DMKT303 - Retail Marketing

DMKT303: Retail Marketing Manipal University Jaipur (MUJ)
MASTER OF BUSINESS ADMINISTRATION

SEMESTER 3
DMKT303
RETAIL MARKETING
Unit 1: Introduction to Retailing 1

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Unit 1
Introduction to Retailing
Table of Contents
Fig No /
SL SAQ /
Topic Table / Page No
No Activity
Graph
1 Introduction - -
3
- -
1.1 Objectives
2 Retail scenario in India: Organised vs. Unorganised 1 1 4–6
3 Definition of Retailing - 2 7
4 - 3, I 8 -10
Functions of the Retailer
5 Factors Leading to the Growth of the Retail Sector - 4 11 – 13
6 Challenges faced by a retailer - 5 13 – 15
7 Classification of Retail units 2 6, II
7.1 Based on ownership - -
7.2 Based on the variety of merchandise mix - - 16 – 21
7.2 Based on operational structure - -
7.3 Based on retail location - -

8 Summary - - 22
9 Glossary - - 23
10 Terminal Questions - - 24
11 Answers - - 24
12 Case study - - 25 – 26

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1. INTRODUCTION
Take a moment to think of how many different products you have used since this morning;
you woke up and brushed your teeth, drank a cup of tea and ate some cookies to go with it,
your shirt and trousers were perhaps made by different manufacturers, and so on. What is
the common link between each of these? The answer is that you bought all of them at a
retail store.
Imagine how hard it would be if we had to run to individual manufacturers to buy everything
we needed.
Retailers act as the interface between manufacturers and the end customer. They buy stock
in large quantities and sell them to customers in smaller quantities. Retailers are the last link
of the supply chain through which a product travels before finally reaching the end customer.
This unit will help you to understand the functions of a retailer and factors responsible for
retail growth in India. Also, this unit explains to you the classification of retailing and
challenges faced by retailers.
1.1 Objectives:
After studying this unit, you should be able to:
❖ explains the difference between organised and unorganised retailing in India.
❖ define retailing
❖ describe the functions of retailers
❖ identify factors leading to the growth in retailing
❖ identify the major challenges faced by the retail industry.

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2. RETAIL SCENARIO IN INDIA: ORGANISED VS. UNORGANISED

Retail industry in India can be classified into two broad categories – organised retail and
unorganised retail.
Organised retail – includes retailers who operate their business as a professionally

managed commercial entity. They have professionally managers running the business, and
maintain proper account books as per standards. Examples of organised retailers include Big
Bazaar, Star Bazaar.
Organized retail in India is small, currently estimated to be around 7% of the total retail,
however, it is growing much faster compared to unorganised retail. Figure 1.1 shows the
projected growth of the share of organized retailing to the total retail business in India till
2020-21.
Fig. 1.1: Projected share of organised retail versus unorganised retail duringthe decade between
2010-11 to 2020-21.
(Source: India Brand Equity Foundation Retail Report (November 2011),Deloitte,

Aranca Research)

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Unorganised retail – Unorganised retailing refers to the traditional formats of low-cost

retailing. Unorganised retailing refers to retail businesses that are typically run by the owner
(or his family) or a caretaker. The management of such retail stores is not a professional
function and they lack technical and accounting standardisation.
Conventional Kirana shops, general stores, corner shops among various other small retail
outlets are examples of unorganised retailers. They remain the driving force behind India’s
retail industry.
The following are some salient points about the retail sector in India:
• Retail industry, being the fifth largest in the world, is one of the sunrise sectors with
huge growth potential and accounts for 14-15% of the country’s GDP. Comprising of
organised and unorganised sectors, Indian retail industry is one of the fastest growing
industries in India, especially over the last few years.
• According to the Global Retail Development Index 2012, India ranks fifth among the top
30 emerging markets for retail. The recent announcement by the Indian government
with Foreign Direct Investment (FDI) in retail, especially allowing 100% FDI in single
brands and multi- brand FDI has created positive sentiments in the retail sector.
• Indian retail industry is the largest industry in India, with an employment of around
8% and contributing to over 15% of the country's GDP.
• McKinsey report 'The rise of Indian Consumer Market', estimates that the Indian
consumer market is likely to grow four times by 2025.
• Retail industry in India is expected to rise 25% yearly being driven by strong income
growth, changing lifestyles, and favourable demographic patterns.
• Indian retail industry is one of the fastest growing industries with revenue is increasing
at a rate of 5% yearly.
• India's overall retail sector is expected to rise to US$ 833 billion by 2013 and to US$ 1.3
trillion by 2018, at a compound annual growth rate (CAGR) of 10 per cent
• A further increase of 7–8% is expected in the industry of retail in India by growth in
consumerism in urban areas, rising incomes, and a steep rise in rural consumption.
• CB Richard Ellis' findings state that India's retail market is currently valued at US$ 450
billion.

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• In India, the retail industry is broadly divided into the organised and unorganised
sectors.
• The organised sector accounted for Rs. 350 billion of the total revenues.
• Traditionally, the retail industry in India comprised of large, medium and small grocery
stores which could be categorised as unorganised retailing.
• Most of the organised retailing in India had recently started and was mainly
concentrated in metropolitan cities.
Self-Assessment Questions - 1
1. In India, the retail industry is broadly divided into _____________ and

_____________sectors.
2. Conventional Kirana shops, general stores, corner shops among various other
small retail outlets are examples of __________________.
a) Unorganised retailing.
b) Organised retailing.

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3. DEFINITION OF RETAILING
“Retailing is a set of activities that enables selling of goods and commodities to the customers
or end consumer in small quantities”.
A retailer is a person or an outlet through which products or services are sold to customers
or the end user.
Retailing is one of the key elements of a marketing and distribution strategy; it ensures that
a product reaches the consumers. The word retailing originated from the French word
“retailier” which means ‘to cut’ or break into pieces. In other words, retailing is the process
of buying goods or products in bulk, breaking down the bulk and selling them in smaller
quantities to customers or end users. However, it is the type of customer and not the activity
that distinguishes a retailer from other traders; the distinction being that, a retailer sells to
the final consumers. Retailers attempt to satisfy consumers by ensuring that the right
merchandise is available at the right price at the right place and at right time.
3. _____________ is one of the key elements of a marketing and distribution
strategy.
4. The word retailing originated from the French word “retailier” which
means________.

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4. FUNCTIONS OF THE RETAILER

Retailers play a significant role between manufacturers, wholesalers, suppliers and
consumers. Retailers perform three major functions: Sourcing and buying, storing and
selling. They also perform other supporting functions such as grading and packing, risk
bearing, transportation, value added services, sales promotion, provision of information and
store operations.
Major functions
1. Sourcing and buying: One of the primary functions of the retailer is to source and buy
a range of products or goods from different wholesalers or manufacturers based on the
estimation of demand and sales forecast. Retailers choose the best suitable
merchandise from different wholesalers or manufacturers and place them under one
roof for sale. Therefore, a retailer performs the twin functions of buying and assembling
a range of goods.
2. Storing: Every retailer breaks down bulk goods into smaller quantities and maintains
a stock of goods and displays them in the store for the purpose of sale. Most large-scale
retailers prefer to maintain stocks in their back store; this helps in reducing cost by
reducing the frequency of transportation of goods to and from wholesalers.
3. Selling: The primary objective of any retailer is to sell goods to the customers and earn
profits. The retailer thus sells the goods in smaller quantities to meet the demand and
choice of customers. Retailer employs suitable methods and sales strategies to sell
goods to increase the sales turnover.
Supporting functions:
Grading and packing: Grading is a process of dividing goods and products based on its
shape, size, quality, colour, weight and so on. Grading also helps in determining the price of
goods. Grading is widely followed in the marketing of agricultural products. Grading helps in
determining the value of the product too. The best grade commands the highest price. The
retailer grades those product or goods which are not graded by the manufacturers or
wholesalers.

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Based on factors such as pricing strategy, grades, seasons, sales promotions and consumer
demands, the retailers also package goods in smaller quantities for the convenience of
customers. Grading and packaging are always carried out as per the standards prescribed by
the relevant government authorities.
Risk bearing: Retailers, both large and small, maintain a certain amount of stock to ensure
availability of stocks to meet customer demands. This leads them to bear the risk of loss due
to fire, spoilage, price fluctuations, theft and so on.
Logistics and transportation: Retailers are required to maintain their own transportation
facilities to carry goods from wholesalers or manufacturers to their stores or distribution
centres. Large scale retailers such as Walmart and Reliance Retail maintain organised
logistics facilities such as fleets, cold chain, distribution centres and various other resources
to ensure an efficient supply chain whereas small retailers depend on logistics and
transportation service providers.
Value added services: Most organised and modern retailers provide value added services
to customers such as exchange or return of goods, home delivery of products and after sales
services.
Sales promotion: Retailers carry out sales promotion activities to promote sale of goods
and increase their sales turn over. Such sales promotion activities include festive
decorations, decorative window displays, discount offers, road shows and so on. It is a
modern trend amongst most contemporary retailers to maintain direct personal contacts
with customers to woo them to buy their products.
Provision of information: Retailers provide information to customers about new products

along with their features and benefits. This acts as guidance to customers to help them make
the best suitable choice of products. Retailers also provide information on market trends and
forecasts to wholesalers and manufacturers.
Store operations: Store operation is the most prominent function of any retail store. Apart
from storing and displaying of goods, store operations in a modern large-scale store involves

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activities such as housekeeping, loss prevention, health and safety of consumers and staff,
human resource management and commercial activities such as accounting and billing.
Activity 1
Study the major functions and support functions of any one of the organised retailer.
Hint: Go to any hypermarket (Mega-mart, Big Bazaar, Brand Factory, Star Bazaar, West side
or Home Town) and refer the functions in Section 1.3.
5. Retailers perform three major functions called as_____________.
6. A retailer performs twin functions of ______________________ the range of goods.

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5. FACTORS LEADING TO THE GROWTH OF THE RETAIL SECTOR

Young working population: India has a large young working population with an average
age of 24. A large proportion of the working-age population implies a lucrative consumer
base vis-à-vis that of other economies of the world, placing India on the radar as one of the
most promising retail destinations of the world. Nuclear families in urban areas, along with
increasing working women population and emerging opportunities of employment are going
to be the key growth drivers of the organised retail sector in India.
Economic growth: The speedy growth of the economy in India is one of the forces that has
driven consumerism amongst Indians, leading them to spend a large portion of their
disposable income. Analysts have projected that India is the fastest growing economy and is
set to outpace developed economies by the year 2050. Predictions by analysts also say that
India will sustain a GDP growth rate of 5 percent during this period.
Untapped potential market: India is a leading emerging market today and is a priority
market for international retailers to invest. Today, organised retail scenario in India offers a
very attractive proposition for the entry of new players in the sector as well as those already
existing. There exists a spectrum of opportunities from rural retailing to luxury retailing due
to the rising percentage of disposable income amongst all the classes and geographies.
Adding to all the above, there is massive retail space availability in the tier II and tier III cities
and towns across the country.
Low cost of operations: With a lot of untapped potential in tier II and tier III towns and
cities in India, most companies are intending to venture into smaller towns and cities to
leverage the opportunities such as availability of retiling space and skilled manpower at a
lower cost. Graduates from small towns who look for opportunities in larger cities are the
ideal resources for the role of executives in customer service, sales and marketing as well as
in finance.
Share of wallet: The maximum share of a family’s earnings is devoted to food and grocery
at 36% followed by rent and utilities which accounts to a significant proportion. The share
of other expenditures in the daily routine of an individual is shifting drastically. Double

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income in a single family by both husband and wife has also increased the share of wallet
resulting in the increase in the buying power of a family.
Increase in sizable and disposable income: Business communities believe that a sizable
disposable income in India exists in urban areas where well-off and affluent classes reside.
However, it is a fact that a similar number of middle-class families exist in rural India who
have the same purchasing power as that of families in urban areas. Despite a lot of promise
from the rural markets, modern organised retailers are pondering over strategies to cater to
such rural market profitably.
Diversified culture and festivals: India is a secular country that has a variety of cultures,
languages and festivals which are celebrated throughout the year. Each festival is celebrated
all over India with different names and rituals with great enthusiasm. On auspicious
occasions like 'Akshaya Tritiya', the sale of gold is expected to cross 40 tonnes in the country,
with Tamil Nadu alone accounting for more than 20 tonnes. Each festival brings fresh
opportunities for retailers. There are huge opportunities in India for retailers to convert
shoppers into buyers.
Growing number of HNI: The growth of HNI was primarily led by market capitalisation and
real GDP growth. India with its huge population has the greatest number of HNIs with a huge
potential to spend. The richest farmers in the villages of Punjab own Mercedes cars.
According to a McKinsey report, India’s HNI population will equal the size of the Australian
population in 2025.
Brand conscious: India’s major population consists of the youth and they are the ones who
are most concerned about brands and new trends in the market. People have become more
brand savvy, whether it is the clothes or the commodity they use. In India, branded products
have a huge market. For example, Gitanjali jewellers in India have branded diamonds like
Nakshatra, Gili, etc. These brands attract the consumer because the brand is perceived as an
authenticated product.
Media exposure: We have more than 100 TV channels with different languages and
therefore mass media is the best method to help consumer remember what the retail market

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has to offer them. There will be a shift from traditional media to increased communication
at the point of purchase and this initiative will help promote the whole sector.
7. The large proportion of the –––––––––––––––––––––––– implies a lucrative

consumer base in India.
6. CHALLENGES FACED BY A RETAILER
Lack of infrastructure: A large amount of investment goes into provision of power backups
due to insufficient and inefficient supply of power. The cost of power for the retailing sector
when compared to the manufacturing sector is higher and this leads to escalation of costs of
maintenance and development.
High rentals: India is one of the major countries in Asia with an improving market. There
are concerns about an asset-price bubble raising questions. Property prices are sky high and
are increasing very fast. The buzzword “Shop till you drop!” that was often heard a few years
age is no more heard now. The drastic increase in rental charges for retail space, almost 300
percent in 2008, has made retailers go completely dull since they are unable to afford such
high rentals. This has brought about speculators in the market.
Supply chain & logistics issues: Rs. 50,000 crores worth of food produced is wasted in India
each year due to the lack of a robust supply chain infrastructure and this leads to
unproductive costs of logistics with the absence of efficient logistics systems, retailers are
forced to incur huge costs to set up individual supply chain management (SCM) and logistics
infrastructure. Stock-out levels among Indian retailers range from 5 to 15% whereas the
global average is less than 5%.
What to sell: Another challenge is the category of items to be offered. According to

researches, 41 percent of the total consumption expenditure goes towards the food and
groceries segment which accounts for 77 percent of total retail sales. Obviously, this is

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the most preferred section of retailers. Supply chain management, storage of fresh
perishable foods and persuading the customers that the food is inexpensive despite being
fresh are genuine challenges to the newcomers. Diversifying the product base to consumer
products such as readymade garments, furniture mobiles and computers can mitigate losses,
if any, from food marketing and also broaden the reach to consumers.
Nostalgia: Indian shoppers expect honesty, good behaviour, discounted prices, etc., from the
local shopkeepers with whom they have been interacting for long. This demand from
customers is difficult to handle as it needs a change in the mind-set which has been long
formed. However, organised retailers can tackle this by employing local human resource to
deal with customers in the vernacular and handle their expectations better.
Information technology: This is a major problem and India must act fast if it wishes to
create a smooth field for organised retailing. Digitisation of services will make transfer of
goods easy and an improvement in supply chain management will definitely play a
significant role in attracting more consumers and less consumer grievances. Besides, it will
generate easier payments option for customers and easier money movement for the CEOs of
these highly diversified retail organisations.
Human resource crunch: The concern about insufficient manpower in the industry has
been in the news lately. This fear is somehow unfounded. The retail industry, according to
recent reports, is growing at a rate of 100 percent. According to an article in the Economic
Times dated 25th June, it is estimated that the organised retailing sector will require
manpower of almost 18 million by the year 2022. If we add to this the foray of mega
international players due to 100 percent FDI in retailing sector, the demand for manpower
is definitely going to escalate. Retailing mainly deals with hard selling of space, trade of
stocks and building of relationships. Since most job openings are for front line roles, a
graduation will suffice.
Inconsiderable regulatory framework: Retailers require around 12 to 15 clearances at the

central, state and local levels to set up operations because there is no single window
clearance process. The provisions of the ‘The Shops and Establishments Act’ also vary. There
are various restrictions on interstate movement of goods, especially for food grains. There is

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no government regulatory authority like (TRAI, DGCA, IRDA) to monitor the Indian retail
business.
Limited FDI: Allowing 100 percent FDI in single brand retailing from January 2012 will
attract a lot of international players to invest in Indian retail sector, giving rise to an add to
the existing boom in the sector in all respects. However, despite central government allowing
100% FDI in single brand retailing, there is a choice for state governments to accept or
decline the same. This aspect might challenge international players as they may have to
restrict themselves only to certain geographies and bear a risk of losing out to the local
players as they may not be able to expand.
Government interference: Some political parties want the government to amend laws and
increase curbs so that the mega players cannot openly decimate the unorganised retail
sector. This is a conclusion based on a myopic outlook and must be changed for a long-term
strategy.
8. The cost of power for retailing sector when compared to that in manufacturing
sector is higher. (True/False)

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7. CLASSIFICATION OF RETAIL UNITS

The major classification of retail units are store-based retailing, operational structure based,
location based. Further to this, store-based retiling is classified on the basis of ownership
and on the basis of variety of merchandise mix. Figure 1.1 shows the detailed classification
of retail units which is discussed below in detail.
Figure 1.1: Classification of retail units
Store based retailing: In store-based retailing, you can see and touch the products since it
deals with tangible products. Accordingly, it is classified on the basis of ownership and on
the basis of merchandise mix.
7.1 Based on Ownership:

One of the first decisions that the retailer has to make as a business owner is how the
company should be structured. This decision is likely to have long-term implications.
There are four basic legal forms of ownership for retailers:
1. Sole proprietorship: In this type, the business is owned and run by an individual. He
enjoys the whole profit and assets and also is responsible for liability & losses.

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For example, if you start a small business with an investment of 5 lakhs and you open a
grocery store, your ownership form is called sole proprietorship.
2. Partnership: In India, this is a general form of doing a business. When a single business
carried out by two or more people, the form of ownership is called ’partnership’.
For example, if your friend is investing 3 lakhs in the grocery business along with your
5-lakh investment, the ownership form is called partnership.
3. Joint venture: When two or more firms come together to accomplish a same goal or
project for a limited period, it is termed as ‘Joint Venture’. Both companies are mutually
benefitted and dependent on each other to achieve a common goal. One of the best
examples of joint venture is Hero Honda. It was a joint venture between the Hero Group
and the Honda Motor Company which was established in 1984 as Hero Honda Motors
Limited to produce two-wheelers in India. In 2011, Honda had withdrawn its
dependence of its sourcing from the Hero Group.
4. Limited Liability Company (LLC): The Limited Liability Company (LLC), a hybrid of
the partnership and the corporation, has become a popular legal alternative for
business owners. The LLC provides protection to owners from being personally
responsible for the debt liabilities of the company. Members are only liable to the extent
of their investments in the company.
For example, if you slip and get injured on company property, you can file a law suit which
may bankrupt the business, but it cannot touch the personal assets of the LLC's members.
7.2 Based on The Variety of Merchandise Mix: On the basis of the merchandise offerings
and its variety, retailers are classified into the following types:
1. Convenience stores: Stores which sells convenient goods in a limited variety, i.e.,
frequently purchased goods with minimum effort & easily accessible to customers is
called convenience stores. For example, convenience goods like paste, milk, bread can
be purchased from a kirana shop (convenience stores) near your house.
2. Supermarkets: A supermarket is a self-service store which deals with a wide range of
food and non-food items. It offers fixed prices, clean products and faster check-out.

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Example, Food World offers food items like vegetables, fruits, frozen foods and also
non-food items like cosmetics, stationery and gift items.
3. Discount stores: Discount store offers an extensive range of products with heavy
discount at price than any format of the retailer. For example, Future group’s Brand
Factory. Also, The Loot, a multibrand discount store is famous for its low price. It has
brands such as Nike, Reebok, Adidas, Levis, Pepe Jeans, Provogue, Benetton, Wrangler,
Lee, Arrow as well as Mercedes, Old Navy, Gap and Banana Republic.
4. Specialty stores: Stores which specializes in a particular range of products and
provides the depth and width of a specific product category is referred to as a specialty
store. Example, Titan’s ‘World of Titan’ offers a range of Titan watches.
5. Department stores: These are large stores which classifies products under specified
departments. It has a wide range of products compared to any other formats.
Department stores sell products such as furniture, apparel, appliances, electronic goods
and also includes products like hardware, toiletries, cosmetics, photographic
equipment, jewellery, toys, and sporting goods.
6. Hypermarkets: A hypermarket is a very large retail unit offering merchandise at low
prices. Hypermarkets are characterised by large store size, low operating costs and
margins, low prices and a comprehensive range of merchandise. They are a
combination of stores that unite supermarket and general merchandise sales in one
store with the latter generally accounting for 25-50 % of the total sales. Consumers
choose them for one-stop-shopping and do not mind traveling a distance to visit these
stores. They achieve operational efficiencies and cost saving through their large-scale
operations. Impulse sales are high in such stores. For example, Shoprite Hyper,
Hypercity, Star Bazaar, Pantaloon’s Big Bazaar, and Vishal Megamart.
Note: India’s first hypermarket was started by Vishal Megamart.
7.3 Based on Operational Structure:

Operational structure refers to the arrangement or organisation of day-today activities as
well as strategic retail activities like hiring employees according to customer walk-ins, co-
ordinating with dealers and deciding on outlets, etc.

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1. Independent retail unit: An independent retailer owns a single retail unit with a
targeted customer base. For example, shops like Ishwarya beauty parlour, Whiterose
Laundry Service, etc., in your street or near your living place where you would have
experienced customised service.
2. Retail chain: As the name indicates, chain indicates the number of retail units. Retail
chain operates under a common ownership with several outlets. It ranges from two to
thousands of stores across various locations and it maintains the uniqueness in
ambience and in the variety of merchandise sold. Example, Reliance Fresh, Shoppers
Stop, Big Bazar, etc., If you visit a Big Bazaar in Bangalore and Mumbai, you will see the
same kind of ambience inside both the stores and you will find the similar goods and
services as well.
3. Franchising: Franchising is a business model in which a firm follows and runs its
business by adapting the same strategies of a successful company under its brand
name. It is a replica of a successful business model with a contractual agreement of
conducting business in a given pattern. The person or firm which follows the pattern of
a successful company is termed as Franchisee and the successful company is called
Franchiser.
This model is popular with fast food restaurants and in the hotel industry. For example,
McDonald's (MCD) operates the world's largest fast-food chain and earns 37% of its
revenue from franchising across its approximate 31,400 restaurant locations.
Franchisees operate 65% of McDonald's restaurants worldwide.
4. Leased department or shop-in-shop: When a brand owner occupies shelf space in
another retailer’s store, which deals with multiple-brand, to increase their sales is
called leased department ownership. For example, when you visit Big Bazaar or Star
Bazaar, you can see brand owners like Adidas, Nike, Reebok, etc., who have leased a
particular space in these shops to sell their products.
5. Co-operative outlets: In this concept of ownership, the retail outlets are owned by co-
operative societies. For example, Amul Parlour by Amul India ltd, Mother Dairy milk
booths in New Delhi, etc.

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7.4 Based on Retail Location:
Retail location is an important factor which plays a crucial role in accessibility and
popularity. On the basis of retail location, retail units are classified as listed below.
1. Free-standing location: Free standing location represents an isolated location of the

retailer where the business depends entirely on their pulling power. Here promotional
tools are used to attract customers. For example, the Haldiram outlet on the Delhi-
Jaipur highway and McDonald’s outlet on Delhi-Ludhiana highway.
2. Business-associated location: One or more retailers work together and operate in a
particular location to bring customers to their location where they compete with each
other for the same kind of customers. For example, Chikpet in Bangalore, Chandni
Chowk in Delhi.
3. Retailers in specialised markets: Apart from business associated location, there are
other locations in India which are specialised in specific types of products. For example,
Surat in Gujarat specialises in sarees, silk saree is the speciality of Tamil Nadu,
Hyderabad is famous for pearls, etc.
Activity 2
Interpret the form of ownership, operational structure, merchandise mix, location of a
retailer.
Hint: Select any retailer to observe the activities and the classification criteria of that retail
store.

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Self-Assessment Questions – 6
9. When a single business carried out by two or more people, the form of
ownership is called Partnership. (True or False)
10. When a brand owner occupies a shelf-space in other retailer’s store which deals
with multiple-brand to increase their selling, it is called____________.
11. _______________ is a business model in which a firm follows and runs its business
by adapting the same strategies of a successful company under a same brand
name

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8. SUMMARY
Let us recapitulate the important concepts discussed in this unit:
• Indian retail industry is broadly divided into the organised and unorganised sectors.
• Retailing is a set of activities that enables selling of goods and commodities to the
customers or end consumer in small quantities.
• Retailers perform three major functions called as sourcing and buying, storing and
selling and many more functions such as grading and packing, risk bearing,
transportation, value added services, sales promotion, provision of Information and
store operations
• The factors leading to growth of the retail sector young working population, economic
growth, low cost of operations, Increase in sizable and disposable income, diversified
culture and festivals, Growing number of HNI, brand conscious, Media exposure.
• Challenges faced by a retailer are Lack of Infrastructure are high rentals, supply chain
& logistics issues, amalgamation or confusion, limited FDI, human resource crunch,
inconsiderable regulatory framework, information technology.
The retail units are broadly classified on the basis of operational structure, retail location &
store-based retailing.

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9. GLOSSARY
Retailing: The word retailing originated from the French word “retailier” which means to
cut or break into pieces.
HNI: High Net worth Individuals.
Sole proprietorship: In this type, the business is owned and run by an individual.
Hypermarket: It is a very large retail unit offering merchandise at low prices. Hypermarkets
are characterised by large store size, low operating costs and margins, low prices and
comprehensive range of merchandise.
Independent retail unit: An independent retailer owns a single retail unit with targeted
customer base.
Retail chain: It is signified in the name itself, i.e a chain that indicates the number of retail
units.
Leased department or shop-in-shop: When a brand owner occupies a shelf-space in other

retailer’s store which deals with multiple-brand to increase their selling, it is called leased
department ownership.
Free-standing location: Free standing location represents an isolated location of the

retailer where the business depends entirely on their pulling power.
Co-operative outlets: In this concept of ownership, the retail outlets will be owned by co-
operative societies.
Specialty stores: The store which is specialised in a particular range of products.

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10. TERMINAL QUESTIONS
1. Define retailing and List the functions of a retailer.

2. Discuss the factors which influence the growth of retail sector.
3. What are the challenges being faced by retailers in India?
4. Explain the classification of retail formats in detail with Indian examples.
11. Answers
Self-Assessment Questions
1. .Organised & Unorganised.
2. Unorganised retailing
3. Retailing
4. To cut or breaking into pieces.
5. Sourcing and buying, storing and selling.
6. Buying and assembling.
7. Working-age population.
8. True.
9. True.
10. Leased department ownership.
11. Franchising.
Terminal Questions
1. Refer Section 3
2. Refer Section 5
3. Refer Section 6
4. Refer Section 7

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12. CASE STUDY

Lawrence & Mayo
Lawrence & Mayo is a 135 year old organisation and one of the largest growing chains of
Optical stores in India. L&M, today, attracts more than thousands of customers everyday in
84 stores (Company-Owned- Company-Operated) across nearly 30 cities in India and is well
equipped to meet the increasing demands of the rapidly growing market for eye care and
precision instruments.
Lawrence & Mayo has been truly a trend setter in the Indian optical industry. It has
introduced several international brands in India. Example, Ray Ban was introduced in India
in the late 1930s. Also, contact lenses were introduced in 1975, computerised eye testing
(Auto Refractometer) in 1988 & so on. Eventually L & M is the first optical retailer to be
certified for ISO 9001:2008. Thus, L & M is the most trusted optical retail chain in India. L&M
obviously cannot ignore the R10,000 crore growing watch market at average rate of 8%
annually driven by the youth and premium segment of consumers which has not been tapped
by major Indian brand.
Watches are typically segmented into specialist watches and fashion watches. All
International watch brands have a clear position as to where they belong. In India, most sales
are in the fashion segment and this fine distinction has not yet been used by marketers. 50
million wrist watches are sold in India every year. Some of the major players include
domestic firms such as Titan, Timex, Maxima and HMT and a host of international brands
and companies such as LVMH, Seiko, the Swatch Group, Chanel and others. Notwithstanding
the presence of global players, the Indian market has always been dominated by a single
player. In the past till the late 80’s, in the mechanical era, HMT dominated the market. And
after that it has again seen the domination of another single company, Titan. Today, Titan
has almost 65% market share of the organised watch market in the country.
The highest share of watches retailed is around the price range from R500/- to r3000/-. The
category of watches retailed in the price bracket of R4000 to R15000 is growing at an
exponential rate of over 20%. The size
of the organised luxury watch segment is around 3 % and growing at around 20%

25
annually. L&M also has a huge plan to launch their own brand into this segment with
international design and quality in the major cities of Mumbai, Delhi, Chennai, Kolkata,
Pune and Bangalore.
High import duty and tax burden at various stages has pushed the priceof luxury watches
in India much higher than their international counterparts. To cater to the price sensitive
Indian market, L&M has a clear focused strategy on product and plan to overcome price
barriers by introducing various cuts in their margins to maintain competitiveness in retail
market. With the economy springing positive vibes, increased international travel, steadily
progressing retail landscape, larger disposable income and a large number of high net
worth individuals would favour the growth of the market. The expansion of modern retail
in India will further fuel the growth of this sector as the watch is increasingly transforming
into a lifestyle product from a mere time-keeping device.
Questions:
1. What is the best way for the L& M to continue to grow?

2. What are L&M’s competitive advantages? How can L&M gain its position as the market
leader in this new segment?
References/e-references:
• Dr Vikram; Rushing into Retail, Business World, 31 May, 1999

• McKinnon, AC (1986) Physical Distribution Strategy of Multiple Retailer International
Journal of Retailing,
• Brand Equity, Economic Times, Dec.26-Jan 2, 1997
• Shridharan, R (1998), The Future of Retailing, Business Today, 7-21 December, 1998
• Shridharan, R (1998), The Future of Retailing, Business Today, 7-21 December, 1998
• Kumar, N (1996) The Power of Trust in Manufacturer-Retailer Relationships, Harvard
Business Review, 74, November/December.
• 12 Stern L.W. and El-Ansary A. I. (1993), Marketing Channels, Prantice Hall India, New
Delhi, 4th Edition,

26

SEMESTER 3
DMKT303
RETAIL MARKETING

27
Unit 2
Retail Marketing Environment
Table of Contents
Fig No /
SL SAQ / Page
Topic Table /
No Activity No
Graph
1 Introduction - -
3
1.1 Objectives - -
2 Understanding the Environment - 1 4
3 Elements in a Retail Marketing Environment - 2, I 5-6
4 Micro-Environment - 3 7-8
5 Macro-Environment - 4, 5, II
5.1 Demographic Environment - -
5.2 Political/Legal Environment - -
5.3 The social and cultural environment - - 9 - 11
5.4 Economic Environment - -
5.5 Technology - -
5.6 Environmental Issues - -

6 Summary - - 12
7 Glossary - -
13
8 Terminal Questions - -
9 Answers - - 14
10 Case Study - - 15 - 16

28
1. INTRODUCTION
In the previous unit, we looked at how retailers are classified based on certain factors.
Irrespective of the type of the retailer, it operates within an environment where it interacts
with other forces.
In this chapter, we shall learn more about the complex and changing environment within
which retail functions. Other factors in this environment – suppliers, intermediaries,
customers, competitors, publics, and others may work with or against the company. Major
environmental forces – demographic, economic, natural, technological, political, and cultural
shape marketing opportunities, pose threats, and affect the company’s ability to serve
customers and develop lasting relationships with them. This chapter explores the
relationships between the different elements of a firm's environment and discusses ways in
which it can respond effectively to environmental change, including how new retail formats
possibilities can be exploited. It also identifies situations where other forces may take
precedence over customers as a means of ensuring the survival and growth of an
organisation.
1.1 Objectives:
❖ describe the environmental forces that affect the company’s ability to serve its customers
❖ explain how changes in the demographic and economic environments affect retail
marketing decisions
❖ identify the major trends in the firm’s natural and technological environments
❖ discuss how companies can react to the retail marketing environment.

29
2. UNDERSTANDING THE ENVIRONMENT

Everything that surrounds and impinges on a system can be called as an environment.
Systems of many kinds have environments with which they interact. Retail Marketing can
also be seen as a system which must respond to environmental change. If businesses do not
come up with external changes like new sources of competition or changes in consumers'
preferences, they may fail.
An organization's marketing environment can be defined as the factors and forces external
to the marketing management function of the firm that impinge on the marketing
management's ability to develop and maintain successful transactions with its customers
(Kotler 1997).
1. Everything that surrounds and impinges on a system can be called as an
_________ .
2. Retail Marketing can also be seen as a system which must respond to__________.
3. An organisation's _______________can be defined as the factors and forces external
to the marketing management function of the firm that impinge on the
marketing management's ability to develop and maintain successful
transactions with its customers.

30
3. ELEMENTS IN A RETAIL MARKETING ENVIRONMENT

Some elements in a retail marketing environment are more direct and immediate in their
effects than others. On certain occasions, it may seem quite unclear and difficult to evaluate
some parts of the marketing environment in terms of their likely impact on a company.
Therefore, before discussing elements of the retail environment we must understand the
factors based on which environmental impact can trace.
Store location: Store location is a retailer’s most expensive and long-term marketing-mix
decision. Just like bad pricing or bad promotional decision, a poor store location also affects
retailer performance for many years. A retailer prefers to locate close to a consumer which
exposes him to competition from other retailers who would also want to be close to
consumers. Therefore, from the retailer’s perspective, proximity to consumers means
proximity to other stores. The retailer can decide the location of his stores depending on the
customers and as to how he wants them to perceive the store. For example, a retailer will
open a Big Bazaar outlet to a residential place where there is a continuous inflow and outflow
of people. Premium brand outlets like Gucci, Louis Vuitton prefer to be located at posh locales
where an exquisite clientele is expected to visit the store.
Merchandise: Retailers have responded establishing themselves either as mass, value or

luxury players and specialised players by migrating to the ends of the spectrum. Companies
experiencing growth are focusing more and more on a particular niche or differentiation in
the marketplace and limiting their exposure elsewhere. From an identity and recognition
viewpoint, this builds clarity in the consumer’s mind about what to expect from the store.
The store layout, design, and visual merchandising: the setup, signage, and characteristic
areas are the basic components in a design that guide customers through the store. A
customer-friendly layout of a store helps customers locate the product easily in the store. A
retailer can maximize the sales per square foot area of the allocated selling space in the store
if the retail store layout is well designed. Retailers will have a choice to choose the store
layout, design, marquees, walkways, entrances, doors, display windows, the height and size
of the building, colours and materials used while developing a store.

31
Price: Price is another controllable variable when it comes to deciding the retail strategy. It
becomes important in the scenario of organised retailers where the merchandise offered is
similar, and they are targeting the mass audience. Thus, bulk discounts are offered to entice
the customer to stores like Big Bazaar, D-Mart, etc. who usually play this game.
___________ is another controllable variable when it comes todeciding
the retail strategy
is a retailer’s most expensive and long-termmarketing-mix decision
A retailer can maximise the of the allocated
sellingspace in the store if the retail store layout is well designed.
Activity 1
Identify one of the retail industries and study their store layout, design and the
importance of cost involved in it based on the retail strategy.

32
4. MICRO-ENVIRONMENT
Micro-environment consists of the factors or elements in an organisation's immediate area
of operations that affect its performance and decision making freedom. These factors affect
its ability to serve its customers, company, suppliers, marketing intermediaries, customer
markets, competitors and publics. Competitors form a part of the organisation’s micro-
environment by having a direct effect on its market position. The following key groups can
be identified:
• Customers: Customers are an essential part of an organisation's micro-environment.

In a commercial environment, there is no business without customers. An organisation
should use an appropriate information gathering system to implement the altering
requirements of its customers. An organisation should know its customers so well that
it is able to anticipate their requirement beforehand.
• Intermediaries: Intermediaries are referred to as channels of distribution comprising
people and organisations involved in the process of transporting the product from the
producer to the consumer. Intermediaries form a valuable link between an
organisation and its customers. Large-scale manufacturing firms sell their products
through intermediaries as it is difficult to deal with each one of their final customers
individually. Access to effective intermediaries is important for marketing success in
some business sectors. For example, food manufacturers may find it difficult to achieve
large volume sales if they do not get shelf space in the major supermarkets.
• Competition: Competitor moves are to be very closely watched as any move which
provides the competitor an advantage may prove detrimental to one’s own interest.
Any price cuts, expansions into other locations as well as formats, change in
merchandise and brands, etc. need to be countered. However, all this is possible only
on the basis of economies of scale and clout that a retailer enjoys among his suppliers
and distributors. In addition to customers, suppliers, and intermediaries, a broad range
of individuals and establishments can directly affect the retail activities in a firm’s
micro-environment.

33
Self-Assessment Questions -3
_____________ consists of the factors or elements inan
organisation's immediate area of operations that affect its performance and
decision making freedom.
Competitors form a part of the organisation’s micro-environment by having a
direct effect on its _______________.
An organisation should use an appropriate _____________ to
implement the altering requirements of its customers.
Intermediaries are referred to as ____________comprising people and ________
involved in the process of transporting the product from the producer to the
consumer.

34
5. MACRO-ENVIRONMENT
The macro-environment consists various elements such as demographic, legal, social,
economic and technological variables that affect an organisation and its marketing efforts.
The macro-environment describes things which are beyond the immediate environment but
can nevertheless affect an organisation. Major external and uncontrollable factors that
influence an organisation's decision making, and affect its performance and strategies
include the economic, demographic, legal, political, and social conditions, technological
changes, and natural forces.
5.1 Demographic Environment

Retailers are keenly interested in the size of the population – Gender, income patterns and
distribution. Changing nature and volume of population are linked to the demographic
factors like – how people are conducting themselves in the new world by increasing per
capita income, migrating to ethnically diverse cities and mega cities. For example, the
demand and consumption of product will be different in a country like India and China which
are showing highest concentration of youth population, where as Japan is showing high
number of retired workers. Hence, retail firms will have to continuously measure the
changes – qualitative as well as quantitative that is taking place in the population structure.
In order to avoid negative outcomes brought on by active consumer groups, a retailer must
communicate with consumers, anticipate problems, respond to complaints and make sure
that the firm operates properly.
5.2 Political/Legal Environment

Retail marketing decisions are substantially impacted by developments in the political/legal
environment. This environment is composed of laws, government agencies and pressure
groups that influence and constrain various organisations and individuals in society.
Legislation affecting retail business has steadily increased over the years. The legislation has
a number of purposes. The first is to protect retail businesses from each other. So, laws are
passed to prevent unfair competition. The second purpose of Government regulation is to
protect consumers from unfair retail practices. Some firms, if left alone, would adulterate
their products, fake their advertising, deceive through their packages and bait through their
price. Retailers need to monitor the changing political and legal environment because it can

35
profoundly affect retail performance. Government passes legislation that directly and
indirectly affects firms' marketing opportunities.
5.3 The Social and Cultural Environment: In recent years, the concept of social
responsibility has entered into the marketing literature as an alternative to the marketing
concept. The society helps people to grow up in shapes, their basic beliefs, values and norms.
It is crucial for retailers to appreciate fully the cultural values of a society, especially where
an organisation is seeking to do business in a country that is quite different from its own.
Attitudes to specific products change through time and at any one time between different
groups. Many companies have sought to develop one product for a global market, and there
is some evidence of firms achieving this e.g., Coca-Cola and McDonalds. The desire of a
subculture in one country to imitate the values of those in another culture has also
contributed to cultural convergence. The implication of socially responsible marketing is
that retail firms should take the lead in eliminating socially harmful products such as
cigarettes and other harmful drugs, etc. There are innumerable pressure groups, such as
consumer activists, social workers, mass media, professional groups, and others who impose
restrictions on marketing process and its impact may be felt by retailers in doing their
business.
11. Changing nature and volume of population are linked to the
____________________ .
12. Retailers need to monitor the changing political and legal environment
because it can profoundly affect .
13. The implication of socially responsible marketing is that retail firms
should take the lead in .
Activity 2
Study the macro and micro environment of Indian retail giants like Big Bazaar, Reliance Retail
and Pantaloons Retail.

36
5.4 Economic Environment: It deals with functions like purchasing power, income
level, savings level and interest rates wealth, inflation, the balance of payments, pricing,
poverty, interest rates, credit, transportation, employment. For example, countries with a
high-income level are more likely to afford luxury items as compared to a low-income level
country. Savings level and interest rate determine the borrowing power as well as spending
power of consumers.
5.5 Technology: Internet and Communication technology are changing the face of
business. More and more people are doing business online. Science and medicine are also a
part of technology factors. Challenge for the company is to keep innovating and not offer
products that are obsolete. The pace of technological change is becoming increasingly rapid
and retailers need to understand how technological developments might affect business
areas. With the advent of technology in retail, it has become imperative for the organised
players to deploy it in order to gain or maintain an advantage over competitors.
5.6 Environmental Issues: These days, much stress is laid on green initiatives adopted
by companies. As the world is facing a lot of environmental problems, the big players are
coming up with few green initiatives which act as a marketing strategy for them. Retailers
across the world are becoming increasingly aware of the need for green initiatives. Retailers
as well as their customers are realizing the adverse effects of technology and its alarming
impact on the environment.
14. Challenge for the company is to keep up with________ and offer products which are
not obsolete.
15. Retailers as well as their customers are realising the adverse effects of_________and
its alarming impact on the__________ .

37
6. SUMMARY
• Major environmental forces – demographic, economic, natural, technological, political,

and cultural shape marketing opportunities, pose threats, and affect the company’s
ability to serve customers and develop lasting relationships with them.
• Elements in a retail marketing environment are more direct and immediate in their
effects than others.
• Store location is a retailer’s most expensive and long-term marketing- mix decision. Just
like bad pricing or bad promotional decision, a poor store location also affects retailer
performance for many years.
• A retailer can maximise the sales per square foot area of the allocated selling space in
the store if the retail store layout is well designed.
• Retailers will have a choice to choose the store layout, design, marquees, walkways,
entrances, doors, display windows, the height and size of the building, colours and
materials used while developing a store.
• Micro-environment consists of the factors or elements in an organisation's immediate
area of operations that affect its performance and decision-making freedom. These
factors affect its ability to serve its customers, company, suppliers, marketing
intermediaries, customer markets, competitors and publics.
• The macro-environment consists of various elements such as demographic, legal,
social, economic, and technological variables that affect an organisation and its
marketing efforts. The macro-environment describes things which are beyond the
immediate environment but can nevertheless affect an organisation.

