cmr college of engineering & techonology

CMR COLLEGE OF ENGINEERING &

TECHONOLOGY AUTONOMOUS

Kandlakoya, Medchal Road, Hyderabad – 501401

MBA IV SEM

RETAILING MANGEMENT

Retailing Management 1

SYLLABUS

RETAILING MANGEMENT

(Students must read text book. Faculty are free to choose any other cases) Course Aim: To facilitate the students about the concepts of Retailing through cases so that interested students can choose retailing as their career.

Learning outcome:

a. The students will learn the Modern Retailing Concepts and will able to link it to cases to understand the present Retailing Trends.

b. The students will be able to understand the relevance of shopper’s behaviour and shopping environment.

Unit I:

Introduction to Retail Management - Advent of retailing -Functions of retailing - Types of retailing -Customer buying behavior-Retailing Strategy - Growth strategies - Strategic retail planning process - Factors to be considered for retail planning. Human resources & Administrative Strategy: Designing the organizational structure for retail firm - Retail organization structures.

Case: The Classic story.(Aditya page no 283) Case: The Panwallah. (Aditya Prakash page no 287)

Unit II: Merchandising and pricing strategies: Merchandize planning - Sources of merchandize -Category Management - Buying systems to stores - Allocation of merchandize- Retail pricing strategies – Approaches for setting pricing – Pricing adjustments – Using price to stimulate retail sales – Promoting the merchandise – Implementing an advertising plan.

Case: Multinational Fast Food Chains in India. Retail Management (Suja Nair page no 474) Case: Tanishq. (Suja Nair page no 440)

Unit III:

Store Management: Objectives of a good store design –Store design – Store layout – Space planning – Merchandise presentation techniques and atmospherics.Delivering Value though Retail Functions - Classification of formats, ownership-based, store based, non-store based, other retail formats,

Case: Nirula’s. (Suja Nair Page no 448) Case: Hot Breads. (Suja Nair page no 452) Case: McDonalds India. (Suja Nair page no 459)

Unit IV: Location strategies: Shopping centers –Freestanding sites – Location and retail strategies- Factors affecting the demand for a region or trade area –Factors affecting the attractiveness of a site.Region wise analysis of Indian retailing. CRM in retail management, prompt delivery, customer satisfaction after sales service etc.

Case: Café Coffee Day. (Suja Nair page no 434) Case: Shoppers stop. (Suja Nair page no 470)

Unit V:

Retailing in India: The present Indian retail scenario – Factors affecting retailing in India –– Retailing opportunities in India. Rural Marketing Vs Urban Marketing – Nature and Characteristics of Rural


Market – Indian Rural Market – Parameters differentiating Urban & Rural Market - Differences in consumer behavior in Rural and Urban market.Indian Rural Retail Market – Rural Retail Channel Management – Strategies of Rural Retail Channel Management.

Case: Godrej and Boyee’s. (Suja Nair page no 466)

Journals : Indian Journal of Marketing, MICA Communications Review.

References:

Piyush Kumar Sinha, Dwarika Prasad Uniyal, Managing Retailing, 2nd Edition, Oxford, 2012.

Lusch, Dunne, Carver, Introduction to Retailing, 7th Edition, Cengage Learning, 2013.

Suja Nair, Retail Management, Himalaya Publication House, 2012.

Aditya Prakash Tripathi, Noopur Agrawal, Fundamentals of Retailing (text and cases), Himalaya Publication House, First Edition, 2009.

Swapna Pradhan, Retail Management-Text & Cases, TMH, 2013.

Dr. Harjit Singh, Retail Management a global perspective text and cases, S.Chand, 2011.

Michael levy, Barton Weits, Ajay Pundit, Retailing Management, McGraw-Hill, 2011.

Arif sheikh, Kaneez Fatima, Retail Management, Himalaya Publication House-2012.

Chetan Bajaj, Rajnish tuli, Nidhi Varma ,Srivastava, Retail Management, 2nd edition, oxford, 2012.

David Gilbert, Retail Marketing Management, 2nd edtion, Pearson, 2013

Balram Dogra & Karminder Ghuman: Rural Marketing, TMH, 2009

C K Prahlad:Bottom of the Pyramid, Pearson, 2009


UNIT I

INTRODUCTION TO RETAIL MANAGEMENT

RETAIL MANAGEMENT:

Retail is the final stage of any economic activity. Retailing is a set of business activities that adds value

to the products and services sold to consumers for their personal or family use. A dealer or trader who

sells goods in small quantities to the final consumer is a Retailer.

Philip Kotler’s definition: Retailing includes all the activities involved in selling gods or services to the

final consumer for personal, non-business use.

Any organization selling to final consumers, whether it is manufacturers, wholesaler or retailer – is

doing retailing. It does not matter how the goods or services are sold (by person, mail, telephone,

vending machine or internet or where they are sold – in store, on the street, or in the consumer’s home)

MARKETING – RETAILING EQUATION

Marketing - Retail equation is looked from two perspectives – one being that of a manufacturer and the

second from the point of view of the retailer. With the growth of industrialization and urbanization, the

distance between the manufacturer of a product and the actual customer has increased. Most producers

no longer sell their products or services directly to the consumers, but instead, use intermediaries to get

their product to the final consumer. The marketing channel design is largely based on the level of

service desired by the target customer.

ADVENT OF RETAILING

» The earliest traders were Cretans who sailed the Mediterranean.

They flourished for 2,000 years.

» The Phoenicians followed the Cretans. They were distributors. They distributed the goods of

Egypt and Babylonia. Tyre, Sidon, and Carthage were the principal trading cities of this

empire.

» Romans succeeded Phoenicians. The Romans established a sophisticated form of retailing.

Numerous small shops were set up with centers. World's first department store was in Rome!!

With the fall of this empire, retailing disintegrated

» After the fall of the Roman empire, the only retailers were peddlers. They carried their store

around on their back. They went from village to village selling their wares.


» By the 13th century fairs and markets flourished. On feast days people would gather at their

churches and exchange goods. Larger markets were also called fairs and people traveled long

distances to participate.

» By the 12th century artisan and tradesmen began to organize into "guilds" and opened up small

shops.

» After 1850, department stores became important.

RETAILING IN INDIA

» Dominated by unorganized retailers like kirana stores, cloth merchants etc..

» A decade ago most of today’s modern retail formats were non-existent.

» Pantaloon, Big Bazaar, Home Town, Spencer’s, Shoppers’ Stop, Life Style etc.. were either

small startup firms or did not exist 15 years ago.

» Wal-Mart the world’s first largest retailer and Carrefour, the second largest retailer are awaiting

to enter the Indian market today.

FUNCTIONS OF RETAILING

» Providing an assortment of products and services: Supermarkets typically carry 20000 to 30000

different items made by over 00 companies. Offering an assortment enables their consumers to

choose from a wide selection of brands, designs, sizes, colors, and prices at one location. All

retailers offer assortments of products, but they specialize in the assortments they offer.

» Providing convenient time to shop: Creating time utility by keeping the store open when the

consumers prefer to shop.

» Providing convenient location to shop: Creating place utility by being available at a convenient

location.

» Breaking bulk: To reduce transportation costs, manufacturers and wholesalers typically ship

cases of frozen dinners or cartons of blouses to retailers. \retailers then offer the products in

smaller quantities tailored to individual consumers’ and households’ consumption pattern.

» Holding Inventory: A major function of retailers is to keep inventory that is already broken into

user-friendly sizes so that products will be available when the consumers want them. Thus,

consumers can keep a smaller inventory of products at home because they know local retailers

will have the products available when they need more.


» Providing services: Retailers provide services that make it easier for customers to buy and use

products. They offer credit so consumers can have a product now and pay later. They display

products so consumers can see and test them before buying. Some retailers have salespeople in

their stores or use their websites to answer questions and provide additional information about

products.

» Taking ownership of goods sold: Creating ownership utility when the product is sold.

» Increasing the value of products and services: By providing assortments, breaking bulk,

holding inventory, convenient time and location, providing services and taking ownership of

goods sold, retailers increase the value consumers receive from their products and services.

TYPES OF RETAILERS

» Supermarkets Conventional supermarket is a self-service food store offering groceries, meat,

and produce with limited sales of non-food items, such as health and beauty aids and general

merchandise. Perishables like meat and produce account for 44 percent of supermarket sales

and typically have higher margins than packaged goods.

ex: Food World


» Supercenters The fastest growing retail category, are large stores that combine a supermarket

with a full line discount store. Supercenters offer broad assortments of grocery and general

merchandise products under one roof providing a one-stop shopping experience.

Wal-Mart, Target, Big Bazaar

» Hypermarkets Inorbit mall

Large stores (100,000 to 300,000 square feet) combination of food (60-70%) and general


merchandise (30-40%) stores. Hypermarkets typically stock fewer SKU’s than supercenters –

between 40000 to 60000 items ranging from groceries, hardware, and sports equipment to

furniture and appliances to computers and electronics.

Hypermarkets offer broad assortments of grocery and general merchandise. Offer self-service

» Warehouse clubs Retailers that offer a limited and irregular assortment of food and general

merchandise with little service at low prices for ultimate consumers and small businesses.

Warehouse clubs are large (at least 100,000 – 150,000 square feet) and typically located in low-

rent districts. They have simple interiors and concrete floors. Little service is offered.

Customers pick merchandise and take it to check-out lines in the front of the store, and usually

pay with cash. Most warehouse clubs have two different types of members: wholesale members

who own small businesses and individual members who purchase for their own use.

Example: Small restaurants are wholesale customers who buy their supplies from a warehouse

club rather than from food distributors.

» Convenience Stores Provide a limited variety and assortment of merchandise at a convenient

location in 2000 – 3000 square feet stores with speedy check out. Convenience stores enable

consumers to make purchases quickly, without having to search through a large store and wait

in a long checkout line. Over half the items bought are consumed within 30 minutes of

purchase. They offer limited assortments and variety, and they charge higher prices than

supermarkets. Milk, eggs, and bread once represented the majority of their sales, but now they

also sell gasoline. The second-highest selling item is cigarettes. To increase convenience,

convenience stores are opening smaller stores close to where consumers shop and work.

General Merchandise Retailers The major type of general merchandise retailers are department

stores, full-line discount stores, specialty stores, category specialists, home improvement centers,

off-price retailers, and extreme value retailers.

» Department Stores Retailers that carry a broad variety deep assortment, offer customer

services, and organize their stores into distinctly separate departments for displaying

merchandise.


Example: Lifestyle, Shoppers Stop. Department stores focus exclusively on soft goods. The

major departments are women’s, men’s, children’s apparel and accessories, home furnishings,

cosmetic and kitchenware and small appliances. Each department within the store has a specific

selling space allocated to it, a POS terminal to transact and record sales, and sales people to

assist customers.

Department stores are categorized into 3 tiers.

First tier includes upscale high fashion chains with exclusive designer merchandise and

excellent customer service.

Second tier includes more modestly priced merchandise with less customer service.

Third tier is value oriented which caters to more price – conscious consumers.

Department stores still follow some retailing traditions – multi-storied downtown stores,

special events and parades, Santa Claus land, holiday decorations and offer designer brands

that are no available from other retailers. In recent years, department stores discount sales

events have increased dramatically to the point that consumers are trained to wait for items to

be placed on sale rather than buy them at full price. Department stores are moving from

marketing activities like promotional sales to brand-building activities involving TV adverts,

specialty publications.

» Full – Line Discount store Retailers that offer a broad variety of merchandise, limited service

and low prices. They offer both private label and national label brands, but these brands are

typically less fashioned than the brands in department stores. Example: Wal-Mart, Target,

Chermas

» Specialty Stores Stores that concentrate on a limited number of complimentary merchandise

categories and provide a high level of service in relatively small stores.

Examples:

Accessories: Stupid Cupid

Electronics: Croma, Bose

Apparel: Zodiac, Raymond Shop

Food Supplements: Organic India, Baidyanath Ayurveda

Furniture: Godrej Interio


Jewelry: Tanishq, D’damas

Shoes: Woodland, Red Tape, Mochis, Regal

Optical: Lawrence & Mayo, Titan Eye +

Sporting Goods: Proline, Reebok showroom, Fitness One

Specialty stores tailor the retail strategy toward a very specific market segment by offering

deep but narrow assortments and sales associate expertise.

» Drug Stores Specialty stores that concentrate on health and personal grooming merchandise.

Pharmaceuticals often represent over 50% of drug store sale and a greater percentage of their

profits.

» Category Specialists Big box discount stores that offer a narrow but deep assortment of

merchandise.

Example:

Apparel: Pantaloon, Koutons

Books & Leisure: Landmark, Odyssey

Furniture & Furnishings: Home Town, Home Center

Music: Music World, Planet-M

These retailers are basically discount specialty stores. Most category specialists use a self-

service approach, but some specialists in consumer durables offer assistance to customers. By

offering a complete assortment in a category at low prices, category specialists can “kill” a

category of merchandise for other retailers and thus are frequently called “category killers”.

Due to their category dominance, they use their buying power to negotiate low prices and are

assured of supplies when items are scarce.

» Home improvement center This is a category specialist offering equipment and material used

by do-it-yourselves and contractors to make home improvements. Like warehouse clubs and

office supply category specialists, home improvement centers operate as retailers when they

sell merchandise to customers and as wholesalers when they sell to contractors and other


businesses. Although merchandise in home improvements centers is displayed in a warehouse

atmosphere, sales people are available to assist customers in selecting merchandise and to tell

them how to use it.

» Extreme Value Retailers These are small, full-line discount stores that offer a limited

merchandise assortment at very low prices. The largest extreme value retailers are Dollar General and

Family Dollar Stores. Extreme value retailers are one of the fastest growing segments in retailing. Like

limited assortment food retailers, extreme value full-line retailers reduce costs and maintain low

process by offering a limited assortment and operating in low-rent, urban, or rural locations. Many

value retailers target low-income consumers, whose shopping behaviour differs from typical discount

store or warehouse club customers. For instance, though these consumers demand well-known national

brands, they cannot afford to buy large-size packages. Because this segment of the retail industry is

growing rapidly, vendors often create special smaller packages just for them. These retailers specialize

in giftware, party, and craft items rather than consumables. In the past, extreme value retailers were

considered low-status retailers that catered to lower-income consumers. Today, however, higher-

income consumers are increasingly patronizing dollar stores for the thrill of the hunt.

» Off-Price Retailers These retailers offer an inconsistent assortment of brand name

merchandise at low prices. They sell brand name and even designer label merchandise at low

prices through their unique buying and merchandising practices. Most merchandise is bought

opportunistically from manufacturers or other retailers with excess inventory at the end of

season. The merchandise might be in odd sizes or unpopular colors and styles, or it may be

irregulars. Typically merchandise is purchased at one-fifth to one-fourth of the original

wholesale price. Off-price retailers can buy at low prices because they don’t ask suppliers for

advertising allowances, return privileges, markdown adjustments, or delayed payments. Due to

this pattern of opportunistic buying, customers can’t be confident that the same type of

merchandise will be in stock each time they visit the store. Different bargains will be available

on each visit. To improve their offerings’ consistency, some off-price retailers complement

their opportunistically bought merchandise with merchandise purchased at regular wholesale

prices. Two special types of off-price stores are closeout and outlet stores.


Closeout stores are off-price retailers that sell a broad but inconsistent assortment of general

merchandise as well as apparel and soft home goods. Outlet stores are off-price retailers owned

by manufacturers or department or specialty store chains. Those owned by manufacturers are

frequently referred to as factory outlets.

Nonstore Retailers Retailers that primarily operate through nonstore channels. The major nonstore

channels are internet, catalogs, and direct mail, direct selling, television home shopping, and vending

machines.

» Electronic Retailers This is a retail format in which the retailers communicate with customers

and offer products and services for sale over the internet. Even though online retail sales

continue to grow much faster than retail sales through stores and catalogs, we now realize the

Internet is not a revolutionary new retail format that will replace stores and catalogs. While

internet continues to provide opportunities for entrepreneurs in the retail industry, it is now

primarily used by traditional retailers as a tool to complement their store and catalog offerings,

grow their revenues, and provide more value for their customers. Some of the well-known

Internet-based companies associated with retailing are Amazon.com, eBay.

» Catalog and Direct-Mail Retailers Catalog retailing is a format in which the retail offering is

communicated to the customer through a catalog, whereas direct-mail retailers communicate

with their customers using letters and brochures. Historically, catalog and direct-mail retailing

were successful with rural consumers who lacked ready access to retail stores.

Types of Catalog and Direct-mail Retailers: Two types of firms selling products through mail

are (1) general merchandise and specialty catalog retailers and (2) direct-mail retailers.

General merchandise catalog retailers offer a broad variety of merchandise in catalogs that are

periodically mailed to customers.

Specialty catalog retailers focus on specific categories of merchandise, such as fruit, gardening

tools, and seeds and plants.

Catalog retailers typically maintain relationships with customers over time.

Direct mail retailers typically mail brochures and pamphlets to sell a specific product or service


to customers at one point in time. In addition to their specific product or service, they are

primarily interested in making a single sale from a specific mailing.

» Direct Selling This is a retail format in which salespeople, frequently independent

businesspeople, contact customers directly in a convenient location, either at the customer’s

house or at work; demonstrate merchandise benefits and/or explain a service; take an order; and

deliver the merchandise or perform the service. Direct selling is highly interactive form of

retailing in which considerable information is conveyed to customers through face-to-face

discussion with salespeople. However, providing this high level information, including

extensive demonstrations is costly.

Two special types of direct selling are party plan and multilevel selling. In part plan system

salespeople encourage customers to act as hosts and invite friends or co-workers to a “party” at

which the merchandise is demonstrated. Sales made at the party are influenced by the social

relationships of the people attending with the host or hostess, who receives a gift or

commission for arranging the meeting.

In a multilevel network, people serve as master distributors, recruiting other people to become

distributors in their network. The master distributors either buy merchandise from the firm and

resell it to their distributors or receive a commission on all merchandise purchased by the

distributors in their network. In addition to selling merchandise themselves, the master

distributors are involved in recruiting and training other distributors.

A pyramid scheme develops when he firm and its program ad designed to sell merchandise and

services to other distributors rather than to the end users. The founders and initial distributors in

the pyramid scheme profit from the inventory bought by later participants, but little

merchandise is sold to consumers who use it.

» Television Home Shopping This is a retail format in which consumers watch TV program that

demonstrates merchandise and then place orders for the merchandise through telephone. The

three form of electronic home shopping retailing are:

Cable channels dedicated to television shopping


Infomercials: These are TV programs typically 30 minutes long that mix entertainment with

product demonstrations and then solicit orders placed by telephone.

Direct-response and advertising: This includes advertisements on TV and radio that

describe products and provide an opportunity for consumers to order them.

» Vending Machine Retailing In this format merchandise or services are stored in a machine

and dispensed to customers when they deposit cash or use a credit card. Vending machines are

placed at convenient, high-traffic locations, such as in the workplace or on university

campuses, and primarily contain snacks or drinks.

» Services Retailing These are firms selling primarily services rather than merchandise. They

are a large and growing part of the retail industry.

Types of Service Service Retail Firms

Airlines Air India, Kingfisher, Jet Airways

Automobile maintenance and repair Reliance auto zone

Automobile Rental Hertz India, Avis India

Banks HDFC Bank, State Bank

Credit Cards American Express, VISA, MasterCard

Entertainment parks Essel World, Appu Ghar

Express package delivery Blue Dart, Gati

Hotels and motels Taj, ITC Maurya Sheraton

Insurance LIC

Many organizations such as Banks, Hospitals, Health Spas, Legal Clinics, Entertainment firms

and universities that offer services to consumers traditionally haven’t considered themselves

retailers. Due to increased competition, these organizations are adopting retailing principles to

attract customers and satisfy their needs.


