market for luxury goods and retailers.
In Russia, the impediments to market entry are less visible but more problematic. In 2015 it ranked as
one of the top countries in terms of retail growth; even though economic and political issues challenge
its retail growth prospects, the market simply is too big for most retail firms to ignore. Yet corruption
is rampant, and various administrative authorities can impede operations if they do not receive what
they regard as appropriate bribe payments. A solution might come in the form of Russia’s booming e-
commerce, which attracts retailers such as Amazon and Alibaba.

Keys to Success in Global Retailing

Four characteristics of retailers that have successfully exploited international growth opportunities are
(1) a globally sustainable competitive advantage, (2) adaptability, (3) a global culture, and (4)
financial resources.
Entry into nondomestic markets is most successful when the expansion opportunity builds on the
retailer’s core bases of competitive advantage.
Although successful global retailers build on their core competencies, they also recognize cultural
differences and adapt their core strategy to the needs of local markets. Peak selling seasons also vary
across countries. In the United States, many stores experience a sales increase in August, when
families stock up on back-to-school supplies and apparel.
Government regulations and cultural values can also affect store operations. Some differences, such as
holidays, hours of operation, and regulations governing part-time employees and terminations, are
easy to identify.
To be global, retailers must think globally. It is not sufficient to transplant a home-country culture and
infrastructure to another country.
Expansion into international markets requires a long-term commitment and considerable up-front
planning. Retailers find it very difficult to generate short-term profits when they make the transition to
global retailing.

Entry strategies
Four approaches that retailers can take when entering nondomestic markets are direct investment,
joint venture, strategic alliance, and franchising.
Direct investment occurs when a retail firm invests in and owns a retail operation in a foreign country.
This entry strategy requires the highest level of investment and exposes the retailer to the greatest
risks, but it also has the highest potential returns. A key advantage of direct investment is that the
retailer has complete control of the operations.
A joint venture is formed when the entering retailer pools its resources with a local retailer to form a
new company in which ownership, control, and profits are shared. A joint-venture entry strategy
reduces the entrant’s risks. In addition to sharing the financial burden, the local partner provides an
understanding of the market and has access to local resources, such as vendors and real estate. Many
foreign countries require that foreign entrants partner with domestic firms. Problems with this entry
approach can arise if the partners disagree or the government places restrictions on the repatriation of
profits.
A strategic alliance is a collaborative relationship between independent firms. For example, a retailer
might enter an international market through direct investment but use independent firms to facilitate
its local logistical and warehousing activities.
Franchising offers the lowest risk and requires the least investment but also has the lowest potential
return on investment. The retailer has limited control over the retail operations in the foreign country,
and any potential profits must be split with the franchisee. Once the franchise is established, there is
also the threat that the franchisee will break away and operate as a competitor under a different name.
In this case, the expanding retailer runs the risk of creating its own local competitor.

Zentes, J., Morschett, D., and Schramm-Klein, H. (2017). Strategic Retail

Management, 3rd ed., Springer-Gabler: Wiesbaden (Chapter 8: The
Internationalisation of Retailing)

International Commercial and Retail Marketing Mix

Slides

INTERNATIONAL MARKETING STRATEGY

 Search for new markets as one of the most frequent tasks for internalisation of companies
 International marketing strategies bring customer focus to the firm‘s international strategy
 Identifying, measuring and pursuing market opportunities in foreign markets
 Application of marketing orientation and marketing techniques to international business
(Mühlbacher et al. 2006)
 Positioning of the MNC itself and its products and services in foreign markets (Cavusgil et al.
2014)
CLASSIFICATION OF INTERNATIONAL MARKETING STRATEGIES

SELECTED FACTORS FAVOURING STANDARDISATION VS. ADAPTION

PERSPECTIVES ON STANDARDISATION VS. ADAPTION

Regional perspective

 Full standardisation relates to a global marketing strategy

 If each country market is considered separately this relates to a multinational approach
 Hybrid approach: multi-regional marketing strategy
Marketing process perspective

