©2013 Pearson Education Publishing as Prentice Hall 1-1 Chapter 1- An Introduction to Retailing...

©2013 Pearson Education Publishing as Prentice Hall 1-1

Chapter 1- An Introduction to Retailing

Chapter 2- Building and Sustaining Relationships in Retailing

Chapter 3- Strategic Planning in Retailing


Retailing

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


Issues in Retailing• How can we best serve our customers while earning a fair

profit?• How can we stand out in a highly competitive environment

where consumers have so many choices?• High unemployment, low consumer confidence, high savings

rates have reduced consumer spending. At the same time retail competition has increased through increased format blurring (sales of cameras at office supply stores, carpeting and major appliances at home improvement centers).

• How can we grow our business while retaining a core of loyal customers?


The Philosophy

Retailers can best address these questions by fully understanding and applying the basic principles of retailing, as well as the elements in a well-structured, systematic, and focused retail strategy.


The Framework of Retailing


An Ideal Candidate for a Retailing Career

• Must be a people person (more important than technical knowledge). Technical skills can be taught more easily than people skills

• Must be flexible• Should be decisive• Must have analytical skills• Must have stamina


Table 1-1: The 10 Largest Retailers in the United States (2011)

Rank Company Main Emphasis

1 Wal-Mart Full-line discount stores, supercenters, membership clubs

2 Kroger Supermarkets, convenience stores, jewelry stores

3 Target Full-line discount stores, supercenters

4 Walgreens Drugstores

5 Home Depot Home centers

6 Costco Membership warehouse clubs

7 CVS Caremark Pharmacies

8 Lowe’s Home centers

9 Best Buy Electronics, major appliances

10 Sears Holdings Department store, discount (Kmart)


Manufacturer

WholesalerFinal

Consumer

Retailer


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


Multi-Channel Retailing

• A retailer sells to consumers through multiple retail formats:• Web sites• Physical stores


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

o Store– try on, ease of return, fast availability (immediacy), compare offerings

o Web– 24/7, product information, product reviews by customers, personalization (tailored assortment based on past purchases), most current pricing, closeout sales

o Catalog-permanency, true color


Figure 1-6: Apple


Distribution Types• Exclusive: suppliers make agreements with

one or few retailers, designating such retailers as the only ones to carry certain brands or products within a specified geographic area

• Intensive: suppliers sell through as many retailers as possible

• Selective: suppliers sell through a moderate number of retailers

©2013 Pearson Education Publishing as Prentice Hall 1-1414Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall

Exclusive vs Intensive Distribution• Exclusive Distribution– Fate of retailer is tied

to manufacturer success, retailer has no “free-rider” concerns, retailer has less price competition, manufacturer is better assured of high levels of customer support

• Intensive Distribution- Manufacturer is better assured of maximizing sales (especially for convenience goods), retailers face strong competition for price and service, intratype competition


Figure 1-7: Comparing Distribution Types


Impulse Purchase

Popularityof

Stores

Retailer’sStrategy

Small Average

Sale


Retail Strategy

• An overall plan for guiding a retail firm

• Influences the firm’s business activities

• Influences firm’s response to market forces


Six Steps in Strategic Planning

1. Define the type of business (corporate mission)

2. Set long-run and short-run objectives

3. Determine the customer market

4. Devise an overall, long-run plan

5. Implement an integrated strategy

6. Evaluate and correct (fine-tune)


“Expect More. Pay Less” at Target


Aspects of Target’s Strategy• Growth objectives• Appeal to a prime

market• Distinctive image• Focus• Customer service• Multiple points of

contact

• Employee relations

• Innovation• Commitment to

technology• Community

involvement• Monitoring

performance


Customer Orientation

Coordinated Effort

Value-driven

Goal Orientation

RetailingConcept

RetailStrategy


The Build-A-Bear Experience: Never Boring


Customer Service

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


A Customer Respect ChecklistDo we trust our customers?Do we stand behind what we sell?Is keeping commitments to customers

important to our company?Do we value customer time?Do we communicate with customers

respectfully?Do we treat all customers with respect?Do we thank customers for their business?Do we respect employees?