38
7. GLOSSARY
Merchandise: Termed as planning, buying and selling of products.
Layout: Arrangement or a plan, especially the schematic arrangement of parts or areas.
Economies of Scale: It is the cost benefits that an enterprise achieves in its business.
Clout: The proportion of industry sales of a good or service that is controlled by a company.
1. Explain the elements of organisation’s environment.

2. Explain the key groups of micro environments.
3. What are the various elements of macro environment?

39
9. ANSWERS
1. Environment.
2. Environmental change.
3. Marketing environment.
4. Cost.
5. Store location.
6. Sales per square foot area.
7. Micro-environment.
8. Market position.
9. Information gathering system.
10. Channels of distribution and organisations.
11. Demographic factors.
12. Retail performance.
13. Eliminating socially harmful products.
14. Innovation.
15. Technology and environment.
Terminal questions
1. Refer section 3
2. Refer Section 4
3. Refer Section 5

40
10. CASE STUDY

FDI in India
As retailing markets have become saturated in most developed countries,such as the USA
and the UK, supermarket chains have expanded with amazing speed across the rest of the
world. The share of organised retailin India is only 6 percent whereas the same was 75
percent in Brazil, 40 percent in Thailand and 25 percent in China.
A lot of passion has been generated in the debate on FDI in Retail on the issue of impact on
agriculture. One side takes the position that this is precisely what the farmer always needed.
He will get a better price for hisproduce by cutting out the middlemen, and rural prosperity
will be advanced. The other side takes the stance that the MNCs will bring goods at
extremely low prices from abroad undercutting the Indian farmerand throwing him out of
business. Alternatively, the MNCs will control the supply chain and in a monopolistic
situation, offer extremely low prices to the farmer. Without any options, the farmer will end
up selling at a loss and eventually give up agriculture as a means to live. End result will be
death of Indian agriculture.
Actually such arguments on both sides are generic in nature. By themselves they are not
wrong and things could very well pan out that way (i.e. both ways). Any business in the
country—local or MNC will need to follow local law, rules and regulations. Thus
permission for FDI cannot supersede other provisions in the country. The MNC will need
to follow import regulations, pay import duty, and fulfil all statutory requirements.
FDI will take the retail sector to global standards in terms of pricing, product quality and link
to global markets, the perception that organised retail had wiped out small traders in
countries like Thailand was also stressed. Thailand’s leading supermarket chain reduced its
list of vegetable suppliers from 250 to a mere 10, and between 1997 and 2001, more than
75,000 small-scale dairy farmers lost their livelihoods due to this ‘centralisation or
consolidation of supplier bases’. The threat of retail majors making huge investments to
capture and monopolise the market in the long run was one area of concern voiced by many.
The mass retail format requires purchasing behaviour which may not fit with existing
shopper habit. For instance, in (most of) Urban India, milk is delivered at the doorstep early
in the morning. In poultry products, 95 % of chicken are sold live (slaughtering and

41
butchering is at the retailer end). To dominate or even get an influential share in these
categories, the shopper habit must change or the retailer will need to offer a superior value
to make the shopper switch. In many agricultural products, India is a significant as well as
competitive producer. India is the top producer of pulses and milk, second most in wheat,
rice, groundnuts, potatoes, onion and sugarcane. In many of these, it is also competitive. A
retailer seeking to bypass the Indian farmer will need to develop and use sources that can
beat him in price.
The FDI will come in and displace existing traders. There is no doubt that it will generate
employment, but many will lose jobs too. There will be a global sourcing of products and loss
of livelihood cannot be ruled out over a period of time.
Questions:
1. FDI in retail is good for farmers. Comments this statement with your thought process?
2. Highlight the pros and cons of FDI in retail in detail?
• Bajaj Chetan, Retail Management, Oxford University Press.

• Berman Barry, Retail Management, Prentice Hall of India.
• Biyani Kishore and Baishya Dipayan, It Happened in India, Rupa Publications.
• www.ibef.org/industry/retail.aspx

42

SEMESTER 3
DMKT303
RETAIL MARKETING
Unit 3: Retail Market Segmentation 1

43
Unit 3
The Retail Marketing Segmentation
Table of Contents
Fig No /
SL SAQ / Page
Topic Table /
No Activity No
Graph
1 Introduction - -
3
1.1 Objectives - -
2 Importance of Market Segmentation in Retail - - 4–5
3 Targeted Marketing Efforts - 1 6
4 Criteria for Effective Segmentation - 2, I 7–9
5 Dimensions of Segmentation - -
5.1 Geographic segmentation - -
5.2 Demographic segmentation - - 10 – 13
5.3 Lifestyle or psychographic segmentation - -
5.4 Behaviouristic segmentation - -

6 Positioning Decisions - - 14 – 15
7 Limitations of Market Segmentation - 3, II 16 – 17
8 Summary - - 18
9 Glossary - - 19
11 Answers - - 20
12 Case Study - - 21 - 22

44
1. INTRODUCTION
Retail marketing concept gives importance to customer-centric decision making. The need
to adopt this approach stems from increased competition, better-informed and educated
customers and changing patterns of demand. While marketing would envision customising
a product to suit customer’s preferences, the organisation or company would rather be able
to produce one product in massive quantities for the same market. However, since neither
perspective is practically and financially viable, marketers opt for segmentation of the
market. Primarily it is this change in patterns of demand that gives rise to the need for
segmentation.
Market segmentation can be very simple described as dividing the market into various
groups of customers with clearly similar needs and product / services requirements. It may
also be looked at as dividing a selected market into sections which exhibit characteristics
and behaviour that are similar.
The purpose of segmentation is to make the best use of limited resources, making sure that
the components of the marketing mix, product, price, promotion and distribution, are
designed to fulfil the specific needs of different customers. It breaks down the total market
for a product or service into individual clusters of customers or segments.
Effective segmentation is achieved when customers sharing similar patterns of demand are
grouped together and where each group or segment differs in the pattern of demand from
other segments in the market. In most markets, be they consumer or industrial, some kind
of segmentation can be accomplished on this basis.
1.1 Objectives:
❖ explain the importance of market segmentation

❖ discuss the criteria for effective segmentation
❖ identify the dimensions for market segmentation
❖ state the limitations of market segmentation.

45
2. IMPORTANCE OF MARKET SEGMENTATION IN RETAIL

A market segment is a portion of a larger market in which the individuals, groups, or
organisations share one or more characteristics that cause them to have relatively similar
product needs.
Segmentation studies are used to uncover the needs and want of specific groups of
consumers for whom the marketer develops suitable products and services.
Marketers also use these studies to guide them in redesigning, repositioning, or targeting
new segments for the existing product. For example, the heavy user adult market has been
targeted for Johnson baby shampoo. For sensitive skins, Dove has come out with a variant,
Dove Gentle Exfoliating Bar (it has a pH range of 6.5 - 7.5, almost neutral, neither acidic nor
alkaline).
Segmentation studies help in identifying the most appropriate media for promotional
messages. Almost all media vehicles use segmentation studies to determine the
characteristics of their audience and publish their findings to attract marketers seeking a
similar audience.
Segmentation is an important input to marketing planning because it can be used to

formulate company "product-market" objectives, by which the enterprise may:
• Define its markets.

• Position ranges of brands and product varieties.
• Identify gaps which offer significant opportunities for expansion or new product
positioning.
• Rationalise policies for existing brands, products and mixes.
Market segmentation plays a dual role—as a marketing tool, and as a basic input to business
planning. There are four main reasons for the importance of market segmentation. These
are:
• Availability of choice: With the growth in the retail industry, comprising of individual,
small players and large organisations, the number of choices is growing. This has
created a demand in more choice, which necessitates segmentation.

46
• Market fragmentation: It is caused by demographic and lifestyle changes, new

product and process developments and intense market competition, which once had a
homogeneous character, has now split into a variety of consumer groups, each with
different tastes and preferences.
• The development of retailer power: With this, the relative advantage obtained from
bulk buying, the use of retailers' brands, and policy limitations on the merchandise
stocked, all combined to put the manufacturer or supplier at a disadvantage. The
dominance of the retailer, especially large players such as Walmart or even Big Bazaar,
has opened the way for retailers to call the shots and segment as best suits their goals
and objectives.
• The volume trap: This situation occurs when suppliers who are capable of volume
production and distribution to retail multiple chains dominate the markets for
commodity type products (like plant-baked bread). But to avoid this situation,
marketers can use segmentation. For example, value-added or non-standard items are
now frequently targeted on customer segments which seek to avoid the purchase of
standardised products, whether these are foodstuffs, clothes, computers or industrial
machinery. Alternatively, production arrangements may be designed to be flexible
enough to supply target markets in a large number of relatively small and specialised
niches, such as in the market for industrial or aviation control systems.

47
3. TARGETED MARKETING EFFORTS

Most companies realise that they cannot effectively serve all the segments in a market, and
must instead target their marketing efforts. Target marketing is defined as the identification
of the market segments that are identified as the most likely purchasers of a company’s
products.
Specifically, the advantages of target marketing are:
1. Marketing opportunities and unfilled ‘gaps’ in a market may be more accurately

appraised and identified.
2. Market and product appeals through manipulation of the marketing mix can be more
subtly tuned to the needs of the potential customer.
3. Marketing effort can be concentrated on the market segment(s) which offer the
greatest potential for the company to achieve its goals – be they goals to maximise profit
potential or to secure the best long-term position for the product or any other
appropriate goal.
1. Segmentation often plays a dual role, one as a marketing tool and another as a
basic input to ________.
2. Market fragmentation is usually caused by________ and _________ changes.

48
4. CRITERIA FOR EFFECTIVE SEGMENTATION

Theoretically, the base(s) used for segmentation should lead to segments that are:
1. Clearly defined and distinguishable: The selected segment(s) should be clearly

identified, defined to avoid any ambiguity with regard to where the marketing activities
will be focused at. A failure to do this will result in marketing efforts cascading into
other segments. Each segment selected must be clearly distinguishable from the other
in terms of customer needs and buying behaviour. For example, if married women
behave similar to unmarried women when buying shoes, there would not be any need
for two market segments. Segments should be homogeneous within themselves and
heterogeneous between themselves in that customer within a segment should be
similar in a relevant way yet uniquely different from customers in another segment.
2. Measurable/identifiable: The segment should be capable of measurement in terms of
the potential customers in each segment. In other words it should be relatively easy to
identify the customers who could be grouped together on the selected basis. Before a
sales strategy is adopted, a business entity will need to know the number of sales
happening in that segment. It will also be interesting in knowing how the sales of
products are growing in that segment. Without knowledge of these aspects, it would be
very difficult to know how attractive or profitable a particular segment is. For example,
although there is a rapid growth in the sale of smart phones one needs to identify the
segment in which this growth is taking place and the segment where growth is stagnant.
3. Accessible: Here, the base(s) used should ideally lead to the company being able to
reach selected market targets with their individual marketing efforts. Simply stated, a
company needs to assess if the group of customers selected are easy to reach in terms
of marketing communication and product. For example, if a company is planning to use
Television or the internet to communicate with its customers about its product, it
would be necessary for this target segment to use these modes of communication. If
they do not, the segment would not be accessible.
4. Response and suitability: It is important for a chosen segment to be suitable and for
identified target customers to be responsive to the marketing mix used. When
evaluating a segment, it is important to judge from the characteristics of the customers
within that segment whether they will buy the product and if they have the means to
do so. For example, if the majority of customers in a particular segment already have
49
smartphones it probably not be the right segment to introduce another smartphone?

Unless, of course, most of them want to replace their existing devise with a new one.
5. Substantial: Each business entity has organisational goals. A criterion to the selection
of a segment would be to see if a chosen segment has the potential to meet those
organisational goals. Would the segment yield future growth and would it be profitable
and practical to invest a particular focus in terms of a distinctive marketing mix.
6. Actionable: The fulfilment of all the previous criteria is not sufficient for a business
entity to decide on a particular segment if the business entity does not have the
resources or capacity to meet the needs of that segment. For example, if a small
business entity has a turnover of approximately 5 lakhs, it would not seek to accept a
manufacturing contract of 5 crores.
The first and fourth criteria are particularly important for effective segmentation, because
they are essential prerequisites when attempting to identify and select market targets. In
segmentation, targeting and positioning, a company must identify distinct subsets of
customers in the total market for a product where any subset might eventually be selected
as a target market, and for which a distinctive marketing mix will be developed. When
attempting to segment, target and position a product market, it is essential to follow the
below stated sequence:
1. Decide on the criteria for segmentation and identify appropriate market segments.
2. Use the first step to judge and estimate the market segments.
3. Choose a comprehensive market targeting strategy.
4. Choose specific target segments.
5. Develop for each target segment, a product positioning strategy.
6. Create for each selected segment, an appropriate marketing mix, which will secure the
product positioning strategy.
Activity 1
‘Is it really important for the retailers to segment the market or can they also do well
without it’? Put down your thoughts.

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3. The members of a particular segment should possess some _______ features.
4. A segment’s accessibility is defined in terms of ______ and________ .

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5. DIMENSIONS OF SEGMENTATION
Markets are complex entities that can be segmented in a variety of ways. It is an important
issue to find an appropriate segmentation scheme that will facilitate target-marketing,
product positioning, and developing successful marketing strategies and action
programmes.
A segmentation variable is a characteristic of individuals, groups or organisations that

marketers use to divide and create segments of the total market. Segmentation descriptors
fall under four major categories and include geographic variables, demographic variables,
psychographic variables, and behaviouristic variables.
• Geographic variables focus on where the customers are located.

• Demographic variables identify who the target customers are.
• Psychographic variables refer to lifestyle and values.
• Behaviouristic variables identify benefits customers seek, and product usage rates.
Table 3.1 lists the variables that can be used to segment the market.
Table 3.1: Segmentation Variables

Geographic variables Demographic variables
Region Nation Gender Family size Age
Urban, Rural State Occupation
City size Climate Race Family life cycle
Terrain Market Religion Income
Density Social class Education
Psychographic variables Behaviouristic variables

Personality Usage volume,
attributes Motives Occasion End use
Lifestyles Benefits sought
Brand loyalty
Price sensitivity

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5.1 Geographic Segmentation

Geographic segmentation focuses on dividing markets into different geographic units, such
as regions, nations, states, urban, rural, etc. Customers located in different geographic areas
vary in terms of climates, terrain, natural resources, population density, culture, service
needs, sales potential, growth rates, competitive structure of the market, frequency of
purchases for a variety of goods and services. For example, sturdy, four- wheel drive vehicles
are more popular in hilly and terrain areas than on smooth land. It is the larger cities that
boast of shopping malls and warm clothing are sold more in colder areas. Another example
would be the popularity of wheat in the northern part of India or the fact that in India, Mc
Donalds uses lamb in their burgers and not beef, because of religious reasons. Geographic
segmentation is used both in consumer and organisational markets, particularly where
customers are not willing to travel far to acquire goods and services.
5.2 Demographic Segmentation

Demographic characteristics are commonly used to segment the market. Factors such as age,
sex, education, income, marital status, life cycle, family size, social class, etc., are used singly,
or in a combination, to segment a market. Shaving products for women are based on the
demographic variable of gender. Toy manufacturers such as Funskool and Mattel Toys
segment the market on the basis of age of children. Auto manufacturers segment the market
by considering income as an important variable. Producers of refrigerators, washing
machines, microwave ovens etc., take income and family size as important variables in
segmenting the market. Ready-to-wear garment producers often segment the market on the
basis of social class. Examples are Charagh Din, Arrow, Van Heusen, Louis Philippe, Levis and
others. In general, the social class can represent lower, middle and upper class depending on
education, income, status, etc. For example, an engineer and a clerk are considered as
members of different social classes.
5.3 Lifestyle or Psychographic Segmentation justifies itself with the belief that
there are characteristic patterns of living exhibited by every individual and the brands and
products that they purchase is a reflection of this. The personality of consumers is generally
the result of their self-image. There are different types of personalities such as confident,
ambitious, confident, impulsive, aggressive, modern, conservative, gregarious, loners,

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introvert or extrovert. The advertising agency, Young & Rubicam has come up with a 4 Cs
approach (Cross-Cultural Consumer Characterisation) that classifies customers in to seven
categories. These categories are:
• Explorers are people who seek discovery, challenge and new frontiers. They love to
experiment with new ideas and experiences. As consumers they will buy brands that offer
new sensations, gratification and immediate effects.
• Mainstreamers are the largest group who do not want to ‘stand out from the crowd’. They
are the biggest segment (over 40 percent of the population) and tend to purchase branded
products over supermarket brands.
• Reformers are people who tend to be creative and caring, many doing charitable work.
They are largely responsible for the purchase of supermarket brands.
• Aspirers are usually younger people who are materialistic and go by others’ perceptions
of themselves. They are ambitious and keen to ‘get on’ at all costs. They tend to want
products that are related to appearance, observable personality, personal charm and
fashion. Their purchases tend to reflect the latest models and designs especially if they
reflect status.
• Succeeders are people who have succeeded or ‘made it’. The status symbols that aspirers
desire does not appeal to them. They like to retain control of themselves and of what they,
which encompasses their purchases. Succeeders normally have clarity with regard to their
purchases and believe that they know which are good and useful products and which are
not.
• Strugglers live for today. They usually buy products that have visual impact and physical
sensation. Their purchases reflect their need to escape.
• Resigned category primarily consists of older people who have values that are
unchanging and constant. Their purchases reflect their need for economy and safety.
5.4 Behaviouristic Segmentation

This type of segmentation is carried out on the basis of variables such as, time of usage,
benefits desired, status of the user, rate of usage, loyalty status, stage of readiness of the

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buyer and the buyer’s attitude. Marketing professionals prefer behavioural segmentation
because customers’ purchasing behaviour is taken as the starting point for segmentation.
Such bases include:
• Status or type of usage: For example, users are categorised into light, medium and
heavy users.
• Brand loyalty status: Here, customers may be placed in various groups based on their
loyalty or tendency to buy the brand over again.
o Status categories are:
➢ Hard core loyal customers: These are customers who express their unwavering
loyalty by purchasing the same brand every time.
➢ Soft core loyal customers: These are customers whose loyalty swings between
two or more brands, deciding to buy from a particular brand randomly.
➢ Shifting loyal customers: These customers tend to purchase the products of one
brand for a while and then switch to products from another brand and remain
with this for a while. It is quite possible for them to also return to the original
brand after a while. They are also called “brand switchers” with no clear,
discernable preference or loyalty to any particular brand thus making it very
difficult to identify any particular purchasing pattern.
• Benefits desired or sought: Customers are placed in this segment on the basis of their
key expectations of a product. A good example is toothpaste. Research done in this area
indicates that the key benefits that customers look for are medicinal value, price,
cosmetic characteristic and taste. Another example may be seen in a report published
by US News, which states that customers will buy a 2012 XC70 Volvo station wagon
because it is practical, comfortable and safe.
• Occasions for purchase: Customer can also be placed in a segment based on when they
buy or tend to purchase products. For example, newlyweds may tend to purchase new
clothes, and cars, while couples with their first child, may tend to purchase baby
sanitary products, baby food, toys and possibly a home. Retired people with available
funds may decide to go for vacations or purchase medicines or health insurance. A
simpler example would be seen in Kellogg’s ad, where they promote their breakfast
cereal as something one eats on the “occasion of waking up”. They further developed
their promotion to tag cereals as an, “anytime snack”.

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6. POSITIONING DECISIONS
This is a technique in marketing that aims to present a particular product in the most
effective way to different target groups. It simply refers to what the customer thinks about a
particular product. Broadly, it involves creating a special or unique perception for the
customer with regard to your product or company that is consistent and recognisable. It is
inseparably linked to segmentation. Once a specific segment is identified by a business entity,
the product is positioned to primarily appeal to that segment. The communication will be
such that customers in that segment understand and respond to it.
Any business entity must decide on a positioning strategy for any selected segment(s) it
chooses to reach and serve. This means that it should design its marketing communication
regarding the product in such a way that the product is viewed by the selected segment as
unique and consistent. It deals with the task of making sure that a particular company’s
products occupy a planned and specific place in chosen target markets, pertinent to opposing
competition in the marketplace. The idea of product/brand positioning is relevant to both
industrial and consumer markets and the key aspects of this approach are based upon the
following suppositions:
1. Any product or brand will possess attributes that are objective, such as fast/slow,
sweet/sour/fast/slow and attributes that are subjective, such as trendy/unfashionable
(e.g., sweet/sour; dark/light; fast/slow).
2. Potential customers might consider any attribute/s when deciding on which brand’s
product to purchase.
3. Those potential purchasers may have their own pre-conceived ideas on how different
products or brands fare against any particular attribute. To put it another way, the
customer positions the brand along a range of attributes from excellent to mundane.
The best place for the company to occupy within a particular segment of the market could
be reasonably ascertained by identifying important attributes that influence the customer’s
choice between different brands considering the customer’s perception of the competitor’s
products when compared to these attributes. Developing the appropriate marketing mix is
the last step in the appraisal of segmentation, targeting and positioning. In this step
marketing programs that will undergird the selected positional strategy in the chosen target

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markets will need to be designed. The company will have to now decide on the ‘4 Ps’ of its
marketing mix. The price, product, distribution (place) and promotional strategies will all go
into enabling the company to achieve the desired position in the market.
There are four acknowledged strategic options for target marketing:
1. Undifferentiated marketing may also be called mass marketing where the same
marketing mix is used to reach out to customers and potential customers in more than
one segment of the market.
2. Differentiated marketing may also be termed as multi-segment marketing. It is an
approach where a company attempts to reach two or more market segments which are
clearly defined using a specific product and unique marketing strategy customised to
each separate segment.
3. Concentrated marketing which uses one marketing mix for a single segment.
4. Custom marketing is an approach that endeavours to meet individual customer’s
needs with a separate and relevant marketing mix.

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7. LIMITATIONS OF MARKET SEGMENTATION

Market segmentation has certain limitations too. Some of them are as follows:
• Targeting multiple segments increases marketing costs. Finding out whom to target
and developing variations of a product will add to the cost. There will also be higher
advertising costs.
• Markets are not necessarily made up of segments with different wants. A
customer who usually purchases one brand may choose to purchase products from
another brand.
• Customers like to purchase products from a basket of acceptable brands.
• Segmentation can lead to proliferation of products.
• Narrowly segmenting a market can hamper the development of broad- brand equity. It
can also be a risk if the segment is too small and not able to meet organisational goals.
• Lack of information and data. There is can be a lack of data and information in a market
that is poorly researched or studied.
Activity 2
Study the market segmentation pattern of Indian retail giants like Reliance Retail,
Aditya Birla Retail and Pantaloons Retail.

58
5. ______________ variables of market segmentation focus on lifestyle and values

of the customers.
6. _____________ segmentation can be used effectively
when the marketers can identify the prospects in terms of the goals and
interests and their location.
7. What people do in their past time and how they live their life can be good
indicators while segmenting the markets based on behaviour.
(True/False)
8. The evaluative statements about a product, place or idea reflects the
attitude of the person. (True/False)
9. Principal-oriented individuals are guided by the rational benefits and not
by feelings and desire. (True/False)
10. Benefit segmentation is a descriptive method of market segmentation.
(True/False)
11. Segmenting a market is always a good option. (True/False)
12. Wrong segmentation has adverse effects on store’s brand equity.
(True/False)

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8. SUMMARY
• The concept of market segmentation is based on the fact that all consumers are not
alike. They differ in their needs, wants, desires, income, education, lifestyles and so on.
• Market segmentation, targeting and positioning decisions are thus more strategic than
they are tactical.
• Segmentation variables should be examined in detail, especially new segments. These
should then be authenticated in terms of viability and potential profit.
• Targeting investigates specific segments in terms of how they should be approached.
• Positioning relates to how the product is perceived in the minds of consumers and a
suitable marketing mix should then be designed.

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9. GLOSSARY
Market segmentation: Creating groups or sets of people based on common characteristics
and homogeneous needs.
Market fragmentation: Emergence of new segments (in a previously homogeneous

market) which have their own distinct needs, requirements, and preferences.
Demographic segmentation: Segmentation on the basis of both, geography and

demography of the population.
Psychographic segmentation: Segmentation based on personality or lifestyle

characteristics of the customers.
Behaviouristic segmentation: This type of segmentation is carried out on the basis of

variables such as, time of usage, benefits desired, status of the user, rate of usage, loyalty
status, stage of readiness of the buyer and the buyer’s attitude.
1. What is segmentation? Why has segmentation gained importance in recent years?

2. Discuss the criteria for effective segmentation.
3. When can demographic and benefit segmentation be used to maximum efficiency?
4. Write a short note on- psychographic segmentation.

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11. ANSWERS
1. Business planning.
2. Demographic, Lifestyle.
3. Common.
4. Promotion, distribution.
5. Psychological.
6. Geo-demographic.
7. False.
8. True.
9. True.
10. False.
11. False.
12. True.
Terminal Questions
1. Refer Section 3.2.

3. Refer Section 3.4

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12. CASE STUDY

LVMH – Legacy of Luxury Brand
LVMH, the world leader in market of luxury products Group has 83,500 employees in 2,545
stores across the world. LVMH has successfully conquered European and US markets, and
is determined to capture the growing Asian market, the size of whose population and the
income of whose middle-class are synonymous with a market share that LVMH intends to
capture.
Louis Vuitton Moët Hennessy S.A., better known as LVMH, is a French multinational
apparels and accessories company headquartered in Paris, France. The company was
formed after the 1987 merger of fashion house Louis Vuitton with Moët Hennessy, a
company formed after the 1971 merger between the champagne producer Moët & Chandon
and Hennessy, the cognac manufacturer. It controls around 60 subsidiaries that each
manages a small number of prestigious brands. The subsidiaries are often managed
independently.
Christian Dior, the luxury goods group, is the main holding company of LVMH, owning
42.36% of its shares, and 59.01% of its voting rights. Bernard Arnault, majority shareholder
of Dior, is Chairman of both companies and CEO of LVMH. His successful integration of
variousfamous aspirational brands into the group has inspired other luxury companies into
doing the same. Thus Gucci (now part of the French conglomerate PPR) and Richemont have
also created extended portfolios of luxury brands.
Louis Vuitton segments to multiple target markets. Many people, both men and women with
different values and all walks of life are fans of Louis Vuitton. Vuitton has multiple avenues
of communicating their brand to different target markets. Through high fashion print ads,
and their Core Values campaign ads, these ads are segmented to both men and women in the
Upper Class, to Upper-Middle, and Middle.
LVMH's brands target customers in the wealthiest ranks of the globe who buy luxury goods.
Super-affluent (yearly income between $150,000 and
$249,000) and ultra-affluent (yearly income greater than $250,000) made up 6 and 1.9
percent of the population respectively. LVMH's brands cater to an affluent consumer who,
despite recession has more disposable income than middle-to-lower income individuals.
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This level of stability in sales is seen only in the top tier luxury retail market, and
distinguishes LVMH from near luxury brands and retailers such as Abercrombie & Fitch
Company (ANF) and Nordstrom, which count on sales to aspirational customers from the
middle class. This advantage has proven valuable as the U.S. and European economies slid
into a recession. In addition, due to its luxury image the prices for LVMH's goods are higher
than those of retailers such as ANF and Nordstrom. This means they make a higher margin
per item sold, leading to higher profits.
By gaining the interest of both the wealthy and middle class, they have mastered the art of
"less is more", maintaining a sense of mystery, yet they really are an attainable brand. With
products with price points as low as $45.00, one can walk out of a Vuitton store with a "Travel
Guide to Berlin", Paris, New York, Amsterdam etc. They can leave with a bracelet priced at
$390.00, or a travel trunk for $4500.00. The bottom line is, anyone can get their hands on
Vuitton, yet this notion does not hinder Vuitton’s image. Vuitton maintains a high end
clientele and a high class image and remains the most valuable luxury brand.
Upon entering a Louis Vuitton boutique, one will notice different counters and sections with
different "themes". These counters range from, men's travel bags, unisex travel bags, fashion
jewellery, high end jewellery, small leather goods, scarves, belts, shoes, travel books etc. The
store is organised, one can easily locate what section they are in.
Questions:
1. What is LVMH target market? What segment is attracted to its offerings?
2. What is the best way for the LVMH to continue to grow?
• Dunne Patrick M, Retailing, Thomson South Western.
• Gilbert David, Retail Marketing Management, Pearson Education.
• Lamba A J, Art of Retailing, Tata McGraw Hill.
• Levy Michael, Retailing Management, McGraw Hill.
• Srini. R. Srinivasan, Stretegic Retail Management, Dreamtech-Biztantra publications.
• http://www.netmba.com/marketing/market/segmentation/
• http://www.pwc.com/gx/en/retail-consumer/index.jhtml
• http://www.scribd.com/doc/48247693/LVMH-STRATEGY

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SEMESTER 3
DMKT303
RETAIL MARKETING
Unit 4: Retail Consumer Behaviour 1

65
Unit 4
Retail Consumer Behaviour
Table of Contents
Fig No /
SL SAQ / Page
Topic Table /
No Activity No
Graph
1 Introduction - -
3
1.1 Objectives - -
2 General Characteristics of Consumers - 1 4–5
3 Classification of consumers based on shopping - 2 6–7
4 Buying Behaviour – Types of Buying 1 3 8–9
5 Factors Influencing Consumer Behaviour - 4, I
5.1 Cultural factors - -
5.2 Social factors - -

10 – 13
5.3 Personal factors - -
5.4 Psychological factors - -
5.5 Physical Factor - -

6 Retail Buying Process 2 5, II
6.1 Problem recognition - -
6.2 Information search - -
6.3 Evaluation process - -

14 – 17
6.4 Alternatives - -
6.5 Consumer outlet selection - -
6.6 Purchase decision - -
6.7 Post-purchase evaluation - -

7 Summary - - 18
8 Glossary - - 18
10 Answers - - 19
11 Case Study - - 20 -21

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1. INTRODUCTION
In the previous unit, we have discussed about the criteria of market segmentation and its
dimensions. Each target segment consists of consumers having set of characteristics. In
order to be successful in sales or long-term sustainability of business, you have to know
about the reason behind the purchasing, the behaviour which insisted to purchase that
particular product by a consumer. In the recent years India has undergone major change as
far as consumer behaviour is concerned and more is expected to come. The shopping habits
of consumers have shifted from supermarkets to malls. People enjoy shopping in malls due
to its entertaining features; malls have also become a destination for young population and
families for recreation and entertainment. ‘Window shoppers’ are more than actual
shoppers. Buyers are now more knowledgeable and have more options in their hands before
they decide to purchase and invest their money. This unit helps us in understanding the
consumer behaviour in retail marketing and in turn it will help the organisations on making
decisions and strategies by helping them predict the reactions and responses of the
consumers at different situations. Mostly, the consumers exhibit several common
behavioural characteristics.
1.1 Objectives
❖ describe the general characteristics of new/modern consumer behaviour
❖ explain the buying situations and factors affecting the buying behaviour of the consumers.
❖ discuss the classification of consumers based on shopping
❖ explain the retail buying process in detail.

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2. GENERAL CHARACTERISTICS OF CONSUMERS

The following are few common characteristics of the consumer’s behaviour:
• Search for information: The preliminary process of purchasing decision involves
gathering of information by the consumers about the availability of different variants
of products and services he or she is looking forward to buy. Most of the buying
decisions are based on the information of the goods and services available along with
their features and benefits. There could be products and services that may better suit
the needs of the consumer than the one he/she has already chosen. However, if the
consumer is unaware of the information on such products or services, he will not buy
them. Consumers in the present era collect information from various sources such as
advertisements, word of mouth, surveys, and internet and so on.
• Brand loyalty: Consumers have the behavioural characteristics of brand loyalty. Brand
loyalty is the habit of customers of buying products and services from a single company
or a store, because of their past good experiences with the products. It could also be the
consumer’s unwillingness to take risk of trying other products especially if they are
high value products. For example, if a Toyota car has lasted for 20,00,000 miles for a
customer, he or she may prefer to go with Toyota or variants of Toyota again due to the
past good experience with the brand. This loyalty of a customer on a particular brand
may force the customer to ignore the information available on other products unless
he/she has a paradigm shift in thoughts about the features and benefits of the product.
• Price sensitivity: This characteristic of consumer behaviour changes the buying
pattern or habit of a consumer due to change of price of a product. Due to frequent
increase in the price of a product the consumer may tend to avoid buying that product
or buy less of that product when compared to his/her earlier buying patterns. For
example, a very frequent rise in the price of apples may force a frequent apple
consumer to reduce his frequency of consumption of apple or he may shift to an
alternate fruit. The products that have low price elasticity of demand are the ones that
the consumers tend to buy regardless of price. Goods such as milk, sugar, tea and other
essential products tend to be inelastic. Though petrol or diesel prices may go up by 30
percent consumers will still buy them in the same quantity as they heavily rely on these
two commodities for their needs of transportation.

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Therefore, a retailer always has to keep a watch on these common basic characteristics
of consumer behaviour and devise strategies to promote their products. Apart from the
common characteristics discussed above, a few more consumers’ behavioural
characteristics could be:
• Perceived needs of a product: This behaviour indicates the decision of a consumer
based on his or her needs on whether to buy a product or not. For example, in a tropical
country, though people may not need sweaters or room heaters to protect themselves
from winter, people may still buy them during winter. Therefore a retailer in a tropical
country might have to direct his activities in ensuring the availability of these products.
• Physiological factors: Many consumers buy products because of their wants and
desires and not their needs. Products those are trendy and latest on fashion fall under
such categories. Consumers may get driven to buy them while seeing them on the media
or associates owning them.
• Social status: Consumers who are very conscious about their social status may always
want to be on par with their peers in owning the similar kind of products. The thought
and behaviour of a consumer wanting to ensure that they are treated on par with peers
of similar status drives their purchase activity.
• Past behaviour: A consumer who has a tendency of buying due to impulse helps to
determine how much and what he/she may buy. For example an impulse buyer in a
holiday season is expected to have similar buying habits during every holiday season.
Buying pattern of consumers during festive season also could be another good example
for past behaviour.”
1. _________ is the habit of customers of buying products and services from a single
company or a store.
2. A consumer who has a tendency of buying due________ to helps to determine how
much and what he/she may buy.

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3. CLASSIFICATION OF RETAIL CUSTOMERS BASED ON SHOPPING

Customers make purchases in order to satisfy needs. Some of these needs are basic and must
be fulfilled for everyone. For example, food and shelter. Others are not required for basic
survival and vary depending on the person. Needs that are not a necessity can be classified
as wants or desires. So, understanding consumer purchase behaviour involves not only
understanding how decisions are made but also understanding the dynamics that influence
purchases.
In retail, this idea of focusing on the best current customers should be seen as an on-going
opportunity. To better understand the rationale behind this theory and to face the challenge,
we need to classify shoppers into the following types:
• Loyal customers: These customers can influence the buying and merchandising
decisions. Loyal customers generally represent not more than 20% of the customer
base, but make up more than 50% of retailers sales. Frequent communication channels
established with them benefit the retailers by providing with clues on the buying and
merchandising decision they need to make. This will also make the loyal customers
happy as this makes them feel they are important, this leads to good word of mouth
about the retailer.
• Cherry pickers: There are many customers who lack loyalty towards a single retailer,
and they shop with different retailers each time. Such customers are termed as cherry
pickers. These customers visit different retailers hunting for value. Cherry pickers are
always on a lookout for a good bargain. Keeping the best prices available for different
products with different retailers they tend to purchase different products from
different retailers.
• Discount customers: Discount customers are those who often purchase if there are
offers or discount available on product or servcies.
• Impulse customers: They don’t plan before they come for shopping, but come into the
store on a whim. They will purchase what suits their situation at that time.
• Need-based customers: They have a specific intention to buy a particular type of item.
People in this category are driven by a specific need. When they enter the store, they
will look to see if they can have that need filled quickly. If not, they will leave right away.

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As difficult as it can be to satisfy these people, they can also become loyal customers if
they are well taken care of.
• Wandering customers: They have no specific need or desire in mind when they come
into the store. Rather, they want a sense of experience and/or community. For many
stores, this is the largest segment in terms of traffic, while, at the same time, they make
up the smallest percentage of sales. Since they are merely looking for interaction, they
are also very likely to communicate to others the experience they had in the store. In
the growing retail business, retailers need to focus effort on the loyal customers, and
merchandise the store to leverage the Impulse shoppers.
3. There are many customers who lack loyalty towards a single
retailer,and they shop with different retailers each time. They are
called as
.
a. Loyal customers
b. Cherry pickers
c. Impulse customers
4. Match the following:

1. Decides based on the size of a. Wandering customers
retailer’s markdowns.
2. Will purchase what suits their b. Need-based customers
situation at that time
3. Has a specific intention to buy a c. Discount customers
particular type of item.
4. Has no specific need or desire d. Impulse customers
in mind.
a. 1-a, 2-b, 3-c, 4-d

b. 1-c, 2-d, 3-b, 4-a
c. 1-a, 2-d, 3-b, 4-c

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4. BUYING BEHAVIOUR–TYPES OF BUYING
Types of decision behaviour

Sometimes consumers undertake a complex decision process requiring substantial amounts
of time and energy. In situations where consumers are making a decision for the first time,
actions must be based on some form of problem solving. When this process is very complex,
it is called extended problem solving (EPS). Limited problem solving (LPS), however,
represents a lower degree of complexity. At the lowest end of the continuum stands the
routinised response behaviour (RRB).
Table 4.1: Differences between involvement types
Routinised response behaviour Extended problem solving
• Low involvement • High involvement
• Frequently purchased • Infrequently purchased
• Inexpensive • Expensive
• Little risk • High risk
• Little information needed • Much information desired
1. Routinised response behaviour (RRB)/Habitual buying behaviour: This is the

simplest type of behaviour and occurs when the consumer already has more experience
of buying and using the product. Usually, this kind of behaviour is adopted for the
purchase of low cost, frequently used items. Most of the time, the buyer has well-
established criteria for selecting their own brand. For example products such as match
boxes, edible oils, etc.
2. Limited problem solving (LPS)/Dissonance reducing buying behaviour:

People feel uncomfortable when encountered with information that conflicts with what
they believe it to be. This discomfort is referred to as cognitive dissonance. Cognitive
dissonance of a consumer might be getting in the way of making a buying decision.
This buying behaviour is described as limited problem solving because the buyers are
in a situation where they are fully aware of the product class but not familiar with all
the brands and their features. Limited problem solving also takes place when a
consumer encounters an unfamiliar or new brands. For example going into store to buy
a coconut oil of a brand one is familiar with and unable to find the same brand in that
store.

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3. Extensive problem solving (EPS)/Complex buying behaviour:

This buying is referred to as a complex buying behaviour because the consumer is in an
unfamiliar product class and is not clear about what criteria to consider for buying. On
a whole the consumer is encountering a new product category. Complex buying
behaviour arises where the individual purchases a high value product and seeks a lot
of information before the purchase is made. For example a 45 year old person who may
not be technically savvy wants to purchase a high end home theatre for his new house.
People feel uncomfortable when encountered with information thatconflicts with
what they believe it to be. This discomfort is referred to as __________________.
Complex buying behaviour arises where the individual purchases
a __________________ and seeks a lot of information before the purchase is made.

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5. FACTORS INFLUENCING CONSUMER BEHAVIOUR
5.1 Cultural Factors

Cultural factor divided into:
• Culture: It is the set of basic values perceptions, wants, and behaviours learned by a
member of society from family and other important institutions. The most basic cause
of a person’s wants and behaviour is culture. Every group or society has a culture, and
cultural influences on buying behaviour may vary greatly in each country. For example
south Indian girls in may prefer to buy skirts and blouses for a festive occasions whereas
North Indian girls may prefer buying Salwar Kameez.
• Sub-culture: It represents a group of people with shared value systems based on
common life experiences and situations. Each culture contains smaller sub-cultures.
Sub-culture includes nationalities, religions, racial group and geographic regions. Many
sub-cultures make up important market segments and marketers often design products.
• Social class: Almost every society has some form of social structure. Social classes are a
society’s relatively permanent and ordered divisions whose members share similar
values, interests and behaviours.
5.2 Social Factors

A consumer’s behaviour also is influenced by social factors, such as the:
• Reference groups: It can be two or more people who interact to accomplish individual
or mutual goals. These groups influence a person’s behaviour. The reference groups can
be further categorised into a number of other groups. Some are primary groups that
include family, friends, neighbours and co-workers. Some are secondary groups, which
are more formal and have less regular interaction. These include organisations like
religious groups, professional association and trade unions. Groups that have a direct
influence and to which a person belongs are called membership groups.
• Family: Family is perhaps is the most important group influencing buyer behaviour.
The family is the most important consumer buying organisation society and it has been

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researched extensively. Marketers are interested in the roles, and influence of the
husband, wife and children on the purchase of different products and services.
• Roles and status: A person belongs to many groups, family, clubs, and organisations.
The person’s position in each group can be defined in terms of both role and status. For
example a professionally successful person may buy a flashy car to project an image of
success.
5.3 Personal Factors

It includes:
• Age and lifecycle stage: People change the goods and services they buy over their
lifetimes. Tastes in food, clothes, furniture, and recreation are often age- related.
Buying is also shaped by the stage of the family life cycle. For example in a family that
consists of infant or small children, parents decide on what to buy for the children to
wear from an apparel shop. As the children grow up they start influencing the decision
of parents and gradually the grown up children decide on what they want to wear and
influence parents to buy what they want. Once a child turns into adult and starts
earning he/she may like to completely decide on what he/she would buy to wear.
• Occupation: A person’s occupation also affects the goods and services bought. For
example, a security guard or a peon would usually buy more rugged work clothes, while
the managers and the CEOs would buy more business suits. A company can even
specialise in making products needed by a given occupational group. The best-suited
example for this could be “Nike” who specialises in production and sale of sportswear
and sports utilities targeted towards the group of sportsmen/sportswomen.
• Economic situation: A person’s economic situation will affect product choice. An

individual who is better placed financially can afford to buy high value products and
higher quantities as well. This contributes to the highest average basket size and
average invoice value.
• Lifestyle: Lifestyle is a person’s pattern of living. Understanding these forces involves

measuring the consumer’s major AIO dimensions, i.e. Activities (work, hobbies,

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shopping, support, etc.) Interest (food, fashion, family recreation) and Opinions (about
themselves, business, products). For example the movie theatres are located inside the
malls these days. The objective is to cater to all the needs of the consumer from
shopping to entertainment at one destination.
• Personality and self-concept: Each person’s distinct personality influences his or her
buying behaviour. Personality refers to the unique psychological characteristics that
lead to relatively consistent and lasting responses to one’s own environment. For
example individuals who are more social and always like to spend more time with
people are the ones who visit coffee shops and places alike.
5.4 Psychological Factors

It includes these factors:
• Motivation: Motive (drive) is a need that is sufficiently pressing to direct the person to
seek satisfaction of the need.
• Perception: The process by which people select, organise, and interpret information
to form a meaningful picture of the world.
• Learning: Changes in an individual’s behaviour arising from experience.
• Beliefs and attitudes: Belief is a descriptive thought that a person holds about
something. Attitude is a person’s consistently favourable or unfavourable evaluations,
feelings, and tendencies towards an object or idea.
5.5 Physical factors

Physical factors too influence the behaviour of the consumer. For example, people are more
likely to purchase a soft drink when they are thirsty. Another good example could be of food
manufacturers who have found that the right time to advertise their products through radio
broadcasts is during the afternoons when most people are hungry.