 Standardisation relates to standardised decision-making processes

Marketing components/marketing mix perspective

 Standardisation or adaption affect the degree to which the marketing mix elements („4 Ps“:
product, price, promotion (communication), place (distribution)) are unified into a common
approach
STANDARDISATION VS. ADOPTION OF MARKETING MIX ELEMENTS

INTERNATIONAL PRODUCT STRATEGIES

 “A product is anything that can be offered to a market to satisfy a want or need, including
physical goods, services, experiences, events, persons, places, properties, organizations,
information, and ideas.“ (Kotler/Keller 2015, p. 389)
 In the context of retailing the product is the retail format and the design of the value creating
activities

PRODUCT ELEMENTS

PRODUCT STRATEGY ALTERNATIVES

 Extension of the home-grown product strategy to foreign markets and selling the same
product abroad
 Modification of products for each local market according to local requirements
 an invention strategy involving designing new products for the global market
 Incorporating all differences into one flexible product design and introducing a standardised
product
Major question: which product features should be tailored to market conditions?
STANDARDISATION VS. ADAPTION OF PRODUCT ELEMENTS

INTERNATIONAL PRICING STRATEGIES

International Pricing Decisions

 The overall international pricing strategy determines general rules for setting (basic) prices
and using price reductions, the selection of terms of payment, and the potential use of
countertrade.
 The price setting strategy determines the basic price of a product, the price structure of the
product line, and the system of rebates, discounts or re- funds the firm offers.
 The terms of payment are contractual statements fixing, for example, the point in time and the
circumstances of payment for the products to be delivered
A company’s pricing strategy is a highly cross-functional process that is based on inputs from finance,
accounting, manufacturing, tax and legal issues (Kotabe/Helsen 2014, pp. 358-360)
FACTORS INFLUENCING INTERNATIONAL PRICING STRATEGIES

TAXONOMY OF INTERNATIONAL PRICING PRACTICES

STANDARDISED VS. ADAPTED PRICING

ETHNOCENTRIC PRICING
 Extension of domestic prices
 Per-unit price of an item is the same no matter where in the world the buyer is located
 Importer must absorb freight and import duties
 Fails to respond to each national market

POLYCENTRIC PRICING
 Adaptation of prices in international markets
 Permits affiliate managers or independent distributors to establish price as they feel is most
desirable in their circumstances
 Sensitive to market conditions but creates potential for gray marketing

GEOCENTRIC PRICING
 Intermediate course of action
 Recognizes that several factors are relevant to pricing decision
 Local costs
 Income levels
 Competition
 Local marketing strategy

CONSTRAINTS OF INTERNATIONAL MARKETING COMMUNICATION

INTERNATIONAL COMMUNICATION STRATEGY

 Refers to the selection of communication media and the choice of communication themes
(messages)
 Can be performed either through a standardized approach that implies the use of the same
media / theme in all countries, or a differentiated approach (e.g., region- /country-/culture-
specific)
 A more differentiated approach is necessary if there are international differences in culture,
media use or media availability
INTERNATIONAL MARKETING MEDIA

INTERNATIONAL MEDIA SELECTION

Availability of media infrastructure

 Media infrastructure differs between the country markets

Media use by consumers

 Preference of specific media might differ across country markets

Legal restrictions concerning certain media

 In some countries communication of some products is forbidden through specific media (e.g.,
cigarette advertising on German TV)

COMMUNICATION THEME
 refers to the content of communication messages
 optimal degree of standardization depends on the intended positioning in each country
market
Options for international advertising messages:

 Internationally standardized campaigns („global“)

 Locally adapted (differentiated) campaigns („local“)
 Mixed campaigns (e.g. same general theme, but adapted slogans or details)
CULTURAL BARRIERS IN INTERNATIONAL COMMUNICATION
 Cultural barriers, especially language, are often stronger than expected
 Customers do not always understand foreign languages well and problems such as mistakes,
misinterpretations or changed meanings can arise when translating standardised messages.
Other problems might result,
 If products or the use of products are culture bound (e.g. in the case of food)
 If the communication topic is culture bound (e.g. hygiene products)
 If the communication design is culture bound (e.g. the use of colours or § background
music)
 If the communication content is culture bound (e.g. gender issues, eroticism)