Relationship Retailing• Retailers seek to establish and maintain long-term

bonds with customers, rather than act as if each sales transaction is a completely new encounter• Concentrate on the total retail experience• Monitor satisfaction • Stay in touch with customers


Effective Relationship Retailing• Use a “win-win” approach

• It is easier to keep existing customers happy than to gain new ones (present value of current customers income stream– cost of keeping existing customers content versus cost of replacing them with new customer

• Develop a customer database (loyalty programs)• Ongoing customer contact is improved with information

on people’s attributes and shopping behaviors


Types of Loyalty Programs• Additional discounts at register

• Not a real loyalty program• 1 free with every “n” items purchased

• Easily copied, no customer database• Rebates based on cumulative purchases

• Customer maintains records• Can develop “heavy half” programs like Hilton

• Targeted offerings and mailing based on purchase history• Tesco example “Market research staff know more

about my customers than board chairperson”


Relationship Management Among Retailers and Suppliers

• Disagreements may occur in the following areas (channel conflict):• control over channel (private label)• profit allocation (resale price control)• number of competing retailers (exclusive, selective or intensive

distribution)• product displays• promotional support (cooperative advertising funds and

restrictions)• payment terms (payment on time)• operating flexibility• gray market sales• markdown monies, chargebacks by dominant retailers


Approaches to the Study of Retailing

Institutional

Functional

Strategic


Parts of Retail Management: A Strategic Approach

• Building relationships and strategic planning• Retailing institutions • Consumer behavior and information gathering• Elements of retailing strategy• Integrating, analyzing, and improving retail strategy


CHAPTER 2: STRATEGIC PLANNING IN RETAILING


Chapter Objectives

• To explain what “value” really means and to highlight its pivotal role in retailers’ building and sustaining relationships

• To describe how both customer relationships and channel relationships may be nurtured in today’s highly competitive marketplace


Chapter Objectives (cont.)

• To examine the differences in relationship building between goods and services retailers

• To discuss the impact of technology on relationships in retailing

• To consider the interplay between retailers’ ethical performance and relationships in retailing


Definition of Value

• Value = Results + Process Quality Price + Customer Access Costs• Results = Overall quality, instructions, ease of

assembly, taste/quality/health, warranty, product testing by retailer

• Process Quality = Wide aisles, ease of finding, high in-stock position, fun experience, short waiting times

• Price= Costs + delivery + assembly + credit• Customer access costs= warehouse club

membership fees, inconvenient location, poor store hours, inadequate parking


What is Value? (cont.)

ChannelPerspective• Value is a series

of activities and processes (the “value chain”) that provide a certain value for the consumer.

Customer

Perspective• Value is a perception

that the shopper has of the value chain.

• It is the view of all the benefits from a purchase versus the price paid.


Retail Value Chain

• Represents the total bundle of benefits offered to consumers through a channel of distribution• Store location and parking, retailer ambience,

customer service, brands/products carried, product quality, retailer’s in-stock position, shipping, prices, image, and other elements


Potential Pitfalls to Avoid in Planning a Value-Oriented Retail Strategy

• Planning value solely from a price perspective• Providing value-enhanced services that

customers do not want or will not pay extra for• Competing in the wrong value/price segment• Believing augmented elements alone create

value• Paying lip service to customer service


Figure 2-2: A Value-Oriented Retailing Checklist

• Is value defined from a consumer perspective?• Does the retailer have a clear value/price point?• Is the retailer’s value position competitively defensible?• Are channel partners capable of value-enhancing

services?• Does the retailer distinguish between expected and

augmented value chain elements?• Has the retailer identified potential value chain elements?• Is the retailer’s value-oriented approach aimed at a distinct

market?• Is the retailer’s value-oriented approach consistent?


Figure 2-2: A Value-Oriented Retailing Checklist (cont.)

• Is the retailer’s value-oriented approach effectively communicated?

• Can the target market clearly identify the retailer’s positioning?

• Does the retailer’s positioning consider sales versus profits?

