Chapter 5

Retail Market Strategy

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Questions

■ What is a retail strategy?

■ What is a retail market strategy and what are its
components?
■ Define target market and retail format.
■ How is the development of a retail format
dependent on the needs of the target market?
■ How can a retailer build a sustainable
competitive advantage?
■ What is strategic retail planning and what are
the steps involved in this process?
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What is a Retail Strategy?

■ The retail strategy indicates how the firm plans to focus

and use its resources to accomplish its objectives.

■ Strategic Decisions Are:

 Made infrequently
 Long-term
 Require significant investment
 Not easily reversed

■ Key strategic decision areas include determining a

market strategy, financial strategy, location strategy,
organizational structure and human resource strategy,
information systems and supply chain strategies, and
customer relationship management (CRM) strategies.
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What is a Retail Market Strategy

■ A Retail Market Strategy is a statement

identifying 1) the retailer's target market ; 2) the
retailer’s format ; and 3) the bases upon which
the retailer plans to build a sustainable
competitive advantage.

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Elements in a Retail Market 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 competition that is not easily
copied and thus can be maintained over a long time.

© image100 Ltd
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The Target Market

Why Does a Retailer Need to Focus on

a Specific Target Market?

Why Not Sell to Everyone?

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The Retail Format (Retail Mix)

Customer Service

Store Design Merchandise

and Display Assortment
Retail
Mix
Pricing Location

Communication
Mix
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Analyzing McDonalds’ Retail Market Strategy

Target market?

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

Retail format (mix)?

Bases for competitive

advantage?

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Analyzing Chico’s Retail Market Strategy

Target market?

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

Retail format (mix)?

Bases for competitive

advantage?

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Can A Retailer Develop a Sustainable
Competitive Advantage by:

■ Dropping the Price of their

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

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 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

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Customer Loyalty

What does loyalty mean?

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

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Customer Loyalty

■ Customer Loyalty is more than simply liking one

retailer over another
■ When a customer is loyal he/she will be reluctant
to patronize competitive retailers
■ Retailers build loyalty by:
 Developing a strong brand for the store or store
brands
 Creating an emotional attachment with customers
through loyalty programs

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Location

■ Why is location potentially a sustainable

competitive advantage?
 Location is a critical factor in consumer selection of a
store.
 It is a competitive advantage that is not easily
duplicated.

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Human Resource Management

■ Knowledgeable and skilled employees

committed to the retailer's objectives are critical
to building a sustainable competitive advantage

■ What can retailers do to maintain effective,

committed employees?
 Recruit and Train Talented Employees
 Develop a positive organizational culture

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Distribution and Info Systems

Retailers want to get their customers

Flow of Information
the merchandise they want, when
Vendor they want it, in the quantities that are
required, at a lower delivered cost
Distribution Center
than their competitors.
Store
Retailers can achieve these
efficiencies by developing
sophisticated distribution and
information systems.

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 Unique Merchandise: Private Labels
Rob Melnychuk/Getty Images

■ Many retailers realize a sustainable competitive advantage

by developing private-label brands (also called store
brands), which are products developed, marketed, and
available only at that retailer
 Sears’ Kenmore – appliances
 Kmart’s Martha Stewart – home
 JCPenney’s Arizona -- jeans
Jules Frazier/Getty Images

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Jacobs Stock Photography/Getty Images
Vendor Relationships

■ By developing strong relations with vendors,

retailers may gain exclusive rights:
■ to sell merchandise in a specific region
■ to buy merchandise with better terms than
competitors
■ to receive merchandise in short supply.

Relationships with vendors, like relationships with

customers, are developed over a long time and
may not be easily offset by a competitor.

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High Quality Customer Service

■ Offering Good Service Consistently is Difficult to

Achieve. Why?
 People Are Not Machines -- Inconsistent
 Retail Sales Associates At Bottom of Labor Pool
■ Goes Beyond Hiring Good People at High
Wages and Training Them
■ Must build an Organizational Culture where
good service is considered a valuable asset.
■ This takes time and effort.