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Activity 1
Conduct a survey in your neighbourhood to find out what kind of products do people want to
purchase more in a retail outlet like Spencer’s, Big Bazaar, Reliance Fresh, etc. (Note: The
sample population should consist of at least 5 people below the age of 20 and 5 above the age
of 50).
7. _______is a person’s pattern of living.
8. _______can be two or more people who interact to accomplishindividual or
mutual goals.
9. _______is the set of basic values perceptions, wants, and behaviours
learned by a member of society from family and otherimportant institutions

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6. RETAIL BUYING PROCESS

These basic psychological processes play an important role in understanding how
consumers actually make their buying decisions. Marketers must understand every facet of
consumer behaviour. Marketing scholars have developed a “stage model” of the buying-
decision process.
Figure 1: Retail buying process
6.1 Problem Recognition

A) The buying process starts when the buyer recognises a problem or need.
B) The need can be triggered by internal or external stimuli.
C) Marketers need to identify the circumstances that trigger a particular need so that they
can develop marketing strategies that trigger consumer interest.
The need can be triggered by internal or external stimuli. Internal stimuli is when the need
is recognised by the consumer internally such as when a consumer would want to buy a
motor bike as there are no buses available in the locality he stays. On the contrary, if the
consumer wants to buy a motorbike because one of his neighbours has bought it, it is called
an external stimuli. If the need is strong and there is a product or service that meets the need
close to hand, then a purchase decision is likely to be made immediately. If not, then the
process of information search begins. The challenge for the marketing team is to identify the

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information sources that are most influential in their target markets. They can then develop
marketing strategies that trigger consumer interest.
6.2 Information Search

A prospective consumer will be inclined to search for more information. Consumer
information sources fall into four groups:
• Personal sources: Family, neighbours, and acquaintances.
• Commercial sources: Advertising, sales persons, dealers, packaging, displays.
• Public sources: Mass media, consumer-rating organisation.
• Experimental sources: Experimenting with samples, handling, examining using the
product.
The relative amount and influence of these information sources vary with the product
category and the buyer’s characteristics. The consumer receives maximum information
about a product from commercial sources – that is, market dominated sources. But the most
effective information comes from personal sources.
6.3 Evaluation Process

How does the consumer process competitive brand information and make a final value
judgment? Here, there is no single evaluation process used by all consumers or by one
consumer in all buying situations. An important determinant of the extent of evaluation is
whether the customer feels ‘involved’ in the product. By involvement, we mean the degree
of perceived relevance and personal importance that accompanies the choice. Where a
purchase is ‘highly involving’, the customer is likely to carry out extensive evaluation.
6.4 Alternatives
No single process is used by all consumers or by one consumer in all buying situations. The
most current models see the process as cognitively-oriented. First, the consumer is trying to
satisfy a need. Second, the consumer is looking for certain benefits from the product solution.
Third, the consumer sees each product as a bundle of attributes with varying abilities for
delivering the benefits sought to satisfy this need.

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6.5 Consumer Outlet Selection

Consumers frequently have numerous choices for many products regarding where they are
going to actually obtain the product. Although we are used to thinking of buying automobiles
only from dealerships, it is possible to buy them these days through brokers or fleet sales
organisations that may both (1) offer a lower price and/or (2) provide the help of a neutral
third party which does not have a vested interest in the sales of one make over the other.
In general, the evolution of diversity in the retail scene has provided consumers with more
choices. A special case of the discount store is the category killer-a store that tends to
specialise in limited areas (e.g., electronics), lacking the breadth of a traditional discount
store and often undercutting the traditional discount store on price. Following factors effect
consumer outlet selection such as
a. At Home’ Shopping and Electronic Commerce: During the last several decades, the
incidence of ‘at home’ shopping has increased. A more recent development is internet based
marketing. Certain products specifically aimed at heavy internet users (e.g., records,
software) and products/services that require a high level of customisation (e.g., airline
tickets, electronic accessories) may find good opportunities.
b. Store Positioning: Positioning of retail stores is essential. In general, stores which excel
on a significant dimension seem to perform better. For example, Big Bazar excels through its
low pricing and more discounts, while Shoppers Stop excels through its customer service.
6.6 Purchase Decision

In the evaluation stage, the consumer forms preferences among the brands in the choice set.
The consumer may also form an intention to buy the most preferred brand. In executing a
purchase intention, the consumer may have to make five sub-decisions which may follow the
following pattern:
A. Brand (eg: Brand A).
B. Dealer (eg: Dealer 2).
C. Quantity (eg: One).
D. Timing (eg: Weekend).
E. Payment method (eg: Credit card).

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In the evaluation stage, the consumer forms preferences among the brands in the choice set.
However, two factors may interfere between the purchase intention and the purchase
decision. The consumer’s decision to modify, postpone or avoid a purchase decision is
heavily influenced by perceived risk. The amount of perceived risk varies with the amount
of money at stake, the amount of attribute uncertainty, and the amount of consumer self-
confidence.
6.7 Post-Purchase Evaluation

After the purchase, the consumer might experience dissonance about their purchase and be
alert to information that supports their decision. Marketing communications should supply
beliefs and evaluations that reinforce the consumer’s choice and help him or her to feel good
about the brand.
Marketers must monitor post-purchase satisfaction, post-purchase actions, and post-
purchase uses. The customer, having bought a product, may feel that an alternative would
have been preferable. Then after having made a purchase, the customer should be
encouraged that he or she has made the right decision.
Activity 2
Prepare a consumer buying process chart of your favourite product in a retail outlet according
to your need, search, evaluation, alternatives, and post purchase evaluation.
10. The buying process starts when the buyer recognises a .
11. The consumer sees each product as a bundle of with varying
abilities for delivering the benefits sought to satisfy this need.

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7. SUMMARY

• In the recent years India has undergone major change as far as consumer behaviour is
concerned and more is expected to come.
• The preliminary process of purchasing decision involves gathering of information by

the consumers about the availability of different variants of products and services he
or she is looking forward to buy.
• Brand loyalty is the habit of customers of buying products and services from a single
company or a store, because of their past good experiences with the products.
• Price elasticity of demand is an important characteristic of consumer behaviour.
• The classification of customers based on shopping are Loyal Customers, Cherry pickers,
Discount Customers, Impulse Customers, Need-Based Customers, Wandering
Customers. There are different types of buying behaviour based on decision .They are
Habitual buying behaviour, Dissonance reducing buying behaviour, Complex buying
behaviour.
• There are many factors that influence consumer’s buying behaviour – culture, social
groups, individual factors and psychological factors.
• Retail Buying process are Problem Recognition, Information Search, Evaluation

Process, Alternatives, Consumer Outlet selection, "‘At home" shopping and electronic
commerce, Store positioning, Purchase Decision, Post-Purchase purchase evaluation.
8. GLOSSARY
Brand switchers: Customers who have the tendency of switching from one brand of the
product to another.
Dissonance reducing buying: When buyers are highly involved with the purchase of the
product, because the purchase is expensive or infrequent.
Loyalty programmes: Programmes that aim at attracting and retaining customers.

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1. Discuss the factors that affect the consumer buying decisions.
2. Discuss the general characteristics of consumer.
3. Classify the consumers based on shopping.
4. Explain different types of buying behaviour.
5. Describe the retail buying process in brief.
10. ANSWERS
1. Brand loyalty.
2. Impulse.
3. b. Cherry pickers
4. b. 1-c, 2-d, 3-b, 4a
5. Cognitive dissonance.
6. High value product.

7. Lifestyle.
8. Reference groups.
9. Culture.
10. Problem or need.
11. Attributes.
Terminal Questions
1. Refer section 5
2. Refer section 2
3. Refer section 3
4. Refer section 4
5. Refer section 6

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11. CASE STUDY
Jewellery market in India – Glittering gold
The Indian jewellery market is one of the largest in the world, with a market size of $13
billion. It is second only to the US market of $ 40 billion and is followed by China at $11
billion. The gold jewellery market is growing at 15 per cent per annum and the diamond
jewellery market at 27 per cent per annum. India consumes nearly 800 tonnes of gold that
accounts for 20 per cent of world gold consumption, of which nearly 600 tonnes go into
making jewellery.
Gold has traditionally been valued in India as a savings and even today, continues to be the
second most popular instrument after bank deposits. India’s jewellery retail sector is divided
into two forms – organised and traditional retail where organised retail forms only 3% of
the entire jewellery market and is valued at $15.7 billion and the major section of the
jewellery market is dominated by traditionally run jewellery outlets.
The jewellery market has been unorganised, fragmented and traditionally localised in
nature. Not many national players have been in the fray to attract common masses, especially
in the jewellery market. However, considering the suffocative absence of a strong organised
retail industry, especially for a market segment, where daily turnover is recorded not in
hundreds, thousands but in lakhs or sometimes in crores of rupees, some national jewellery
brands have started innovating marketing ways in retail segment to take it head on with the
traditional, unorganised local jewellery makers.
The young generation today has more disposable income and they are willing to spend it on
luxuries of choice of brands and Government allowing 51% FDI in single brand retail outlet
attracting both Indian and global players, owing to which some in the industry believe that
the organised jewellery retail could grow to 10% of the total market within 5 years.
Traditional jewellers are like family doctors and replacing them is equally difficult. Here lies
a tough task for big guns getting into jewellery retail and it would be interesting to
understand the upcoming trends in the jewellery market.
India’s organised jewellery retail is seeing 30–40 % annual growth (business standard
reports). However organised retail still accounts to only 3% of the country’s jewellery retail

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in a sector that is valued at approximately $15.7 billion. Many players are entered in the
market like Titan, Reliance, Gili, etc.
Thus there is a huge untapped opportunity in the organised jewellery retail sector, having
immense scope for new entrants. This research has been undertaken in order to gauge the
shift in trend from non-branded to branded jewellery in the past 5 years. During a last decade
or so, a lot of players have entered a branded jewellery segment. Owing to this, unorganised
retailers are developing different counter strategies like technology certification and
barcode technology to gain the lost market share.
Questions
1. Compare the different purchase process for the jewellery. What stimulated each of
them? What factors were considered in making the product choice decision and
purchase decisions?
2. Pretend that you are a market analyst. How do you project the performance of the
branded jewellery store in our economy in the near future?
• Srini.R.Srinivasan, Strategic Retail Management, Dreamtech-Biztantra publications.
• retail.about.com/od/merchandising buying/Merchandising.htm

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SEMESTER 3
DMKT303
RETAIL MARKETING
Unit 5: Retail Marketing Strategies 1

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Unit 5
Retail Marketing Strategies
Table of Contents
SL Fig No / SAQ /
Topic Page No
No Table / Graph Activity
1 Introduction - -
3
1.1 Objectives - -
2 Target Market and Retail Format - 1 4-5
3 Strategy at different levels of Business - 2I
3.1 Corporate strategy - -

6
3.2 Business unit strategy - -
3.3 Operational strategy - -

4 Building a Sustainable Competitive Advantage 1 3 II 7-9
5 The Strategic Retail Planning Process 2 - 10 - 11
6 Retail Models 3, 4 4 III
6.1 Retail Touch model by JC Williams Group - - 12 - 16

Retail EST Model Traditional retail - -
6.2
strategy
7 Summary - - 17
8 Glossary - - 18
10 Answers - - 19
11 Case study - - 20 - 22

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1. INTRODUCTION
In the previous unit, you have learnt about retail consumer behaviour and factors that
influences consumer behaviour in the retail sector. While it is important to know about the
likes and dislikes of the consumers, you must also know about the marketing strategies that
one can use in the retail industry.
Retailing strategy provides a ‘goals and objective framework’ for dealing with its operating
environment, customers and competitors, given the retailer’s resources and competencies.
In the past, retailers tended to be largely reactive to changes in the business environment,
but this is no longer viable as competition in the entire retail sector is intense, and changes
in consumer behaviour, technology and other environmental variables are happening very
fast. Long-term analysis and planning are required ensuring that the growth opportunities
are not mixed and the action is taken at the right time to avoid the impact of negative trends
in the retail business environment.
Johnson and Scholes (exploring corporate strategy) define "Strategy is the direction and
scope of an organisation over the long-term, which achieves advantage for the
organisation through its configuration of resources within a challenging environment, to
meet the needs of markets and to fulfil stakeholder expectations".
The retailing strategy outlines the mission and vision of a retail organisation. It is a
systematic plan that provides retailers overall framework for dealing with competitors as
well as technological and global movements.
1.1 Objectives:
❖ state the concept of target market in retailing

❖ assess the growth opportunities for retail in India
❖ identify the competitive strategies
❖ discuss the strategic retail planning process
❖ discuss retail differentiation and positioning strategies.

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2. TARGET MARKET AND RETAIL FORMAT
Instead of aiming a single product and marketing programme at the mass market, most
companies identify relatively homogeneous segments and accordingly develop suitable
products and marketing programmes matching the preferences of each segment. It should,
however, be realised that all segments do not represent equally attractive opportunities for
a company. Companies need to categorise segments according to their present and future
attractiveness and their company’s strengths and capabilities relative to different segments’
needs and competitive situation. The following sequential steps present a useful framework:
• Establish criteria to measure market attractiveness and business strength position.

• Evaluate market attractiveness and business strength factors to ascertain their relative
importance.
• Assess the current position of each potential segment on each factor.
• Project the future position of each market segment based on expected environmental,
customer, and competitive trends.
• Evaluate segment profitability.
• Evaluate implications of possible future changes with respect to strategies and
requirement of resources.
Some types of target markets that retailers serve are:
Mass market: These types of retailers cater to a wide range of customers who sell products
to almost all kinds of customers. The competition among such retailers is always very fierce
as they have a large market from which to draw customers.
Specialty market: Retailers who cater to specialty segment target buyers who look for
products which have distinct features beyond the products marketed by mass. The target
market that gets serviced by the specialty retailers is sizable unlike the retailers of mass
market.
Exclusive market: As the target market in this segment is very small, the number of retailers
catering to this market is also comparatively small. This market consists of customers who

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are willing to pay premium prices to get premium features found in very few products and
personalised services.
Self-Assessment questions - 1
1. ________________ provides a ‘goals and objective framework’ for dealing with its
operating environment, customers and competitors, given the retailer’s resources
and competencies.
2. Types of target markets that retailers serve are ____________

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3. STRATEGY AT DIFFERENT LEVELS OF BUSINESS
Business strategies have to be developed in all phases and levels of company development.
3.1 Corporate strategy: This addresses the overall objective of the business and its
scope with respect to stakeholder’s expectations. Corporate strategy is very crucial as it
influences the strategic decision making in the entire business set up. Corporate strategy
generally gets expressed explicitly in a “mission statement”.
3.2 Business unit strategy: Business unit is a business function in the organisation
which is accountable for generation of revenues independently. Business unit deals with
how successfully it can compete in the market. Business unit is responsible for making
strategic decisions on product mix, marketing, sales, competition and creating new
opportunities for revenue generation.
3.3 Operational strategy: Operational strategy predominantly deals with strategies on

support functions to deliver or meet the objectives of the corporate strategy and business
unit strategies. It focuses on issues such as resources, processes and people.
Activity 1
Prepare a chart of important growth milestones in the journey of any one popular retailer of
your choice.
3. _______________ is a business function in the organisation which is accountable for

generation of revenues independently.
4. __________________ predominantly deals with strategies on support functions to
deliver or meet the objectives of the corporate strategy and business unit
strategies.

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4. BUILDING A SUSTAINABLE COMPETITIVE ADVANTAGE
In sustainable competitive advantage, marketer focus should be on building competitive

advantage which cannot be imitated for long run by competitors. There are 3 approaches to
build competitive advantage such as
1. building strong relationship with customers

2. Building strong relationships with suppliers
3. Achieving efficient internal operation
Michael Porter suggests that there are five basic competitive forces, which influence the state
of competition in an industry. He calls the ‘structural determinants of the intensity of
competition’, which collectively determine the profit potential of the industry as a whole.
Some industries have a bigger profit potential than others, since keener competition means
lower profits. These five competitive forces are shown in Figure 5.1given below:
Figure 5.1: Five Competitive Forces
Threat of new entrants: A new entrant into an industry will bring extra capacity. The new
entrant will have to make an investment to break into the market, and will want to obtain a
certain market share. The strength of the threat from new entrants depends on two factors:
• The strength of the barriers of entry.

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• The likely response of existing competitors to the new entrants.
Threat from substitute products: The products or services that are produced in one
industry are likely to have substitutes that are produced by another industry. Firms in an
industry that are faced with threats from substitute products, are likely to find that demand
for their products is relatively sensitive to price.
Bargaining power of customers: Customers want better quality products and services at a
lower price, and if they succeed in getting what they want, they will force down the
profitability of supplies in the industry. The profitability of an industry is therefore
dependent on the customers’ bargaining power.
The bargaining power of suppliers: Just like customers can influence the profitability of
an industry by exerting pressure for higher quality products or lower prices, so too can
suppliers influence profitability by exerting pressure for higher prices.
The rivalry amongst current competitors in the industry: The intensity of competitive
rivalry within an industry will affect profitability of the industry as a whole. Competitive
action might take the form of price competition, advertising battles, sales promotion
campaigns, introducing new product from the market, improving after sales services or
providing guarantee or warranties.
Activity 2
Read through Retail Market Industry Report at
https://www.researchonindia.com/reportdetails.php?ItemId=357 and make a list of factors
that are of competitive advantage for Indian retail industry.

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5. Which of the following factors does the strength of the threat from new entrants
depend on?
a. The strength of the barriers of entry, the likely response of existing
competitors to the new entrants.
b. The rivalry amongst current competitors, bargaining power of customers.
c. The strength of the barriers of entry bargaining power of customers.
d. The likely response of existing competitors to the new entrants, the rivalry
amongst current competitors.

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5. THE STRATEGIC RETAIL PLANNING PROCESS
The strategic retail planning process:
Figure 5.2: Strategic Retail planning process
In order to develop retailing strategies, retailers need to follow a systematic procedure or

planning process. The strategic planning process consists of the following major steps:
1. Defining the business philosophy and mission and corporate objectives
This is done to identify the purpose for the existence of business and its scope. It needs
to identify the products and services to be offered and the customers to be served. It
also needs to indicate how the resources and capabilities of the firm will be used to
create customer satisfaction and how the firm intends to compete in its chosen markets.
2. Situation analysis
Situation analysis (or situation audit) helps to determine current status of the
organisation and to forecast possible developments if the existing strategies are
pursued. It can be broadly divided into external analysis and internal analysis.
The major components of external analysis are macro environment and task
environment. The macro environment consists of economic, political and legal, socio-
cultural and technological forces that affect all the retailers and over which they have
very little control. The task environment can be influenced directly by a retailer’s own
strategies and includes competitors, suppliers and customers.

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The internal analysis assesses the strategic capabilities of the retailer by examining the
quality and quantity of the available resources, how effectively they are used and the
extent to which they are unique and difficult to imitate by competitors.
3. Identification and evaluation of strategic opportunities
After conducting the situation analysis, the retailer is able to prepare a SWOT analysis
of his business. Then he needs to decide on the strategic direction for the organisation.
The main strategies can be growth, consolidation and harvesting. These will be
explained in detail in the later part of the report.
4. Development of suitable retail mix strategy
For each of the opportunities listed by the retailer, resources need to be allocated to
achieve objectives through marketing and positioning strategies.
After selecting the target markets, a positioning strategy can be developed based on
product differentiation, service and personality augmentation, and price leadership.
The retail marketing and positioning strategy is put into effect by the retail mix – a set
of controllable variables that the retailer can use to satisfy customers’ needs and to
influence their buying behaviour and compete effectively in the market.
5. Implementation and control
Effective implementation requires that appropriate resources be allocated to required

tasks which need budgeting with respect to specific elements of the retailing mix,
personnel and so forth. Effective implementation also requires scheduling and co-
ordination of retailing activities. It requires the translation of retailing strategies into
tactics. Functional strategies lead to establishment of long-term objectives that must be
translated into day-to-day operational decisions. In order to assess the effectiveness of
the strategy, a balanced scorecard can be developed and referred to from time to time.

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6. RETAIL MODELS
With the retail sector getting more competitive it is important that retailers quickly assess
their channel strategy to ensure that they are in a position to maintain and grow their share
of total market and stay healthy. The various store formats and channels are not new to
retailers. For example, Big Bazaar has various formats into the various categories. So, the
growth in the sector is from a wide range of services. Even though the retail sector in India
is at a nascent stage, retailers are trying to differentiate themselves from the competition in
order to get the maximum footfalls into their shops. To stick to a one channel distribution
strategy makes about as much sense as running marketing campaign with only one medium.
6.1 Retail touch model
In order to attract more and more consumers this Model plays an important role that
facilitates action and determines the shopper’s trial and buying decisions. Also, using the
proper communication channel is a challenge for all retailers. The need to embrace and deal
with a multi-channel, total-touch strategy seems obvious:
• People shop across channels.

• E-retailing will play an important role in the coming future.
• Building powerful brand will be one of the most important keys to success.

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Figure 5.3: Retail Touch model by JC Williams Group
6.2 Retail EST model traditional retail strategy:
J.C Williams Group advocated the strategic model called as Retail EST Model. As per this
model the retailer has to be the best (strategic differentiator) amongst one of several retail
offerings to be the winner. This will aid in positioning the retail organisation as one of several
retail offerings. Est retailing helps the retailers in positioning themselves in the eyes of the
customer, EST retailers always focus very keenly on their core customer propositions which
is generally called as Est positions. All the employees of the retailer are committed to this
job. They communicate that positioning to their customers and execute it relentlessly at the
store level. The strategic and day-to-day operational decisions are based on their Est
positioning. For example Domino’s Pizza positions itself as the organisation which can
provide the speediest delivery to its customers.

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Figure 5.4: Retail EST Model
Source: Winning at Retail – Willard. Ander & Neil. Stern
Few of the Est positions that tend to win customers are:
• Cheap-est: Low pricing model or low pricing est strategy.

• Big-est: Large assortment in specific category of products or merchandise.
• Hot-est: Having merchandise just as the customers begin to purchase them.
• Quicl-est: Focus on completion of the shopping trip quickly and efficiently.
Few more niche Est models exist such as Fine-Est for high quality, luxury retail
segments. However retailers who are successful can be clearly identified by one of the
core ESTs.
The Cheap “est”: Winning with price—Brand factory: It means consistently having lower
prices than the competition on the products that a retailer sells. It is a straightforward and
easily understood proposition, the most basic of the ‘est’ concepts to grasp. To be the best on
price, stores must singularly devote themselves to being the low cost operator. For this,
retailers must also assess the competition and be realistic about their chances of bringing
their operating costs below the costs of their competitors.
The Big “est”: Winning with Dominant Assortments—Vijay sales: It means stores offering
the most dominant assortment in specific categories of merchandise. It is also called as

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“Category killer”. It requires being a great merchant. It must carefully edit the assortments
to avoid product overlap as well as products that sell so infrequently it’s not economical to
carry them. Stocking a store with everything that is available is a disservice to customers
because deciding what to buy becomes difficult for them. ROI plays an important role here.
The Hot “est”: Winning with Fashion: These are the stores that have the latest products
just as customers begin to buy them in volume. Here, fashion is referred to as mass fashion
and has nothing to do with luxury items. The retailer can have a key differentiator from a
competitor. Stores can build reputations around consistently having the latest products,
brands, colours or styles which will set them apart. It is a tough proposition to continually
be on the right side of the fashion spectrum, but the rewards are vast. Margins can be higher
as the consumer is thinking about something other than the price. The ability to be the
hottest contains a bit of magic as well – a certain indefinable characteristic that sets one
retailer apart from another. Hot-est retailers should be experts in the products they carry
and have a passion for sharing that expertise and for selling customers the most fashionable
products. The upside is tremendous volume and a lot of traffic in store. The down side is the
risk of stores loaded with trend-wrong merchandise on the clearance shelves. Also the
business is cyclical. Example, Fashion Bazar.
The Easy “est”: Winning with Solution oriented Service: Easy-est is a more complex,
more experiential proposition that combines product, service and price. The retailers must
consider everything about a customer’s shopping trip and then try to deliver a solution that
creates an ideal experience. They must be masters, in short, of almost all the key retail
disciplines in order to be successful. The big key for these retailers is viewing the world from
a customer’s perspective.
The Quick “est”: Winning with Fast Service: Quick–est retailers focus on speed. They
strive to be the fastest solution to satisfy a specific need.
• They have branches in many locations considering the convenience of their customers.
• They have adequate parking facilities.
• They provide quick shopping.
• They are efficient at checkout.

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• They must be accurate in handling orders.
The technology behind SpeedPass may well be the biggest breakthrough in the future.
SpeedPass is based on radio frequency identification (RFID) technology, which has quickly
become the buzz in retail circles.
Activity 3
Prepare a strategic planning process to set up a kids wear store in your city.
6. _______________ helps to determine current status of the organisation and to

forecast possible developments if the existing strategies are pursued.
7. Situation analysis can be broadly divided into _________ and internal analysis.
8. As per the__________ model the retailer has to be the best (strategic differentiator)
amongst one of several retail offerings to be the winner.
9. The retail marketing and positioning strategy is put into effect by the__________.

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7. SUMMARY
• Strategy planning or formulation of strategy consists of a set of decisions that lead to

the development of an effective strategy. We check all the activities related to the
internal and external factor those affect directly or indirectly to the organisation.
• Companies need to categorise segments according to their present and future
attractiveness and their company’s strengths and capabilities relative to different
segments’ needs and competitive situation.
• Some types of target markets that retailers serve are mass market, speciality market
and exclusive market.
• The various types of strategies in business are corporate strategy, business unit
strategy and operational strategy. Porter suggests that there are five basic competitive
forces, which influence the state of competition in an industry. They are primarily,
threat of new entrants, threat from substitute products, bargaining power of
customers, the bargaining power of suppliers and the rivalry amongst current
competitors in the industry.
• Strategic retail planning process is divided into the following steps: defining the
business philosophy, situation analysis, identification and evaluation, developing
suitable retail mix, implementation and control.

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8. GLOSSARY
Sustainable competitive advantage: It is the means by which a company manages to keep

making money and sustain its position against its competitors.
Cost leadership: Attempt to gain a competitive advantage by a firm primarily by reducing

its economic costs below its competitors.
Focus strategy: Under this, a firm concentrates its resources in one particular segment.
Retail mix: It is the blend of various retail activities that in totally present the whole concept
of retailing.
Positioning: It means creating an image or identity of the store in target market’s mind.
Psychological positioning: This means creating a unique product image with the objective
of creating interest and attracting customers.
1. What is target marketing and what can be the different types of target markets for
retailers?
2. Discuss Porter’s competitive model.
3. Explain the strategic retail planning process.
4. What are the types of strategy at different levels of a business?

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10. ANSWERS
Self Assessment Questions
1. Retailing strategy.
2. Mass market, speciality market and exclusive market.
3. Business unit.
4. Operational strategy.
5. a. The strength of the barriers of entry, the likely response of existing competitors to
the new entrants.
6. Situation analysis (or situation audit).
7. External analysis.
8. Retail EST.
9. Retail mix.
Terminal Questions
1. Refer to Section 2.

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11. CASE STUDY
McDonald’s Strategy
McDonald’s, the world’s single largest food service retailer, has a distinctive supply chain
system. The first “McDonalds” restaurant was opened by brothers Dick and Mac McDonald
in 1940 at San Bernadino, California. This ubiquitous restaurant chain, which is a byword for
fast food, is present in 120 plus countries globally with more than 30,000 franchise
restaurants serving 52 million people.
In India, the first outlets of the chain threw open their doors to the public in Delhi and
Mumbai in 1996 within one month. McDonald’s is now present in 40 Indian cities with 217
Quick Service Restaurant (QSR) and serves 6,50,000 customers daily. The supply-chain
network of McDonald’s is indeed sui generis – 100 percent outsourced, lean with no back-up
staff and no frills. This is not just how McDonald’s operates in India and works everywhere.
Year 1990 was the year when McDonald's decided that India offered a lucrative business
opportunity. But to tap into the nation's fast food potential there was long process of
research, back-end development, a total of which took six years to bring the first McDonald's
outlet in India.
The first step for the company in such a scenario was to identify and bring together partners
and suppliers. Working with the suppliers McDonald's is one of the things which distinguish
McDonald’s from competition. Also as part of their policies, McDonald's helps their suppliers
to grow with them. They follow a system of Open Book Policy where McDonald's has full
access to all the suppliers costing and together they chart out a plan to lower costing and
increase profits. Another strategy that McDonald's successfully implemented is sharing of
best practices. Each supplier goes through a Supplier Appraisal audit undertaken by
McDonald's. These suppliers are then graded on a Supplier Performance Index. This index is
a structured format similar to an employee appraisal. Those suppliers who score the best,
their practices are then documented and distributed to other suppliers to achieve the same
high standard productivity.

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It can be said that McDonald's fascination for standardisation crosses regular benchmarks.
All food products have to be within weight, size, shape specified internationally. These
products then are not only judged on their physicality but also their taste by a sample target
and then are scored out of 100. All suppliers have to abide by these specifications. Today the
company has 12-15 core suppliers who work closely with them and 50 suppliers is what
takes to bring together a complete McDonald's meal in India.
There were only three categories of products which were imported— French fries, oil and
Happy Meal toys. McDonald's has own product innovation and new ranges, they also work
closely with their suppliers helping them with their R&D. McDonald's worked with the
poultry industry to standardise quality product and processing. McDonald's crew stayed in
India to monitor the right growth path of the Iceberg lettuce which previously was never
grown in India. Slowly the volumes grew and with an assured growth which made up for the
investment McDonald’s made in the back end systems.
McDonald's is India's predominant vegetarian menu, up to 60 percent. The entire menu R&D
took place in India in innovation centre in Mumbai. Mayonnaise used in India is eggless;
similarly monosodium glutamate (MSG) which is quite commonly used internationally. Food
without MSG has been re-designed with coatings so as not to have any discrepancy in tastes.
Religious sentiments play an important role while devising menu for India. A McVeggie
burger is a complete Indian R&D based product, but the recipe is defined according to
international norms. The aim is to localise international norms, trends and tastes, to fit the
needs and requirements of India. Many of these customised products have seen great success
in other international market, for instance the Middle East and Fiji Islands. All products are
designed in such a way that it tastes the same across the globe.
Questions
1. Before McDonald’s entered in to the Indian market few people thought that fast food
could be successful in India? Why do you think McDonald’s succeeded?
2. Standardisation and customisation are polar opposites of each other. Comment this
statement with relevant to this case study.

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3. What are the Standardisation and Customisation activities done by McDonald’s in

India? Highlight in detail.
Source: Adapted from www.expresshospitality.com Accessed on Wed Jul 18, 2012

• Srini.R.Srinivasan, Stretegic Retail Management, Dreamtech-Biztantra publications
• dspace.iimk.ac.in/bitstream/2259/392/1/17-27.pdf
• www.lapointerosenstein.com/fichier/listelibrary/.../ako-franchising.pdf

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SEMESTER 3
DMKT303
RETAIL MARKETING
Unit 6: Store Location and Layout 1

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Unit 6
Store Location and Layout
Table of Contents
SL Fig No / SAQ /
Topic Page No
1 Introduction - -
3
1.1 Objectives - -
2 Store Location and Layout 1 1
4-8
2.1 Location decision and types of goods - -
3 Factors Affecting Retail Location Decisions - 2I 9 - 11
4 Selection of region - 3
12 - 15
4.1 Selection of the locality/community - -
5 Trade Area Analysis - - 16 - 17
6 Site Evaluation 2 II 18
7 Retail Layout - - 19 - 20
8 Types of Store Layout 3, 4, 5, 6 4 III
8.1 Racetrack form - -
8.2 Grid form - - 21 - 26
8.3 Free flow - -
8.4 Dead block format - -

9 Summary - - 27
10 Glossary - - 28
12 Answers - - 29
13 Case study - - 30 - 31

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1. INTRODUCTION
In the previous unit, you had learnt about retail marketing strategies and also about the five
competitive forces affecting competitive advantage in retail marketing. In retailing,
knowledge about the retail marketing strategies does not ensure the success of the retail
chains and outlets. One of the prime factors for the success of the retail chain or outlet is its
location.
Store location is just not a location for the store to be located. Location should be the
destination of the customer’s choice. It should also consider the following factors such as
strategic context, environmental/situational context and market research that play in
forming a detailed and precise location strategy for the store. While deciding on a business
proposition, real estate issues are the most crucial factor as real estate is the largest fixed
investment for a retailer.
Location related decisions in retailing is the most fundamental decisions because they
facilitate in getting the merchandise to the consumer at the right place, at the right time, in
the right quantities, and at the right price ultimately.
Choosing the location is the most important decision made by a retailer for a number of
reasons. Firstly, location is one of the key considerations for the customer. A customer's
location preferences may differ for different requirements. Secondly, location decisions are
strategically important for the retailer because they help in developing sustainable
competitive advantage over the competitors that cannot be copied at any cost.
1.1 Objectives:
❖ state the types of retail store locations
❖ explain the factors affecting retail store location decisions
❖ discuss location based retail strategies.
❖ explain about the site evaluation & Retail Layout

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2. TYPES OF RETAIL STORES LOCATION
Retail store locations are classified into seven basic types:
• free standing sites

• city or town locations
• inner city
• main street
• shopping centres
• strip shopping centres
• shopping malls
• other location opportunities.
• Freestanding sites: A freestanding site is a retail location that is not connected to other
retailers. However they might be near other freestanding retailers. Retailers with large
space requirements, such as warehouse clubs and hypermarkets, are often
freestanding. Example: Big Bazar, More, Mega Mart, etc.
Advantages of freestanding locations are greater visibility, lower rents, ample parking,
no direct competition, fewer restrictions on signs, working hours, or merchandise, and
ease of expansion.
The most serious disadvantage is the lack of synergy with other stores. A retailer must
be a primary destination point for customers in a freestanding location. It must offer
customers something special in merchandise, price, promotion, or services to get them
into the store.
• City or town locations: Some retailers find urban locations attractive, particularly in
cities that are redeveloping their downtowns and surrounding urban areas. In general,
urban areas have low occupancy costs, and locations in the central business districts
often have high pedestrian traffic. Central Business Districts (CBD) is the traditional
business area in a city or town.
• Inner-city locations: The inner city is typically a high-density urban area consisting of
apartment buildings populated primarily by ethnic groups. Some examples are

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locations such as Nariman point in Mumbai which is the sixth expensive location
globally and shopping destinations in Bangalore such as commercial street, MG road
and Brigade road
• Main street locations: Main street is the CBD located in the traditional shopping areas
of smaller towns, or a secondary business district in a suburb or within a larger city.
Their occupancy costs are lower than that of the primary CBD. They do not draw as
many people and offer lesser selection through fewer stores. Main streets typically
don't offer the entertainment and recreational activities available in the more
successful primary CBDs.
• Shopping centres: From the 1950s through the 1980s, suburban shopping centres
grew as populations shifted to the suburbs. A shopping centre is a group of retail and
other commercial establishments that is planned, developed, owned, and managed as a
single property. Most shopping centres have at least one or two major retailers,
referred to as anchors as they act as crowd pullers into the shopping centres leading to
increase in the number of customer walk- ins.
• Neighbourhood and community shopping centres (Strip centres):The primary

advantages of these centres are that they offer customers convenient locations, easy
parking and entail relatively low rents for retailers. The primary disadvantages are that
there is no protection from the weather, and they offer less assortment and
entertainment options for customers than malls. Examples could be any shopping
centres in the neighbourhood consisting of super markets, apparel stores, small
eateries, etc.
• Shopping malls: Shopping malls have several advantages over alternative locations.
Firstly, shopping malls have become the main street for today's shoppers because of
the various types of stores, the merchandise assortments available within those stores,
and the opportunity to combine shopping with entertainment, Secondly, tenant mix can
be planned. Shopping mall owners control the number of different types of retailers so
that customers can have a one-stop shopping experience with a well-balanced
assortment of merchandise. Thirdly, retailers and their customers don't have to worry
about their external environment. Shopping malls also consists of anchor stores which

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act as a crowd puller and generally occupy greater space than any other stores in the
mall. Anchor stores enjoy lesser rent per square feet compared to the other tenants as
they attract more walk-ins into the shopping malls.
(a) Outside View (b) Inside View
Figure 4.1: Mall: Select City Walk, Saket, Delhi
• Lifestyle centres: Lifestyle centres are shopping centres with an open- air
configuration of upscale specialty stores, entertainment and restaurants with design
ambience and amenities such as fountains and street furniture. Lifestyle centres are
typically located near affluent neighbourhoods and cater to the ‘lifestyles’ of consumers
in their trade areas. Due to the ease of parking, lifestyle centres are very convenient for
shoppers.
• Fashion/specialty centres: A fashion/specialty centre is a shopping centre that is
composed mainly of upscale apparel shops, boutiques, and gift shops carrying selected
fashions or unique merchandise of high quality and price. Fashion/specialty centres are
similar to lifestyle centres in terms of the clientele and types of stores they attract. They
are usually found in trade areas having high-income levels, tourist areas, or some
central business districts.
• Outlet centres: Outlet centres are shopping centres that consist mostly of
manufacturers’ and retailers’ stores selling their own brands. Consumer demand for
stores in outlet centres has diminished in the recent years. Outlet centres are often
located at some distance from regional shopping centres. So, outlet tenants don't

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compete directly for department and specialty store customers. Outlet centres can be
located in strong tourist areas.
• Other location opportunities: Other prominent locations for the retailers include
places such as airports, resorts, hospitals. Home based stores and stores within a store
are interesting, if not unusual, location alternatives for many retailers.
2.1 Location decision and types of goods

Convenience goods usually have low unit price and are purchased frequently. There is little
selling effort and they are bought by habit, and sold in numerous outlets. For example candy
bars, cigarettes, and milk. For stores handling convenience goods, the quantity of traffic is
most important. Convenience goods are often purchased on impulse in easily accessible
stores.
Consumers always prefer that the stores from which they buy medicines and daily food items
is within walking distance from their place of residence in rural areas or just a five to ten
minutes’ drive in urban areas.
Shopping goods usually mean high unit price goods that are purchased infrequently. More
intensive selling effort is usually required on the part of the store owner as the price and
features compared. They are sold in selectively franchised outlets. Examples are men's suits,
automobiles, and furniture. In many cases buyers of shopping goods like to compare the
items in several stores by travelling only a minimum distance. As a result, stores offering
complementary items tend to locate close to one another. The consumer buys these goods
infrequently and deliberately plans these purchases. Consumers are willing to travel some
distance to make shopping comparisons.
Specialty goods usually have high unit price. Although price is not a purchase consideration,
these goods are bought infrequently and require a special effort on the part of the customer
to make the purchase. No substitutes considered and they are sold in exclusively franchised
outlets. Examples are precious jewellery, expensive perfume, fine furs, and so on of specific
brands or name labels.

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1. Store location should be the destination of the _________________ choice.

2. A__________________ is a retail location that is not connected to other retailers.
3. _______________are shopping centres that consist mostly of manufacturers’ and
retailers’ stores selling their own brands.

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3. FACTORS AFFECTING RETAIL LOCATION DECISIONS
Some important factors affecting location decisions are:
Population and customer profile
A thorough demographic analysis needs to be carried out before choosing a city or state to
set up a retail store. One must go through the local newspapers and journals, and interact
with other small businesses locally. One must also obtain the demographic data from the
local sources such as libraries, chamber of commerce and census bureau to analyse data on
the area’s population, age and income. Once the knowledge on who the customers are and
where they live, work or shop are attained finding the, location would be easier.
Accessibility, visibility and traffic
Dense or heavy traffic around the location does not mean more customer walk-ins into the
store. The retailer always desires to be located where more shoppers are there but it is
important to keep in mind the shoppers match the definition of the target market. The
questions a retailer needs to answer with respect to accessibility are:
• How many people drive past or walk around the location?

• Does public transportation facility exist for that area?
• Is the parking lot easily accessible by delivery trucks and customers?
• Is the parking space adequate?
The customer’s point of view must be kept in mind when the retailer is considering visibility
factors. One should look for answers to questions such as:
• Is the store visible amidst the flow of the traffic?

• Can the signage of the store be easily seen without any obstructions?
A better visibility of the store gives the benefit of less advertising need. A specialty store
located six kilometres away from the city/town needs more of marketing than the ones
which are located inside the malls.

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Signage, zoning and planning
A retailer must be aware of the policies, procedures and rules pertaining to the store before
signing the lease agreement. One can obtain information on the regulations pertaining to
signage from the local authorities’ municipality or city corporations. The local authorities
may also help the retailer by providing appropriate information on future plans such as
diversion of the traffic, widening of roads or any constructions that may happen in near
future.
Competition and neighbours
The neighbouring businesses in the vicinity of the retail store can have a positive or a
negative effect on the business. It majorly depends with the compatibility of other businesses
with the retailer’s business. For example a high-end fashion boutique may not be successful
next to a discount variety store. However the same might be successful when placed next to
hair and beauty salon and may fetch business more than the expectations.
Location costs
Apart from the basic rentals, all costs that get incurred while choosing a retail store location
need to be considered, such as cost of:
• maintenance of building and equipment, utilities and security

• marketing costs in case of remote location of the store
• average bill of utility
• property taxes.
The affordability of rent in present situation always varies compared to the situations in the
future. One could determine on the quantum of rent payable by comparing with other similar
retailers rentals.
Personal factors
If a retailer is planning to run his/her own store, he/she must consider personal factors such
as time spent in commuting to the store daily from the residence, the commute may
overshadow the exhilaration of being one’s own boss. A retailer’s independence can also be

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hampered by many factors such as restrictions on a tenant by landlords, company,

management, etc.
Other considerations
The store may require some special considerations which need to be addressed such as:
• Special lightings, fixtures and hardware.

