Retail Management

Module 3 Retail Marketing Strategies Ashish J Shah profajshah-mpbim@yahoo.com

Module 3 Agenda
Retail Marketing Strategies
What is a retail strategy? Target market and retail format Building a sustainable competitive advantage International growth opportunities The strategic retail planning process

What is a retail strategy?

A retail strategy identifies:
The retailers target market The format the retailer plans to use to satisfy the target markets needs The bases upon which the retailer plans to build a sustainable competitive advantage

Target market:
Market segment towards which the retailer plans to focus its resources and retail mix

What is a retail strategy?

Retailer format:
Suggests the type of retail mix used by the retailer to satisfy the needs of the target market

Sustainable competitive advantage:

Advantage over the competition that is not easily copied and thus can be maintained over a long period of time

What is a retail strategy?

Examples of retail strategy: Case 1: Curves
i. Has more than 8400 franchises in all 50 US states and in 28 countries ii. Worlds top fitness centre by number of clubs iii. Targets the aging Baby Boomers instead of the prized 18 34 class iv. Centres dont have traditional equipment; instead have hydraulic resistance equipment v. Aim is to burn about 500 calories in 30 minutes with breaks for jogging, walking vi. Low fees - $ 29 / month

What is a retail strategy?

Case 2: Magazine Luiza
i. ii. Brazils third-largest food retailer Targets low-income consumers by selling on credit: instalment payments plans at affordable rates iii. Brazil has some of the worlds highest interest rates and half the population do not have a checking account iv. Customers must return to stores once a month to make payments; customers tempted to buy new merchandise on each visit v. Also provides personal loans and insurance policies vi. Default rates are 50 % lower than other retailers though 80 % sales are through instalment payments

What is a retail strategy?

Case 3: Chicos i. More than 300 specialty stores ii. Sells merchandise suitable for 33 55 years age group females iii. High degree of vertical integration and customer service (flattering) provided to mature customers with active lifestyles iv. 1.2 million members on its loyalty programme that account for 80 % of sales with average transaction per member at $ 130 compared to $ 90 for non-loyalty members v. Sells only its own brands vi. Salespersons trained to form personal bonds with customers

What is a retail strategy?

Case 4: Save-A-Lot (SuperValu subsidiary)
i. Grown to more than 1000 stores ii. US 13th largest supermarket chain iii. Only 1250 SKUs stocked compared to 20 30 k in rival chains iv. Most SKUs are private label v. Price is 40 % less than rivals vi. Buying power enables customisation of private label merchandise

Target market and retail format

The retailing concept
Management orientation that focuses a retailer on determining the needs of its target market and satisfying those needs more effectively and efficiently than competitors do

Retail market
Group of consumers with similar needs (segment) that is serviced by a group of retailers using a similar retail format to satisfy them

E.g. retail market for womens apparel see Exhibit 5-1

Building a sustainable competitive advantage

Final element in retail strategy Involves building barriers around its market position to protect from incursions Over time, defences will weaken; stronger, thicker, higher walls/barriers will however stand; barriers needs to be reinforced and rebuilt to protect turf

Building a sustainable competitive advantage

Seven important opportunities for retailers to develop sustainable competitive advantages:
1. 2. 3. 4. 5. 6. 7. Customer loyalty Location HRM Distribution and information systems Unique merchandise Vendor relations Customer service

Building a sustainable competitive advantage

1. Customer loyalty
Ways of building loyalty:
Developing a strong brand for the store Popularising store brands Developing clear and precise position strategies Getting customers emotionally attached through loyalty programmes Retail Branding Private labels or the stores name itself e.g. aro at Metro, Reliance Select Certain brands available exclusively at certain stores e.g. Bajaj CFLs stocked at very few stores in Bangalore

Building a sustainable competitive advantage

Positioning
Involves the design and implementation of a retail mix to create an image of the retailer in the customers mind relative to its competitors Emphasises that the image of the store in the customers mind is critical See Exhibit 5-3 Retailers close to an ideal point are evaluated more favourably

