module 2- retail mkt strategy
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Module 2
RETAIL MARKET STRATEGY
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Retail Market
• We define a retail market not as a
specific place where buyers andsellers meet
• it is a group of consumers with
similar needs (a market segment)
and a group of retailers using asimilar retail format to satisfy those
consumer needs
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Retail Market Strategy
•
A retail strategy is a statementidentifying
• (1) the retailer’s target market
• (2) the format the retailer plans to use
to satisfy the target market’s needs
• (3) the bases upon which the retailer
plans to build a sustainable competitive
advantage
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Target Market
1
•
The target market is themarket segment (s)
toward which the retailer
plans to focus its
resources and retail mix
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• A retail format is the retailer’s
mix ( nature of merchandise and
services offered, pricing policy,
advertising and promotion
program, approach to store
design and visual merchandising,and typical location)
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2
• A sustainable competitive
advantage is an advantage
over competition that can
be maintained over a long
time
Sustainable Competitive Advantage
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Building a Sustainable Competitive
Advantage
• The final element in a retail
strategy is the retailer’s
approach to building a
sustainable competitive
advantage
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• 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
Building a Sustainable Competitive
Advantage
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• Customer Loyalty means that customers are committed to shopping at the retailer’s
locations
• Loyalty is more than simply liking one retailer over another
• Loyalty means that customers will be reluctant to patronize competitive retailers
• For example, loyal customers will continue to shop at Restoration Hardware even if Pottery
Barn opens a store nearby and provides a slightly superior assortment or slightly lower price
Customer Loyalty
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• Some ways that retailers build loyalty are by (1) developing clear and
precise positioning strategies and (2) creating an emotional
attachment with customers through loyalty programs
Customer Loyalty
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• Positioning: A retailer build customer loyalty by developing a clear, distinctive
image of its retail offering and consistently reinforcing that image through itsmerchandise 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
Customer Loyalty
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• Loyalty Programs: are part
of an overall customerrelationship management
(CRM) program
• These programs are
prevalent in retailing, from
airlines and department
stores to the corner pizza
shop
• Customer loyalty programs
work hand- in- hand with
CRM
Customer Loyalty
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Location
•The classic response to the question “What
are the three most important things inretailing?” is “location, location, and location”
•Location is the critical factor in consumer
selection of a store
•It is also not a competitive advantage that is
not easily duplicated
•For instance, once Walgreens has put a store
at the best- location of an intersection, CVS is
relegated to the second best- location
•Finding great locations is particularly
challenging in older urban locations, where
space is finite and tenant turnover is relatively
slow
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Human Resource Management
• Retailing is a labor- intensive business
• Employees play a major role in providing
services for customers and building
customer loyalty
• Knowledgeable and skilled employees
committed to the retailer’s objectives
are critical assets that support the
success of companies such as Southwest
Airlines, Whole Foods, Home Depot and
Men’s Wearhouse
• Recruiting and retaining great
employees does not come easy
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• All retailers strive for
efficient operations• They want to get their
customers the
merchandise they want,
when they want it, in thequantities that are
required, at a lower
delivered cost than their
competitors
Distribution and Information Systems
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• By doing so, they will satisfy their customers’
needs and , at the same time, either providethem with lower- priced merchandise than
their competition or decide to use the
additional margin to attract customers from
competitors by offering even better service,
merchandise assortments, and visual
presentations
• Retailers can achieve these efficiencies by
developing sophisticated distribution and
information systems
Distribution and Information Systems
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• It is difficult for retailers to develop a competitive advantage through merchandise because
competitors can purchase and sell the same popular national brands
• But many retailers realize a sustainable competitive advantage by developing private- label
brands (also called store brands), which are products developed and marketed by a retailer
and available only from that retailer
Unique Merchandise
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• By developing strong relations with vendors,
retailers may gain exclusive rights (1) to sell
merchandise in a region, (2) to obtain special
terms of purchase that are not available to
competitors who lack such relations, or (3) to
receive popular merchandise in short supply
• Relationships with vendors, like relationships
with customers, are developed over a longtime may not be easily offset by a competitor
• For example, Ahold, the Holland- based food
