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Chapter 5

Retail Marketing Strategy

Retailing Management, 7/e © 2008 by The McGraw-Hill Companies, All rights reserved.
Retailing Strategy

Human Resource
Retail Locations Management
Chapters 7,8 Chapter 9

Retail Market Strategy

Chapter 5
Financial Strategy
Chapter 6

Information and Customer

Distribution Relationship
Systems Management
Chapter 10 Chapter 11

■ What is a retailing strategy?

■ How can a retailer build a sustainable
competitive advantage?
■ What steps do retailers go through to develop a
■ What different strategic growth opportunities can
retailers pursue?
■ What retailers are best positioned to become
global retailers?

More attention to long-term strategic
planning than ever before

Due to the emergence of

■ New competitors
■ New formats
■ New technologies
■ Shifts in customer needs

Elements in Retail Strategy

■ Target Market

the market segment(s) toward which the retailer plans
to focus its resources and retail mix
■ Retail Format
 the nature of the retailer’s operations—its retail mix
■ Sustainable Competitive Advantage

an advantage over the competition

© image100 Ltd
Analyzing McDonalds’ Retail Strategy

Target market?

The McGraw-Hill Companies, Inc./John Flournoy, photographer

Retail offering (format)?

Bases for competitive


What Threats Might McDonald’s Face in the Future?

Examples of Retail Strategies

Steve & Barry’s



Magazine Luiza


What is the target market, retail offering, and

source of competitive advantage for each retailer?

Steven & Barry’s

■ Target Market
 Value and quality conscious consumers for university sportswear

■ Retail Format
 stores are in middle-market malls

 extreme low prices, quality private-label merchandise, upscale

surroundings (“Old Navy on steroids”)

■ Bases for Building Sustainable Competitive Advantage
 No advertising

 Aggressive incentives from mall owners

 Creative approaches to working with vendors

Chico’s Strategy

■ Target Market

Woman 35 to 55 Who Want
Comfortable, Casual, But Stylish
■ Retail Format

Specialty Apparel Stores in Malls
and Strip Centers Selling Private
Label, Coordinated Outfits
■ Bases for Building Sustainable
Competitive Advantage

Unique Merchandise Sized 0,1,2,3

Target Market

Why Does a Retailer Need to Focus on

a Specific Target Market?

Why Not Sell to Everyone?

Target market and retail format:
Retail Market Opportunities for Women’s Apparel


■ If TARGET decides to focus upon a limited set of

markets for women’s apparel, which should it
■ What should the retail strategy be for that target

Criteria For Selecting A Target Market

■ Attractiveness -- Large,
Growing, Little
Competition More
■ Consistent with Your
Competitive Advantages
Rim Light/PhotoLink/Getty Images

Opportunities for retailers to develop sustainable
competitive advantages

■ Customer Loyalty
■ Location
■ Human Resource Management
■ Distribution and Information Systems
■ Unique Merchandise
■ Vendor Relations
■ Customer Service

PhotoLink/Getty Images
Can A Retailer Develop a Sustainable
Competitive Advantage by:

■ Dropping the Price of Your

■ Building a Store at the Best Location?
■ Deciding to Sell Some Hot
■ Increasing Your Level of Advertising?
■ Attracting Better Sales Associates by
Paying Higher Wages?
■ Providing Better Customer Service?

Sources of Competitive Advantage

More Sustainable Less Sustainable

■ Location ■ Better Computers
■ Customer Loyalty ■ More Employees
■ Customer Service ■ More Merchandise
■ Exclusive Merchandise ■ Greater Assortments
■ Low Cost Supply Chain ■ Lower Prices
Management ■ More Advertising
■ Information Systems ■ More Promotions
■ Buying Power with Vendors ■ Cleaner Stores
■ Committed Employees

Internal and External Bases for
Competitive Advantage
Retail Firm
•Low Cost
•Large Size
Vendors, Operations
Supplier • Unique Custome
s Knowledge rs
• Loyal

Capital 5-18

What does loyalty mean?

Is It the same as liking a store?
…Going to the store frequently?

