Chapter 1- An Introduction to

Retailing

Chapter 2- Building and Sustaining

Relationships in Retailing

Chapter 3- Strategic Planning in

Retailing

©2013 Pearson Education Publishing as Prentice Hall 1-1

 Retailing
Retailing encompasses the
business activities involved in
selling goods and services to
consumers for their personal,
family, or household use. It
includes every sale to the final
consumer.

2
©2013 Pearson Education Publishing as Prentice Hall 1-2
 Issues in Retailing
● How can we best serve our customers while earning
a fair profit?
● How can we stand out in a highly competitive
environment where consumers have so many
choices?
● High unemployment, low consumer confidence, high
savings rates have reduced consumer spending. At
the same time retail competition has increased
through increased format blurring (sales of cameras
at office supply stores, carpeting and major
appliances at home improvement centers).
● How can we grow our business while retaining a
core of loyal customers?
©2013 Pearson Education Publishing as Prentice Hall 1-3
 The Philosophy
Retailers can best address
these questions by fully
understanding and applying
the basic principles of
retailing, as well as the
elements in a
well-structured, systematic,
and focused retail strategy.

4
©2013 Pearson Education Publishing as Prentice Hall 1-4
 The Framework of Retailing

©2013 Pearson Education Publishing as Prentice Hall 1-5

 An Ideal Candidate for a
Retailing Career
● Must be a people person (more
important than technical
knowledge). Technical skills can
be taught more easily than
people skills
● Must be flexible
● Should be decisive
● Must have analytical skills
● Must have stamina
©2013 Pearson Education Publishing as Prentice Hall 1-6
 Table 1-1: The 10 Largest Retailers in
the United States (2011)
Rank Company Main Emphasis
1 Wal-Mart Full-line discount stores, supercenters,
membership clubs
2 Kroger Supermarkets, convenience stores, jewelry stores
3 Target Full-line discount stores, supercenters
4 Walgreens Drugstores
5 Home Depot Home centers
6 Costco Membership warehouse clubs
7 CVS Caremark Pharmacies
8 Lowe’s Home centers
9 Best Buy Electronics, major appliances
10 Sears Holdings Department store, discount (Kmart)

©2013 Pearson Education Publishing as Prentice Hall 1-7

 Figure 1-4: A Typical Channel of
Distribution

Manufacturer
Retaile
r

Final
Wholesal
Consume
er
r

©2013 Pearson Education Publishing as Prentice Hall 1-8

 Figure 1-5: The Retailer’s Role
in the Sorting Process

©2013 Pearson Education Publishing as Prentice Hall 1-9

 Multi-Channel Retailing

● A retailer sells to
consumers through multiple
retail formats:
● Web sites

● Physical stores

©2013 Pearson Education Publishing as Prentice Hall 1-10

 Multi-Channel Retailing
● Cross selling across channels (in-store product
availability info on Web site)
● Consistent pricing in all channels (credibility)
● Can buy, and return product regardless on channel
● Role of each channel
□ Store– try on, ease of return, fast availability

(immediacy), compare offerings

□ Web– 24/7, product information, product reviews by

customers, personalization (tailored assortment

based on past purchases), most current pricing,
closeout sales
□ Catalog-permanency, true color

©2013 Pearson Education Publishing as Prentice Hall 1-11

 Figure 1-6: Apple

©2013 Pearson Education Publishing as Prentice Hall 1-12

 Distribution Types
● Exclusive: suppliers make
agreements with one or few
retailers, designating such retailers
as the only ones to carry certain
brands or products within a specified
geographic area
● Intensive: suppliers sell through as
many retailers as possible
● Selective: suppliers sell through a
moderate number of retailers
©2013 Pearson Education Publishing as Prentice Hall 1-13
 Exclusive vs Intensive Distribution
● Exclusive Distribution– Fate of retailer is
tied to manufacturer success, retailer has
no “free-rider” concerns, retailer has less
price competition, manufacturer is better
assured of high levels of customer support
● Intensive Distribution- Manufacturer is
better assured of maximizing sales
(especially for convenience goods),
retailers face strong competition for price
and service, intratype competition

Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall
14
©2013 Pearson Education Publishing as Prentice Hall 1-14
 Figure 1-7: Comparing
Distribution Types

©2013 Pearson Education Publishing as Prentice Hall 1-15

 Figure 1-8: Special Characteristics
Affecting Retailers
Small Impulse
Average Purchase
Sale

Retailer’s
Strategy

Popularity
of
Stores

©2013 Pearson Education Publishing as Prentice Hall 1-16

 Retail Strategy

● An overall plan for guiding a retail

firm
● Influences the firm’s business
activities
● Influences firm’s response to
market forces

©2013 Pearson Education Publishing as Prentice Hall 1-17

 Six Steps in Strategic Planning
1. Define the type of business
(corporate mission)
2. Set long-run and short-run
objectives
3. Determine the customer market
4. Devise an overall, long-run plan
5. Implement an integrated strategy
6. Evaluate and correct (fine-tune)

©2013 Pearson Education Publishing as Prentice Hall 1-18

 “Expect More. Pay Less” at Target

©2013 Pearson Education Publishing as Prentice Hall 1-19

 Aspects of Target’s Strategy
● Growth ● Employee
objectives relations
● Appeal to a ● Innovation
prime market ● Commitment
● Distinctive image to technology
● Focus ● Community
involvement
● Customer service
● Monitoring
● Multiple points of performance
contact
©2013 Pearson Education Publishing as Prentice Hall 1-20
 Figure 1-10: Applying the Retailing Concept

Customer
Orientation

Coordinated Effort Retaili

ng Retail
Conce Strategy
Value-driven pt

Goal Orientation

©2013 Pearson Education Publishing as Prentice Hall 1-21

The Build-A-Bear Experience: Never Boring

©2013 Pearson Education Publishing as Prentice Hall 1-22

 Customer Service
● Activities undertaken by a retailer
in conjunction with the basic
goods and services it sells. This
includes:
● Store hours
● Parking
● Shopper-friendliness
● Credit acceptance

● Salespeople

©2013 Pearson Education Publishing as Prentice Hall 1-23

 A Customer Respect Checklist
✔ Do we trust our customers?
✔ Do we stand behind what we sell?
✔ Is keeping commitments to customers
important to our company?
✔ Do we value customer time?
✔ Do we communicate with customers
respectfully?
✔ Do we treat all customers with respect?
✔ Do we thank customers for their business?
✔ Do we respect employees?
©2013 Pearson Education Publishing as Prentice Hall 1-24
 Relationship Retailing
● Retailers seek to establish and
maintain long-term bonds with
customers, rather than act as if each
sales transaction is a completely new
encounter
● Concentrate on the total retail
experience
● Monitor satisfaction
● Stay in touch with customers
©2013 Pearson Education Publishing as Prentice Hall 1-25
 Effective Relationship Retailing
● Use a “win-win” approach
● It is easier to keep existing customers happy
than to gain new ones (present value of
current customers income stream– cost of
keeping existing customers content versus
cost of replacing them with new customer
● Develop a customer database (loyalty
programs)
● Ongoing customer contact is improved with
information on people’s attributes and
shopping behaviors
©2013 Pearson Education Publishing as Prentice Hall 1-26
 Types of Loyalty Programs
● Additional discounts at register
● Not a real loyalty program

● 1 free with every “n” items purchased

● Easily copied, no customer database

● Rebates based on cumulative purchases

● Customer maintains records

● Can develop “heavy half” programs like Hilton

● Targeted offerings and mailing based on purchase

history
● Tesco example “Market research staff know more
about my customers than board chairperson”

©2013 Pearson Education Publishing as Prentice Hall 1-27

 Relationship Management
Among Retailers and Suppliers
● Disagreements may occur in the following areas (channel
conflict):
● control over channel (private label)
● profit allocation (resale price control)
● number of competing retailers (exclusive, selective or
intensive distribution)
● product displays
● promotional support (cooperative advertising funds and
restrictions)
● payment terms (payment on time)
● operating flexibility
● gray market sales
● markdown monies, chargebacks by dominant retailers

Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall
28
©2013 Pearson Education Publishing as Prentice Hall 1-28
 Approaches to the
Study of Retailing

Instituti
onal Functio
nal

Strategi
c

©2013 Pearson Education Publishing as Prentice Hall 1-29

 Parts of Retail Management:
A Strategic Approach
● Building relationships and strategic
planning
● Retailing institutions
● Consumer behavior and information
gathering
● Elements of retailing strategy
● Integrating, analyzing, and improving
retail strategy

©2013 Pearson Education Publishing as Prentice Hall 1-30

CHAPTER 2:
STRATEGIC
PLANNING IN
RETAILING

©2013 Pearson Education Publishing as Prentice Hall 1-31

 Chapter Objectives
● To explain what “value” really means
and to highlight its pivotal role in
retailers’ building and sustaining
relationships
● To describe how both customer
relationships and channel
relationships may be nurtured in
today’s highly competitive
marketplace

©2013 Pearson Education Publishing as Prentice Hall 1-32

 Chapter Objectives (cont.)
● To examine the differences in
relationship building between goods and
services retailers
● To discuss the impact of technology on
relationships in retailing
● To consider the interplay between
retailers’ ethical performance and
relationships in retailing

©2013 Pearson Education Publishing as Prentice Hall 1-33

 Definition of Value

● Value = Results + Process Quality

Price + Customer Access Costs
● Results = Overall quality, instructions, ease of
assembly, taste/quality/health, warranty, product
testing by retailer
● Process Quality = Wide aisles, ease of finding,
high in-stock position, fun experience, short
waiting times
● Price= Costs + delivery + assembly + credit
● Customer access costs= warehouse club
membership fees, inconvenient location, poor
store hours, inadequate parking
©2013 Pearson Education Publishing as Prentice Hall 1-34
 What is Value? (cont.)

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

©2013 Pearson Education Publishing as Prentice Hall 1-35

 Retail Value Chain
● Represents the total bundle of
benefits offered to consumers
through a channel of distribution
● Store location and parking, retailer
ambience, customer service,
brands/products carried, product quality,
retailer’s in-stock position, shipping,
prices, image, and other elements

©2013 Pearson Education Publishing as Prentice Hall 1-36

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

©2013 Pearson Education Publishing as Prentice Hall 1-37

 Figure 2-2: A Value-Oriented
●
Retailing Checklist
Is value defined from a consumer perspective?
● Does the retailer have a clear value/price point?
● Is the retailer’s value position competitively
defensible?
● Are channel partners capable of value-enhancing
services?
● Does the retailer distinguish between expected and
augmented value chain elements?
● Has the retailer identified potential value chain
elements?
● Is the retailer’s value-oriented approach aimed at a
distinct market?
● Is the retailer’s value-oriented approach consistent?
©2013 Pearson Education Publishing as Prentice Hall 1-38
 Figure 2-2: A Value-Oriented
Retailing Checklist (cont.)
● Is the retailer’s value-oriented approach effectively
communicated?
● Can the target market clearly identify the retailer’s
positioning?
● Does the retailer’s positioning consider sales versus
profits?
● Does the retailer set customer satisfaction goals?
● Does the retailer measure customer satisfaction
levels?
● Is the retailer careful to avoid the pitfalls in
value-oriented retailing?
● Is the retailer always looking out for new opportunities
that will create customer value?
©2013 Pearson Education Publishing as Prentice Hall 1-39
 Customer Service
● Expected ● Augmented
customer service customer service
is the service includes the
level that activities that
customers want enhance the
to receive from shopping
any retailer such experience and
as basic give retailers a
employee competitive
courtesy. advantage.