EXAMPLE: MEANING OF COLOR DIFFERS BETWEEN COUNTRY MARKETS

INTERNATIONAL DISTRIBUTION AND INTERNATIONAL LOGISTICS

International distribution

 the process by which products and services flow across different country markets between
producers, companies that act as intermediaries, and consumers, that includes the transfer of
ownership.
International logistics

 the strategic management of the flow of products and services across different country
markets among marketing channel members, including both upstream and downstream
activities.
INTERNATIONAL CHANNEL DECISIONS

Literature

Hollensen, S. (2016): Global marketing – A decision-oriented approach, 7. ed.,

Pearson Education (Product decisions, pp. 499-524; Pricing, pp. 558-576;
Distribution, pp. 597- 601; Communication, pp. 632-641)

Morschett, D., Schramm-Klein, H., and Zentes, J. (2015). Strategic International

Management, 3rd ed., Springer-Gabler: Wiesbaden (Chapter 21: International
Marketing)
The Strategic Commercial and Retail Planning Process

Slides

STRATEGIC PLANNING IN COMMERCIAL AND RETAIL MANAGEMENT

 Strategic planning in retailing is a complex process with a number of intertwined factors, both
controllable and uncontrollable (e.g., micro vs. macro level factors)
 Developing long-term relationships with customers or “brand intimacy“ is the key
 The strategic retail planning process is the set of steps a retailer goes through to develop a
strategy and plan
 Describes how retailers…
 select target market segments,
 determine the appropriate retail format (or combinations of formats),
 and build sustainable competitive advantage
 Used to formulate strategic plans at different levels within a company (e.g., allocation of
resources across divisions)
 Without a defined and well-integrated strategy, a firm may be unable to cope with the
marketplace

PORTER‘S (1999) GENERIC STRATEGIES

STAGES IN THE STRATEGIC PLANNING PROCESS

The process of strategic planning has several

attractive features (Berman et al. 2019, p. 73):
1. It provides a thorough analysis of the
requirements for doing business for different
types of companies
2. It outlines company goals
3. A firm determines how to differentiate itself
from competitors and develop an offering that
appeals to a group of customers
4. The legal, economic, and competitive
environment is studied
5. A firm’s total efforts are coordinated
6. Crises are anticipated and often minimized or
avoided

STEP 1: DEFINE THE BUSINESS MISSION

 The business mission is a broad description of a companies objective and the scope of its
activities the company plans to undertake
 The mission statement attemps to answer two main questions:
 What type of business are we?
 What do we need to do to accomplish our goals and objectives?

DEVELOPING A MISSION STATEMENT

The answers to the following five questions are of relevance when developing a mission statement:

 What business are we in?

 What should our business be in the future?
 Who are our customers?
 What are our capabilities?
 What do we want to accomplish?

DEFINITION OF THE RELEVANT MARKET

 Product: With which products or services does the company compete (e.g. market for cars,
trucks, motorbikes)?
 Geographic: Are the products/services of a supplier offered on a local, regional, national,
international or global market (e.g. European market, Asian market)?
 Time: Is the market development limited in time?
MARKET-MYOPIA (LEVITT 1960)
 Markets are often defined far too narrowly in practice: threats from substitute products and
new competitors may be identified much too late
 Market is not fully defined by the type and number of players: often: product-centred market
definition, without taking into account the underlying demand needs
 Typical problem in technology development: responsible engineers/managers often define the
market primarily through product technology
 Market boundaries can develop dynamically and shift over time: e.g., printers, copiers, fax
machines and telephones have long been considered as separate markets, but have now
merged through technology integration

STEP 2: CONDUCT A SITUATION AUDIT

Situation analysis is a candid evaluation of the opportunities and threats facing a prospective or
existing retailer and seeks to answer two general questions:

 What is the firm’s current status?

 In which direction should it be heading?
A good strategy anticipates and adapts to both the opportunities and threats in a changing business
environment (e.g., environmental aspects, market and technological developments and (mega) trends

 Opportunities are marketplace openings that exist because other companies have not yet
capitalized on them.
 Threats are environmental and marketplace factors that can adversely affect companies if
they do not react to them

ANALYSIS OF THE INITIAL STRATEGIC SITUATION

METHODS FOR ANALYSING THE INITIAL STRATEGIC SITUATION

MARKET SEGMENTATION
By market segmentation we mean the division of a heterogeneous overall market into homogeneous
submarkets (segments) by means of certain characteristics of the actual or potential buyers (target
groups).