retailer, works very closely with Swiss food
giant Nestle to bring its customers products
tailored to meet the tastes of customers inlocal markets
Vendor Relations
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• Retailers also build a sustainable competitive advantage by offering excellent customer
service
• But offering good service consistently is difficult
• Customer service is provided by retail employees – and humans are less consistent than
machines
Customer Service
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• To build a sustainable competitive
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
• For example, McDonald’s success is based
on providing customers with a good value
that meets their expectations, having good
customer service, maintaining good vendor
relations and having great locations
• By doing all of these things right,
McDonald’s has developed a huge cadre of loyal customers
Multiple Sources of Advantage
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• There are four types of growth opportunities that retailers may pursue:
1. Market Penetration
2. Market Expansion
3. Retail Format Development
4. Diversification
Growth Strategies
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1. Market Penetration
• A market penetration opportunity
involves directing efforts toward
existing customers by using the
present retailing format
• The retailer can achieve this growth
strategy either by attracting
customers in its current target
market who don’t shop at its outletsor by devising strategies that
devising strategies that induce
current customers to visit a store
more often or to buy more
merchandise on each visit
• Approaches for increasing market
penetration include attracting new
customers by opening more stores
in the target market and training
salespeople to cross- sell
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• Cross- selling means that sales associates in
one department attempt to sell
complementary merchandise from other
departments to their customers
• For example, a sales associate who has justsold a dress to a customer will take the
customer to the accessories department to
sell her a handbag or scarf that will go with
the dress
•More cross- selling increases sales fromexisting customers
1. Market Penetration
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• A market expansion
opportunity employs the
existing retail format in new
market segments
• For example, when the French
hypermarket chain Carrefour
expanded into other Europeanand South American countries,
it was also employing a market
expansion growth strategy
because it was entering a new
geographic market segment
with essentially the same retail
format
2. Market Expansion
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• A retail format development opportunity involves offering a new retail format- a
format with a different retail mix- to the same target market
• For example, Barnes & Noble, a specialty book store- based retailer, exploited a
format development opportunity when it began selling books to its present target
market over the internet
3. Retail Format Development
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• A diversification opportunity is when a retailer introduces a new retail format
directed toward a market segment that’s not currently served
• Diversification opportunities are either related or unrelated
4. Diversification
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• In a related diversification opportunity, the present target market or retail format
shares something in common with the new opportunity
• This commonality might entail purchasing from the same vendors, using the same
distribution or management information system, or advertising in the same
newspapers to similar target markets
• In contrast, an unrelated diversification lacks any commonality between the
present business and the new business
Related V/s Unrelated Diversification
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• Vertical integration is diversification by retailers into wholesaling or
manufacturing
• When a retailer integrates by purchasing or otherwise partnering with
distribution or manufacturing concerns, it is engaging in backward integration
because the requisite skills are different from those usually associated with
retailing
• Additionally, retailers and manufacturers have different customers- the
immediate customers for a manufacturer’s merchandise are retailers, whereas a
retailer’s customers are consumers
• Thus, a manufacturer’s marketing activities are different from those of a retailer
• Note that some manufacturers and designers like Nike, Prada, and Ralph Lauren forward integrate into retailing
Vertical Integration
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• Four characteristics of retailers that have successfully exploited
international growth opportunities are (1) globally sustainable
competitive advantage, (2) adaptability, (3) global culture, and (4)
deep pockets- Refer Page 164 of Text for explanation of the points
Keys to Success
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• Four approaches that retailers take when entering non- domestic
markets are direct investment, joint venture, strategic alliance and
franchising- Refer Page 166 in Text
Entry strategies
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b. Complementary Services: Another way to inventory demand is by
adopting a management system for ‘queuing’, i.e. the time that
customers spend in waiting can be made productive and enjoyable. For
example, restaurants have discovered the benefits of complementary
services by adding a bar, or diverting the waiting customers into the
lounge during busy periods can be profitable to the restaurant as well
as soothing to anxious customers, or selling pop corn and soft drinks inthe movie theaters. This in turn is an important revenue service.
The Strategic Retail Planning Process