Customer Loyalty

■ More than simply liking one retailer over another

■ Customers will be reluctant to patronize
competitive retailers
■ Retailers build loyalty by:

Developing a strong brand for the store or store

Developing clear and precise positioning strategies
 Creating an emotional attachment with customers
through loyalty programs

Retail Branding

Stores use brand (store’s name and store brands –

private label brands) to build customer loyalty

Retail brand
■ Can create an emotional
tie with customers that
build their trust and loyalty
■ Facilitates store loyalty
because it stands for a
predictable level of quality

Loyalty Programs

■ Part of an overall Customer Relationship Management

(CRM) program
■ Purchase behaviors of members of loyalty programs

Are identified when they buy because they use some type of
loyalty card
 Saved in Data Warehouse
• What they buy
• When they buy
• How much they buy
• How often they buy
• How much they spend
• What channel they use
■ Develop personalized marketing effort to them

Approaches for Building
Customer Loyalty

■ Unique Positioning
■ Location
■ Customer Service
■ Information About Customers (Database)
■ Unique Merchandise

Example of Positioning


■ What are the three most important things in


“location, location, location”
■ Location is a competitive advantage
 A high density of Starbucks stores
• Creates a top-of-mind awareness
• makes it very difficult for a competitor to enter a
market and find a good locations

Human Resources

■ “Employees are key to build a sustainable

competitive advantage”

■ Strategies for Recruiting and Retaining Talented

■ Employee Branding
■ Develop positive organizational culture

Distribution and Info Systems

Flow of Information
Vendor By decreasing costs here, the
is more money available to
Distribution Center
invest in:
Store -Better services
-Increase in breadth and depth
-Decrease in prices

Unique Merchandise: Private Labels
Rob Melnychuk/Getty Images

Sears’ Kenmore -- appliances

Federated’s Inc. – fine apparel

Kmart’s Martha Stewart -- home

JCPenney’s Arizona -- jeans Jules Frazier/Getty Images

Jacobs Stock Photography/Getty Images
Vendor Relationships

■ Low Cost - Efficiency Through Coordination

Electronic Data Interchange (EDI)
 Collaborative Planning and Forecasting to
Reduce Inventory and Distribution Costs
■ Exclusive Sale of Desirable Brands
■ Special Treatment
 Early Delivery of New Styles
 Shipment of Scare Merchandise

High Quality Customer Service

■ Difficult to Achieve
 People Are Not Machines -- Inconsistent

Retail Sales Associates At Bottom of Labor Pool
■ Goes Beyond Hiring Good People at High
Wages and Training Them -- Organizational

Critical Tradeoff In Developing
Strategic Advantage

Focus Leads to Developing

A Competitive Advantage
Focus Reduces Flexibility

■ Low Cost, Consistent Image, Vendor

Relationships Reduces Flexibility
■ Similar to Dating and Marriage – Commitment
to a Relationship (Vendor) Reduces Flexibility

Growth Strategies

■ Market Penetration
■ Market Expansion
■ Retail Format Development
■ Diversification

Related vs. Unrelated

Ryan McVay/Getty Images

Growth Opportunities

Market Penetration

■ Attract customers from target market – Walgreens “on

every corner”

■ Get current customer to visit store more often or buy on

each visit

Cross Selling – sales associates in one department sell

complimentary merchandise from other departments

Example: Manicurist sells services plus hand lotion or nail polish

Example: Salesperson sells leaf blower directs customer to electrical

department to purchase a 100 foot extension cord.

Market Expansion

■ Market expansion growth opportunity involves

using the existing retail format in new market
 Dunkin’ Donuts – new stores (and at gas stations)
outside northeastern
 Abercrombie & Fitch (for college students) opens
lower-priced chain Hollister Co. for high school

Retail Format Development

■ Develops a new retail format with a different

retail mix for the same target market
■ Multi-channel retailing
■ UK based TESCO:
 Tesco Express: small stores located close to where
customers live and work
 Tesco Metro: bring convenience to city center location
by specializing in ready-to-eat meals
 Tesco Superstores: traditional stores

Tesco Extra: one-stop destination with the widest
range of food and non-food products


■ Introduces a new retail format toward a market

segment that is not currently served by the
■ Related diversification
■ Unrelated diversification
■ Vertical integration into wholesaling or

Global Growth Opportunities

Who Is Successful and Who Isn’t?