CRITERIA FOR MARKET SEGEMENTATION

Demographic criteria

 Gender, age, marital status

 Size of residence, region, city/country
Socio-economic criteria

 Income, education, occupation

Personality traits

 Lifestyle, attitudes, interests

Benefit criteria

 Price benefit, quality benefit

 Image benefits
 Service benefits
Buying behaviour-related criteria

 Choice of shopping locations, choice of products, frequency of purchase

 Price sensitivity, information behaviour

ANALYSING COMPETITION: PORTER‘S FIVE FORCES

SWOT ANALYSIS
 A SWOT analysis involves an involves and investigation of the company‘s internal
environment (strengths and weaknesses) and external environment (opportunities and threats)
 Internal Environment: unique capabilities relative to competing companies
 Capabilities include the assets, knowledge, and skills (e.g., management, financial,
operations, merchandising, store management, locations, customers)
 External Environment: aspects of the environment that might positively or negatively affect
the company‘s performance (e.g. market factors, competitive factors, and environmental
dynamics)
STEP 3: IDENTIFY STRATEGIC OPPORTUNITIES
Derivation of strategic directions from the SWOT analysis:

COMPETITION AND COOPERATION BEHAVIOUR

Competitive behaviour

 Cooperative vs. threatening

Possible objectives of cross-company cooperation

 Joint creation of barriers to market entry for other competitors

 Mutual access to know-how or other resources
 Easier market access and sales synergies
 Expansion of the range of services and closing of gaps in the product range
 Development of cost reduction potentials in the form of economies of scale or experience
curve effects
 Risk diversification
STRATEGY DEVELOPMENT – SUPPORTING CONCEPTS
These concepts are based on the quantitative and qualitative information collected during the analysis
of the initial strategic situation
Formal approaches:

 Fixed structure based on quantitative data, e.g. portfolio models

Qualitative approaches:

 Creative search for key strategic ideas

STRATEGY DEVELOPMENT: MARKET GROWTH/MARKET SHARE PORTFOLIO

STRATEGY DEVELOPMENT: MARKET ATTRACTIVENESS/ COMPETITIVE
STRENGTH

STEP 4: EVALUATE STRATEGIC OPPORTUNITIES

 The evaluation of strategic opportunities determines the company‘s potential to establish a
sustainable competitive advantage and to gain long-term profits
 A company must utilize its strengths and its competitive advantage
 The greatest investments should be made in market opportunities for which the company has
a strong competitive position

EVALUATION AND SELECTION OF STRATEGIES: RELEVANT CRITERIA

STEP 5: ESTABLISH SPECIFIC OBJECTIVES AND ALLOCATE RESOURCES

Three Components:
1. The performance sought, including a numerical index against which progress can be
measured
2. A time frame within the goal is to be achieved
3. The level of investment needed to achieve the objective
THE BUSINESS MISSION INFLUENCES STRATEGIC OBEJECTIVES

CATEGORISATION OF STRATEGIC OBJECTIVES

STEP 6: STRATEGY IMPLEMENTATION

Customer-oriented implementation and specialisation
STEP 7: EVALUATE PERFORMANCE AND MAKE ADJUSTMENTS
Controlling is a management support function that assists the marketing and sales management (or
also company management or the management of a strategic business unit) in controlling market-
related activities.
Functions:

 Information gathering and supply in e.g., marketing and sales

 Planning in e.g., marketing and sales
 Control of operations

CONTROLLING OF OPERATIONS AND PERFORMANCE

Controlling is related to the comparison of an actual situation with a predefined target situation. The
target state is usually derived from the marketing and sales planning. Therefore, marketing and sales
control is closely linked to marketing and sales planning.
Reference objects of control, e.g.,

 individual marketing activities (e.g. special price campaign, new product launch, product
modification, advertising campaign)
 certain actors (organisational units or individuals) in marketing and sales (e.g. product
managers, sales representatives, regional sales offices)
 specific sales objects (e.g. product groups, customer segments, sales regions)
Content of the control, e.g.,

