retail strategy

RETAIL STRATEGY

Retail Objectives

Retail Mission

Personal Objectives

Market performance

objectives

Financial performance

objectives

Societal Objectives

Self Gratification

Market Share

Sales Volume

Profitability

Productivity

Employment

Taxes

Benefactor

Equity Consumer

Consumer Choice

Power & Authority

Status & Respect

RETAIL STRATEGYRETAIL STRATEGYA clear and definite plan outlined by the retailer to

tap the marketA plan to build a long-term relationship with the

consumersProcess of strategy formulation in retail is the same

as that for any other industryIt starts with the retailer defining or stating the

mission for the organizationThe mission is at the core of the existence of the

retailerOther aspects of the strategy may change over a

period of time or vary for different markets

Retail StrategyA function of how effectively the controllable variables

are managed while countering the uncontrollable variables.

Retail controllable variables Store location Merchandise selection / management / prices Communicating with & handling customers Managing the retail operations / human element.

Retail un-controllable variables Consumers Competition Economic conditions Legalities / taxation Technology

RETAIL STRATEGY

1. Establish Mission2. Analyze Situation Objectives3. Identify Options4. Set Objectives5. Obtain & Allocate Resources6. Develop Implementation Plan7. Monitor Progress & Control

RETAIL STRATEGYDEFINE MSSION OR PURPOSE Mission statement is a long term purpose of the

organization It describes what the retailer wishes to accomplish

in the markets in which he chooses to operate Retailers mission statement would normally

highlight the following1. The products and services that will be offered2. The customers who will be served3. The geographic areas that the organization chooses

to operate in4. The manner in which he firm intends to compete

RETAIL STRATEGYCONDUCT A SITUATION ANALYSIS

Once the retail mission is defined, the retail organization needs to look inwards

Understand what its strengths and weaknesses are Look outwards to analyze its opportunities and threats Situation analysis helps the retailer determine his

position and his strengths and weaknesses Helps formulate a clear picture of the advantages and

opportunities which can be exploited The weaknesses need to be worked upon This forms the basis or he core element of any strategy

RETAIL STRATEGYIDENTIFY OPTIONS / STRATEGIC

ALTERNATIVES

After determining the strengths and weaknesses vis-à-vis the environment retailer needs to consider various alternatives available to tap a particular market

Igor Ansoff presented a matrix which looked at growth opportunities

He focused on firm’s present and potential products in the existing and new markets

Ansoff’s matrix also helps to understand the options available to a retailer

RETAIL STRATEGYIDENTIFY OPTIONS / STRATEGIC

ALTERNATIVES

The alternatives available to a retailer are :

Market Penetration Market Development Retail Format Development Diversification

RETAIL STRATEGY

product

MARKETS

RETAIL STRATEGYMARKET PENETRATION Strategy may focus either on: - Increasing the number of customers - Increasing the quantity purchased by

customers(basket size) - Increasing the frequency of purchase

Increasing the number of customers can be achieved by adding new stores and by modifying the product mix

Another approach is to encourage salespeople to cross sell

Market penetration strategy is the least risky one, since it leverages many of the firm’s resources and capabilities

However, market penetration has limits Once the market approaches saturation, a new strategy

needs to be pursued if the firm is to continue growth

RETAIL STRATEGYMARKET EXPANSION / DEVELOPMENTWhen a retailer is said to reach out to new market segments

or completely changes his customer base

This strategy involves : - Tapping new geographical markets - Introducing new products to the existing range that

appeal to a wider audience Expansion by adding new retail stores to existing network

is an example of geographical expansion Introducing a pharmacy in a supermarket (eg. The

medicine Shoppe at the Haiko Supermarket in Mumbai) is an example of a retailer introducing new products, appealing o a different audience

Another example is McDonald’s who introduced ice creams for Rs.7

This not only created add on sales, but also brought in customers who had the perception that McDonald’s is an expensive fast food restaurant

RETAIL STRATEGYRETAIL FORMAT DEVELOPMENTWhen a retailer is said to introduce new retail format to

customers

Example fast food retailers like McDonald’s and Subway offer limited menus inside large department stores

Another example is bookstore chain Crosswords, opening smaller format stores by the name Crossword Corner at Shopper’s Stop

Strategy may be appropriate if the retailer’s strengths are related to specific customers, rather than to specific products

In this situation retailer can leverage its strengths by developing a new product targeted to his existing customers

RETAIL STRATEGYSET OBJECTIVES Translation of mission statement into operational terms Indicate 1. Results to be achieved2. Give direction to and set standards for the measurement of

performance3. Management sets both long term and short term objectives4. One or two year time frames for achieving specific targets are short

term objectives5. Long term objectives are less specific and reflect the strategic

dimension of the firm

Two important focus areas of retailers - Market Performance - Financial PerformanceObjectives are set keeping these focus areas in mind Sales volume targets Market hare targets Profitability targets Liquidity targets Returns on investment targets