Recognize needs

Visit store or Internet site or Catalog

Repeat patronage of retailer

Select a retailer and channel

Evaluate retailers and

channels

Search for information about retailers

Recognize needs

Post purchase evaluation

Purchase merchandise

Select merchandise

Evaluate merchandise

Search for information about merchandise

CONSUMER BUYING BEHAVIOUR

» Buying Process

The steps consumers go through while buying a product or service, begins when customers

recognize an unsatisfied need. They seek information about how to satisfy the need, such as

what products might be useful and how they can be bought. Customers evaluate the alternative

retailers and channels available for purchasing the merchandise, such as stores, catalogs, and

the Internet, and then choose a store of Internet site to visit or a catalog to review. This

encounter with a retailer provides more information and may alert customers to additional

needs. After evaluating the retailer’s merchandise offering by weighing both objective and

subjective criteria, customers may make a purchase or go to another retailer to collect more

information. Eventually, customers make a purchase, use the product, and then decide whether

the product satisfies their needs during the post purchase evaluation stage of the customer

buying process.

Stages

Need Recognition

Information Search

Evaluation

Choice

Visit

Loyalty

Selecting a Retailer and Channel

Selecting Merchandise


Need recognition The buying process is triggered when consumers recognize they have an

unsatisfied need. An unsatisfied need arises when a customer’s desired level of satisfaction

differs from his or her present level of satisfaction.

Types of needs: The needs that motivate the customers to go shopping and purchase

merchandise can be classified as utilitarian or hedonic. When consumers go shopping to

accomplish a particular task, they are seeking to satisfy utilitarian need. When they go

shopping for pleasure, they are seeking to satisfy hedonic needs.

Successful retailers attempt to satisfy both utilitarian and hedonic needs of their customers.

Consumers motivated by utilitarian needs typically shop in a store in a more deliberate and

efficient manner, thus, retailers need to make the shopping experience easy and effortless for

utilitarian shoppers y providing the desired merchandise so that it can be easily located and

purchased. Some hedonic needs that retailers can satisfy include stimulation, social experience,

learning new trends, status and power, self-reward, and adventure.

Stimulation Retailers and mall managers use background music, visual displays, scents,

and demonstrations in stores and malls to create a carnival-like, stimulating experience for

their customers. These environments encourage consumers to visit these stores.

Social Experience Market places have traditionally been centers of social activity, places

where people could meet friends and develop new relationships. Mall developers satisfy the

need for social experiences by providing places for people to sit and talk in food courts.

Online retailers provide similar social experiences through chat rooms.

Learning new trends By visiting retailers, people learn about new trends and ideas. These

visits satisfy customers’ needs to be informed about their environment.

Status and power For some people, a store or a service provider is one of the few places

where they get attention and respect.


Self-reward Customers frequently purchase merchandise to reward themselves when they

have accomplished something or want to dispel depression. Perfume and cosmetics are

common self-gifts.

Adventure Often consumers go shopping because they enjoy finding bargains, looking for

sales, and finding discounts or low prices. They treat shopping as a game to be “won”. Off-

price retailers cater to this need by putting merchandise haphazardly in bins so that

customers have an opportunity to go hunting for a bargain.

Conflicting Needs Most customers have multiple needs. Moreover, these needs often

conflict. \because needs often cannot be satisfied in one store or by one product, consumers

may appear to be inconsistent in their shopping behaviour. The pattern of buying both

premium and low-priced merchandise or patronizing both expensive, status-oriented

retailers and price-oriented retailers is called “cross shopping”. Although cross-shoppers

seek value, their perception of value varies across product classes.

Stimulating Need Recognition Customers must recognize unsatisfied needs before they

are motivated to visit a store or go online to buy merchandise. Sometimes these needs are

stimulated by an event in a person’s life. Retailers use variety of approaches to stimulate

problem recognition and motivate customers to visit their stores and buy merchandise.

Advertising, direct mail, publicity and special events communicate the availability of

merchandise or special prices. Within the store, visual merchandising and salespeople can

stimulate need recognition.

Information Search Once customers identify a need, they may seek information about

retailers or products to help them satisfy that need. More extended buying processes may

involve collecting a lot of information, visiting several retailers, or deliberating a long time

before making a purchase.


Amount of information searched: In general, the amount of information search depends on

the value customers feel they’ll gain from searching versus the cost of searching. The value

of the search stems from how it improves the customer’s purchase decision. The costs of

search include both time and money. The internet can dramatically reduce cost of

information search. Information about merchandise sold across the world is just a mouse

click away. Factors influencing the amount of information search include:

o The nature and use of the product being purchased

o Characteristics of the individual customer

o Aspects of the market and buying situation in which the purchase is made

Marketplace and situational factors affecting information search include:

o The number of competing brands and retail outlets

o The time pressure under which the purchase must be made

Sources of information Customers have two sources of information: internal and external.

o Internal sources are information in a customer’s memory such as names, images,

and past experiences with different stores. The major source of internal

information is the customer’s past shopping experience. When customers feel

that the internal information is inadequate, they turn to external information

sources.

o External sources are information provided by ads and other people. In addition,

customers get information about products and retailers from friends and family

members.

Reducing the information search The retailer’s objective at the information search stage

of buying process is to limit the customer’s search to its store or Website. Each element of

the retailing mix can be used to achieve this objective. Primarily, retailers must provide

good selection of merchandise so customers can find something to satisfy their needs

within the store. Providing a wide variety of products and a broad assortment of brands,

colours, and sizes increase the chances that customers will find what they want. Services

provided by retailers can also limit search to the retailer’s location. The availability of

credit and delivery may be important for consumers who want to purchase large durable


goods, such as furniture and appliances. And, salespeople can provide enough information

to customers so they won’t feel the need to collect additional information by visiting other

store.

Everyday low pricing is another way retailers increase the chance that customers will buy

in their store and not search for better price elsewhere. An everyday low pricing strategy

emphasizes the continuity of retail prices at a level somewhere between the regular nonsale

price and the deep discount sale price of the retailer’s competitors.

Evaluation of Alternatives

The multiattribute model provides a useful way to summarize how customers use the

information they have about alternative products, evaluate the alternatives, and select the one

that best satisfies their needs. This model is based on the notion that customers see retailer, a

product, or a service as a collection of attributes or characteristics. The model is designed to

predict a customer’s evaluation of a product, or service, or retailer based on:

o Its performance on relevant attributes

o The importance of those attributes to the customer

Beliefs about performance To illustrate this model, consider the sore choice decision

confronting a young, single, professions, Minneapolis woman who needs groceries. She

considers three alternatives: a supercenter in the next suburb, her local supermarket, or an

Internet grocery retailer such as SimonDelivers, as compared in the table below.

A. Information about stores selling groceries

Store characteristics Supercenter Supermarket Internet Grocer

Grocery prices 20% below

average Average

10% below

Average

Delivery cost 0 0 10

Total travel time (minutes) 30 15 0


Total checkout time(minutes) 10 5 2

Number of products, brands,

and sizes

40,000

25,000

20,000

Fresh produce Yes Yes Yes

Fresh Fish Yes Yes No

Ease of finding products Difficult Easy Easy

Ease of collecting nutritional

information about products

Difficult

Difficult

Easy

B. Beliefs about Stores' Performance Benefits *

Performance Benefits Supercenter Supermarket Internet Grocer

Economy 10 8 6

Convenience 3 5 10

Assortment 9 7 5

Availability of product

information

4

4

8

The customer mentally processes objective information about each grocery retailer and forms

an impression of the benefits it provides. Notice that some benefits combine several objective

characteristics. For example, the convenience benefit combines travel time, checkout time, and

ease of finding products. Grocery prices and delivery cost affect customer’s beliefs about the

economy of shopping at the retail outlets.

The degree to which each retailer provides the benefit is represented on a 10-point scale: 10

means the retailer performs well in providing the benefit; 1 means it performs poorly. The

supercenter performs well on economy and assortment but is low on convenience. The Internet

grocer offers best convenience but is weak on economy and assortment.

Importance Weights The young woman in the previous example forms an overall

evaluation of each alternative based on the importance she places on each benefit the stores

provide. The importance she places on a benefit can also be represented using a 10-point

scale, with 10 indicating the benefit is very important and 1 indicating it is very

unimportant. Using this rating scale, the importance of the retailer benefits for the young


woman and a parent with four children are shown below, along with performance beliefs.

Notice that the single woman values convenience and the availability of product

information much more tan economy and assortment. But the parent places a lot of

importance on economy, assortment is moderately important, and convenience and product

information are not very important. The importance of a retailer’s benefits differs for each

customer and may also differ for each shopping trip.

Importance Weights* Performance Beliefs

Characteristic

Young

single

woman

Parent

with

four

children

Supercenter

Supermarket

Internet

Grocer

Economy 4 10 10 8 6

Convenience 10 4 3 5 10

Assortment 5 8 9 7 5

Availability of product

information

9

2

4

4

8

Overall Evaluation

Young single woman 151 153 221

Parent with four children 192 164 156

In general, customers can differ in their beliefs about the retailer’s performance as well as in

their importance weights.


Evaluating stores Research has shown that a customer’s overall evaluation of an

alternative is closely related to the sum of the performance beliefs multiplied by the

importance weights.

The table above shows the overall evaluations of the three retailers using the importance

weights of the single woman and the parent. For the single woman, the Internet grocer has

the highest score of 221, and the most favorable evaluation. She would probably select this

retailer for most of her grocery shopping. On the other hand, the supercenter has the highest

score 192, for the parent, who would probably buy the family’s weekly grocery there.

Implications for retailers First the model indicates what information customer’s use to

decide which retailer to patronize and which channel to use. Second, it suggests tactics that

retailers can take to influence customer store choice and merchandise selection.

To develop a program for attracting customers, the retailer must do market research to

collect the following information:

o Alternative retailer’s that customers consider

o Characteristics or benefits that customers consider when evaluating and choosing a

retailer

o Customers’ rating of each retailers performance on the characteristics

o The importance weights that customers attach to the characteristics

The retailer must make sure that its store is included in the customers consideration set, or the

set of alternatives he customer evaluates when making a selection. To be included, the retailer

must develop programs to increase the likelihood that customer will remember it when they are

about to go shopping. The retailer can influence this top-of-mind awareness through

advertising and location strategies.

After ensuring that it is in the consideration set, the retailer can use four methods to increase

chances that the customer will select its store to visit.

o Increase beliefs about the store’s performance

o Decrease the performance belief for competing stores in the consideration


o Increase customers’ importance weights

o Add a new benefit

Changing performance beliefs The first approach involves altering customers’ beliefs

about the retailer’s performance by increasing the retailer’s performance rating on

characteristics. It’s costly for a retailer to improve its performance on all benefits. Thus, a

retailer should focus its efforts on improving its performance on those benefits that are

important to customers in target market. Another approach is to try to decrease customers’

performance ratings of a competing store. This approach may be illegal and usually isn’t

very effective, because customers typically don’t believe a firm’s negative comments about

its competitors.

Changing importance weights Altering customers’ importance weights is another

approach to influence store choice. A retailer would want to increase the importance

customers place on benefits for which its performance is superior and decrease the

importance of benefits for which it has inferior performance.

Typically, changing importance weights is harder than changing performance beliefs

because weights reflect customers’ personal values.

Adding a new benefit Finally, retailers may try to add a new benefit to the set of benefits

customers consider while selecting a store. The approach of adding a new benefit is often

effective because it’s easier to change customer evaluation of new benefits than of old

benefits.

Purchasing the merchandise or service: Customers don’t always purchase a brand or item of

merchandise with the highest overall evaluation. The item or service offering the greatest

benefits may not be available in the store, or the customer may feel that its risks outweigh the

potential benefits. Some of the steps the retailers take to increase the chances that customers

can easily convert their positive merchandise or service evaluations into purchases are:


o Don’t stock out of popular merchandise. Have a complete assortment of sizes and

colours for customers to buy.

o Reduce the risk of purchasing merchandise or services by offering liberal return

policies, money-back guarantees, and refunds, if the same merchandise is available

at a lower price from another retailer.

o Offer credit.

o Make it easy to purchase merchandise by having convenient checkout terminals.

o Reduce the actual and perceived waiting time in lines at checkout terminals.

Post purchase evaluation After making a purchase, the customer uses the product and then

evaluates the experience to determine whether it was satisfactory or unsatisfactory. This post

purchase evaluation then becomes part of the customer’s internal information that affects future

store and product decisions. Unsatisfactory experiences can motivate customers to complain to

the retailer, patronize other stores, and select different brands in future. Consistently high levels

of satisfaction build store loyalty, important sources of competitive advantage for retailers.

TYPES OF BUYING DECISIONS

There are 4 kinds of problem solving: (from most complex to least)

Extended Problem Solving

Midrange Problem Solving

Limited Problem Solving

Habitual Problem Solving

Extended Problem Solving (EPS)

o High degree of complexity

o Often occurs with expensive items or can be fuelled by doubts and fears


o All 7 consumer decision making stages are often used (need recognition, search for

information, pre-purchase evaluation of alternatives, purchase, consumption, post-

consumption evaluation and divestment)

o Dissatisfaction often leads to negative word of mouth

o A longer time is taken to decide

Midrange Problem Solving

o Many decisions occur

o Decisions are made with minimal amount of time and only moderate deliberation

Limited Problem Solving (LPS)

o Low degree of complexity

o Consumers don't have time, motivation or resources to engage in EPS

o Little search and evaluation before purchase

o Consumers always look for familiarity and low prices

Habitual Problem Solving

o Lowest degree of complexity

o Same brand and same product, unless 'out-of-stock'

o Inertia to change

o Brand is trusted

SOCIAL FACTORS INFLUENCING BUYING PROCESS

Consumer wants, learning, motives etc. are influenced by opinion leaders, person's family,

reference groups, social class and culture.


Opinion leaders Spokespeople etc. Marketers try to attract opinion leaders...they actually use

(pay) spokespeople to market their products. Michael Jordon (Nike, McDonalds, Gatorade etc.)

Roles and Family Influences Role...things you should do based on the expectations of you

from your position within a group. People have many roles. Husband, father, employer/ee.

Individuals role are continuing to change therefore marketers must continue to update

information.

Family is the most basic group a person belongs to. Marketers must understand:

o that many family decisions are made by the family unit

o consumer behavior starts in the family unit

o family roles and preferences are the model for children's future family (can

reject/alter/etc)

o family buying decisions are a mixture of family interactions and individual decision

making

o family acts an interpreter of social and cultural values for the individual.

The Family life cycle families go through stages, each stage creates different consumer

demands:

o bachelor stage

o newly married, young, no children...me

o full nest I, youngest child under 6

o full nest II, youngest child 6 or over

o full nest III, older married couples with dependent children

o empty nest I, older married couples with no children living with them, head in labor

force

o empty nest II, older married couples, no children living at home, head retired

o solitary survivor, in labor force

o solitary survivor, retired


o Modernized life cycle includes divorced and no children.

Two Income Marriages Are Now the Norm Because 2 income families are becoming more

common, the decision maker within the family unit is changing...also, family has less time for

children, and therefore tends to let them influence purchase decisions in order to alleviate some

of the guilt. (Children influence about $130 billion of goods in a year) Children also have more

money to spend themselves.

Reference Groups Individual identifies with the group to the extent that he takes on many of

the values, attitudes or behaviors of the group members.

o Families, friends, sororities, civic and professional organizations.

o Any group that has a positive or negative influence on a person’s attitude and behavior.

o Membership groups (belong to)

o Affinity marketing is focused on the desires of consumers that belong to reference

groups. Marketers get the groups to approve the product and communicate that approval

to its members. Credit Cards etc.!!

o Aspiration groups (want to belong to)

o Disassociate groups (do not want to belong to)

o Honda, tries to disassociate from the "biker" group.

The degree to which a reference group will affect a purchase decision depends on an

individual’s susceptibility to reference group influence and the strength of his/her involvement

with the group.

Social Class an open group of individuals who have similar social rank. US is not a classless

society. US criteria; occupation, education, income, wealth, race, ethnic groups and

possessions.


Social class influences many aspects of our lives. Example: upper middle class Americans

prefer luxury cars Mercedes.

o Upper Americans-upper-upper class, .3%, inherited wealth, aristocratic names.

o Lower-upper class, 1.2%, newer social elite, from current professionals and corporate

elite

o Upper-middle class, 12.5%, college graduates, managers and professionals

o Middle Americans-middle class, 32%, average pay white collar workers and blue collar

friends

o Working class, 38%, average pay blue collar workers

o Lower Americans-lower class, 9%, working, not on welfare

o Lower-lower class, 7%, on welfare

Social class determines to some extent, the types, quality, and quantity of products that a

person buys or uses.

Lower class people tend to stay close to home when shopping, do not engage in much

prepurchase information gathering. Stores project definite class images.

Family, reference groups and social classes are all social influences on consumer behavior. All

operate within a larger culture.

Culture and Sub-culture Culture refers to the set of values, ideas, and attitudes that are

accepted by a homogenous group of people and transmitted to the next generation.

Culture also determines what is acceptable with product advertising. Culture determines what

people wear, eat, reside and travel. Cultural values in the US are good health, education,

individualism and freedom. In American culture time scarcity is a growing problem. Example:

change in meals. Big impact on international marketing.

Will British warm up to iced tea?


No...but that is my opinion!!...Tea is a part of the British culture, hot with milk.

Different society, different levels of needs, different cultural values.

Culture can be divided into subcultures:

o geographic regions

o human characteristics such as age and ethnic background.

Example: West Coast, teenage and Asian American.

Culture effects what people buy, how they buy and when they buy.


RETAILING STRATEGY

What Is A Retail Strategy?

The term strategy is frequently used in retailing. For example, retailers talk about their

merchandise strategy, promotion strategy, location strategy, and private-brand strategy.

Retail strategy isn’t just another expression for retail management.

Definition of Retail Market Strategy: A retail strategy is a statement identifying

1) the retailer's target market

2) the format the retailer plans to use to satisfy the target market's needs, and

3) the bases upon which the retailer plans to build a sustainable competitive advantage.

The target market is the market segments(s) toward which the retailer plans to focus its

resources and retail mix. A retail format is the retailer's type of retail mix (nature of

merchandise and services offered, pricing policy, advertising and promotion programs,

approach to store design and visual merchandising, and typical location and customer services).

A sustainable competitive advantage is an advantage over competition that is not easily copied

and thus can be maintained over a long time.

» TARGET MARKET AND RETAIL FORMAT

The retailing concept is a management orientation that focuses a retailer on determining the

needs of its target market and satisfying those needs more effectively and efficiently than its

competitors.

The selection of a target market focuses the retailer on a group of consumers whose

needs it will attempt to satisfy.

The selection of a retail format outlines the retail mix to be used to satisfy needs of customers

in the target market. The retail strategy determines the markets in which a retailer will compete.


We define a retail market, not as a specific place where buyers and sellers meet, but as a group

of consumers with similar needs (a market segment) and a group of retailers using a similar

retail format to satisfy those consumer needs.

Building a Sustainable Competitive Advantage

The final element in a retail strategy is the retailer's approach to building sustainable

competitive advantage. Some advantages are sustainable over a long period of time while

others can be duplicated by competitors almost immediately. Establishing a competitive

advantage means that a retailer builds a wall around its position in the retail market. Over time,

all advantages will be eroded due to these competitive forces.

