Professional Documents
Culture Documents
ANNOTATED OUTLINE
INSTRUCTOR NOTES
133
A. Customer Loyalty
B. Location
2. Loyalty Programs.
E. Unique Merchandise
F. Vendor Relations
See PPT 5-24
136
G. Customer Service
A. Market Penetration
B. Market Expansion
D. Diversification
138
139
B. Keys to Success
140
2. Adaptability
3. Global Culture
C. Entry Strategies
1. Direct Investment
2. Joint Venture
Discuss.
2. Competitive Factors
VII. Summary
Appendix 5A: Using the Market
Attractiveness-Competitive Position
Matrix
147
For each of the four retailers discussed at the beginning of the chapter, describe their
strategy and the basis of their competitive advantage.
Curves targets those consumers who have not considered gym membership before, focusing on
the women of the Baby Boomer market who live in small towns. Curves franchises offer a very
different service from the traditional gym, at a much lower price. The Curves service is built
around a 30-minute circuit of 8 to 12 hydraulic resistance machines.
Magazine Luiza, a Brazilian consumer electronics and appliance store, targets low income
consumers with installment payment plans and affordable credit rates. The retailer also provides
services like personal loans and insurance policies that would be out of range for many of its
target consumers. Restoration Hardware target a niche market of wealthy consumers willing to
spend money on nostalgic and high price home furnishings. The merchandise assortment of
whimsical, nostalgic and retro items ensures competitive differentiation from other retailers in the
area.
Chico's specializes in comfortable, easy-to-wear apparel designed for women in the age group of
35-55 years old. The company sells only its own brand and has complete control over its supply
chain. The emphasis on private labels, a strong customer loyalty program, and high-quality
customer service with emphasis on a person-to-person relationship with each customer,
differentiate the retailer from other competitors, and ensure not only repeat sales, but also a
higher transaction size among its loyal patrons.
Save-A-Lot, a wholly owned subsidiary of SuperValu, operates at highest levels of efficiency. By
offering only the most popular items in its stores, Save-A-Lot has been able to reduce its costs
dramatically and reduce its prices to as much as 40 percent below typical conventional
supermarket prices. Much of the success of this strategy is due to the buying power Save-A-Lot
has been able to achieve allowing the chain to offer high-quality private label merchandise at low
prices.
2.
Choose a retailer and describe how it has developed a competitive strategic advantage.
Students choices will vary widely here. In each case, the description of the retailers attainment
of competitive strategic advantage should follow one of the seven basic approaches described
below.
There are seven basic approaches for retailers to develop a sustainable competitive advantage.
These include: (1) customer loyalty, (2) location, (3) human resource management, (4)
distribution and information systems, (5) unique merchandise, (6) vendor relations, and (7)
customer service.
Customer Loyalty: In order to keep customers committed to shopping at their store(s), retailers
can build customer loyalty by (1) emphasizing a unique positioning, and (2) developing loyalty
programs. For example, retailers can try to design a retail mix that creates an image in the
customers mind of the store, which will keep them committed to the store. Or, by implementing
customer loyalty programs, as part of a broader customer relationship management (CRM)
program, and maintaining and analyzing customer purchasing data, retailers can develop
strategies to create and maintain a loyal customer base.
148
Location: Location is one of the most important factors in retailing. For example, if a retailer is
the only one of its kind in a certain area, or is set in a high traffic area with a visible store front,
the store has a competitive advantage.
Human Resource Management: Since retailing is a labor-intensive business and also has high
levels of contact between employees and customers, retailers need to develop programs to
motivate and coordinate employee efforts. These are usually done by providing appropriate
incentives for employees, fostering a strong and positive organizational culture, and managing
diversity.
Distribution and Information Systems: Retailers can achieve significant operational efficiencies
through developing sophisticated distribution and information systems. Efficient operations
reduce retailer costs, and thus, enable retailers to provide the same or similar merchandise at
lower prices than their competitors.
Unique Merchandise: Retailers can develop sustainable competitive advantage by offering
private-label brands.
Vendor Relations: Retailers may gain exclusive rights to sell merchandise in a region, to buy
merchandise at lower prices, or to receive popular merchandise in short supply.
Customer Service: Retailers can build competitive advantage by offering excellent customer
service. This involves instilling the importance of good customer service in employee training
and performance and consciously developing a reputation for good service.
Retailers should not rely on a single approach to gain a sustainable competitive advantage, but
instead, should use multiple approaches.
3.
4.
Choose your favorite retailer. Draw and explain a positioning map, like that shown in
Exhibit 5-3, that includes your retailer, retailers that sell the same types of merchandise,
and the customer segments (ideal points).
149
Students answers will depend on the market in which they live and their preference of retailer.