• Restroom availability for customers and staff
• Capability of fire and police protection.
• Availability of sanitation services.
• Adequate lighting in parking area and exteriors of the building.
• Canopy to act as a shelter in case of rains.
• Crime rate of the area.
Activity 1
Consider that you are going to set up a readymade garments store. List the factors that you
will keep in mind if you are going to open it in a metropolitan city also list the same if you
were going to open it in a town Do you notice any difference? Make a list of the differences in
the factors considered while opening a store in metropolitan city and a town.
4. A thorough _______________ needs to be carried out before a retailer chooses a city or

state to set up a retail store.
5. While deciding the store location, it is not only important to locate the store where
more shoppers exist but also to ensure that the shoppers match the _____________ .

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4. SELECTION OF REGION
Generally, a country is divided into regions on the basis of directions (east, west, north and
south) or political boundaries. Therefore, after selecting the country, the second step is to
decide on the right region based on comparative cost advantages available out of the possible
regions.
India has twenty-eight states and seven territories. Deciding on where to set up a store is not
an easy task. A retailer has to critically analyse each state or study the country under its four
major divisions namely northern, southern, western and eastern. If the retailer wants to set
up in the northern region, then it has to select a particular state like Haryana, Punjab, Delhi,
Rajasthan, UP, Uttaranchal, HP or J&K.
The factors influencing such selection are:
• Availability of merchandise.
• Proximity to the market.
• Infrastructural facilities.
• Transport facility.
• Climatic conditions.
• Government policy.
• Subsidies and sales tax exemptions.
4.1 Selection of the locality/community

After selecting the region, the second step in deciding on the store location is to select a
particular locality or community within the selected region. It means taking decisions
regarding:
• urban area
• rural area
• suburban area.

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The selection of a locality in a particular region is determined by the following factors:
• Labour and wages.

• Community facilities.
• Community attitudes.
• Banking facilities.
• Existence of supporting stores.
• Local taxes and restrictions.
• Water supply.
• Personal and emotional factors.
• Historical issues.
Urban area
An urban area is a term used to define a geographical area that is highly populated and
constitutes a city or town.
Merits of an urban area:
• Due to proximity to a market the urban location reduces the cost of acquisition and
distribution to a considerable extent and leads to competitive advantage over
competitors.
• Availability of all types of modern facilities like water, sewage, fire fighting facilities,
transport facilities, storage facilities, and promotional facilities on time.
Demerits of urban area:
• The cost of land being high disturbs the whole investment budget.
• Various problems like traffic jams, demonstrations by political parties, high labour
turnover due to many options, government’s restrictions, etc.
Suburban area
As the name implies, it is a compromise between the urban and rural areas. It is generally
located at the outskirts of the city. Suburban areas, being located at the outer rim of the city,

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provide comparative advantages of both the locations, for instance, Bawana, Nangloi,
Mangolpuri, Badarpur, Narela are the suburban areas of National Capital Region of Delhi.
Merits of suburban areas:
• Availability of adequate land, infrastructure, labour, ancillary facilities at affordable

price.
• Store expansion like introducing a new product, adopting new technology and
performing multi-storied operations is easier than in the city.
• Availability of a ready market near the suburban area and good connectivity to cities.
Demerits of a suburban area:
Perhaps the only drawback a suburban area has is that over a period of time suburban areas
usually get converted into urban areas, resulting in congestion and overcrowding.
Rural area
By definition, a rural area is an area outside cities and towns. Generally no retailer would like
to set up a store in a rural area but due to problems of urban area and government
restrictions on urban area construction, rural areas have become an attractive place for new
retail stores. A rural area is blessed with these merits. Due to changing demographics, some
areas of rural India are increasingly prosperous and are attractive locations for retail. For
example, Big Bazaar at Sangli, Maharashtra.
Merits of a rural area:
• Cheaper and sufficient land and labour.

• Low wages for unskilled workers, less labour turnover, lesser taxes, lesser congestion
and more incentives from government.
Demerits of rural area
• Lack of community facilities, inadequate transport, absence of training schools and

skilled workers, absence of supporting industries.
• Lack of banking and credit, postal, warehousing, municipal and insurance facilities.

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6. Due to proximity to a market the ______________ location reduces the cost of

acquisition and distribution to a considerable extent and leads to competitive
advantage over competitors.
7. Some of the merits in opening a store in the suburban areas are availability of
adequate land, infrastructure, labour,________________ at affordable price.
8. Some of the limitations in opening a store in the rural area are lack of community
facilities, inadequate transport, _______________, absence of supporting industries.

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5. TRADE AREA ANALYSIS
A thorough analysis of trade area is necessary to estimate market potential, understand

customer profile, competition, develop merchandising plan, and focus promotional
activities. Increasingly, retailers are using Geographic Information System (GIS) software in
their trade area delineation and analysis. GIS combines digitised mapping with key locational
data to graphically depict such trade area characteristics as the demographic attributes of
the population, data on customer purchases, and listing of current, proposed and
competitor’s locations.
Market potential
In estimating the market demand potential, retailers consider factors that are specific to
their product line. Hence, there is a variable in the criterion often used by retailers for market
estimation. Some of the important indicators of market demand are as follows:
• Population characteristics and its trends: Population characteristics such as geo-

demographics, psychographic, and behavioural characteristics are used to segment
markets. Considerable information about an area’s population characteristics can be
acquired from secondary sources. Retailers can access data regarding population size,
population density, and number of households, income distribution, sex, education, age,
occupation and mobility.
• Purchase power and its distribution: The average household purchasing power and
distribution of household income can significantly influence selection of a particular
retail area. Thus, as purchasing power rises, the population is likely to exhibit an
increased demand for luxury goods and more sophisticated demand for necessities.
• Business climate: Retailers should take into account the employment trends of the
market because a high level of employment drives up the purchasing power. It is in the
interest of retailers and developers to determine which geographical areas are growing
rapidly and why.
• Competition: The level and nature of competition in an area also influence the
selection of a particular retail location. On the basis of levels of competition, trade area
can be classified into three types:

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A saturated trade area offers the customers a wide variety of merchandise, which also
ensures impressive profits for retailers in the market. Customers tend to prefer these
areas because of the variety of merchandise offered and competitive pricing. Examples
in this context are Nirula’s, McDonalds’s, Pizza Corner, and Pizza Hut in India.
Trade area has too few stores selling specific merchandise to meet the needs of the
segment efficiently. Subhiksha’s early success was based on its location strategy of
opening stores in small towns and residential neighbourhoods in Chennai that were
relatively poorly served by the existing retailers.
Over-stored trade areas are characterised by the presence of multiple retailers in a

specific product category. An example is Nai Sarak in Delhi, which is well known all
over India for its educational books and stationery products.
• Peer pressure and competition: The importance of support of public and the already
existing business in adjoining area is evident from the following example. Sonepat-
Delhi national highway is one of the busiest highways in the country. Therefore, it has
immense economic potential for dhabas. An entire stretch of one kilometre on this
highway near Delhi has no outlet serving non-vegetarian. Social norms have ensured
that non-vegetarian outlets do not set shops on this stretch.

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6. SITE EVALUATION
Site analysis and evaluation is an important step in the selection of a retail location. As a
retailer, you have three basic choices for a site:
1. Shopping centres/malls.
2. Downtown core.
3. Free-standing location.
Table 4.1 highlights the strengths and weaknesses of these sites.
Table 4.1: Site evaluation
Location Potential advantage Potential disadvantage

type
Downtow ⚫ Good transit ⚫ Perceived parking problems
n ⚫ Established market ⚫ Possibly in decline
⚫ Independent focus ⚫ Usually poor evening traffic
⚫ Strong business audience
Regional ⚫ High traffic ⚫ High rent
mall ⚫ Plenty of parking ⚫ Very competitive
⚫ Established draw ⚫ High building costs
⚫ Professional image ⚫ Controlled hours
Communi ⚫ Trading area defined ⚫ Mixed images
ty mall ⚫ Good parking ⚫ Limited market
⚫ Community-driven ⚫ Limited traffic
Strip mall ⚫ Specialized tenant mix ⚫ Limited draw
⚫ Visibility ⚫ Limited access/transit
⚫ Convenient
Free ⚫ Lower rents ⚫ Unit size (large)
standing/Big ⚫ Value image ⚫ Exclusive to major tenants
box ⚫ Lower overheads ⚫ Harder to attract customers
Activity 2
Visit a nearby shopping mall and prepare a site analysis and evaluation of the mall.

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7. RETAIL LAYOUT
Retailers are now focusing on making the stores more customer-friendly with the store and
thereby increasing the involvement of the customer towards purchase. Store interior
includes colour, in-store display, ambience, lighting and aesthetics used, etc., whereas the
store layout speaks about the skeleton of the store, i.e., the floor space, height of the ceiling,
aisle space, window display, fixtures, pictogram and related fields.
The layout differs on aspects like the target customers, type of merchandise which needs to
be kept, store size and type of store. The format of store may be categorised on the basis of
do-it-yourself, convenience store, specialty store, multi brand outlet, hypermarket,
supermarket, etc.
A store layout that is customer friendly motivates the customer or shopper to spend more
amount of time in the store leading to more purchases. Layout plans with ample aisle space
for customer will guide the customers to freely move in a predefined path leading to different
sections of the store. Planning of layouts helps to make decisions about the nature of traffic
flow, types of products, availability of space and maintenance of space on a daily basis.
Three objectives of a store design:
1. Atmosphere should be consistent with store’s image and overall strategy: This is
very essential as the store designs should be as per the needs of the target customer.
They could be traditional, trendy, masculine, feminine etc. This will result in the value
image of the store.
2. Should influence customer’s buying decision: A store should be designed in such a
way that it will influence the customer’s buying decision. E.g., grocery store is laid out
in an orderly fashion to facilitate orderly shopping and also, the smell of a cookie shop
attracts you into the store.
3. Should take productivity of store into consideration: While designing a store one
should always give productivity of the store due consideration. The productivity could
be well defined in terms of costs versus value received of design elements.

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Layout strategies for retail operations
Before designing a layout, five strategic points must be kept in mind:
1. Store the high-draw items (items which draw high attention and lead to impulse
purchase) around the periphery of the store,
2. Prominent locations of the store are used to place high impulse and high margin items
3. Ensure that the items that dominate the shopping trip (power items) such as prominent
cosmetics and so on are placed on both sides of the isle so that they are dispersed. This
helps in giving ample visibility to the other item.
4. Use end caps to increase the rate of exposure of a product. End cap is the end portion
of the shelf or aisle.
5. The mission of the store can be conveyed by cautious selection in positioning the
department that depicts the mission of the store. For example if the mission of the store
is to promote more organic products, the pertaining department has to be well
positioned in the minds of customers.

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8. TYPES OF STORE LAYOUT
There are several types of store layout. Let us now look at each of them in detail.
8.1 Racetrack form
This layout ensures the shoppers start from the point where they enter the stores, flow
through the entire store and then get back to where they started from. In lifestyle stores this
called forced circulation wherein the shoppers are led through the store along the racetrack
using very strategically placed feature points.
Figure 6.1: Racetrack form Layout
Advantages:
• Ease of browsing: Customers feel very comfortable while shopping at a store with a
racetrack layout. There is ease in browsing as far as the customers are concerned.
• Ideal for small stores: Racetrack layout is ideal for small stores like Archie’s, as the
customers come across almost everything that is there at the store. It is also ideal for
the specialty store because of the small area as compared to that in the supermarkets,
department stores, etc.

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Disadvantages:
• Very costly: If a retailer is looking forward to having a racetrack kind of layout, he has
to pay more as compared to grid layout because setting up a racetrack layout is a costly
affair.
• Problem in cleaning: It has been found that there is always a problem of cleaning the
store in racetrack kind of layout.
8.2 Grid form
The grid format is the most widely used layout for a store and it caters to goal-oriented
shoppers. The shoppers’ movements are in parallel paths and very predictable and easy to
navigate. This type of layout is heavily supported by signages that clearly point to the
different merchandise categories placed in logical convenient adjacencies. This is usually
used in supermarkets, hypermarket stores where one goes looking for items on a shopping
list.
Figure 6.2: Grid form Layout
Advantages:
• Low cost and customer familiarity: It is the least expensive among the various kinds
of layout options that a retailer has and it also has higher customer familiarity as
compared to the two kinds of layouts.

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• Merchandise exposure: This is one of the biggest advantages of grid layout. Grid
layout is designed in such a way that the merchandise will get the maximum exposure
when customers will enter the store. The chances of impulse purchase are very high in
stores which have grid layouts.
• Ease of cleaning: There is always an ease in cleaning stores which have the grid layout.
There are chances that stores which have layouts other than grid layout will have an
issue in cleanliness because of the difficulty in cleaning the stores.
• Possibility of self-service: One of the most important advantages of grid layout is the
possibility of self-service in the stores for the customers.
Disadvantages:
• Plain and uninteresting: Grid layouts have some disadvantages too. They look very
plain and uninteresting because of the design of the grid layout as compared to the
other available layouts.
• Limited browsing: There is limited browsing in the case of grid layouts. The customers
have a limited choice to look through or over the merchandise of the stores.
• There is stimulation of rushed shopping behaviour: Because of its design, one can
see a stimulation of rushed shopping behaviour in the stores with grid layout.
8.3 Free flow
A free flow, as the name suggests, is a circulation that does not specifically direct the shopper
to any specific part of the store. The representation of the schematic layout shows how this
works. The merchandise presentation here plays a very important role in communicating
the store offers. This is very effective in specialty stores because shoppers can be clearly be
communicated about the design and benefits of the offers.
Figure 6.3: Free Flow Layout

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Advantages:
• Allowance for browsing and wandering freely: The best part of free- flow layout for
retailers is the kind of freedom that customers enjoy when they enter the store for
browsing. They can wander in the store and browse freely which is unlikely in the case
of the other two layouts.
• Increase impulse purchases: Though costly, retailers use free-flow layout in their
stores because it always increases impulse purchases.
• Visual appeal and flexibility: This type of layout gives visual appeal to the stores and
helps the retailers not only in increasing the footfalls but also in the branding and
positioning of the store. The other advantage to have this kind of layout is the flexibility
that both retailers as well as the customers enjoy inside the store. The free flow format
allows for change in the store settings and rearrangement of the offerings to allow for
creation of new merchandising stores.
Disadvantages:
• Possible confusion: There are chances of confusion for the customers when they enter
the store which has free-flow layout.
• Cost: The major disadvantage in designing a free-flow store layout is the cost factor.
Retailers have to spend a huge amount of money while designing free-flow layout for
their respective stores.
• Waste of floor space and problem in cleaning: Unlike grid layout, there is wastage
of floor space and also the problem of cleaning the floor. The housekeeping department
always faces the problem of cleaning the store which has a free-flow layout.
8.4 Dead block format
Dead block format is mostly used and adopted in the small kirana shops having less than 150
square feet. This format makes the customer shop without entering the store. The major
differentiator is clearly personalised selling to the customer at the store front and also taking
the shopping list in hand and picking the products off the shelf. The major advantage of this

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format is maximum utilisation of the floor space and easy to maintain and cost effective from
the retailer perspective.
Figure 6.4: An example of Dead block format
Store layout based on type, size of store and merchandise to be kept inside the store:
The store layout has to comply with the type, size and the merchandise of the store. This can
be roughly categorised as under:
Type of store Suggested layout

Discount Grid layout
Hypermarket Grid/Mixed
Supermarket Grid
Departmental Grid/Racetrack
Specialty Free flow
Category killer Free flow/Grid/Geometric
DO-IT-YOURSELF Free flow/Mixed
Warehouse Grid/Mixed
Convenience Free flow/ Straight
Kirana shops Dead block

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Size of the store (sq. Suggested Layout

ft.)
100–1,000 Free flow/Angular
1,000–3,000 Geometric/Mixed
3,000–10,000 Mixed/Angular/Grid/Racetr
ack
10,000–30,000 Mixed/Grid
30,000–100,000 Grid/Mixed
100,000–150,000 Mixed/Grid
150,000 and above Grid/Mixed
Merchandise in the Suggested layout

store
Apparel Mixed/Angular/Geometric
Apparel and Mixed/Angular/Geometric
confectionaries
Medical Grid/Straight
Specialty products Free flow/Angular
9. The ________________ layout ensures the shoppers start from the point where they
enter the stores, flow through the entire store and then get back to where they
started from.
10. The ________________ is the most widely used one layout for a store that and it
caters to the goal mission oriented shoppers.
11. ________________ is mostly used and adopted in the small kirana shops having less
than 150 square feet.
12. A ________________ layout is a circulation that does not specifically direct the
shopper to any specific part of the store.
Activity 3
Consider any three big retail stores in your city. Comment on their location and suggest any
alternative location that you think will be more suited to that store.

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9. SUMMARY
• One of the prime factors for the success of the retail chain or outlet is its location.
• It should also consider the following factors such as strategic context, environmental/
situational context and market research are the factors that play in forming a detailed
and precise location strategy for the store.
• Retail store locations are classified into seven basic types, namely, free standing sites,
city or town locations, inner city, main street, shopping centres, strip shopping centres,
shopping malls and other location opportunities.
• Factors affecting retail location decisions are population and customer profile;
accessibility, visibility and traffic; signage, zoning and planning; competition and
neighbours; location costs; personal factors and other considerations.
• The factors influencing the selection of a region are availability of merchandise,

proximity to the market, infrastructural facilities, transport facility, climatic conditions,
government policy, subsidies and sales tax exemptions.
• The factors affecting selection of a locality in a particular region are labour and wages;
community facilities; community attitudes; banking facilities; existence of supporting
stores; local taxes and restrictions; water supply; personal and emotional factors;
historical issues.
• A store layout that is customer friendly motivates the customer or shopper to spend
more amount of time in the store leading to more purchases.
• The different types of store layout are racetrack form, grid form, free flow form, dead
block format.

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10. GLOSSARY
• Aisle: A space for walking with rows of seats on both sides or with rows of seats on one
side and a wall on the other.
• Ancillary facility: A building or other facility necessary to provide district-wide
support services, such as an energy plant, bus garage, warehouse, maintenance
building, and/or administrative building.
• Demographic Analysis: A technique used to develop an understanding of the age, sex,
and racial composition of a population and how it has changed over time through the
basic demographic processes of birth, death, and migration.
• Geographic information system (GIS): A system designed to capture, store,
manipulate, analyze, manage, and present all types of geographical data.
• Isostante: A term used to refer to the boundary between two market areas served by
two market centres with varying prices and transport costs
• Localisation Economies: Refers to declining average costs for firms as the output of
the industry of which they are a part of, increases.
• Signage: Signage is any kind of visual graphics created to display information to a
particular audience. This is typically manifested in the form of way finding information
in places such as streets or inside/outside of buildings.
• Urbanisation Economies: refer Refers to declining average costs for cities, as firms
increase their levels of activity.
1. What are the different types of retail store locations? What are their advantages and
disadvantages?
2. Discuss the factors that affect the retail location decisions.
3. Compare urban areas, rural areas and suburban areas as retail locations.
4. What is trade area analysis? What does it constitute of?
5. Discuss the factors instrumental in choosing a shopping centre.

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12. ANSWERS
1. Customer’s.
2. Freestanding site.
3. Outlet centres.
4. Demographic analysis.
5. Target market.
6. Urban.
7. Ancillary facilities.
8. Absence of training schools and skilled workers.
9. Racetrack form.
10. Grid format.
11. Dead block format.
12. Free flow.
Terminal Questions
1. Refer to Section 2

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13. CASE STUDY
Baskin – Robbins Creamy location
We sell fun, not just ice cream." – Irv Robbins, co-founder of Baskin- Robbins.
During World War II, Burt, a Lieutenant in the U.S. Navy produced ice cream for his fellow
troops. When the war was over, the two brothers-in- law shared a dream to create an
innovative ice cream store that would be a neighbourhood gathering place for families.
Burton "Burt" Baskin and Irvine "Irv" Robbins had a mutual love of old-fashioned ice cream
and wanted to provide customers with a variety of flavours made with ingredients of the
highest quality in a fun, inviting atmosphere. This concept eventually grew into Baskin-
Robbins.
Baskin-Robbins has long been dedicated to making the experiences of eating ice cream an
enjoyable one. “America’s Favourite Neighbourhood Ice Cream Shop" is a philosophy at
Baskin-Robbins shared by everyone. Baskin-Robbins stores are visited by over 300 million
happy customers year after year – a number that continues to grow as Baskin-Robbins
spreads throughout the world.
Baskin-Robbins was launched in India in 1993 by Graviss Foods, the master franchisee for
Baskin-Robbins ice creams in India and the SAARC. This company plans to launch new
products, such as sticks and cones, targeting middle-class customers. The company plans to
add more parlour operations this year in South Asian countries also. A lounge concept inside
the shopping malls in the cities is also on track and also introduced more kiosk. Families and
youngsters have now grown into the habit of eating out. Ice creams can now have a rich and
unforgettable experience at the nearest BR Scooping Parlour. To select the trading area BR
uses extensive data to analyse potential sites, including GIS data, brand development index,
the population density, household income levels and comparable store analysis.
Baskin-Robbins turned 65 recently. It is much younger than the other ice cream brands in
India. Owned by the US-based Dunkin’ Brands, Baskin- Robbins entered the country 17 years
ago in 1993 with a couple of company-run outlets in Mumbai and Delhi. Over the years, it has
expanded to 425 franchised outlets spread across 95 cities in the country including top notch

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5 star hotels, top airline companies, leading retail chains and finest malls and multiplexes in
India. With 1800 touch points all over the country, BR has managed to carve the name itself
in different corner of India.
World's largest ice-cream chain, Baskin Robbins, has now entered tier II and tier III cities in
India as a part of its expansion plans. These locations are yielding excellent results. For
instance, parlours in cities like Nagpur and Guwahati have been top grosser. These cities
have got a lot of money with not too many places to spend. Baskin-Robbins wants to
penetrate deeper and denser. It is targeting to grow 30 per cent this year. While it wants to
expand the number of outlets in cities it is already present, covering pockets where it is not
there, the chain is also planning an aggressive roll out in a large number of tier II and III cities.
In Mumbai, they have 92 outlets, in and around Delhi, 45 outlets, but there is still a potential
for at least another 200 outlets. The chain is looking at activating 80 to 85 ice cream parlours
every year. Besides, it is also targeting aggressive growth from food service (hotels and
restaurants) and modern-format retail segments. They are certainly a key growth driver and
also plan to explore opportunities in yier IV cities.”
Baskin-Robbins is perceived as a premium brand. A regular scoop costs Rs. 45, while a
premium one costs Rs. 50. It is thus positioned between the mass brands such as Amul,
Kwality Walls and Vadilal and the super- premium brands like Häagen-Dazs and Movenpik.
It faces some competition from both the categories as well as other dessert brands like Café
Coffee Day and Barista. BR positioning has actually benefited because of its affordable pricing
with other brands like Movenpik, which costs Rs. 150-plus a scoop. This upcoming brand has
made life easier for us. Baskin-Robbins is perceived as excellent quality at a lesser price. BR
is slightly more expensive than nearest competitor; however, the customer gets a superior
product along with healthy portion sizes makes it great value. Today, hygiene and quality are
critical to the customer and that is where Baskin-Robbins scores over others.”
Questions
1) What is trade area, and why should retailer choose one over another?
2) Why do certain types of retailers typically locate in one type of location, while others
locate in other location types?

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References/e-references
• Kari G Alldredge, Tracey R. Griffin, and Lauri K. Kotcher (1999), “May the sales force be
with you,”
• The McKinsey Quarterly, no. 3. Sundar Bharadwaj and Thomas W. Gruen (2000),
• “Julian Birkinshaw (2001), “Global account management: New structures, new tasks,”
Financial Times Mastering Management, 20 February.
• Sabine Bonnot, Emma Carr, and Michael J. Reyner (2000), “Fighting brawn with brains,”
The McKinsey Quarterly, no. 2. Daniel Corsten and Nirmalya Kumar (2003),
• www.helium.com/.../164933-the-importance-of-a-retail-stores-design-and-
atmosphere
• www.hinduonnet.com/businessline/praxis/pr0301/03010440.pdf
• www.ibef.org/industry/retail.aspx.

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SEMESTER 3
DMKT303
RETAIL MARKETING
Unit 7: Merchandise Management 1

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Unit 7
Merchandise Management
Table of Contents
SL Fig No / Table SAQ /

Topic Page No
No / Graph Activity
1 Introduction - -
3
1.1 Objectives - -
2 Understanding Merchandising Management - 1 4–5
3 Activities of a Merchandiser - 2 5–6
4 Retail Merchandising Management Process - -
4.1 Step 1: Define Merchandise Policy - -
4.2 Step 2: Gather Historical Information - -
4.3 Step 3: Perform Qualitative Analysis - 3

6 – 16
4.4 Step 4: Merchandise Planning 1 -
Step 5: Identifying the Vendors or - -

4.5
Sources of Supply
Step 6: Merchandise Analysis and - 4
4.6
Control
5 Summary - - 17
6 Glossary - - 18
8 Answers - - 18 – 19
9 Case Study - - 19 – 21

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1. INTRODUCTION
In the previous chapter, we discussed about the store location and the factors which affect
the store location decisions. After deciding the location, a retailer will have to concentrate on
merchandise management. Merchandising traces its growth to the increase of organised
retail in the world. Originally as the retailers managed one or two stores, the function of retail
buying and merchandising, costing, etc. was much easier. In most cases, the retailer himself
did it. When a retailer begins adding categories and stores, the work load on retail buyers
increase extensively. Often, buyers have little time or information and they end up using
approximations which is based on volumes to allocate retail merchandise among stores. This
leads to stores exchanging merchandise between them. To overcome this limitation, the
function of a planner came into being. The job of a planner is to act as a mediator among the
buyers and stores. Merchandise management is explained briefly in this chapter.
1.1 Objectives
❖ discuss about the merchandising management

❖ explains about the activities of a merchandiser
❖ describes about the Retail Merchandising Management Process.

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2. UNDERSTANDING THE MERCHANDISING MANAGEMENT

What is merchandising?
Retail merchandising refers to the various activities which contribute to the sale of products
to the consumers for their end use. Every retail store has its own line of merchandise to offer
to the customers. The display of the merchandise plays an important role in attracting the
customers into the store and prompting them to purchase as well.
Merchandising helps in the attractive display of the products at the store in order to increase
their sale and generate revenues for the retail store. Merchandising helps in the sensible
presentation of the products available for sale to entice the customers and make them a
brand loyalist.
Definition: Merchandising is a marketing practice in which the brand or image from one
product or service is used to sell another. Merchandising, as commonly used in marketing,
also means the promotion of merchandise sales, as by coordinating production and
marketing and developing advertising, display, and sales strategies to increase retail sales.
This includes disciplines in pricing and discounting, physical presentation of products and
displays, and the decisions about which products should be presented to which customers
at what time.
According to American Marketing Association, merchandising encompasses "planning

involved in marketing the right merchandise or service at the right place, at the right time,
in the right quantities, and at the right price”."
Merchandise management is the process of analysis, planning, acquisition, handling and

control of the merchandise investments of a retail business with the objective of maximising
the sales and profits of a category. It sounds simple but involves different processes like
buying, sourcing, merchandising and sales. It may be virtually impossible to keep the buying
process straight without grouping items into categories. In general, a category is an
assortment of items that the customer sees as reasonable substitutes for each other. For
example men’s formals apparels, ladies ethnic wear and infants’ apparels are categories.

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SELF ASSESSMENT QUESTIONS - 1
1. __________________refers to the various activities which contribute to the sale of

products to the consumers for their end use.
2. _______________________is the process of analysis, planning, acquisition, handling and
control of the merchandise investments of a retail business.
3. ________________________is a marketing practice in which the brand or image from one
product or service is used to sell another.
3. ACTIVITIES OF A MERCHANDISER
The merchandiser coordinates with the design team to effectively present the product or
product line. He or she develops colours and specifications, and performs market research
to determine the most effective ways to sell and promote the product. This person needs
strong communication and negotiation skills and visual and analytical abilities. He or she
also needs to be a creative and innovative thinker.
Merchandising specialist:
This person actually represents the company in retail stores. By seeing the store layout, he
makes sure the product is located in an obvious and visible location, also known as product
placement. The merchandising specialist also ensures that the product is presented in an
appealing way. This person must have strong sales and negotiating skills as well as initiative
and an eye for proper placement.
The functions of merchandising can be illustrated as: Merchandise planning flows from the
corporate company strategy and is built using planning, forecasting, store planning in terms
of salvage capacity, assortment planning, price points, visual merchandising, inventory and
replenishment schedules, etc.
Activity 1
Study the activities of a merchandiser.
Hint: Consider any specialist in merchandising nearby your home or in a known retail shop.

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4. The _______________coordinates with the design team to effectively present the

product or product line.
4. RETAIL MERCHANDISING MANAGEMENT PROCESS (RMM PROCESS)

Retail merchandising refers to the process used to conduct retail sales. As part of the process,
the merchandiser pays close attention to the different types of products offered for sale, how
to present those products to consumers in a best way, and determine a reasonable retail
price for each unit sold. Earlier, the retailers were engaged in the task of retail merchandising
in a physical location, but nowadays the Internet has made possible to apply these same basic
principles in a virtual setting.
Merchandise management is a strategic process. As such, we need to create systems leading

to a seamless and integrated way from top level strategy to tactical action. Ensuring the right
merchandise is available at the right place, at right time in the right quantity and at right
price is one of the major areas of concern for a retailer. In order to avoid lost sales, the
resulting lost profits, potential obsolescence and lost opportunity costs due to a too large,
out-of-date inventory, the retailer must be able to plan and budget for his merchandise
requirements.
4.1 Step 1: Define Merchandise Policy
For a retail strategy to be successful, it has to be better than the competition in one of the
following three key areas: Price, Service and Product. Simultaneously, you must also remain
competitive in the other two.
Every retail organisation must have a vision so as to provide it’s buyers with some insight
into the following business components:
• Demographics of current and potential customers.

• Image of the store.
• Quality levels of merchandise.

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• Price point policy.

• Marketing approach.
• Customer service levels.
• Desired profit margins.
This will help the retailer to develop a clear merchandise policy outlining buying goals and
objectives. Effective communication of this policy will notonly provide direction, but also
drive all decision-making throughout the merchandise planning process.
4.2 Step 2: Gather Historical Information
In building a six-month plan, the objective is to prepare a total monthly purchasing schedule
for the company. Then, repeat this process for the next level of detail, i.e. the departmental
level. Depending on the sophistication of company information systems, each department
can then be broken down into smaller segment, i.e. "classes", for which a similar sales plan
is prepared.
The first step in preparing these plans is to pull the sales information for the same period
last year. Not only should we gather actual sales numbers, but also statistics on returns,
markdowns and any inventory carried over. Unless your store is computerised, detail of this
nature will not always be available. However, even a manual analysis of total merchandise
purchases will provide you with an acceptable level of data, which is far better than having
no information at all.
4.3 Step 3: Perform Qualitative Analysis
Most professionals will agree that the buying process is 90% analytical and 10% intuitive. In
other words, retailers must do the homework to achieve any level of success. As the most
critical aspect of a successful operation, buying/ merchandise management is what retail is
all about. “Qualitative Analysis” refers to “identifying the proper components in a mixture”.
In this case, the mixture is the merchandise plan and the components that affect this plan are
as follows:
(a) Customer Profile Analysis

• Who are our best customers and what are their buying behaviours and attitudes?
• Who do we want our customers to be?

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• Who are our secondary customers and what should we be buying for them?
Winning specialty store concepts focus on one “individual” and build their merchandise
mix to please this specific shopper. Learn right away that you cannot be everything to
everybody.
Activity 2
List out a customer profile for any known retail store.
Hint: Consider the major product portfolio of the company and observe it.
(b) Department Analysis
To effectively forecast sales and purchase the right product, the retailer needs a further
breakdown of the store into major departments. For example a typical family apparel
shoe store may have the following departments: men’s, women’s and children’s apparels
and accessories. The men's department may be made up of the following sub-categories
or "classes": dress ties, cufflinks, hanky, etc. To plan at the “class” level, retailers need
sales and inventory data at the “class” level.
(c) Key department trends
The professional buyer always looks for trends in the market. For example what is the
trend in men's footwear? Maybe Western boots are gaining popularity whereas brown
dress shoes have been declining for the last two seasons and black sport shoes are hot
with the youth market. Do you always run out of large sizes in slippers weeks before
Xmas?
Information about the trend in the market is available from a number of sources,
including trade publications, merchandise suppliers, the competition, other stores in the
U.S. and Europe, and your own experience.
(d) Major vendor analysis
“Information is power". Even a minor analysis of the performance of your major vendors
can identify significant buying issues. Although they shipped 98% of what we booked,
further analysis indicates late deliveries coupled with styling and fitting problems. Due

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to poor supplier performance, we ended up with a gross margin of 10% below the store
average. As you can see, this type of vendor analysis is essential in planning your
merchandise strategy.
(e) Advertising review
Increased traffic flow often results in higher sales. To this end, advertising and
promotions are used to improve traffic levels. The buying and advertising departments
must work closely together to ensure the company’s investments in this area result in
strong performance. A promotional calendar outlining event dates, media buys and
budgets should be developed and taken into consideration when the merchandise
planning process takes place. Buyers may have to coordinate product deliveries with
promotions or vice versa.
(f) Visual presentation analysis
People usually respond the best to visual stimuli, so product presentation is a major
driver of sales. For this reason, another segment of the buyer’s seasonal written report
describes their thoughts about visual merchandising for the products. This includes the
following:
• Are any special fixtures required?

• Where the product should be displayed?
• What type of signage is necessary?
Visual merchandisers work very closely with the buying departments in most chains.
Information concerning delivery dates, promotions and product quantities may affect
decisions about what to feature in store windows and key display areas. The “visual
people” will also handle any special in-store signage that will accompany the product.
5. _______________ is a strategic process.

6. In building a six-month plan, the objective is to prepare a total
_________________schedule for the company.
7. To effectively forecast sales and purchase the right product, the retailer needs a
further breakdown of the store into major______________ .

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4.4 Step 4: Merchandise Planning
The merchandise planning process helps the retail buyer in forecasting, with some degree of
accuracy, what to purchase and when to get it delivered. This will greatly help the company
to attain its sales and gross margin goals. Buyers must heavily rely on past sales data, along
with personal experience and their own intuition about the trends in the market. Purchasing
on time to ensure availability of merchandise during season refers to the methods, practices
and operations carried out to promote and sustain certain categories of commercial activity.
Depending on the context, the term is understood to have different specific meanings. To
ensure sales, companies go to great extent by making sure their products are visible in stores
and are presented in an appealing, 'sellable' way. This is called merchandising, which
includes product packaging, placement, promotions and pricing to appeal to the target
market. A marketing practice in which the brand or image from one product or service is
used to sell another refers to merchandising.
The first component in the merchandise plan is the Strategic Plan. This is generally high level,
with perhaps a five-year timescale. It is used to set the critical success factors for
merchandising in terms of sales, margins and stocks. Next, is creating a Channel Sales Budget.
This helps us to factor in the effect of new channels, new stores, closures and refits. Once
completed, a Category Level Margin Plan is created. Here, we are making a weekly version of
the strategic plan at category level for sales, margins and markdowns.
We then start getting input from individual merchandisers, and gap analysis between these
plans and the strategic plan will help in ensuring that we stay on course. At the same level,
we create a Category Level Weekly Sales, Stock and Intake Plan. It is here that our Open to
Buy is created, which normally refers to the first significant win in the implementation of a
planning system. These category level plans create the box within which the range plan will
be created.

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Figure 7.1: Example of Merchandise plan and budget
Source: William A. Staples: Robert swaddled journal of small session misstate
Range planning: We start here with the Assortment Plan. Under this plan, the retailer
breaks the goals of the merchandise plan into specific lines, or sometimes, SKUs. The system
should be able to extend the results so that it can see the effect on overall margin mix, for
example, of a change in cost price of an item.
Once the assortment plan is in process, at the same time, Distribution Planning starts. During
distribution planning, the retailer can see the stores in which a line of space is ranged to, and
lines of space which a given store will receive. The link between available physical space and
ranging done here is a key determining factor of merchandise performance.

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Space planning: Space planning systems can be divided into two types – numeric and visual.
Numeric planning systems just allow the users to take account of available space and
calculate ratios like return on space. Visual systems allow the users to create 3-dimensional
walk-through models of the stores and to preview the look of a store once ranging decisions
have been made. Planograms are the most commonly used tools for space planning.
Factors to be considered in product selection: The retailers should select a product

portfolio very carefully while starting a new store. It is considered to be a crucial decision in
retail business. There are unlimited choices and initially the task may be overwhelming.
There should be not only a demand for the products, but it should also be profitable and
something that retailers will enjoy selling. Before committing to a product or product line,
the following factors should be considered by retailers while deciding which products to sell:
• Marketability: Before deciding on which product to sell, the retailers should know the
type of market and customers they want to sell to. If the products attract only some
people, it may not be sufficient enough for a business to sustain. The product selection
does not have to attract all the people but it should be something that can convince a
large percentage of customers.
• Profit margin: Selling high-value (high priced) items is generally more profitable, but
can require more credibility to sell. When looking at the price of the product, the retailer
should remember to calculate direct and indirect costs (like overheads) of selling the
goods. The best-selling products will not ever earn any profit if the margin is too small.
• Consumable: A product with recurring sales value should be chosen. A consumable item
that involves replacement on a regular basis is one way a retailer can establish long-term
sales. By establishing a customer base with recurring products, customers will continue
to come back to buy more as the products are used up by them. Additionally, satisfied
customers may recommend for related products.
• Acceptability: While selecting products, acceptability is extremely important. New
trends and products can boost the business but the retailer needs to understand
customer acceptance.
• Competition: Competition should be healthy and a smaller store can choose ways other
than volume and price to compete with bigger retailers. On the other hand, the more
unique the product, the less the chance of competition.

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• Quality: Product quality is extremely important for a store’s reputation. The key to
having a successful business is in knowing the products and believing in the fact that
right merchandise with good quality is widely accepted by the customers.
4.5 Step 5: Identifying the Vendors or Sources of Supply
Retailers often handle thousands of brands, and the bigger the retailer, the broader his
vendor base. Retailers have to constantly move inventory to keep pace with the ever-
changing marketplace that thrives on change. Top retailers know that to stay on top, they
must get the right merchandise at the right price point, and get it on the shelf as quickly as
possible. However, there are a number of hurdles that retailers must overcome before an
item gets sold. To get merchandise efficiently, there is a complex dependency between
retailers and their vendors. An inordinate amount of documentation and approval processes
is accompanied with each vendor and his merchandise.
Retailers must set guidelines to make sure that shipments arrive on time and accurately;
pricing of the items are correct; vendor markdowns are reflected appropriately; logos are
used properly; brands are merchandised according to vendors’ desires; and promotions are
done properly. Also, with each new item, modification in price or promotion, a colossal
domino effect is started as retailers scramble to mirror the changes through the order
process.
Improvement in the efficiency and accuracy of supply chain interactions can lead to
significant reduction in costs and increase in competitive advantage. Retailers must remain
organised and agile. Unfortunately, dealing with paperwork and monitoring the processes of
incessant cyclical unrest sets significant and time-consuming challenges for retailers.
Retailers like Wal-Mart are moving for global sourcing of their products. For India,
international sourcing is still a new area although some retailers have been doing it for quite
long. While opting for international sourcing the retailer should be well aware of rules and
regulations of foreign trade, issues related to foreign currency and transport. As a retailer,
after deciding to source merchandise internationally, you should be confident about the
credibility of the supplier and the expected return on investment.

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4.6 Step 6: Merchandise Analysis and Control
Merchandise management involves decisions related to inventory, which, in turn, is the

largest investment for any retailer. In this context, the best merchandise performance
measure is Gross Margin Return on Inventory (GMROI).
GMROI comprises a single measure for both inventory productivity and profit. The formula
is as follows:
(Gross margin/Net sales (Net sales /Average Inventory at cost
= (Gross margin / Average inventory at cost
Like return on assets, GMROI combines the effects of profits and turnover. It is important to
use a combined measure so that departments or product category with variation in
margin/turnover can be compared and evaluated. For example within a department store,
some departments (such as jewellery) are high margin/low turnover, whereas other
departments (such as ready-to-wear garments) are low margin/high turnover. If the
jewellery department’s performance is compared to that of ready-to-wear section using
turnover alone, jewellery would not fare well. On the other hand, if only gross margin was
used, jewellery would be at an advantage.
GMROI is used to evaluate and control the performance of departments, merchandise

category, vendor lines, etc. It is also useful for management in evaluating the buyer’s
performance on the basis of gross margin ratio and inventory turnover ratio.
Evaluating Merchandise Performance
Retailers usually face situations where they have to revise various SKUs, vendors, or
departments during merchandise management. These changes may be because of changes
in consumer preferences, relationship with vendor, new arrivals and poor performance of
particular merchandise.

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Causes responsible for the drop of particular merchandise are inferior quality, excessive
complaints or returns, too many repairs, and decreased sales and profits. The evaluative
procedures to review the performance of merchandise are as follows:
• Multiple Attribute method: This method uses a weighted average score for each
vendor. The following steps are followed:
• Develop a list of issues to consider for decision-making, e.g. vendor reputation,
service, merchandise quality, selling history, etc.
• Give importance weights to each attribute.
• Make judgments about each individual brand’s performance on each issue.
• Combine the importance and performance scores.
• Add all to arrive at the brand scores.
• ABC Analysis: ABC analysis ranks the merchandise on the basis of its importance. It
uses some performance metrics to determine which items should never be out of stock,
which items should occasionally be allowed to be out of stock and which items should
be removed from the stock selection. An ABC analysis can be carried out at any level of
merchandise classification, from an SKU to a department.
ABC analysis uses the 80:20 principle which states that 80% of the sales come from
20% of the products. The first step in the ABC analysis is to rank the SKUs using one or
more criteria. Contribution margin is the most important performance measure used
for this type of analysis.
Contribution margin = Net sales – Cost of goods sold – Other variable expenses
Other variables expenses can include sales commissions.
The next step is determining how items with different levels of profit or volume be
treated differently. The buyer may define items as C items accounting for 65% of the
SKUs but contributing only 10% of sales, B items representing 10% of items and 20%
of sales and A items accounting for 5% of items and representing 70% of sales. (D items
are those for which there were no sales in the past season.)
• Sell-Through Analysis: Sell-Through Analysis is a comparison between the actual and

expected sales to determine whether early markdowns should be introduced or
whether a review of merchandise stock is called for to meet the existing demand.

