Chapter 1- An Introduction to Retailing

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Chapter 1- An Introduction to Retailing Chapter
2- Building and Sustaining Relationships in
Retailing Chapter 3- Strategic Planning in
Retailing
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Retailing

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

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Issues in Retailing

• How can we best serve our customers while earning
  a fair profit?
• How can we stand out in a highly competitive
  environment where consumers have so many choices?
• High unemployment, low consumer confidence, high
  savings rates have reduced consumer spending. At
  the same time retail competition has increased
  through increased format blurring (sales of
  cameras at office supply stores, carpeting and
  major appliances at home improvement centers).
• How can we grow our business while retaining a
  core of loyal customers?

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The Philosophy

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

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The Framework of Retailing
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An Ideal Candidate for a Retailing Career

• Must be a people person (more important than
  technical knowledge). Technical skills can be
  taught more easily than people skills
• Must be flexible
• Should be decisive
• Must have analytical skills
• Must have stamina

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Table 1-1 The 10 Largest Retailers in the United
States (2011)
Rank Company Main Emphasis
1 Wal-Mart Full-line discount stores, supercenters, membership clubs
2 Kroger Supermarkets, convenience stores, jewelry stores
3 Target Full-line discount stores, supercenters
4 Walgreens Drugstores
5 Home Depot Home centers
6 Costco Membership warehouse clubs
7 CVS Caremark Pharmacies
8 Lowes Home centers
9 Best Buy Electronics, major appliances
10 Sears Holdings Department store, discount (Kmart)
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Figure 1-4 A Typical Channel of Distribution
Retailer
Manufacturer
Wholesaler
Final Consumer
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Figure 1-5 The Retailers Role in the Sorting
Process
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Multi-Channel Retailing

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

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Multi-Channel Retailing

• Cross selling across channels (in-store product
  availability info on Web site)
• Consistent pricing in all channels (credibility)
• Can buy, and return product regardless on channel
• Role of each channel
• Store try on, ease of return, fast availability
  (immediacy), compare offerings
• Web 24/7, product information, product reviews
  by customers, personalization (tailored
  assortment based on past purchases), most current
  pricing, closeout sales
• Catalog-permanency, true color

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Figure 1-6 Apple
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Distribution Types

• Exclusive suppliers make agreements with one or
  few retailers, designating such retailers as the
  only ones to carry certain brands or products
  within a specified geographic area
• Intensive suppliers sell through as many
  retailers as possible
• Selective suppliers sell through a moderate
  number of retailers

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Exclusive vs Intensive Distribution

• Exclusive Distribution Fate of retailer is tied
  to manufacturer success, retailer has no
  free-rider concerns, retailer has less price
  competition, manufacturer is better assured of
  high levels of customer support
• Intensive Distribution- Manufacturer is better
  assured of maximizing sales (especially for
  convenience goods), retailers face strong
  competition for price and service, intratype
  competition

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Figure 1-7 Comparing Distribution Types
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Figure 1-8 Special Characteristics Affecting
Retailers
Impulse Purchase
Small Average Sale
Retailers Strategy
Popularity of Stores
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Retail Strategy

• An overall plan for guiding a retail firm
• Influences the firms business activities
• Influences firms response to market forces

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Six Steps in Strategic Planning

• 1. Define the type of business (corporate
  mission)
• 2. Set long-run and short-run objectives
• 3. Determine the customer market
• 4. Devise an overall, long-run plan
• 5. Implement an integrated strategy
• 6. Evaluate and correct (fine-tune)

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Expect More. Pay Less at Target
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Aspects of Targets Strategy

• Growth objectives
• Appeal to a prime market
• Distinctive image
• Focus
• Customer service
• Multiple points of contact

• Employee relations
• Innovation
• Commitment to technology
• Community involvement
• Monitoring performance

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Figure 1-10 Applying the Retailing Concept
Customer Orientation
Retailing Concept
Coordinated Effort
Retail Strategy
Value-driven
Goal Orientation
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The Build-A-Bear Experience Never Boring
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Customer Service

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

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A Customer Respect Checklist

• Do we trust our customers?
• Do we stand behind what we sell?
• Is keeping commitments to customers important to
  our company?
• Do we value customer time?
• Do we communicate with customers respectfully?
• Do we treat all customers with respect?
• Do we thank customers for their business?
• Do we respect employees?