Loyalty Programmes
Loyalty cards e.g. Reliance One Purchase information of loyalty customers stored in a data warehouse Customers segmented based on purchase pattern e.g. wine, gourmet, dairy buying preferences, F & V

Case: p 161

Building a sustainable competitive advantage

2. Location
What are the three most important things in retailing?
Location, location, location

Starbucks location strategy

Located in major areas of cities One step at a time: moves to another major area and another city once it has saturated a particular market

Building a sustainable competitive advantage

3. Human Resource Management
Retailing is labour intensive Employees need to be knowledgeable and committed e.g. Home Depot, Southwest Airlines Competitive advantage sustained by:
Motivating Incentives Strong and positive organisational culture and environment Managing diversity

Building a sustainable competitive advantage

4. Distribution and Information Systems
Retailers succeed by maintaining lower operations costs, ensuring stock availability and providing expected customer service The above are possible through use of sophisticated supply chain systems E.g. Wal-Mart, P & G: auto-ordering to vendors/DC

Building a sustainable competitive advantage

5. Unique merchandise
Most retailers sell popular brands! Developing private labels (store brands) is a means to competitive advantage E.g. Tesco wine, cheese, vegetarian sausages Store brands: + $ 50 billion US sales, 1 in 5 branded goods sales Issues with store brands? Case: P 164

Building a sustainable competitive advantage

6. Vendor relations
By developing strong relations with vendors, retailers may gain exclusive rights to:
Sell merchandise in a specific region Obtain special terms of purchase that to available to competitors Receive popular merchandise in short supply

E.g. Ahold (Dutch retailer) works closely with Nestle to bring in foods tailored to local tastes

Building a sustainable competitive advantage

7. Customer service
Coaching and training essential Considerable time and effort required to build a credible reputation in retail market

8. Multiple sources of advantage

combination of value, service, quality e.g. McDonalds Retailers may focus on multiple areas to sustain CA

Building a sustainable competitive advantage

Growth Strategies (See Exhibit 5-4)
Market penetration
Involves realising growth by directing efforts toward existing customers using the retailers present retailing format Involves attracting consumers in its segment that don't currently buy from it get current customers to visit stores more often or buy more per visit Opening more stores in the area Keeping stores open for longer Encouraging impulse buys by displaying merchandise near tills Cross-selling: salesmen from one department attempt to sell complementary items from another department

Building a sustainable competitive advantage

Market expansion
Involves using the existing retail format in new market segments E.g. weekender and weekender kids, Wal-Mart and AsDa (however, George not as big in the US)

Building a sustainable competitive advantage

Retail format development
Retailer develops a new format format with a different retail mix for the same target market E.g. Barnes & Noble (specialty book store) exploited a new market when it started selling on the net E.g. Best Buy offer professional services in terms of 24hours computer support and service through a Geek Squad; though directed at customers, it involves running a service than merchandise-based retail business

Building a sustainable competitive advantage

Diversification
Retailer introduces a new retail format directed toward a market segment thats not currently served by the retailer Related versus Unrelated diversification Related: some commonality shared with new venture e.g. same vendors, same information systems used E.g. Foot Locker, retailer of athletic footwear had Burger King and Afterthoughts accessory stores in the 90s Unrelated diversifications considered risky; stick to your knitting e.g. JC Penny sold the Eckerd drug store chain to focus on its multichannel, department store-based market and Target sold its department stores to focus on its discount stores

Building a sustainable competitive advantage

Strategic Opportunities and Competitive Advantage
Retailers have greatest advantage when they engage in activities similar to their present ones Retailers are most at risk when pursuing diversification strategies Successful retailers build on existing strengths when expanding into new markets A retail-format based success in a new market has already built on its brand name / reputation and success in home markets

International growth opportunities

Out of 50 large global retailers, 37 operate in more than one country Risky as retailers deal with:
Government regulations Cultural traditions Supply chain considerations Languages