©2013 Pearson Education Publishing as Prentice Hall 1-40

 Expected Versus Augmented
Levels of Customer Service
● Expected– Must have elements; do
not differentiate retailer. While
absence of these expected values
provides anguish, presence does
not provide satisfaction

● Augmented—Services that can

provide a competitive advantage.
Double warranty, special delivery,
product demonstrations

©2013 Pearson Education Publishing as Prentice Hall 1-41

 Figure 2-4: Classifying
Customer Services

©2013 Pearson Education Publishing as Prentice Hall 1-42

 Fundamental Decisions
● What customer services are expected and what
customer services are augmented for a
particular retailer?
● What level of customer service is proper to
complement a firm’s image?
● Should there be a choice of customer services?
● Should customer services be free?
● How can a retailer measure the benefits of
providing customer services against their costs?
● How can customer services be terminated?

©2013 Pearson Education Publishing as Prentice Hall 1-43

 Table 2-1: Typical Customer
Services
● Credit ● Gift certificates
● Delivery ● Trade-ins
● Alterations/ ● Trial purchases
Installations ● Special sales
● Packaging/gift ● Extended store
wrapping hours
● Complaints/Returns● Mail/phone orders
handling

©2013 Pearson Education Publishing as Prentice Hall 1-44

 Table 2-1b: Miscellaneous
Customer Services
● Bridal registry ● Restrooms
● Interior designers ● Restaurants
● Personal shoppers ● Babysitting
● Ticket outlets ● Fitting rooms
● Parking ● Beauty salons
● Water fountains ● Fur storage
● Pay phones ● Shopping bags
● Baby strollers ● Information

©2013 Pearson Education Publishing as Prentice Hall 1-45

 Figure 2-6: Turning Around Weak
Customer Service

Focus on Empower Frontline

Customer Concerns Employees

Show That You Are Express Sincere

Listening Understanding

Apologize and Rectify

the Situation

©2013 Pearson Education Publishing as Prentice Hall 1-46

 Principles of Category
Management
● Retailers listen more to customers
● Profitability is improved because inventory
more closely matches demand
● By being better focused, each department is
more desirable for shoppers
● Retail buyers are given more responsibilities
and accountability for category results
● Retailers and suppliers must share data and
be more computerized
● Retailers and suppliers must plan together

©2013 Pearson Education Publishing as Prentice Hall 1-47

 Figure 2-7: Elements Contributing to
Effective Channel Relationships

©2013 Pearson Education Publishing as Prentice Hall 1-48

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

©2013 Pearson Education Publishing as Prentice Hall 1-49

 Four Characteristics of
Services Retailing
● Intangibility
● Inseparability
● Perishability
● Variability

©2013 Pearson Education Publishing as Prentice Hall 1-50

 Figure 2-8a: Characteristics of
Service Retailing

Intangibility

• No patent protection possible

• Difficult to display/communicate
service benefits
• Quality judgment is subjective
• Some services involve
performances/experiences
©2013 Pearson Education Publishing as Prentice Hall 1-51
 Figure 2-8b: Characteristics of
Service Retailing

Inseparability

• Consumer may be involved in

service production
• Centralized mass production difficult
• Consumer loyalty may rest
with employees

©2013 Pearson Education Publishing as Prentice Hall 1-52

 Figure 2-8c: Characteristics of
Service Retailing

Perishability

• Services cannot be inventoried

• Lost revenues from unsold services are lost forever
• Effects of seasonality can be severe
• Planning employee schedules can be complex
• Need to balance supply and demand
(yield management pricing)

©2013 Pearson Education Publishing as Prentice Hall 1-53

 Figure 2-8d: Characteristics of
Service Retailing

Variability

• Standardization and quality control hard

to achieve
• Customers may perceive variability even
when it does not actually occur
• Need to industrialize/mechanize/service
blueprint services to factor out variability

©2013 Pearson Education Publishing as Prentice Hall 1-54

 Figure A2-1: Lessons in
Service Retailing

©2013 Pearson Education Publishing as Prentice Hall 1-55

 Technology Icons

©2013 Pearson Education Publishing as Prentice Hall 1-56

 Examples of Consumerism
in Retailing
● Proper testing of items for safety issues
● Programming cash registers not to
accept payment for recalled goods
● Charging fair prices for goods in short
supply--Home Depot plywood example
in hurricane
● Age labeling of toys, warning labels on
goods beyond legal requirements