 Results-oriented controls
 Behaviour-based controls
 Premise checks

STRATEGIC PLANNING IN THE REAL WORLD

Insights from empirical observations (Mintzberg 1978)
Literature

Berman, B., Evans, J., & Chatterjee, P. (2018). Retail Management: A Strategic
Approach, 13th ed., Pearson: Harlow, UK; New York (Chapter 3: Strategic Planning
in Retailing)

Levy, M., Weitz, B., and Grewal, D. (2014). Retailing Management, 10th ed.,
McGraw-Hill: New-York (Chapter 5: Retail Market Strategy, pp. 144-151)

Part V

Identifying Trends and Managing Innovations

Slides

RELEVANCE OF INNOVATION FOR SUSTAINABLE COMPETITIVE ADVANTAGE

 A company has to constantly produce and launch new products or improve customer service
better than its competitor to be remembered by its customers
 New products are released by processing innovation either by solving existing problems or by
new inventions
 Innovation can be in technology, management, process, or production and becomes part of the
business tactics to sustain and gain reputation in the market
 Complete understanding of the innovation process is important for effectively managing
innovation in the organization

INNOVATION DEFINED
 Innovation begins with the connection between a need and the technology to address that
need. Innovation in a broad sense can be the management of all the activities involved in the
process of idea generation, technology development, manufacturing and marketing of new or
improved product or manufacturing process or equipment (Paap and Katz 2004; Trott 2002)
 “controlled chaos”; innovation (management) includes surprises and unexpected changes but
is still (should be) controlled to an extent (Quinn 1985)

DEGREE OF INNOVATION
 Any product (or product idea) that is perceived by customers as new (Homburg 2020, p.562)
  Innovation may be highly radical, radical, intermediate, or incremental (Abetti 2000; Ojasalo
2008)
 Highly radical innovations are unique and are original products
 Radical innovations originate from beyond state-of-the-art technologies and have the
capability to expand in future
 Incremental innovation is a product with state-of- the-art technology with additional features
 “Disruptive innovation” products may wash away the existing products due to some
incremental change

INNOVATION MODELS

TECHNOLOGY PUSH VS. MARKET PULL

INTERACTIVE MODEL

INNOVATION FUNNEL: CLOSED VS. OPEN INNOVATION

MEGATRENDS AND INNOVATION

The term “Megatrends“ goes back to the founder of
modern futurology, John Naisbitt, who wrote the world
bestseller with the same title in 1980
Three conditions must be met for us to speak of a
MEGATREND:

 Megatrends have a half-life of at least 25 to 30

years
 They must appear in all possible areas of life
and show effects there (not only in
consumption, but also in politics, economics
etc.)
  In principle, megatrends have a global character, even if they are not pronounced everywhere
at the same time

MARKET RESEARCH AND UNDERSTANDING HIGH-TECH CUSTOMERS

 Customers are the heart of innovation
 Continuous market research and periodic surveys to understand the changing market
conditions and customer expectations
 Understanding the customers refers to two important attributes: purchase decision and post-
purchase evaluation
 Demographic changes and changes of customer values have to be studied to understand newly
evolving markets
 Continuous monitoring (vigilance) of new products launched in the market by competitors
helps the management in taking strategic decisions

IDEA GENERATION: SOURCES OF INNOVATION

Internal sources, e.g.,

 Employees of the R&D department

 Service employees
 Service hotline
 Customer complaints
External sources, e.g.,

 Customers
 Competitor
 New products in other markets
 Technological developments
 Experts
 Insights from trend and market research institutes, management consultancies and advertising
agencies
INNOVATION MANAGEMENT FRAMEWORK

CONCRETISING IDEAS: CONJOINT ANALYSIS

Principle

 Overall assessment of products (total utility) allows conclusions to be drawn about the
significance of individual characteristics (partial utility).
 Statements on the effect of changes in individual characteristic values on the perceived
benefit
 Quantification of the importance of individual product features for the customer §
Determination of customers' willingness to pay for product improvements
Example: Courier service
SPECIFICATION OF PRODUCT IDEAS
Specification of product ideas according to the following aspects:

 Target groups
 Value proposition
 Product features
 Targeted positioning (in particular brand positioning)

CONCEPT EVALUATION AND SELECTION

MARKET INTRODUCTION: DIMENSIONS OF THE INTRODUCTION STRATEGY

When?

 strategic considerations
 tactical considerations
Where?