For a bicycle retailer, the dimensions could be: High price/service and low price/service for one
dimension and broad assortment (mountain bikes, road bikes, tandems, kids, lots of accessories)
and narrow assortment (road bikes only) on the other dimension.
5.
Do a situation analysis for McDonalds. What is its mission? What are its strengths and
weaknesses? What environmental threats might it face over the next 10 years? How could it
prepare for these threats?
McDonalds' mission is to provide hygienic food with the minimum waiting time to customers
through conveniently located outlets.
Its strengths include:
Well known brand name with a loyal group of customers
Consistency in offering over time and at different location. They might not have the best
food, but you know what you are getting when you go to a McDonald's
Excellent systems for delivering a limited menu with consistent quality and low cost
Excellent locations across the US and world
Some weaknesses include:
Narrow menu option
Limited customization option patrons typically do not have the option to customize a
specific item (e.g., a hamburger with more onions, less lettuce, more beef, etc.)
Fast foods, in general, may not be perceived to be nutritious or healthy by some
consumers, therefore limiting future market expansion
Environmental Threats:
People have become more health conscious about what they eat (To prepare for this,
McDonald's might add more healthy items to the menu like veggie burgers and salads)
The quality and convenience of frozen food might make it easy for people prepare a
quick frozen meal at home or at the office. (To prepare for this threat, McDonald's might
sell frozen meals in grocery stores.)
6.
What are Neiman Marcus' and Save-A-Lots bases for sustainable competitive advantage?
Are they really sustainable?
Neiman Marcus offers extensive service and stocks fashion merchandise that could be called
"fashion forward," since these may be offered first and/or exclusively at these stores. Their prices
are higher than those charged by other retailers for similar product categories, but they cater to a
wealthier than average target market of customers for whom fashion and service may be more
important than low price. The multiple bases for competitive advantage used by Neiman Marcus
are unique positioning, location in upscale malls or neighborhoods so as to be closer to target
market segments, unique merchandise, and a heavy emphasis on customer service. The
combination of these sources of competitive advantage makes their strategy quite sustainable.
Alternatively, Save-A-Lot offers a very limited supply of high-quality private label merchandise
at extremely low prices. Their merchandise is offered to consumers at significantly lower prices
than conventional supermarkets, with limited customer service levels, appealing to price
conscious and lower income consumers. Though very different in approach than Neiman Marcus,
150
Save-A-Lot also uses multiple bases for competitive advantage including unique merchandise and
its strength in vendor relations. The combination of these sources of competitive advantage makes
their strategy sustainable.
7.
Assume you are interested in opening a restaurant in your town. Go through the steps in
the strategic planning process shown in Exhibit 5-5. Focus on conducting a situation audit
of the local restaurant market, identifying and evaluating alternatives, and selecting a
target market and a retail mix for the restaurant.
(1) Define the Businesss mission: Looking to be in the Italian restaurant business, my target
market would be those customers in my local town and surrounding towns interested in paying
money for an authentic Italian meal in a romantic setting. The mission of this restaurant would be
to have high quality food, in a romantic setting, while avoiding being too expensive for those
interested in a special meal.
(2) Conduct a situation audit: Market Factors include the size of the market interested in Italian
food and the growth potential of this particular market. Competitive factors include how hard it
is to enter the Italian Restaurant Market including the start up costs, and the amount of other
Italian Restaurants in the area along with alternatives. The environmental factors would include
the social and economic. A section of the restaurant business focuses on the social aspect of
dining out. Is there a growing trend in those people eating out? With the shifting roles of women
in society, there is often less time for cooking, which may in turn increase dining out. What
impact does the economy have on consumers decisions to spend their dollars on dining out? The
analysis of strengths and weaknesses allows a retailer to judge their potential success. The
strengths and weaknesses in this situation could include my financial resources, the availability of
a good location, my restaurant management experience, my need to build customer loyalty, and
my prospects of good operations.
(3) Identify Strategic Opportunities:
Market Penetration: Can I increase the variation on my menu, open another restaurant in
another neighborhood?
Market Expansion: Open a to-go style restaurant, open a restaurant in another geographic
area
Retail Format Development: Sell candles with the restaurant name on them, or develop
an online ordering format for to-go style meals.
Diversification: Manufacture Spaghetti Sauce under the restaurant name, or open an
Italian food grocery store.
(4) Evaluate Strategic Opportunities: In evaluating the alternatives, we must look at both the
market attractiveness and the competitive position. Retailers can maximize their growth
opportunities by investing in areas that have high market attractiveness and a low competitive
position. In the restaurant business, this might include opening additional restaurants, opening a
to-go restaurant, and manufacturing their own food products, like spaghetti sauce.