©2013 Pearson Education Publishing as Prentice Hall 1-57

 Store Sale

©2013 Pearson Education Publishing as Prentice Hall 1-58

 Understanding the Americans
with Disabilities Act

©2013 Pearson Education Publishing as Prentice Hall 1-59

 CHAPTER
3:STRATEGIC
PLANNING IN
RETAILING

©2013 Pearson Education Publishing as Prentice Hall 1-60

 Chapter Objectives
● To show the value of strategic
planning for all types of retailers
● To explain the steps in strategic
planning for retailers: situation
analysis, objectives, identification
of consumers, overall strategy,
specific activities, control, and
feedback
©2013 Pearson Education Publishing as Prentice Hall 1-61
 Chapter Objectives (cont.)
● To examine the individual
elements of a retail strategy (both
controllable and uncontrollable),
and to present strategic planning
as a series of integrated steps
● To demonstrate how a strategic
plan can be prepared

©2013 Pearson Education Publishing as Prentice Hall 1-62

 Retail Strategy

● The overall plan or framework of

action that guides a retailer
● One year in duration
● Outlines mission, goals, consumer
market, overall and specific activities,
and control mechanisms

©2013 Pearson Education Publishing as Prentice Hall 1-63

 Elements of a Retail Strategy
Retail Strategy

©2013 Pearson Education Publishing as Prentice Hall 1-64

 Benefits of Strategic Retail Planning
● Provides thorough analysis of the requirements for
doing business for different types of retailers
● Outlines retailer goals
● Allows retailer to determine how to differentiate
itself from competitors
● Allows retailer to develop an offering that appeals to
a group of customers
● Offers an analysis of the legal, economic, and
competitive environment
● Provides for the coordination of firm’s total efforts
● Encourages anticipation and avoidance of crises

©2013 Pearson Education Publishing as Prentice Hall 1-65

 Organizational Mission
Retailer’s commitment
to a type of business and
to a
distinctive role in the
marketplace.

©2013 Pearson Education Publishing as Prentice Hall 1-66

 Ownership and Management
Alternatives
● Sole proprietorship is an unincorporated
retail firm owned by one person
● A partnership is an unincorporated retail
firm owned by two or more persons, each
with a financial interest
● A corporation is a retail firm that is
formally incorporated under state law; it is
a legal entity apart from its officers

©2013 Pearson Education Publishing as Prentice Hall 1-67

Figure 3-3: Checklist to
Consider When
Starting a New
Business

©2013 Pearson Education Publishing as Prentice Hall 1-68

 Figure 3-4: Checklist
for Purchasing an
Existing Retail
Business

©2013 Pearson Education Publishing as Prentice Hall 1-69

 Figure 3-5a: Selected Kinds of Retail Goods
and Service Establishments

Durable Goods Stores:

Automotive group
Furniture and appliances group
Lumber, building, and hardware group
Jewelry stores

Nondurable Goods Stores:

Apparel group
Food group
General merchandise group
Gasoline service stations

©2013 Pearson Education Publishing as Prentice Hall 1-70

 Figure 3-5b: Selected Kinds of Retail Goods
and Service Establishments

Service Establishments (Personal):

Laundry and dry cleaning
Beauty/barber shops
Funeral services
Health-care services

Service Establishments (Amusement):

Movie theaters
Bowling alleys
Dance halls
Golf courses

Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall
©2013 Pearson Education Publishing as Prentice Hall 1-71
 Figure 3-5c: Selected Kinds of Retail Goods
and Service Establishments

Service Establishments (Repair):

Automobile repair
Car washes
Consumer electronics repair
Appliance repairs

Service Establishments (Hotel):

Hotels
Motels
Trailer parks
Camps

©2013 Pearson Education Publishing as Prentice Hall 1-72

 Image and Positioning

An image represents
how a given retailer is
perceived
by consumers and
others.

©2013 Pearson Education Publishing as Prentice Hall 1-73

 Positioning Approaches

● Mass merchandising is a positioning approach

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

● Niche retailing occurs when retailers identify

specific customer segments and deploy unique
strategies to address the desires of those segments
rather than the mass market.