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Relationship Retailing

• Retailers seek to establish and maintain
  long-term bonds with customers, rather than act
  as if each sales transaction is a completely new
  encounter
• Concentrate on the total retail experience
• Monitor satisfaction
• Stay in touch with customers

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Effective Relationship Retailing

• Use a win-win approach
• It is easier to keep existing customers happy
  than to gain new ones (present value of current
  customers income stream cost of keeping existing
  customers content versus cost of replacing them
  with new customer
• Develop a customer database (loyalty programs)
• Ongoing customer contact is improved with
  information on peoples attributes and shopping
  behaviors

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Types of Loyalty Programs

• Additional discounts at register
• Not a real loyalty program
• 1 free with every n items purchased
• Easily copied, no customer database
• Rebates based on cumulative purchases
• Customer maintains records
• Can develop heavy half programs like Hilton
• Targeted offerings and mailing based on purchase
  history
• Tesco example Market research staff know more
  about my customers than board chairperson

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Relationship Management Among Retailers and
Suppliers

• Disagreements may occur in the following areas
  (channel conflict)
• control over channel (private label)
• profit allocation (resale price control)
• number of competing retailers (exclusive,
  selective or intensive distribution)
• product displays
• promotional support (cooperative advertising
  funds and restrictions)
• payment terms (payment on time)
• operating flexibility
• gray market sales
• markdown monies, chargebacks by dominant
  retailers

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Approaches to the Study of Retailing
Institutional
Functional
Strategic
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Parts of Retail Management A Strategic Approach

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

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CHAPTER 2 STRATEGIC PLANNING IN RETAILING
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Chapter Objectives

• To explain what value really means and to
  highlight its pivotal role in retailers building
  and sustaining relationships
• To describe how both customer relationships and
  channel relationships may be nurtured in todays
  highly competitive marketplace

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Chapter Objectives (cont.)

• To examine the differences in relationship
  building between goods and services retailers
• To discuss the impact of technology on
  relationships in retailing
• To consider the interplay between retailers
  ethical performance and relationships in retailing

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Definition of Value

• Value Results Process Quality
• Price Customer Access Costs
• Results Overall quality, instructions, ease of
  assembly, taste/quality/health, warranty, product
  testing by retailer
• Process Quality Wide aisles, ease of finding,
  high in-stock position, fun experience, short
  waiting times
• Price Costs delivery assembly credit
• Customer access costs warehouse club membership
  fees, inconvenient location, poor store hours,
  inadequate parking

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What is Value? (cont.)

• Channel
• Perspective
• Value is a series of activities and processes
  (the value chain) that provide a certain value
  for the consumer.

• Customer
• Perspective
• Value is a perception that the shopper has of the
  value chain.
• It is the view of all the benefits from a
  purchase versus the price paid.

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Retail Value Chain

• Represents the total bundle of benefits offered
  to consumers through a channel of distribution
• Store location and parking, retailer ambience,
  customer service, brands/products carried,
  product quality, retailers in-stock position,
  shipping, prices, image, and other elements

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

• Planning value solely from a price perspective
• Providing value-enhanced services that customers
  do not want or will not pay extra for
• Competing in the wrong value/price segment
• Believing augmented elements alone create value
• Paying lip service to customer service

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Figure 2-2 A Value-Oriented Retailing Checklist

• Is value defined from a consumer perspective?
• Does the retailer have a clear value/price point?
• Is the retailers value position competitively
  defensible?
• Are channel partners capable of value-enhancing
  services?
• Does the retailer distinguish between expected
  and augmented value chain elements?
• Has the retailer identified potential value chain
  elements?
• Is the retailers value-oriented approach aimed
  at a distinct market?
• Is the retailers value-oriented approach
  consistent?