RETAIL STRATEGYOBTAIN AND ALLOCATE RESOURCES NEEDED TO COMPETE

Resources needed by a retailer - Human Resources

- Financial Resources

1. Human Resource HR plan must be consistent with overall strategy of the

organization HR management focuses on issues such as recruiting, selecting,

training,

compensating, and motivating personnel These activities must be managed effectively and efficiently

2. Financial Resources Takes care of the monetary aspects of business Shop rent, salaries and payments for merchandise

RETAIL STRATEGYDEVELOP THE STRATEGIC PLAN

At this stage strategy is determined through which retailer will achieve objectives

1. The retailer determines and defines his target market2. The retailer finalizes the retail mix that will serve the audience

Target Market – that segment of consumer market that the retail orgn.decides to serve

No definite process of deciding and selecting the target market

Most retailers look at the entire market in terms of both size and consumer segments to

which it might appeal

From these segments he identifies smaller number of segments that appear promising

These become possible targets

Variables like growth potential, investment needed to compete, the strength of competition, etc are evaluated.

This enables the retailer to arrive at the best alternative that is most compatible with the organizations resources and skills


Considerations for successful market segmentation

1. Measurable : The segment should be measurable and identifiable?

2. Accessible : Focusing market marketing efforts on a particular market segment should have a positive impact towards eliciting the desired response

3. Economically viable : The expense and efforts of focusing the marketing efforts in potential segments should be justified.

4. Stable : The consumer characteristics are indicators of market potential. Hence stable indicators to be considered.


After choosing the target market the retail mix needs to be developed

This process involves the determination of the merchandise mix the pricing policy types of location the retail stores would be located at - services to be offered - communication platform that would be adopted by the retailer

Next is the formulation of positioning strategy. This refers to the image the retailer wants the customers to have in their

minds about the products and services

RETAIL STRATEGYIMPLEMENT THE STRATEGY, EVALUATE AND CONTROL Implementation is the key to success of any strategy

Effective implementation of the retailers desired positioning requires

1. Every aspect of stores to be focused on the target market

2. Merchandising must be single-minded3. Displays must appeal to target market4. Advertising must talk to the target market5. Personnel must have empathy for the target market6. Customer service must be designed with the target

customer in mind

RETAIL STRATEGYIMPLEMENT THE STRATEGY, EVALUATE AND CONTROL

After implementation the management needs feedback and should focus on

1. Performance 2. Effectiveness of long term strategy by periodic evaluation3. Ensuring that the plans do not degenerate into fragmented ad-

hoc efforts4. Ensuring that all efforts are in harmony with he overall

competitive strategy of business

Management can also use the process to decide on

1. Any future policy change2. Modifications if any, in the plan, to ensure that the combination

of the retailing mix variables support the firms strategy

RETAIL STRATEGYINTERNATIONAL EXPANSION – A GROWTH STRATEGY

Factors facilitating the rise of international retail trade

1. Removal of trade barriers between countries

2. The rise of consumerism

RETAIL STRATEGYConcept of international retailing (RETAIL INTERNATIONALIZATION)

More than just replicating retail stores in other countries and markets

Defined as “The management of retail operations in markets which are different from each other in their regulation, economic development, social conditions, cultural environment and retail structure.”

Typically retailers start as regional players

They develop operational efficiencies as they expand in size

Growth in size gives them financial resources

International expansion happens when retailer reaches a dominance in domestic market

Saturation in domestic market is also a reason for retailer to look at international expansion

RETAIL STRATEGYINTERNATIONAL EXPANSION – A GROWTH STRATEGY

Decision on entering a new market

Confidence of having a sound understanding of that market

Understanding of the cultural and buying habits of the local population

Ability to use technology, systems and processes available in that market

Understanding of the expected growth rates, density of population, income levels

RETAIL STRATEGYMETHODS OF ENTERING A NEW MARKET

Export

1. Retailer having a distinct product / own brand that may be attractive

Franchising / licensing

1. Granting permission/license to a company in target country to use the property of the licensor

2. Property is intangible such as trade marks, patents and production techniques

3. Licensee pays a fee in exchange for the rights to use the intangible property

4. For franchising to be successful it is necessary for careful selection of partners

5. Partners should share the same understanding of the parent organizations vision mission, goals and the marketing plans and strategies


Joint Venture

Strategic partnership between a local retailer and a international / foreign player

Benefits / Advantages

International player learns from expertise of domestic partner Domestic retailer learns from foreign player the international practices

Key issues

Ownership, control, length of agreement, pricing, technology transfer, government regulations.

Many joint ventures involve one local partner and one foreign player

At times for convenience two retailers can also form a JV company to enter new market


Acquisitions

One organization acquiring another organization

Easy way of entering non domestic market without any complications

Considerations : management structure new operating culture financial burden

Example : Shopper’s stop acquiring bookstore chain Crossword, Wal-mart acquiring ASDA

Mergers

Imply : Coming together of two organizations to form a combined entity

Example : Retail giants Carrefour and Promodes in Europe

RETAIL STRATEGYMETHODS OF ENTERING A NEW MARKET Organic growth

Replication of retail format in a new non domestic market within the

regulatory framework of the new market.