©2013 Pearson Education Publishing as Prentice Hall 1-74

 Figure 3-6: Niche Retailing by
Babies “R” Us

©2013 Pearson Education Publishing as Prentice Hall 1-75

 Selected Retail
Positioning Strategies

©2013 Pearson Education Publishing as Prentice Hall 1-76

 Target Market Selection

● Three techniques
● Mass marketing
● Concentrated marketing
● Differentiated marketing

©2013 Pearson Education Publishing as Prentice Hall 1-77

 La Boqueria

©2013 Pearson Education Publishing as Prentice Hall 1-78

 Strategic Implications of
Target Market Techniques

● Retailer’s location
● Goods and service mix
● Promotion efforts
● Price orientation
● Strategy

©2013 Pearson Education Publishing as Prentice Hall 1-79

 Developing an Overall Retail Strategy

Controllable Uncontrollable
Variables: Variables:
• Store location • Consumers
• Managing business • Competition
• Merchandise • Technology
management Retail • Economic
and pricing Strategy conditions
• Communicating • Seasonality
with customer • Legal restrictions

©2013 Pearson Education Publishing as Prentice Hall 1-80

 Retail Strategy– Low Costs
● Removal of bad costs
● Use of private label products to
reduce costs of national/manufacturer
brands
● Reduce product proliferation
● Obtain best net price instead of focus
on promotional monies, trade
incentives and forward buying

©2013 Pearson Education Publishing as Prentice Hall 1-81

 Retail Strategy– Low Costs (cont.)

• Supply chain initiatives

• Low promotional expense (everyday low
pricing)
• Proper employee utilization

©2013 Pearson Education Publishing as Prentice Hall 1-82

 Retail Strategy--Differentiation

● Well-thought out private labels (Trader

Joe’s, Target, King Arthur flour, etc.)
● Hiring right employees (value-profit chain)
● Empowering employees
● Use of a fun atmosphere
● “Little things that mean a lot”
● Money-back guarantees

©2013 Pearson Education Publishing as Prentice Hall 1-83

 Legal Environment
and Retailing
Store Location Managing the
● zoning laws Business
● blue laws ● licensing provisions
● environmental laws ● personnel laws
● direct selling laws ● antitrust laws
● local ordinances ● franchise
● leases and agreements
mortgages ● business taxes
● recycling laws

©2013 Pearson Education Publishing as Prentice Hall 1-84

 Legal Environment
and Retailing
Merchandise Management and Pricing
● trademarks
● merchandise restrictions
● product liability laws and lemon laws
● sales taxes
● unit-pricing laws
● collusion laws
● sale prices
● price discrimination laws

©2013 Pearson Education Publishing as Prentice Hall 1-85

 Legal Environment
and Retailing
Communicating with the Customer
● truth-in-advertising and selling laws
● truth-in-credit laws
● telemarketing laws
● bait-and-switch laws
● inventory laws
● labeling laws
● cooling-off laws

©2013 Pearson Education Publishing as Prentice Hall 1-86

 Sample Strategic Plan

Sally’s is a small, independently owned,

high-fashion ladies clothing shop located
in a suburban strip mall. It is a full-price,
full-service store for fashion-forward
shoppers. Sally’s carries sportswear
from popular designers, has a personal
shopper for busy executives, and has an
on-premises tailor. The store is updating
its strategic plan as a means of getting
additional financing for an anticipated
expansion.
87
©2013 Pearson Education Publishing as Prentice Hall 1-87
 Additional Concerns for
Global Retailing

● In addition to the strategic planning

process:
● assess your international potential
● get expert advice and counseling
● select your countries
● develop, implement, and review an
international retailing strategy

©2013 Pearson Education Publishing as Prentice Hall 1-88

 Factors Affecting the Success of a
Global Retailing Strategy
● Timing
● A balanced international program
● A growing middle class
● Matching concept to market
● Solo or partnering
● Store location and facilities
● Product selection

©2013 Pearson Education Publishing as Prentice Hall 1-89

 Factors to Consider When Engaging in
Global Retailing

©2013 Pearson Education Publishing as Prentice Hall 1-90