International growth opportunities

Who is successful and who isnt?
Successful retailers have offerings that have universal appeal e.g.
Distinctive merchandise Low cost

Most successful global retailers are, for example:

specialty store retailers with strong brand pull and/or unique merchandise e.g.
IKEA, McDonalds, The GAP, Starbucks, Home Depot, Toys R Us offer broad assortments and competitive prices

International growth opportunities

Discount and food retailers with low prices such as WalMart, Carrefour, Royal Ahold, Metro AG Category specialists and supercentre retailers that may be particularly suited to succeed globally because:
1. They are leaders in their use of technology to manage inventories, control global logistics, tailor merchandise to local needs Economies of scale buying Unique systems and formats that facilitate control of large number of stores Self-service model adopted world over now, thus reducing cost of customer service (ALDI, Carrefour)

2. 3. 4.

International growth opportunities

Some US retailers enjoy global support because of the influence of American culture on these countries e.g.
China has KFC, McDonalds, Starbucks in its cities Youngsters now prefer credit cards to cash, chicken nuggets to rice and cola to juice/tea

EU and Japanese retailers hire locals and stock more local products to increase appeal

International growth opportunities

Keys to success:
Four characteristics of retailers that have successfully exploited international growth opportunities are:
A globally sustainable competitive advantage Adaptability Global culture Financial resources

International growth opportunities

Globally sustainable competitive advantage:
Core Advantage Low-cost efficient operations Strong private brands Fashion reputation Category dominance Global Retailer Wal-Mart, Carrefour IKEA, Starbucks The Gap, Zara, H & M Office Depot, Toys R Us

International growth opportunities

Adaptability
Successful retailers adapt to local cultural conditions Colour preferences, cut of apparel and sizes differ across cultures e.g. China - white for mourning and red for brides Selling seasons: US - August is back-to-school time and busy period for Gap, however EU is on vacation in Aug! Back-to-school in Japan is in April Store designs: US one level discount stores, EU multi-storeyed Social norms may restrict stocking of mens and womens merchandise next to each other

International growth opportunities

Cultural values and government regulations have influence on store operations
e.g. Latin American culture emphasises greater family orientation where US retailers may have to alter US-style work schedules to suit local conditions Boots had to have its Japanese checkout staff standing at the tills as it was offensive for customers to pay to a sitting clerk, but provided seating in Germany

Adapting products: Starbucks has fairly even product offering around the world. However, it has developed green tea Frappuccino for Taiwan and Japan, strawberries-and-cream Frappuccino for the UK

International growth opportunities

Global Culture
E. g. Carrefour truly global
Encouraged local management leadership always; retains few expatriates in target market Multicultural leadership teams and place of origin not a barrier for CEOs e.g. Chinese can be CEO in Portugal International travel is more about the work than just career advancement back in France

Financial Resources
Long-term commitment Upfront planning

International growth opportunities

Entry Strategies
Direct Investment Joint Venture e.g. Bharti-Wal-Mart Strategic Alliance Franchising

The strategic retail planning process

1. Define the business mission 2. Conduct a situation audit
Market factors Competitive factors
Porters FFF Economies of scale Bargaining power of vendors Competitive rivalry Hypercompetitive markets Slow market growth High fixed costs Lack of perceived differences between competing retailers

The strategic retail planning process

Environmental Factors
Macro and micro environments e.g. Reliance Retail in UP Retailers must answer at least three questions to ascertain environment impact on business: What new developments or changes i.e. new tech., laws, social factors, economic conditions? Likelihood that these environmental changes will occur? How will these changes impact each retail market, firm and competitors?

The strategic retail planning process

Strengths and weakness analysis
Management capability Financial resources Operations Merchandising capabilities Store management capabilities Locations Customers

The strategic retail planning process

3. Identify strategic opportunities
Market penetration, expansion, diversification, format development

4. Evaluate strategic opportunities 5. Establish specific objectives and allocate resources 6. Develop a retail mix to implement strategy 7. Evaluate performance and make adjustments