It gives retailer the kind of control that he requires

It also requires a great deal of investment

Factors affecting decisions on entry in particular markets

Position in the domestic market : Expertise, leader, new entrant

Access to global systems Ability to adapt to requirements of global markets Long term commitment towards business

RETAIL STRATEGYRETAIL VALUE CHAIN

Retail Field : Very challenging and dynamic

Growth : Retailer grows from a single shop to a chain of retail stores. From a local to a regional and national presence. Strategy and planning becomes very important Retailer should have a clear focus and strategy

Retail Strategy Models : Retailer can either become a pentagon player or a triangle

player

Pentagon : The retailer’s focus on - Product Image - Place - Price / Value - People - Communications


Triangle : The retailer’s focus on - Systems - Logistics - Suppliers

Above approaches to developing strategies are perhaps appropriate in mature marketplace

At present , retail in India is oriented towards the mass market As such the retailer must consider all aspects of strategy development, such

as product , price, place, communication and the supply chain There is an absence of a robust infrastructure and inadequate capabilities

of the service providers in India Thus the retailer must necessarily invest in creating the appropriate support

structure for its operations


SUPPORT FUNCTION

SUPPLIERS

THIRD PARTY LOGISTICS

RETAIL OPERATIONS

CUSTOMER MGMT

CUSTOMERS

SYSTEMS

The Gaps Model of Service QualityIntroduce a framework, called the gaps model

of service quality.Demonstrate that the most critical service

quality gap to close is the customer gap, the difference between customer expectations and perceptions.

Show that four gaps that occur in companies, which we call provider gaps, are responsible for the customer gap.

Identify the factors responsible for each of the four provider gaps.

Gaps Model of Service QualityCustomer Gap:

difference between customer expectations and perceptions

Provider Gap 1 (The Knowledge Gap):not knowing what customers expect

Provider Gap 2 (The Service Design & Standards Gap):not having the right service designs and standards

Provider Gap 3 (The Service Performance Gap):not delivering to service standards

Provider Gap 4 (The Communication Gap):not matching performance to promises

The Customer GapExpectedservice

Perceivedservice

Customer Gap

Key Factors Leadingto the Customer Gap

Provider Gap 1: Not knowing what customers expect

Provider Gap 2: Not selecting the right service designs and standards

Provider Gap 3: Not delivering to service standards

Provider Gap 4: Not matching performance to promises

Customer Expectations

Customer

Perceptions

CustomerGap

Customer Expectations

Company Perceptions of Customer Expectations

Inadequate marketing research orientation Insufficient marketing research Research not focused on service quality Inadequate use of market research

Lack of upward communication Lack of interaction between management and customers Insufficient communication between contact employees and managers Too many layers between contact personnel and top management

Insufficient relationship focus Lack of market segmentation Focus on transactions rather than relationships Focus on new customers rather than relationship customers

Inadequate service recovery Lack of encouragement to listen to customer complaints Failure to make amends when things go wrong No appropriate recovery mechanisms in place for service failures

Key Factors Leading to Provider Gap 1Key Factors Leading to Provider Gap 1

Gap1

Customer-Driven Service Designs and Standards

Management Perceptions of Customer Expectations

Poor service design Unsystematic new service development process Vague, undefined service designs

Failure to connect service design to service positioning Absence of customer-driven standards

Lack of customer-driven service standards Absence of formal process for setting service quality goals

Inappropriate physical evidence and servicescape Failure to develop tangibles in line with customer expectations Servicescape design that does not meet customer and

employee needs Inadequate maintenance and updating of the servicescape


Gap2

Service Delivery


Deficiencies in human resource policies Ineffective recruitment Role ambiguity and role conflict Inappropriate evaluation and compensation systems Lack of empowerment, perceived control, and teamwork

Customers who do not fulfill roles Customers who lack knowledge of their roles and responsibilities Customers who negatively impact each other

Problems with service intermediaries Channel conflict over objectives and performance Difficulty controlling quality and consistency Tension between empowerment and control

Failure to match supply and demand Failure to smooth peaks and valleys of demand


Gap3

Service Delivery

Lack of integrated services marketing communications Tendency to view each external communication as independent Absence of strong internal marketing program

Ineffective management of customer expectations Absence of customer expectation management through all forms of

communication Lack of adequate education for customers

Overpromising Overpromising in advertising Overpromising in personal selling Overpromising through physical evidence cues

Inadequate horizontal communications Insufficient communication between sales and operations Insufficient communication between advertising and operations Differences in policies and procedures across branches or units

External Communications to Customers


Gap4

PerceivedService

Expected Service

CUSTOMER

COMPANY

CustomerGap

Gap 1

Gap 2

Gap 3

External Communications to

CustomersGap 4ServiceDelivery


Company Perceptions of Consumer Expectations

Gaps Model of Service QualityGaps Model of Service Quality

retail strategy

Documents

retail organization

retail strategyconduct

environment retailer

options available

weaknesses vis

organizationthe mission

number of customers

situation analysisonce