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

• Is the retailers value-oriented approach
  effectively communicated?
• Can the target market clearly identify the
  retailers positioning?
• Does the retailers positioning consider sales
  versus profits?
• Does the retailer set customer satisfaction
  goals?
• Does the retailer measure customer satisfaction
  levels?
• Is the retailer careful to avoid the pitfalls in
  value-oriented retailing?
• Is the retailer always looking out for new
  opportunities that will create customer value?

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Customer Service

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

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

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Expected Versus Augmented Levels of Customer
Service

• Expected Must have elements do not
  differentiate retailer. While absence of these
  expected values provides anguish, presence does
  not provide satisfaction
• AugmentedServices that can provide a competitive
  advantage. Double warranty, special delivery,
  product demonstrations

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Figure 2-4 Classifying Customer Services
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Fundamental Decisions

• What customer services are expected and what
  customer services are augmented for a particular
  retailer?
• What level of customer service is proper to
  complement a firms image?
• Should there be a choice of customer services?
• Should customer services be free?
• How can a retailer measure the benefits of
  providing customer services against their costs?
• How can customer services be terminated?

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Table 2-1 Typical Customer Services

• Credit
• Delivery
• Alterations/ Installations
• Packaging/gift wrapping
• Complaints/Returns handling

• Gift certificates
• Trade-ins
• Trial purchases
• Special sales
• Extended store hours
• Mail/phone orders

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Table 2-1b Miscellaneous Customer Services

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

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

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Figure 2-6 Turning Around Weak Customer Service
Focus on Customer Concerns
Empower Frontline Employees
Show That You Are Listening
Express Sincere Understanding
Apologize and Rectify the Situation
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Principles of Category Management

• Retailers listen more to customers
• Profitability is improved because inventory more
  closely matches demand
• By being better focused, each department is more
  desirable for shoppers
• Retail buyers are given more responsibilities and
  accountability for category results
• Retailers and suppliers must share data and be
  more computerized
• Retailers and suppliers must plan together

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Figure 2-7 Elements Contributing to Effective
Channel Relationships
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Three Kinds of Service Retailing

• Rented goods services leased cars, hotel rooms,
  carpet cleaning equipment
• Owned goods services plumbing, appliance repair,
  
• Non-goods services haircut, professional
  services (physician, lawyer)

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Four Characteristics of Services Retailing

• Intangibility
• Inseparability
• Perishability
• Variability

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Figure 2-8a Characteristics of Service Retailing
Intangibility

• No patent protection possible
• Difficult to display/communicate
• service benefits
• Quality judgment is subjective
• Some services involve
• performances/experiences

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Figure 2-8b Characteristics of Service Retailing
Inseparability

• Consumer may be involved in
• service production
• Centralized mass production difficult
• Consumer loyalty may rest
• with employees

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Figure 2-8c Characteristics of Service Retailing
Perishability

• Services cannot be inventoried
• Lost revenues from unsold services are lost
  forever
• Effects of seasonality can be severe
• Planning employee schedules can be complex
• Need to balance supply and demand
• (yield management pricing)

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Figure 2-8d Characteristics of Service Retailing
Variability

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

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Figure A2-1 Lessons in Service Retailing
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Technology Icons
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Examples of Consumerism in Retailing

• Proper testing of items for safety issues
• Programming cash registers not to accept payment
  for recalled goods
• Charging fair prices for goods in short
  supply--Home Depot plywood example in hurricane
• Age labeling of toys, warning labels on goods
  beyond legal requirements

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Store Sale
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Understanding the Americans with Disabilities Act
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• CHAPTER 3STRATEGIC PLANNING IN RETAILING

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Chapter Objectives

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

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Chapter Objectives (cont.)