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In the organised retail set-up, vendors and retailers work hard on evolving a
mechanism to ward off such risks which lead to loss of revenues in terms of stock-outs
and markdowns. Today, most of the consumer goods companies are working on a fully
integrated Merchandise Management System (MMS), which provides the tools to
manage the entire retail cycle – from planning, buying, and receiving to transferring,
distributing, and selling of goods to performance analysis and revised pricing and then
back to planning for the next season.
8. The first component in the merchandise plan is the _______________ .
9.__________________ is a comparison between the actual and expected sales to determine

whether early markdowns should be introduced.
10. ABC analysis uses the____________ principle.

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5. SUMMARY
• Merchandising is a marketing practice in which the brand or image of one product or

service is used to sell another.
• Retail merchandising refers to the various activities which contribute to the sale of
products to the consumers for their end use.
• Merchandise management is the process of analysing, planning, acquisition, handling
and controlling the merchandise investments of a retail business with the objective of
maximising the sales and profits of a category. Merchandising specialists represent the
company in retail stores.
• The functions of merchandising can be illustrated as: merchandise planning, forecasting,
store planning in terms of salvage capacity, assortment planning, price points, visual
merchandising, inventory and replenishment schedules, etc.
• Retail merchandising refers to the process used to conduct retail sales. As part of the
process, the merchandiser pays close attention to the different types of products offered
for sale, how to present those products to consumers in the best way, and determine a
reasonable retail price for each unit sold.
• Retail Merchandising Management process includes five steps: defining merchandise
policy, gathering historical information, performing qualitative analysis, merchandise
planning, identifying the vendors or sources of supply, merchandise analysis and
control.

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6. GLOSSARY
RMM Process: Retail Merchandising Management Process
Range Planning: We start here with the Assortment Plan. Under this plan, the retailer
breaks the goals of the merchandise plan into specific lines.
Consumable: A product with recurring sales value.
GMROI: Gross Margin Return on Inventory.
ABC Analysis: stands for “Always Better Control”
Sell-Through Analysis: Sell-Through Analysis is a comparison between the actual and

expected sales to determine whether early markdowns should be introduced or whether a
review of merchandise stock is called for to meet the existing demand.
\ 7. TERMINAL QUESTIONS
1. What do you understand by merchandise management?

2. Explain the retail merchandising management process in brief.
3. How qualitative analysis has been performed in RMM process?
4. Discuss merchandise analysis and control techniques in RMM process?
8. ANSWERS
1. Retail merchandising.
2. Merchandise management.
3. Merchandising.
4. The merchandiser.
5. Merchandise management.
6. Monthly purchasing.
7. Departments.
8. Strategic Plan.
9. Sell-Through Analysis. 10. 80:20.

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Terminal Questions
1. Refer to section 3
9. CASE STUDY
Linny Bridal Store
Linny Bridal Shop, a small bridal store, sells bridal gowns, prom gowns, accessories, and silk
flowers. It also rents men’s formal wear and performs various alteration services. Linny, age
33, has owned the store since its founding in March 2010. She is energetic and active. So, she
started Linny’s Silk Flowers with $75 of flower inventory in Vellor. She depended on word-
of-mouth communication among her customers, mainly brides, to bring in business. Linny
was still making all the flowers herself. Her flower-making schedule kept her extremely busy.
Linny was approached by a photographer named Sunil, who proposed establishing a one-
stop bridal shop. In this new business, Sunil would provide photography, Linny would
provide silk flowers, and another partner, Kavitha (who had expertise in the bridal market),
would provide gowns and accessories. The new store would be located in Vellore. Shortly
before the store was to open, Sunil and Karen decided not to become partners, and Linny
became the sole owner. She knew nothing about the bridal business. Having no merchandise
or equipment, Linny was drawn to an ad announcing that a bridal store was going out of
business. She immediately called and arranged to meet the owner. She bought all his stock
(mannequins, racks and carpet) for $4,000. The owner also gave her a crash course in the
bridal business. Linny’s Bridal Shop has continued to grow. Bridal gowns and accessories as
well as prom dresses have sold well. As the time approached for Linny to renew her lease,
she move to a much larger town, Lake City, which is the site of a state university.
General business description: The majority of Linny’s Bridal Shop’s current sales are made
to individuals who order bridal gowns from the rack or from the catalogues of three major
suppliers. At the time of the order, the customer pays a deposit. The balance is due in 30 days.

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Linny would like payment in full at the time of ordering, but payment is often delayed until
delivery. Once ordered, a gown must be taken and the bill paid when delivered.
No tuxedos are carried in the store, so customers must order from catalogues. Fitting jackets
and shoes are provided to help patrons size their purchases. Linny’s Bridal Shop rents its
men’s formal wear from suppliers.
Promotional practices: Linny’s Bridal Shop engages in various promotional activities but
is constrained by limited finances. Newspaper ads constitute the primary promotional
medium. Ads for prom dresses are run only during prom season which feature a photograph
of a local high school student in a Linny’s Bridal Shop gown plus a brief description of the
student’s activities. Other promotional activities include bridal shows at a local mall. Linny
feels they have been very successful, although there’s lot of work. A recent prom show in a
local high school used students as models, which proved to be an excellent way to stimulate
sales. Linny hopes to go into several other area high schools during the next prom season,
although this expansion will demand much planning.
Merchandise and service offerings: Linny’s Bridal Shop’s major product lines are new
wedding and party gowns. No used gowns are sold. Discontinued styles or gowns are sold at
reduced prices, because of discolouration. A wide variety of accessories are provided
because she believes that her customers do not have to go anywhere else for them. These
accessories include shoes, veils, headpieces, jewellery and foundations. Slips may be rented
instead of purchased. One room of Linny’s Bridal Shop is used only to prepare silk flowers.
Linny’s Bridal Shop’s major service offering is fitting and alteration. Most gowns must be
altered at nominal charge. Linny feels that personal attention and personal service set her
apart from her competitors.
Competition: Linny’s Bridal Shop is the only bridal shop in Vellore. Linny believes she has
four main competitors: Simran Bridal Shop which is 30 miles from Vellore; Excite Brides, a
new shop with a good operation, is near to Vellore, 50 miles away; Carren is a large,
established bridal shop in 70 miles distance; and Gowns-n-Such is 75 miles away. Linny
watches this new and used gown store closely. Some of her potential customers are buying
wedding gowns from electronic retailers. Linny is concerned that some of the services

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offered by these electronic retailers (such as gift registries, e-mail notices, wedding planning
and wedding picture displays) will attract more of her customers.
Financial considerations: Basic financial information includes:
1. Mark-up: 50%
2. 2006 sales: $200,000 (estimated)
3. Average inventory: $70,000
4. Turnover: 3.0
5. Annual expenses: rent $19,200; labour $24,000; utilities $7,000; supplies $12,000;
equipment $ 4,000; and miscellaneous $4,000
6. Estimated total costs: $170,200
7. Implied Profit: $29,800
8. Capital Invested: $78,000 9. ROI: 7.4%
Questions:
1. Could Linny change the emphasis of her merchandise mix to increase her sales?
2. Which products should have more emphasis? Which should have less?
3. If one of the competitors were to offer her $150,000 for her business, should she sell?
References/e-References
• Dion Jim and Topping Ted, Start and Run a Retail Business, Jaico Books.
• Srini.R.Srinivasan, Stretegic Retail Management, Dreamtech-Biztantra publications.
• retail.about.com/od/merchandisingbuying/Merchandising.htm
• www.helium.com/.../164933-the-importance-of-a-retail-stores-design- and-
atmosphere

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SEMESTER 3
DMKT303
RETAIL MARKETING
Unit 8: Private Branding in Retail 1

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Unit 8
Private Branding in Retail
Table of Contents

Topic Page No
No / Graph Activity
1 Introduction - -
3
1.1 Objectives - -
2 Difference between a Store/Private Brand and a - 1 4

National Brand
3 Growth Drivers of Private Label - 2 5-6
4 Global Scenario of Private Labels 1 - 7
5 Indian Market Scenario 2 3 8
6 Advantages of Private Label - 4 9 -11
7 Disadvantages of Private Label - 5 11 - 12
8 Summary - - 12
9 Glossary - - 13
11 Answers - - 13
12 Case Study - - 14 - 15

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1. INTRODUCTION
In the previous unit, we have discussed about the merchandising and the steps involved in
retail merchandising process. To merchandise the products, retailers create their own labels
and capitalise on the store brand value that they have created through unique service and
enhanced customer care. The most significant advantage of private labels is related to their
price, which is quite low in comparison to the price of similar, competitive, national brands.
Retailers are using national brands to build traffic to retail stores and divert it towards their
private labels.
This crucial price differential is mainly attributed to cost savings created by reduced
packaging and promotional expenses. Although most of the private labels still compete on a
generic basis, by offering low-cost alternatives to national brands, many retailers’ private
labels are now becoming synonymous with good quality and innovation. This upcoming
trend of marketing private labels is one of the key changes in the retail business.
National brands are no longer considered to be the sole charges of retailers, as they are
continuously promoting private labels via improved packaging, along with heavy sales
promotions. Private label strategy can enhance category profitability, increase the
negotiation power of the retailer, provide better channel efficiency and create customer
loyalty. The emergence of major retail brands is a very significant phenomenon in the Indian
economic scenario. Some of the emerging retail brands include Pantaloons, Shoppers' Stop,
Big Bazaar and Globus. In this unit, we will be discussing about the private brand and also
the difference between private and national brand, advantages and the disadvantages of
private brand. ,
1.1 Objectives:
❖ Explain the difference between private brand and a National brand

❖ Describe the growth drivers of private labelling
❖ Discuss the global and Indian Scenario with respect to private brands
❖ Discuss the advantages and disadvantages of having a private label for a retailer.

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2. DIFFERENCE BETWEEN A STORE/PRIVATE BRAND AND A NATIONAL

ABRAND
national brand is a type of product brand name that is nationally distributed. Such brands
are developed and managed by brand managers and are available widely at a variety of retail
outlets all over the country. In many cases, these are also widely accepted by people
worldwide. Among Indian national brands in retail, we have Liberty, Action, etc. whereas
worldwide brands in retail include Levis, Pepe Jeans, Nike, Reebok, etc.
As we are aware what a brand is, a private brand or store brand is a product line owned,
controlled, merchandised and sold by a specific retailer in its own stores. Among Indian
retailers, Stop, Life and Kashish by Shoppers' Stop, and ETC by Ebony are some examples of
private label brands.
Among the product lines launched by retailers, the ones having the name of the store itself
are called store labels. Foodworld and Nilgiris launched their own brand of supermarket
products under the brand names "Foodworld" and "Nilgiris". There is a distinct advantage in
having the name of the brand launched by the retailer after the same name as that of the
store.
Private labels or store brands, are the products developed and marketed by the retailer
himself. It is a label unique to a specific retailer. These products largely have low prices as
compared to regional, national or international brands, although recently some private label
brands have been set as "premium" brands in order to compete with national brands, or
example, the private brand Feasters’ instant noodles sells more than Maggi.
Activity 1
Prepare a list of ten names of National Brand and private brand label for each.
Hint: Visit your nearby supermarket.
1. ________________ is a product line owned, controlled, merchandised and sold by a

specific retailer in its own stores
2. There is a distinct advantage in having the name of the brand launched by the
retailer after the same name as that of the store. (True/False)

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3. GROWTH DRIVERS OF PRIVATE LABEL

Nowadays, manufactures of national brands are concerned about the competition from
private labels, because there are more private labels “Store Brands” goods on the market
than ever before. The improved quality, easy accessibility and economical price of products
give a strong challenge to the existing national brands. Customers today are product-
conscious rather than being only brand-conscious. They are looking for quality products at
an affordable price. Hence, giving Private Labels an opportunity to offer the customers good
quality products, which are competitively priced, becomes significant. In India, there is an
increasing trend towards acceptance of private label brands and thus, their penetration is on
the rise, especially in the apparel, consumer durables, home care and FMCG segments. Major
growth drivers for the rising sales of private labels in India include the following:
• Value propositions: The value proposition is the way by which consumers make their
purchasing decisions. The better the quality and lower the price, the greatest is the value.
Historically, private label products were imitations of leading national brands. Product
quality claims were that they were equivalent to the national brand. Private label
products are priced anywhere from 20 to 70 percent cheaper than the national brand.
Even after giving heavy discounts, private label products still achieve a higher gross
margin percent than the branded competition. Since many private label purchase
decisions are a trade-off versus the national brand, the greater value wins out. Private
label products should be priced according to the value proposition.
Price
value =
Quality
• Market Share: The second driver is the market share. The greater the Private Label’s
market share, the smaller the discount that is needed versus the leading national brand.
Conversely, the smaller the market share the greater the discount is needed. Keeping
in mind the majority of supermarkets do not have an objective to become totally a
Private Label store, a Private Label’s share in the 30 to 35 percent range is both
desirable and achievable.
• Transformed Image: There was a time when private labels were confined to the value
section of a retail store. Viewed as the poor cousin to national brands, consumers
perceived these products as generics with low quality. This consumer perception has

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undergone a change and private labels are steadily gaining acceptance in the eyes of
consumers. The introduction of premium products and products that cater to specific
market segments has changed the private label market dramatically.
• Rapid Urbanisation: Rapid urbanisation is causing the speedy migration of population
to major tier I and tier II cities, which have a significant share in the retail sales of the
country. As the Indian organised retail is mainly concentrated in urban areas, increased
urbanisation is important for organised retail in the country. The aggregate urban
consumption in India has been flourishing continuously, owing to the rise in urban
population as well as a rapid per capita income growth. This rapid urbanisation will
draw more value-conscious customers towards private labels.
• Rising Middle Class: The Indian middle class is the largest consuming class and the
prime target segment for retailers in India. By 2015, the middle class is expected to
constitute around 25 percent of total households and account for 44 percent of the total
disposable income. The Indian middle-class population and its growing disposable
income level is expected to fuel the future growth of organised retail in India. The
Indian middle class can be categorised as seekers and strivers, and they look at private
labels as products, which provide them value for money. The Indian middle class is
more open to buying private labels provided by the retailers whom they trust.
• Changing Shopping Behaviour: The swift technological, economic and social changes
of the last decade have had considerable implications on the buying and consumption
behaviour of the customers. There is a paradigm shift occurring in the shopping
attitude of Indian consumers and this is reflected in their changing preferences, tastes
and shopping behaviour. Indian consumers are more aware of brands and shops for
lifestyle, and value brands according to their need and occasion.
3. The rapid urbanisation is the way by which consumers make their purchasing
decisions. (True/False)
4. Consumers perceive private labels as generic products with low quality that cater
to all market segments. (True/False)

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4. GLOBAL SCENARIO OF PRIVATE LABELS
Fig. 8.1: Share and growth rates of private label by region
Source: The Nielsen Company (AC Nielsen), the power of private label 2005
The above graph represents the global scenario of the private labels with the help of two
tools, the market share and growth of private labels. Globally, private labels account for 17%
of the overall market share, out of which 23% been acquired by the European countries and
16% by the North American countries whereas emerging markets acquire just 6%.
Private Label Leaders in the International Market
➢ Aldi 95% Private Label

➢ Lidl 80% Private Label
➢ Sainsbury’s 60% Private Label
➢ Tesco 40% Private Label
➢ Wal-Mart 40% Private Label
➢ Carrefour 33% Private Label

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5. INDIAN MARKET SCENARIO

In India, the growth of private labels has been phenomenal and is slowly gaining more store
space. Aditya Birla Retail, which operates the ‘More’ food and grocery chain, is reportedly
pursuing strategies to increase its private label sales. It reportedly contributes around 15-
20% of sales right now. In certain categories like hand wash and pickles, Private label share
is 32% and 30% respectively.
Fig. 8.2 depth of private labels by retailer
Private labels are slowly becoming the protagonist in the big Indian retail growth story.
Taking cue from the West, Indian retailers are also churning out newer ways to increase their
profit margins—one such initiative is the introduction of in-house brands. With Indian
customers increasingly accepting these private label brands, they would soon be major
contributors to the profits of Indian retailers.
5. With Indian customers increasingly accepting private label brands, they would soon
be major contributors to the profits of Indian retailers. (True/False)

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6. ADVANTAGES OF PRIVATE LABEL

Several factors propose that the private label is here to stay irrespective of the nature of
competition and market. Private labels extend several profits to both the retailers and
customers, resulting in segment's rising popularity. For retailers, private label goods have an
average of 10% higher margin than those on similar branded products. Customers are
benefitted from lower prices of private labels which are often significantly less than that of
national brands. This combination, being beneficial to both the retailers and consumers, can
put substantial pressure on the branded goods’ manufacturers, who have to compete against
their own customers (the retailers) for market share.
Quality:
Quality is a major advantage since a retailer can drive quality and therefore their perception
through their Private Label products. Also, many Private Labels are manufactured in the
same facility where a national brand is manufactured. (Most national brands now outsource
manufacturing)
Brand Loyalty
National brands are sold everywhere, so there's no real sense of brand loyalty in places
where consumers buy them. Since private labels are specific to one retail chain, so there is
the possibility for retailers to cultivate a sense of brand loyalty. Though private labels are
seen as knock-offs of "name brands", they have become increasingly more accepted by the
public because of increased quality and offerings of private label goods by retailers. Many
consumers now seriously consider private labels as acceptable alternatives to national
brands. Retailers can take advantage of this shift by offering good-quality private label
products to public, which can further help to develop a feeling of brand loyalty. This can give
retailers a significant advantage over competitors.
Lower Prices/Higher Margins
Due to lack of advertising and marketing expenses, private label goods are generally much
cheaper to produce than branded goods. This leads retailers to purchase private label goods
for much cheaper price than they would have to pay for comparable branded products.
Lower prices can attract customers and increase a stop on a product's way from the

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manufacturer to the consumer. Nowadays, retailers are becoming increasingly established

as brands themselves, by marketing their private label products as alternatives to national
brands.
Branding
Successful private label brands will be able to create better sales opportunities for retailers.
The customisation of store brand labels – such as logos and tag lines – can personalise a
customer's shopping experience that can lead to higher customer loyalty. Private labels are
continually expanding into new and diverse categories. As an example, private labels have
developed well beyond the traditional staples to body and health care. The more private
label products on the market, the more consumers will readily choose private labels over a
higher priced name brand.
Control
Private labels offer retailers control over product factors such as pricing, size, package
design, production and distribution. Retailers can develop and implement innovative ideas
to gain market share over national brands. This includes the ability to make quick
adjustments to products based on customer's changing preferences.
A private label is a strategic tool, which helps retailers redefine their offering to the
consumer in the light of the competition, and the retailer costs. Retailers can capitalise on
low brand penetration in certain categories to launch a private label, which differentiates
them. And in overcrowded categories, they can provide products which appeal to the value-
conscious Indian consumer. The road ahead for private label is difficult but at the same time,
it offers retailers a golden opportunity.
Activity 2
List out the characteristics of any private brand in your nearby retail
Hint: prepare for both negative and positive characteristics.

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6. National brands are sold everywhere, so there's no real sense of_____________ in

places where consumers buy them)
7. A private label is a____________ tool, which helps retailers redefine their offering to
the consumer in the light of the competition, and the retailer costs
7. DISADVANTAGES OF PRIVATE LABEL

Competition from National Brands: Many customers are loyal towards the national brands
rather than the store brand. It is observed that a national brand has a good brand image and
has generated a good response of people in the market. In this case, the image of retailer’s
brand loses its impact on customers.
Loss of retail rack space: Most of the retailers prefer to display their products in
promotional areas. They also provide more visible and easy accessible position to their
merchandise within the sections. Sometimes, it has an adverse effect on the loyal customers
of national brands, because still, many customers are loyal towards the national brands. But
most of the time national brands are ignored by the retailers for various reasons and they
pay more attention to their products.
Lack of innovations: When we compare retailer’s brands to national brands, the former
show lack of innovation as retailers deal in many categories. It is difficult for the retailer to
focus or specialise in new product innovations.
Limited focus on brand building: Products offered by the retailer’s brands are actually
very similar to national brands. And the category role of reinforcing social or self-image is
fairly limited. Retailers have a limited role in brand-building of the product because these
products are mostly outsourced. It is difficult for the retailer to concentrate on all the
merchandise.
Dependability: As most of the private label products are outsourced, the retailers have to
depend on the manufacturers. The private label may have his own imperatives in terms of
production, with orders being shoved aside in favour of his own customers' needs.

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Wider choice for customer: The customer gets a wider choice and visibility in national
brands rather than in private label. National brands are available everywhere, whereas
private label products are available with the respective retailers only.
8. When a national brand has a good brand image and has generated a good customer
response the private label loses its impact. (True /False)
9. The customer gets a wider choice and visibility in private label rather than in
national brands. (True/False)
8. SUMMARY
• Private brand or store brand is a product line owned, controlled, merchandised and sold
by a specific retailer in its own stores.
• In India, there is an increasing trend towards acceptance of private label brands and
thus, their penetration is on the rise, especially in the apparel, consumer durables, home
care and FMCG segments.
• Major growth drivers for the rising sales of private labels in India include value
proposition, market share, transformed image, rapid urbanisation, rising middle class
and changing shopping behaviour.
• Globally, private labels account for 17% of the overall market share and in the Indian
retail industry in-house brands offer a new way to increase profit mar,in of retailers.
• The advantages of private label are perception of quality in the eyes of the customers,
ability to cultivate a sense of brand loyalty, low purchase price and offers retailers
control over product factors.
• The advantages of private label are loss of retail rack space, lack innovations, limited
focus on brand building, dependability and wider choice for customer.

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9. GLOSSARY
Market Share: Portion of the market controlled by a company, brand or a product
Disposable Income: Income available with a customer for spending or saving after taking
care of all expenses
Brand Penetration: A measure of popularity of a brand in its market expressed in

percentage of total customers in the market who bought a particular brand
10. Terminal Questions

1. Define Private Branding. Explain the growth drivers of private label in detail.
2. What are the advantages and disadvantages of private label from a retailer’s
perspective?
3. Explain the difference between national brand and Private Brand.
11. ANSWERS
1. Private brand
2. True
3. False
4. False
5. True
6. Brand loyalty
7. Strategic
8. True
9. False
Terminal Questions
2. Refer to section 6 and 7

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12. CASE STUDY

Private Label Brands – Just Another Brand
Private Label Brands (PLBs), also called Store Brands (SBs), are goods owned and
merchandised by retailers. PLBs have long been considered as an important aspect of
merchandising practice, both as a strategic tool for retailers and a unique source of
competition for manufacturers. The market share for store brands across different food
categories have increased in the last few years; private labels have steadily eroded the
market share traditionally held by national brands. Retailers in India are spurring
consumers' decision-making by expanding the scope of private labels.
Mostly store brands in mass categories such as processed foods, personal care and home
care are "me-too" products. The Tasty Treat label took off after a disagreement over margins
a year ago between the Future Group and Frito-Lay. The snack company temporarily broke
ties with the retailer, and Food Bazaar promptly stocked its shelves with Tasty Treat potato
chips and a rival brand, ITC's Bingo. The result was that the home-grown chip brand raced
ahead. The Tasty Treat brand outsells better-known brands in many products.
Retailers aren't tough only with manufacturer brands. They are equally uncompromising
when it comes to evaluating the performance of their own brands. Barely a month after
launch, Mela – a home furnishings brand – and another in-house brand, Fashion Station, have
been phased out on similar grounds.
Generally, PLBs suffer from deficiencies relatively to national brands. Store brands are lower
priced, are frequently poorly packaged, lack strong brand recognition and are generally not
advertised at the national level. In fact, the margins on private brands are substantial. Higher
sales of higher margin private label brands increase profits and may enable retailers to face
competition. Furthermore, preference for Private Label Brands contributes to store loyalty,
resulting in higher sales of both national and private label brands. This prevents the store
from margin- killing price promotions and an ever escalating need to respond to competitive
price pressures.
Taking cue from the West, Indian retailers are also churning out newer ways to increase
their profit margins. Private labels are slowly becoming the protagonist and competing with
the international brands. Today private labels brands have captured a market share of 5.7%

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which can be considered as quite significant, as they are taking share from established
national and international labels. Awareness of such brands is increasing too: Every 4 out of
5 supermarket shoppers know about these labels. The labels could be tomorrow’s successful
brands…
Questions
1. Is consumer differentiating Private Label’s s from National Brands s in terms of quality?

2. Is Private Label Entry as a Competitive Force for National brands?
• Alexander Nicolas and Doherty Anne Marie, International Retailing, Oxford University
Press.
• Gilbert David, Retail Marketing Management, Pearson Education
• http://retail.about.com/od/marketingsalespromotion/Marketing_Sales_
Promotion.htm

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SEMESTER 3
DMKT303
RETAIL MARKETING
Unit 9: Integrated Marketing Communication in Retail 1

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Unit 9
Integrated Marketing Communication in
Retail
Table of Contents
SL Topic Fig No / SAQ / Page No

1 Introduction - -
3
1.1 Objectives - -
2 Understanding Integrated Marketing - 1 4-5
Communication
3 Elements of Communication Process 1, 2 2 5-8
3.1 Communication Plan - Integrated - -

marketing process
4 Tools of IMC 3 3 9 - 12
4.1 Indirect marketing - -
4.2 Direct marketing - -
5 Upcoming tools of IMC - 4 12 -14
5.1 Event management and sponsoring - -

events
5.2 Trade shows - -
5.3 Index furniture: Index - -
5.4 Mobile marketing - -

6 Factors influencing the Increased use of sales - 5 14 - 16
promotion
7 Summary - - 17
8 Glossary - - 18
10 Answers - - 19
11 Case study - - 20 - 21

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1. INTRODUCTION
In the previous unit, we clearly studied about drivers, scenario of the private label branding.
These days, people tend to multi-task due to the advent of different types of modern facilities.
They tend to browse the internet while watching the television, or to read a magazine while
listening to the radio while driving. Maintaining consistency across multiple media requires
managing communication – from strategic analysis through database management.
However, IMC is gaining more importance in retailing. We believe a better understanding of
IMC in the retailing context would benefit retailers and students.
Going forward retailers have access to different possibilities for communicating with
customers. For example, consider a personal shopping assistant (PSA), which is a touch-
screen Tablet PC mounted on shopping carts. Think of it as “smart carts.” It provides
information to a consumer while he/she shops in the store. In this chapter, you will
understand how IMC can be used by retailers for better sales and increased revenue.
1.1 Objectives:
❖ Define Integrated marketing communication

❖ Discuss about the Elements of Communication Process
❖ Describe the tools of Integrated marketing communication
❖ Discuss the upcoming tools of Integrated Marketing Communication
❖ Explain the factors which influences the increased use of sales promotion.

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2. UNDERSTANDING INTEGRATED MARKETING COMMUNICATION
Companies tend to inform, persuade, and remind customers – directly or indirectly – about
the company’s products, services and brands through marketing communications.
Marketing communication represents the idea that a brand wants to communicate to its
customers, the company image, and the brand Image it wants to create in the minds of the
potential customers. Brands attempt to establish a relationship with customers through
different ways of marketing communications.
What is Integrated Marketing Communication (IMC)?
IMC is integrated management of different communication media to build positive and

lasting relationships with consumers and other stakeholders. It is a customer-centric
approach to marketing and branding that emphasises the use of various, intersecting forms
of media and technology.
IMC is based on a strategic planning process beginning with a complete knowledge of

consumers and their various needs. Marketing communication has evolved from a "push"
mode of communication, traditionally using advertising to simply sell products. Advertising
communication has to be so powerful that consumers fall in love with the product. It should
help to create a brand value in the minds of the people.
IMC uses these different modes of communication to provide clarity, consistency, and
maximum impact on the consumers.
Though IMC is not a new phenomenon, there has been an urgency shown in the
implementation of IMC because of:
• Developments in information and communication field.

• Fragmentation of media.
• Changes in the structure of communication agencies.
• Increasing sophistication of clients and retailers.
• Increasing cost of advertising media.
• Decreasing effectiveness of traditional media.
• Increasing global competition.

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1. Marketing communication has evolved from a______________ mode of

communication, traditionally using advertising to simply sell products.
2. IMC is integrated management of different communication media to build positive
and lasting relationships with__________ and other stakeholders.
3. ELEMENTS OF COMMUNICATION PROCESS

Communication process should be two-way. Companies should look forward to developing
communication network which helps companies to connect to customers and vice versa.
Technology has opened up many avenues to carry out effective communication.
Communication process has nine elements. The two parties are sender (company) and
receiver (customer). The communication tools are message and the media used for
communication. The four major communication functions are encoding, decoding, response
and feedback. Noise is another element, which is any interference faced while transmitting
the message.
Figure 9.1: Communication Process And Its Elements

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Senders must encode the message in order to interest target audience and use the right
media. The receiver decodes the message received, responds to it and sends feedback to the
company. Experienced senders are able to get better messages from consumers.
3.1 Communication Plan – Integrated Marketing Process
Companies must integrate all the available tools to reach a wider audience and effectively
communicate about brand and products. A strong communication plan has to be charted out
for effective communication process. There are eight steps in a communication plan.
Step 1: Target audience: The first step is identifying the target audience. The target
audiences are the existing customer or the potential customers, identifying whom is
important for the effective implementation and success of the communication plan. After
identifying the target audience, prevailing company and brand image has to be assessed. On
the basis of this analysis, new communication plan has to be tailored.
Step 2: Specific objectives: The second step is to set specific objectives for the given
communication message. This objective could be to enhance existing image, convey
attribute, or encourage a consumer to act. The objective can have a cognitive, affective or
behavioural response.
Step 3: Message: This is the third step is the design of the message. The designing of the
message follows the objective of the message. The design of the message has to address
content of message, message structure, message format and message source.

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Figure 9.2: Components of Communication Plan
Step 4: Communication channel: The fourth step is selection of communication channel.

The channel must be appropriate to carry the message to the target audience. For
pharmaceutical companies, their sales people are the most effective channel in reaching the
target doctor audience, instead of placing billboards.
Step 5: Budget: The fifth step is related to the financial estimates of the whole expenditure.
Companies need to decide budget of sales promotional and other activities. The common
methods followed are an affordable method, percentage of sales method, competitive parity
method, and objective-task methods.
Step 6: Communication mix: The sixth step is the decision related to the communication
mix. Companies have limited budget, in which they need balance expenditure among
advertising, sales promotion, public relation, sales force and direct marketing. The relevant
choice of the communication mix is highly dependable on the industry the company is
operating.
Step 7: Measurement: The seventh step measuring results of the communication process.
It is very important for companies to keenly follow the outcomes of the communication
process. The results could be increased in sales, change in attitude or image of the brand.

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Step 8: Above the line (ATL) and below the line (BTL) marketing Promotion can be
loosely classified as "above the line" or "below the line". ATL represents traditional
marketing channels that strive to reach a mass audience with messages that reinforce the
brand, communicate product information or incite an emotional response. BTL represents
methods aimed at establishing a relationship between a brand and an individual consumer.
While there is some measure of crossover, ATL usually encompasses TV, radio, print
advertising, outdoor advertising, etc. BTL typically incorporates direct mail, event
marketing, interactive marketing, promotional marketing, etc. to reach its targets. Point of
sale communications at the retail store are an important BTL promotional tool. Also retailers
hand out pamphlets on entering the store, or as newspaper inserts are BTL marketing tools.
3. Communication process should be_______________ .

4. _________________ must encode the message in order to interest target audience and
use the right media.
5. ________________ marketing usually encompasses TV, radio, print
advertising, outdoor advertising, etc.

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4. TOOLS OF IMC
Figure 9.3: Tools of Integrated Marketing Communication
4.1 Indirect Marketing
• Advertising
Advertising typically tries to compel existing or potential customers to purchase or to

consume more of a product or service. Most of the advertisements aim to increase revenue
through increased sales. They help to create and enhance brand identity and brand image.
In order to do this, advertisements include factual information with persuasive message.
Television, radio, cinema, magazines, newspapers, video games, the internet and billboards
are used for advertising.
• Print advertisements
Print advertisement also contributes a substantial part of the integrated marketing

communication mix. It includes advertisement in different forms of publications like
newspaper, magazine etc.
• Public relations (PR)
PR is the practice of managing the flow of information between organisation and public. PR
provides the exposure for an organisation for a wide reach and popularity among public
using topics of interest and news items that do not require direct payment. Because public

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relations place exposure in credible third-party outlets, it offers a third-party legitimacy that
advertising does not have. Common PR activities include speaking at conferences,working
with the press, winning industry awards, and employee communication.
PR can be used to build rapport with investors, employees, customers, voters, or the general
public. Almost all organisations concerned about image building uses some level of public
relations. A number of specialties exist within the field of public relations, such as investor
relations or labour relations.
• Sales promotion
Marketing communications (media and non-media) are employed for a predetermined,
short time period to increase customer demand, stimulate market demand or improve
product availability. Methods include point of purchase displays, contests, discounts, rebates
and free travel, such as free flights.
4.2 Direct marketing
• Direct mail
The most common form of direct marketing is direct mail, sometimes called junk mail. This
is used by advertisers who send paper mail to all postal customers in an area or to all
customers on a list.
Examples
Retailers like Shoppers Stop and Lifestyle send mailers to their “Privileged customers” called
the “First Citizen” and “The Inner Circle” to inform them about their sales promotions.
• Coupons
Coupons is used to elicit a response from the readers of various print media. An example is
a coupon given to the readers at a shop, which is for discounts. Cost of supporting a third-
party medium (the newspaper or magazine) is incurred by the marketer. Direct marketing
aims to circumvent that balance, bringing the costs down to delivering their unsolicited sales
message to the customer, without supporting the newspaper that the consumer seeks and
welcomes.

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• Telemarketing
Telemarketing is a method of direct marketing. In this method, a salesperson solicits to

prospective consumers to buy products or services. This is done either over the telephone
or through a face-to-face appointment or web conferencing scheduled during the call.
Telemarketing can also include recorded sales messages programmed to be played over the
phone through automatic dialling. But telemarketing is being termed as annoying recently.
Another emerging way of direct marketing is that of mobile marketing through SMS. But both
are severely restricted in India by TRAI regulations.
• Direct selling
Direct selling is the sale of products by face-to-face contact with the customer, either by
having salespeople approach potential customers in person or through indirect means such
as Tupperware parties. Companies such as Amway, Tupperware and Avon are the best
examples of direct selling through Multi-level marketing strategy. Tupperware does direct
selling throughout the world using catalogues. It does not have its individual dedicated retail
outlets.
• Catalogue marketing
Catalogues can contain information about the company, products and their uses. Readers
usually view this information as highly credible. The style of a catalogue – repeated
statements of product specifications and prices – creates this credibility. However, it also
creates a weakness – they are expensive to print and distribute, given the volume of
information. So catalogues are often the basis for subsequent mail and telemarketing
campaigns. These stimulate customers to consult their catalogues. Catalogue price
promotions are powerful, as they are based on reductions from a published former price, for
example Hypercity-Argos launched in 2007.
Activity 1
Prepare your own print advertisement for any FMCG products like shampoo, soap etc by
choosing your own name, logo, message for the product.
Hint: Refer to Print Advertisement in newspaper .

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6. ___________helps to create and enhance brand identity and brand image.

7. Direct selling is the sale of products by___________ with the customer.
5. UPCOMING TOOLS OF IMC

5.1 Event Management and Sponsoring Events
Event management is the application of the management techniques of project

management to the creation of events. Event management involves studying the intricacies
of the brand, identifying the target audience, devising the event concept, planning the
logistics and coordinating the technical aspects before actually executing the modalities of
the proposed event.
From product launches to press conferences, companies create promotional events to help
them communicate with clients and potential clients. Another means used is sponsoring
events. Retailers have started sponsoring those events that match their brand image in
order to enhance the perception of the brand in the public mind. For example, Tanishq, one
of India's innovative jewellery brand, unveiled the set of crowns and its 'Colours of Royalty'
range of jewellery, specially crafted for beauty pageant, Pantaloons has been long associated
with PFMI (Pantaloons Femina Miss India Contest)
5.2 Trade Shows: A trade fair (or trade show) is an exhibition, in which companies from
a specific industry showcase and demonstrate their products, service, research on
competitors and examine trends and scope for growth. While some trade shows are public,
some others are meant only for company staffs and media representatives. Therefore,
tradeshows are divided as either "Public" or "Trade Only".
Trade shows conducted online are virtual tradeshows, which are on the rise. This is due to
less investment need and ease of attending the show without travel. For example, IIJS (The
India International Jewellery Show) is one of the leading Asian jewellery exhibitions held
annually in India. It is hosted by the Gem and Jewellery Export Promotion Council (GJEPC),
an apex body to promote exports of gems and jewellery from India. This is sponsored by the

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Ministry of Commerce, Government of India. Example Index furniture: Index furniture is an

international fair for furniture, wooden products, interior decorations; machinery and
equipment for forest exploitation and wood processing. The exhibitors offer a complete
selection of casual indoor and outdoor furniture, garden accessories and more, all under one
roof. Architects and interior designers, builders, property managers and consultants,
manufacturers, importers and exporters etc. are invited to this fair.
5.3 Index Furniture: Index furniture is an international fair for furniture, wooden
products, interior decorations; machinery and equipment for forest exploitation and wood
processing. The exhibitors offer a complete selection of casual indoor and outdoor furniture,
garden accessories and more, all under one roof. Architects and interior designers, builders,
property managers and consultants, manufacturers, importers and exporters etc. are invited
to this fair.
5.4 Mobile Marketing
While traditional advertising media such as television and print educate viewers on new
products and deals, they lack interactivity and, therefore, are not measurable. Same is the
case with out-of-home modes such as hoardings, digital displays or simple mobile ‘push’
marketing messages. Though they do gather eyeballs, creating and producing content takes
considerable effort. However, the opportunity to produce dynamic deals is reduced
considerably.
In contrast to these modes of advertising, in-store promotion through Bluetooth is more

effective in retailing. It is as simple as sending users free, permission-based content and
promotions via Bluetooth within certain locations. Such campaigns have been highly
successful since these are specifically targeted, highly calculable, time bound, interactive
and, most importantly, provide value-based deals to potential customers.
Example
Raghuleela Mall, in Borivli, had temporarily installed a small Bluetooth kiosk on a temporary
basis. The kiosk asked the user to switch on the Bluetooth on his/her mobile. Once the
Bluetooth is on, the user gets free messages from the kiosks regarding the different offers
and schemes running in the mall.

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Activity 2
List out the trade shows which were organised in the previous year in your nearby city
or in your place.
8. The hoardings placed by a retailer on the main road in your city are an example
of___________ medium.
9. Coupons are a good promotional tool because their response can be measured
directly by counting how many customers redeemed their coupons. (True/False)
6. FACTORS INFLUENCING THE INCREASED USE OF SALES PROMOTION

Many factors have contributed to the increased use of sales promotion by consumer product
manufacturers. A major reason for the increase in spending on sales promotion is that the
promotion industry has matured over the past several decades. In the past, sales promotion
specialists would be brought in after key strategic branding decisions were made.
Promotional agencies were viewed primarily as tacticians whose role was to develop a
promotional programme that could create a short-term increase in sales. However, many
companies are now making promotional specialists a part of their strategic brand-building
team, a move that puts sales promotion on par with media advertising. Promotional agencies
have expanded their integrated marketing capabilities as well as their expertise in branding
and helping their clients build relationships with their customers.
There are also a number of other factors that have led to the increase in the importance of
sales promotion and the shift in money spent from media advertising to consumer and trade
promotions. They are given below.

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• Growing power of retailers
Retailers, these days, with the help of optical checkout scanners and in- store computer
systems, have access to data related to products turn over, successful sales promotions, and
profitable products. Declining brand loyalty
The consumers have become less brand loyal and are purchasing more on the basis of price,
value, and convenience. Some consumers are always willing to buy their preferred brand at
full price without any type of promotional offer. However, many consumers are conditioned
to look for deals when they shop.
• Increased promotional sensitivity
Consumers have started responding favourably to the incentives a retailer provides. An

obvious reason for consumers’ increased sensitivity to sales promotion offers is that they
save money. Another reason is that many purchase decisions are made at the point of
purchase by consumers who are increasingly time-sensitive and facing too many choices.
• Brand proliferation
The market has become saturated with new brands, which often lack any significant
advantages that can be used as the basis of an advertising campaign. Thus companies
increasingly depend on sale promotion to encourage consumers to try these brands.
Marketers are relying more on samples, coupons, rebates (example, $20 off), premiums
(example 20% extra free), and other innovative promotional tools to achieve trial usage of
their new brands and encourage repeat purchase.
• Fragmentation of consumer market
As the consumer market becomes more fragmented and traditional mass- media-based
advertising less effective, marketers are turning to more segmented, highly targeted
approaches. Many companies are tailoring their promotional efforts to specific regional
markets.
• Short-term focus
Sales promotions are very often used by the brand managers, not only to introduce new
products or defend against the competition but also to meet quarterly or yearly sales and

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market share goals. Many managers view consumer and trade promotions as the most
dependable way to generate short-term sales, particularly when they are price related.
• Increased accountability
Results from sales promotion programmes are generally easier to measure than those from
advertising. Managers who are being held accountable to produce results often use price
discounts or coupons, since they produce a quick and easily measured jump in sales. It takes
longer for an ad campaign to show some impact and the effects are more difficult to measure.
• Competition
It is becoming increasingly difficult to boost sales through advertising as the markets for
many products are mature and stagnant. Many companies are directing their trade
promotions to key retail accounts and forming strategic alliances with retailers that include
both trade and consumer promotional programmes. A recent development is account-
specific marketing (also referred to as co-marketing), in which a manufacturer collaborates
with an individual retailer to create a customised promotion that accomplishes mutual
objectives.
• Clutter
An advertisement combined with a promotional offer can break through the clutter that is
prevalent in most of the media forms today. A premium offer may help attract consumers’
attention to an ad, as will a contest or sweepstakes. The readership scores are higher for
print ads with coupons than for ads without them.
10. Many companies are now making ------------ a part of their strategic brand-building
team, a move that puts sales promotion on par with media advertising.

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7. SUMMARY
• Marketing communication represents the idea that a brand wants to communicate to its
customers.
• IMC as defined by the American Association of Advertising agencies is a concept of
planning of marketing communication, which recognises the added value of a
comprehensive plan. This plan would detail the usage of various media like direct
marketing, general advertising, sales promotion etc.
• Communication process has nine elements. The two parties are sender (company) and
receiver (customer). The communication tools are message and the media used for
communication. The four major communication functions are encoding, decoding,
response and feedback.
• ATL represents traditional marketing channels that strive to reach a mass audience with
messages that reinforce the brand, communicate product information or incite an
emotional response. BTL represents methods aimed at establishing a relationship
between a brand and an individual consumer.
• The most common form of direct marketing is direct mail, sometimes called junk mail.
This is used by advertisers who send paper mail to all postal customers in an area or to
all customers on a list.
• Event management involves studying the intricacies of the brand, identifying the target
audience, devising the event concept, planning the logistics and coordinating the
technical aspects before actually executing the modalities of the proposed event.
• The factors influencing the Increased use of sales promotion are Short- term focus,
Fragmentation of consumer market, Brand proliferation, Increased promotional
sensitivity, Declining brand loyalty, Growing power of retailers, Increased
accountability, Competition, Clutter.