Seven important opportunities for retailers to develop sustainable competitive advantages are:

(1) customer loyalty,

(2) location,

(3) human resource management,

(4) distribution and information systems,

(5) unique merchandise,

(6) vendor relations, and

(7) customer service.

1. Customer Loyalty

Customer Loyalty means that customers are committed to shopping at retailer's locations.

Loyalty is more than simply liking one retailer over another. Loyalty means that customers will

be reluctant to patronize competitive retailers.

Some ways that retailers build customer loyalty are by

(1) developing branding strategies along with clear and precise positioning strategies,

(2) creating an emotional attachment with customers through loyalty programs.

Retail Brands and Positioning: A retail brand, whether it is the name of the retailer or a private

label, can create an emotional tie with customers that builds their trust and loyalty.


Retail brands also facilitate store loyalty because they stand for a predictable level of quality

that customers feel comfortable with and often seek.

Positioning: A retailer builds customer loyalty by developing a clear and distinctive image of

its retail offering and consistently reinforcing that image through its merchandise and service.

Positioning is the design and implementation of a retail mix to create an image of the retailer in

the customer's mind relative to its competitors. A perceptual map is frequently used to

represent the customer's image and preference for retailers.

Loyalty Programs: Loyalty programs are part of an overall customer relationship management

program (CRM) program. Members of loyalty programs use some type of loyalty card.

Purchase information is stored in a huge database known as a data warehouse.

2. Location Location is the critical factor in consumer selection of a store. It is also a competitive

advantage that is not easily duplicated.

3. Human Resource Management Retailing is a labor-intensive business. Knowledgeable and

skilled employees committed to the retailer's objectives are critical assets that support the

success of several companies.

4. Distribution and Information Systems All retailers strive to reduce operating costs. They

want to get their customers the merchandise they want, when they want it, in the quantities that

are required, at a lower delivered cost than their competitors. Retailers can achieve these

efficiencies by developing sophisticated distribution and information systems.

5. Unique Merchandise While it is difficult for retailers to develop a competitive advantage

through merchandise, 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.

6. Vendor Relations By developing strong relations with vendors, retailers may gain exclusive

rights (1) to sell merchandise in a specific region, (2) to buy merchandise with better terms than


competitors who lack such relations, or (3) 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.

7. Customer Service Retailers also build a sustainable competitive advantage by offering

excellent customer service. Offering good service consistently is difficult. Customer service is

provided by retail employees – and humans are less consistent than machines. It takes

considerable time and effort to build a tradition and reputation for customer service, but good

service is a valuable strategic asset.

Multiple Sources of Advantage To build a sustainable advantage, retailers typically don't rely

on a single approach such as low cost or excellent service. They need multiple approaches to

build as high a wall around their position as possible.

GROWTH STRATEGIES

Four types of growth opportunities that retailers may pursue are: market penetration, market

expansion, retail format development, and diversification.

Market Penetration A market penetration opportunity involves directing investments toward

existing customers using the present retailing format. Approaches for increasing market

penetration include attracting new customers by opening more stores in the target market or

opening the stores for longer hours.

Cross-selling means that sales associates in one department attempt to sell complementary

merchandise from other departments to their customers. More cross-selling increases sales

from existing customers.

Market Expansion A market expansion opportunity employs the existing retailing format in

new market segments.


Retail Format Development A retail format development opportunity involves offering

customers a new retail format--a format involving a different retail mix--to the same target

market. Adjusting the type of merchandise or services offered typically involves a small

investment, while providing an entirely different format, such as a store-based retailer going

into electronic retailing, require a much larger and riskier investment.

Diversification A diversification opportunity involves a new retail format directed toward a

market segment that is not presently being served.

o Related versus unrelated diversification

Diversification opportunities are either related or unrelated.

In a related diversification opportunity, the present target market and/or retail format shares

something in common with the new opportunity. This commonality might entail purchasing

from the same vendors, using the same distribution and/or management information system, or

advertising in the same newspapers to similar target markets.

In contrast, an unrelated diversification lacks any commonalty between the present business

and the new business.

o Vertical integration

Vertical integration is diversification by retailers into wholesaling or manufacturing.

When retailers integrate by manufacturing products, they are making risky investments because

the skills required to make products are different from those associated with retailing them.

Note that designing private label merchandise is a related diversification because it builds on

the retailer’s knowledge of its customers, but actually making the merchandise is considered an

unrelated diversification.

Strategic Opportunities and Competitive Advantage Typically, retailers have the greatest

competitive advantage in opportunities that are similar to their present retail strategy. Thus,

retailers would be most successful engaging in market penetration opportunities that don't


involve entering new, unfamiliar markets or operating new, unfamiliar retail formats. When

retailers pursue market expansion opportunities, they build on their strengths in operating a

retail format and apply this competitive advantage in a new market.

Retailers have the least competitive advantage when they pursue diversification opportunities.

These opportunities are generally risky and often don't work.

Global Growth Opportunities International expansion is one form of a market expansion

strategy. The most commonly targeted regions are Mexico, Latin America, Europe, China, and

Japan. International expansion is risky because retailers using this growth strategy must deal

with differences in government regulations, cultural traditions, different supply chain

considerations, and language.

Characteristics of retailers that have successfully exploited international growth

opportunities

(1) globally sustainable competitive advantage,

(2) adaptability,

(3) global culture, and

(4) financial resources.

1. Globally sustainable competitive advantage

Entry into nondomestic markets is most successful when the expansion opportunity is

consistent with the retailer's core bases of competitive advantage.

2. Adaptability

While successful global retailers build on their core competencies, they also recognize cultural

differences and adapt their core strategy to the needs of local markets.

Store designs and layouts often need to be adjusted in different parts of the world. For instance,

while discount stores in the U.S. are usually quite large and one level, stores in nations where

space is at a premium must be designed to fit a smaller space and use multiple levels.

Government regulations and cultural values also affect store operations. Some differences,

such as holidays, hours of operations, and regulations governing part-time employees and

terminations are easy to identify. Other factors require a deeper understanding


3. Global Culture

To be global, one has to think global. It is not sufficient to transplant a home-country culture

and infrastructure into another country.

4. Financial Resources

Expansion into international markets requires a long-term commitment and considerable up

front planning.

Evaluating Global Growth Opportunities From the retailer’s perspective, some countries

represent better growth opportunities than others.

Operational restrictions on retailers were lifted in China in 2004, leading to a number of

retailers moving into the country. Doing business in China remains a challenge, though, due to

increasing operating costs, challenges in finding and retaining talented management personnel,

and inefficient supply chains.

India has become an attractive market for retailers because it has a population of over 1billion,

solid economic growth, and a growing middle-class. The challenge to retailers here is that a

majority of consumers prefer small, family-owned shops.

Three opportunity dimensions – growth, risk, and market size – are used to portray the top 30

countries. The U.S., U.K., Taiwan, and Malaysia fall in the ―Best Opportunity‖ quadrant of

the diagram, with Australia and Canada just on the fringe of the quadrant.

Moving into global markets requires all the same success factors as opening up any store – a

good strategy that is sustainable, a strong financial position, and a little luck.

However, global expansion requires much more. To succeed in global expansion, retailers

must:

(1) act like they are local and understand their customers’ needs,

(2) understand and act appropriately in response to subtle nuances between markets and

countries,

(3) ensure their timing is right, and


(4) be selective.

Entry Strategies Four approaches that retailers take when entering non-domestic markets are

direct investment, joint venture, strategic alliance, and franchising.

1. Direct Investment

Direct investment involves a retail firm investing in and owning a division or subsidiary that

builds and operates stores in a foreign country.

This entry strategy requires the highest level of investment and exposes the retailer to

significant risks, but has the highest potential returns.

2. Joint Venture

A joint venture is formed when the entering retailer pools its resources with a local retailer to

form a new company in which ownership, control, and profits are shared.

A joint venture reduces the entrant’s risks. The local partner understands the market and access

to resources – vendors and real estate.

Problems with this entry approach can arise if the partners disagree or the government places

restrictions on the repatriation of profits.

.

3. Strategic Alliance

A strategic alliance is a collaborative relationship between independent firms. For example, a

foreign retailer might enter an international market through direct investment but develop an

alliance with a local firm to perform logistical and warehousing activities.

4. Franchising

Franchising offers the lowest risk and requires the least investment. However, the entrant has

limited control over the retail operations in the foreign country, profit potential is reduced, and

the risk of assisting in the creation of a local domestic competitor is increased.


THE STRATEGIC RETAIL PLANNING PROCESS

The strategic retail planning process is the set of steps that a retailer goes through to develop a

strategic retail plan.

It describes how retailers select target market segments, determine the appropriate retail format,

and build sustainable competitive advantages.

The planning process can be used to formulate strategic plans at different levels within a retail

corporation.

.

Step 1: Define the Business Mission

The mission statement is a broad description of a retailer's objectives and the scope of activities

it plans to undertake. It should define the general nature of the target segments and retail

formats that the firm will consider.

In developing the mission statement, managers must answer five questions:

(1) What business are we in?

(2) What should be our business in the future?

(3) Who are our customers?

(4) What are our capabilities?

(5) What do we want to accomplish?

Step 2: Conduct a Situation Audit

A situation audit is an analysis of the opportunities and threats in the retail environment and the

strengths and weaknesses of the retail business relative to its competitors.

A situation audit is composed of four elements: market factors, competitive factors,

environmental factors, and strengths and weaknesses analysis.

o Market Factors

Some critical factors related to consumers and their buying patterns are market size and

growth, sales cyclicality, and seasonality. Market size, typically measured in retail sales


dollars, is important because it indicates a firm's opportunity for generating revenues to cover

its investment.

Large markets are attractive to large retail firms, but they are also attractive to small

entrepreneurs because they offer more opportunities to focus on a market segment. Growing

markets are typically more attractive than mature or declining markets.

In general, markets with highly seasonal sales are unattractive because a lot of resources are

needed to accommodate the peak season, but are underutilized the rest of the year.

o Competitive Factors

The nature of the competition in retail markets is affected by barriers to entry, the bargaining

power of vendors, and competitive rivalry. Retail markets are more attractive when competitive

entry is costly.

The final industry factor is the level of competitive rivalry in the retail market, which is the

frequency and intensity of reactions to actions undertaken by competitors. Conditions that may

lead to intense rivalry include:

(1) a large number of competitors that are all about the same size,

(2) slow growth,

(3) high fixed costs, and

(4) the lack of perceived differences between competing retailers.

o Environmental Factors

Environmental factors that affect market attractiveness are technological, economic, regulatory,

and social changes.

When a retail market is going through significant changes in technology, present competitors

are vulnerable to new entrants that are skilled at using the new technology.

Some retailers are more affected by economic conditions than others. Government regulations

can reduce the attractiveness of a retail market. Finally, trends in demographics, lifestyles,

attitudes, and personal values affect retail markets' attractiveness.


o Strengths and Weakness Analysis

The most critical aspect of the situation audit is for a retailer to determine its unique

capabilities in terms of its strengths and weaknesses relative to the competition. A strengths

and weaknesses analysis indicates how well the business can seize opportunities and avoid

harm from threats in the environment.

Step 3: Identify Strategic Opportunities

After completing the situation audit, the next step is to identify opportunities for increasing

retail sales. The strategic alternatives are defined in terms of the squares in the retail market

matrix.

Step 4: Evaluate Strategic Opportunities

The evaluation of strategic opportunities identified in the situation audit determines the

retailer's potential to establish a sustainable competitive advantage and reap long-term profits

from the opportunities under evaluation.

Thus, a retailer must focus on opportunities that utilize its strengths and its area of competitive

advantage. Both the market attractiveness and the strengths and weaknesses of the retailer need

to be considered in evaluating strategic opportunities.

The greatest investments should be made in market opportunities where the retailer has a strong

competitive position.

Step 5: Establish Specific Objectives and Allocate Resources

The retailer's overall objective is included in the mission statement. The specific objectives are

goals against which progress toward the overall objective can be measured.

Specific objectives have three components:

(1) the performance sought, including a numerical index against which progress may be

measured,

(2) a time frame within which the goal is to be achieved, and


(3) the level of investment needed to achieve the objective.

Typically, the performance levels are financial criteria such as return on investment, sales, or

profits.

Step 6: Develop a Retail Mix to Implement Strategy

The next step is to develop a retail mix for each opportunity in which investment will be made

and to control and evaluate performance.

Step 7: Evaluate Performance and Make Adjustments

The final step in the planning process is evaluating the results of the strategy and

implementation program. If the retailer fails to meet its objectives, reanalysis is needed. This

reanalysis starts with reviewing the implementation programs; but it may indicate that the

strategy (or even the mission statement) needs to be reconsidered. This conclusion would result

in starting a new planning process, including a new situation audit.

HUMAN RESOURCES & ADMINISTRATION STRATEGY

The middle of 2008 saw a dramatic sea change in the HR practices of many UK retailers.

Driven by the need to cut their cost bases as market conditions took a turn for the worse,

numerous retail businesses took decisive action to streamline their operations and reduce staff

numbers and costs, both through natural wastage and enforced redundancy programs.

For many large retailers the streamlining operation is now complete and the stronger businesses

are more focused on creating initiatives to retain staff and attract the best young blood, without

further reductions in headcount and with an understanding of how they can motivate their staff

and create flexibility where it is needed.

Retailers face a number of challenges in this new-found task of attracting and retaining key

staff:


There is a perception that the sector's "people reputation" is poor. Despite retail being the

second largest employer in the UK (employing 11% of the UK workforce, some 2.8 million

people as of March 2009 according to the British Retail Consortium) its people policies and

standing as a key industry sector are not consistent with its size.

The Hays Retail Salary Survey (2008) revealed that 53% of employees questioned did

not consider there was scope for career progression within their organization. "Churn"

(staff moving from employer to employer) is synonymous with the retail sector and

there is often perceived to be a lack of career progression within organizations, meaning

employees move jobs regularly in order to increase their experience and pay, and move

up the career ladder.

There is a lack of consistency across the industry as a whole. Although there is

benchmarking of employees within individual companies, the diversity of retailers due

to the size of the business or part of the sector in which it operates makes it difficult to

do this more widely, as happens in other industries through professional qualifications.

This means there is little benchmarking that says "this individual is a good store

manager" and is at a better, worse or similar level to their peers.

The high profile of the sector, with several High Street names announcing job losses

which often make front page news, has led to a decline in the number of entry level

candidates applying for positions in retail in the current environment, which is contrary

to other industry sectors where the number of candidates per vacancy has risen

significantly. However, demand for graduate placements in retail remains strong.

Until the middle of 2008, retail employment levels remained relatively robust, albeit at a lower

level than the long term average. This was despite the impending recession which was

beginning to feed through to retail sales, as illustrated by the BRC-KPMG Retail Sales

Monitor, which started to record negative like-for-like growth in March last year.

Number of the changes which were happening at this time, with cost cutting being the key

driver for these measures. They included:


Reviewing the levels of head office and shop floor personnel. National statistics show

that employment has fallen more heavily in the retail sector than in the economy as a

whole in the current recession: a decline of 2.6 percent year-on-year compared with a

1.4 percent fall in employment across the UK economy, as of the end of the first quarter

of 2009. Retail insolvencies and the related job losses will have had some impact on

this figure too

"De-layering" management organization structures

Reducing graduate trainee intake. According to The Graduate Market in 2009

(published by High Fliers Research, June 2009) graduate vacancies in the sector have

reduced by 29.5 percent compared with retailers' original recruitment targets published

in September 2008. However, graduate applications to retail have increased (Source:

Hays Retail).

After the initial focus on streamlining businesses through cost-cutting, retailers' concerns about

their cost bases began to ease. New currency hedging arrangements were more favorable than

some retailers had originally expected and the Retail Health indicated that costs are now

having a positive or neutral affect on the sector's health.

The RTT agreed that there has been a shift away from cost reduction strategies to changes

aimed at adding value. In some cases, this is a continuation of the best practice which retailers

had been developing in their HR and operations in a more buoyant economy.

The RTT highlighted a number of ways in which retailers' strategies are changing:

Recruitment policies

o Recruiting permanent staff - rather than temporary - and making better use of

experience and home-grown skills;

o Offering permanent staff key hour working times (e.g. lunchtimes on weekdays).

o Flexible working

o Introducing flexible working arrangements and part-paid sabbaticals rather than

implementing redundancy programs, allowing them to manage costs and preserve the

talent they need;


o "Annualisation" of working time - i.e. hiring staff to work an allotted number of hours

throughout the course of the year. This means working a higher number of hours

during the peaks in season and less time at quieter times. This measure removes some

of the need to recruit seasonal staff during busy periods such as Christmas.

Succession planning

o Developing better succession planning, which is becoming a priority for retailers keen

to ensure their teams are fit for purpose, particularly in the future;

o More emphasis on internal rather than external replacement and a desire to create and

maintain a pool of talent.

Training and career development

o "Upskilling" the workforce, by selecting and training employees who have the greatest

potential to contribute to sales;

o Creating a more structured career path to ensure staff have the necessary skills;

o Developing training initiatives (by retailers and the industry as a whole rather than by

the Government).

Managing shop floor employees

o Managing employment costs through proactive management of hours that staff are

working in stores;

o Refining shop floor staff rosters to ensure there is minimal over-staffing, while ensuring

there are sufficient assistants to match levels of service to customer demand.

Remuneration

o Re-evaluating the benefits of commission-based remuneration, which some retailers are

reintroducing;

o Developing more competitive reward packages and pension schemes to encourage

loyalty.


Operations

o Substituting operational technology for labour, such as shelf-ready packaging to

minimize the time staff need to spend on tasks;

o Moving functions and tasks which are usually carried out by employees to customers,

such as use of self service checkouts;

o Developing alternative channels with lower labour costs, such as online sales.

o Ongoing changes to HR strategies in retail

The RTT acknowledged that not all changes to HR strategies in retail have been initiated or

motivated by the recession and have been evolving and contributing to the overall

improvement of the sector's HR reputation for some time.

Graduate training schemes

The RTT agreed that graduate training schemes are an area where retailers lead the way.

According to The Times Top 100 Graduate Employers 2008, there are nine retailers in the list

of organizations which offer the best opportunities for those leaving university.

Although there has been some scaling back of vacancies (as outlined above) retail continues to

be attractive to graduates. According to High Fliers, applications for graduate positions in

retail in 2009 have increased by 20.4 percent with an average of 86.9 applications per vacancy,

almost double the average for all graduate posts (44.9 applications per vacancy).

Other training schemes

BAA's Retail Academy is an education and training organization based at Heathrow Airport

and offers retail and catering employees based there the opportunity to study for

apprenticeships, NVQs and a foundation degree in retail operations and people management.

The Fashion Retail Academy (FRA) opened in September 2006 with the aim of nurturing and

developing the skills required to work in fashion retail. It is funded by a public-private


partnership - with sponsorship from Arcadia Group, Marks & Spencer, Next and Tesco - and is

one of the first of the Government's Skills Academies.

What are the benefits of changing HR practices?

As well as the desired effect of enhancing value for consumers and the competitive advantage

this provides in the challenging retail market, the RTT highlighted a number of other benefits

that changing HR practices can provide.

For example, the introduction of more flexibility in working patterns can benefit the retailer

and employee alike by creating a leaner, more adaptable workforce as outlined above (see

flexible working above).

