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Chapter 5

Retail Marketing Strategy


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What is a retailing strategy?

A retail strategy is a statement identifying

(1) The retailer’s target market

(2) The format (Retail Mix) the retailer plans to


use to satisfy the target market’s needs

(3) The bases on which the retailer plans to


build a sustainable competitive advantage

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Retail Mix

Customer Location
Service

Store Design Merchandise


And Display Retail Strategy Assortment

Communication Pricing
Mix
Retailing Strategy

Human Resource
Retail Locations Management
Chapters 7,8 Chapter 9

Retail Market Strategy


Chapter 5
Financial Strategy
Chapter 6

Information and Customer


Distribution Relationship
Systems Management
Chapter 10 Chapter 11
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Questions

■ What is a retailing strategy?


■ How can a retailer build a sustainable
competitive advantage?
■ What steps do retailers go through to develop a
strategy?
■ What different strategic growth opportunities can
retailers pursue?
■ What retailers are best positioned to become
global retailers?

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More attention to long-term strategic
planning than ever before

Due to the emergence of


■ New competitors
■ New formats
■ New technologies
■ Shifts in customer needs

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Elements in Retail Strategy

■ Target Market
 the market segment (s) toward which the retailer
plans to focus its resources and retail mix
■ Retail Format
 the nature of the retailer’s operations—its retail mix
■ Sustainable Competitive Advantage
 an advantage over the competition

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© image100 Ltd
Analyzing Otobi’s Retail Strategy

Target market?

Retail offering (format)?

Bases for competitive


advantage?

What Threats Might Otobi Face in the Future?

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Target Market

Why Does a Retailer Need to Focus on


a Specific Target Market?

Why Not Sell to Everyone?

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Target market and retail format:
Retail Market Opportunities for Women’s Apparel

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Criteria For Selecting A Target Market

■ Attractiveness
 Large
 Growing
 Little Competition
 More Profits
■ Consistent with Competitive Ad.

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Opportunities for retailers to develop sustainable
competitive advantages

■ Customer Loyalty
■ Location
■ Human Resource Management
■ Distribution & Information Systems
■ Unique Merchandise
■ Vendor Relations
■ Customer Service

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Can A Retailer Develop a Sustainable
Competitive Advantage by:

■ Dropping the Price of Your Merchandise?


■ Building a Store at the Best Location?
■ Deciding to Sell Some Hot Merchandise?
■ Increasing Your Level of Advertising?
■ Attracting Better Sales Associates by Higher Wages?

■ Providing Better Customer Service?

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Sources of Competitive Advantage

More Sustainable Less Sustainable


■ Location ■ Better Computers
■ Customer Loyalty ■ More Employees
■ Customer Service ■ More Merchandise
■ Exclusive Merchandise ■ Greater Assortments
■ Low Cost Supply Chain ■ Lower Prices
Management ■ More Advertising
■ Information Systems ■ More Promotions
■ Buying Power with Vendors ■ Cleaner Stores
■ Committed Employees

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Internal and External Bases for
Competitive Advantage
Retail Firm
•Low Cost
•Large Size
•Efficient
Distribution,
Operations
Vendors, • Unique
Suppliers Customers
Knowledge
• Loyal Employees

Sources of
Capital
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Loyalty

What does loyalty mean?


Is It the same as liking a store?
…Going to the store frequently?

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Customer Loyalty

■ More than simply liking one retailer over another


■ Customers will be reluctant to patronize
competitive retailers
■ Retailers build loyalty by:
 Developing a strong brand for the store or store
brands
 Developing clear and precise positioning strategies
 Creating an emotional attachment with customers
through loyalty programs

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Retail Branding

Stores use brand (store’s name and store brands –


private label brands) to build customer loyalty

Retail brand Walmart


brands
■ Can create an emotional
tie with customers that
build their trust and loyalty
■ Facilitates store loyalty
because it stands for a
predictable level of quality

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Loyalty Programs

■ Part of an overall Customer Relationship Management


(CRM) program
■ Purchase behaviors of members of loyalty programs
 Are identified when they buy because they use some type of
loyalty card
 Saved in Data Warehouse
• What they buy
• When they buy
• How much they buy
• How often they buy
• How much they spend
• What channel they use
■ Develop personalized marketing effort to them