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8. GLOSSARY
Advertising: Any paid form of non-personal presentation and promotion by an identified
sponsor.
Personal selling: Oral communication with potential buyers of a product with the intention
of making a sale.
Sales promotions: Short term incentives to boost sales.
Below-the-line promotions: Non-media communications or promotions.
Brand proliferations: Attempt to cover every market segment by adding new product to
existing product lines of a firm.
Brand loyalty: Extent of the faithfulness of consumers to a particular brand, expressed

through repeat purchases.
1. Define Integrated Marketing Communication (IMC). Discuss the reasons for
implementing IMC.
2. Explain the elements of communication.
3. Discuss the tools of Integrated Marketing Communication.
4. Describe the upcoming tools of Integrated Marketing Communication.
5. Discuss the factors which influence the increased use of sales promotion.

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10. ANSWERS
1. Push.
2. Consumers.
3. Two-way.
4. Senders.
5. Above The Line.
6. Advertising.
7. Face-to-face contact.
8. Above the line.
9. True.
10. Promotional specialists.
Terminal Questions
1. Refer Section 2
2. Refer Section 3
3. Refer Section 4
4. Refer Section 5
5. Refer Section 6

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10. CASE STUDY

Domino's Pizza
Founded in 1960, Domino's Pizza is the recognised world leader in pizza delivery operating
a network of company-owned and franchise-owned stores in the United States and
international markets. Domino's drivers cover 10 million miles each week in the U.S. alone.
(That's 41 trips to the moon every week!) Like most corporate success stories, Domino's
started out small, with just one store in 1960. Today, there are more than 9,500 stores having
the workforce of approximately 1,80,000 members. Domino’s currently has over 4,000
stores outside of the United States in over 60 international markets.
Jubilant Food Works Limited (the Company) was incorporated in 1995 and initiated
operations in 1996. The Company and its subsidiary operates Domino's Pizza brand with the
exclusive franchise rights for India, Nepal, Bangladesh and Sri Lanka. Domino’s pizza is one
of the biggest and fastest growing international food joints in India. The first Domino’s pizza
outlet was opened in India in January 1996 at New Delhi. Today, Domino’s pizza has an
extensive network of Pizza delivery in India with a network of 439 Domino's Pizza Stores.
Domino’s constantly strives to develop consumer-centric approach in areas such as product

innovation, taste, pricing and customer service. Domino’s believes strongly in the strategy of
’Think global and act local’. In India they have constantly focused on several products
innovations such as Double Cheese Crunch Pizza, Kebab Pizzas, Cheese Burst Pizza, Domino’s
Calzone and Chicken Wings. They also launched it India-specific menu toppings and flavours
suitable to the taste buds of Indian Consumers. Today, many permutations and combinations
of a veg, non-veg, or a kebab pizza available in Indian outlets spread across the country.
Value for money is an extremely important need for Indian consumers, especially in the
context of the food services market. Initiatives such as Fun Meal and Pizza Mania was priced
at $35 have been extremely popular with consumers has helped to drive value-for money
proposition allowing access to the brand.
The best thing about Domino’s pizza is that they are always delivered fresh in 30 minutes.
Brand positioning of “Khushiyon ki Home Delivery” (happiness home delivered) is the
emotional benefit offer to consumers. All efforts, whether it is a new innovative and delicious

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product, offering consumers value for money deals, great service, country wide presence or
delivery in 30 minutes or free are all oriented towards delivering happiness to the homes of
the consumers.
Changing consumer eating habits and growing trend of consumption of multi-cuisines and
increasing brand awareness has led to the increase of global players.
Questions
1. How different are Indian consumers from their Western counterparts?

2. How Domino has faced the challenges in food home delivery to the Indian consumer?
References /e-references

• http://retail.about.com/od/marketingsalespromotion/Marketing_Sales_Pr
omotion.htm

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SEMESTER 3
DMKT303
RETAIL MARKETING
Unit 10: Retail Pricing 1

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Unit 10
Retail Pricing
Table of Contents

Topic Page No
No / Graph Activity
1 Introduction - -
3
1.1 Objectives - -
2 Establishing Pricing Policies - 1
4-5
2.2 Retail objectives of pricing - -
3 Factors Influencing Pricing - 2 6-7
4 Pricing Strategies 1 3
4.1 Demand-oriented pricing - -
4.2 Cost-oriented pricing - - 8 - 14
4.3 Competition-oriented pricing - -
4.4 Retail pricing strategies - -
5 Psychological pricing, Mark-up and Mark-down - 4

Pricing
- - 15 -17
5.1 Mark-down
5.2 Mark-up - -
6 Summary - - 18 - 19
7 Glossary - - 19
9 Answers - - 20
10 Case Study - - 20 - 23

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1. INTRODUCTION
In the previous unit, we have discussed about the Integrated marketing communications and
its role in Retail marketing. Along with promotion, distribution and merchandising – which
you have already learnt – pricing forms the core of retail strategy. In this unit, you will learn
about the implications of the pricing decision which a retailer should consider while deciding
the pricing for retail sales. Price has always been one of the most important variables in retail
buying decision. It is the factor which makes or breaks a retail organisation. It is also the
easiest and quickest element to change. In this unit, you will learn about techniques of pricing
a product. You will learn how pricing helps an organisation to achieve its objectives. This is
particularly significant for new market entrants that need to first establish a brand, and then
enjoy increasing profits as the brand gets market acceptability. For a customer, a favourable
price is one of the major reasons to visit a particular store.
1.1 Objectives
❖ Identify the retail pricing objectives

❖ Explain the factor which influences the pricing
❖ Discuss various pricing strategies
❖ Explain the concept of psychological pricing and mark-up and mark- down strategies.

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2. ESTABLISHING PRICING POLICIES

Pricing is one of the most important variables in retail decision-making. An integral part of
the marketing mix, price is the one that most easily elicits a response from consumers.
Setting the right price can influence the quantities of various products or services that
consumers will buy, which, in turn, determines the total revenue and profit of the retailer.
Crucial to a good marketing strategy is a good pricing policy. The prices you charge for your
products and services will greatly affect the sales volume, profit levels and among other
things the business image.
Pricing objectives
• Establish a simple yet effective pricing structure taking into consideration all your
business costs.
• Choose a pricing strategy to establish a market presence.
• Fine-tune and adapt your general pricing policy in response to trends, industry practices
and new innovative pricing strategies to help solidify your competitive position within
the market place.
2.1 Retail Objectives Of Pricing
After deciding what the business is and how the objective of pricing policy can further
support and define the identity, effective pricing policies can be determined. Pricing
objectives should be set according to the overall business and marketing goals and as a result
take into account what impact the prices will have on sales volume, sales revenue, market
share, competitive position, company image and profitability.
To achieve a broadly defined goal, pricing decisions are usually considered a part of the
general strategy. While deciding the price, the firm may aim at one or more of the following
objectives:
• Survival: Sometimes retailers face challenge of pricing a product at a level that will just
allow them to remain in the business and cover essential costs. For a short time, the goal
of making a profit is set aside to survive in the market. Survival pricing is meant only to
be used on a short-term or temporary basis. After overcoming the situation that started

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the survival pricing, product prices are fixed again at previous or more appropriate
levels.
• Profit maximisation: Retailers always try to maximise the per-unit profit margin of a
product in the short run or long run or both. This objective is typically applied in cases
where it is expected that the total number of units sold will be low. Retailers try to garner
the greatest dollar amount in profits. This objective is not necessarily in line with the
objective of profit margin maximisation.
• Sales volume: Sales volume is highly dependent on the prices you charge. Generally,
higher the price, lower the volume and vice versa. However, small businesses can often
demand high prices because they can offer more personalised service. If there is no
direct link between pricing changes and sales volume, then the sale of a product or
service is relatively independent of its cost.
• Sales revenue: Setting price is a major factor that affects total revenue. Usually, by
increasing the product price, we can expect responses to decrease by a percentage equal
to the amount of the increase. To increase the revenue, we must do testing and research
about consumers’ willingness to pay.
• Adaptation of prices to fit the diverse competitive situations: Depending on the
market situation of individual product, the company may decide to go for different kinds
of pricing strategies. The company will try to maximise the profit from a market having
cash cows and invest in other markets where it has to stay to have long-term benefits. It
may also decide to adopt different kinds of product strategy for product portfolio
members.
1. ___________ is meant only to be used on a short-term or temporary basis.

2. Sales volume is highly dependent on the prices you charge. (True/False)

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3. FACTORS INFLUENCING PRICING

In today’s competitive environment, retailers face challenge to formulate pricing strategies
and tactics for multiple products. Retailers’ actual pricing strategies – that is what types of
strategies are followed; how customisation of pricing strategies are done for particular
brands, categories, stores, chains and markets; and what are the factors that influence the
customisation process of retailer pricing strategies—could be very useful to retailers for
profiling their pricing decisions and predicting their competitors’ decisions.
Pricing strategy is dependent on company, customer, competitor and other factors.

Generally, the pricing of the products or services will depend upon cost of inventory or
supplies, operating expenses, profit goals or objectives, competitive pressures, industry
standards and perceived value of the product.
Market factors: Different pricing practices may be followed in different markets or cities. In
particular, market type, be it a metropolitan city or a small city, may be associated with a
particular pricing environment and so may be related to the pricing practice.
Objectives of business: Pricing is not an end in itself but a means to an end. The
fundamental principle for pricing is therefore the firm's overall goals. The reason is to
survive in the market or to have continued existence assured. To be more specific, objectives
of a business is related to the rate of growth, market share, maintenance of control or
ownership and finally profit.
Competitive environment: Firms are usually very sensitive to the competitors’ activities in
the same market. Competitor’s activities determine a firm’s pricing decisions based on the
extent they affect the market share of the firm. Retailers’ pricing decisions for brands will
typically be very sensitive to pricing decisions made by competing stores because
organisations tend to match the decisions made by competitors. To respond to the decrease
in prices made by its competitors, a retailer’s consistency in price may change significantly
– that is the retailer may keep changing his prices more often–
e.g. to lower regular prices if he expects short-term benefits in volume.
Store factors: Different retail chains may follow different retail strategies based on
differences in chain size, location, layout structure and chain positioning, consistent with
their corporate missions and policies. Large and small retail chains may be different in terms

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of economies of scale, printing and holding costs, and power with suppliers; so they may
price and promote the product differently. Pricing strategy of the retailer at a given retail
outlet depends on its decisions about which brands and sizes to stock in each category
(category assortment). Promotional elasticity is lower for categories with a larger number
of brands.
Customer factors: In a given market, pricing decisions of retailers will depend on

consumer’s sensitivity to price changes and deals of brands. The pricing decisions should
depend on differences in the clientele at different stores – which will therefore be reflected
in these prices and deal elasticity. For example income and loyalty are linked to price
sensitivity.
Product and promotional policies of the firm: Pricing is one of the aspects of marketing
strategy and a firm must consider it along with its product and promotional policies. Thus,
before changing the price of a product, the firm must ensure that the price is at fault and not
its sales promotion programme or the quality of the product or some other element.
Activity 1
Compare the offered price for any five household items of a particular with its competitor’s
pricing.
Hint: compare the price of any food product between star Bazaar and Big Bazaar or any retail
shop of your choice.
3. _____________is one of the aspects of marketing strategy and a firm must consider it
along with its product and promotional policies.

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4. PRICING STRATEGIES
Price is a highly sensitive and visible part of retail marketing mix and has a bearing on the
retailer’s overall profitability. Further, pricing itself is an essential part of marketing mix and
has its own place in the strategic decision-making process. In subsequent sub-sections, you
will learn the various pricing strategies.
4.1 Demand-Oriented Pricing
In demand-oriented pricing, prices are based on what customers expect or may be willing to
pay. It determines the range of prices affordable to the target market. In this method,
retailers not only consider their profit structure but also calculate the price-margin effect
that any price will have on sales volume.
Demand-oriented pricing focuses on the quantities that the consumer would buy at various
prices. It largely depends on the preceded value attached to the product by the consumer. An
understanding of the target market and the value proposition that they intend to seek is the
base to this form of pricing.
Table 10.1 Unit price, market demand and profits
(Amount in Rs.)
Market Total
Market Unit Total cost ofunit Total profit
demand (in revenue (C1
region price sold (C3 – C4)
units) × C2)
C1 C2 C3 C4 C5
1 8 2,00,000 16,00,000 13,00,000 3,00,000
2 10 1,50,000 15,00,000 10,50,000 4,50,000
3 12 1,00,000 12,00,000 8,00,000 4,00,000
4 14 50,000 7,00,000 5,50,000 1,50,000
Source: Levy and Weitz (2006), p. 487.
Table 10.1 illustrates the working of the demand-oriented pricing method by taking a
hypothetical example of Levy and Weitz of Koutons. The main advantage of demand-oriented
pricing strategy is to set the merchandise price per customer response towards the product
offered.

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4.2 Cost-Oriented Pricing
In this form of pricing policy method, a retailer decides a floor price of the merchandise – a
minimum price suitable to the organisation to achieve its financial goals. A retailer under
this method sets the price to cover production cost, operating cost and a pre-determined
percentage of profit. The percentage varies strikingly among industries, among member
outlets and even among merchandise of the same retail firm.
Mark-up criterion
The retailer’s mark-up percentage or cost plus percentage depends on following

considerations:
• Product’s traditional mark-up policy

• Competition in the market
• Supplier’s guidelines regarding selling price
• Operating expenses of store
• Rented or own retail store
• Inventory turnover
• Level of customer service offered.
Calculation of mark-up percentage
Retail selling price Merchandise cost (at retail)

Mark − up percentage =
𝑅𝑒𝑡𝑎𝑖𝑙 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒
Retail selling price Merchandise cost (at cost)

𝑀𝑒𝑟𝑐ℎ𝑎𝑛𝑑𝑖𝑠𝑒 𝑐𝑜𝑠𝑡
Example: A food departmental store desires a minimum 30 percent mark- up at the retail
outlet. If a 100 gm butter cake should sell at $20, what maximum price the store can afford
to pay the suppliers?

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Solution
Retail selling price Merchandise cost (at cost)

𝑀𝑒𝑟𝑐ℎ𝑎𝑛𝑑𝑖𝑠𝑒 𝑐𝑜𝑠𝑡
20 Merchandise cost
0.30 =
20
Merchandise cost = 20 – (0.30 × 20) = $14
Determination of initial mark-up, maintained mark-up and gross margin: With the
emergence various retail formats and enhanced competition, it is not practical for a retailer
to sell all the merchandise items at their actual prices. Therefore, retailers compute the initial
mark-up, maintained mark-up and gross margin during their normal course of business.
Initial mark-up: It is based on the selling price assigned to the merchandise less the costs
of the merchandise sold.
Maintained mark-up: It is the amount of profit a retailer plans to maintain on a particular

sort of merchandise. The retailer actually maintains after markdowns, shrinkage, etc.
It is based on the selling price that a retailer intends to get less the cost incurred on goods
sold. As maintained mark-ups are concerned with actual prices received, therefore, for a
retailer, it is always difficult to estimate in advance.
Initial Mark-up = Retail selling price initially – Cost of goods sold set for the merchandise
whereas
Maintained Mark-up = Actual selling price – Cost of goods sold retailer wants for its
merchandise
The point of difference between initial mark-up and maintained mark-up is that initial mark-
up percentage depends on planned retail operating expenses, profit, reduction and net sales,
whereas maintained mark-up represents some additional costs from original retail values
caused by discounts, shortages, inventory theft, mark-downs and added mark-ups. The
maintained mark-up percentage can be viewed as
(Original selling price reduction)−Cost of goods sold

Maintained Mark up percentage =
Net sales

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Gross margin: Gross margin, commonly known as gross profit, is an important performance
measure in retailing. It gives the retailer a measure (estimate) of how much profit it is
making on merchandise sales without considering the expenses associated with running the
store. In other words, gross margin is the difference between Net sales and the Cost of goods
sold.
Gross margin (in $) = Net sales – Total cost of goods sold
4.3 Competition-Oriented Pricing
Under this pricing policy, retailers set the prices of merchandise after considering
competitor’s price rather than demand or cost considerations. A company following this
policy may not react to changes in demand or costs till competitors are forced to alter their
merchandise price despite no change in demand and sale. The various competition-oriented
pricing alternatives are:
• Competitive pricing below the market rate: It means setting the merchandise prices
simply to beat the competitor price by charging a price that is below the prevalent market
rate. This policy is advisable only when the retailer follows an optimum inventory plan,
procure merchandise at the right time and at the right price to gain the benefits of cash
payment, trade discount, bulk buying, etc.
• Competitive pricing above the market rate: This policy allows a retailer to set the
merchandise price above the current market rate. This policy seems to be
straightforward and simple but must be applied carefully. This policy is suggested to
those retailers who have some competitive advantages such as:
• Excellent consumer service
• High level of personal selling, delivery and exchanged facilities
• A stock of well-known brands that is not available to its competitors in the nearby
location
• Attractive, huge and modern retail infrastructure to offer merchandise.
4.4 Retail Pricing Strategies
After selecting a pricing objective retailers will need to determine a pricing strategy. This
will assist retailers when it is time to actually price the products. As with the pricing

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objectives, numerous pricing strategies are available from which to choose. Certain
strategies work well with certain objectives. So, retailers have to make a careful selection of
a pricing objective. Following are the various pricing strategies followed by the retailers to
meet their short- and long-term objectives:
Every Day Low Pricing (EDLP): This strategy entails continuity of retail prices below the
MRP mentioned on the goods at a level somewhere between the regular price at which the
goods are sold and the deep discount price offered when a sale is held. These low prices are
stable and not subject to a one-time sale, for example Wal-Mart stores.
Loss leader pricing: Retailers sometimes price particular fast-moving products at a lower
price to attract customers to the store. Once the customers are in the store, they can be
persuaded to buy more profitable products. Those items are priced higher whose prices
cannot be easily compared by the customers. The retailer normally chooses his own store
brands for higher pricing. Items such as pulses, rice, flour, etc. are priced higher are the
commodities which cannot be priced higher because it is also not easy to compare the price
against the quality offered by other stores.
Skimming pricing: The pricing is similar to premium pricing, calling for a high price to be
placed on the product you are selling when the product is new. However, with this strategy
the price eventually will be lowered as competitors enter the market. This strategy is mostly
used on products that are new and have few, if any, direct competitors when first entering
the market. It allows the firm to recover its sunk costs quickly before competition steps in
and lowers the market price. This method is successful when a firm is able to establish
superior features or better quality for which consumers are willing to pay a higher price, e.g.
most of the electronics products especially Nokia mobile phones, Apple products
Penetration pricing: This strategy deliberately chooses a low price for a product in order
to gain a higher market share or to attract new customers who are price-conscious or to gain
entry into a new market. The objective for employing penetration pricing is to attract and
grow market share. Once the desired levels for these objectives are reached, product prices
are typically increased. Penetration prices will not garner the profit that retailers may want;
therefore, this pricing strategy must be used sparingly. The expectation is that the initial low
price will secure market acceptance by breaking down existing brand loyalties. It is more
often used to reduce the attractiveness of a market to prospective new entrants.

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Price lining: It refers to the offering of merchandise at a number of specific but

predetermined prices. Once set, the prices may be held constant over a period of time and
changes in market conditions are adapted to by changing the quality of the merchandise. A
limited number of predetermined price points are set at which merchandise may be offered
for sale. Example: My Dollar Store, which is a retailing concept, where everything sells for a
single price. It caters to consumers who want the most for their money. In India, this concept
has been adapted to offer prices fixed at specific levels like
$49, $99, $149, etc.
Psychological pricing: It is a method of setting prices intended to have special appeal to

consumers. There are different types of psychological pricing & it is typically introduced by
Bata in India. In psychological pricing, prices are set at a certain level where the consumer
perceives the price to be fair. The most common method is odd-pricing using figures that end
in 5, 7 or 9. It is believed that consumers tend to round down a price of $5.95 to 5, rather
than 6. Ultimately, you must take into consideration the consumer's perception of your price,
figuring things like:
Positioning: If you want to be the "low-cost leader", you must be priced lower than your
competition. If you want to signal high quality, you should probably be priced higher than
most of your competition.
Popular price points: There are certain prices at which the customers become more willing
to buy a specific product, referred to as "price points". For example "under Rs. 100" is a
popular price point. While a drop in your price to a popular price point might mean a lower
margin, but this is offset by more than enough increase in sales.
Fair pricing: There are times when the value delivered by the products doesn’t matter, even
if you don't have any direct competition. There is simply a limit to what consumers perceive
as "fair". If the customers perceive that a shirt should cost Rs. 500, then they would not even
care what value the shirt is offering. A sufficient amount of market testing can help the
retailers estimate the ‘fair price’.

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4. In_____________, prices are based on what customers expect or may be willing to

pay.
5. Demand-oriented pricing focuses on the qualities that the consumer would buy at
various prices. (True/false).
6. ______________strategy entails continuity of retail prices below the MRP mentioned
on the goods at a level somewhere between the regular price at which the goods
are sold and the deep discount price offered when a sale is held.
Activity 2
Make a brief note on pricing strategy adopted by any one popular Indian retailer.
Hint: Observe keenly on the festival time pricing on these retail shops.

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5. PSYCHOLOGICAL PRICING, MARK-UP AND MARK-DOWN PRICING

After deciding the price of merchandise, the retailer’s next step is to consider whether there
is any need to change some price due to reasons such as changing demand patterns,
pilferage, competition and seasonal shift during normal course of business. Price
adjustments include either mark-down or additional mark-ups.
5.1 Mark-Down
Mark-down is a most common technique to push retail sales that offers particular
merchandise at a price lesser than the merchandise marked price (normal price).
The reasons for mark-down include:
• Overstocking/overbuying
• Season change
• Clear-out shop-worn/slow-moving merchandise
• Clear-out old-fashioned/old-trend merchandise
• Generate customer traffic.
Mark-down does not always mean that the store is not performing well; this is a part of doing
business and running a retail store efficiently. Sometimes, initially some retailers mark-up
their merchandise high enough so that after reductions and mark-down the planned
maintained mark-up is achieved. Thus, a retailer’s intentions should not be to reduce
mark-downs. If mark-downs are too less, it may mean that the retailer is probably charging
too low for the merchandise, not purchasing in bulk or not having interest in purchasing a
particular merchandise.
Types of mark-downs
The various types of mark-down of price are:
• Temporary mark-down: This is a policy of reducing the prices of merchandise for a

particular time period due to a particular reason, e.g. mark-down because of clearing-
out shop-worn/substandard merchandise. Once such merchandise is sold, the product
will be sold at the normal selling price.
• Permanent mark-down: In such mark-downs price reduction is made for comparatively
longer periods, maybe a few weeks, few months or more. Unlike temporary mark-down,

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where price reduction takes place for a particular cause and price is eventually raised to
the original one, permanent mark-down is used to replace the old-quality merchandise
with the new one. The reasons for permanent mark-down are:
• Merchandise is of perishable nature and will be of no use after some time.
• Old technology goods are replaced with latest versions.
• Seasonal mark-down: Under such mark-downs, prices are reduced to clear out seasonal
retail merchandise. ‘Ludhiana woollen sales’, for example, in the previous winter season
are very common in North Indian states like Haryana, Punjab, Delhi, Western UP, etc.
5.2 Mark-Up
Unlike mark-down where prices are reduced, additional mark-up is intended to increase the
retail price above the original mark-up due to certain reasons like:
• When the demand for merchandise offered is exceptionally high.

• There is a monopoly-like situation.
• When competitors are not able to meet the consumer’s demand.
• In case private labels are performing well in retail market and have good demand and
the retailer likes to have quick returns.
“In today’s world of retailing where brands are easily available and competition is becoming
tougher, mark-downs are increasingly applied by Indian as well as global retailers rather
than mark-ups.”
Besides mark-downs and additional mark-ups, a third price adjustment, employee discount
is becoming popular in the retail world. Some retail firms, in order to build public image and
employees welfare, provide additional benefits to their employees besides normal salary and
perks by offering them discounts on merchandise buying or inviting them to buy
merchandise before offering it to general public by the way of sales.

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7. __________Pricing is a most common technique to push retail sales that offers

particular merchandise at a price lesser than the merchandise marked price.
8. ___________is a policy of reducing the prices of merchandise for a particular time
period due to a particular reason,
9. In such mark-downs price reduction is made for comparatively longer periods,
maybe a few weeks, few months or more.
a. Permanent mark-down
b. Seasonal mark-down
c. Temporary mark-down
10. When the demand for merchandise offered is exceptionally high and there is a
monopoly-like situation,_____________ pricing is followed.
a. Mark-down
b. Mark-up

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6. SUMMARY
• Pricing objectives are the goals that a retail company wishes to achieve through its
pricing policy. Pricing is the factor that makes a customer comfortable to a store.
• Because the retail market consists of competitors, consumers and suppliers, the retailer
should have various pricing objectives.
• For an independent retailer, increasing or decreasing prices can be helpful to increase
the store’s sales but for brands, such price fluctuations can be harmful even to the cost
of out of the market.
• In order to develop a pricing policy, retailers should consider several issues like deciding
on the target market, the merchandise to sell and geographical factors carefully to
sustain their customer base.
• Demand is based on the consumption patterns of the consumers. Sensitivity to price
change will vary from consumer to consumer. In a particular situation, the behaviour of
one individual may not be the same as that of the other, and may not follow the 'law of
demand'.
• In demand-oriented pricing, prices are based on what customers expect or may be
willing to pay. It determines the range of prices affordable to the target market.
• Cost-oriented pricing: In this form of pricing policy method, a retailer decides a floor
price of the merchandise – a minimum price suitable to the organisation to achieve its
financial goals.
• Initial mark-up: It is based on the selling price assigned to the merchandise less the costs
of the merchandise sold.
• Maintained mark-up: It is the amount of profit a retailer plans to maintain on a particular
sort of merchandise. The retailer actually maintains after markdowns, shrinkage, etc.
• Retail pricing strategies are Everyday low pricing, Loss leader pricing, Skimming pricing,
penetration pricing, price Lining, psychological pricing, Positioning, popular price
points, fair pricing
• Mark-down is a most common technique to push retail sales that offers particular
merchandise at a price lesser than the merchandise marked price (normal price).

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• Unlike mark-down where prices are reduced, additional mark-up is intended to increase
the retail price above the original mark-up due to certain reasons like:
a. When the demand for merchandise offered is exceptionally high.
b. There is a monopoly-like situation etc.
7. GLOSSARY
EDLP: This strategy entails continuity of retail prices below the MRP mentioned on the goods
at a level somewhere between the regular price at which the goods are sold and the deep
discount price offered when a sale is held
Price Sensitivity: Increase or decrease in demand due to change in price.
Price Discrimination: A seller price discriminates when it charges different prices to

different buyers.
Psychological Pricing: Marketing practice based on the theory that certain prices have a
psychological impact.
Mark-up Pricing: An amount added to the original mark-up in calculating a selling price.
Mark-down Pricing: Common technique to push retail sales that offers particular
merchandise at a price lesser than the merchandise marked price.
1. What are the objectives of pricing for any company?

2. Explain the factors that affect pricing decisions.
3. Discuss the concept of price sensitivity and its relevance for retailers.
4. Contrast the cost based, demand based and competition based pricing strategies.
5. Discuss various mark-down strategies.

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9. ANSWERS
1. Survival pricing.
2. True.
3. Pricing.
4. Demand-oriented pricing
5. False.
6. Every Day Low Pricing (EDLP).
7. Mark-down
8. Temporary mark-down
9. a. Permanent mark-down
10. b. Mark-up
Terminal questions
1. Refer section 2.1

2. Refer section 3
3. Refer section 4
4. Refer section 4
5. Refer section 5.1
10. CASE STUDY

Wal-mart- “Low prices, every day, everywhere”
Sam Walton opened his first five-and-dime in 1950. His vision was to keep prices as low as
possible. Even if his margins weren't as fat as competitors, he figured he could make up for
that in volume. He was right. In the early 1960s, Walton opened his first Wal-Mart in Rogers,
Arkansas. The company continued to grow, going public in 1970 and adding more stores
every year. In 1990, Wal-Mart surpassed key rival Kmart in size. Two years later, it surpassed
Sears.
Walton continued to drive an old pickup truck and share budget-hotel rooms with colleagues
on business trips, even after Wal-Mart made him very rich. He demanded that his employees

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also keep expenses to a bare minimum – a mentality that is still at the heart of Wal-Mart
culture more than a decade after Walton's death. The company has continued to grow rapidly
after his death in 1992 and now operates four retail divisions
– Wal-Mart Supercentres, Wal-Mart discount stores, Neighbourhood Market stores and

Sam's Club warehouses.
The pricing strategy highlights two great lessons in pricing: (1) prices leave lasting
messages and (2) pricing and corporate strategy must be aligned. First, prices leave
lasting messages. Wall-Mart historically has focused on minimalistic distribution and
operations in order to ensure that each product has the lowest possible price. As Wal-Mart
switched to a more bait and hook pricing strategy (extremely low prices coupled with
moderate price increases), consumers noticed and took their business elsewhere. Wal-Mart
thought that its efforts to enhance shopping experiences (e.g. remodelled stores, enhanced
displays) would make consumers OK with higher prices. Customers disagreed. Customers
have been trained that Wal-Mart = the lowest prices, so if Wal-Mart cannot produce the
lowest, then there is no need to shop at Wal-Mart.
Wal-Mart is more than just the world's largest retailer. It is an economic force, a cultural
phenomenon and a lightning rod for controversy. It all started with a simple philosophy from
founder Sam Walton: Offer shoppers lower prices than they get anywhere else. That basic
strategy has shaped Wal-Mart's culture and driven the company's growth.
Now that Wal-Mart is so huge, it has unprecedented power to shape labour markets globally
and change the way entire industries operate. In this article, you will learn the key reasons
that Wal-Mart has been able to keep its prices low – cutting-edge technology, a frugal
corporate culture and a push to make suppliers sell merchandise at cheaper and cheaper
prices. We'll also take a look at the scope of Wal-Mart's impact on the economy and the
controversies surrounding Wal-Mart, as well as the future of the company.
The stories of how Wal-Mart pushes manufacturers into selling the same product at lower
and lower prices are legendary. One example is Lakewood Engineering & Manufacturing Co.
in Chicago, a fan manufacturer. In the early 1990s, a 20-inch box fan costs $20. Wal-Mart
pushed the manufacturer to lower the price, and Lakewood responded by automating the
production process, which meant layoffs. Lakewood also badgered its own suppliers to

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knock down the prices of parts. Then, in 2000, Lakewood opened a factory in China, where
workers earn 25 cents an hour. By 2003, the price on the fan in a Wal-Mart store had dropped
to about $10.
So what is the deal with Wal-Mart and outsourcing? You may have heard that Wal-Mart sends
manufacturing jobs overseas, but also remember that Wal-Mart once touted a "Buy America"
campaign. Here's how the discrepancy sorts out.
In 1985, Walton launched a "Bring it Home to the USA" programme, offering to pay suppliers
as much as 5 percent more for products made in the United States. However, that philosophy
quietly faded in the 1990s, as Wal-Mart joined other retailers in a quest to find the cheapest
sources of production around the world. In 1995, Wal-Mart said that 6 percent of its total
merchandise was imported. A decade later, experts estimated that Wal-Mart imported about
60 percent of its merchandise.
The central goal of Wal-Mart is to keep retail prices low – and the company has been very
successful at this. Experts estimate that Wal- Mart saves shoppers at least 15 percent on a
typical cart of groceries. Everything – including the technology and corporate culture – feeds
into that ultimate goal of delivering the lowest prices possible. Wal-Mart also pushes its
suppliers, some say relentlessly, to cut prices. In "The Wal- Mart Effect", author Charles
Fishman discusses how the price of a four- pack of GE light bulbs decreased from $2.19 to 88
cents during a five- year period.
In a 2003 Los Angeles Times article (part of a Pulitzer Prize-winning series about Wal-Mart),
it tells of a Wal-Mart buyer named Celia Clancy, who was in charge of clothing and demanded
that each supplier either lower the price or increase the quality every year on every item.
This philosophy is known as "plus one”.
Questions for discussion
1. What is the pricing strategy of Wal-Mart?

2. How far can this strategy sustain?

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• http://www.emergingretailtrends.com/blog/
• www.people.umass.edu/debevec/.../Retail%20Pricing%20Strategies.pdf

219

SEMESTER 3
DMKT303
RETAIL MARKETING
Unit 11: Customer Relationship Management in Retailing 1

220
Unit 11
Customer Relationship Management in
Retailing
Table of Contents

Topic Page No
No / Graph Activity
1 Introduction - -
3
1.1 Objectives - -
2 Benefits of Relationship Marketing - 1 4
3 Management of Relationship 1 2 5-7
4 Principles of CRM - - 8
5 Customer Relationship Management Strategies 2 3 8 - 10
6 Components of CRM - - 10
7 Customer Service in Retailing - - 11
8 CRM and Loyalty Program - 4 11 – 13
9 Summary - - 13
10 Glossary - - 14
12 Answers - - 14 - 15
13 Case Study - - 15 - 16

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1. INTRODUCTION
In the previous unit, we have discussed about the strategies adopted in retail pricing. Even
to fix a price of the product, one should know about the demand of the product from
customer side. As a retailer, a study about his consumer is important. A retailer should attract
the customers for his sales and retain the customers for the repeated sales. The retention of
the customer is not merely possible only by selling good products, it is also important to
develop a relationship with the customer for long term growth. Developing relationship with
the customer is the key to customer retention – especially in organised retail sector – and an
important tool to enhance retailer performance.
1.1 Objectives
❖ identify the benefits of relationship marketing

❖ state the principles of CRM
❖ explain the customer relationship management strategies
❖ discuss the components of CRM
❖ analyse the CRM and Loyalty program

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2. BENEFITS OF RELATIONSHIP MARKETING

Customer Relationship Management (CRM) refers to all marketing activities directed
towards establishing, developing, and maintaining successful relationship with their
customers. The theories and concepts of CRM draw upon a number of distinct areas including
service quality, services marketing, customer retention economics, and issues related to
interpersonal and social interaction. Companies aim at keeping loyal customers forever.
There are various advantages in retaining customers for a long term such as:
1. Loyal customers will experiment with new products as they trust you
2. Loyal customers will help in the expansion of business through word of mouth.
3. Loyal customers will help to improve the products/service by
communicating the problems with your products/services.
4. Loyal customers will not hesitate to pay more for the adjustments in pricing for the
services/products as they trust your services/products
5. Increase in sales, market share and dominance is the most important advantage.
1. _____________ refers to all marketing activities directed towards establishing,

developing, and maintaining successful relationship with their customers.
2. Developing relationship with the customer is the key to__________.

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3. MANAGEMENT OF RELATIONSHIP
Customer Relationship Management (CRM) consists of three components – customer,
relationship, and management. CRM tries to achieve a ‘single integrated view of customers’
and a ‘customer centric approach’.
CRM is a business strategy, process, culture and technology to enable organisations to

optimise revenue and increase shareholder value through better understanding the needs of
customers.
CRM is a company-wide business strategy designed to reduce costs and increase profitability
by solidifying customer loyalty. Proper CRM brings together information from all data
sources within an organisation (and where appropriate, from outside the organisation) to
give one, holistic view of each customer in real time. This allows customer facing employees
in such areas as sales, customer support, and marketing to make quick yet informed
decisions on everything from cross-selling and upselling opportunities, target marketing
strategies and in competitive positioning tactics.
Customer relationship marketing in retailing has emerged out of two major considerations:
• Macro level: At a macro level, the recognition that marketing influences a wide range of
areas including customer, employee, supply, internal, referral, and ‘influencer’ markets
such as the governmental and financial markets; and
• Micro level: At the micro level, the recognition that the nature of interrelations with
customers is changing. The emphasis is on moving from a transaction focus to a
relationship focus.
An essential factor to be understood from this is the difference between customer

relationship marketing and transactional marketing. A few of these differing points are given
in the Table 11.1.

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Table 11.1: Difference between relationship marketing and transactional marketing
Relationship marketing Transactional marketing

Focus on customer Focus on single sale
Efforts on adding more Efforts on adding more product
of product features
benefits
High customer service Little emphasis on customer
emphasis service
Quality is the concern Quality is a concern only in
for all the production
stages of product
development.
High customer contact Moderate contact with the
hence higher customer’s
commitment with them hence limited commitment with
them
Thus, CRM is different from the old concept of marketing, which used to be based more on
increasing the customer base. Relationship marketing focuses on using relationship
strategies to acquire customers, retain them, and enhance relationship with them. In fact, as
per Pareto's Rule, 80% of the total sales come from 20% of the customers, and thus,
relationship marketing attempts to optimise the resources for the retailer by retaining the
most profitable of the customers.
The retailing industry plays an important role in the success of relationship marketing as it
serves as the major link between the supplier and customers. Therefore, it engages,
maintains, and enhances the relationship with the ultimate entity of the value chain, which
in turn determines the success of all the members of the value chain. The retailers have
always acknowledged the importance of long-term relationship with customers in their
business.
3.1 Objectives of customer relationship management
CRM and database marketing are two different marketing approaches. Database marketing
technique is a highly company-centric approach which tries to sell more number of products
to the customer for less cost. The CRM approach is customer-centric. This approach focuses
on the long-term relationship with the customers by providing the customer benefits and
values from the customer’s point of view rather than based on what the company wants to
sell.

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1. Customer identification: The company must use marketing channels, transactions, and
interactions over time to identify customers and provide value to them.
2. Customer differentiation: Each customer is valuable for the company and puts across
exclusive demands and requirements for the company.
3. Customer interaction: Demands of the customer vary over the time. CRM gives more
importance to the customer’s long-term profitability and relationship to the company.
Thus, the company has to constantly learn about the customer’s needs. Tracking the
customer’s needs and behaviour is important in a CRM programme.
4. Customisation/Personalisation: The objective to the entire CRM process is to “treat each
customer uniquely”. The customer loyalty towards the company can increase through
the personalisation process. Information technology has helped to make the automation
of personalisation possible.
Activity 1
Visit some local retail stores and find out what they do to maintain relationship with the
customers.
3. Customer Relationship Management (CRM) consists of three

components. They are__________.
4. CRM tries to achieve a___________ and a ‘___________ .
5. __________efforts on adding more product features
6. Relationship marketing emphasis on high customer service (True/False).
7. The objective to the entire CRM process is to_____________.

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4. PRINCIPLES OF CRM
The overall processes and applications of CRM are based on the following basic principles:
• Treat the customer individually: Remember customers and treat them individually.
CRM is based on philosophy of personalisation. Personalisation means the ‘content and
services to customer should be designed based on customer preferences and behaviour.
Personalisation creates convenience to the customer and increases the cost of changing
vendors.
• Acquire and retain customer loyalty through personal relationship: Once
personalisation takes place, a company needs to sustain relationships with the customer.
Continuous contacts with the customer especially when designed to meet customer
preferences can create customer loyalty.
• Focus Find and keep the right customers who generate the most profits. Through
differentiation, a company can allocate its limited resources to obtain better returns. The
best customers deserve the most customer care; the worst customers should be
dropped. To summarise, personalisation, loyalty, and lifetime value are the main
principles of CRM implementation.
5. CUSTOMER RELATIONSHIP MANAGEMENT STRATEGIES

Customer Relationship Marketing (CRM) strategies refer to any effort that is actively made
by a seller towards a buyer, and is intended to contribute to the buyer's customer value
above and beyond the core product and/or the service provided. This can only be perceived
by the buyer after continued exchange with the seller. For instance, if the traditional Indian
retailers treat their regular customers in a warm and friendly manner and also provide them
with special benefits in terms of home delivery, discounts, etc., then these efforts are an
attempt to provide benefits above and beyond the core service performance. From this we
can figure out that strategies laid for CRM is a combination of several benefits.
Let's familiarise ourselves with the major four components that help in formulating a CRM
strategy. Figure 11.1 shows the four components in a snap shot.

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Figure 11.1: Four Strategic Benefits of CRM
Let's discuss each of the components:
1. Personalisation: With the avaialblitiy of customer level data and analysis tools,
retailers can now economicaly offer unique benefits and target messages to individual
customers. They have the ability to develop programs for small groups of customers and
even specific individuals.
2. Communication: Communication is an important factor in maintaining a long term
relationship. The way in which a retailer interacts with a buyer expresses his interest in
them and strengthens their association. Hence, staying in touch with the customer is a
key factor that helps in promoting the relationship between the retailer and the
customer. It has been observed that the comfort and amount of exchange between the
buyer and the seller increases the strength of the buyer-seller relationship.
3. Rewards: Providing customers with tangible rewards is often referred to as ‘level one
relationship marketing'. This level of CRM relies primarily on pricing incentives and
money savings to secure customers' loyalty. Rewards should be designed to promote
long-term behaviour and discourage short-term deal-seeking behaviour. Rewarding
efforts refer to structured and planned marketing efforts that should encourage loyal
behaviour, distinguishing it from short-term oriented sales promotions.
4. Special treatment benefits: A key aspect of relationship marketing is that all
consumers do not need to be served in the same way. If a consumer receives a
personalised, customised service from retailer A, but not from retailer B, and if this

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service is valued, then the consumer will be less likely to leave retailer A for retailer B.
Retailers can distinguish between at least two identifiable customers segments—loyal
customers and non-loyal customers.
8. ______________ is an important factor in maintaining a long term relationship.

9. ‘Level one relationship marketing' means providing customers with tangible
rewards. (True/False)
6. COMPONENTS OF CRM
Operational CRM: Operational CRM supports the various processes of a business such as
marketing, sales and service. A record of all communications with the customer is
maintained on the customer’s contact history which can be retrieved when required. The
main advantage of this contact history is that customers can interact with different people
or contact channels in the future and their history will not have to be described during each
interaction.
Analytical CRM: This segment of CRM focuses on storing, analysing and applying the
knowledge about the customers. It also aims on methods of approaching a customer using
statistical tools, business intelligence, databases, data mining and reporting methodologies.
Analytical CRM consists of a suite of analytical applications through which customer
relationships can be measured, forecasted and improved.
Collaborative CRM: In collaborative CRM, the different departments of a company such as

technical support, sales, and marketing communicate and share the information gathered
from customer communications. For example, the technical support session could update
the marketing staff about products and services that interests the customer by the customer
feedback they gather. This helps to improve the customer service thereby increasing the
customer’s satisfaction and loyalty.

