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MODULE-2
STRATEGIC PLANNING
WHAT IS RETAIL STRATEGY?
A retail strategy is the over all plan or framework of action that guides a retailer. Without
a defined and well integrated strategy, a firm can flounder and be unable to cope with the
marketplace.
HOW TO PLAN???
The steps in planning and enacting a retail strategy are independent; a firm
often starts with a general plan that gets more specific as options and payoffs
become clearer.
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SITUATION ANALYSIS…
A. organizational mission
employees, suppliers, competitors, government and others. A clear mission lets a firm
gain a customer following and distinguish itself from competitors.
Although the development of an organizational mission is the first step in the planning
process, the mission should be continually reviewed and adjusted to reflect changing
company goals and a dynamic retail environment.
• Wal-Mart: “To give ordinary folk the chance to buy the same thing as rich
people.”
• McDonald’s: “Quality, Service, Convenience and Value.”
• Café Coffee Day: To be the best café chain in the country by offering world class
coffee experience at affordable price.
• Shoppers Stop: “To be a global retailer in India, and to maintain the no. 1
position in the Indian market in the department store category.”
• Pantaloon: “We share the vision and belief that by improving our performance
through innovative spirit and dedication, we shall serve our customers and stake
holders satisfactorily.”
As two experts have noted “Customers may not notice if a firm is a sole proprietorship, a
partnership or a corporation. The form chosen though can make a difference when its
time to pay taxes, respond to lawsuit or split up the business.”
Sole proprietorship
Partnership
Corporation
• It offers are tailor flexibility in location, operating style, product line, customer
market, and other factors; and a strategy is fully tailored to the owners desire and
strengths.
• Their may be high construction cost, a time lag until the biz. Is open and then
until profits are earned beginning with an unknown name and having to form
supplier relationships and amass inventory of goods.
• Before a prospective retail firm can fully design a strategic plan, it selects a
goods/service category i.e. the line of business.
• It is advisable t specify both a general goods/service category and a niche within
that category.
• A potential retail business owner should select a type of business that will allow
him or her to match personal abilities, financial resources, and time availability
with the requirements of that kind of business.
OBJECTIVES
After situation analysis, retailer sets objectives, the long run and short run performance
targets it hopes to attain. This helps mould a strategy and translates the organizational
mission into action. A firm can pursue goals related to one or more of these areas:
a. Sales: Sales objectives are related to the volume of goods and services a retailer
sells. Growth, stability, and market share are the sales goals more often sought.
b. Profit: With profitability objectives, retailers seek at least a minimum profit level
during a designated period, usually a year. Profits may be expressed in dollars or
as a percentage of sales.
c. Satisfaction of Publics: Retailers typically strive to satisfy their publics: stock
holders, customers, suppliers, employees and government.
c. Image: An image represents how a given retailer is perceived by consumers and
others. A firm may be seen as innovative or conservative, specialized or broad
based, discount oriented or upscale.
The key to successful image is that the consumers view the retailer the manner the firm
intends.
The customer group sought by a retailer is called the target market. In selecting
its target market, a firm may use any one of the three techniques:
OVERALL STRATEGY
Next the retailer develops and in depth overall strategy. This involves two
components:
a. The aspects of business the firm can directly affect (Controllable Variable) and
b. Those to which the retailer must adapt (Uncontrollable Variable).
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Retail Strategy
Uncontrollable Variable
• Consumers
• Co mpetitors
• Technology
• Economic Conditions
• Seasonality
• Legal restrict ions
SPECIFIC ACTIVITIES…
Short term decisions are now made and enacted for each controllable part of
the strategy. These actions are known as tactics and encompasses a retailer’s
daily and short term operations. They must be responsive to the uncontrollable
environment.
Some of the moves that a retailer can make are:
1. Store location
2. Managing the business
3. Merchandise management and pricing
4. Communicating with the customer
CONTROL…
In control phase a review takes place, as the strategies and tactics are assessed against the
business mission, objectives, and target market. This procedure is called retail audit.
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RETAILING ENVIRONMENT
• A retailing environment consists of the actors and forces that affect a retailer’s
ability to build and maintain successful relationships with target customers.
• Micro environment
• Macro environment
MICRO ENVIRONMENT
• It consists of the actors close to the company that affect its ability to serve its
customers.