At the same time, greater attention to the selection of candidates can help make retail more

customer-focused, while hiring shop floor staff that have the potential to contribute most to

service and sales can create value for retailers.

The RTT also agreed that enhanced motivation, by ensuring the right people are in the right

roles, contributes to conversion rates and helps to enhance retailers' brands. Businesses with

staff who embody its culture and brand from the head office to the shop floor are the ones who

- on the whole - are performing better. Employees can help to bring brands to life which

consumers then "buy into" and, through good service, establish a point of difference between

the strong and weak performers.


DESIGNING THE ORGANIZATION STRUCTURE FOR RETAIL FIRM – RETAIL ORGANIZATION

STRUCTURE

The retail organization describes a firm structure and assigned functions, policies, resources,

authority, responsibilities, and rewards so as to efficiently and effectively satisfy the needs of

its target markets, employees, and management.

Meaning and significance

The organization structure identifies the activities to be performed by specific employees and

determines the line of authority and responsibility in the firm. The first step in developing an

organization structure is to determine the tasks that must be performed.

These tasks are divided into four major categories: strategic management, administrative

management (operations), merchandise management, and store management. The organization

of this text book is based on these tasks and managers who perform them.

In retail firms, the primary operating or line managers are involved in merchandise

management and store management. These operating managers implement the strategic plans

with the assistance of administrative personnel. They make the day-to-day decisions that

directly affect the retailer’s performance.

Organization Design Considerations

Once the tasks have been identified, the retailer groups them into jobs to be assigned to specific

individuals and determines the reporting relationships.

Specialization Rather than performing, individual employees are typically responsible for only

one or two tasks. Specialization, focusing employees to develop expertise and increase

productivity. Employees may become bored if they’re assigned a narrow set of task, such as

putting price tags on merchandise all day long, every day. Also, extreme specializat ion may

increase labor costs.


Responsibility and Authority Productivity and authority conflict with benefits of specialization.

Reporting Relationships After assigning tasks to employees, the final step in designing the

organization structure is determining the reporting relationships. Productivity can decrease

when too many or too few employees report to a supervisor. The effectiveness of supervisors

decreases when they have too many employees reporting to them. On the other hand, if

managers are supervising very few employees, the number of manager’s increases and costs go

up.

The appropriate number of subordinates ranges from 4 to 12, depending on the nature of their

tasks, skills, and location. The number of subordinates is greater when they perform simple

standardized tasks, when they’re will trained and competent, and when they perform tasks at

the same location as the supervisors. Under these conditions, supervision isn’t as difficult, and

the supervisor can effectively manage more people.

Retail Organization Structures

Retail organization structures differ according to the type of retailer and the size of the firm.

For example, a retailer with a single store will have an organization structure quite different

form a national chain.

o Organization of a Single-Store Retailer:

Owner-managers of a single store may be the entire organization. When they go to lunch or go

home, the store closes. As sales grow, the owner-manager hires to employees. Coordinating

and controlling employee activities is easier in a small store than in a large changing of stores.

The owner-manager simply assign tasks to each employee and watches to see that these tasks

are performed properly. Since the number of employees is limited, single-store retailers have

little specialization. Each employee must perform a wide range of activities, and the owner-

manager us responsible for all management tasks.

As sales increase, specialization in management may occur when the owner-manager hires

additional management employees.

o Organization of Regional Department Stores:


In contrast to the management of a single store, retail chain management is complex.

Managers must supervise units that are geographically distant from each other.

Traditionally, department stores were family-owned and managed. Organization of these firms

was governed by family circumstances. Executive positions were designed to accommodate

family members involved in the business. Then, in 1927, Paul Mazur proposed a functional

organization plan that has been adopted by most retailers. The organization structures of retail

chains, including Richs, continue to reflect principles of the Mazur plan, such as separating

buying and store management tasks into separate divisions. Most managers and employees in

the stores division work in stores located throughout the geographic region. Merchandise,

planning, marketing, finance, visual merchandising, and human resource managers and

employees work at corporate headquarters.

Corporate Organization of a Regional Department Store Chain

The decisions made at the corporate office involve activities that set strategic directions and

increase productivity by coordination the regional chains’ activities. For example, having one

corporate management information system and one private-brand merchandise program is

much more efficient and effective than having separate systems and programs in each regional

chain.

o Corporate Functions: Activities performed at corporate office include

o Corporate: Support services cover tax, audit, accounting, cash management and

finance, internal audit, planning, insurance, economic forecasting, law, corporate

communications, purchasing, store design/construction, and real estate.

o Merchandising and product development: This function develops merchandising

strategies, coordinates relationships with vendors, designs and sources private-label

merchandise, and manages marketing programs for private-brand merchandise.

o Financial, Administrative, and Credit Services Group: This group provides

proprietary cards and services for each regional department store chain. The group

is also is responsible for payroll and benefits processing.

o Federated systems Group: This division designs, installs, and managers the

information system used by all divisions.


o Federated Logistics and Operations: Logistics coordinates and manages the logistics

and distribution functions as well as accounts payable, purchasing, store planning,

vendor technology, and energy management and expense control.

Organization Structures of Other Types of Retailers

The primary difference between the organization structure of a department store and other

retail formats is the numbers of people and management levels in the merchandising and store

management areas. Many national retailers such as the merchandising and store management

area. These national retailers have many more stores than a regional department store chain like

Rich’s; thus, they have more managers and management levels in the stores division.

Retail organization design issues

Two important issues in the design of retail organizations are (1) the degree to which decision

making is centralized or decentralized and (2) approaches used to coordinate merchandise and

store management. In the context of Federated Department Stores, the first issue translates into

whether the decisions concerning activities such as merchandise management, information and

distributions systems, and human resource management are made by the regional department

stores or the corporate headquarters. The second issue arises because retailers divide the

merchandise and store management activities into different organization within the firm. Thus,

they need to develop ways for coordinating theses interdependent activities.

o Centralization versus Decentralization

Centralization is when authority for retailing decisions is delegated to corporate managers

rather than to geographically dispersed regional, district, and store managers; whereas

decentralization is when authority for retail decisions is assigned to lower levels in the

organization. Many retailing decisions are made by the regional department store chains, not by

corporate managers.


Retailers reduce costs when decision making is centralized in corporate management.

First, overhead falls because fewer managers are required to make the merchandise, human

resource, marketing, and financial decisions. Centralized retail organizations can similarly

reduce personnel in administrative functions such as marketing and human resources.

Secondly, by coordinating buying across geographically dispersed stores, the company

achieves lower prices from suppliers. The retailer can negotiate better purchasing terms by

placing one large order rather a number of smaller orders.

Third, centralization provides and opportunities to have the best people make decisions for the

entire corporation.

Finally, centralization increases efficiency. Standard operating policies are used for store and

personnel management.

Large retailers are using their information systems to make more and more merchandise and

operations decisions at corporate headquarters.

o Coordinating Merchandise and Store Management

Small independent retailers have little difficulty coordinating their stores buying and selling

activities. Owner managers typically buy the merchandise and work with their salespeople to

sell it. Being in close contact with customers, the owner-managers know what their customers

want.

While this specialization increases buyers’ skills and expertise, it makes it harder for them to

understand customer’s needs. Four approaches large retailers use to coordinated buying and

selling are (1) improving buyer’s appreciation for store environment, (2) making store visits,

(3) assigning employees to coordinating roles, and (4) involving store managers in the buying

decisions.


o Improving Appreciation for Store Environment: Fashion-oriented retailers use several

methods to increase buyers contact with customers and to improve informal commutation

between buyers and store personnel who sell the merchandise they buy. Management

trainees, who eventually become buyers, are required by most retailers to work in the sores

before they enter the buying office.

o

Making Store Visits Another approach to increasing customer contract and communication

is to have buyers visit the stores and work with the departments. Face-to-face

communication provides managers with a richer view of store and customer needs than

they can get from impersonal sales reports from the company’s management information

system.

Assigning Employees to Coordinating Roles: Some retails, like Rich’s have people in the

merchandise division (the planners who work with buyers). And the stores (the managers of

sales and merchandise who work for the store managers) who are responsible for

coordinating buying and selling activities.

o Involving Store Management in Buying Decisions: Another way to improve coordination

between buying and selling activities is to increase store employees involvement in the

buying process. Besides developing an organization structure, human resource management

undertake a number of activities to improve employee performance, build commitments in

employees, and reduce turnover.


UNIT II

MERCHANDISING AND PRICING STRATEGIES

MERCHANDISE PLANNING

Merchandise Planning has become a vital process for businesses looking to increase their

profitability. With so many fixed costs and a lot of upfront investment, companies are using

Merchandise Planning to target margins and product mix – accurate management

of these can make the difference between a profit or a loss. More specifically, by creating an

effective Merchandise Plan companies can find the optimal balance between sales and

inventory – maximizing sales opportunities and minimizing losses from excessive mark downs

and out of stocks.

In order to succeed the process must provide clear structure and collaboration across multiple

functions: Coordinate different departments/perspectives (financial/ product/channel) so that all

functions are all on the same page and working towards the same company objectives.

Merchandise Planning has also become a vital aspect of successful Product Lifecycle

Management (PLM); helping to identify which product categories/collections need to be

developed in relation to the targets set through budgeting and the analysis of best

performing products and attributes.


Specifically Merchandise Planning involves:

o Review the company 1 – 2 year Strategic/Financial Plan

o Establish the critical success factors to meet sales, margins and inventory targets

Store/Channel sales plan:

o Define targets and tactical actions required at a store level by season to support the

Strategic Plan

o Develop a Sales Plan – take into account: sales growth, the distribution impact for each

season, the impact of new stores, closures and re-fits – reconcile with the Strategic Plan

Category Plan:

o Conduct a Sales Analysis to measure the profitability of the previous

seasons/collections


o Create a Category Level Margin Plan defined according to the guide lines coming from

the Strategic Plan, Store Sales Plan and the Historical Sales Analysis

o Top-down and bottom-up planning – reconcile each category/collection against the

input from individual merchandisers and target margins via gap analysis

o This becomes the basis for the Category Sales and Buying Plans

Reconciliation, WSSI and open-to-buy:

o Reconcile the Store Channel Financial Plan with the Category Financial Plan

o Create a WSSI Plan (Weekly Sales, Stock and Intake) that moves the Sales Plan down

to a weekly level – establish a timed vision of the planned product intake

o Calculate the Open-to-Buy Plan – ensure an even allocation of products for each period

based on projected sales against the required stock levels for both the distribution

centers and stores.

CATEGORY MANAGEMENT

Category management also requires the retailer to define roles for their store brands, both at the

chain level and within any specific category. Since store brands can by definition only be sold

by the retailer that carries them, some retailers may attempt to utilize this measure of

exclusivity to differentiate themselves from the competition. Although in the U.S. there is wide

variation in the performance of different retailers’ private label programs (Dhar & Hoch 1997),

with the decline of Sears’ commitment to the Kenmore brand name one is hard pressed to think

of any mainstream retailer who is defined by their store brand program. The U.K. is a different

story, however, where about 35% of grocery store volume (compared to 18% in the U.S.) is

private label.

Several large chains (e.g.,Tesco, Sainsbury, Marks & Spencer) do utilize their store brands as a

key point of distinction, as does Canadian grocer Loblaw’s with their President’s Choice line.


Our experience suggests that U.S. store brands should be recognized as a vehicle for the retailer

to leverage their installed base of current shoppers. In category management parlance, this

means that the store brand is

foremost a profit contributor, taking advantage of the built-in lower variable cost structure and

attendant higher gross margins. The store brand can also play an important secondary role, that

of an image creator, where the image to be conveyed is one of best available quality for the

money % i.e., a good value for those customers who want it.

BUYING SYSTEMS TO STORES

Steps to Anticipate Customer Demand

o Study consumers & their purchasing decisions

o Use research to target customer groups

o Determine quantity & timing of retail buys

o Find & study the vendors who can provide what you need

o Handle the logistics: packaging, shipping, storing, pricing, entry into store database, etc.

o Work cooperatively on advertising & display

o Maintain & interpret database

o Watch the competitors

Retail buyer traits and skills:

o Decision-making skills

o Drive

o Creativity

o Critical, analytical, conceptual skills

o Financial savvy

o Organizational skills

o Communication skills


o Managerial or “specialist” capabilities

o Trading acumen

Store-Level Buying Systems

o Warehouse Requisition Plan

Store carries sufficient stock, “requisitions” more as needed

o Approved Resource List

Stores choose from list of “approved” goods & vendors (also called Price Agreement

Plan)

o Opening Stock Distribution Plan

Department manager controls “opening” stock & reorders; retail buyer augments with

new items

o Automatic Open-to-Buy

After initial buys, each department has a budget for reorders that (theoretically) `

cannot be exceeded

ALLOCATING MERCHANDISE

Research has found that the allocation of merchandise decisions have a much bigger impact on

profitability than does the decision about the quantity of merchandise to purchase. Thus, may

retailers have created positions called either “allocators” or “planners” to specialize in making

store allocation decisions. Allocating merchandise to store involves the decisions:

1. How much merchandise to allocate to each store

2. What type of merchandise to allocate

3. When to allocate the merchandise to different stores

Amount of merchandise allocates to each store: One approach is to make the allocation

proportional to the forecasted sales for each store.


Type of merchandise allocated to each store: In addition to classifying stores on the basis of

their size and sales volume, retailers classify stores according to characteristics of the stores’

trading area. Store trade area geodemographics are also used to develop merchandise

assortments for specific stores.

Timing of merchandise allocation to stores: The issues involved in allocating the merchandise

inventory to stores, are particularly important to both fashion and staple items. If these types of

merchandise sell and evolve into staple merchandise, they get replenished over time, either by

vendor or through distribution centers. With a pull distribution strategy, orders for merchandise

are generated at the store level on the basis of sales data captured by point-of-sale terminals.

With a push distribution strategy, merchandise is allocated to the stores on the basis of

historical demand, the inventory position at the distribution center, and the needs of the stores.

RETAIL PRICING STRATEGIES

Pricing strategy is a key feature of any business - it plays a key role in customers' perceptions

of any business. Here we explore all the main options, and how they impact customer loyalty...

Speak to any average consumer and mention the names of some high quality, leading

businesses. The chances are high that one of the first words they will use is "expensive". Not

"excellent service", "marvelous range" or even "helpful staff". Possibly "Expensive but worth

it", or "You get what you pay for", but in the average consumer's mind, price is almost always a

key factor.

Differentiating on price - good or bad move?

Let's take a quick look at popular traditional pricing strategies, as well as a new one - Access

Pricing - that overcomes many of the challenges that we've have had to deal with in the past.

Most pricing strategies clearly appeal to one category of shoppers but not to others. EDLP, for


example, would appeal to time-poor/money-poor shoppers who have little to spend and no time

to shop around - it would make sense for them to choose a solid EDLP store and do all their

shopping there. Hi-Lo pricing would appeal to cherry pickers - who fall into the time-

rich/money-poor category. But Access pricing should appeal to all categories of shoppers - a

significant advantage. But what exactly is 'access pricing'? Well, it's a loyalty-based pricing

technique that allows a retailer to differentiate prices between regular customers and occasional

shoppers in an open, transparent way. It's the ultimately fair tiered pricing system. Customers

collect points on their purchases as usual - but throughout the store, key items are priced at two

levels: the price that the item would normally sell for, and a very much lower price that's

available in exchange for some of the customer's loyalty points.

The four key pricing strategies

There was a time when manufacturers recommended a price for each item, and retailers simply

charged that price. Any differentiation then was purely on convenience, ambience, product

range and quality of service of the retailer. Let's look at the four key strategies:

o Hi-Lo Pricing

In order to introduce another element of differentiation, some retailers started reducing the

prices of key products, in order to attract customers into their stores, where they would buy

other products as well as the reduced-price products. Hi-Lo pricing was born, and fairly quickly

became the norm. The retailer made little profit, or even a loss, on the price-reduced products,

but recouped the revenue in the increased sales of other profitable lines. Hi-Lo pricing also

introduced an element of excitement into shopping - shoppers felt good when they had bought

an exceptional bargain, and this would tend to encourage them to return.

o EDLP (Every Day Low Pricing)


To appeal to the more 'no-nonsense' shopper, and to simplify shopping for the time-poor

shopper, other retailers adopted a pricing strategy whereby they charged a fair, but low-as-

possible price for all products. While this is thought by some to be boring, it is very successful

to this day. To those for whom shopping is a chore to be handled as painlessly and quickly as

possible, EDLP is the perfect solution. No need to shop around, no need to clip coupons, no

need to waste time, simply buy what you need from the same place every week and know that

you're getting a square deal. However, EDLP presents a challenge to the retailer: in the absence

of other differentiators any loyalty exhibited is to the prices charged, not to the business. EDLP

shoppers will defect to a competitor who begins to charge slightly lower prices.

o PUF (Profit Up Front)

Some thirty years ago, Hi-Lo pricing and EDLP were joined in the marketers' armory by a new

weapon: Profit-up-front pricing. PUF pricing is seen in the warehouse club industry (for

example, Costco, SAM's, and BJ's) where qualified customers pay for the privilege of buying

items at bedrock prices which include extremely low profit margins. Usually, customers buy

membership by paying an annual fee in advance. This admits them to the warehouse, where

they can buy goods at 'wholesale' prices. The operator can sell goods at these low prices

because the revenue from these up-front membership fees account for about half of its pre-tax

profits.

o Access Pricing

Just lately, a fourth way, called 'Access Pricing' (brainchild of retail marketing guru Brian

Woolf) is making its appearance. Its unique feature is to differentiate prices on basic items

between regular customers and occasional shoppers in an open, transparent way. up until now

it's been very difficult to offer higher prices for casual customers and lower prices for regular

customers within the same retail store, without offending some customers. In countries with a

well-developed social conscience (the UK, for example) a policy of better prices for those who

spend more can result in quite vociferous negative publicity. "Why should the poor old

pensioner pay more than the rich young businessman?" would be a frequent cry. But Access


Pricing, using readily available technology and a points-based loyalty card programme now

make it possible.

o How Access Pricing works

Customers collect points on their purchases, using a seemingly standard points-based loyalty

programme. There, the similarity ends. Throughout the store, key items are priced at two

levels: the price that the item would normally cost, and a second price, very much lower, but

supplemented by some of the buyer's loyalty points. For example, as expected, a product

usually priced at US$9.99 could be bought off the shelf for US$9.99. But alternatively, it could

be bought for US$3.99 plus 900 of the loyalty points that the customer has already collected.

That US$6 discount was earned (at 10 points for US$1 spent) by spending US$90 - not

counting bonus points; even then, it's a substantial reward. This means that the customers have

control of the prices they pay, and how they spend their loyalty points. For loyalty programme

operators this is excellent news: it maintains member interest, and gets customers interacting

with the programme on a frequent basis - every time they go shopping. As Woolf says, it's

effectively putting "Golden Handcuffs" on your best customers.