■ Specialty store retailers with strong
brand and unique merchandise?
 McDonald’s

 Starbucks

 Zara

 H & M

■ Discount and food retailers with

deep assortments and low prices?
 Wal-Mart

 Carrefour

 Royal Ahold

 Metro AG

Steve Cole/Getty Images

■ Operates 254 stores in 35

■ Unique, well-designed,
functional furniture at low
prices for consumers who
have sophisticated tastes,
but have no intention to
spend a lot
■ “You do our part. We do
our part. Together, we
save money.”

Why Do Category Killers and Supercenters
Succeed Globally?

■ Developed operating expenses

■ Scale economies for buying
merchandise globally
■ Unique systems and standardization
formats which facilitate control over
multiple stores
■ Understand that consumers are willing
to forego service for lower prices
Ryan McVay/Getty Images

Key to Success in Global Retailing

■ Globally sustainable competitive


Low cost, efficient operations - Wal-
Mart, Carrefour
 Strong private label brands:
Starbucks, KFC

Fashion Reputation - The Gap, Zara,

Category dominance – Best Buy,
IKEA, Toys R Us
■ Adaptability
■ Global Culture
■ Financial Resources

Evaluating Global Growth Opportunities

Consider challenges and how to overcome them

■ China
 Increasing operating costs
 Lack of managerial talent
 Underdeveloped and inefficient
supply chain
■ India
 Prefers small family-owned
 Restricts foreign investment

Evaluating Global Growth Opportunities

Rankings are based on

weighted score using
growth (55%),
risk (25%), and
market size (20%)

Growth, Risk, and Market Size of
Top 30 Countries

International Market
Entry Strategies

Direct Investment
Joint Ventures
Strategic Alliances Profit and Risk


Stages in the Strategic
Retail Planning Process

1. Define the business mission

2. Conduct a situation audit:

Market attractiveness analysis
Competitor analysis

3. Identify strategic opportunities

4. Evaluate strategic alternatives

5. Establish specific objectives and allocate resources

6. Develop a retail mix to implement strategy

7. Evaluate performance and make adjustments

Elements in a Situation Audit

Market Factors

■ Market size – large markets attractive to large

retail firms
■ Growth – typically more attractive than mature or
■ Seasonality – can be an issue as resources are
necessary during peak season only
■ Business cycles – retail markets can be affected
by economic conditions – military base towns

Competitive Factors

■ Barriers to entry
 Scale economies of big box retailers
 Service and unique, high-end products of small retailers
■ Bargaining power of vendors
 Markets are less attractive when only a few vendors control the
merchandise sold within it
■ Competitive rivalry
 Defines the frequency and intensity of reactions to actions
undertaken by competitors
 Conditions leading to intense rivalry: a large number of same size
retailers, slow growth, high fixed costs, a lack of perceived
differences between competing retailers

Questions for
Analyzing the Environment

• New developments or changes --

technologies, regulations, social
factors, economic conditions
• Likelihood changes will occur
• Key factors determining change
• Impact of change on retail market
firm, competitors
Performing a Self-Analysis

■ At what is our company good?

■ In which of these areas is our company better
than our competitors?
■ In which of these areas does our company’s
unique capabilities provide a sustainable
advantage or a basis for developing one?