• Does the retailer set customer satisfaction goals?• Does the retailer measure customer satisfaction levels?• Is the retailer careful to avoid the pitfalls in value-

oriented retailing?• Is the retailer always looking out for new opportunities

that will create customer value?


Customer Service• Expected

customer service is the service level that customers want to receive from any retailer such as basic employee courtesy.

• Augmented customer service includes the activities that enhance the shopping experience and give retailers a competitive advantage.


Expected Versus Augmented Levels of Customer Service

• Expected– Must have elements; do not differentiate retailer. While absence of these expected values provides anguish, presence does not provide satisfaction

• Augmented—Services that can provide a competitive advantage. Double warranty, special delivery, product demonstrations


Figure 2-4: Classifying Customer Services


Fundamental Decisions• What customer services are expected and what

customer services are augmented for a particular retailer?

• What level of customer service is proper to complement a firm’s image?

• Should there be a choice of customer services?• Should customer services be free?• How can a retailer measure the benefits of providing

customer services against their costs?• How can customer services be terminated?


Table 2-1: Typical Customer Services

• Credit• Delivery• Alterations/

Installations• Packaging/gift

wrapping• Complaints/Returns

handling

• Gift certificates• Trade-ins• Trial purchases• Special sales• Extended store

hours• Mail/phone orders


Table 2-1b: Miscellaneous Customer Services

• Bridal registry• Interior designers• Personal shoppers• Ticket outlets• Parking• Water fountains• Pay phones• Baby strollers

• Restrooms• Restaurants• Babysitting• Fitting rooms• Beauty salons• Fur storage• Shopping bags• Information


Focus onCustomer Concerns

Empower FrontlineEmployees

Show That You AreListening

Express SincereUnderstanding

Apologize and Rectifythe Situation


Principles of Category Management

• Retailers listen more to customers• Profitability is improved because inventory more

closely matches demand• By being better focused, each department is more

desirable for shoppers• Retail buyers are given more responsibilities and

accountability for category results• Retailers and suppliers must share data and be

more computerized• Retailers and suppliers must plan together


Figure 2-7: Elements Contributing to Effective Channel Relationships


Three Kinds of Service Retailing

• Rented goods services– leased cars, hotel rooms, carpet cleaning equipment

• Owned goods services– plumbing, appliance repair, • Non-goods services– haircut, professional services

(physician, lawyer)


Four Characteristics of Services Retailing

• Intangibility• Inseparability• Perishability• Variability


Intangibility

• No patent protection possible• Difficult to display/communicate

service benefits• Quality judgment is subjective

• Some services involve performances/experiences


Inseparability

• Consumer may be involved in service production

• Centralized mass production difficult• Consumer loyalty may rest

with employees


Perishability

• Services cannot be inventoried• Lost revenues from unsold services are lost forever

• Effects of seasonality can be severe• Planning employee schedules can be complex

• Need to balance supply and demand (yield management pricing)


Variability

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


Figure A2-1: Lessons in Service Retailing


Technology Icons


Examples of Consumerism in Retailing

• Proper testing of items for safety issues• Programming cash registers not to

accept payment for recalled goods• Charging fair prices for goods in short

supply--Home Depot plywood example in hurricane

• Age labeling of toys, warning labels on goods beyond legal requirements


Store Sale


Understanding the Americans with Disabilities Act


CHAPTER 3:STRATEGIC PLANNING IN RETAILING


Chapter Objectives

• To show the value of strategic planning for all types of retailers

• To explain the steps in strategic planning for retailers: situation analysis, objectives, identification of consumers, overall strategy, specific activities, control, and feedback


Chapter Objectives (cont.)

• To examine the individual elements of a retail strategy (both controllable and uncontrollable), and to present strategic planning as a series of integrated steps

• To demonstrate how a strategic plan can be prepared


Retail Strategy

• The overall plan or framework of action that guides a retailer• One year in duration• Outlines mission, goals, consumer market, overall

and specific activities, and control mechanisms


Elements of a Retail StrategyRetail Strategy


Benefits of Strategic Retail Planning• Provides thorough analysis of the requirements for

doing business for different types of retailers• Outlines retailer goals• Allows retailer to determine how to differentiate

itself from competitors• Allows retailer to develop an offering that appeals to

a group of customers• Offers an analysis of the legal, economic, and

competitive environment• Provides for the coordination of firm’s total efforts• Encourages anticipation and avoidance of crises


Organizational Mission

Retailer’s commitment to a type of business and to a

distinctive role in the marketplace.