APPROACHES FOR SETTING PRICING

Traditional Pricing Approaches Customized Pricing

Micro-market pricing

Price discrimination using targeted

coupons

Price of each brand determined by a

combination of factors

Carrying assortments according to local

taste

Coupons and Price discounts are just one

part of a four dimensional pricing

strategy

Value pricing

Determination of basis of customer value

creation

value pricing could be one Price strategy

under this approach


Adjusting prices by increasing benefits

or

lowering costs

Tailoring prices is done based on a

variety of

factors such as brand equity and category

storability

Fine tuning prices by customer groups

according to basis of customer value

EDLP

Maintain lower prices

EDLP strategy may be one pricing

strategy

under this approach

Minimize the variation in deal discounts Includes other pricing strategies such as

exclusive pricing

Hi-Lo pricing

Maintain high regular prices and vary

them

little

Hi-Lo pricing strategy may be one

pricing

strategy under this approach

Offer frequent and/or deep discounts

Aggressive pricing is an alternative

strategy

to Hi-Lo pricing strategy, but on

selective

categories

Includes other pricing strategies such as

exclusive pricing

PRICING ADJUSTMENTS

Markdowns Markdowns are price reductions or discounts from the initial retail price.

Reasons for taking markdowns:


Clearance markdowns: When merchandise is selling at a slower rate than planned, will become

obsolete at the end of its season, or is priced higher than competitor’s goods, buyers generally

mark it down for clearance purposes.

Promotional markdowns: Buyers also employ markdowns to promote merchandise and

increase sales. Markdowns are taken to increase customer traffic flow. Retailers plan

promotions in which they take markdown for holidays, for special events, and as part of their

overall promotional program.

Reducing the amount of markdowns by working with vendors: Retailers work closely with

their vendors to coordinate deliveries and help share the financial burden of taking markdowns.

Liquidating markdown merchandise: Even with the best planning, some merchandise may

remain unsold at the end of a season. Retailers use five strategies to liquidate this unsold

merchandise:

1. Sell the merchandise to anther retailer

2. Consolidate the unsold merchandise

3. Place the remaining merchandise on an internet auction site like eBay or have a special

clearance location on its own website

4. Give the merchandise to charity

5. Carry the merchandise over to the next season

Variable pricing and Price discrimination Retailers use a variety of techniques to maximize

profits by charging different prices to different customers.

Individualized variable pricing: Ideally retailers would maximize their profits if they charged

each customer as much as the customer is willing to pay. Charging each customer a different

price based on their willingness to pay is called first-degree price discrimination.


Self-selected variable pricing An alternative approach for variable pricing is to offer the same

price schedule to all customers but require that customers do something to get the lower price –

something that discourages customers with a high willingness to pay to take advantage of the

lower price. This approach is called the second-degree price discrimination.

Examples of second-degree price discrimination:

Clearance markdowns: The result in high prices being charged at the beginning of the season

than at the end of the season.

Coupons: Coupons offer discount on the price of specific items when they are purchased.

Price bundling This is a practice of offering two or more different products or services for sale

at one price.

Multiple-unit pricing Multiple-unit pricing or quantity discounts are similar o price bundling

in that the lower total merchandise price increases sales, but the products or services are similar

rather than different.

Variable pricing by market segment Retailers often charge different prices to different

graphic market segments, a practice preferred to a third-degree price discrimination.

Zone pricing refers to the practice of charging different pries in different stores, markets,

regions, or zones. Retailers generally use zone pricing to address different competitive

situations in various markets.

USING PRICE TO STIMULATE SALES

Leader pricing This involves a retailer pricing certain items lower than normal to increase

customers’ traffic flow, or boost sales of complementary products. Some retailers call these

products loss leaders.


Price Lining: Retailers frequently offer a limited number of predetermined price points within a

merchandise category. For instance, a tyre store may offer tyres at $69, $89, $129 that reflect

good, better and best quality. This practice is referred as price lining. Both customers and

retailers can benefit from such a strategy for several reasons:

1. Confusion that arises from multiple price choices is essentially eliminated.

2. From retailer’s perspective, the merchandising task is simplified. Furthermore, the

firm’s buyers can select their purchases with the predetermined prices lines in mind.

3. Price lining can also give buyers greater flexibility.

4. Price lining can be used to get customers to “trade up” to a more expensive model.

Odd pricing This is the practice of using a price that ends in an odd number, typically a 9. Odd

pricing has long history in retailing. In the 19th and early 20th centuries, odd pricing was used to

reduce losses due to employee theft. Because merchandise had an odd price, salespeople

typically had to go to the cash register to give the customer change and record the sale, making

it more difficult for salespeople to keep the customer’s money. Odd pricing was also used to

keep a track of how many times an item had been marked down.

PROMOTING THE MERCHANDISE

The classification of promoting the merchandise is based on whether the methods are

impersonal or personal and paid or unpaid.

Paid impersonal communications: Advertising, sales promotions, store atmosphere, and

Websites are examples of paid impersonal communications.

Advertising This is a form of paid communication to customers using impersonal mass media

such as newspapers, TV, radio, direct mail, and the Internet.

Sales promotions This offers an extra value and incentives to the customers to visit a store or

purchase merchandise during a specific period of time. Sales promotions involve special


events, in-store demonstrations, coupons and contests. Although sales promotions are effective

at generating short-term interest among customers, they aren’t very useful for building long-

term loyalty.

Store atmosphere This reflects the combinations of the store’s physical characteristics, such as

its architecture, layout, signs, and displays, colors, lighting, temperature, sounds, and smells,

which together create an image in the customers mind.

Website Retailers use their websites to build their brand image; inform customers f store

locations, special events, and the availability of merchandise in local stores; and sell

merchandise and services.

Paid personal communication: Retail sales people are the primary vehicles for providing paid

personal communications to customers.

o Personal selling is a communication process in which salespeople help customers

satisfy their needs through face-to-face exchanges of information.

o E-mail is a vehicle that involves sending messages over the internet. Retailers use email

to inform customers of new merchandise, confirm the receipt of an order, and indicate

when an order has been shipped.

Unpaid impersonal communication: Publicity is communication through significant, unpaid

presentations about the retailer, usually news story, in impersonal media. Most communications

are directed towards potential customers. Publicity, however, is often used to communicate

with employees and investors. Favorable news stories generated by publicity can build

employee morale and help improve employee performance.

Unpaid personal communication: Retailers communicate to their customers through word of

mouth, communication between people about retailer. For example, retailers attempt to

encourage word of mouth communication be establishing teen ambassadors composed of high


school students. These ambassadors are encouraged to tell their friends about the retailer and its

merchandise.

Planning the retail communication program:

Management of Promotional Efforts Must Fit into a Retailer’s Overall Strategy:

o A retailer’s location will help determine the target area for promotions

o Retailers need high levels of traffic to keep merchandise moving – promotion helps

build traffic

o Retailer’s credit customers more store loyal and purchase on larger quantities making them an excellent target for promotions

o Promotions can increase short-run cash flow

o Promotional creativity and style should coincide with building and fixture creativity

o Promotion can be viewed as a major component of customer service because it provides

information

Promotional Guidelines:

o Utilize promotions that are consistent with and enhance store image

o Review success or failure of each promotion to help in developing future promotions

o Test new promotions when possible

o Use appeals that are of interest to your target market and that are realistic to obtain

o Make your objectives measurable and obtainable

o Develop total promotional campaigns, not just ads

o New stores need higher promotional budgets than established stores

o Stores in out-of-the-way locations require higher promotional budgets than stores with

heavy traffic

Planning Retail Promotional Strategy:


Promotional Objectives:

o Increase sales

o Stimulate impulse and reminder buying

o Raise customer traffic

o Get leads for sales personnel

o Present and reinforce the retailer image

o Inform customers about goods and services

o Popularize new stores and Web sites

o Capitalize on manufacturer support

o Enhance customer relations

o Maintain customer loyalty

o Have consumers pass along positive information to friends and others


IMPLEMENTING ADVERTISING PLAN

Planning a Cooperative Strategy

o What ads qualify, in terms of merchandise and special requirements?

o What percentage of advertising is paid by each party?

o When can ads be run? In what media?

o Are there special provisions regarding message content?

o What documentation is required for reimbursement?

o How does each party benefit?

o Do cooperative ads obscure the image of individual retailers?

Benefit from Cooperative Advertising Policies of Suppliers

Many manufacturers and wholesalers state that a significant part of the reserves they set up

are for cooperative advertising are not used by their retailers. This is surprising because

cooperative advertising results in substantially lower costs for the retailer.

For their own legal protection and to insure the greatest return from their investment,

manufacturers set up specific requirements to be observed in cooperative advertising. The

retailer should consult each vendor about the requirements which must be met to qualify.

The retailer must also be aware of the procedures to follow to apply for and receive

payments. Some vendors relate cooperative dollars to the amount of the retailer's business.

Others do so on a percentage basis. So, you must be aware of how many cooperative dollars

you have to spend. The amount and rules for payment of cooperative dollars are at the

discretion of the vendor.

"Goodwill" Advertising

Every retailer receives requests and solicitations for advertising by all types of organizations

including social groups, schools, churches, and fraternal societies. Often, friends and relatives


make these requests. From the standpoint of maintaining good public relations, the retailer is

frequently reluctant to turn them down. The cost of these donation should not be charged to

advertising but to publicity or to "contributions" so that the advertising budget is not distorted.

Media Selection

o Coverage – maximum number of consumers in the retailer’s target market

o Reach – actual total number of target customers who come into contact with the ad

message

o Frequency – average number of times each person who is reached is exposed to the ad

during a given time period

Advertising media selection is the process of choosing the most cost-effective media for

advertising, to achieve the required coverage and number of exposures in a target audience.

Performance This is typically measured on two dimensions: frequency and spread.

Frequency To maximize overall awareness, the advertising must reach the maximum number

of the target audience. There is a limit for the last few percent of the general population who

don't see the main media advertisers use. These are more expensive to reach. The 'cumulative'

coverage cost typically follows an exponential curve. Reaching 90 percent can cost double

what it costs to reach 70 percent, and reaching 95 percent can double the cost yet again. In

practice, the coverage decision rests on a balance between desired coverage and cost. A large

budget achieves high coverage—a smaller budget limits the ambitions of the advertiser.

1. Frequency—Even with high coverage, it is insufficient for a target audience member to

have just one 'Opportunity To See' (OTS) the advertisement. In traditional media, around

five OTS are believed required for a reasonable impact. To build attitudes that lead to brand

switching may require more. To achieve five OTS, even in only 70 percent of the overall

audience, may require 20 or 30 peak-time transmissions of a commercial, or a significant

number of insertions of press advertisements in the national media. As these figures


suggest, most consumers simply don't see the commercials that often (whereas the brand

manager, say, sees every one and has already seen them many times before their first

transmission, and so is justifiably bored).

The life of advertising campaigns can often extend beyond the relatively short life usually

expected. Indeed, as indicated above, some research shows that advertisements require

significant exposure to consumers before they even register. As David Ogilvy long ago

recommended, "If you are lucky enough to write a good advertisement, repeat it until it stops

selling. Scores of good advertisements have been discarded before they lost their potency."

Spread More sophisticated media planners also look at the 'spread' of frequencies. Ideally all

of the audience should receive the average number of OTS. Those who receive fewer are

insufficiently motivated, and extra advertising is wasted on those who receive more. It is, of

course, impossible to achieve this ideal. As with coverage, the pattern is weighted towards a

smaller number—of heavy viewers, for example—who receive significantly more OTS, and

away from the difficult last few percent. However, a good media buyer manages the resulting

spread of frequencies to weigh it close to the average, with as few audience members as

possible below the average.

Frequency is also complicated by the fact that this is a function of time. A pattern of 12 OTS

across a year may be scarcely noticed, whereas 12 OTS in a week is evident to most viewers.

This is often the rationale for advertising in `bursts' or `waves' (sometimes described as

`pulsing'). This concentrates expenditure into a number of intense periods of advertising, spread

throughout the year, so brands do not remain uncovered for long periods.

Media Buyers In the end, it is the media buyers who deliver the goods; by negotiating special

deals with the media owners, and buying the best parcels of `slots' to achieve the best cost

(normally measured in terms of the cost per thousand viewers, or per thousand household

`impressions', or per thousand impressions on the target audience. The "best cost" can also be

measured by the cost per lead, in the case of direct response marketing). The growth of the very


large, international, agencies has been partly justified by their increased buying power over the

media owners.

Types of Media and their Characteristics In terms of overall advertising expenditures, media

advertising is still dominated by Press and television, which are of comparable size (by value of

'sales'). Posters and radio follow some way behind, with cinema representing a very specialist

medium.

Press In the United Kingdom, spending is dominated by the national & regional newspapers,

the latter taking almost all the classified advertising revenue. The magazines and trade or

technical journal markets are about the same size as each other, but are less than half that of the

newspaper sectors.

National newspapers These are still traditionally categorized, from the media buyer's

viewpoint, on the basis of class; even though this is of declining importance to many

advertisers. `Quality' newspapers for example, tend to have a readership profile of in excess of

80 per cent of ABC1 readers, though it is more difficult to segment readerships by age

categories. They are obviously best matched to national advertisers who are happy with black

and white advertisements, although colour is now available – and high-quality colour is

available in some supplements.

Regional newspapers These may be dailies, which look and perform much like the nationals,

or weeklies, which are more specialized, though they dominate the classified advertising

market. There is usually much more advertising competing for the reader's attention, and the

weekly newspaper is now largely the province of the 'free-sheet'—typically delivered free to all

homes in a given area—which earn revenue from their high proportion of advertising, and

accordingly having the least `weight' of all. an advertiser of a unit trust will probably pay extra

to make certain that the insertion is next to the financial pages.

Magazines these offer a more selective audience (which is more `involved', with the editorial

content at least). Magazines are traditionally categorized into general interest, special interest

and trade or technical. The advertiser will, therefore, be able to select those that match the


specific profile demanded by the advertising strategy. The weight, or `authority', of magazines

is correspondingly high, and they may be kept for a considerable time for use as reference –

and passed to other readers (so that `readership' figures may be much higher than `circulation'

figures). They can offer excellent colour printing; but, again, the clutter of many competing

advertisements may reduce the impact of the advertiser's message.

Trade and technical In the trade and professional fields there are now a significant number of

'controlled circulation' magazines. These are like the `free Press', in that they are delivered free

to the recipients; but, at least in theory, those recipients should have been carefully screened to

ensure that they are of value to the advertisers – and the circulation can, if properly controlled,

represent a wide cross-section of the buyers, and influencers, in the advertiser's target audience.

The rates for positioning are usually more varied than for newspapers, with premiums being

paid for facing editorial matter and, of course, for colour.

Television This is normally the most expensive medium, and as such is generally only open to

the major advertisers, although some regional contractors offer more affordable packages to

their local advertisers. To be effective, these messages must be simple and able to overcome

surrounding family life distractions; especially the TV remote.

Television is relatively deselection, and offers relatively poor coverage of upper class and

younger age groups. Being regionally based, however, it can be used for regional trials or

promotions (including test markets).

The price structures can be complicated, with the 'rate card' (the price list) offering different

prices for different times throughout the day. This is further complicated by a wide range of

special promotional packages and individual negotiations. This complication provides work for

specialist media buyers.

Satellite television – long believed the medium of the future, as once was cable television – has

largely fulfilled that expectation in the US. It is now an important feature in other countries,

though terrestrial 'free-view' broadcasting poses a challenge.


Radio Radio advertising has increased greatly in recent years, with the granting of many more

licenses. It typically generates specific audiences at different times of the day—adults at

breakfast, housewives, and commuters during rush hours. It can be a cost-effective way of

reaching these audiences—especially since production costs are much cheaper than television,

though the lack of visual elements may limit the message. In radio advertising we need to

identify the timing of radio listeners, like many people listen on time when they are stuck with

the traffic, and many of the listeners they listen at night time. Its 24 hours service so its help

full to us.

Cinema Though national audience numbers are down, this may be the most effective medium

for extending coverage to younger age groups, since the core audience is 15 to 24.

Internet/Web Advertising This rapidly growing marketing force borrows much from the

example of press advertising, but the most effective use—adopted by search engines—is

interactive.

Mobile Advertising Personal mobile phones have become an attractive advertising media to

network operators, but are relatively unproven and remain in media buyers' sidelines.

Audience Research Identifying the audience for a magazine or newspaper, or determining

who watches television at a given time, is a specialized form of market research, often

conducted on behalf of media owners.

Press figures are slightly complicated by the fact that there are two measures: readership (total

number of readers of a publication, no matter where they read it), and circulation (the number

of copies actually sold, which is mostly independently validated).

Advertising-free media: Advertising-free media refers to media outlets whose output is not

funded or subsidized by the sale of advertising space. It includes in its scope mass media

entities such as websites, television and radio networks, and magazines.


The public broadcasters of a number of countries air without commercials. Perhaps the best

known example of this is the United Kingdom's public broadcaster, the BBC, whose domestic

networks do not carry commercials. Instead, the BBC, in common with most other public

broadcasters in Europe, is funded by a television license fee levied on the owners of all

television sets.

Advertising media scheduling: Scheduling refers to the pattern of advertising timing,

represented as plots on a yearly flowchart. These plots indicate the pattern of scheduled times

advertising must appear to coincide with favorable selling periods. The classic scheduling

models are Continuity, Flighting and Pulsing.

Continuity: This model is primarily for non-seasonal products, yet sometimes for seasonal

products. Advertising runs steadily with little variation over the campaign period.

There may be short gaps at regular intervals and also long gaps—for instance, one ad every

week for 52 weeks, and then a pause. This pattern of advertising is prevalent in service and

packaged goods that require continuous reinforcement on the audience for top of mind

recollection at point of purchase.

Advantages:

o Works as a reminder

o Covers the entire purchase cycle

o Cost efficiencies in the form of large media discounts

o Positioning advantages within media

o Program or plan that identifies the media channels used in an advertising campaign, and

specifies insertion or broadcast dates, positions, and duration of the messages.

Flighting (or "bursting"): In media scheduling for seasonal product categories, flighting

involves intermittent and irregular periods of advertising, alternating with shorter periods of no


advertising at all. For instance, all of 2000 Target Rating Pioneered in a single month, "going

dark" for the rest of the year. Halloween costumes are rarely purchased all year except during

the months of September and October.

Advantages:

o Advertisers buy heavier weight than competitors for a relatively shorter period of time

o Little waste, since advertising concentrates on the best purchasing cycle period

o Series of commercials appear as a unified campaign on different media vehicles

Pulsing: Pulsing combines flighting and continuous scheduling by using a low advertising level

all year round and heavy advertising during peak selling periods. Product categories that are

sold year round but experience a surge in sales at intermittent periods are good candidates for

pulsing. For instance, under-arm deodorants, sell all year, but more in summer months.

Advantages:

o Covers different market situations

o Advantages of both continuity and flighting possible

Scheduling Retail Ads:

o Ads should appear on (or slightly precede) the days when customers most likely to

purchase

o Ads should be concentrated around the times when people receive their payroll checks

o If funds are limited, concentrate ads during periods of highest demand

o Ads should be timed to appear during time of say or day of week when the best cost-per

thousand for the target market ((cost of ad/number of people in the target market

viewing the ad) x 1000)

o The higher the degree of habitual purchasing of a product class, the more the

advertising should precede the purchase time.


UNIT III

STORE MANAGEMENT

OBJECTIVES OF A GOOD STORE DESIGN

Store Design Objectives

o Implement retailer’s strategy

o Influence customer buying behavior

o Provide flexibility

o Control design and maintenance costs

o Meet legal requirements

Store Design and Retail Strategy

The primary objective of store design is implementing the retailer’s strategy.

o Meets needs of target market

o Builds a sustainable competitive advantage

o Displays the store’s image

For example: Americans and Europeans might like to shop in pristine, quiet stores. But one

entrepreneur (founder of India’s Big Bazaar) made his fortune by redesigning stores in India to

be messier, nosier, and more cramped.