 Target groups
 consideration of innovators/early adopters
 geographical distribution of the new product
How?

 Shaping the marketing mix (product, price, communication and distribution policy

MEASURING INNOVATION
 Knowledge creation: The ability to generate new ideas and technologies.
  Human resources: The capacity of the employee force to transform these ideas and
technologies into tangible economic outcomes.
 Venture capital: Funds are available to commercialize ideas and technologies.
 Technology diffusion: The capacity of the economy to transfer new ideas and technologies to
other firms.
 Collaboration: The international linkage innovation system.
 Market outcomes: Economic return on investment in innovation.

Opportunities and Challenges of Digitalization & Sustainability and

Corporate Social Responsibility

Slides

DIGITALISATION AND COMPANY PERFORMANCE

 Today, in the past as well as newer technologies (e.g., Internet of things, robots), newer
business models (e.g., subscription models), and big data/predictive analytics will influence a
company‘s operations as well as consumer behaviour.
 Companies that can connect with their customers by providing targeted information and
offering value stand apart and have the potential to create deep customer engagement
 technology enables consumers to make better informed decisions about which products or
services to consume, but might foster impulsive buying as well
 Insights from big data enable companies to better predict consumer behavior, design more
appealing offers, target their customers, and strengthen brand loyalty

DIGITISATION, DIGITALISATION AND DIGITAL TRANSFORMATION

KEY AREAS OF DIGITALISATION IN COMMERCIAL AND RETAIL MANAGEMENT

TECHNOLOGY AND TOOLS TO FACILITATE DECISION MAKING

 Technologies can benefit both consumers and businesses, which ultimately enhance the
businesses’ profitability (e.g., mobile apps, scan-and-go technologies, self-checkouts,
QueVision (queue management, and smart shelf technology, location-based services)
 Customers can gain control from self-service checkouts; retailers enjoy reduced labor costs
from the fewer number of cashiers required
 QueVision provides insights into how many registers, expected wait times (real-time data and
predictive analytics)

VISUAL DISPLAY AND MERCHANDISE OFFER DECISIONS

 Understanding how to design and deliver offers that stand out will help companies to decide
how, when, and where to display merchandise (in store or online)
 Ensuring that consumers pay attention to their merchandise and offers and making
assortments easier for consumers to process (e.g., due to packaging, shelf organization, spatial
location)
 Companies seek ways to make their merchandise stand out from the competition on the shelf
as well as in different off- and online-environments
 Today, augmented and virtual reality enable companies to create outstanding brand
experiences.
THE REALITY-VIRTUALITY CONTINUUM

CONSUMPTION AND ENGAGEMENT

 The customer experience concept “involves the customer’s cognitive, affective, emotional,
social and physical responses to the retailer.“ (Verhoef et al. 2009, p. 32)
 Experience is created by elements which the retailer can control (e.g., service interface, retail
atmosphere, assortment, price) and by elements that are outside of control (e.g., influence of
others, purpose of shopping)
 One way for companies to improve customer experience that leads to greater engagement is
by leveraging social media
 Drivers of engagement in social media (Roggeven and Grewal 2016): connected, network,
information, dynamic, and timeliness effects
 Companies can engage with customers online or in stores using visual cues contained within
digital displays or dynamic messages (e.g., videos)

BIG DATA COLLECTION AND USAGE

 In the recent years, companies have started to take advantage of options for organizing big
data, by improved access to computing power, and the availability of enterprise analytical
systems
 E.g., data from enterprise systems; customer/household information captured from loyalty,
website, or social data; and locational-based details gathered using mobile and apps
 Clearer assessments of the causality between an exogenous or independent variable (e.g.,
promoted price, display location, assortment expansions, service responses) and a host of
dependent variables, from increased store sales and profitability to brand switching

