Module 2 RETAIL MARKET STRATEGY

Agenda
Target Market & Positioning in retail format

Building a sustainable competitive advantage for growth strategies

Steps in strategic retail planning process

Retail Marketing Mix

Retail marketing information system

Retail Market Strategy

A retail strategy is a statement identifying (1) the retailers target market, (2) the format the retailer plans to use to satisfy the target markets needs, and

(3) the bases upon which the retailer plans to build a sustainable competitive advantage

Target Market
The target market is the market segment (s) toward which the retailer plans to focus its resources and retail mix A retail format is the retailers mix ( nature of merchandise and services offered, pricing policy, advertising and promotion program, approach to store design and visual merchandising, and typical location)

Building a Sustainable Competitive Advantage The final element in a retail strategy is the retailers approach to building a sustainable competitive advantage Any business activity that a retailer engages in can be a basis for a competitive advantage;

Some advantages are sustainable over a long period of time

while others can be duplicated by competitors almost immediately

Building a Sustainable Competitive Advantage

Establishing a competitive advantage means that a retailer builds a wall around its position in a retail market This makes it hard for competitors outside the wall to contact customers in the retailers target market All advantages will be eroded after some time due to competitive forces By building high and thick walls retailers can sustain their advantage, minimize competition and boost profits

Building a Sustainable Competitive Advantage

If the retailer has built a wall around an attractive market, competitors will attempt to break down the wall Over time, all advantages will be eroded due to these competitive forces; but by building high, thick walls, retailers can sustain their advantage, minimize competitive pressure, and boost profits for a longer time Thus, establishing a sustainable competitive advantage is the key to long- term financial performance

Building a Sustainable Competitive Advantage

Seven important opportunities for retailers to develop sustainable competitive advantages are

(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
Customer Loyalty means that customers are committed to shopping at the retailers locations Loyalty is more than simply liking one retailer over another Loyalty means that customers will be reluctant to patronize competitive retailers For example, loyal customers will continue to shop at Restoration Hardware even if Pottery Barn opens a store nearby and provides a slightly superior assortment or slightly lower price

Customer Loyalty
Some ways that retailers build loyalty are by (1) developing clear and precise positioning strategies and (2) creating an emotional attachment with customers through loyalty programs

Customer Loyalty
Positioning: A retailer build customer loyalty by developing a clear, distinctive image of its retail offering and consistently reinforcing that image through its merchandise and service Positioning is the design and implementation of a retail mix to create an image of the retailer in the customers mind relative to its competitors

Customer Loyalty
Loyalty Programs: are part of an overall customer relationship management (CRM) program These programs are prevalent in retailing, from airlines and department stores to the corner pizza shop Customer loyalty programs work hand- in- hand with CRM

Location
The classic response to the question What are the three most important things in retailing? is location, location, and location Location is the critical factor in consumer selection of a store It is also not a competitive advantage that is easily duplicated

For instance, once Walgreens has put a store at the bestlocation of an intersection, CVS is relegated to the second bestlocation Finding great locations is particularly challenging in older urban locations, where space is finite and tenant turnover is relatively slow

Distribution and Information Systems

All retailers strive for efficient operations

They want to get their customers the merchandise they want, when they want it, in the quantities that are required, at a lower delivered cost than their competitors

Unique Merchandise
It is difficult for retailers to develop a competitive advantage through merchandise because competitors can purchase and sell the same popular national brands But many retailers realize a sustainable competitive advantage by developing private- label brands (also called store brands), which are products developed and marketed by a retailer and available only from that retailer

Customer Service
Retailers also build a sustainable competitive advantage by offering excellent customer service But offering good service consistently is difficult Customer service is provided by retail employees and humans are less consistent than machines

Multiple Sources of Advantage

To build a sustainable competitive advantage, retailers typically dont rely on a single approach such as low cost or excellent service They need multiple approaches to build as high a wall around their position as possible For example, McDonalds success is based on providing customers with a good value that meets their expectations, having good customer service, maintaining good vendor relations and having great locations By doing all of these things right, McDonalds has developed a huge cadre of loyal customers

Growth Strategies
There are four types of growth opportunities that retailers may pursue:

1. Market Penetration
2. Market Expansion 3. Retail Format Development 4. Diversification

1. Market Penetration
A market penetration opportunity involves directing efforts toward existing customers by using the present retailing format The retailer can achieve this growth strategy either by attracting customers in its current target market who dont shop at its outlets or by devising strategies that induce current customers to visit a store more often or to buy more merchandise on each visit Approaches for increasing market penetration include attracting new customers by opening more stores in the target market and training salespeople to cross- sell

1. Market Penetration
Cross- selling means that sales associates in one department attempt to sell complementary merchandise from other departments to their customers For example, a sales associate who has just sold a dress to a customer will take the customer to the accessories department to sell her a handbag or scarf that will go with the dress

More cross- selling increases sales from existing customers

2. Market Expansion
A market expansion opportunity employs the existing retail format in new market segments
For example, when the French hypermarket chain Carrefour expanded into other European and South American countries, it was also employing a market expansion growth strategy because it was entering a new geographic market segment with essentially the same retail format

3. Retail Format Development

A retail format development opportunity involves offering a new retail format- a format with a different retail mix- to the same target market For example, Barnes & Noble, a specialty book store- based retailer, exploited a format development opportunity when it began selling books to its present target market over the internet

4. Diversification
A diversification opportunity is when a retailer introduces a new retail format directed toward a market segment thats not currently served Diversification opportunities are either related or unrelated

Related V/s Unrelated Diversification

In a related diversification opportunity, the present target market or retail format shares something in common with the new opportunity This commonality might entail purchasing from the same vendors, using the same distribution or management information system, or advertising in the same newspapers to similar target markets

In contrast, an unrelated diversification lacks any commonality between the present business and the new business

Vertical Integration
Vertical integration is diversification by retailers into wholesaling or manufacturing
When a retailer integrates by purchasing or otherwise partnering with distribution or manufacturing concerns, it is engaging in backward integration because the requisite skills are different from those usually associated with retailing Additionally, retailers and manufacturers have different customersthe immediate customers for a manufacturers merchandise are retailers, whereas a retailers customers are consumers Thus, a manufacturers marketing activities are different from those of a retailer Note that some manufacturers and designers like Nike, Prada, and Ralph Lauren forward integrate into retailing

Keys to Success
Four characteristics of retailers that have successfully exploited international growth opportunities are (1) globally sustainable competitive advantage, (2) adaptability, (3) global culture, and (4) deep pockets-

Entry strategies
Four approaches that retailers take when entering non- domestic markets are direct investment, joint venture, strategic alliance and franchising

The Strategic Retail Planning Process

The strategic retail planning process is the set of steps a retailer goes through to develop a strategic retail plan It describes how retailers select target market segments , determine the appropriate retail format, and build sustainable competitive advantages Step 1- Define the Business Mission Step 2- Conduct a Situation Audit Step 3- Identify Strategic Opportunities Step 4- Evaluate Strategic Opportunities Step 5- Establish Specific Objectives and Allocate Resources Step 6- Develop a Retail Mix to Implement Startegy Step 7- Evaluate Performance And Make Adjustments Refer Page 167 to 176 of Levy and Weitz Text for the explanation of points