• The company
• Suppliers
• Marketing intermediaries
• Customers
• Competitors
• Public
Company
• Mission
• Objectives& top management
• Marketing dept
• Finance dept
• Hr dept
• Admin dept (legal & time management, supervising security, record keeping,
communications
• store operations
Suppliers
Customers
• They consists of individuals and households that buy goods and services for
personal consumption.
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Public
• A public is any group that has an actual or potential interest in or impact on an
organizations ability to achieve its objectives.
• There are seven types of public
1. Financial publics
2. Media publics
3. Government publics
4. Citizen action publics
5. Local publics
6. General publics
7. Internal publics
Marketing intermediaries
• Resellers ( wholesalers )
• Financial intermediaries( banks )
• Physical distribution firms (transportation, warehouses)
• Marketing services (research firms, advertising agencies, consultancies )
Competitors
MACRO ENVIRONMENT
• It consists of the larger societal forces that affect the micro environment.
• Demographic
• Economic
• Natural
• Technological
• Political
• Cultural
Demographic
• It involves people and people make up markets and their vital statistics
• Size, density, location, age, gender, race, occupation etc
• Population growth rate,
• Geographic shift in population
• population age mix &sex mix
• educational level
• House hold patterns
• Ethnic and racial make up
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Economic
• It consists of factors that affect consumer purchasing power and spending patterns
• Unemployment rate and national income concepts.
• price level, average salaries, etc
• Income distribution pattern, industrializing pattern
• Saving rate, interest rate and credit availability
• Inflation rate
• Business cycle
• change in income rate and Spending pattern of customers
Technological
• Technology is the application of science to convert an economy’s resources in to
output
• Forces that create new technologies, creating new product and market
opportunities.
• Innovations, new retailing systems, electronic fund transfer, internet, distribution
systems, stock handling mechanisms and control.
• Technology affects four Ps and shortens the length of product life cycle
Natural
• It involves the natural resources that are needed as inputs by marketers or that are
affected by marketing activities.
• Raw material availability
• Increasing energy cost and fuel cost
• Natural calamity
• Climatic conditions and seasons
Political
• It consists of laws, government decisions, and principles of political parties
• Taxation, duty, regulation, policies, statutory holidays, Sunday trading, opening
times, planning permission for building.
• Acts- consumer protection act, sales of goods act, drugs and cosmetic act etc
Socio Cultural
• Institutions and other forces that affect society’s basic values, perceptions,
preferences, and behaviors.
• Culture means set of learned beliefs, values, habits and forms of behavior and that
are shared by the society and shared from generation to generation.
• Subculture (nationality, religion, geographic region)
• Social class
• Changing role of women in the society
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Introduction
It is the consumer who determines the growth, prosperity, and even existence of a
Retailer.
The ability to understand the customers is the key to developing a successful retail
strategy.
The behavior of retail shoppers varies across markets.
Recognition of the need for a product or a service is the first stage that may lead
to a consumer buying. Then through information collection and evaluation
consumer, takes buying decision. Then it leads to satisfaction or dissatisfaction.
In short span of little 10 years, the change that occurred in the Indian consumer is
phenomenal. Liberalization and a steady economic growth have been the main
factors that have driven this stage.
Retail strategy is largely information based. The gathering and analysis of data
relevant to the retailer is done by market research.
In a world of increasing competition, research can aid the retailer in satisfying the
customer and thereby, building loyalty.
Accurate understanding of the consumer needs helps the retailer to create the
products that are likely to be successful in the market.
Helps the firm to assess how well it has achieved its product positioning goals.
Range of Merchandise:
Example: while buying medicines, most parties would prefer to buy from
the chemist near the doctor’s clinic or near the hospital.
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Time to travel
The time taken to reach a particular retail location in fast is becoming
critical.
Take the case of metros like Mumbai, where the travel time is high.
Life – style
Economic Factors
Personal income
Family income
Income expectations
Savings
Liquidity position
Consumer credit
CUSTOMER DECISION MAKING PROCESS
The need for a product or service starts at the time when the need for that
particular product or service is recognized. A need may be psychological or
functional.
Psychological needs are associated with personal gratification that the customer
may get from purchasing or owning the product.
A functional need is directly related to the function of the product.
Steps Involved In Consumer Decision Making Process:
Identification of a need for the product or service
Search for information
Evaluating alternatives
The purchase decision
Identification of a need for the product or service:
Typically, a consumer may realize that he needs a product when the current
product he is using does not meet his expectations or when he sees a product or an
advertisement for the same and feels the need to purchase it.