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7. CUSTOMER SERVICE IN RETAILING

Today's competitive environment requires a retailer to understand and properly apply the
concept of relationship from the perspective of the customer and other channel members.
This will ensure that:
• Customers strongly believe that the retailer offers good value for money.
• All the channel members (including the customers) would like to do business with that
retailer.
The challenge for a retail unit is to bring three critical areas, namely marketing, customer
service, and quality into closer alignment and the attempt of CRM is to bring these three areas
together. The provision of quality customer service involves an understanding of what a
customer wants and eventually buys, and determining how additional value can be added to
the products or services being offered. Yet the implementation of customer service varies
from one retail unit to another.
8. CRM AND LOYALTY PROGRAMME

Retailers are often torn between the need to stimulate customer loyalty and well established
promotional techniques, which encourage customers to switch between different shops and
brands. Loyalty programmes are structured marketing efforts that reward and encourage
the loyal buying behaviour. In retailing more specifically, a loyalty card, rewards card, points
card, or club card is a plastic or paper card, visually similar to a credit card or debit card, that
identifies the card holder as a member in a loyalty programme. Loyalty cards are a system of
the loyalty business model.
Types of loyalty programmes
There are broad categories of loyalty programmes. In the most basic format, any customer
receives a discount on selected items on the basis of swiping his/her membership card at a
point-of-sale terminal.
Another type of loyalty programme is adding reward points to the members based on their
past purchases. These types of programmes require a comprehensive database that can track
a member’s purchases and points. These programmes encourage consumers to increase

230
their purchases or reward heavy purchasers by having programme tiers. Shoppers

programmes offer tiers where heavy users can more easily accumulate free points or can
reserve points on an unrestricted basis. Many types of these programmes involve
partnerships with complementary marketers (such as an airline, hotel chain, and car rental
firm) to facilitate a member’s accumulating points and to increase the variety of reward
options.
Benefits of loyalty programmes
• Increased customer loyalty, lower price sensitivity, and stronger brand attitude.
• Access to important information on consumers and consumer trends.
• Higher average sales (due to cross selling and up-selling opportunities).
• Greater ability to target special consumer segments.
• Increased success in implementing product recalls.
Steps in developing loyalty programmes
• Setting the objectives.

• Developing a budget.
• Determining and selecting the loyalty programme eligibility.
• Co-branding.
• Developing and maintaining the loyalty programme database.
• Evaluating the success or failure of the loyalty programme.
• Taking corrective action.
Activity 2
Find out about the CRM practices of big retail firms like Pantaloons Retail, Shopper’s Stop and
More.

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10. A record of all communications with the customer is maintained on the

customer’s contact history which can be retrieved when required through
Operational CRM. (True/False).
11. In CRM, the different departments of a company such as technical support, sales,
and marketing communicate and share the information gathered from customer
communications.
a. Analytical CRM
b. Operational CRM
c. Collaborative CRM
9. SUMMARY
• Customer Relationship Marketing refers to all marketing activities directed towards

establishing, developing, and maintaining successful relationship with their customers.
• CRM aims at providing four types of benefit components to the customers –
personalisation, communication, rewards and special treatment benefits.
• There are three major components in CRM. They are operational CRM, Analytical CRM,
Collaborative CRM.
• The challenge for a retail unit is to bring three critical areas, namely marketing, customer
service, and quality into closer alignment and the attempt of CRM is to bring these three
areas together
• The CRM strategies in the organised retail sector have become extremely important
these days with the introduction of several loyalty programmes and major focus on
customer service. Now rewards are price offerings and money savings in order to
procure the customer's loyalty.
• Many retailers operate loyalty programmes for this purpose. This can take the form of
frequent shopper programme such as store credit cards, co-branded cards and affinity
programmes.

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10. GLOSSARY
Transactional marketing: It focuses only on a single sale.
Special treatment benefits: Providing specialised and customised benefits to the

customers.

1. What are the benefits of maintaining good relationship with customers?
2. What are the objectives of customer relationship management?
3. Define CRM. Explain its principles.
4. Describe the major components of CRM.
5. Differentiate between relationship marketing and transactional
marketing.
6. Discuss the benefit components of CRM used as strategy.
12. ANSWERS
1. Customer Relationship Management.

2. Customer retention.
3. Customer, relationship, and management.
4. ‘Single integrated view of customers’ and a ‘customer centric approach’.
5. Transactional marketing.
6. True.
7. “Treat each customer uniquely”.
8. Communication.
9. True.
10. True.
11. Collaborative CRM.

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Terminal Questions
2. Refer to section 3.1
13. CASE STUDY

First Citizen Programme- Loyal citizens
“It is no longer enough to satisfy customers. You must delight them” – Philip Kotler. In this
fast growing and competitive retail market of India, brand positioning depends a lot on
customer loyalty. Customer loyalty is the result of well-managed customer retention
program. Shoppers Stop customer loyalty programme is called the first citizen. The
programme offers its members an opportunity to collect points and avail innumerable
special benefits.
Shoppers Stop Ltd. has a national presence across 50 stores in 22 cities with a base of 2.3
million First Citizen members who contribute to nearly 50% of the total sales of Shoppers
Stop. Shoppers Stop is considered as a one stop multi-brand retail outlet providing leading
international and national brands in clothing for men, women and kids, accessories,
cosmetics, footwear and home furnishing.
At Shoppers Stop priority is given to customer convenience with customer friendly signage,
alteration desk, customer service desk with gift wrapping service and most importantly, the
exclusive First Citizen Members’ lounge to name a few. First Citizen is one of the very
significant loyalty programmes of Shoppers Stop. With this programme, customers become
part of the First Citizen club where they have to submit an application form along with the
application fee of $200. Sales associates are motivated to enrol as many of their customers
as they can because they are given more incentives. Membership to regular customers is
provided in three stages —Classic Moments, Silver Age and Golden Glow. The core customer
for First Citizen programme fall under the age group of 16 to 40 years.

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The customer receives many exclusive benefits with the First Citizen programme. The
tangible benefits include gain reward points each time they shop at Shoppers Stop stores or
www.shoppersstop.com. Customer also receives complimentary local delivery, advance
notice of sale events, newsletters, catalogues, promotions and giveaways, and birthday
wishes. The intangible benefits include recognition and preferential treatments like
exclusive cash counters which help customers to spend more time shopping than waiting in
a queue.
Shoppers Stop has taken CRM to a new extent and now its loyalty programmes are
considered as Customer Experience Management. Shoppers Stop has also introduced a
loyalty programme SKIDS specially for children of First Citizen club members.
The rapidly growing First Citizen programme clearly proves the fact that Shoppers Stop has
been able to successfully connect with their customers through their service and special
promotional offers which has converted many of them into loyal customers.
Questions
1. How effective is the First Citizen programme developing customer loyalty?

2. Who should Shoppers Stop target the First Citizen programme towards?

• http://tutor2u.net/business/marketing/segmentation-psychographic.html
• http://www.netmba.com/marketing/market/segmentation/

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SEMESTER 3
DMKT303
RETAIL MARKETING
Unit 12: International Retailing 1

236
Unit 12
International Retailing
Table of Contents

Topic Page No
No / Graph Activity
1 Introduction - -
3
1.1 Objectives - -
2 Stages in Retail Global Evolution - 1 4 -5
3 Reasons for Going Global - 2 6-7
4 Benefits of Going Global - - 8
5 Other Opportunities and Benefits of Going - 3 9 - 10

Global
6 Market Entry Methods - 4
6.1 Exporting - -
6.2 Licensing - -
6.3 International sub-contracting - -

11 - 15
6.4 Joint ventures - -
6.5 Wholly owned subsidiary - -
6.6 Franchising - -
6.7 Acquisition - -
7 Summary - - 16
8 Glossary - - 16
10 Answers - - 17
11 Case Study - - 18 - 20

237
1. INTRODUCTION
In the previous unit, we have seen the customer relationship management in retail. In this
unit, we will discuss all the aspects of International retailing. International retail is the
operations by a single firm in various forms of retail distribution in more than one country.
International retailing is not only the transfer of concepts to new environments but also the
establishment of operations in new markets. Globalisation affects all aspects of social and
economic activity and retailing is no exception. Many retailers are increasingly venturing
beyond their traditional territories and identifying expansion opportunities in new countries
and regions around the world. The motivations underlying the strategy to globalise include
saturation, owner specific advantages, location specific advantages and other international
advantages Walmart is ranked the top retailer in the world that holds this distinction.
With the changing global economy, consumer demand has shifted and retailers’ rely
extensively on technology to keep pace with this changing scenario than was the case half a
decade ago.
Technology has become the real enabler for retailers from 1990. Four years ago, more than
half of the top 250 retailers (53 percent) operated in only one country. Among all Top 250
retailers, 40 percent were single-country operators in 2010. By contrast, less than 20 percent
of European Top 250 retailers operated exclusively within their national borders. This
globalisation trend will only intensify in the years ahead. The benefits of increased sales and
greater economies of scale are too large to be ignored.
1.1 Objectives:
❖ Identify the stages of retail global evolution

❖ Discuss the reasons for going global
❖ Explain the benefits of going global

238
❖ evaluate various market entry methods

2. STAGES IN RETAIL GLOBAL EVOLUTION
Global retail is experiencing explosive modernisation as investment rushes into developing
markets. From small proprietors with a mainly local focus, retail’s ambitions now stretch
worldwide embracing the latest trends in marketing, distribution and supply.. As the
wealthiest markets mature, more retailers are pursuing new growth opportunities. They are
eyeing countries new to modern retailing, smaller cities (as larger cities become saturated)
and customer segments hungry for specialty products.
Retailers that can identify the most promising markets will become fierce global competitors
– able to saturate the obvious markets and gain first- mover advantage in new ones. With
this in mind, A.T. Kearney developed the Global Retail Development Index (GRDI). Now in its
sixth year, the GRDI identifies windows of opportunity to help retailers make strategic
investments in exciting new markets. GRDI 2012 is the 11th edition of the report. India is #5
in 2012 after Brazil, Chile, China, and Uruguay.
The four stages of International Business:
1. Stage one: Domestic focus: In this stage, firms have a strong domestic focus with all
activity concentrated in the home market. Whilst many organisations can survive like
this, solely domestically oriented organisations may not be able to make the cut in the
long term.
2. Stage two: Ethnocentric: In this stage too the firms have a strong home focus but with a
strong focus on exports.
3. Stage three: Polycentric: Stage two organisations which realise that they must adapt
their marketing mixes to overseas operations fall in this stage. In this stage, the focus
switches to being multinational and adaptation of their products, services and marketing
strategies becomes paramount.
4. Stage four: Geocentric: Global organisations which create value by extending products
and programmes and focus on serving the emerging global markets fall in this stage. This
involves recognising that markets around the world consist of similarities and
differences and that it is possible to develop a global strategy based on similarities to
obtain scale economies, but also recognises and responds to cost effective differences.

239
Its strategies are a combination of extension, adaptation and creation. It is unpredictable

in behaviour and always alert to opportunities.
Activity 1
List out the retailers who fall under different stages. Mention two retailers for each stage
1. Global organisations which create value by extending products and programmes

and focus on serving the emerging global markets fall in this stage. This stage is
called as __________.
2. In this stage, the focus switches to being multinational and adaptation of their
products, services and marketing strategies becomes paramount. This stage is
called as _______________.
3. In this stage also firms have a strong home focus but with an exports
a. Domestic focus b. Ethnocentric.

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3. REASONS FOR GOING GLOBAL

Push factors
• Saturation: Saturation in the home market can often lead a retailer to look for newer
markets where the demand could increase at a steady rate in the coming years..
• Recession: Recession or economic problems in the home country can often lead a
retailing company to look for newe r options and markets to minimise its risk and
increase its margins. During recession, supporting industries would be affected which
will in turn affect the main business.
• Planning restrictions: A retailer could be forced to go international because of planning
restrictions in the home country. The home country might have certain stringent laws
and regulations which would not allow the retailer to operate or expand the way he
wants, thus forcing him to enter into foreign markets and look for newer opportunities.
Pull factors
• Attractive markets: A retailer may go international in order to capture an attractive
market prospect in terms of business and long-term strategy. Attractive market can be
defined in terms of the prospective sales, government policies and convenience of
operations.
• Rise of the middle class: The quick growth of the middle class means the availability of
a higher amount of disposable income to spend which is transformed into sales.
• Harmony of market concepts: In developed retail markets, where quality and fashion
are more valued, specialised retailers are more successful. On the other hand, in
developing markets discount retailers with the combination of food and mixed goods are
more successful. Consumers in such markets are more interested in price, assortment,
value and favourable terms.
• Choice of ownership: The main question here is whether to enter the international
market independently or as a co-owner. In foreign countries, retailers often choose joint
ventures with local partners. Joint ventures often satisfy the country and the population
which is especially culturally sensitive.
• Supplier strategies: A retailer can have a strategy of sourcing from the most strategic
location and supplying it to its operations all over the world. Thus, it could form a

241
synergy in its distribution system if its operations exists in more than one country thus
reducing the cost of operations overall.
4. Saturation in the home market can often lead a retailer to look for newer markets
where the demand could increase at a:
a. Steady rate.
b. Higher rate.
c. Slower rate.
5. Recession is___________ and rise of the middle class is___________ .
a. Pull & push.
b. Push & pull.

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4. BENEFITS OF GOING GLOBAL

Selling globally opens up the way to lucrative large-business customers.
Diversified markets: One of the main benefits of going global is that international retailers
can take advantage of the booming global markets. Expanding business horizons overseas
provides an opportunity to retailers to learn new ideas, concepts, approaches and new
marketing techniques from their exposure in the global marketplace which can be
successfully applied domestically.
Global competitiveness: Today, many foreign companies are entering the local market by
exporting their goods and services worldwide. Exporting paves the way to global
competitiveness not only for their goods and services but also for market share, customer
base, marketing techniques employed customer loyalty, etc.
Productivity: Productivity is improved by producing goods and services in countries where

it is most efficient and cost effective. More units for the same cost can be produced thus
improving profitability.
Consumers: Consumers benefit from a wide array of competitively priced goods. With more
and more retailers jostling for consumer loyalty, retailers are able to understand the pulse
of consumers and produce/provide only those which are in demand thus creating a buyer’s
market.
The environment: Differing environmental standards across countries create

opportunities for businesses to exploit resources in countries with the least amount of
environmental protection regulations.
Monetary and fiscal conditions: As money moves freely, it is better able to seek out the
best investment opportunities on a global scale. At the same time helping international
players to rake in the benefits of such lapses.
Sovereignty: Globalisation may undermine national sovereignty in two ways: First, contact
with other countries creates more cultural borrowing. Second, countries are concerned that
important decisions may be made abroad by foreign owners of domestically located firms.

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5. OTHER OPPORTUNITIES AND BENEFITS OF GOING GLOBAL

An essential ingredient for the global economy is international retailing which satisfies the
ever increasing complex and demanding needs of global consumers.
With the availability of advanced technology, global retailers are at the forefront when it
comes to taking advantage of the technological edge to manage their operations and
interface with consumers. Consumers are increasingly becoming international in their
outlook due to extensive business travel, internet access, music, television, magazines and
other multimedia exposure, and therefore expect a global appeal when shopping. Retailers
have to be alert and progressive to meet this demand by keeping abreast of global trends and
working with suppliers to optimise the appropriate product mix in stores. Sustainability and
ethical aspects of retailing are particularly important when working globally which is a
challenging area for most retailers and is an important factor in their quality management.
Addressing the dynamics of the market for teenagers and youth is another demanding area.
Young consumers have their own finance and make their own decisions about what products
they chose to buy and from where. They tend to be strongly influenced by celebrities, brands
and peer pressure. Retailers need to understand their shopping habits and cater to the needs
of this group. In general, consumers are becoming increasingly brand aware and want access
to luxury products. Own brands, or private labels have to offer premium quality and a sense
of uniqueness to attract and retain consumers' loyalty.
Luxury goods retailers are among some of the earliest globalists seeking to serve a similar
consumer niche in a number of cosmopolitan cities around the world. Example, Harrods
operated a store in Argentina in the early twentieth century in order to meet the needs of
colonial expatriates.
This is not to say that we have witnessed significant global expansion by many retailers. It is
worth a mention that many retailers remain essentially domestic operations. In addition,
many retailers perceived to be developed globalists/operators receive only a marginal
turnover and profit from their operations outside their home market.
Economist John Dunning identified three particular advantages which encourage foreign
market participation.

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• Ownership-specific advantages: Certain tangible and intangible assets such as unique

products, company size or trademark protection are some of the ownership-specific
advantages a firm enjoys which gives them a competitive advantage over other firms
within a market The desire to maximise these advantages encourages the firm to use
them rather than to sell or lease them.
• Internalisation advantages: These are ultimately concerned with protecting against or
exploiting market failure, and necessitate the extension of the firm's activities through
organic growth and vertical integration, rather than through the externalising of these
assets through contracts with independent firms. As to whether these advantages result
in the extension of the firm's internal activities, such as manufacturing activities, to a
foreign market is dependent on whether the firm can utilise and co-ordinate their
advantages with factor inputs derived from the foreign market.
• Location-specific advantage: Lower labour costs and the opportunity to circumvent
import controls are some of the location specific advantages induced by the presence of
foreign market participation.
6. According to John Dunning, Certain tangible and intangible assets such as unique
products, company size or trademark protection are some of the __________
advantages.

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6. Market Entry Methods

There are various modes available for entering into a market:
• Exporting.
• Licensing.
• International sub-contracting.
• Joint ventures.
• Wholly owned subsidiary.
• Franchising.
• Acquisition.
6.1 Exporting
It involves products produced in one country being sold in another country. Its advantage is
that it avoids substantial risks and costs of establishing manufacturing operations in 43 host
country. It is not an economical procedure if the production can be done cheaper abroad.
Moreover, tariff barriers can make products uncompetitive.
6.2 Licensing
It is an agreement where a licensor grants the licensee the rights to intangible property for
a specific period of time and in return for that licensor receives a fee. It helps in penetrating
difficult markets where access is restricted. It is a low capital risk endeavour where the
commitment of resources is also low. But at the same time, costs of licensing transaction can
discourage both parties. Moreover, there is always a risk of losing control over the know-
how.
6.3 International Sub-Contracting
It is a contractual agreement between two firms, wherein one firm places order to another
stating specific nature and quality of goods to be produced and the goods produced become
the property of the firm placing order, unlike licensing. Usually firms in developed countries
place orders to subcontractors in developing countries. Quality control can be a problem in
this case.

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6.4 Joint Ventures
When a country has a restrictive business environment, the best option is to start a joint
venture in another country. A joint venture enables a retailer to get to know the market and
its competence through its partnership with the local enterprise. Partners share all the risks,
but the enterprises lose part of the control. Joint ventures can be defined as ‘an enterprise in
which two or more investors share ownership and control over property rights and
operation’. Joint ventures are a more extensive form of participation than either exporting
or licensing.
Advantages
• Sharing of risk and ability to combine the local in-depth knowledge with a foreign
partner with know-how in technology or process.
• Joint financial strength.
• May be the only means of entry.
• May be the source of supply for a third country.
Disadvantages
• Partners do not have full control of management.

• May be impossible to recover capital, if need be.
• Disagreement on third party markets to serve.
• Partners may have different views on expected benefits.
If the partners carefully map out in advance what they expect to achieve and how, then many
problems can be overcome.
6.5 Wholly Owned Subsidiary
It is 100% owned and controlled by a parent company usually headquartered in a foreign

country. It can be established through greenfield investments or mergers and acquisitions.
Since the parent company has absolute control over it, it becomes easier to achieve corporate
objectives as there would be consistency in policies and strategies. Moreover, the parent
firm’s proprietary rights will remain protected. With all these advantages, the parent firm
has to bear all the costs and risks associated with it.

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6.6 Franchising
Franchising is an underexplored entry mode in international markets, but it has been widely
used as a rapid method of expansion within major developed markets. Retailers can own and
manage a store through franchising. It uses a franchisor's logo, its operative structure and
purchasing competence. Franchising prevents penetrating new markets with a relatively low
amount of invested capital. Domino's Pizza India Ltd. Was incorporated in March 1995 as the
master franchisee for India and Nepal, of Domino's Pizza International Inc., of USA.
Moreover, the company holds the master franchise rights for Sri Lanka and Bangladesh
through its wholly- owned subsidiary. Mr. Shyam S. Bhartia and Mr. Hari S. Bhartia of the
Jubilant Organosys Group were the promoters of the company.
Advantages
• A franchise is a duplicate of a successful business concept. The franchisee owns the

outlet, therefore, he hires his own employees and oversees the management of its day-
to-day operations. He has high stakes in the business because his money is involved.
• Many popular franchisees have instant brand-name recognition and have created a loyal
following among consumers. Therefore, the franchisee is getting into a business that
already has a ready market.
• The franchisee is given the necessary training to start his business and eventually run it
smoothly. The franchisee as well as his employees is taught all the business systems of
the company covering product preparation, quality standards, business controls,
recruitment of personnel, and marketing. A good franchisor will provide training to the
franchise staff on a continuous basis.
• Lower capital requirement is needed in a franchised business since the experience and
tested system of operations of the parent company would already have eliminated the
unnecessary expense incurred through trial and error.
• Minimised business risks because the franchisee is buying a proven business concept,
the business risks involved are largely minimized and benefits the franchisor.

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Disadvantages
• Difficulty of adapting the franchised asset or brand to local market tastes. Even
experienced corporations like McDonald’s have taken several decades and some false
starts to get to this point of advanced business practice.
• Buying into big and popular franchises is expensive.
• Returns for the franchisee are limited.
6.7 Acquisition
An acquisition, also known as a takeover, is the buying of one company (the 'target') by
another. An acquisition may be friendly or hostile. In the former case, the companies
cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or
the target's board has no prior knowledge of the offer. Acquisition usually refers to a
purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire
management control of a larger or longer established company and keep its name for the
combined entity. This is known as a reverse takeover.
Types of acquisition
The first type is which the buyer buys the shares, and therefore control, of the target
company. Ownership control of the company means that there is control over the assets of
the company. Since the company is acquired intact as a going business, this form of
transaction carries with it all the liabilities accrued by that business over its past and all the
risks that the company faces in its commercial environment.
The second type is which the buyer buys the assets of the target company. The cash the target
receives from the sell-off is paid back to its shareholders by dividend or through liquidation.
This type of transaction leaves the target company as an empty shell, if the buyer buys out
the entire assets. A buyer often structures the transaction as an asset purchase to ‘cherry-
pick’ the assets that it wants and leave out the assets and liabilities that it does not. This can
be particularly important where foreseeable liabilities may include future, un-quantified
damage awards such as those that could arise from litigation over defective products,
employee benefits, terminations or environmental damage. A disadvantage of this structure
is the tax that many jurisdictions, particularly outside the United States, impose on transfers

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of individual assets whereas stock transactions can frequently be structured as like-kind

exchanges or other arrangements that are tax-free or tax-neutral, both to the buyer and to
the seller's shareholders.
The terms ‘spin-off’ and ‘spin-out’ are sometimes used to indicate a situation where one
company splits into two, generating a second company separately listed on a stock exchange.
Activity 1
Recently there was a lot of hype about Walmart entering India in collaboration with Bharti.
Prepare a brief report on benefits of this deal to India.
7. A______________ enables a retailer to get to know the market and its competence
through its partnership with the local enterprise.
8. An____________, also known as a takeover, is the buying of one company (the 'target')
by another. An acquisition may be friendly or hostile.

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7. SUMMARY
• Global retail is experiencing explosive modernisation as investment rushes into

developing markets. From small proprietors with a mainly local focus, retail’s ambitions
now stretch worldwide embracing the latest trends in marketing, distribution and
supply.
• There are four stages in the global retail evolution.
• The push factors for going global are saturation, recession, planning restrictions and the
pull factors are attractive markets, rise of the middle class, harmony of market concepts,
choice of ownership and supplier strategies.
• The benefits of going global are diversified markets, global competitiveness,
productivity, consumers, the environment, monetary and fiscal conditions, and
sovereignty.
• The economist John Dunning identified three particular advantages. They are
ownership-specific advantages, Internationalization advantages and location-specific
advantages.
• There are various modes available for entering into a market are Exporting, Licensing,
International sub-contracting, Joint ventures, Wholly owned subsidiary, Franchising,
Acquisition.
8. GLOSSARY
Joint Venture: is an entity formed between two or more parties to undertake economic
activity together.
GRDI: Global Retail Development Index.
Geocentric: Global organisations which create value by extending products and

programmes and focus on serving the emerging global markets.
Polycentric: organisations which realise that they must adapt their marketing mixes to
overseas operations fall in this stage. In this stage, the focus switches to being multinational.
Ethnocentric: firms have a strong home focus but with an exports.

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1. Explain the stages of retail global evolution.
2. Explain the reasons for going global.
3. Discuss the benefits of going global.
4. Discuss any four market entry methods.
10. ANSWERS
Self Assessment questions
1. Geocentric.
2. Polycentric.
3. Ethnocentric.
4. Steady rate.
5. b. Push & pull.
6. Ownership-specific.
7. Joint venture.
8. Acquisition.
Terminal Questions

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11. CASE STUDY

IKEA
The following history shows how over a period of six decades IKEA went from the woods of
southern Sweden to becoming a major global retail brand with 131,000 co-workers in 41
countries/territories generating annual sales of more than 24.7 billion EURO around the
world. When Ingvar Kamprad was 17, his father gives him money as a reward for
succeeding in his studies. He uses it to establish his own business. The name IKEA is formed
from the founder's initials (I.K.) plus the first letters of Elmtaryd (E) and Agunnaryd (A),
the farm and village where he grew up. IKEA originally sells pens, wallets, picture frames,
table runners, watches, jewellery and nylon stockings; meeting needs of products at reduced
prices.
It is no accident that the IKEA logo is blue and yellow. These are the colours of the Swedish
flag.
In Sweden, nature and the home both play a big part in people's lives. In fact, one of the best
ways to describe the Swedish home furnishing style is to describe nature-full of light and
fresh air, yet restrained and unpretentious.
Following the opening up of single-brand retail to 100% FDI, there’s a lot of speculation
about the Swedish furniture and accessories retailer IKEA entering India. IKEA obviously
cannot ignore the s 92,500 crore Indian furniture and furnishings market, less than 7% of
which has been tapped by modern retail.
In fact, IKEA had set up an office in India back in 2007. In June 2009, however, IKEA
announced it was abandoning efforts to invest up to €300 million (more than eight times the
cumulative FDI received by India in single-brand retail) for setting up stores, after failing to
persuade the Indian government to ease FDI restrictions.
At that time, the Financial Times quoted IKEA’s retail head for Asia- Pacific, Ian Duffy, as
saying the retailer thought it was on the verge of a breakthrough in 2008 itself, but the
required policy change did not take place and IKEA did not anticipate any rapid progress on
opening up the retail sector. So IKEA was not wrong about the speed of progress in India. It

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took the Indian government another 31 months to clear the path for IKEA to enter India.
Meeting the 30% sourcing obligation, however, is still likely to be a challenge.
The IKEA is the largest single-brand retailer in the world. IKEA is no ordinary retailer. It is a
global cultural force. More than 10% of European kids are conceived on an IKEA bed. Its
turnover is more than 100 times larger than Godrej Interio (India’s largest furniture retailer)
and more than 14 times larger than the whole of Future Group (India’s largest retail
conglomerate). At an average of s 6.1 billion per store, IKEA does more than 12 times
business per store compared with Future Group’s retail format Home Town. For the scores
of Indian mall developers dreaming of IKEA anchoring their malls, let’s do a reality check.
The world’s largest IKEA store, located at Kungens Kurva outside Sweden’s capital
Stockholm, measures a whopping 606,000 square feet. The store at Shenyang (China)
occupies 503,000 square feet and the newest one at Tianjin occupies 492,000 square feet.
The first IKEA store in Thailand is as big as 462,000 square feet.
The Indian stores are unlikely to be smaller than 350,000 square feet. Not a single Indian
mall can accommodate such a large box size. In fact, for any mall to accommodate a non-
grocery, non-fashion anchor of 350,000 square feet, it needs to have total retail carpet area
of at least 900,000 square feet. India currently has only one operating centre of this size; the
Phoenix Market City Kurla in Mumbai. There are about 3-4 operating centers under planning
or development, but none of these can accommodate a furniture store of 350,000+ square
feet.
It is not just about the store size. IKEA stores typically have 6-8 unloading bays, as well as
300-400 feet long customer vehicle loading bays. They have 20-feet-high ceilings. Under the
IGR (Ikea Goes Renewable) initiative, back in 2006, IKEA announced a goal to use 100%
renewable energy. The company owns 52 wind turbines in France and Germany that
generate 95 gigawatt-hours of power and meet about 10% of its total power requirements
in those countries. It is currently building a nine- turbine wind farm in Sweden that will
generate 70 gigawatt-hours per year and power 17 of their Swedish stores. Forty IKEA
buildings have solar panels, which are being installed in 110 additional buildings.

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Questions
1. How can retailers build a sustainable competitive advantage?

2. What steps do retailers go through to develop a strategy?
3. Will Indian developers partner with IKEA in meeting such stringent renewable energy
requirements?

• http://retail.about.com/od/marketingsalespromotion/Marketing_Sales_
Promotion.htm
• http://tutor2u.net/business/marketing/segmentation-psychographic.html

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SEMESTER 3
DMKT303
RETAIL MARKETING
Unit 13: E-tailing 1

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Unit 13
E-tailing
Table of Contents
Fig No /
SL SAQ /
No Activity
Graph
1 Introduction - -
3–4
1.1 Objectives - -
2 E-tailing - 1 4
3 Role of Technology in Satisfying Market Demand - 2 5–7
4 Technology in Retail Marketing Decisions 1 3 8 – 10
5 Structure and Developments in E-tailing - 4 11 – 12
6 Factors Influences the Growth of E-Tailing - 13 – 14
7 Advantages & Disadvantages of E-Tailing - 5 15 – 17
8 Future of Electronic Retailing - 6 18 – 19
9 Summary - - 19 – 20
10 Glossary - - 20
12 Answers - - 21
13 Case study - - 22 – 23

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1. INTRODUCTION
In the previous unit, we have discussed about the stages of evolution in retail and also the
reasons and benefits of going Global. Robust economic growth has resulted in rapid growth
in the consumer markets in the emerging market economies like India. The modern
consumption level of India is expected to double within five years – from the present level
of US$750 billion, it will become US$1.5 trillion (FICCI). Thus, the consumer expenditure is
set to grow immensely owing to the tremendous potential and huge population. The macro
trends for the sector look favourable as India has a large ‘young’ population and high
domestic consumption.
It is expected that online retail business is another format which has great potential for
growth in the coming times. The growth of this segment is 35 per cent per annum, i.e. Rs.
2,000 crore (US$ 429.5 million) in 2011 to Rs. 7,000crore (US$ 1.5 billion) by 2015. Online
shopping is growing at a very fast pace as all types of retailers are venturing into online
shopping through product offerings, adding in-store pickup, free shipping and
experimenting with social media. The difference between pure-play internet retailers and
the bricks and mortar shops with online portals (also called brick-and-click) has reduced as
all formats are reinventing their strategies for future online shopping.
Traditional retailers have become bold because of the future in an even playing field. Many
of them are becoming more aggressive in capturing online sales. An example would be
Infiniti Retail from Tata Group which has a brand ‘Croma’ that operates in consumer
durables and electronics chain of stores and which is in the process of tapping net savvy
consumers. Similarly the Future Group, which has a portal ‘Futurebazaar.com’ for online
sales has announced that its target is to achieve at least 10 per cent of the company's total
retail sales through the digital medium. Different modes are used for shopping online, like a
mobile device, tablet computer, in-store kiosk or computer. This can prove to be both good
and bad for consumers. In this Unit, we will be explaining about the emerging concept in
retail called E-tailing and also discusses about the role of technology in Retailing.

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1.1 Objectives:
❖ identify the role of technology in satisfying market demand
❖ explain the use of technology in retail marketing decisions
❖ discuss the structure and developments in electronic retailing
❖ evaluate the concept of e-tailing
❖ assess the future of electronic retailing.
2. E-TAILING
Electronic retailing, also known as e-tailing, deals with selling products and services online
via the Worldwide Web. Internet retailing or ‘e-tailing’, as it is usually referred to, covers
retailing using a variety of different technologies or media. It may be broadly a combination
of two elements. One is combining new technologies with elements of traditional stores
and direct mail models and the second is using new technologies to replace elements of
store or direct mail retail.
1.___________________ deals with selling products and services online via the Worldwide
Web.

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3. ROLE OF TECHNOLOGY IN SATISFYING MARKET DEMAND

Market demand can only be satisfied, if there is corresponding product availability. Market
demand should correspond with product availability. Even if there is an improvement in
insight development, analytics, planning and collaboration capabilities, success depends on
the ability to execute in- store. The complexities of the marketplace in which Consumer
Products (CP) manufacturers operate and the demands of the relationships with shoppers,
consumers and retailers are on the rise. The critical processes in the CP manufacturer
include insight development, analytics, category management, account management, trade
promotion management and customer service. There has been considerable improvement
in these processes due to various factors, like emergence of industry standards and
technology advances, along with an increasingly skilled workforce. Retail execution has
come in focus again because of these enhanced competences and commitment to
collaboration with retailers. Achieving these targets is possible through focussing on the
integration of multiple data sources, business processes and the applications which are the
basis of their information architecture. With this integration, CP manufacturers can sense
and respond to a wide range of capabilities which include:
• Noting the actual and estimated overstock and out-of-stock of SKUs at the store.
• Carrying out automated analysis based on the sales potential and impact on profits
prioritising the tasks that are actionable.
• Identifying the stores that have the inventory of the products, however not available
on the shelf for sale.
• Providing solutions to address the issues of the stores having lower promotional lift
than expected.
Actionable information: closing the gap between knowing what to do and getting it done.
Most CP manufacturers are often faced with the gap between knowing what to do and
properly executing the store activities. There are two common barriers which CP
manufacturers face in their retail execution initiatives:
• Inability to translate increasing volumes and emerging types of demand data into
actionable insights in a timely manner. The CP manufacturer is overwhelmed by the
frequency and number of sources available for the data.

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• Inability to achieve change in business process and compliance across the multitude
of touch points. If the prioritised actions are not communicated to the stakeholders on
a timely basis, it is unlikely that the execution of corporate strategy will be done
consistently in distribution centres, in-store and on the shelf.
These marketplace developments have resulted in making possible the achievement of

closing this gap. There has been an increase in new data sources, new data types, and
granularity, at the same time the ability to store, process and transform this data has also
touched new heights. There has been a dramatic reduction in the cost of computing power
which has resulted in the increased ability to process larger amounts of data and to
perform increasingly sophisticated calculations and analysis.
What are Consumer Product Manufacturers doing today?
New information management architectures are being defined by industry leaders, who
also have improved retail execution in mind. Retail execution activities which have a huge
impact will be identified and prioritised by the field sales force, third party merchandisers
and even store personnel. This will be based on real-time knowledge of true in-store and
shelf conditions. This SKU-level and store specific view will help the CP manufacturer in
understanding what is happening in the store. It also helps in complying with
merchandising and promotional strategies in such a way that will be beneficial to both
manufacturers and retailers.
With Radio - Frequency Identification RFID, electronic shelves can monitor the stock on
display, so it can be replenished before it runs out altogether. Many trials have been
conducted to meet this challenge. For example, Unilever in the UK found that RFID labelling
leads to better-managed stock and timely shelf filling.
This system also helps prevent theft. It accurately identifies vulnerable locations and
activities that lead to lost goods. For instance, shrink-wrapped six-packs of Lynx
deodorants—a product prone to theft—was trialled early on. RFID tags traced them from
the production line to the retail shelf. Information from these tags could be used to assist
police investigations into theft.

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2. Market demand should correspond with product availability. (True/false).

3. With the help of __________ electronic shelves can monitor the stock on display, so
it can be replenished before it runs out altogether.
Activity 1
Discuss about three retail shops where RFID is used extensively.
Hint: Observe the retailer who has supermarket, hypermarket .

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4. TECHNOLOGY IN RETAIL MARKETING DECISIONS

The technology has now become an essential tool for retailing. Some of the important
applications of technology in retail sector are as follows:
4.1 Marketing Information Systems (MIS)
Figure.1: Elements of MIS
The term ‘Marketing Information Systems’ (MIS) refers to a programme for managing and
organising information gathered by an organisation from various internal and external
sources. This programme assesses the requirements of data for different managers. This
data is then developed to get the required information in time regarding competition,
prices, advertising expenditures, sales, distribution and market intelligence, etc. The
company’s internal records are the main sources of information for MIS. This comprises the
records of marketing performance in terms of sales, and effectiveness and efficiency of
marketing actions, marketing databases, marketing intelligence systems, marketing
research, and information supplied by independent information suppliers.
Figure 13.1 depicts various elements of Marketing Information Systems.
4.2 Databases
A database refers to the collection of comprehensive information about customers and

prospects such as demographic and psychographic profiles, products and services they
buy, and purchase volumes, etc., arranged in a manner that is available for easy access and
retrieval. Marketers have access to all the information, in the form of various reports
through a computer system, such as sales reports, news articles, company news releases,

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and economic reports from government and private agencies, etc. This database will be
useful in making various marketing decisions.
4.3 Internal records
All information and data required for making marketing decisions has become accessible
due to technological developments. Now it is very easy to understand the needs and wants
of the customer by analysing customer buying behaviour. Companies are able to access all
important information through modern technologies as all market researchers and
managers have access to e-mail, voice mail, teleconferencing, videoconferences, and faxes.
The basis of developing a strong MIS is the internal database. Marketers as well as retailers
need the information about the demands of the customers. This will help to track the
customers’ demands and choices and buying pattern. All this information will be available
in the form of orders received from sales people resellers, and customers, copies of sales
invoices, prices, costs, inventories, receivables, payables, etc. The crucial factor in making
appropriate marketing decisions is getting inputs, providing right data, to the right people,
at the right time.
4.4 Electronic Data Interchange (EDI)
Electronic data interchange (EDI) is the electronic exchange of business information—

purchase orders, invoices, bills of lading, inventory data and various types of
confirmations—between organisations or trading partners in standardised formats.
EDI also is used within individual organisations to transfer data between different divisions
or departments, including finance, purchasing and shipping.
Use of EDI in retail business reduces costs. It also strengthens the relationship between the
retailer and the supplier. A supplier can spot trends in purchase and accordingly realign his
production if there is an EDI exchange between a retailer and the supplier.

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4.5 Enterprise Resource System (Erp)
• Enterprise Resource Planning systems or the ERP systems refer to the software
packages that integrate all the data and the related processes of an organisation into a
unified Information System (IS).
• ERP packages are mostly used by larger retail chains and are designed to facilitate the
administration and optimisation of internal business processes across an enterprise,
ERP packages have become the competitive tool for most large retail organisations.
• An ERP software uses a single database that allows the different departments to
communicate with each other through information sharing.
• ERP systems comprise function-specific components that are designed to interact
with the other modules such as the Order Entry, Accounts Payable, Accounts
Receivable, Purchasing, Distribution etc. Various ERP packages in retail specific
systems help in integrating all the functions from warehousing, distribution, front and
back office store system.
4. __________________ manages and organises all the information that a

business gathers from all internal and external sources.
5. A ______________ refers to the collection of comprehensive information
6. ___________________The basis of developing a strong MIS is the .
7. __________________helps in integrating various functions of retailing such as
warehousing, distribution, front and back office store systems.
8. ___________________also strengthens the relationship between the retailer and the
supplier.

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5.STRUCTURE AND DEVELOPMENTS IN ELECTRONIC RETAILING (E-

TAILING)
E-tailing is the short for ‘electronic retailing’ and can be defined as selling of retail goods
through the electronic medium, i.e. internet. This term was first used in internet
discussions in 1995 and has been an obvious addition to e- mail, e-business, and e-
commerce. E-tailing is synonymous with Business- to-Consumer (B2C) transaction.
It all started in 1997. Before that, e-tailing was done by some major corporations and small
entrepreneurs when Dell computers reported orders worth multimillion dollars from its
website. The success of Amazon.com was a huge boost to e-tailing and thus arrived Barne’s
and Noble’s e-tail site. In the same year, Auto-by-Tel announced that their millionth car was
sold over the web and Commerce Net/Nielsen Media also reported that 10 million people
had made purchases on the Web. Jupiter research also predicted that e-tailing would grow
to $37 billion by 2002.
There were concerns about the security of order-taking through these websites; however
with the advent of different e-tailing companies, all these fears were mitigated.
Due to e-tailing, there has been a surge in e-tail ware software tools which create online
catalogues and manage the business. The latest trend is a site that quickly compares prices
from a number of different e-tailers and links you to them.
E-tailing is becoming popular day by day. Internet retailing can be classified into three
main categories:
1. Pure-Play E-Tailers: This type of retailer uses Internet as his primary means of
retailin, e.g. E-bay.com, Amazon.com, futurebazar.com etc.
2. Bricks & Click E-Tailers: This type of retailer uses the internet to push his goods or
services but also has the physical storefront available to customers, e.g. Pantaloon
Retail India Ltd.
3. Click & Mortar: Click & Mortar describes a store that exists online and in the physical
world, e.g. Bigbazar, Hypercity, etc.

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Internet retailing saves a lot of time and provides adequate product comparisons. However,
people cannot touch and feel the products on internet, which is a negative for e-tailing.
There are other advantages and disadvantages associated with e-tailing, which you will
learn in the next section.
9. E-tailware is a software tools that creates online catalogues and managing e-

tailing business. (True/False)
10. E-tailing is synonymous with Business-to-Consumer (B2C) transaction.
(True/False)
11. The business that operate through online and offline channels are put under the
category of click retailing. (True/False)
Activity 2
Name some Brick & Click e-tailers in India.
Hint: refer retailers who have both physical store and online presence

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6. FACTORS INFLUENCES THE GROWTH OF E-TAILING

There are many factors which have influenced the growth of e-tailing in the retail sector.
Reach: Reach is defined as "access and connection: how many customers a business can
access and how many products it can offer". A retailer's access to customers was
traditionally limited by its stores and other outlets. Even the most convenient store
locations might not be close enough or accessible to all potential customers. By contrast, a
single online store can reach any potential customer with an Internet connection.
Moreover, a retailer's range of product offerings was traditionally limited by the size of its
stores and the cost of carrying inventory.
Avoids real-estate costs: E-tailers do not have to maintain expensive showrooms or

warehouses in prime locations. They operate through their web sites and thus save
drastically on the real estate costs. Besides, maintenance costs of a virtual store vis-à-vis a
physical store are much less. These cost benefits are then passed on to the customers by
offering them discounts (which actually go up to 30%). This enables the customers to get
commodities at cheaper rates, which is a big attraction for them.
Avoids inventory hassles: The most, troublesome but critical, job of a traditional
retailer is to maintain adequate inventory, i.e., there should be no under stocking or
overstocking for which lead times play a vital role.
Ease and comfort: All required information is available on the internet for the
customer. Just a few clicks form the comfort of home will open the world of shopping to the
customer.
Customer interaction: Being interactive in nature, e-tailing gives the benefit of

reaching customers and responding to their needs appropriately. On the contrary, an
online store cannot talk to the customers and tailor sales messages the way a sales
associate can.
Mass media: Unlike a supermarket which operates in a limited area, specific to a

geographical location, the reach of a web site is global. This helps in increasing the
customer base. A wider range of choice is given to the customers on their fingertips (a

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variety of e-tail sites to choose from). This brings together consumers and retailers from all
over the world.
Search option: This option enhances the buying experience of the customer. It is
convenient to find items according to the needs of the customer. The choice is open to the
customer—he can buy what he wants and not what the retailer wants to sell. This
ultimately leads to consumer empowerment.
User friendly: The execution of transactions happens online, so there is no disconnect

between the desire to purchase and the ability to purchase.
Customised product placement: The online placement/display of products can be changed

by the e-tailers on the basis of previous transactions. This will give a better visibility to the
products that the user is more likely to buy based on the former encounter at the time of
purchase.
Critical success factors for e-tailing
• Information – easy access to information on a wide range of products.

