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5th Edition PPT 5-1

Chapter 5 Retail Marketing Strategy

McGraw-Hill/Irwin PPT 5-2 Levy/Weitz: Retailing Management, 5/e

Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Retailing Strategy
Retail Locations Chapters 7,8 Human Resource Management Chapter 9

Retail Market Strategy Chapter 5 Financial Strategy Chapter 6

Information and Distribution Systems Chapter 10


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Customer Relationship Management Chapter 11

Strategy Is Over Used


Retailers Talk About A Lot of Different Strategies
Sales Strategy Advertising Strategy Merchandise Strategy Location Strategy Strategy Is Not Just Another Term for A Management Decision
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Strategic vs. Tactical Decisions


Strategic
Direction Strategy statement Broad Unstructured Problem solving Creativity External focus Irregular Long-term Difficult to evaluate
Note:
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Tactical
Implementation Annual plan Specific, detailed Structured Problem solving Analytical Internal focus Regular Short-term Easy to evaluate

Success Comes for Having a Good Strategy and Executing It Well

Elements in Retail Strategy


Target Market Customer Needs Retail Format Method for Satisfying Needs Bases for Building Sustainable Competitive Advantage Defending Position Against Competitors

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Chicos Strategy
Target Market Woman 35 to 55 Who Want Comfortable, Casual, But Stylish Apparel Retail Format Specialty Apparel Stores in Malls and Strip Centers Selling Private Label, Coordinated Outfits Bases for Building Sustainable Competitive Advantage Unique Merchandise Sized 0,1,2,3

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Analyzing McDonalds Retail Strategy


What Is McDonalds:
-Target market? -Retail offering (format)? -Bases for competitive advantage? What Threats Might McDonalds Face in the Future?
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Examples of Retail Strategies


Starbucks

Kohls Restoration Hardware Ukrops What is the target market, retail offering, and source of competitive advantage for each retailer?
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Strategy for Looking for a Job


Determine Your Target Market Area of Country Type of Company Type of Position Assess and Exploit Your Competitive Advantage Unique Skills, Experience, Knowledge
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Why Does a Retailer Need to Focus on a Specific Target Market?

Why Not Sell to Everyone?


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Retail Market Opportunities for Womens Apparel

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Methods for Segmenting Markets


Buying Situations Benefits Sought Geographic

Lifestyle, Psychographics Demographics


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Criteria For Selecting A Target Market


Attractiveness -- Large, Growing, Little Competition More Profits Consistent with Your Competitive Advantages

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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 Paying Higher Wages? Providing Better Customer Service?
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Internal and External Bases for Competitive Advantage


Retail Firm Low Cost Large Size Efficient Distribution, Operations Unique Knowledge Loyal Employees

Vendors, Suppliers

Customers

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Sources of Capital

Sources of Competitive Advantage


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

Loyalty

What does loyalty mean? Is It the same as liking a store? Going to the store frequently?

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Approaches for Building Customer Loyalty


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

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Example of Positioning

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Basis of Loyalty, Commitment

Costs Location Frequent Shopper Programs Unique Merchandise Mental, Emotional Attachment
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Creating Store Loyalty Mental and Emotional Attachments


Elements in a Strong Brand
Top of the Mind Awareness Associations with Brand/Store Name

Methods Used to Develop a Strong Brand


Massive Exposure Symbols to Reinforce Image Consistent Positioning Creating Strong Associations Limited Brand Extensions

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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 Similar to Dating and Marriage Commitment to a Relationship (Vendor) Reduces Flexibility

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Growth Opportunities

Market Penetration
Market Expansion Retail Format Development Diversification

- Related vs. Unrelated


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Growth Opportunities

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International Growth Opportunities

Europe China Mexico, Latin America Japan

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Key to Success in Global Retailing


Domestic market leadership strong base Exploiting core competencies competitive advantage
Low cost - Wal-mart, Carrefour Fashion Reputation - The Gap, Zara, H&M Category dominance - Toys R Us, Office Depot Unique Image, Brand Disney, IKEA, Starbucks

Adaptability Global Culture Long-term commitment


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International Market Entry Strategies


Direct Investment Joint Ventures Strategic Alliances Franchising

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Steps 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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Elements in a Market Analysis

1 00

50

0 1 st Qt r 2 nd Q t r 3rd Qtr 4 t h Qt r

MARKET FACTORS Size Growth Seasonality Business cycles

COMPETITIVE FACTORS Barriers to entry Bargaining power of vendors Competitive rivalry Threat of superior new formats

ENVIRONMENTAL FACTORS

ANALYSIS OF STRENGTHS & WEAKNESSES


Management capabilities Financial resources Locations Operations Merchandise Store Management Customer loyalty

Technology Economic Regulatory Social

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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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Porters Five Forces

Barriers to Entry Bargaining Power of Vendors

Competitive Rivalry

Large Customers

Threat of Substitution
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Strengths and Weaknesses Analysis


Management Capability:
Capabilities and experience of top management Depth of Management--capabilities of middle management Managements commitment to firm

Financial Resources:
Cash flow from existing business Ability to raise debt or equity financing

Operations:
Overhead cost structure Quality of operating systems Distribution capabilities Management information systems Loss prevention systems Inventory control system

Store Management Capabilities


Management capabilities Quality of sales associates Commitment of sales associates to firm

Locations

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

Illustration of the Strategic Retail Planning Process


Kelly Bradford Owner of Gifts To Go
Two Store Chain in Chicago Target Market Upper Income Men and Women Looking for Gifts between $50 and $500 Strong Customer Loyalty Based on Knowing What Customers Want, Providing Good Customer Service Low Turnover Among Associates