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

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Retail Strategy

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

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Elements of a Retail StrategyRetail Strategy
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Benefits of Strategic Retail Planning

• Provides thorough analysis of the requirements
  for doing business for different types of
  retailers
• Outlines retailer goals
• Allows retailer to determine how to differentiate
  itself from competitors
• Allows retailer to develop an offering that
  appeals to a group of customers
• Offers an analysis of the legal, economic, and
  competitive environment
• Provides for the coordination of firms total
  efforts
• Encourages anticipation and avoidance of crises

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Organizational Mission
Retailers commitment to a type of business and
to a distinctive role in the marketplace.
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Ownership and Management Alternatives

• Sole proprietorship is an unincorporated retail
  firm owned by one person
• A partnership is an unincorporated retail firm
  owned by two or more persons, each with a
  financial interest
• A corporation is a retail firm that is formally
  incorporated under state law it is a legal
  entity apart from its officers

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Figure 3-3 Checklist to Consider When Starting a
New Business
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Figure 3-4 Checklist for Purchasing an Existing
Retail Business
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Figure 3-5a Selected Kinds of Retail Goods and
Service Establishments
Durable Goods Stores Automotive group Furniture
and appliances group Lumber, building, and
hardware group Jewelry stores
Nondurable Goods Stores Apparel group Food
group General merchandise group Gasoline service
stations
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Figure 3-5b Selected Kinds of Retail Goods and
Service Establishments
Service Establishments (Personal) Laundry and
dry cleaning Beauty/barber shops Funeral
services Health-care services
Service Establishments (Amusement) Movie
theaters Bowling alleys Dance halls Golf courses
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Figure 3-5c Selected Kinds of Retail Goods and
Service Establishments
Service Establishments (Repair) Automobile
repair Car washes Consumer electronics
repair Appliance repairs
Service Establishments (Hotel) Hotels Motels Trai
ler parks Camps
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Image and Positioning
An image represents how a given retailer is
perceived by consumers and others.
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Positioning Approaches

• Mass merchandising is a positioning approach
  whereby retailers offer a discount or
  value-oriented image, a wide or deep merchandise
  selection, and large store facilities.
• Niche retailing occurs when retailers identify
  specific customer segments and deploy unique
  strategies to address the desires of those
  segments rather than the mass market.

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Figure 3-6 Niche Retailing by Babies R Us
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Selected Retail Positioning Strategies
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Target Market Selection

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

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La Boqueria
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Strategic Implications of Target Market
Techniques

• Retailers location
• Goods and service mix
• Promotion efforts
• Price orientation
• Strategy

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Developing an Overall Retail Strategy

• Uncontrollable
• Variables
• Consumers
• Competition
• Technology
• Economic
• conditions
• Seasonality
• Legal restrictions

• Controllable
• Variables
• Store location
• Managing business
• Merchandise
• management
• and pricing
• Communicating
• with customer

Retail Strategy
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Retail Strategy Low Costs

• Removal of bad costs
• Use of private label products to reduce costs of
  national/manufacturer brands
• Reduce product proliferation
• Obtain best net price instead of focus on
  promotional monies, trade incentives and forward
  buying

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Retail Strategy Low Costs (cont.)

• Supply chain initiatives
• Low promotional expense (everyday low pricing)
• Proper employee utilization

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Retail Strategy--Differentiation

• Well-thought out private labels (Trader Joes,
  Target, King Arthur flour, etc.)
• Hiring right employees (value-profit chain)
• Empowering employees
• Use of a fun atmosphere
• Little things that mean a lot
• Money-back guarantees

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Legal Environment and Retailing

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

• Managing the Business
• licensing provisions
• personnel laws
• antitrust laws
• franchise agreements
• business taxes
• recycling laws

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Legal Environment and Retailing

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

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Legal Environment and Retailing

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

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Sample Strategic Plan

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

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Additional Concerns for Global Retailing

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

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Factors Affecting the Success of a Global
Retailing Strategy

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

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Factors to Consider When Engaging in Global
Retailing