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Approaches for Building
Customer Loyalty

■ Unique Positioning
■ Location
■ Customer Service
■ Information About Customers (Database)
■ Unique Merchandise

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Example of Positioning

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Location

■ What are the three most important things in


retailing?
 “location, location, location”
■ Location is a competitive advantage
 A high density of Starbucks stores
• Creates a top-of-mind awareness (DBBL ATM)
• makes it very difficult for a competitor to enter a
market and find a good locations

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Human Resources

■ “Employees are key to build a sustainable


competitive advantage”

■ Strategies for Recruiting and Retaining Talented


Employees
■ Employee Branding
■ Develop positive organizational culture

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Distribution and Info Systems

Flow of Information
Vendor By decreasing costs here,
more money available to
Distribution Center
invest in:
Store -Better services
-Increase in breadth and depth
-Decrease in prices

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Unique Merchandise: Private Labels
Rob Melnychuk/Getty Images

Sears’ Kenmore -- appliances

Kmart’s Martha Stewart -- home

JCPenney’s Arizona -- jeans

Jules Frazier/Getty Images

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Jacobs Stock Photography/Getty Images
Vendor Relationships

■ Low Cost - Efficiency Through Coordination


 Electronic Data Interchange (EDI)
 Collaborative Planning and Forecasting to
Reduce Inventory and Distribution Costs
■ Exclusive Sale of Desirable Brands
■ Special Treatment
 Early Delivery of New Styles
 Shipment of Scare Merchandise

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High Quality Customer Service

■ Difficult to Achieve
 People Are Not Machines -- Inconsistent
 Retail Sales Associates At Bottom of Labor Pool
■ Goes Beyond Hiring Good People at High
Wages and Training Them -- Organizational
Culture

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Critical Tradeoff In Developing
Strategic Advantage

Focus Leads to Developing


A Competitive Advantage
But
Focus Reduces Flexibility

■ Low Cost, Consistent Image, Vendor


Relationships Reduces Flexibility

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Growth Strategies

■ Market Penetration
■ Market Expansion
■ Retail Format Development
■ Diversification
 Related vs. Unrelated

Ryan McVay/Getty Images

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Ansoff’s Product-Market Expansion Grid

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Growth Opportunities

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Market Penetration

■ Attract customers from target market – Walgreens “on


every corner”

■ Get current customer to visit store more often or buy on


each visit

Cross Selling – sales associates in one department sell


complimentary merchandise from other departments

Example: Manicurist sells services plus hand lotion or nail polish

Example: Salesperson sells leaf blower directs customer to electrical


department to purchase a 100 foot extension cord. 5-33
Market Expansion

■ Market expansion growth opportunity involves


using the existing retail format in new market
segments

 Dunkin’ Donuts – new stores (and at gas stations)


outside northeastern

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Retail Format Development

■ Develops a new retail format with a different


retail mix for the same target market
■ Multi-channel retailing
■ UK based TESCO:
 Tesco Express: small stores located close to where
customers live and work
 Tesco Metro: bring convenience to city center location
by specializing in ready-to-eat meals
 Tesco Superstores: traditional stores
 Tesco Extra: one-stop destination with the widest
range of food and non-food products

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Bharti Retail Ltd.

■ Easyday
■ Easyday market
■ Easyday Hyper

■ ACI
■ Shwapno
■ Shwapno MINI
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Diversification

■ Introduces a new retail format toward a market


segment that is not currently served by the
retailer
■ Related diversification
■ Unrelated diversification
■ Vertical integration into wholesaling or
manufacturing

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Global Growth Opportunities

Who Is Successful and Who Isn’t?


■ Specialty store retailers with
strong brand and unique
merchandise?
 McDonald’s

 Starbucks

 Zara

 H & M

■ Discount and food retailers


with deep assortments and low
prices?
 Wal-Mart

 Carrefour

 Metro AG

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Steve Cole/Getty Images
IKEA

■ Operates 254 stores in 35


countries
■ Unique, well-designed,
functional furniture at low
prices for consumers who
have sophisticated tastes,
but have no intention to
spend a lot
■ “You do our part. We do
our part. Together, we
save money.”