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Mission Statement for Gifts To Go


The mission of Gifts to Go is to be the leading retailers of higher-priced gifts in the Chicago and provide a stable income of $100,000 per year for the owner. Define growth opportunities will and wont consider Indicates objective of company

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Situation Analysis of Gifts to Go


Market Factors Chicago is an attractive market. (+) Relatively expensive gifts are not affected much by the economy. (+) Gifts are highly seasonal. (-) Competitive Factors Many in area. Primary department stores, craft galleries, catalogs, and Internet retailers (-) Lack of large suppliers, customer (+) Opportunities for differentiation (+) Limited competitive rivalry. (+)
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Situation Analysis of Gifts to Go (continued)


Environmental Factors
Potential Threat - Development of electronic channel by traditional bricks and mortar retailers (-)

Strengths and Weaknesses


Management Capability Limited Financial Resources Good Operations Poor Merchandise Capabilities Good Store Management Capabilities Excellent Locations Excellent Customer Loyalty Good Customer Database - Good
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Growth Opportunities for Gifts to Go


Market Penetration
Increase size of present stores Open additional gifts stores in Chicago area

Market Expansion
Open gift stores outside Chicago area Sell lower priced gifts in present stores

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Growth Opportunities for Gifts to Go (continued)


Retail Format Development
Sell non-gift merchandise to same customers in present or new stores Sell similar gifts to same customers through an electronic channel

Diversification
Manufacture craft gifts Open an apparel store targeting teenagers Open a category killer store selling a broader assortment of gifts

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Evaluating Growth Opportunities for Gifts to Go


Market Attractiveness
Market Penetration
Increase size of present stores (low) Open additional gifts stores in Chicago area (medium)

Market Expansion
Open gift stores outside Chicago area new geographic segment (medium) Sell lower priced gifts in present stores new benefit segment (medium)

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Evaluating Growth Opportunities for Gifts to Go (continued)


Market Attractiveness
Retail Format Development
Sell non-gift merchandise to same customers in present or new stores (High) Sell similar gifts to same customers through an electronic channel (High)

Diversification
Manufacture craft gifts (High) Open an apparel store targeting teenagers (High) Open a category killer store selling a broader assortment of gifts (High)

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Evaluating Growth Opportunities for Gifts to Go


Competitive Position Market Penetration
Increase size of present stores (High) Open additional gifts stores in Chicago area (Medium)

Market Expansion
Open gift stores outside Chicago area (Low) Sell lower priced gifts in present stores (low)

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Evaluating Growth Opportunities for Gifts to Go (continued)


Competitive Position
Retail Format Development
Sell non-gift merchandise to same customers in present or new stores (Low) Sell similar gifts to same customers through an electronic channel (Medium)

Diversification
Manufacture craft gifts (Low) Open an apparel store targeting teenagers (Low) Open a category killer store selling a broader assortment of gifts (Low)

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Market Attractiveness/Competitive Position Matrix


High
Maximum investment

Medium
Invest to challenge leader

Low
Opportunities investment Build strength or exit

Market Attractiveness

Consolidate position Selective investment Build on strengths Protect position Manage for cash generation Harvest or divest Cautious investment

Aggressive investment

Harvest or divest

Cautious investment

Harvest or divest

Minimal investment Competitive Position

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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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Characteristics of International Markets

U.S. Population (Millions) Business Climate Logistical Infrastructure 266 3 Exc.

Germany 82 10 Good

Japan 126 24 Avg.

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Attractiveness Ratings for International Growth Opportunities

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Competitive Position in International Growth Opportunities

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Evaluation of International Growth Opportunities

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Risk and Rewards in Latin America: Country Risk Assessment


Market Size (GDP Billions)
400 350 300 250 200 150 100 50 0 Colombia Chile Brazil


Mexico

Short-Term Risk Long-Term Risk

Argentina

 


Peru

Venezuela

Low

Medium

High

RISK
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Source: Coopers & Lybrand Analysis, Global Retailing: Assignment Latin America, Chain Store Age Executive, April 1996, seciton 2, p. 4.

Evaluation of Retail Market Opportunities in European Community


High
SPAIN

Low

MARKETS Restricted Open

ITALY FRANCE GERMANY

UNITED KINGDOM NETHERLANDS

LUXEMBOURG BELGIUM PORTUGAL IRELAND GREECE DENMARK

GROWTH
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Market Attractiveness Ratings for Growth Opportunities in Merchandise Categories


Womens( Juniors Mens 1) (2) (3) Childrens Furniture Cons. Elec. Soft Home (4) (5) (6) (7)

Weight

Factors Market size Growth Vendor power Competitive intensity Social trends Score 20 20 15 20 25 10 9 4 5 4 5 540 7 3 4 3 5 445 5 6 10 10 6 720 4 5 9 2 6 505 5 4 2 5 6 485 6 8 1 2 4 435 7 6 8 10 9 805

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Competitive Position Ratings in Merchandise Categories


Womens Juniors Mens Childrens Furniture Cons. Elec. Soft Home Weight (1) (2) (3) (4) (5) (6) (7)

Factors Location Vendor relationship Costs Skills of buyers Image with customer Score 20 25 20 10 25 100 9 8 8 6 8 800 9 7 8 7 8 785 8 5 5 5 5 560 6 7 6 9 6 655 4 4 3 5 5 415 2 3 1 4 2 225 4 7 7 8 8 675

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Evaluation of Merchandise Category Opportunities


1,000

High

Medium
Soft home

Low

High

Market Attractiveness

667

Mens clothing
Womens clothing

Medium

Childrens clothing

Low

333

Juniors clothing

Furniture

Consumer electronics

1,000
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667

333