Ownership and Management Alternatives

• Sole proprietorship is an unincorporated retail firm owned by one person

• A partnership is an unincorporated retail firm owned by two or more persons, each with a financial interest

• A corporation is a retail firm that is formally incorporated under state law; it is a legal entity apart from its officers


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

Business


Figure 3-4: Checklist for Purchasing an

Existing Retail Business


Durable Goods Stores:Automotive group

Furniture and appliances groupLumber, building, and hardware group

Jewelry stores

Nondurable Goods Stores:Apparel group

Food groupGeneral merchandise group

Gasoline service stations


Service Establishments (Personal):Laundry and dry cleaning

Beauty/barber shopsFuneral services

Health-care services

Service Establishments (Amusement):Movie theatersBowling alleys

Dance hallsGolf courses


Service Establishments (Repair):Automobile repair

Car washesConsumer electronics repair

Appliance repairs

Service Establishments (Hotel):HotelsMotels

Trailer parksCamps


Image and Positioning

An image represents how a given retailer is

perceivedby consumers and others.


Positioning Approaches

• Mass merchandising is a positioning approach whereby retailers offer a discount or value-oriented image, a wide or deep merchandise selection, and large store facilities.

• Niche retailing occurs when retailers identify specific customer segments and deploy unique strategies to address the desires of those segments rather than the mass market.


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


Selected Retail Positioning Strategies


Target Market Selection

• Three techniquesThree techniques• Mass marketing• Concentrated marketing• Differentiated marketing


La Boqueria


Strategic Implications of Target Market Techniques

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


RetailStrategy

Uncontrollable Variables:

• Consumers• Competition• Technology• Economic conditions

• Seasonality• Legal restrictions

Controllable Variables:

• Store location• Managing business

• Merchandise management and pricing

• Communicating with customer


Retail Strategy– Low Costs

• Removal of bad costs• Use of private label products to

reduce costs of national/manufacturer brands

• Reduce product proliferation• Obtain best net price instead of focus

on promotional monies, trade incentives and forward buying


Retail Strategy– Low Costs (cont.)

• Supply chain initiatives• Low promotional expense (everyday low

pricing)• Proper employee utilization


Retail Strategy--Differentiation

• Well-thought out private labels (Trader Joe’s, Target, King Arthur flour, etc.)

• Hiring right employees (value-profit chain)• Empowering employees• Use of a fun atmosphere• “Little things that mean a lot”• Money-back guarantees


Legal Environment and Retailing

Store Location• zoning laws• blue laws• environmental laws• direct selling laws• local ordinances• leases and

mortgages

Managing the Business

• licensing provisions• personnel laws• antitrust laws• franchise

agreements• business taxes• recycling laws



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



Communicating with the Customer• truth-in-advertising and selling laws• truth-in-credit laws• telemarketing laws• bait-and-switch laws• inventory laws• labeling laws• cooling-off laws


Sample Strategic Plan

Sally’s is a small, independently owned, high-fashion ladies clothing shop located in a suburban strip mall. It is a full-price, full-service store for fashion-forward shoppers. Sally’s carries sportswear from popular designers, has a personal shopper for busy executives, and has an on-premises tailor. The store is updating its strategic plan as a means of getting additional financing for an anticipated expansion.


Additional Concerns for Global Retailing

• In addition to the strategic planning process:• assess your international potential• get expert advice and counseling• select your countries• develop, implement, and review an

international retailing strategy


Factors Affecting the Success of a Global Retailing Strategy

• Timing• A balanced international program• A growing middle class• Matching concept to market• Solo or partnering• Store location and facilities• Product selection


Factors to Consider When Engaging in Global Retailing

©2013 Pearson Education Publishing as Prentice Hall 1-1 Chapter 1- An Introduction to Retailing...

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