Search for information:
This step involves how the gathering of information on how to solve the
problem. This search may be
Internal – from memory
External – friends, family, published sources, sales person, internet etc.
Evaluating alternatives:
These evaluative criteria are used by consumers to consider different
options.
These could vary from person to person and may be influenced by
situation.
It also depends on product, occasion for purchase and the buying
environment.
The purchase decision:
Here the decision is made about first, whether to buy or not.
Numerous displays in a store may cause a person to change his/her mind
while in the store perhaps , a sales clerk may convince him to change
brands or even the amount he planned to spend.
MARKET RESEARCH
Retail strategy is highly information based.
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Timely and relevant information is essential to provide an adequate basis for day
to day decision making.
A market activity deals with following logical steps
Collection of Data
Analysis of the data collected &
Deriving conclusions on the basis of data collected.
The data collected may be
Primary data
Retailer collects this for a specific purpose
Secondary data
This may be Internal Sources like sales figure, company reports,
consumer complaints etc., & External Sources like government statistics,
Research done by commercial research agencies and financial agencies.
• Location is an important decision for a retailer because once started ,it is very
difficult to change (loyal customers and employees lost, store fixtures cannot be
easily removed)
• 90% of retail formats are store based
• A good retail location may let a retailer succeed
• The basic criteria of site selection are
Demographic data
Performance of other stores
Competition intensity
Transportation access
Parking availability
Property costs
Legal restrictions
STEP1-MARKET IDENTIFICATION
• Demography
• Economic factors
• Natural factors
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• Technological progress
• Socio-cultural factors
• Knowing the boundaries of the trade area helps the retailer estimate the number of
potential customers that may patronize store .
• Primary trading area- covers between 50- 80 % of the stores customers and the
area closest to the store- 4 miles.
• The fringe of tertiary trade area- covers the balance customers-10 miles
• The size shape and characteristics of the trading area for an existing store can
usually be delineated by
• store records (secondary data)
• special study (primary data)
• Trading areas with less defined shopping and traffic patterns – such area must
normally be evaluated in terms of opportunity.
• It establishes a point of indifference between two cities so the trading area can be
determined
• The point of indifference is the geographic breaking point between two cities at
which consumers indifferent to shopping at either.
• According to Reilly’s law more customers go to the larger city because there are
more stores and the assortment makes travel time worth
Assumptions
• A) Two competing areas are equally accessible from major road
• B) Retailers are equally effective
• C) Other factors are held constant
Dab=d/(1+√(pb/pa)
• Dab= limit of city A’s trading area measured in miles along the road to city B
• d= distance in miles along a major roadway between cities A and B
• pa= population of city A
• Pb= population of city B
Example
• the cities with a population of 90000(A) and (B) 10000.
• If the cities are 20 miles apart the point of indifference for the larger city is
calculated as Dab=20/(1+√10000/90000)=15 miles
Example
Benefits
• Reveals opportunities
• Gets idea about media coverage pattern
• The best number of stores for a chain to operate in a given area is calculated
• Anticipate whether competitors want to open nearby stores if the firm does not do
so
• A retailer learns whether the location of a proposed branch store will service new
customers or take business from its existing stores
Advantages
Excellent goods /service assortment
Access to public transportation
Variety of store type
Wide range of prices and customer services
High level of traffic and nearness to social and entertainment facilities
Disadvantages
Inadequate parking
Traffic and delivery congestion
More travel time for those living in the suburbs
High rent and high cost for property
Discontinuity of offerings, such as four shoes store and no pharmacy
Disadvantages
Discontinuity of offering
High rent and parking difficulty
Fewer outlets
• Positive attributes
Family shopping
Sharing of common costs
Creation of distinctive, but unified shopping centre image
Pedestrian traffic
Parking space
Access to highway
Low theft rate
• Limitations
Reduce retailer’s flexibility (working hours)
Higher rate than isolated store
Domination by large stores
Competition
Expansion is a problem
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Meaning
The structure that an organization chooses to adopt is the key factor which affects the
functioning of the various roles in the organization. Organization structures are important
as they define the hierarchy levels, the reporting relationships and the decision makers in
any organization. In retail, as in any other business, defining the organization structure is
the starting point for managing a business.
