RETAIL STRATEGY

Retail Objectives
Sales Volume Profitability

Market Share

Market performance objectives

Financial performance objectives

Productivity

Self Gratification

Retail Mission
Personal Objectives Societal Objectives

Employment Taxes Benefactor Consumer Choice

Power & Authority Status & Respect Equity Consumer

RETAIL STRATEGY
RETAIL STRATEGY A clear and definite plan outlined by the retailer to tap the market A plan to build a long-term relationship with the consumers Process of strategy formulation in retail is the same as that for any other industry It starts with the retailer defining or stating the mission for the organization The mission is at the core of the existence of the retailer Other aspects of the strategy may change over a period of time or vary for different markets

Retail Strategy A 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.

2.
3. 4.

5.
6. 7.

Establish Mission Analyze Situation Objectives Identify Options Set Objectives Obtain & Allocate Resources Develop Implementation Plan Monitor Progress & Control

RETAIL STRATEGY
DEFINE 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 following 1. The products and services that will be offered 2. The customers who will be served 3. The geographic areas that the organization chooses to operate in 4. The manner in which he firm intends to compete

RETAIL STRATEGY
CONDUCT 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 STRATEGY
IDENTIFY OPTIONS / STRATEGIC ALTERNATIVES

After determining the strengths and weaknesses vis--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 firms present and potential products in the existing and new markets Ansoffs matrix also helps to understand the options available to a retailer

RETAIL STRATEGY
IDENTIFY OPTIONS / STRATEGIC ALTERNATIVES

The alternatives available to a retailer are :

Market Penetration Market Development Retail Format Development Diversification

RETAIL STRATEGY
EXISTING NEW

MARKET PENETRATION
Increase in the basket size Increase the customers Increase the purchase frequency

MARKET DVELOPMENT / EXPANSION

New market Segments with existing markets New customer base

p r o d u c t

EXISTING

RETAIL FORMAT DEVELOPMENT NEW

New format for existing customers

DIVERSIFICATION
New retail formats directed at new market segments

MARKETS

RETAIL STRATEGY
MARKET 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 firms 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 STRATEGY
MARKET EXPANSION / DEVELOPMENT When 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 McDonalds who introduced ice creams for Rs.7 This not only created add on sales, but also brought in customers who had the perception that McDonalds is an expensive fast food restaurant

RETAIL STRATEGY
RETAIL FORMAT DEVELOPMENT When a retailer is said to introduce new retail format to customers

Example fast food retailers like McDonalds 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 Shoppers Stop Strategy may be appropriate if the retailers 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 STRATEGY
SET OBJECTIVES
1. 2. 3. 4.

5.

Translation of mission statement into operational terms Indicate Results to be achieved Give direction to and set standards for the measurement of performance Management sets both long term and short term objectives One or two year time frames for achieving specific targets are short term objectives Long term objectives are less specific and reflect the strategic dimension of the firm

Two important focus areas of retailers - Market Performance - Financial Performance Objectives are set keeping these focus areas in mind

Sales volume targets Market hare targets Profitability targets Liquidity targets Returns on investment targets

RETAIL STRATEGY
OBTAIN AND ALLOCATE RESOURCES NEEDED TO COMPETE

1.

Resources needed by a retailer - Human Resources - Financial Resources 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 STRATEGY
DEVELOP THE STRATEGIC PLAN At this stage strategy is determined through which retailer will achieve objectives
1. 2.

The retailer determines and defines his target market 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

RETAIL STRATEGY
DEVELOP THE STRATEGIC PLAN
1.

Considerations for successful market segmentation 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
Economically viable : The expense and efforts of focusing the marketing efforts in potential segments should be justified. Stable : The consumer characteristics are indicators of market potential. Hence stable indicators to be considered.

3.

4.

RETAIL STRATEGY
DEVELOP THE STRATEGIC PLAN
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 STRATEGY
IMPLEMENT THE STRATEGY, EVALUATE AND CONTROL Implementation is the key to success of any strategy

Effective implementation of the retailers desired positioning requires

1. 2. 3. 4. 5. 6.

Every aspect of stores to be focused on the target market Merchandising must be single-minded Displays must appeal to target market Advertising must talk to the target market Personnel must have empathy for the target market Customer service must be designed with the target customer in mind

RETAIL STRATEGY
IMPLEMENT THE STRATEGY, EVALUATE AND CONTROL After implementation the management needs feedback and should focus on
1. 2. 3. 4.

Performance Effectiveness of long term strategy by periodic evaluation Ensuring that the plans do not degenerate into fragmented ad-hoc efforts Ensuring that all efforts are in harmony with he overall competitive strategy of business

Management can also use the process to decide on

1. 2.

Any future policy change Modifications if any, in the plan, to ensure that the combination of the retailing mix variables support the firms strategy

RETAIL STRATEGY
INTERNATIONAL 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 STRATEGY
Concept 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 STRATEGY
INTERNATIONAL 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 STRATEGY
METHODS OF ENTERING A NEW MARKET

1.

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

1. 2. 3. 4. 5.

Franchising / licensing
Granting permission/license to a company in target country to use the property of the licensor Property is intangible such as trade marks, patents and production techniques Licensee pays a fee in exchange for the rights to use the intangible property For franchising to be successful it is necessary for careful selection of partners Partners should share the same understanding of the parent organizations vision mission, goals and the marketing plans and strategies

RETAIL STRATEGY
METHODS OF ENTERING A NEW MARKET

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

RETAIL STRATEGY
METHODS OF ENTERING A 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 : Shoppers 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 STRATEGY
METHODS 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 STRATEGY
RETAIL 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 retailers focus on - Product Image - Place - Price / Value - People - Communications

RETAIL STRATEGY
RETAIL VALUE CHAIN Triangle : The retailers 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

RETAIL STRATEGY
RETAIL VALUE CHAIN

SUPPORT FUNCTION

SUPPLIERS

THIRD PARTY LOGISTICS

RETAIL OPERATIONS

CUSTOMER MGMT

CUSTOMERS

SYSTEMS

The Gaps Model of Service Quality

Introduce 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

Gaps Model of Service Quality

Customer 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):

The Customer Gap

Expected service

Customer Gap Perceived service

Key Factors Leading to the Customer Gap

Customer Expectations 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 Perceptions

Key Factors Leading to Provider Gap 1

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

Lack of upward communication

Gap 1

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

Company Perceptions of Customer Expectations

Key Factors Leading to Provider Gap 2

Customer-Driven Service Designs and Standards
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

Gap 2

Management Perceptions of Customer Expectations

Key Factors Leading to Provider Gap 3

Customer-Driven Service Designs and Standards

Gap 3

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 Service smooth peaks and valleys of demand Delivery

Key Factors Leading to Provider Gap 4

Service Delivery

Gap 4

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

Gaps Model of Service Quality

CUSTOMER
Customer Gap

Expected Service

Perceived Service
Service Delivery External Communications to Customers

COMPANY
Gap 3
Gap 1 Gap 2

Gap 4

Customer-Driven Service Designs and Standards Company Perceptions of Consumer Expectations