Influence Customer Buying Behavior

o Attract customers to store

o Enable them to easily locate merchandise

o Keep them in the store for a long time


o Motivate them to make unplanned purchases

o Provide them with a satisfying shopping experience

Today’s Demographics

Time limited families are spending less time planning shopping trips and making more

decisions in the stores. So retailers are making adjustments to their stores to get people in and

out quicker. Whole Foods stores’ checkout system was redesigned to reduce wait time.

Flexibility

Needed to change the merchandise mix

Takes two forms:

o The ability to physically move store components

o The ease with which components can be modified

Example: college bookstores

o Change their space allocations at the beginning of each semester and the slower

in-between periods

o Use Innovative fixture and wall system

Cost

o Control the cost of implementing the store design and maintain the store’s appearance

o Store design influences

o shopping experience and thus sales

o Labor costs

o Inventory shrinkage

Legal Considerations

Americans with Disabilities Act (ADA):

Protects people with disabilities from discrimination in employment, transportation, public

accommodations, telecommunications and activities of state and local government


Affects store design as disabled people need “reasonable access” to merchandise and services

built before 1993. After 1993, stores are expected to be fully accessible.

Reasonable Access. What does that mean?

o 32 inch wide pathways on the main aisle and to the bathroom, fitting rooms elevators and

around most fixtures

o Lower most cash wraps and fixtures so they can be reached by a person in a wheelchair

o Make bathroom and fitting room fully accessible

STORE DESIGN

Tradeoff in Store Design is between the following:

1. Ease of locating merchandise for planned purchases

Giving customers adequate space to shop

2. Exploration of store, impulse purchases

Productivity of using this scarce resource for merchandise

Store design includes the following:

o Layouts

o Signage and Graphics

o Feature Area

STORE LAYOUTS

To encourage customer exploration and help customers move through the stores

o Use a layout that facilitates a specific traffic pattern

o Provide interesting design elements


Types of Store Layouts

o Grid

o Racetrack

o Free Form

Grid Layout

o Easy to locate merchandise

o Does not encourage customers to explore store

o Limited site lines to merchandise

o Allows more merchandise to be displayed

o Cost efficient

o Used in grocery, discount, and drug stores:

Example:


Racetrack Layout (Loop)

o Loop with a major aisle that has access to departments

o Draws customers around the store

o Provide different viewing angles and encourage exploration, impulse buying

o Used in department stores

JCPenny Racetrack Layout:


Free-Form (Boutique) Layout

o Fixtures and aisles arranged asymmetrically

o Provides an intimate, relaxing environment that facilitates shopping and browsing

o Pleasant relaxing ambiance doesn’t come cheap –small store experience

o Inefficient use of space

o More susceptible to shoplifting –salespeople cannot view adjacent spaces.

o Used in specialty stores and upscale department stores


Usage of Signage and Graphics

o Location–identifies the location of merchandise and guides customers

o Category Signage–identifies types of products and located near the goods

o Promotional Signage–relates to specific offers –sometimes in windows

o Point of sale–near merchandise with prices and product information

o Lifestyle images–creates moods that encourage customers to shop

Suggestions for Effectively Using Signage

o Coordinate signage to store’s image

o Use appropriate type faces on signs

o Inform customers

o Use them as props

o Keep them fresh

o Limit the text on signs

o Use appropriate typefaces on signs

Digital Signage

Visual Content delivered digitally through a centrally managed and controlled network and

displayed on a TV monitor or flat panel screen

o Superior in attracting attention

o Enhances store environment

o Provides appealing atmosphere

o Overcomes time-to-message hurdle

o Messages can target demographics

o Eliminates costs with printing, distribution and installing traditional signage

Feature Areas Areas within a store designed to get the customers’ attention


o Entrances

o Freestanding displays

o Cash wraps (POP counters, checkout areas)

o End caps

o Promotional aisles

o Walls

o Windows

o Fitting rooms

SPACE PLANNING

o Productivity of allocated space (sales/squire foot, sales/linear foot)

o Merchandise inventory turnover

o Impact on store sales

o Display needs for the merchandise

Space Management

o The space within stores and on the stores’ shelves are fixtures is a scare resource

o The allocation of store space to merchandise categories and brands

o The location of departments or merchandise categories in the store

Envirosell’s Observations: Shopping Behavior and Store Design

o Avoid the butt-brush effect

The tie rack located near an entrance during busy times

o Place merchandise where customers can readily access it

Toy stores’ shelves at a child’s eye level

o Make information accessible

Older shoppers have a hard time reading the small prints

o Let customers touch the merchandise


Considerations for Merchandise Locations

Prime Locations for Merchandise

o Highly trafficked areas

Store entrances

Near checkout counter

o Highly visible areas

End aisle

Displays

Location of Merchandise Categories

o Impulse merchandise –near heavily trafficked areas

o Demand/Destination merchandise –back left-hand corner of the store

o Special merchandise –lightly trafficked areas (glass pieces, women’s lingerie)

o Adjacencies –cluster complimentary merchandise next to each other


Location of Merchandise within a Category The Use of Planograms

o Supermarkets and drug stores place private-label brands to the right of national brands –

shoppers read from left to right (higher priced national brands first and see the lower-

priced private-label item)

o Planogram: a diagram that shows how and where specific SKUs should be placed on

retail shelves or displays to increase customer purchases

Learning customers’ movements and decision-making

o Videotaping Consumers

o Learn customers’ movements, where they pause or move quickly, or where there is

congestion

o Evaluate the layout, merchandise placement, promotion

o Virtual Store Software

o Learn the best place to merchandise and test how customers react to new products

Visual Merchandising: Fixtures

A. Straight rack

B. Rounder (bulk fixture, capacity fixture)

C. Four-way fixture (feature fixture)

D. Gondolas


Straight Rack

o Holds a lot of apparel

o Hard to feature specific styles and colors

o Found often in discount and off-price stores

Rounder

o Smaller than straight rack

o Holds a maximum amount of merchandise

o Easy to move around

o Customers can’t get frontal view of merchandise


Four-Way

o Holds large amount of merchandise

o Allows customers to view entire garment

o Hard to maintain because of styles and colors

o Fashion oriented apparel retailer

Gondolas

o Versatile

o Grocery and discount stores

o Some department stores

o Hard to view apparel as they are folded

MERCHANDISE PRESENTATION TECHNIQUES

o Idea-Oriented Presentation

o Style/Item Presentation

o Color Organization

o Price Lining

o Vertical Merchandising

o Tonnage Merchandising: Large quantities of merchandise displayed together

o Frontal Presentation: Display as much of the product as possible to catch the customer’s eye


Idea-Orientation Presentation

o Present merchandise based on a specific idea or the image of the store

o Encourage multiple complementary purchases

o Women’s fashion

o Furniture combined in room settings

o Sony Style mini-living rooms

STORE ATMOSPHERICS

The design of an environment through visual communications, lighting, colors, music, and

scent to stimulate customers’ perceptual and emotional responses and ultimately to affect their

purchase behavior

Lighting

o Highlight merchandise

o Structure space and capture a mood

o Energy efficient lighting

o Downplay features


Color

o Warm colors (red, gold, yellow) produce emotional, vibrant, hot, and active responses

o Cool colors (white, blue, green) have a peaceful, gentle, calming effect

o Culturally bounded

French-Canadians –respond more to warm colors

Anglo-Canadians –respond more to cool colors

Music

o Control the pace of store traffic, create an image, and attract or direct consumers’ attention

o A mix of classical or soothing music encourage shoppers

to slow down, relax, and take a good look at the merchandise

thus to stay longer and purchase more

o J.C. Penney –different music at different times of the day

Jazzy music in the morning for older shoppers

Adult contemporary music in the afternoon for 35-40 year old shoppers

o U.S. firm Muzak supplies 400,000 shops, restaurants, and hotels with songs tailed to

reflect their identity

Scent

o Has a positive impact on impulse buying behavior and customer satisfaction

o Scents that are neutral produce better perceptions of the store than no scent

o Customers in scented stores think they spent less time in the store than subjects in

unscented stores

How Exciting Should a Store Be?

Depends on the Customer’s Shopping Goals


o Task-completion: a simple atmosphere with slow music, dimmer lighting, and

blue/green colors

o Fun: an exciting atmosphere with fast music, bright lighting, and red/yellow colors

Web Site Design

o Simplicity Matters

o Getting Around –Easy Navigation

o Let Them See It

Example: Lands’ End My Virtual Model

o Blend the Web Site with the Store

o Prioritize

o Type of Layout

When shopping on the Web, customer are interested in speed, convenience, ease

of navigation, not necessarily fancy graphics

o Checkout

Make the process clear and appear simple

Enclose the checkout process

Make the process navigable without loss of information


UNIT IV

LOCATION STRATEGIES

RETAIL LOCATION

o The location of retail store has for a long time been considered the most important ‘P’ in

retailing.

o Locating the retail store in the right place was considered to be adequate for success.

o Location becomes a critical decision for a retailer for several reasons. As like;

o Location is generally one of the most important factors customers consider while choosing

a store.

o A bad location may cause a retailer to fail even if its strategic mix is excellent. On the other

hand, a good location may help a retailer succeed even if its strategic mix is mediocre.

o Store location is least flexible element of retailer’s strategic mix due to its fixed nature, the

amount of investment, and the length of lease agreements

TYPES OF RETAIL LOCATION

o Various options are available to the retailer for choosing the location of store.

o The choice of the location of the store depends on the target audience and the kind of

merchandise to be sold.

o A retailer has to choosing among alternate types of retail locations available. It may locate

in an isolated place and pull the customer to the store on its own strength, such as a small

grocery store or paan shop in a colony which attracts the customers staying close by.

Typically a store location may be:

1. Freestanding /Isolated store.

2. Part of Business District/Centers (unplanned Business Districts).


3. Part of a Shopping Center (Planned Shopping Centers)

FREESTANDING/ISOLATED STORES

o Where there are no other outlets in the vicinity of the store and therefore store depends

on its own pulling power and promotion to attract customers.

o A biggest advantage for freestanding stores is that there is no competition around.

o This type of location has several advantages including no competition, low rent, often

better visibility from the road, easy parking and lower property.

o Neighborhood Stores; colony shops serves small locality.

o Highway Stores: Ebony store in Ludhiana.

BUSINESS ASSOCIATED LOCATION

These are location where a group of retail outlets offering a variety of merchandise work

together to attract customers to their retail area, but also compete against each other for the

same customers. Two types includes in:

o Part of Business District/Centers (unplanned Business Districts).

o Part of a Shopping Center (Planned Shopping Centers)

PART OF BUSINESS DISTRICT/CENTERS (UNPLANNED BUSINESS DISTRICTS)

o A retail store can also be located as a part of a business district. Or we can refer this as

unplanned business centers

o A business district is place of commerce in a city which developed historically as the

center of trade and commerce in the city or town.

o A business districts can be a central, secondary or a Neighborhood business district.


o A Central business District CBD is the main center of commerce and trade in the city.

(high land rates , intense development)

o A CBD is the hub of retailing activity in a city.

o CBD served different sections of population for Examples of Cannaught place in Delhi,

Colaba in Mumbai, Commercial Street and in Bangalore are up market CBD’s.

o CBD’s serving the upper and upper middle class customers across these cities like,

chandani chowk in Delhi, Kalbadevi-Bhuleswar in Mumbai, Chickpet in Bangalore.

o Secondary Business District are composed of unplanned cluster of store often located

on a major intersection of city they a customers from a large part of the city

PART OF A SHOPPING CENTER (PLANNED SHOPPING CENTERS)

o A shopping center has been defined as “ a group of retail and other commercial

establishments that is planned , developed, owned and managed as a single property”

o The basic configuration of a shopping center is a “Mall ” or Strip center.

o A mall is typically enclosed and climate controlled. A walkway is provided in front of the

stores.

o A strip center is a row of stores with parking provided in the front of the stores.

In India planned shopping center can be categorized into two:

o Regional shopping centers or Mall: Regional shopping centers or mall are the largest

planned shopping centers. Often they are anchored by two or more major department stores

have enclosed mall serve a large trading area and have high rents. (ansal plaza,spencers

plaza crossroads, DLF city in Gurgaon)

o Neighborhood/community/shopping centers: Neighborhood /community centers usually

have a balanced mix of stores including a few grocery stores, a chemist, a verity store and a

few other stores selling convenience goods to the residents of the neighborhood.

o


LOCATION AND RETAIL STRATEGIES

o In order to arrive at the decision on where to locate the retail store a retailer needs to first

on the region that he wants to locate the store.

o After identifying the region the following steps have to be followed:

1. Identifying the market in which to locate the store.

2. Evaluate the demand and supply within that market. i.e. determine the market potential.

3. Identify the most attractive sites

4. Select the best site available

1. Market Identification

o The first step in arriving at a decision on retail location is to identify the market

attractiveness to a retailer.

o This is important that retail needs to understand the market well.

2. Determining the market Potential

o The retailer needs to take into consideration various elements as shown in format.

(features of population)

o Demographic features of the population

o The characteristics of the household in the area (average household income)

o Competition and compatibility (Need to know compatibility & competition in market)

o Laws & regulations:( good understanding of the laws


.

TRADE AREA ANALYSIS

o A trade area is the geographic area that generates the majority of the customers for the

store.

o Primary trade area: primary trading covers between 50-80% of the store’s customers.

o Secondary Trading Area: this area contains the additional 15- to 25% of the store’s customers.

o Tertiary trading area covers the balance customers

o These trading areas are dependent on distance and do not always have to be concentric

in nature

Factors Affecting the Demand for a Region or Trade Area


o Economic conditions

o Competition Saturation Theory: Examines how the demand for goods and services in a

potential trading area is being served by current retail establishments in comparison with other

potential markets.

Three possible outcomes

o Retail store saturation: supply=demand

o Under stored: supply<demand

o Overstored: supply>demand

o Strategic Fit

o Number of stores in an area

Characteristics of trading area Retailers estimate the demand for a new location by defining

its trade area and then estimating how much people within the trade area will spend.

o Primary zone - 60 to 65 percent of its customers

o Secondary zone - 20 percent of a store’s sales

o Tertiary zone - customers who occasionally shop at the store or shopping center

Factors Affecting the Size of the Trade Areas

o Accessibility

o Natural & Physical Barriers

o Type of Shopping Area

o Type of Store

o Competition

o Parasite Stores

Factors affecting the attractiveness of a site

o Accessibility

o Macro Analysis

o Road pattern

o Natural Barriers

o Artificial Barriers


o Micro Analysis

Visibility

o Traffic Flow

o Parking Facility

o Congestion

How Attractive Is the Site to the Retailer’s Target Market?

o Match Between Trade Area Demographics and Retailer’s Target Market

o Likelihood of Customers Coming to Location

Convenience

Other Attractive Retailers At Location

Principle of cumulative attraction - a cluster of similar and complementary retailing activities

will have greater drawing power.

3. Identify Alternate sites and

4. Select the site

After taking decision on the location and market potential the retailer has to select the site

to locate the store based on the following:

o Traffic

o Accessibility of the market is also a key factor

o The total number of stores and the type of store that exist in the area

o Amenities

o To buy or to lease

o The product mix to be offered by the retailer

Checklist for Site Evaluations

o Local Demographics

o Population and/or household base

o Population growth potential

o Lifestyles of consumers

o Income potential


o Age makeup

o Population of nearby special markets, that is, daytime workers, students, and

tourists, if applicable

o Occupation mix

Traffic Flow and Accessibility

o Number and type of vehicles passing location

o Access of vehicles to location

o Number and type of pedestrians passing location

o Availability of mass transit, if applicable

o Accessibility of major highway artery

o Quality of access streets

o Level of street congestion

o Presence of physical barriers that affect trade area shape

Cost Factors

o Terms of lease/rent agreement

o Basic rent payments

o Length of lease

o Local taxes

o Operations and maintenance cost

o Restrictive clauses in lease

o Membership in local merchants association required

o Voluntary regulations by local merchants

Store Compatibility This exists when two similar retail businesses locate next to or

nearby each other and they realize a sales volume greater than what they would have

achieved if they were located apart from each other.


‘


UNIT V

RETAILING IN INDIA

RETAIL SCENARIO IN INDIA

As the corporates – the Piramals, the Tatas, the Rahejas, ITC, S.Kumar’s, RPG Enterprises, and

mega retailers- Crosswords, Shopper’s Stop, and Pantaloons race to revolutionize the retailing

sector, retail as an industry in India is coming alive. Retail sales in India amounted to about

Rs.7400 billion in 2002, expanded at an average annual rate of 7% during 1999-2002. With the

upturn in economic growth during 2003, retail sales are also expected to expand at a higher

pace of nearly 10%. Across the country, retail sales in real terms are predicted to rise more

rapidly than consumer expenditure during 2003-08.

The forecast growth in real retail sales during 2003- 2008 is 8.3% per year, compared with

7.1% for consumer expenditure. Modernization of the Indian retail sector will be reflected in

rapid growth in sales of supermarkets, departmental stores and hypermarts. Sales from these

large-format stores are to expand at growth rates ranging from 24% to 49% per year during

2003-2008, according to a latest report by Euromonitor International, a leading provider of

global consumer-market intelligence.

A. T. Kearney Inc. places India 6th on a global retail development index. The country has the

highest per capita outlets in the world - 5.5 outlets per 1000 population. Around 7% of the

population in India is engaged in retailing, as compared to 20% in the USA. In a developing

country like India, a large chunk of consumer expenditure is on basic necessities, especially

food-related items.

Hence, it is not surprising that food, beverages and tobacco accounted for as much as 71% of

retail sales in 2002. The share of food related items had, however, declined over the review

period, down from 73% in 1999. This is not unexpected, because with income growth, Indians,


like consumers elsewhere, have started spending more on non-food items compared with food

products. Sales through supermarkets and department stores are small compared with overall

retail sales.

Nevertheless, their sales have grown much more rapidly, at almost a triple rate (about 30% per

year during the review period). This high acceleration in sales through modern retail formats is

expected to continue during the next few years, with the rapid growth in numbers of such

outlets due to consumer demand and business potential.

The factors responsible for the development of the retail sector in India can be broadly

summarized as follows:

o Rising incomes and improvements in infrastructure are enlarging consumer markets and

accelerating the convergence of consumer tastes.

o Looking at income classification, the National Council of Applied Economic Research

(NCAER) classified approximately 50% of the Indian population as low income in 1994-

95; this is expected to decline to 17.8% by 2006-07.

o Liberalization of the Indian economy which has led to the opening up of the market for

consumer goods has helped the MNC brands like Kellogs, Unilever, Nestle, etc. to make

significant inroads into the vast consumer market by offering a wide range of choices to the

Indian consumers.

o Shift in consumer demand to foreign brands like McDonalds, Sony, Panasonic, etc.

o The internet revolution is making the Indian consumer more accessible to the growing

influences of domestic and foreign retail chains. Reach of satellite T.V. channels is helping

in creating awareness about global products for local markets. About 47% of India’s

population is under the age of 20; and this will increase to 55% by 2015. This young

population, which is technology-savvy, watch more than 50 TV satellite channels, and

display the highest propensity to spend, will immensely contribute to the growth of the

retail sector in the country. As India continues to get strongly integrated with the world

economy riding the waves of globalization, the retail sector is bound to take big leaps in the

years to come.