Stockbyte/Punchstock Images
Strengths and Weaknesses Analysis
Management Capability:
Capabilities and experience of top management
Depth of Management--capabilities of middle management
Management’s commitment to firm

Financial Resources:
Cash flow from existing business
Ability to raise debt or equity financing
Operations: Store Management Capabilities
Overhead cost structure Management capabilities
Quality of operating systems Quality of sales associates
Distribution capabilities Commitment of sales associates to firm
Management information systems
Loss prevention systems Locations
Inventory control system

Merchandising Capabilities:
Knowledge and skills of buyers Customers
Relationships with vendors Loyalty of customers
Capabilities in developing private
Illustration of the
Strategic Retail Planning Process

Kelly Bradford – Owner of Gifts To Go

 Two Store Chain in Chicago

 Target Market – Upper Income Men and Women

Looking for Gifts between $50 and $500

 Strong Customer Loyalty Based on Knowing What

Customers Want, Providing Good Customer Service

Low Turnover Among Associates

Mission Statement for Gifts To Go

“The mission of Gifts-to-Go is to be the leading

retailers of higher-priced gifts in the Chicago and
provide a stable income of $100,000 per year for
the owner.”

■ Define growth opportunities will and won’t

■ Indicates objective of company

Situation Analysis of Gifts to Go

■ Market Factors

Chicago is an attractive market. (+)

Relatively expensive gifts are not affected much by
the economy. (+)

Gifts are highly seasonal. (-)
■ Competitive Factors
 Many in area. Primary department stores, craft

galleries, catalogs, and Internet retailers (-)

 Lack of large suppliers, customer (+)

 Opportunities for differentiation (+)

 Limited competitive rivalry. (+)

Situation Analysis of Gifts to Go

■ Environmental Factors

Potential Threat - Development of electronic channel by
traditional bricks and mortar retailers (-)

■ Strengths and Weaknesses

 Management Capability – Limited
 Financial Resources – Good

Operations – Poor

Merchandise Capabilities – Good

Store Management Capabilities – Excellent

Locations – Excellent

Customer Loyalty – Good

Customer Database - Good

Growth Opportunities for Gifts to Go

■ Market Penetration
 Increase size of present stores
 Open additional gifts stores in
Chicago area
■ Market Expansion

Open gift stores outside Chicago
 Sell lower priced gifts in present
Ryan McVay/Getty Images

Growth Opportunities for Gifts to Go

■ Retail Format Development

 Sell non-gift merchandise to same customers in present
or new stores
 Sell similar gifts to same customers through an electronic
■ Diversification
 Manufacture craft gifts
 Open an apparel store targeting teenagers
 Open a category killer store selling a broader assortment
of gifts

Evaluating Growth Opportunities for
Gifts to Go

Market Attractiveness

■ Market Penetration

Increase size of present stores (low)

Open additional gifts stores in Chicago area (medium)

■ Market Expansion

Open gift stores outside Chicago area – new geographic
segment (medium)

Sell lower priced gifts in present stores – new benefit segment

Evaluating Growth Opportunities for
Gifts to Go (continued)

Market Attractiveness

■ Retail Format Development

 Sell non-gift merchandise to same customers in present or new
stores (High)
 Sell similar gifts to same customers through an electronic channel
■ Diversification
 Manufacture craft gifts (High)
 Open an apparel store targeting teenagers (High)
 Open a category killer store selling a broader assortment of gifts

Evaluating Growth Opportunities for
Gifts to Go

Competitive Position

■ Market Penetration
 Increase size of present stores (High)

Open additional gifts stores in Chicago area (Medium)
■ Market Expansion
 Open gift stores outside Chicago area (Low)
 Sell lower priced gifts in present stores (low)

Evaluating Growth Opportunities for
Gifts to Go (continued)

Competitive Position

■ Retail Format Development

 Sell non-gift merchandise to same customers in present or new
stores (Low)
 Sell similar gifts to same customers through an electronic channel
■ Diversification
 Manufacture craft gifts (Low)
 Open an apparel store targeting teenagers (Low)
 Open a category killer store selling a broader assortment of gifts

Market Attractiveness/Competitive
Position Matrix

Steps in Using Market Attractiveness -
Competitive Position Matrix

• Define strategic opportunities

• Identify market attractiveness and competitive
position factors
• Assign weight based on importance of factors
• Rate opportunities on market attractiveness
and competitive position
• Calculate scores and evaluate opportunities

Attractiveness Ratings for
International Growth Opportunities

Competitive Position in International
Growth Opportunities