• Communication – personalized service.
• Transaction processing – ensure simplicity and security.
• Supply – winning confidence of suppliers.
• Distribution – ability to deliver worldwide and on time.
• Integration of old and new systems.

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7. ADVANTAGES & DISADVANTAGES OF E-TAILING

A. Advantages of e-tailing/multi-channel retailing
There are advantages of e-tailing which cannot be found in other forms of retailing:
1. Cost: e-tailware software helped retailers in updating the information against

competition & avoids the expenses by creating online catalogues instead of paper
catalogue.
2. E-tailing creates a global bazaar style marketplace that gathers many consumers and
many retailers.
3. Access (no physical location): travelling is not required to see and compare products
since all information about the products are available online.
4. Inventory: Inventory of the products can be placed in larger quantity with all ranges
available with a particular retailer without worrying about the space limitation and
shelve availability for that product.
5. Flexible time: time flexibility in accessing the shop is a significant advantage of e-

tailing. A customer can access the shop 24/7 according to their need and comfort.
B. Disadvantages of e-tailing/multi-channel retailing
The following can be the reasons for e-tailing not gaining as much popularity as expected.
1. Shopping is still a touch-feel-see-hear experience: In India, shopping is still

considered to be a family outing and people do not feel the lack of time while going
out for shopping. So, e-tailing faces the problem of customer retention.
While it is clear that consumers are adopting the internet as a shopping medium, gaps
remain between the shopping experience in the physical world and the shopping
experience online. Indian shoppers want to touch, feel and examine the product before
they buy it.

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2. Customer service, distribution and logistics related issues: it is evident that e-

tailing facilitates business transactions but care should be taken to ensure that the
products are delivered on time. Most of the e-tailers adopt fancy techniques to attract
customers but fail to acknowledge one of the most important aspects of customer
satisfaction, which is achieved through a flawless delivery. It is important to follow
through and ensure a smooth delivery to the customer. E-tailers should provide prompt
and smooth delivery to enhance customer experience.
3. Mode of payment related issues: credit cards are the preferred mode of payment for
all online purchases. There is always a possibility of misuse of the card details as the e-
tailers cannot capture any signatures of the cardholder.
4. Weak financial structure: The three elements that help in deciding if the e-tailing
operation is profitable are:
• Average transaction size.

• Gross margins.
• Marketing costs.
Considering all three factors, e-tailing in India is not cost effective. It is believed that
conventional retailing is more viable. This is because in a conventional set-up, the customer
will take care of the costs of delivery, whereas e-tailers have to ensure that goods are
delivered to customers across locations. It was the customer who bore the costs of
delivering the goods. In contrast, ensuring delivery to customers at infinite locations
changes the cost of doing business completely.
5. Integrating online and offline orders: From an operations perspective, the easiest
route for companies with a foot in both real and virtual world might be to enter
electronic orders manually into the offline order management system. This option
makes most sense when the volume of online orders is higher; companies must decide
how much integration they need. In a totally integrated system, internet orders would
be automatically transmitted through a processing centre and transferred to the
shipper's manifest.

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6. Technical issues: The other major concerns are related to technical problems like
security and confidentiality of information, speed of access, disconnection during
transaction, mass penetration, and lack of navigation standards. Another major limiting
factor is the limited access to internet. Not everyone has access to internet and many
people do not have proper cards to make payment.
7. Personal information: While shopping through the online media, consumers are
confronted with a lot of security issues. Customers are sceptical about giving any
personal and private information to online retailers as they fear a possible misuse.
12. _____________________are the preferred mode of payment for all online purchases.
13. In_____________, consumers want to touch, feel and examine the product before
they buy it.
Activity 3
Conduct a survey to find out the attitude of consumers towardse-tailing.

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8. FUTURE OF ELECTRONIC RETAILING

Online retail is emerging and this year it is predicted to scale new heights. The future
trends to watch are as follows:
• In-store pick up. In-store pick up refers to that you can order it online and pick up in
store. We have seen that Wal-Mart implemented in-store pick up for orders which are
placed online. Sears and Kmart are going a step further and bringing online purchases
to your car.
• Mobile Applications. Different applications are on the rise and smartphones are the
dominant cell phone these days. This trend is very new but some applications for
price comparisons or send out coupons are already among the commonly used with
good reviews.
• Uploading Videos. Retailers allow customers upload their video clips in new clothes
and using new products. This is definitely going to pick up.
• Social networking. Social networking sites, like Facebook and Twitter give enough
opportunity to the consumers who can ‘like’ or ‘follow’ a favourite retailer and get
discounts or tips on deals. For example JC Penney who sells goods through Facebook
and Victoria’s Secret is ‘liked’ by more than 12 million consumers on Facebook,
making it the most popular retailer on the site (its Pink brand ranks No. 2, according
to the Channel Advisor Facebook Commerce Index).
• International retailing. International or cross border e commerce provides an
option for retailers to sell their products to consumers outside their own country.
“There’s been an accelerating trend of small niche online retailers are now doing 10-
20% of their sales.” Look at online shops like Zara and Top Shop who are building
their online business to reach shoppers in the US, even as the store base is growing
slowly.
• E Consumers: As e-shopping becomes the most sensible alternative of procuring
goods and services, consumers are likely to abandon their traditional views of
shopping. No longer will a routine trip to a supermarket or mass retailer, such as Wal-
Mart, satisfy the e-consumers expectations. The effort of the trip will require an
experience that appeals to one’s social needs, entertainment needs, creativity, and
curiosity. The future of electronic retail is indeed the future of retail. However,

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electronic shopping will transcend the mere transaction and become a pillar of daily
virtual activities. On-line purchasing activities will be only a part of a new e-lifestyle.
14. In-store pick up refers to that you can order it online and pick up in store.
(True/False)
9. SUMMARY
• Electronic retailing, also known as e-tailing, deals with selling products and services
online via the Worldwide Web.
• Internet retailing or ‘e-tailing’, as it is usually referred to, covers retailing using a
variety of different technologies or media.
• With Radio - Frequency Identification RFID, electronic shelves can monitor the stock
on display, so it can be replenished before it runs out altogether. Many trials have
been conducted to meet this challenge.
• The term ‘Marketing Information Systems’ (MIS) refers to a programme for managing
and organising information gathered by an organisation from various internal and
external sources.
• A database refers to the collection of comprehensive information about customers
and prospects such as demographic and psychographic profiles, products and services
they buy, and purchase volumes, etc., arranged in a manner that is available for easy
access and retrieval.
• Electronic data interchange (EDI) is the electronic exchange of business information –
purchase orders, invoices, bills of lading, inventory data and various types of
confirmations – between organisations or trading partners in standardised formats.
• Use of EDI in retail business reduces costs. It also strengthens the relationship
between the retailer and the supplier.

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• Enterprise Resource Planning systems or the ERP systems refer to the software
packages that integrate all the data and the related processes of an organisation into a
unified Information System (IS).
• Various ERP packages in retail specific systems help in integrating all the functions
from warehousing, distribution, front and back office store system.
• E-tailing is synonymous with Business-to-Consumer (B2C) transaction.
• The factor which influences the growth of e-tailing are reach, lack of real estate costs,
avoids inventory hassles, provides ease and comfort, customer interaction, mass
media, search option, user friendly.
• The future of e-tailing is in-store pick up, mobile applications, uploading videos, social
networking, and International retailing.
10.GLOSSARY
Universal Product Code: a number and bar code that identify an individual consumer
product
Electronic Data Interchange: it is the structured transmission of data between

organisations by electronic means
Radio Frequency Identification: it is the use of an object applied to or incorporated into a

product, animal, or person for the purpose of identification and tracking using radio waves
Marketing Information Systems: it refers to a programme for managing and organising

information gathered by an organisation from various internal and external sources
E-tailing: selling on retail goods on internet

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1. What is e-tailing? Describe the advantages of e-tailing.
2. Discuss about the future of e-tailing.
3. Explain the disadvantages of e-tailing.
4. Discuss about the factors which influences the growth of e-tailing.
12. ANSWERS
Self-Assessment Questions -
1. Electronic retailing or e-tailing.
2. True.
3. Radio-Frequency Identification.
4. Marketing Information Systems (MIS)
5. Database
6. Internal database
7. Enterprise Resource System (ERP)
8. Electronic Data Interchange (EDI)
9. True.
10. True.
11. False.
12. Credit cards.
13. India.
14. True.
Terminal Questions

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13.CASE STUDY
E-tailing by FlipKart
From a two-member embryonic idea to a 4,500-member company and having 8,000,000

visits per month and ranked top 30 websites in India. Flipkart story is not just about
stupendous success and mind-numbing numbers. Started in 2007 by Sachin Bansal and
Binny Bansal with prior experience in Amazon, Flipkart made it perfect for the first Indian
website selling books; the ‘kart’ has a strong association with the shopping cart icon.
Flipkart, modelled on Amazon.com Inc., offers books, music, computers, cameras, kitchen
appliances and health-care products. Flipkart has since acquired Letsbuy.com sells goods
such as electronics and toys.
Flipkart clocks daily sales of $2.5 crore ($ 5 mn) and ships close to 30,000 items per day or,
in other words, 20 products per minute. But the interesting part is that around 60 per cent
of Flipkart's orders are cash or card on delivery. The company stocks nearly 11.5 million
titles with more than 2 million registered users and one of the largest book retailer in India
and having 80 per cent share of the online book market. Flipkart having the growth rate of
100 per cent quarter on quarter. Flipkart’s sales may grow 10-fold this year, revenue in the
year ended March 2011 was about $10 million.
Flipkart provides memorable online shopping experience to the customer and path-
breaking services like a 30-day replacement policy, EMI options, free shipping - and of
course the great price discounts. For a smoother buying experience, there are many options
for payment - Credit/Debit cards, Net Banking, and Cash on Delivery in select cities. The
last option is interesting - many Indian buyers are sceptical of buying without first seeing
the products, and rightfully so. It helps to have this option. Then there's dedicated Flipkart
delivery team that works round the clock to personally make sure packages reach on time.
For now they're present in 27 lucky cities and still expanding to other cities.
Flipkart is seeking to take advantage of India’s online market that may grow to as much as
$70 billion by 2015 from billion (over $1.30 billion) by 2015 from $20 billion in 2011 as
internet access improves according to Associated Chambers of Commerce and Industry of
India (ASSOCHAM) survey. Indian government plans to boost broadband connections 45-
fold to 600 million by 2020, according to the draft of a proposed new telecommunications

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policy.
Questions:
1. Discuss the various merits and demerits of e-tailing and suggest its potential impact
in the long-run.
2. Describe your experiences with e-tailing and delivery of online purchases (good and
bad).


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SEMESTER 3
DMKT303
RETAIL MARKETING
Unit 14: Rural Retailing 1

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Unit 14
Rural Retailing
Table of Contents
Fig No /
SL SAQ /
No Activity
Graph
1 Introduction - -
3
1.1 Objectives - -
2 An Overview of the Indian Rural Market. - - 4

3 Role of Rural retailing in India - -
3.1 Growth of the massive market - -
3.2 Change in demographics - -
3.3 Education - -
5–7
3.4 Income - -
3.5 Decline in rural poverty and increase in employment - -
3.6 Decline in urban and rise in rural consumption - -
3.7 IT penetration - -
4 Challenges in Indian Rural Market - 1 7–8
5 Periodic Markets (Shanties/Haats/Jathras) - - 9
6 Rural Market Players in India - 2 9 – 12
7 Rural Retail Strategies - -
7.1 Customise the store and location - -
7.2 Customise the product - -
7.3 Customise the price - - 12 – 16
7.4 Customise communication - -
7.5 Customise the promotion - -
7.6 From Four P's To Four A's - 3

8 Future of Rural retailing - - 17
9 Summary - - 17
10 Glossary - - 18
12 Answers - - 18
13 Case Study - - 19 – 20

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1. INTRODUCTION
Technology plays an important role in retailing by providing competitive edge to the
company. E-tailing is a technology which is used as competitive strategy and discussed in
detail in the previous chapter. In this chapter, we will be discussing about the opportunity of
retailing in the rural market. Rural retailing is the fast growing aspect of retail since retailers
can feel comfortable in finding suppliers and they also act as buyers. Retailing is the final
phase of the distribution channel and it is clear by now that it is the availability and
distribution that drive growth in the rural markets. Hence, retailing will be significant and
like in the case of the urban markets, will undergo greater maturity even in the rural markets.
Innovative retail models which take into account the nuances of rural retail are the way
forward.
1.1 Objectives
• discuss the overview of Indian rural markets

• understand the role of Rural retailing in India
• explain the challenges in India Rural Market
• describe the periodic markets
• discuss about the Rural retail strategies
• explain the Future of Rural Retailing

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2. AN OVERVIEW OF THE INDIAN RURAL MARKET

"India lives in its villages” – Mahatma Gandhi. The rural retail market with its vast size
and demand base offers great opportunities to marketers. Two-thirds of the consumers in
the country live in rural areas and almost half of the national income is generated here.
India's population lives in 6,30,000 villages approximately, which can be sorted under
different parameters such as literacy levels, accessibility, income levels, penetration,
distances from nearest towns, etc.
The National Council of Applied Economic Research (NCAER) study shows that there are
approximately twice as many lower middle-income households in rural areas as that of
urban areas. Rural markets report over 60% of the national demand. Associated Chambers
of Commerce and Industry of India (ASSOCHAM) revealed that approximately 200 million
out of 700 million rural population in India is carrying on agricultural and non- agricultural
activities, and have a respectable per capita inco Rural retailers attempt to satisfy needs and
wants by providing customised merchandise, space and time utility to consumers who stay
in any place having a population of less than 5000, density of population less than 400 per
sq. km and more than 75 percent of the male working population engaged in agriculture.
Even as this debate continues, the term "rural" is being re-defined. 'Rural' is difficult to
define any more.. There has been a correction in this view, however. Marketers today define
rural as people living a different lifestyle as opposed to that of those who have settled in the
bigger cities and towns. Rural is defined as pastoral in nature and as a mass of people who
relate their income closely to the lands they till use to raise their cattle and livestock.
Rural India comprises all places that are not urban. This definition by exclusion for what is
the much larger part of the country has its roots in the government's own approach. "The
Census of India defines urban India, constitutes places with a population of more than 5,000,
a population density above 400 per square kilometre, all statutory towns, that is, all places
with a municipal corporation, municipal board, cantonment board, notified area council, etc.
and with 75% of the male working population engaged in non-agricultural employment. All
non-urban is rural."

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3. ROLE OF RURAL RETAILING IN INDIA

There is clear indication that the rural markets offer a great potential for India Inc. India lives
in its villages. That is because roughly three-fourths of the country's population resides in
the rural interiors of the country. The reasons why companies are going rural are manifold.
The enormous size of the country and demand base offer such a huge opportunity that
corporates cannot think of neglecting rural India. With the growth of education and huge
disposable incomes driven by agricultural growth, the rural customer has started purchasing
branded and value-added products.
3.1 Growth of The Massive Market:
The growth of the rural market is double than the rate of the urban markets. About 12.2% of
the world's consumers live in India. Rural households form 72% of the total households. This
puts the rural market at roughly 720 million customers. Total income in rural India (about
43% of total national income) is expected to increase from around US$220 billion in 2004-
2005 to US$425 billion by 2010-2011, a CAGR of 12%. India has a large and aspirational
middle-class of 75 million households or 300 million individuals. Often referred to as the
growth engine of the Indian economy, the middle- class needs products which provide value
for money.
3.2 Change in Demographics:
The aspiring class of households will be the leading group at 47% of the rural population or
80 million households will be in command of 55% of spending. One-fifth of the seekers will
have strength of about one-third of the rural consumption by 2025; from one segment to
another, it will shift rapidly. So, it will be important to keep track of the changing scenario
and merchandise mix of the stores accordingly. With 128 million households, the rural
population is nearly three times the urban one. As an effect of the growing affluence, fuelled
by good monsoons and the increase in agricultural output, rural India has a wider consumer
base with 41 percent of India's middle class and 58 percent of the total disposable income.

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3.3 Education:
There is phenomenal increase in the educational level in the country. The growth of
education is at a snail’s pace but the awareness of education created by government has lifted
the pace of education seekers in rural parts of India like UP and the north-eastern parts of
the country. The literacy rate in India was around 65%.
3.4 Income:
The rural per capita income would double to 14,000 rupees ($350) by 2012 as more families
move towards commercial than subsistence farming. Village households are expected to rise
to 153 million in 2009-10 probably, making rural India the largest prospective market in the
world. Average annual household incomes will increase at a rate of 3.6% in the next two
decades. This will lead to a shift of a significant number of households from the deprived to
the aspiring income bracket.
3.5 Decline in Rural Poverty And Increase In Employment:
Government investment in Rural Employment Guarantee Scheme is providing income for

the poor viz. rural landless labours. Plans like Bharat Nirman have been providing
opportunities for employment and Golden quadrilateral are projects started with the
intention of not just improving infrastructure but also generating business opportunities and
employment for the local people.
3.6 Decline In Urban And Rise In Rural Consumption:
The consumption of rural population is major in dairy, food processing and packaging as
professions, beyond traditional farming. There will be shift rapidly in consumption pattern.
The rural market accounts for half of the total market for TV sets, fans, pressure cookers,
bicycles, washing soap, blades, tea, salt and toothpowder. What is more, the rural market for
FMCG products is growing much faster than its urban counterpart. The growth of rural retail
market in 2008 has registered 25% increase as compared to the 7-10% growth rate of the
urban consumer retail market. Eighty seven percent of the rural markets lack in access to
organised marketing and distribution. So there has been a tremendous potential for growth.

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3.7 IT Penetration:
The research – part of the on-going I-Cube 2008 being jointly undertaken by IMRB
International and IAMAI – also notes there are 5.5 million people who claim to have used
internet at some point. Since rural India was mapped for the first time, the year-to-year
growth of internet users in rural India could not be estimated.
4. CHALLENGES IN INDIAN RURAL MARKET
In the Indian context, rural retail is a complex subject. For a retail business, rural marketing
is beset with a number of problems. Besides, a few other problems stem from the under-
developed markets, and illiterate and gullible people constitute the major segment of the
markets. The activation of buying on a wide scale is an essential pre-condition for the
exploitation of the rural market. It is now unanimously accepted that the rural salesmanship
in India has been insufficient and inadequate and out of proportion to the agricultural
revolution. This calls for a strong bias in favour of raising the rural as against the urban
demand. The major hurdles in tapping the rural markets can be summarised as follows:
• Underdeveloped markets: The number of people below poverty line has not
decreased in any appreciable manner. Thus, underdeveloped markets, by and large,
characterise rural markets. A vast majority of the rural people are tradition bound,
fatalistic and believe in old customs, traditions, habits, taboos and practices.
• Competition: New competitors in the rural sector have finely tuned competition in key
segments like soaps and detergents, putting pressure on profitability. The major
corporate which has just began its operations in retail is Reliance. It is already
performing well in some areas. It is eyeing towards rural retail for revenue generation,
and will provide tough competition to unorganised sectors.
• High input costs: The development of the rural market will involve additional cost
both in terms of promotion and distribution. In rural markets, often it is not the
promotion of a brand that is crucial, but creating an awareness concerning a particular
product field, for instance, fertilisers and pesticides is. Urban and semi-urban-based
salesmen are not able to tap the full potential in the villages. Though the companies

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have resonated to price hike of the final products, a further hike would lead to loss of
the market share.
• Infrastructure: The infrastructure facilities like roads, warehouses, communication
system, financial facilities, etc. are inadequate in rural areas. Hence, physical
distribution becomes costly. Nearly 40% of rural habitations are not connected to all-
weather roads (3.3 lakh out of 8.25 lakh habitations).
• Counterfeit goods: The major problems faced by branded goods are from spurious
goods and illegal foreign imports. This has become a nightmare for corporate to sell
their products due to the weakened demand for their products.
• Migration: One of the major scenarios is the migration of people from rural to urban
areas in search of jobs in developed cities like Mumbai and Delhi which are
overcrowded. The decline in rainfall which has had its effect on agricultural
productivity and income of farmers has caused the migrations.
• Low standard of living: The consumers in the village area have a low standard of living
because of low literacy, low per capita income, social backwardness and low savings.
• Traditional outlook: The rural consumers value old customs and traditions. They do
not prefer changes. Rural consumers’ socio- economic backwardness is characterised
by diversity in different parts of the country.
1. Consumers in the village area have a____________________ living because of low

literacy, low per capita income, social backwardness and low savings.
2. India lives in its villages. That is because roughly three-fourths of the country's
population resides in the rural __________________.
3. The final stage of the distribution channel is ______________________.
4. Indian FMCG companies having rural experience typically used three rural
retail methods__________________.

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5. PERIODIC MARKETS (SHANTIES/HAATS/JATHRAS)

Periodic markets are traditional places where the rural consumers congregate as a rule.
While Shanties/haats are held on a particular day every week, periodic markets are normally
timed with religious festivals. These places attract a large number of itinerant merchants and
temporary shops are set up to sell all kinds of goods. The importance of haats in the lives of
the rural people is evident from the fact that 81% of the buyers are regular visitors to
periodic markets. 58 percent visit haats to buy specific products although more than half of
them have similar products available in their villages.
6. RURAL MARKET PLAYERS IN INDIA
When organised retail first made its presence felt in rural India, it wasn’t a pure retailing
operation targeting the rural masses. Companies like DCM Shriram Consolidated Ltd (DSCL)
and Godrej, which had significant agribusiness interests, set them up to meet the needs of
farmers in a store’s catchments area. These stores are one-stop shops meant to meet the
occupational needs of farmers by providing agri-inputs and fertilisers. The various retailers
who have ventured in rural retailing are discussed asunder:
1. Hariyali Kisaan Bazaar: In terms of sales, Haryali Kisaan Bazaar is India’s biggest rural
retail chain, which runs 230 stores across eight states. DSCL having years of experience
in the agribusiness has implemented a unique rural retailing initiative, the Hariyali
Kisaan Bazaar rural departmental stores, to provide one-stop store to meet the diverse
needs of the contemporary Indian farmers. Each store has an area of 3 to 4 acres and is
handled by a team of 7 to 8 people trained by the company continuously. The “Hariyali
Bazaar” chain empowers farmers by setting up centres which gives complete solutions
to farmers under one roof. A typical “Hariyali Bazaar” centre functions within a
catchment area of 25-30 kilometres. It caters to about 60,000-80,000 acres of
agricultural holdings and affects the life of approx. 15,000- 20,000 households. Hariyali
Kisaan Bazaar provides all farming and consumer products and related services along
with financial services to the rural household under one roof. These include different
choices and multi- brands of agri-inputs, FMCG products, consumer durables, apparels,

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footwear, toys, general merchandise, insurance, etc. The outlets also provide the expert
advice of agronomists to the farmer and also give technological support in shifting from
subsistence farming to technology- led commercial farming.
2. Aadhaar: Aadhaar is the joint venture between The Future Group and Godrej Agrovet
Ltd (GAVL) which focuses on retail distribution of agricultural and consumer products
for personal and household use in rural and semi-urban India. Aadhaar is positioned as
a rural supermarket and currently has 40 stores spread over 100,000 sq. ft. across 3
states: Gujarat, Punjab and Haryana. The services offered are crop advisory services,
soil and water testing services, buy-back of output, crop finance, supply of agri-inputs
and animal feeds, transfer of information (weather, price and demand supply), door
delivery of products, etc. Presently there are 49 Aadhaar centres across the country in
the states of Maharashtra (Mancher, Alephata, Ranjini, Umbraj, Ozar Sangli, GAVL also
opened its second petro format Aadhaar Express in Kashti, Maharashtra. GAVL
revamped its Warden Road “Nature’s Basket” outlet by positioning it as “Authentic
World Food”. This store has introduced new product categories like wine, cheese, cold-
cuts, processed foods in addition to its existing portfolio of fresh fruits, vegetables and
herbs and specialty foods.
3. Project Shakti: In 2001, HUL launched Project Shakti with the purpose of integrating
business interests with national interests. In 2000, a pilot model was set up in Nalgonda
district of Andhra Pradesh in 50 villages. Since then it has been extended to Andhra
Pradesh, Bihar, Chhattisgarh, Gujarat, Haryana, Jharkhand, Karnataka, Madhya
Pradesh, Maharashtra, Orissa, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh and West
Bengal with the total strength of over 39,880 Shakti Entrepreneurs. Project Shakti is
enabling most of the families to live with dignity and real freedom. The most powerful
element of this model is that it creates a win-win partnership between HUL and the
consumers, some of them depending on the organisation for their livelihood, and builds
a self-sustaining cycle of growth for all. HUL envisions the creation of 1,00,000 Shakti
Entrepreneurs covering 5,00,000 villages, and touching the lives of 600 million rural
people by the year 2010. An IT-based rural information service network ‘i-Shakti’ has
been developed to provide information and services to meet rural needs in agriculture,
education, vocational training, health and hygiene.

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4. E-Choupal and Choupal Sagar: In June 2000, 'e-Choupal' was launched. In rural India,
it has already become the largest initiative among all Internet-based interventions.
Today, 'e-Choupal' services reach out to over 4 million farmers who grow a range of
crops – soya bean, coffee, wheat, rice, pulses, etc. – in over 40,000 villages through 6500
kiosks across ten states (Madhya Pradesh, Haryana, Uttarakhand, Karnataka, Andhra
Pradesh, Uttar Pradesh, Rajasthan, Maharashtra, Kerela and Tamil Nadu).
5. Kisan Seva Kendra: Kisan Seva Kendra pioneered by Indian Oil Corporation is a low-
cost retail outlet model which offers fuel and other non-fuel value-added services in
rural markets generating high returns. KSK is a one-stop centre providing service
(seva) to the farmers at his doorstep by making available: PDiesel and Petrol with Q&Q
PSeeds, pesticides, fertilisers and other agri needs, PNutan stove, Hurricane lamps,
PDaily needs such as grocery, personal care, PStationery for children, PTools, auto
spares, PLocation specific value additions. Low investment ranging from $6 to 9 lacs
with a payback period of 3 to 4 years as said by Sandeep Sharma, Senior Manager
(Retail Sales) Indian Oil Corporation, Mumbai; in rural retail summit 2007. It currently
has approximately 100 operational stores.
6. Champion Agro Ltd: The company is planning to come up with single- window
shopping facility for farmers. The company which already has 35 agri-retailing outlets
in the Saurashtra region will now open around 400 outlets at a taluka level across
Gujarat in the coming five years. It will open 50 new outlets by the end of this year for
an investment of $15 crore. The overall investment planned is between $300 to $400
crore.
Activity 1
Study The Functions Of The Rural Players In Your Village Or Nearby Village.

289
5. In terms of sales, _______________ is India’s biggest rural retail chain, which runs 230
stores across eight states.
6. HUL launched _____________with the purpose of integrating business interests
with national interests.
7. In June 2000,_____________________was launched. In rural India, it has already
become the largest initiative among all Internet-based interventions.
8. ______________________ is the joint venture between The Future Group and
Godrej Agrovet Ltd (GAVL).
7. RURAL RETAIL STRATEGIES

7.1 Customise The Store and Location:
The retail companies with the best rural networks are pragmatic, patient and strategic. They
focus first on locations with the highest growth potential and the lowest cost to serve; then
uses these as a base to reach out into more remote locations. There are more than 120,000
different rural settlements in southwest India. Single product building company found that
10% of villages accounted for 90% of sales. Census and MGI data support that impression.
Reaching only those villages with electricity and 3,000 or more people – those that we prefer
calling “regional economic centres” and “able villages” – will take companies a long way
towards creating a useful footprint in rural India.
In rural areas, land is easily affordable. Thus, customisation of stores is easier. It is also
necessary because the culture is considerably diverse in rural areas. To reach the rural
masses, retailers should offer user-friendly shopping experience. The first challenge is to
ensure availability of the product or service. India is spread over 3.2 million sq. km; 700

290
million Indians live in rural areas, and finding them is not easy. However, given the poor state
of roads, it is an even greater challenge to see that the products regularly reach the far-flung
villages.
The “Hariyali Kisaan Bazaar” chain seeks to empower the farmer by setting up centres, which
provide all-encompassing solutions to the farmers under one roof. Bazaar centre operates in
a catchment area of about 20 kms. A typical centre caters to agricultural land of about 50000-
70000 acres and impacts the life of approximately 15000 farmers.
Godrej Agrovet Ltd. Company launched the first couple of these new large format retail
stores at Mancher and Alephata in the Pune districts in Maharashtra. The new format stores
sprawl over an area of around 10,000 sq.ft. at Mancher and 3000 sq. ft. at Alephata on the
Pune-Nashik Highway. These stores not only offer complete agricultural solutions and
products for the farmers but also carry a wide range of commodities for rural households.
7.2 Customise The Product:
Creating good relationships with local retailers is crucial to win in rural markets. To do this,
companies can give more of the value chain to rural retailers, perhaps by allowing some of
them to handle the local transportation of goods. Alternatively, some companies have
collaborated to give local retailers a more appealing bundle of products and services with
which they can tempt their customers. Rural stores not only offer complete agricultural
solutions and products for the farmers but also provide a wide range of commodities for
rural households. Rural retailers also offer other products and services like fuels, FMCG,
consumer goods and durables, apparels, etc. These centres provide the much-needed
respect/dignity and freedom to the Indian farmer. The rural store should offer merchandise
the farmers use in their daily farming needs. A unique value proposition has a tremendous
potential to grow in the segment. With an objective to improve productivity, higher returns
and improved cost-benefit ratio, an agro retailer can offer crop advisory services, soil and
water testing services, buy-back of output, crop finance, supply of agri-inputs and animal
feeds, transfer of information (weather, price and demand-supply) and door delivery of
products, among other things.

291
Godrej Agrovet Ltd. has always been a pioneer in the field of agricultural solutions and
products and has been partnering the farmers in their daily farming needs for a long time.
The rural store provides a complete range of good-quality, multi-brand agri-inputs like
fertilisers, seeds, pesticides, farm implements and tools, veterinary products, animal feed,
irrigation items and other key inputs like diesel, petrol at fair prices. Rural India has a huge
market with a significant potential for growth and Godrej Aadhaar with its unique value
proposition, has a tremendous potential to grow in the segment. This launch is aimed at
expanding the shopping horizon of the rural community.
7.3 Customise The Price:
For retailers, the challenge is to ensure affordability of the product or service. With low
disposable incomes, products need to be affordable to the rural consumer, most of whom are
on daily wages. Some companies have addressed the affordability problem by introducing
small unit packs. LG roll out several new models in low-end segments like direct cool
refrigerators, twin-tub washing machines, solo microwave and TVs in the rural areas. Godrej
Aadhaar, with an objective to improve productivity, higher returns and improved cost-
benefit ratio at present, offers crop advisory services, crop finance, etc. A rural store should
also provide access to modern retail banking and farm credit through a simplified and
transparent process as also other financial services like insurance, etc.
7.4 Customise Communication:
The most effective rural campaigns focus on creating absolute demand, not simply winning
market share. Working at the village level requires connecting with the community. Putting
up advertising at major junctions; painting murals at gathering places like wells and water
holes; running product demonstrations at local gatherings; and publicising the use of
products by high-profile or influential individuals—these are all good, inexpensive ways to
build stature and awareness.
It obviously makes sense to time marketing campaigns to coincide with the end of the local
harvest, when purchasing power is highest. The number of languages and dialects varies
widely from state to state, region to region and probably from district to district. The
messages have to be delivered in the local languages and dialects. Even though the number

292
of recognised languages is only 16, the dialects are estimated to be around 850. It would be
better if visual symbols, graphics and rich media applications are used. The rural market
holds a tremendous potential for any media. However, for the internet to flourish in rural
India, the applications need to be in vernacular languages, preferably with text to speech
capabilities.
7.5 Customise The Promotion:
The means of promotion for rural India have to be customised and are different from those
used in urban areas. The channels include the state-run broadcaster Doordarshan, radio
channels, local language advertising, cinema, outdoor media such as posters, banners and
wall writing and tapping all forms of local entertainment. Godrej has positioned itself as
‘Godrej Aadhaar - Khushiyon Ka, Khushhali Ka’. The new format stores mark the beginning
of a chain which shall form the farmer's Aadhaar for ‘Unnati, Ghar Sansar and Gaon’, a move
from being just a complete agricultural solution provider to being a multi-category retail
outlet with a wide range of products and services housing a fair mix of brands and private
labels.
HUL's personal products unit initiated Project Bharat, the first and the largest rural home-
to-home operation to have ever been prepared by any company. During the course of
operation, HUL had vans visiting villages across the country distributing sample packs
comprising a low-unit-price pack each of shampoo, talcum powder, toothpaste and skin
cream priced at
$15. This was to create awareness of the company's product categories and of the
affordability of the products. The personal products unit subsequently rolled out a second
phase of the sampling initiative to target villages with a population of over 2,000. Project
Bharat was carried out as one of the largest sampling exercises for this purpose to overcome
barriers like lack of brand awareness and ignorance of product benefits.
7.6 From Four P's To Four A's
The traditional four P's of marketing, i.e. product, price, place and promotion, are replaced
by a different framework for analysis. Many companies have worked on various elements of

293
the marketing mix to improve the four A's, i.e. affordability, awareness, availability and
acceptability, for rural markets. FMCG companies introduced package sizes to bring in low
price points. They have used local language and talent to customise promotional strategies
for rural markets. Some FMCG companies still continue to expand rural penetration [HUL's
Project Shakti, Tata Tea's Gaon Chalo]. Parivartan programme launched by Coca-Cola has
trained more than 6,000 retailers to display and stock products. A training module named
ASTRA (Advanced Sales Training for Retail Ascendance) was created by Dabur in several
regional languages. Many automobile companies have launched rural-specific campaigns.
Affordability: Godrej launched three brands viz. Cinthol, Fair Glow and Godrej (soap) in 50-
gram packs costing 10 cents; by reducing prices Adidas and Reebok increased their sales by
50% in rural markets.
Size and design changes: Videocon launched a washing machine without a drier for US$60;
Philips introduced a low-cost smokeless chulha (stove); DCM Shriram developed a low-cost
water purifier especially for rural areas.
Improving product acceptance: LG Electronics developed a customised TV (cheap and

capable of picking up low-intensity signals) for the rural markets and named Sampoorna. It
sold 100,000 sets in the first year; Coca-Cola introduced low-cost iceboxes as families could
not depend on refrigerators due to regular power cuts.
Activity 2:
Observe the strategies followed in any one of the rural market players.

294
9. FUTURE OF RURAL RETAILING

Organised retail leads to increased off take of manufactured goods, increased brand
consciousness and increase in quality standards; it also contributes to changes in the overall
market structure. This sector is expected to generate 10-15 million jobs over the next five
years and thereby directly contribute in raising consumption levels; besides fuelling induced
consumption resulting from the excellent shopping environments it creates.
10. SUMMARY
• The rural retail market with its vast size and demand base offers great opportunities to
marketers. Two-thirds of the consumers in the country live in rural areas and almost
half of the national income is generated here.
• The opportunities in Indian rural market are Growth of the Massive market, Change in
Demographics, Education, Income, Decline in rural poverty and increase in
employment, IT penetration, Decline in urban and rise in rural consumption.
• Indian FMCG companies having rural experience typically used three rural retail
methods – direct distribution structures, van operations and super-stockist structures.
• Rural Market Players in India are Hariyali Kisaan Bazaar, Aadhaar, Project Shakti, E-
Choupal Aand Choupal Sagar, Kisan Seva Kendra, Champion Agro Ltd.
• Rural Retail Strategies are From Four P's to Four A's, Customise Customise the
Promotion, Customise communication, Customise the price, Customise the product,
Customise the Store and Location.

295
11. GLOSSARY
NCAER: National Council of Applied Economic Research.
ASSOCHAM: Associated Chambers of Commerce and Industry of India.
FMCG: Fast Moving Consumer Goods.
DSCL: DCM Shriram Consolidated Ltd.

1. Discuss the opportunities of rural retail market.
2. Explain any two retail market players in India.
3. Describe any three rural retail strategies in brief.
13. ANSWERS
1. Low standard of.
2. Interiors of the country.
3. Retailing
4. Direct distribution structures, van operations and super-stockist structures.
5. Haryali kissan bazaar.
6. Project Shakti.
7. 'E-Choupal'.
8. Aadhaar.
Terminal questions

296
CASE STUDY
Leveraging rural
India's largely rural population has also caught the eye of retailers looking for new areas of
growth. The rural Indian retail market is at present around USD 300 billion with the rural–
urban split in the ratio 55–45. The rural market consumes about 53% of FMCG and 59% of
durables in India. Major retailers featured in the report are Big Bazaar, Spencers, Reliance,
ITC's Choupal Sagar, Hariyali Kisaan Bazaar, Godrej Aadhar, Triveni Khushali Bazaar and
others.
It is a little known fact that while 25% of the rural population is not engaged in agriculture,
it earns 50% of the rural income. DSCL and Godrej, which had significant agri-business
interests, set them up to meet the needs of farmers in a store’s catchments area. A shift from
selling agri-inputs will help these stores target the non-farming segments. These stores are
one-stop shops meant to meet the occupational needs of farmers by providing agri-inputs
and fertilisers.
Unorganised rural retail revolves around the local village shop, haat and melas. Shops are
usually present in villages with a population of more than 500 people. They stock more
product categories than similar urban shops would, but there is not much variety offered
within a category. Haats are weekly mobile supermarkets that are spread over 2-3 acres of
land, with more than 300 stalls, selling anything from animal feed to local medicines. Where
unorganised retail disappoints is in that the goods sold are often spurious and there is no
guarantee of quality for many of the goods being sold be it agri-inputs, FMCG, etc.
One practical problem modern trade rural retailers have to face is the lack of last mile
delivery mechanism of modern agriculture know-how and practices. Another major problem
is shortage of quality manpower. Runaway rates are high with employees from urban areas
leaving their jobs after being stationed in these rural stores.
These stores also have an image problem in that some of them are perceived to be expensive.
The stores are so urban in their ambience that rural people find it intimidating. Their
advertising imagery doesn’t make it easier. For example a billboard outside the retail stores
had a

297
Questions
1. How do the retailing habits of those in villages of different kinds and those from
different states vary?
2. Highlight the opportunities and challenges in rural retail formats indetail.
References /E-References:
• www.jimnovo.com/Relationship-Marketing-more.htm
• www.people.umass.edu/debevec/.../Retail%20Pricing%20Strategies.pdf

298

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DMKT303: Retail Marketing Manipal University Jaipur (MUJ)

MASTER OF BUSINESS ADMINISTRATION

Unit 1: Introduction to Retailing 1

7.1 Based on ownership - -

7.2 Based on the variety of merchandise mix - - 16 – 21

7.2 Based on operational structure - -

7.3 Based on retail location - -

Unit 1: Introduction to Retailing 2

Unit 1: Introduction to Retailing 3

2. RETAIL SCENARIO IN INDIA: ORGANISED VS. UNORGANISED

Organised retail – includes retailers who operate their business as a professionally

(Source: India Brand Equity Foundation Retail Report (November 2011),Deloitte,

Unit 1: Introduction to Retailing 4

Unorganised retail – Unorganised retailing refers to the traditional formats of low-cost

Unit 1: Introduction to Retailing 5

1. In India, the retail industry is broadly divided into _____________ and

Unit 1: Introduction to Retailing 6

Unit 1: Introduction to Retailing 7

4. FUNCTIONS OF THE RETAILER

Unit 1: Introduction to Retailing 8

Provision of information: Retailers provide information to customers about new products

Unit 1: Introduction to Retailing 9

Unit 1: Introduction to Retailing 10

5. FACTORS LEADING TO THE GROWTH OF THE RETAIL SECTOR

Unit 1: Introduction to Retailing 11

Unit 1: Introduction to Retailing 12

7. The large proportion of the –––––––––––––––––––––––– implies a lucrative

6. CHALLENGES FACED BY A RETAILER

What to sell: Another challenge is the category of items to be offered. According to

Unit 1: Introduction to Retailing 13

Inconsiderable regulatory framework: Retailers require around 12 to 15 clearances at the

Unit 1: Introduction to Retailing 14

Unit 1: Introduction to Retailing 15

7. CLASSIFICATION OF RETAIL UNITS

Figure 1.1: Classification of retail units

7.1 Based on Ownership:

There are four basic legal forms of ownership for retailers:

Unit 1: Introduction to Retailing 16

Unit 1: Introduction to Retailing 17

Note: India’s first hypermarket was started by Vishal Megamart.

7.3 Based on Operational Structure:

Unit 1: Introduction to Retailing 18

Unit 1: Introduction to Retailing 19

7.4 Based on Retail Location:

1. Free-standing location: Free standing location represents an isolated location of the

Unit 1: Introduction to Retailing 20

Unit 1: Introduction to Retailing 21

Unit 1: Introduction to Retailing 22

HNI: High Net worth Individuals.

Leased department or shop-in-shop: When a brand owner occupies a shelf-space in other

Free-standing location: Free standing location represents an isolated location of the

Specialty stores: The store which is specialised in a particular range of products.

Unit 1: Introduction to Retailing 23

10. TERMINAL QUESTIONS

1. Define retailing and List the functions of a retailer.

Unit 1: Introduction to Retailing 24

12. CASE STUDY

Unit 1: Introduction to Retailing 25

1. What is the best way for the L& M to continue to grow?

• Dr Vikram; Rushing into Retail, Business World, 31 May, 1999

Unit 1: Introduction to Retailing 26

MASTER OF BUSINESS ADMINISTRATION

Unit 2: Introduction to Retailing 1

5.1 Demographic Environment - -