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Why Do Category Killers and Supercenters
Succeed Globally?

■ Developed operating expenses


■ Scale economies for buying
merchandise globally
■ Unique systems and standardization
formats which facilitate control over
multiple stores
■ Understand that consumers are willing
to forego service for lower prices
Ryan McVay/Getty Images

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Key to Success in Global Retailing

■ Globally sustainable competitive


advantage
 Low cost, efficient operations - Wal-
Mart, Carrefour
 Strong private label brands:
Starbucks, KFC
 Fashion Reputation - The Gap, Zara,
H&M
 Category dominance – Best Buy,
IKEA, Toys R Us
■ Adaptability
■ Global Culture
■ Financial Resources

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Evaluating Global Growth Opportunities

Consider challenges and how to overcome them

■ China
 Increasing operating costs
 Lack of managerial talent
 Underdeveloped and
inefficient supply chain
■ India
 Prefers small family-owned
stores
 Restricts foreign investment

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Evaluating Global Growth Opportunities

Rankings are based on


weighted score using
growth (55%),
risk (25%), and
market size (20%)

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Growth, Risk, and Market Size of
Top 30 Countries

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International Market
Entry Strategies

Direct Investment
Joint Ventures
Strategic Alliances Profit and Risk
Franchising

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Bharti Walmart Private Limited is a joint venture between
Bharti Enterprises and Walmart
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Market Attractiveness/Competitive
Position Matrix

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Steps in Using Market Attractiveness -
Competitive Position Matrix

• Define strategic opportunities


• Identify market attractiveness and competitive
position factors
• Assign weight based on importance of factors
• Rate opportunities on market attractiveness
and competitive position
• Calculate scores and evaluate opportunities

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Attractiveness Ratings for
International Growth Opportunities

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Competitive Position in International
Growth Opportunities

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Stages in the Strategic
Retail Planning Process

1. Define the business mission

2. Conduct a situation audit:


Market attractiveness analysis
Competitor analysis
Self-analysis

3. Identify strategic opportunities

4. Evaluate strategic alternatives

5. Establish specific objectives and allocate resources

6. Develop a retail mix to implement strategy

7. Evaluate performance and make adjustments


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Amazon Mission

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Elements in a Situation Audit

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Market Factors

■ Market size – large markets attractive to large


retail firms
■ Growth – typically more attractive than mature or
declining
■ Seasonality – can be an issue as resources are
necessary during peak season only
■ Business cycles – retail markets can be affected
by economic conditions – military base towns

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Competitive Factors

■ Barriers to entry
 Scale economies of big box retailers
 Service and unique, high-end products of small retailers
■ Bargaining power of vendors
 Markets are less attractive when only a few vendors control the
merchandise sold within it
■ Competitive rivalry
 Defines the frequency and intensity of reactions to actions
undertaken by competitors
 Conditions leading to intense rivalry: a large number of same
size retailers, slow growth, high fixed costs, a lack of perceived
differences between competing retailers

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Questions for
Analyzing the Environment

• New developments or changes --


technologies, regulations, social
factors, economic conditions
• Likelihood changes will occur
• Key factors determining change
• Impact of change on retail market
firm, competitors

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Performing a Self-Analysis

■ At what is our company good?


■ In which of these areas is our company better
than our competitors?
■ In which of these areas does our company’s
unique capabilities provide a sustainable
advantage or a basis for developing one?

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Stockbyte/Punchstock Images
Strengths and Weaknesses Analysis
Management Capability:
Capabilities and experience of top management
Depth of Management--capabilities of middle management
Management’s commitment to firm

Financial Resources:
Cash flow from existing business
Ability to raise debt or equity financing
Operations: Store Management Capabilities
Overhead cost structure Management capabilities
Quality of operating systems Quality of sales associates
Distribution capabilities Commitment of sales associates to firm
Management information systems
Loss prevention systems Locations
Inventory control system

Merchandising Capabilities:
Knowledge and skills of buyers Customers
Relationships with vendors Loyalty of customers
Capabilities in developing private
capabilities
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