Lecture 3: Retail Institutions by ownership Retail institution is the basic format or structure of a business.

Retail institutions can be classified into 3 types: 1. Ownership y Independent y Chain y Franchise y Leased Departments y Vertical marketing system y Consumer cooperative 2. Store based retail strategy mix y Convenience store y Warehouse store y Specialty store y Factory outlet y Flea market 3. Non-store based retail strategy mix y Direct marketing y Direct selling y World wide web y Vending machine Independent Retailers They capitalize on a very targeted customer base and please shoppers in a friendly, informal way. An independent retailer owns one retail unit. Word of mouth communication is important. They account for one third of total sales. 70% of independents are operated by owners and their families and this high number is associated with ease of entry into the market due to low capital requirements and no, or relatively simple licensing provision for many small retail firms. Intense competition, which results in high rates of failures.Eg: Malaysian coffee Advantages Flexibility in choosing formats, locations and in devising strategy Control over investment costs, personnel functions and strategies Image attached that chains cannot readily capture. This is the image of a personable retailer. They have independence from stakeholders, board of director meetings and labor unrest. Strong entrepreneurial leadership Disadvantages Lack of bargaining power with suppliers because they buy small quantities Lack of economies of scale Operations are labor intensive, sometime with little computerization Overdependence on owner and all decision may be made by one person Limited long run planning because owner is involved in daily operations Limited media used because of high costs of TV, news paper and magazines

Chai ail A chai retailer operates multiple outlets under common ownership and it usuall engages in some level of centrali ed purchasing and decision-making. They benefit from their widely known image and economies of scale and mass promotion possibilities. They should maintain their image chain wide and not be inflexible in adapting changes in the marketplace. Eg: The Body Shop Advantages Disadvantages Have bargaining power due to purchase lexibility may be limited volume Cost efficiencies when they buy from nvestments are higher due to multiple manufacturers and large in volumes leases and fixtures Efficiency gained by sharing warehouse Complex managerial control facilities, purchasing standardi ed store fixtures, computeri ation and so on Have defined management philosophies imited independence among personnel Considerable efforts in long run planning Take advantage of variety of media F anchi ranchising involves a contractual agreement between a franchisor and a retail franchisee, which allows the franchisee to conduct business under an established name and according to a given pattern of business. The franchisee typically pays an initial fee and a monthly percentage of gross sales in exchange for exclusive rights to sell goods and services in an area. They have strong geographic coverage due to franchisee investments and the motivation of franchises as owner operators. They should not bogged down in policy disputes with franc hisees or charge excessive royalty fees. Eg: McDonalds 1. Product/Trademark franchising: franchisee acquires the identity of a franchisor by agreeing to sell the products and/or operate under the franchisor name. The franchisee operates rather autonomously. Example: car dealers 2. Business format: franchisee receives assistance: location, quality control, accounting systems, startup practices, management training. t is common for restaurants and real estate. Eg: McDonalds the qualification sought by them for potential franchisees include: growth capability, planning ability, ability to manage finances, full time commitment, strong credit, financial resources, experience, customer and employee focus and willingness to complete training Three structural arrangement dominate retail franchising:
1. Manufacturer gives rights to independence franchisees to sell through licensing agreement 2. oluntary: wholesaler sets up franchise system and grants franchises to individual retailers. Cooperative: group of retailers set up system and shares ownership and operations of wholesalingorgani ation 3. Service firm licenses individual retailers to they offer specific service packages to consumers.

Advantages ranchisee

Disadvantages ranchisee

Own a retail enterprise with relatively small capital investment Acquire well known names and good/services lines Operating/management skill taught to them Cooperative marketing efforts Exclusive rights for selling for specified geographical territories Purchases less costly per unit Advantages Franchisors National or global presence is developed more quickly Qualifications for operations set and enforces Money obtained when goods delivered as opposed to when sold Receive royalties even after franchisees have paid for their outlets

Over saturation could occur if too many in one geographic area Franchisors may overstate potential Agreements may be cancelled or voided if provisions not satisfied Contractual confinement Royalties are based on sales not profits

Disadvantages Franchisors Potential to harm overall reputation if company standards not adhered to Lack of uniformity may affect customer loyalty Ineffective franchised units may damage resale value, profitability Franchisees seeking to limit franchisors rules and regulations

Leased departments Its a department in a retail store usually department, discount or specialty store that is rented to an outside party. They enable store operators and outside parties to join forces and enhance the shopping experience, while sharing expertise and expenses. y The proprietor is responsible for all aspects of its business and pays a percentage of sales as rent y The store sets operating restrictions to ensure consistency and coordination Advantages Disadvantages Provides one stop shopping to customers Lessees may affect stores image Lessees handle management Operators pay for some expenses, thus Procedures may conflict with department reduces store costs store A percentage of revenues is received Problems may be blamed on department regularly store rather than lessee by customers

Vertically integrated channel Gives a firm greater control over sources of supply but it should not provide consumers with too little choice of products or too few outlets. Cooperatives Provide members with price saving. They should not expect too much involvement by members or add facilities that raise costs too much. Retailers Strategy mix: A strategy mix is the firms particular combination of store location, operating procedures, goods/services offered, pricing tactics, store atmosphere, customer services and promotional methods.

Emergence of World Wide Web The World Wide Web (Web) is a way to access information on the Internet. People work with easy-to-use Web addresses (sites) and pages. Web users see words, charts, pictures, and video while hearing audio. Both Internet and World Wide Web convey the same central theme: online interactive retailing. The role of the web Project a retail presence Enhance image Generate sales Reach geographically-dispersed customers Provide information to customers Promote new products Demonstrate new product benefits Provide customer service (e.g. E-mail) Be more personal with consumers Conduct a retail business efficiently Obtain customer feedback Promote special offers Describe employment opportunities Present information to potential investors, franchisees, and the media Using the Web information entertainment interactive communications Shopping Online selection prices convenience fun Reasons NOT to shop online Lack of trust Fear Lack of security Lack of personal communication