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What is Strategic Planning and Why is it
Important?

“If you don’t know where you are going, you

might wind up someplace else.” Yogi Berra

■ Strategic planning is the process of maintaining

a strategic fit between a retailer’s objectives and
resources and its changing environment.
■ A clearly defined plan of action is an essential
ingredient in all forms of business management.

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Stages in the Strategic Retail Planning
Process

Define the Mission

Conduct a situation analysis (SWOT):
Analyze Internal Strengths and Weaknesses
Analyze External Opportunities and Threats

Establish Specific Objectives

Develop Retail Strategies

Market strategy, Financial strategy, H R strategy, etc.

Develop a Retail Mix to implement the market strategy

Implement Plans and Evaluate Results

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Step 1: Define the Mission Statement

■ What is a mission statement?

 A basic description of the fundamental nature,
rationale, and direction of the firm.

 Answers the question, “what kind of business are we

in.”

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Examples of Retailer Mission Statements

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

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

“Moore’s Bicycle Shop is dedicated to bringing the non-

cyclists into the sport by matching their recreational
needs with the most economical bicycle that will meet or
exceed their anticipated cycling demands. While we are
capable of serving the professional both in terms of
product and services, the entry level cyclists and family
cyclists are our focuses.”

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Step 2: Conduct a Situation Analysis:
(SWOT)
■ This is a complete analysis of the firm’s situation which
assesses the internal strengths and weaknesses of the
retail business and the external opportunities and threats
in the retail environment.

■ Internal analysis (controllable factors) – assess the firm

itself to identify strengths and weaknesses

■ External analysis (uncontrollabe factors) – assess the

firm’s external environment to identify opportunities and
threats

■ Identify ways to build on a strength, correct a weakness,

exploit an opportunity, or avoid a threat.
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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
capabilities
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Situation Analysis of Gifts to Go

■ Internal Analysis: 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

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Situation Analysis of Gifts to Go

■ External Analysis: Opportunities and Threats

 Development of electronic channel by traditional
bricks and mortar retailers (-)
 Many competitors in the area including primary
department stores, craft galleries, catalogs and
internet retailers (-)
 Gifts have highly seasonal demand. (-)
 Chicago is an attractive market for upscale gifts. (+)
 Relatively expensive gifts are not affected much by
the economy. (+)
 Opportunities for differentiation (+)

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Step 3: Establish Objectives

■ Objectives are the performance results that the

retailer wishes to achieve within a given time
period.

■ Can be stated in terms of sales volume, market

share , profit margin, return on assets, return on
net worth, sales per square foot, sales to stock
ratio, new store openings.

■ Should be measurable, attainable, specific, and

consistent with the organizational mission.
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Step 4: Develop Retail Strategies

■ A retail strategy indicates how the retailer plans to focus

its resources to accomplish its objectives.

■ Key strategic decision areas for retailers include the

determination of marketing strategy, financial strategy,
location strategy, organizational structure and human
resource strategy, information systems and supply chain
strategies, and customer relationship management
(CRM) strategies.

■ These decisions are strategic because they involve

committing significant resources over the long term and
are not easily changed.
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Step 5: Develop a Retail Mix to
Implement the Strategy

■ The retail mix includes the decision variables retailers

use to satisfy customer needs and influence their
purchase decisions.

■ Elements include: the types of merchandise and

services offered, merchandise pricing, advertising and
promotional programs, store design, merchandise
display, assistance to customers provided by
salespeople, and convenience of location

■ These decisions are tactical because they tend to focus

on the day to day operations of the retail firm
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Step 6: Evaluating Performance and
Making Adjustments

■ What is Performance Evaluation?

■ Evaluation - Involves measuring the

results of the actions from implementation
and comparing them with objectives.

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