The Indian retail sector is estimated to have a market size of about $ 180 billion; but the

organised sector represents only 2% share of this market. Most of the organised retailing in the

country has just started recently, and has been concentrated mainly in the metro cities. India is

the last large Asian economy to liberalize its retail sector. In Thailand, more than 40% of all

consumer goods are sold through the super markets and departmental stores. A similar

phenomenon has swept through all other Asian countries. Organised retailing in India has a

huge scope because of the vast market and the growing consciousness of the consumer about

product quality and services.

A study conducted by Fitch, expects the organized retail industry to continue to grow rapidly,

especially through increased levels of penetration in larger towns and metros and also as it

begins to spread to smaller cities and B class towns. Fuelling this growth is the growth in

development of the retail-specific properties and malls. According to the

estimates available with Fitch, close to 25mn sq. ft. of retail space is being developed and will

be available for occupation over the next 36-48 months. Fitch expects organized retail to

capture 15%-20% market share by 2010.

A McKinsey report on India says organised retailing would increase the efficiency and

productivity of entire gamut of economic activities, and would help in achieving higher GDP

growth. At 6%, the share of employment of retail in India is low, even when compared to

Brazil (14%), and Poland (12%).

Different Forms of Retailing Emergence of new formats of

Popular Formats

o Hypermarts

o Large supermarkets, typically (3,500 - 5,000 sq. ft)

o Mini supermarkets, typically (1,000 - 2,000 sq. ft)

o Convenience store, typically (7,50 - 1,000 sq. ft)

o Discount/shopping list grocer


o Traditional retailers trying to reinvent by introducing self-service formats as well as

value-added services such as credit, free home delivery etc.

The Indian retail sector can be broadly classified into:

a) FOOD RETAILERS

There are large number and variety of retailers in the food-retailing sector.

Traditional types of retailers, who operate small single-outlet businesses mainly using family

labour, dominate this sector .In comparison, super markets account for a small proportion of

food sales in India. However the growth rate of super market sales has being significant in

recent years because greater numbers of higher income Indians prefer to shop at super markets

due to higher standards of hygiene and attractive ambience.

b) HEALTH & BEAUTY PRODUCTS

With growth in income levels, Indians have started spending more on health and beauty

products .Here also small, single-outlet retailers dominate the market. However in recent years,

a few retail chains specializing in these products have come into the market. Although these

retail chains account for only a small share of the total market , their business is expected to

grow significantly in the future due to the growing quality consciousness of buyers for these

products .

c) CLOTHING & FOOTWEAR

Numerous clothing and footwear shops in shopping centers and markets operate all over India.

Traditional outlets stock a limited range of cheap and popular items; in contrast, modern

clothing and footwear stores have modern products and attractive displays to lure customers.

However, with rapid urbanization, and changing patterns of consumer tastes and preferences, it

is unlikely that the traditional outlets will survive the test of time.

d) HOME FURNITURE & HOUSEHOLD GOODS


Small retailers again dominate this sector. Despite the large size of this market, very few large

and modern retailers have established specialized stores for these products. However there is

considerable potential for the entry or expansion of specialized retail chains in the country.

e) DURABLE GOODS

The Indian durable goods sector has seen the entry of a large number of foreign companies

during the post liberalization period. A greater variety of consumer electronic items and

household appliances became available to the Indian customer. Intense competition among

companies to sell their brands provided a strong impetus to the growth for retailers doing

business in this sector.

f) LEISURE & PERSONAL GOODS

Increasing household incomes due to better economic opportunities have

encouraged consumer expenditure on leisure and personal goods in the country. There are

specialized retailers for each category of products (books, music products, etc.) in this sector.

Another prominent feature of this sector is popularity of franchising agreements between

established manufacturers and retailers.

Malls In India

Over the last 2-3 years, the Indian consumer market has seen a significant growth in the

number of modern-day shopping centers, popularly known as ‘malls’. There is an increased

demand for quality retail space from a varied segment of large-format retailers and brands,

which include food and apparel chains, consumer durables and multiplex operators. Shopping-

centre development has attracted real-estate developers and corporate houses across cities in

India. As a result, from just 3 malls in 2000, India is all set to have over 220 malls by 2005.

Today, the expected demand for quality retail space in 2006 is estimated to be around 40

million square feet. While previously it was the large, organised retailers – with their modern,

up-market outlets, and direct consumer interface- who had been a key factor driving the growth

of organised retail in the country, now it is the malls which are playing the role.


Factors such as availability of physical space, population densities, city planning, and socio-

economic parameters have driven the Indian market to evolve, to a certain extent, its own

definition of a ‘mall’. For example, while a mall in USA is 400,000 to 1 million sq.ft. in size,

an Indian version can be anywhere between 80,000 sq.ft. and 500,000 sq.ft. By 2005, total mall

space in the 6 cities of Mumbai, Bangalore, Hyderabad, Chennai, Kolkata, and National Capital

Region (Delhi, Noida, Gurgaon) is expected to increase to over 21.1 million sq. ft. Compared

to other big cities, Kolkata and Hyderabad are relatively new entrants in the mall segment, but

are witnessing quick growth. Smaller cities like Pune, Ahmedabad, Lucknow, Ludhiana,

Jaipur, Chandigarh and Indore, are also expected to see a formidable growth in the growth of

malls in the near future. But malls in India need to have a clear positioning through the

development of differential product assortment and differential pricing, in order to compete

effectively in a growing mall market. Segmentation in malls, like up-market malls, mid-market

malls, etc. , proper planning, correct identification of needs, quality products at lower prices,

the right store mix, and the right timing, would ensure the success of the ‘mall revolution’ in

India.

Challenges of Retailing in India

Retailing as an industry in India has still a long way to go. To become a truly flourishing

industry, retailing needs to cross the following hurdles:

Automatic approval is not allowed for foreign investment in retail.

Regulations restricting real estate purchases, and cumbersome local laws.

Taxation, which favours small retail businesses.

Absence of developed supply chain and integrated IT management.

Lack of trained work force.

Low skill level for retailing management.

Intrinsic complexity of retailing – rapid price changes, constant threat of product

obsolescence and low margins.

The retailers in India have to learn both the art and science of retailing by closely following

how retailers in other parts of the world are organizing, managing, and coping up with new


challenges in an ever-changing marketplace. Indian retailers must use innovative retail formats

to enhance shopping experience, and try to understand the regional variations in consumer

attitudes to retailing. Retail marketing efforts have to improve in the country - advertising,

promotions, and campaigns to attract customers; building loyalty by identifying regular

shoppers and offering benefits to them; efficiently managing high-value customers; and

monitoring customer needs constantly, are some of the aspects which Indian retailers need to

focus upon on a more pro-active basis.

Despite the presence of the basic ingredients required for growth of the retail industry in India,

it still faces substantial hurdles that will retard and inhibit its growth in the future. One of the

key impediments is the lack of FDI status. This has largely limited capital investments in

supply chain infrastructure, which is a key for development and growth of food retailing and

has also constrained access to world-class retail practices. Multiplicity and complexity of taxes,

lack of proper infrastructure and relatively high cost of real estate are the other impediments to

the growth of retailing. While the industry and the government are trying to remove many of

these hurdles, some of the roadblocks will remain and will continue to affect the smooth

growth of this industry. Fitch believes that while the market share of organised retail will grow

and become significant in the next decade, this growth would, however, not be at the same

rapid pace as in other emerging markets. Organised retailing in India is gaining wider

acceptance.

The development of the organised retail sector, during the last decade, has begun to change the

face of retailing, especially, in the major metros of the country. Experiences in the developed

and developing countries prove that performance of organised retail is strongly linked to the

performance of the economy as a whole. This is mainly on account of the reach and penetration

of this business and its scientific approach in dealing with customers and their needs. In spite of

the positive prospects of this industry, Indian retailing faces some major hurdles (see Table 1),

which have stymied its growth. Early signs of organized retail were visible even in the 1970s

when Nilgiris (food), Viveks (consumer durables) and Nallis (sarees) started their operations.


However, as a result of the roadblocks, the industry remained in a rudimentary stage. While

these retailers gave the necessary ambience to customers, little effort was made to introduce

world-class customer care practices and improve operating efficiencies. Moreover, most of

these modern developments were restricted to south India, which is still regarded as a ‘Mecca

of Indian Retail’.

FACTORS AFFECTING RETAILING IN INDIA

Factors Description Implications

Barriers to FDI

.. FDI not permitted in pure retailing .. Absence of global players

.. Franchisee arrangement allowed .. Limited exposure to best

practices

Lack of Industry Status

.. Government does not recognize

the industry .. Restricted availability of finance

.. Restricts growth and scaling up

Structural Impediments

.. Lack of urbanization .. Lack of awareness of Indian

consumers

.. Poor transportation infrastructure .. Restricted retail growth

.. Consumer habit of buying fresh

foods

.. Growth of small, one-store

formats, with unmatchable cost

structure

..Administered pricing .. Wastage of almost 20%-25% of

farm produce

High Cost of Real Estate

.. Pro-tenant rent laws .. Difficult to find good real estate in

terms of location and size

.. Non-availability of government

land, zoning restrictions

.. High land cost owing to

constrained supply

.. Lack of clear ownership titles,

high stamp duty 10%

.. Disorganized nature of

transactions

Supply Chain Bottlenecks

.. Several segments like food and

apparel reserved for SSIs .. Limited product range

.. Distribution, logistics constraints

– restrictions of purchase and

movement of food grains, absence

of cold chain infrastructure

.. Makes scaling up difficult

.. Long intermediation chain .. High cost and complexity of

sourcing & planning

.. Lack of value addition and

increase in costs by almost 15%

Complex Taxation System

.. Differential sales tax rates across

states

.. Added cost and complexity of

distribution

.. Multi-point octroi .. Cost advantage for smaller stores

through tax evasion

.. Sales tax avoidance by smaller

stores

Multiple Legislations

.. Stringent labor laws governing

hours of work, minimum wage

payments

.. Limits flexibility in operations

.. Multiple licenses/clearances

required

.. Irritant value in establishing chain

operations; adds to overall costs

Customer Preferences

.. Local consumption habits .. Leads to product proliferation

.. Need for variety .. Need to stock larger number of

SKUs at store level

.. Cultural issues .. Increases complexity in sourcing

& planning

.. Increases the cost of store

management

Availability of Talent

.. Highly educated class does not

consider retailing a profession of

choice

.. Lack of trained personnel

.. Lack of proper training .. Higher trial and error in managing

retail operations .. Increase in personnel costs

Manufacturers Backlash

.. No increase in margins

.. Manufacturers refuse to dis-

intermediate and pass on

intermediary margins to retailers


REGION WISE ANALYSIS OF RETAILING IN INDIA

Retail Sector in the East: Current Scenario, Growth Prospects and Upcoming Projects

The retail sector in Eastern India is largely Kolkata-centric. The city of Kolkata has come a

long way in terms of retail maturity with a proliferation of brands and organised retail chains.

Shopping trends in the city have witnessed a radical shift over the recent years; from the

conventional trader run standalone shops to more organized & large retail formats. Evidently,

the future of retailing in the city lies in new-age shopping malls, which provide variety, value

and convenience in a more comfortable environment. This is also evident by a surge in the

consumer spending on branded goods in the recent times; for example the city's Music World

outlet has recorded the highest earnings per square feet amongst all its outlets in the country.

The city has also welcomed the other retail chains

such as Pantaloons, Westside and Shopper’s Stop.

Though Kolkata has been a bit late in catching up with the retail revolution in the country, the

city has great potential to become a retail hub in the near future. Going by the 1991 census, the

city qualifies as the second largest metro market in India; nearly one out of every six shops

located in the country’s top 25 cities, can be traced to Kolkata. To a market strategist, Kolkata

undoubtedly is an ideal location for the growth of the retail industry. Besides being the

principal retail-and-services market to a vast hinterland comprising of the eastern and

northeastern states of the country, the city also serves as a center of trade and commerce for the

region. Its proximity to Bangladesh, a country of 13 crore consumers, and to the South-East

Asian markets, is another factor for which the city is fast emerging as a vibrant business center.

The Kolkata Port and the Haldia Port are also instrumental in acting as gateways to landlocked

countries like Nepal and Bhutan. The disposable incomes of Kolkatans have also been on the

rise – according to a report by the National Council of Applied Economic Research (NCAER),

about 62% of the households in Kolkata had annual incomes of up to Rs.18, 000 in 1985-86;

while just a decade later, the figure had touched Rs.25,000-77,000 for some 61% of the

households. The city truly represents an amalgamation of the advantages of a metro city, and

the comparatively modest living costs of a non-metro town.


Lately, Kolkata has emerged as a strong prospective destination in the expansion plans of

retailers and is now perceived as a latent but highly potential market. Prominent retail chains

like Music World, Westside, Dominos, Pizza Hut, Shopper’s Stop, WillsSport, Barista, and

Pantaloons have already established their presence in the market. Apart from these new-age,

large retail chains which have started operating successfully in the city, there are a large

number of traditional, specialized markets like the Bowbazar market, Bagri market, China

bazaar, Lake market, Burrabazar market, Chandni market, etc., and high-street markets at Park

Street, Esplanade area, Camac Street, Shakespeare Sarani, Gariahat, which offer a wide variety

of items like stationary items, dairy products, electronic goods and appliances, glassware,

crockery, wooden furniture, jewelry, musical instruments, fruits, flowers, vegetables, fish, flesh

meat, textiles, spices, dry fruits, sugar, salt, groceries, paints, hardware items, etc. Besides these

markets, there are small-format, non-branded shopping complexes/malls like the A/C Market,

Vardaan Market, New Market, and the Shreeram Arcade, which offer a wide variety of items,

from garments, watches, and footwear, to consumer durables like household electronic gadgets.

The local retail chains which have become household names in Bengal include ‘Arambagh

Hatcheries Ltd.’, Khadim’s, and Sree Leathers. Operational since 1998, Arambagh Hatcheries

Ltd. is today one of the foremost companies in the marketing of poultry products Encouraged

by the success of its “chicken” brand , and the realization that there was a void in the Kolkata

market for quality food stuff sold under a single roof , the company took the initiative in

starting “convenience stores” named “ Arambagh’s Food Mart” in 2000. An aggressive

expansion strategy has seen the company’s physical strength grow to 14 outlets in Kolkata,

with another 5-6 outlets being in the pipeline. Each of these stores are between 500 & 800 sq.

ft. in dimension , and packed with at least 4000-4500 food and other FMCG items . Good

quality , the right quantity, use of correct weights, and a low MRP are the main factors which

have contributed to an impressive growth of this chain . Arambagh has tie ups with Nicco Park,

Kwality Walls, Kellogs India and Frito Lays, among others. These tie ups help the chain in

product and services promotion.


Both Khadim’s and Sree Leathers are local footwear companies which have been tremendously

successful, and have now reached out to international markets. Khadim’s has exclusive

showrooms not only in West Bengal, but also in states like Bihar, Jharkhand, Tripura, Orissa,

Madhya Pradesh, Andhra Pradesh, Karnataka, Gujarat, and Tamil Nadu. The company offers

products like Premium shoes, Gents’ shoes, Ladies’ shoes, Kids’ shoes, and Leather

Accessories. Khadim’s has become the destination for people from all walks of life, with a

great range of footwear to choose from. The motto of the company is to provide good quality

fashionable shoes at affordable prices.

Sree Leathers entered the Kolkata market in 1987 with its first outlet in the city at Lindsay

Street, which became hugely successful. The company’s second mega outlet at Free School

Street, which has a floor area of more than 7500 sq. ft., provides a great shopping experience to

its customers. Today the company has a number of outlets scattered over West Bengal, Orissa

and Bihar, and has ventured into the international markets of the

Middle East, Singapore, Maldives, USA, Denmark, Greece, Germany, Netharlands and

Austria. Sree Leathers has started a new R&D section under the guidance of Italian and

German experts, to enhance the comfort level of it’s products, and has plans of setting up a

modern footwear factory at Kasba Industrial area in Kolkata.

The two prominent fun-entertainment/amusement parks in Kolkata which have gained

immense popularity among the masses, particularly children, are Nicco Park, and Aquatica.

Situated in Salt Lake, and spread over an area of 40 acres, Nicco Park, promoted by the Nicco

Group, can be termed as the ‘Disneyland of West Bengal’, with a variety of unusual and

exciting games and rides like the Toy Train, Cable Car, Tilt-a-Whirl, Water Chute, Water

Coaster, Flying Saucer, Pirate Ship, and Moonraker. The Cave Ride is the latest

addition, and is perhaps the only of it’s kind in this part of the world.

Aquatica, an 8-acre water park, is situated at Rajarhat in Kolkata, which came up in 2000. This

Theme Park offers visitors a cool respite from the heat and grime of city life. The park, which

can accommodate around 5000 people, has an artificial river meandering through it. Visitors


can swim and wade in the river water, which is recycled every hour for maintaining the

cleanliness. Aquatica has breathtaking rides such as the Black Hole, Tornado and Wave Pool.

The Aqua Dance Floor, where visitors can sway to non-stop music, has water spraying nozzles

on the roof which fill the surrounding air with water. Aquatica also hosts big events and

programs like fashion shows which are great crowd-pullers. The medium and large-format,

branded and non-branded shopping complexes/malls which have come up in Kolkata, and are

operating successfully, are:

o Forum: It is a two lakh square feet mall, situated on Elgin Road , in South Kolkata with

Shopper’s Stop as anchor .This shopping mall established by Sunsam properties within the

Saraf Group was opened to the public in March 2003 , with the launch of Shopper’s Stop.

Along with the retail brands having their outlets, the Forum also houses, a 300 capacity

food court and a 4-auditorium multiplex called INOX. The multiplex, INOX has been the

first of its kind in the city, having a sitting capacity for over 1000 viewers, and situated over

30000 square feet. Hence it can be really a great experience of shopping and movie-going

for the Kolkatans, who do not want to compromise on the quality aspect. The retail outlets

at Forum have witnessed almost 30-35 % increase in sales after the opening up of the

multiplex in 2003. Most retailers are extremely happy with the growth rate and expect their

sales to increase further in the coming months. At INOX , ticket sales have been averaging

at almost 90% of the theatre capacity – the highest box office sales amongst all the

multiplexes in the country . Forum has truly changed the experience of Kolkatans with

regard to shopping and entertainment in the city.

o 22 Camac Street: This large format-shopping complex is located on Camac Street. The

retail brands like Pantaloons ,Westside , Pizza Hut, Planet M, Grain of Salt and Add Life ,

have already set up their outlets in the complex. It has 4 distinct blocks with a common

atrium. The most advantageous aspect here is its huge parking space in the basement. It

also houses smaller multi-branded outlets. The footfalls stay steady throughout the week

and gets to an uncontrollable high over the weekend .Some of the outlets rank among the

leading individual retail outlets of the country . The total floor area of the complex is

380,000 square feet , and has 4 restaurants and 3 banquet halls


o Metro Plaza: Situated on Ho Chi Minh Sarani , this is basically a large scale retail cum

office development area . The lower three floors with an area of 50,000-60,000 square feet

is meant for retail business. Along with the retail units there is also a space for Bowling

which is frequented by younger people.

o Emami No. 1: This mall is located on Lord Sinha Road . Its close proximity to the

Chowringhee-Park Street belt helps it to cater to a large section of quality conscious

consumers. The usual facilities of power backup, vertical transportation and parking are

available over here. The biggest disadvantage that it faces is its car parking area, which has

a meager capacity of just 70 cars at a time. The biggest attraction here is its “Landmark

bookstore“ on the third floor, which has a wide range of books, music and stationary items.

o City Centre: The recently inaugurated ‘City Centre’ project adds another feather to the

already vibrant retail business in the city. The project, promoted by industrialist.

