Module 2 RETAIL MARKET STRATEGY

Retail Market We define a retail market not as a specific place where buyers and sellers meet it is a group of consumers with similar needs (a market segment) and a group of retailers using a similar retail format to satisfy those consumer needs

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 (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)

Sustainable Competitive Advantage

A sustainable competitive advantage is an advantage over competition that can be maintained over a long time

Building a Sustainable Competitive Advantage The final element in a retail strategy is the retailers approach to building a sustainable competitive advantage

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 not easily duplicated

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

Human Resource Management

Retailing is a labor- intensive business Employees play a major role in providing services for customers and building customer loyalty Knowledgeable and skilled employees committed to the retailers objectives are critical assets that support the success of companies such as Southwest Airlines, Whole Foods, Home Depot and Mens Wearhouse Recruiting and retaining great employees does not come easy

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

Distribution and Information Systems

By doing so, they will satisfy their customers needs and , at the same time, either provide them with lower- priced merchandise than their competition or decide to use the additional margin to attract customers from competitors by offering even better service, merchandise assortments, and visual presentations

Retailers can achieve these efficiencies by developing sophisticated distribution and information systems

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

Vendor Relations
By developing strong relations with vendors, retailers may gain exclusive rights (1) to sell merchandise in a region, (2) to obtain special terms of purchase that are not available to competitors who lack such relations, or (3) to receive popular merchandise in short supply Relationships with vendors, like relationships with customers, are developed over a long time may not be easily offset by a competitor For example, Ahold, the Holland- based food retailer, works very closely with Swiss food giant Nestle to bring its customers products tailored to meet the tastes of customers in local markets

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 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 customers- the 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- Refer Page 164 of Text for explanation of the points

Entry strategies

Four approaches that retailers take when entering non- domestic markets are direct investment, joint venture, strategic alliance and franchising- Refer Page 166 in Text

The Strategic Retail Planning Process

b. Complementary Services: Another way to inventory demand is by adopting a management system for queuing, i.e. the time that customers spend in waiting can be made productive and enjoyable. For example, restaurants have discovered the benefits of complementary services by adding a bar, or diverting the waiting customers into the lounge during busy periods can be profitable to the restaurant as well as soothing to anxious customers, or selling pop corn and soft drinks in the movie theaters. This in turn is an important revenue service.