The first step in creating an organization structure is to define the various tasks/ activities
that need to be performed. These can be broadly classified as:
• Top management
• Buying and merchandising
• Store operations
• Administration & human resources
• Support functions, like Advertising, Marketing,
PR and Accounts.
The purpose of this classification is two fold. It helps the various tasks to be identified
and it also helps in understanding the roles to be played by people within the
organization.
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Once these tasks have been identified, the management needs to take into consideration,
its own requirements and targets and how they can be achieved. It needs to consider the
requirements of the target market and the needs of its own internal customers, i.e., the
employees. An organization structure or an organization chart is then developed, after
taking all these factors into consideration.
Defining the organization structure enables the activities and tasks to be performed
and this aids for analyzing the need for specialists in various areas.
Sales Store
Merchandis e Personnel Controller
Promotion Operation
manager Manager
Manager m anager
PRODUCT ORGANIZATION
CHART
Store m anager
Ladies outerwear
Appliance
m anager
m anager
GEOGRAPHIC ORGANIZATION
CHART
Vice-Pres ident
Manager A A A
Location A
A
Manager B B B
Location
B B
Menswear Women's wear
ORAGNISATIONAL PATTERNS
An independent retailer has a simple organisation. It operates only one store, the owner
usually supervises all employees, and workers have access to the owner-manager if there
are problems.
In this, one person is typically the owner/manager and is responsible for most of the
aspects of the retail operations. Small independents use uncomplicated arrangements with
only 2/3 levels of personnel. There are few employees, little specialization, and no branch
units. Example, a boutique is organized by function. Merchandising personnel buy/ sell
goods and services, plan assortments, set up displays, and prepare ads. Operations
personnel are involved with store maintenance and operations.
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Owner- Manager
When the number of stores that a retailer operates increases from one to more, the
management becomes complex. Some retailers may decide to departmentalize the
organization structure on the basis of the various product lines like furniture, appliances,
jewellery etc. As stores expand to different regions, they may use geographic
departmentalization, where personnel are responsible for the operations within a certain
region, state or nation. Retail store chains may operate at a regional, national or an
international level.
Depending on the area of operation, they would require skilled personnel for various
areas of operation. Such stores may be departmentalized on the basis of functions or
product lines that the retailer operates in.
In the year 1927,Paul Mazur recommended a functional organisation structure. It is
popularly known as the “Mazur Plan”. He proposed that the organization structure should
be built around 4 functions that are important to retail. It is applicable in any organization
regardless of size.
• Control: Responsible for credit and collections, expense budgeting and control,
inventory planning and control, recordkeeping.
A diversified retailer is one who operates more than one retail chain in more than
one market, at the national or international level.
President
General Manager
Assistant Assistant to
Research General
General
Director Manager
Manager
Various chain retailers use a version of the equal store organization. They generally have
the following attributes:
• There are many functional divisions, such as sales promotion, merchandise
management, distribution, operations, real-estate, personnel and information
systems.
• Overall authority is centralized. Store managers have selling responsibility.
• Many operations are standardized
• An elaborate control system keep management informed
• Some decentralization lets branches adapt to localities and increases store
manager responsibilities. Though large chains standardize most of the items their
outlets carry ,store managers often fine-tune the rest of the strategy mix for the
local market. This is empowerment at the store manager level.
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In India, the vast majorities of retailers are mostly unorganized and operate only
on guesswork with little knowledge of their actual inventory levels.
Organized retailing is fast becoming a reality in India and it is being made
possible only with the adoption of the retailing technology borrowed from the
west.
Information &
Information & The Retailer
The Supplier
Information &
The Consumer
Timely distribution
Lesser mistakes
Tracking buying patterns of customers
Better financial controls
Better decision making
Reduction in man power costs
Better return on investments
Limitation of computerization
The cost factor
Difficulty in developing & maintaining the system
Confusion with extension data
DATABASEMANAGEMENTINRETAILING
Plan the particular data base and its component and determine the information needs.
Acquire the necessary information.
Retain the information in a useable and accessible format.
Update the database regularly to reflect changing demographics, recent purchases, and
to forth.
Analyze the database to determine company strengths and weakness.
Retailer’s Strategic
Environment Philosophy & plans
objectives
implementation
Feedback Retail operations
Benefits of database
Data warehouse
Executives &
Other urgency Channel
Customers
Employees partners
Data
Micro Marketing
mining