Harshvardhan Neotia, and located at Salt Lake, has been designed by one of India’s best

known architects, Charles Correa. ‘City Centre’ is a dynamic mix of shopping mall,

Cineplex (INOX), entertainment area, food court, offices, and residences- nestling amidst

open spaces, lush greens, and the contours of an ideal cityscape. Big brands like Shopper’s

Stop and Adidas have set up their shops in the complex. There are several aspects to ‘City

Centre’ ; with no boundaries to separate it from the street, it is open to everyone- all income

and age groups. The Complex has a parking space for as many as 800 cars, 14 entry and

exit points, and large spaces to amble around. The ‘City Centre’, which is the single-largest

architectural endeavour in Kolkata in recent times, has truly changed the way the city looks,

and complements the city’s artistic heritage. The location of the project makes Salt Lake

the epicenter of not just its immediate population (nearly half a million), but also of the

upcoming, adjoining township of Rajarhat (with an expected population of about 750,000).

o Enclave: Spread over 36,000 sq. ft., the Enclave, has come up at up-market Alipore and has

five shopping levels, and an open-to-sky atrium. The complex, promoted by the Calcutta


Metropolitan Group, has fine restaurants including Food Bar, Red Bar, Cookee Bar, coffee

shops, a childrens’ entertainment zone named ‘Kool Kids’, among other facilities.

Another prominent supermarket which offers a wide range of products, and provides customers

with a great shopping experience, is C3- The Market Place. The shop commands over 6100

sq.ft. in the heart of Kolkata, at Lee Residency, 26, Lee Road. The approximately 25,000-

strong product menu includes a wide range of products like fresh fruits and vegetables, rare

herbs, groceries, ready-to-eat food, personal-care items, confectionaries, chocolates, home-care

products, newspapers, magazines, and so on. Though the retail business mainly revolves

around Kolkata, towns like Durgapur, Siliguri and Haldia also have the potential of becoming

busy retail addresses. Already, the Durgapur City Centre project, promoted by Bengal Shristi

Infrastructure Development Ltd., has come up in Durgapur, in Burdwan district. The project,

which was inaugurated on the 10th of August, 2003, is a modern, multi-facility, multi-utility,

urban plaza, spread over a sprawling 370,000 sq.ft. It is a confluence of shopping, commerce,

entertainment, education, recreation, health, hospitality, medical amenities, and premium

residential

accommodation. Lush green open spaces, an integrated entertainment multiplex, and various

other urban amenities, provide a fascinating experience. Durgapur is well connected by both

rail and road, and the project location is easily accessible from the bordering towns of Asansol,

Ranigunj, Santiniketan, and Burnpur.

A number of prominent projects in the retail sector are coming up in Kolkata. Some of these

are:

o South City: The upcoming, 31-acre South City project promises of a lifestyle of

international standards. The project will have four 35-storey residential towers, a sprawling

club, a shopping mall with entertainment zones, and a multiplex. Modern technology will

ensure earthquake resistance, high-speed elevators, adequate firefighting and protection

systems, internal security and traffic management, and all conceivable civic comforts. The

in-complex South City Academy, spread over 3.5 acres, will be equipped with a learning


resource center, gym, cafeteria, an auditorium for extracurricular activities like debates,

dramatics, and sports, and a soccer field. The South City Club will have an air-conditioned

sports center, guest rooms, banquet facilities, swimming pools, a dining restaurant, a pub

lounge, a business center, and a health club, among other things. The mega complex will

also have India’s largest shopping mall- the Junction, spread across an area of 700,000

sq.ft., which will have large anchor stores, a multiplex, a food court, a six-screen Cineplex,

an entertainment zone, and parking space for nearly 800 cars.

The team behind this big venture comprises a host of experienced architects and

developers. Among them are : Dulal Mukherjee & Associates (the principal architects);

Smallwood Reynolds Stewart Stewart & Associates Inc., the Atlanta-based international

design consultants; Peridian Asia PTE Ltd., Singapore-based landscape architects;

Meinhardt (Singapore) PTE Ltd., structural consultants; and MN Consultant, structural

engineers.

o Mani Square: Mani Square, a proposed project on a 4-acre plot next to Apollo Gleneagles

Hospital on E.M.Bypass, will have a 500,000 sq ft. space, which will include a technology

park, a 6-screen multiplex , a food court , business club , a multilevel 1000-car parking area

, a 40,000 sq ft. hypermart ( “Giant” ), as well as other direct retail stores .Designed and

engineered by SAA Architects of Singapore and Meinhardt of Australia , and promoted by

the Mani Group, Mani Square will be the single stop solution to all requirements of

modern-day professionals and customers . The project will have ready-to-use centrally air-

conditioned offices with 100% power back-up ,lease lines and round-the-clock support

services , which will be extremely attractive for IT and ITeS companies .Retail giants like

Lifestyle , Westside , Shoppers’ Stop and Cineplex majors like Shringar and PVR have

already shown interest to set up units in the complex .

o Fort Knox: Fort Knox, a mega jewelry mall, owned and promoted by the Fort Group, is

scheduled for a September, 2004 inauguration. The project, a 9-storied complex, on an area

of approximately 80,000 sq.ft., will have an estimated 37 showrooms, 40 offices, backed by

4 lifts, 8 escalators. The Fort Group is confident about eliciting a positive consumer


response, and providing the customer with a comfortable, secure, and refreshing shopping

experience, by creating access to the best products, from the best jewelers, at the best

prices. The project, which is coming up at Camac Street, will have a formidable line-up of

security measures including alarm system with instant links to the police headquarters and

fire services, 24-hour armed security guards, etc.

o Gariahat Mall: Gariahat Mall, which is coming up at an area between the Gariahat crossing,

and the Rashbehari- EM Bypass Connector, will approximately be of 80,000 sq.ft., and will

be accessible from every point in the southern belt of the city. The 5-floor structure will

boast of world-class facilities and ambience, an expansive atrium, high ceilings, capsule

lifts, and multi-level access up to the top floor. The scientific fusion of lofty ceilings, flat

slabs, and a central atrium illuminated by natural light, is intended to evoke a sense of

space, height, and depth. While an entire block has been earmarked for the anchor shop, the

3rd and the 4th floors are entirely reserved for jewelry outlets, and the 5th floor will house

restaurants and eating places. Toplight Commercials Ltd. (TCL), one of the prominent real-

estate developers in Kolkata, and the promoter of the mall, expects to complete the project

by December, 2004.

o Metropolis: The 1,41,000 sq.ft. ‘Metropolis’ will be one of Kolkata’s newest retail-cum-

entertainment addresses. The complex will have a 4-screen, 1000-seater Cineplex, a 6-

outlet food court, a sports bar, a restaurant, and a 350-capacity car park. Being developed

by the Calcutta Metropolitan Group (CMG), the ‘Metropolis’ is designed by

the reputed architectural firm, Peddle Thorp International of Hong Kong, and will come up

at an area adjacent to CMG’s prestigious existing residential complex, ‘Hiland Park’, which

has about 900 apartments and 35 penthouses. ‘Metropolis’ will have the Hyatt Regency,

ITC Sonar Bangla, Peerless Hospital, and Udayan Condoville among its distinguished

neighbours.

o Pam Shopping Centre: The marvelous Pam Shopping Centre, promoted jointly by Pam

Developers, and the Kolkata Municipal Corporation, is scheduled for an end-August (2004)

inauguration. This 60,000 sq. ft. eye-catcher at Rashbehari Avenue, will boast of a unique


reflective glass curtain, and an artistically landscaped entrance ramp, besides having five

levels of shopping. The Complex will have shops selling a wide range of products

including garments, and jewelry.

o Homeland: Homeland, a 1,00,000 sq. ft. exclusive shopping mall, promoted by the Merlin

Group, is coming up in the heart of Central Kolkata, close to Chowringhee and Elgin Road

crossing. The five-storied, centrally air-conditioned shopping center will have stylish

spaces ranging from 300 sq. ft. to 2000 sq. ft., and spacious exhibition and product launch

area. The mall will also have ATM centers at convenient points, internationally styled café

and food stops, 24-hour power backup facility, and adequate car parking facilities.

o Silver Springs: ‘Silver Springs’, a prestigious joint venture project between Bengal Silver

Springs Projects Ltd. and the Kolkata Municipal Corporation, is due for a December, 2005

completion. Shapoorji Pallonji has done the piling of ‘Silver Springs’, and renowned architect J.P.Agarwal has designed the project. The project will have

around 500 residential flats, 10 high-rises of 18 and 14 stories, a magnificent shopping mall

named ‘Silver Arcade’, of 70,000 sq.ft. area, and a ‘Spring Club’ of an area of 70,000 sq.ft.

The vendors at the shopping mall include Mainland China and a Hyundai dealer-

showroom. ‘Silver Arcade’ will be a G+3 mall, with the 3rd floor being taken up by

Mainland China for 3 specialty restaurants; while the 2nd floor will have a Food Court with

17 multi-cuisine food counters. The mall will be backed by a large parking space for 150

cars. ‘Silver Springs’ will boast of a modern, up-market residential complex, the shopping

mall, ‘Silver Arcade’, a Montessori School, an AC Community Hall, among other new-age

facilities.

Bhubaneshwar is another city, which has the potential of becoming a retail hotspot in the

East. The city is fast developing into a bustling center for economic activity, with software

giants like Infosys and Satyam have already set up their offices. This is giving rise to a new

breed of consumers with high disposable incomes; thereby creating lifestyle and aspiration

levels at par with other fast-moving metropolitan cities. Bhubaneshwar represents two faces


of retailing - one, a traditional store evolving with time, and another, a recently inaugurated

mall from a group that is credited with having revolutionized the retail scenario in Kolkata.

o Satyam Shivam Sundaram: This 25 year old multi-brand department store is famous for its

offerings in textiles and ready-to-wear garments. The uniqueness of the store lies in its

ability to inculcate the latest retail concepts in terms of selection and display of

merchandise in-store ambience, and other attractive features. This 8,000 sq ft. store, which

is being upgraded to a 16,000 sq ft. one, spends a good amount of money annually on

brand-promotion exercises. At the store, half of the retail space is devoted to menswear , 25

% to womens’ wear , 15% to children’s wear , and the rest 10% to teenagers . About Rs. 25

lakh in systems, while the standing stock of merchandise is worth about Rs. 5 crore.

o Forum Mall: Bhubaneshwar’s Forum mall, launched on 29th of March,2004, is expected to

bring in a turning point in the city’s retailing and retail real-estate development. Located at

Kharvel Nagar, Unit III, in the Central Business District, the mall is the brainchild of Rahul

Saraf, the man who masterminded the success of Forum at Kolkata. The 4-level Forum mall

has a total area of 170,000 sq.ft., with 115,000 sq.ft. devoted to the retail and F&B. The

ground, first, and second floors, is dedicated to pure retailing, while the food court and

entertainment zones are located on the third floor. The top floor is reserved for IT and

related business and trade. The prominent brands that have taken space in the mall include

Big Bazar (anchor), Pizza Hut, Moustache, Dukes, Sree Leathers, Baskin Robins, Planet M,

among others. The upcoming brands include Benetton, Blackberry’s, Chandrani Pearls,

Bata, and Siyaram’s. The mall has received a great response; the average footfalls being

7000 per day, with expectations of an increase to 8000. Forum has not only become a

shopping destination for the people of Bhubaneshwar, but also for people from surrounding

areas like Cuttack and other towns in the state.

The retail revolution is slowly making changes in lifestyle in smaller towns also. This is

evident from the fact that even a small town like Bhagalpur in Bihar, today has it’s own

shopping mall. The already operational shopping center, named “Sriyash Aap Ka Apna

Bazar”, located at Jiwan Sagar Towers, D.N. Singh Road, has been promoted by the


Kishorepuria Group of Companies. The 2 floor- Rs.1.10 crore project has about 11,000

sq.ft. of total retail space, and offers a wide range of products like garments, appliances,

furniture, cosmetics, electronic items, among others. The mall, which has a parking space

for 10 cars, and 50 motorbikes, has received great response- the average footfalls being

900-950. There are plans to further improve infrastructural facilities in the complex; a well

equipped food court is coming up, with Hindustan Lever Ltd. (HLL) as one of the possible

partners.

The East is fast emerging as a formidable retail market. The spread of retailing beyond Kolkata

would create an integrated ‘retail zone’ which would change the way people in this part of

India work and live.

RETAILING OPPORTUNITIES IN INDIA

Recent Trends

o Retailing in India is witnessing a huge revamping exercise as can be seen in the graph

o India is rated the fifth most attractive emerging retail market: a potential goldmine.

o Estimated to be US$ 200 billion, of which organized retailing (i.e. modern trade) makes up

3 percent or US$ 6.4 billion

o As per a report by KPMG the annual growth of department stores is estimated at 24%

o Ranked second in a Global Retail Development Index of 30 developing countries drawn up

by AT Kearney.

o Multiple drivers leading to a consumption boom:

Favorable demographics

Growth in income

Increasing population of women

Raising aspirations: Value added goods sales

o Food and apparel retailing key drivers of growth

o Organized retailing in India has been largely an urban


o Phenomenon with affluent classes and growing number of double-income households.

o More successful in cities in the south and west of India. Reasons range from differences in

consumer buying behavior to cost of real estate and taxation laws.

o Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural

market across most categories of consumption

ITC is experimenting with retailing through its e-Choupal and Choupal Sagar

ï¿½ rural hypermarkets.

HLL is using its Project Shakti initiative ï¿½ leveraging women self-help groups

ï¿½ to explore the rural market.

Mahamaza is leveraging technology and network marketing concepts to act as

an aggregator and serve the rural markets.

o IT is a tool that has been used by retailers ranging from Amazon.com to eBay to radically

change buying behavior across the globe.

Retailing has seen such a transformation over the past decade that its very definition has

undergone a sea change. No longer can a manufacturer rely on sales to take place by ensuring

mere availability of his product. Today, retailing is about so much more than mere

merchandising. Itï¿½s about casting customers in a story, reflecting their desires and

aspirations, and forging long-lasting relationships. As the Indian consumer evolves they

expects more and more at each and every time when they steps into a store. Retail today has

changed from selling a product or a service to selling a hope, an aspiration and above all an

experience that a consumer would like to repeat.

Retailing in India is currently estimated to be a US$ 200 billion industry, of which organized

retailing makes up a paltry 3 percent or US$ 6.4 billion. By 2010, organized retail is projected

to reach US$ 23 billion. For retail industry in India, things have never looked better and

brighter. Challenges to the manufacturers and service providers would abound when market

power shifts to organized retail.


CRM IN RETAIL MANAGEMENT

CRM in Retailing - Indian Perspective

What is CRM?

For a long time, marketers implemented their 4Ps strategy to attract and satisfy their target

customers. But post-liberalization, the highly competitive and dynamic business environment

has forced the businesses to think not only to attract but also to retain their customers,

especially profitable ones. This approach of businesses to build, and maintain one-to-one life-

long relationship with their large number of customers has led to the emergence of a new term

CRM, which stands for Customer Relationship Management. This change in perspective is also

supported by research findings that it costs up to 6-8 times more to attract a new customer than

to retain an existing customer (Gruen, 1997). Moreover, studies have shown that a small

proportion of the customer base (20% or less) accounts for more than 70-80% of firm's

revenues and profits.

CRM, as concept, according to Scoot Fletcher, started gaining prominence in early 1997, and

emerged as a management buzz and a topic of interest among business firms, media, software

vendors, management gurus and academic institutions.

In words of Parvatiyar and Seth (2001), "CRM is a comprehensive strategy and process of

acquiring, retaining, and partnering with selective customers to create superior value for the

company and the customer." It is a process or methodology used to learn more about

customers' needs and behaviors in order to develop stronger relationships with them.

Greenleaf and Winer (2002) have explained CRM as, "Customer Relationship Management is a

business strategy to select and manage customers to optimize long-term value." CRM is a

business approach that integrates people, processes, and technology to maximize the relations

of an organization with all types of customers.


CRM in Retailing

Levy and Weitz, authors of "Retailing Management", define CRM as, "A business philosophy

and set of strategies, programs, and systems that focuses on identifying and building loyalty

with a retailer's profitable customers." It is based on the business philosophy that all customers

are not profitable in the same way and retailers' can increase their profitability by building

relationships with their better customers. The goal is to develop a base of loyal customers who

patronize the retailer frequently.

CRM is an iterative process that turns customer data into customer loyalty through four

sequential activities shown in the CRM Model (Exhibit 1).

CRM Model

CRM is quite a new phenomenon in retailing industry. It is only big retailers who have

installed CRM systems to identify and track customer purchases and take appropriate

management decisions, especially on managing customer relationships. Now, organized

retailers like Big Bazaar, Westside, Shoppers' Stop, etc., have started concentrating on

providing more value to their valuable customers using targeted promotions and services to

increase their share of wallet, i.e., the percentage of the customers' purchases made from these

retailers with these customers. Almost all of them have started Loyalty Programs, i.e., frequent


shoppers program in order to reward the existing customers. These programs help the retailers

in increasing the number of footfalls as well as enhancing their sales revenues and profits. For

example, Shoppers' Stop, one of the leading apparel retailer in India, had net sales of Rs.1.6

Billion, increasing net profits by 96% with the company's loyalty program, First Citizen Club

(a CRM program) accounting for 63% of the sales. (Source: Economic Times, August 12,

2006).

THE POINT-OF-SERVICE APPLICATION MUST BE UPDATED

The POS system remains the most mission-critical application in any retail environment,

and it must support the way customers want to interact with the retailer. It must be available

100 percent of the time. POS is the base platform that is enabling several other applications around

it.

Many of the top-tier supermarket chains are running on older, industry- hardened platforms

that will simply "run out of gas." The functions and capabilities of these older POS applications are

limited. Integrated Electronic Payment Systems add to the complexity of this environment.

Point-of-Sale technology is already going through another evolution. To mitigate the risk of

riding older technology too long, and the problem of supporting an "orphaned OS," many

supermarket companies are developing migration strategies to move to newer platforms.

Newer operating systems that enable easier development, device "plug and play" capability,

integration with other systems, flexibility, and manageability offer lower lifecycle cost

opportunities. Cutting-edge POS systems are self-managing, self-diagnosing, and, in many cases,

self- healing. Many retailers view POS as a commodity. This thinking will change as retailers

adopt newer-generation POS systems and find ways to enable more "customer-friendly"

interactions with customers. The result will be a better shopping experience for the customer and

a strategic advantage for the retailer. POS requires a major investment on the part of the retailer,

and it is absolutely essential that supermarket companies that find themselves behind the

technology curve begin their move towards the new generation POS technology. It is important


that retailers choose a platform capable of supporting legacy POS applications, in order to

provide an easier migration path to the future, and to help control capital expenditure costs.

MOBILE TERMINALS WILL PUT EMPLOYEES OUT ON THE SALES FLOOR

From a store employee point of view, new technology will emerge in ways to help

workers and managers do more with less. Wireless technologies and mobile devices will continue to

allow employees to spend more productive time out on the sales floor where the work needs to be

done. More importantly, managers can better focus on what is important to the business, and spend

more time in face-to-face, personal interactions with customers on the floor. Real-time alerts

can greatly reduce unnecessary out-of-stock conditions, one of the biggest complaints customers

have in supermarkets today. Other key performance indicators will be at managers'

fingertips. This will empower front-line managers to be proactive rather than reactive on key

decisions that affect the operations in the store.

cmr college of engineering & techonology

Documents