ANALYTICS AND PROFITABILITY

 Importance of carefully developed, thought-through retail strategies supplemented with
analytics and linking these strategies to profitability
 Strategies can be explicated at four levels: market, firm, store, and customer
 Ailawadi and Farris (2017) highlight important issues that retailers wrestle with as they move
toward and manage multi- and omnichannel distribution operations, e.g.,
  How retailer performs for supplier? E.g., icidences of out of stock, return rate, brand
sales, total profit
 How supplier performs for retailer? E.g., brand sales/sq. feet, lift in total category
sales when brand is offered by a retailer

CORPORATE SOCIAL RESPONSIBILITY (CSR)

 CSR could be defined as “a voluntary [...] business action that produces social (thirdparty)
effects” (Schuler & Cording 2004, p. 544)
 CSR relates to “a company’s commitment to minimizing or eliminating any harmful effects
and maximizing its long-run beneficial impact on society” (Mohr, Webb, & Harris, 2001, p.
47)
 CSR is closely related to corporate citizenship, corporate social performance, corporate
environmental performance and stakeholder management

CORPORATE SOCIAL RESPONSIBILITY (CSR)

CSR domains (Sen & Bhattacharya 2001):

 Community support (e.g., sponsoring)

 Diversity
 Employee support (e.g., fair salary)
 Environment (e.g., ethical sourcing)
 Non-domestic operations
 Products (e.g., organic and fair trade)
Positive outcomes of CSR activities:

 Company-related: e.g., market value, corporate performance, stakeholder value

 Customer-related: e.g., customer satisfaction, attitudes, loyalty, purchase behaviour, word-of-
mouth
“There is one and only one social responsibility of business — to use its resources and engage in
activities designed to increase its profits so long as it stays within the rules of the game, which is to
say, engages in open and free competition without deception or fraud. “ - MILTON FRIEDMANN
(1970)

SUSTAINABILITY DIMENSIONS (PPP-MODEL)

THE NEW PPP-MODEL

THE ROLE OF CSR-CREDIBILITY AND CSRORIENTATION ON BEHAVIOUR

CORPORATE SOCIAL RESPONSIBILITY PYRAMID

CORPORATE SOCIAL IRRESPONSIBILITY
 Violations of social norms (e.g., scandals“ due to offering unhealthy products or unethical
employee treatment), could have negative effects on consumer loyalty and purchasing
behaviour
 Scandals could also result in a consumer boycott against the unethical retail company (Klein
et al. 2004)
 Several incidents of unethical and socially irresponsible behaviour occurred in the (e.g.,
violation of human rights in developing countries; systematic observation and recording of
employees; contaminated, harmful products offered)

EFFECTS OF CORPORATE SOCIAL IRRESPONSIBILITY

The results of Schramm-Klein and Steinmann (2014) show…

 Violations of social norms have a small but significant negative impact on the percentage of
purchases of a retailer’s private labeled brands (negative spill-over effect)
 Positive effect on the percentage of specially priced products bought and the number of
products bought
 Positive effects for the retailer mainly occur if the scandal was triggered by a supplier (retailer
was not directly responsible for the scandal)
 Potentially positive long-term effects on purchasing behavior and, especially, loyalty toward a
specific retailer following consumer perceptions and evaluations of past CSR activities and
CSR communication

Literature

Grewal, D., Roggeven, A.L., and Nordfält, J. (2017). The Future of Retailing. Journal
of Retailing, 93 (1), pp. 1-6.

Verhoef, P. C. (2020). 7 Customer Experience Creation in Today’s Digital World. The

Routledge Company (accessible via:https://books.google.dk/books?
hl=de&lr=&id=rTgDEAAAQBAJ&oi=fnd&pg=PT125&o
ts=vszE2QiE_P&sig=Wm3qmxaB3M9Cb4LcSL8biLS7n1E&redir_esc=y#v=onepage
&q&f= false)
 Zentes, J., Morschett, D., and Schramm-Klein, H. (2017). Strategic Retail
Management, 3rd ed., Springer-Gabler: Wiesbaden (Chapter 10: Corporate Social
Responsibility)