Retail Concepts and Principles

Five Rights of Retailing

• Right product, at the right price, at the right time, in the right place, in the right quantity.
• Sell the most with the least amount of inventory.

Definition of Retail

• A set of business activities that adds value to the products and services sold to consumers for their personal or family use.

Retailer Definition

• A business that sells products and/or services to consumers for personal or family use.
• Wholesale = business/retailer for resale

Manufacturer's Perspective

• Retailers are part of the distribution channel
• Supply chain: A set of firms that make and deliver goods/services to the final consumer

Vertical Integration

• Firm performs more than one set of activities in the channel

Backward Integration

• Retailer performs some distribution and manufacturing activities

Forward Integration

• Manufacturers undertake retailing activities

How Retailers Add Value

• Provide assortment (buy other products at same time)
• Break bulk (buy in quantities customers want)
• Hold inventory (buy at convenient place, when customers want it)
• Offer services (in-store, before you buy; get credit, layaway)

U.S. Retail is Unique

• Has the greatest retail density (wealth driven)
• Has the greatest concentration of large retail firms
• Large enough to operate their own warehouses, eliminating wholesaling
• Result in a very efficient distribution system

Retailers Serve Diverse Markets

• Stakeholders = all affected by a firm's actions
• Customers want low prices
• Shareholders want higher profits
• Employees want higher wages
• Community wants support
• Retailer must balance needs of all

Corporate Social Responsibility

• The voluntary actions taken by a company to address ethical, social, and environmental impacts of operations, in addition to stakeholders' concerns.

Retail + Technology

• M-commerce
• Internet managed supply chains
• Real-time in-store inventory online
• Tailored assortments to each store based on sales
• Merchandise tracking/pricing/inventory technology (Walmart AI)

Strategic vs Tactical Decisions

• Strategic decisions are made infrequently, long-term, and require significant investment
• Store location, organizational design, MIS, distribution systems, customer service are strategic decisions

Strategy Competition

• Direct competition (ex. Ulta vs Sephora),
• Indirect (different prices),
• Intratype (same type of merchandise same target customers),
• Intertype,
• Variety, and Scramble merchandising (selling stuff not associated with the type of store)

Strategy Customers

• Target market
• Significant demographic and lifestyle trends

Retail Strategy

• To identify a target mix (product/service mix), a long-term sustainable strategy, and retail mix (personnel, presentation, product, promotion, pricing, place).

Types of Retailers

• How to classify retailers: variety/assortment, services offered, pricing, ownership, store type
• Variety (breadth): Wide (lots of categories) vs. narrow (one category) - how many merchandise categories are carried
• Assortment (depth): Deep vs. shallow - how many items within a category are carried (SKU's - size, color, etc.)
• EX: Walmart has the deepest assortment, Aldi has a shallow assortment

Cost Considerations

• Stocking a broad assortment is costly because the retailer needs backup stock.

Trends in Supermarket Retailing

• Online ordering/delivery
• Ready-to-eat meals/kits
• Private label/exclusive products
• Improved shopping experiences (events, restaurants)
• Gourmet/specialty food items
• Large stores (160,000-200,000 sq. ft)

Warehouse Clubs

• Limited/irregular merchandise assortment
• Limited service
• Low prices
• Low inventory holding costs
• Low markup

Convenience Stores

• 3,000-5,000 sq. ft
• Buy now, eat now example - Break Time.

Online Grocery

• All online with delivery/Instacart

General Merchandise Retailers

• EX) Marshall's (clothes), Walgreens (medicine)

Department Stores

• Hard goods, soft goods

Three Tiers of Department Stores

• Specialty department stores
• Moderate prices
• Value-oriented

Full-Line Discount Stores

• Broad variety, limited service, low prices
• EX) Walmart, Target

Specialty Stores

• More depth, less breadth
• Private label/branded
• Specific market segments
• EX) Alo, Lululemon, Altar'd State

Category Specialists/Category Killer/Big Box/Destination

• Customer buys a higher percentage of their time
• Low price/low service
• Lots of growth
• EX) Staples, Lowes, Menards

Extreme Value Retailers

• Focus on low-income customers, imply good value, low cost location, limited service, fast-growing segment, adding more food
• EX) Dollar General, Dollar Tree

Off-Price Retailers

• Inconsistent assortment of brand name products at low prices, EX: Marshalls, Ross

Outlet Stores

• Manufacturer outlets, retailer outlets

Omnichannel Retailing

• Channel = the way that the retailer sells and delivers merchandise and services to the customer
• Retail channels: Store, online, app, social media, catalog, TV
• Medium communicates but is not a direct way to purchase (ex. watching a YouTube channel)
• Single-channel (retailer POV), multi-channel (retailer POV, multiple channels that aren't integrated), cross-channel (consumer POV)
• Omnichannel: coordinated, seamless, synchronizes customer experience
• Challenges: Providing an integrated experience, some have different divisions online vs in-store, showrooming, private label merchandise reduces this

Channel Strengths (In-store)

• Touch and smell, personal service, risk reduction
• Immediate gratification, entertainment, and social experience, browsing, cash payment

Channel Strengths (Online)

• Deeper and broader selection, more info, personalization, expanded market presence

Technology (Retail)

• Increases conversion rates
• M-commerce
• Customers access retail sites from anywhere
• Location-sensitive
• Biggest disadvantage is smaller viewing screen, some retailers design websites

Customer Buying Behavior

• Need Recognition
• Information Search (pre-search, for store and product, evaluation- comparing options)
• Choice + Purchase (decide to buy, what to buy, where to buy)

Need Recognition

• Desired level of satisfaction doesn't match the present level of satisfaction
• EX: iPhone color, Sonic slush deal, promotions

Types of Needs (Buying Decisions)

• Utilitarian needs (easy and convenient), hedonic needs (experiences/pleasurable)

Simulating Need Recognition

• Suggestions by sales associates
• Advertising, direct mail
• Visual merchandising, special events
• Signs, displays, samples, coupons, influencers

Factors Affecting Information Search

• Value of searching vs cost of searching
• Product characteristics (require more search); complexity, cost, customer characteristics
• Experience, perceived risk, time pressure, education, number of choices

Reducing Information Search

• Keep merchandise in stock
• Reduce waiting time
• Easy navigation and checkout
• Price matching
• Money-back guarantees

Multiattribute Model

• Rate a retailer based on performance of relevant attributes (importance of those attributes)

Consideration Set

• The set of alternatives customers evaluate when making a selection
• EX: grocery stores, location, large range of assortment

Scarcity

• Products that disappear quickly, sold at regular price.
• EX: TJ Maxx

Satisfaction

• Post-consumption evaluation of how well a store or product meets or exceeds customer expectations
• EX: What am I loyal to? Telescopic mascara brand.

Postpurchase Cognitive Dissonance

• Internal conflict due to discrepancies between beliefs and purchases

Types of Buying Decisions (Postpurchase)

• Extended problem solving (biggest purchase), limited problem solving (prior experience), habitual decision making (already loyal to brand/store, purchase isn't important).

Customer Loyalty

• Brand loyalty, retailer loyalty
• Factors influencing buying process: economy, family, reference groups, culture
• Market segment= group of consumers with similar needs

Lifestyle/Psychographic Segmentation

• How consumers spend their time and money; good predictor of purchase