(5) Establish Specific Objectives and Allocate Resources: After finding growth opportunities,
resources must be allocated to each opportunity. This is done by looking at the performance
sought, the time frame needed, and the level of investment needed to accomplish the objective.
(6) Develop a Retail Mix to Implement Strategy: (Merchandise and services offered,
merchandise pricing, advertising and promotional programs, store design, and convenience of the
stores location): The restaurant will offer a large variety of Italian dishes with a large
151
experienced wait staff, the pricing will be medium to high to attract the upscale customer and
show the value of the food, the advertising will start with publicity on the opening of the business
and then focus on word of mouth, promotional programs may be implemented to frequent eaters,
store design will be small, elegant, and romantic with many tables for two and private tables, and
the location would be in a downtown area. After this strategy is implemented, a retail mix can be
developed for the growth opportunities.
(7) Evaluate Performance and Make Adjustments: The final step of the planning process is
evaluating the results of the strategy and implementation program.
8.
Chicos acquired the White House/Black Market chain, a specialty store selling private
label apparel to women aged 18 to 25 years, and launched its own concept of an intimate
store targeting Baby Boomer women, a Victorias Secret for women 35 to 55 years old.
What type of growth opportunities are each of these retail concepts? Which is most
synergistic with the Chicos store chain?
With its significantly different target market, Chicos acquisition of the White House/Black
Market chain is an example of a market expansion strategy for growth, focusing on a market
segment that Chicos does not currently target.
Chicos intimates store targeted at Baby Boomer women is an example of the retail format
development growth strategy. With the new store concept, Chicos is providing a new format to
their traditional target market.
Given the overlapping target market between the original Chicos store and the new intimates
store, the retail format development strategy would appear the most synergistic with the chains
current operations.
9.
Identify a store or service provider that you believe has an effective loyalty program.
Explain why it is effective.
An example that would readily come to mind to most students would be frequent flyer programs
of various airlines. Many airlines not only award frequent flyer miles on airline travel but also
carry out these programs in partnership with credit card companies and retailers. For example,
consumers can earn Delta SkyMiles when they charge their purchases to American Express, or
dial long distance using AT&T. The effectiveness of such programs depends on the extent to
which there are various levels of rewards and bonuses and the multiple opportunities to earn
points toward a reward.
10.
Choose a retailer that you believe could be, but is not yet, successful in other countries.
Explain why you think it could be successful.
A nonstore retailer such as Amazon.com is poised to be successful globally with the increasing
spread and prevalence of the Internet and World Wide Web. Since the costs associated with entry
and set up are less than in conventional retailing and most products carried by Amazon.com are
quite standardized, Amazon.com could pursue a cost-efficient and effective global expansion
strategy. However, such an expansion strategy would have to await infrastructure development in
various countries. The success of Amazon.com's global strategy would come from utilizing
technological and global efficiencies in scale, lower costs of operations, enhanced customer
152
service at lower costs due to better customer information and relationship management, and better
adaptability to local tastes and preferences due to superior information collection and analysis.
11.
153
Potential Responses
154
good locations
155
China
Japan
Latin America
United States
2. Describe why a global retailing strategy requires thorough analysis and planning to effectively
manage risk.
156
United States
2. Describe why a global retailing strategy requires thorough analysis and planning to effectively
manage risk.
Uncertainty is prevalent in this type of undertaking. Laws, regulations and politics; culture and
language; infrastructure; resources; and the economy and strength of the currency vary from country to
country.
Even though a retailer was successful in their home country this does not necessarily mean that the same
retail mix and format would be accepted in another location. The retailer must be adaptable and
thoroughly consider the elements of the external environment to evaluate opportunities and threats facing
the organization in each region/country.
After completing a situational analysis the retailer can ask, is expansion possible in this location? Will
the organization be able to reach its goals and objectives of growth, profit and market share considering
the costs and benefits of global expansion?
Exercise 5-2
157
Giants Implementation
Location
Distribution
Merchandise
Customer Service
Human Resources
158
Giants Implementation
Bonus card program
Coupons
Weekly circular
Savings at checkout
Sweepstakes
A+ Bonus Bucks for schools
Savings with partners
Personalized offers
Location
Distribution
Processing plants for dairy and ice in Landover, and ice cream in
Jessup.
Distribution center in Landover for meat, produce, health and beauty,
general merchandise and seafood.
Semi-automated distribution center and warehouse in Jessup
Merchandise
National brands
Super G brand
Bakery
Meat
Deli
Dairy
Produce
Frozen
159
Sustainable
Competitive
Advantage
Customer Service
Human Resources
Giants Implementation
Peapod delivery
Wine guide
Catering
Picture center
160