Retail Market Strategy - Chapter 5

• Retail Market Strategy is explained in Chapter 5.

Learning Objectives

• This chapter helps to define retail strategy
• This chapter helps to illustrate how retailers can build a sustainable competitive advantage
• This chapter helps to classify the different strategic growth opportunities retailers can pursue
• This chapter helps to identify issues that arise as domestic retailers become global retailers
• This chapter outlines the steps retailers go through to develop a strategic plan

Retail Strategy

• Retail strategy statement identifies the retailer's target market
• Retail strategy statement identifies the format the retailer will use to satisfy the target market's needs
• Retail strategy statement identifies the bases on which the retailer plans to build a sustainable competitive advantage

Target Market

• Target market is the market segment towards which the retailer plans to focus its resources and retail mix.

Retail Format

• A retail format focuses on the nature of the retailer's operations, including its retail mix.

Sustainable Competitive Advantage

• Establishing a competitive advantage means that the retailer builds a defence around its position in a retail market
• This defence protects its present and potential customers and its competitors

Target Market and Retail Format

• Retail Market Segment is a group of consumers with similar needs and a group of retailers that satisfy those needs using similar retail channels and format

Sustainability of Advantage

• Customer loyalty can be less sustainable due to habitual repeat purchasing because of limited competition in the local area.
• Customer loyalty building with a brand image with an emotional connection is more sustainable.
• Use of databases to develop and utilize a deeper understanding of customers is more sustainable for customer loyalty.
• Convenient locations are a more sustainable advantage.
• More employees is a less sustainable advantage.
• Committed, knowledgeable employees are a more sustainable advantage.
• Bigger warehouses and automated warehouses are a less sustainable advantage
• Shared systems with vendors offers a more sustainable advantage
• More merchandise, greater assortment, lower price, higher advertising budgets and more sales promotions are less sustainable.
• Exclusive merchandise is more sustainable.
• Repeat purchases from vendor due to limited alternatives are less sustainable
• Coordination of procurement efforts and ability to get scarce merchandise are more sustainable.
• Hours of operation is less sustainable.
• Knowledgeable and helpful salespeople are more sustainable.

Relationships with Customers

• Customer Loyalty means that Customers will be reluctant to patronize competitive retailers
• Retailers can build loyalty by developing a strong brand image
• Retailers can build loyalty by having a clear and consistent positioning
• Retailers can build loyalty by developing unique merchandise
• Retailers can build loyalty by providing outstanding customer service
• Retailers can build loyalty by undertaking customer relationship management (CRM) programs

Building a Retail Community Using Social Media

• A retail community is a group of consumers who have shared involvement with a retailer

Relationships with Suppliers Vendor Relations

• 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

Efficiency of Internal Operations

• Recruiting, Training and Retaining great employees are challenge
• Human resource Management with "Employees" are key to building a sustainable competitive advantage
• Vendor Distribution Center Store.
• By decreasing costs more money is available to invest

Location

• a critical opportunity for developing competitive advantage for 2 reasons.
• First, location is the most important factor determining store a consumer will patronize.
• Second, location is a sustainable competitive advantage.
• Starbucks creates a competitive advantage by picking multiple good locations that saturate area.

Multiple Sources of Advantage

• Retailers cannot rely on a single approach.
• Retailers use multiple approaches to build as high a wall around their position as possible

Market Penetration

• Utilizes existing target markets with existing retail format
• Opening more store in the target market
• Keeping existing stores open for longer hours
• Cross-selling sales associates in one department sell complimentary merchandise from other departments

Market Expansion

• Utilizes new target markets with existing retail format

Retail Format Development

• Utilizes existing target markets with a new retail format
• The smallest is Tesco Express which is up to 3,000 Square feet
• Tesco Metro Stores are 7000-5000 Square feet
• Tesco superstores are up to 50,000 Square feet
• Tesco Extra stores are more than 60,000 Square feet

Diversification

• Utilizes new target markets with a new retail format
• Related diversification growth opportunity shares something in common with the new opportunity
• Unrelated diversification growth opportunity has little commonality between the retailer's present business and the new growth opportunity

Global Growth Opportunities

• Expending operations to international markets allows retailers to increase
• Sales
• Knowledge and systems
• Bargaining power with vendors

Attractiveness of International Market

• Two factors of attractiveness:
• The potential size of the retail market in the country
• The degree to which the country does and can support the entry of foreign retailers

India

• The retail industry is divided into organized and unorganized sectors in India

Problems in India

• The world's largest pluralistic democracy
• Myriad cultures
• 22 official languages
• Restricts foreign investment

China

• China is rapidly developing the infrastructure to support modern retailing

Problems in China

• Operating costs are increasing
• Managerial talent is becoming more difficult to find and retain
• Underdeveloped and inefficient supply chain predominates.

Russia

• Impediments to market entry are less visible but more problematic
• Ranked as one of the top countries in terms of retail growth in 2015

Problems in Russia

• Economic and Political Issues
• Corruption
• Logistical challenges
• fluctuations in oil prices
• War vs Russia and Ukraine

Philippines

• Is an Archipelago (7,100 islands)

Problems in the Philippines

• High Poverty Level
• Weak Internet Facility
• Vulnerable in natural disaster
• Poor infrastructure
• High Tax rates and licenses

Key to Success

• Globally Sustainable
• Competitive Advantage
• Adaptability
• Global Culture
• Financial Resource

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

• Color preference, the preferred cut sizes differ across cultures
• Peak selling seasons
• Store designs and layouts
• Government regulations and cultural values can affect store operations.

Global Culture

• It is not sufficient to transplant a home-country culture and infrastructure to another country
• Carrefour has more than 30 years of international experience in 30 countries, both developed and developing

Financial Resource

• Large firms generally are in a strong financial position
• Large firms therefore have the ability to keep investing in projects long enough to become successful

Entry Strategies

• Direct Investment
• Joint Venture
• Strategic Alliance
• Franchising

Direct Investment

• Occurs when a retail firm invests in and owns a retail operation in a foreign country

Advantages of Direct Investment

• Offers the highest potential returns
• The retailer has complete control of the operations

Disadvantages of Direct Investment

• The highest level of investment, exposes the retailer to the greatest risks

Joint Venture

• Offers more resources
• reduces the entrant's risks
• Increased productivity and greater profits
• Sharing of costs and risks with partners
• Ownership, control, and profits are shared

Problems with Joint Ventures

• Arise if the partners disagree or the government places restrictions on the repatriation of profits

Strategic Alliance

• A strategic alliance is a collaborative relationship between independent firms

Franchising

Advantages of Franchising

• Lowest risk
• Least investment

Disadvantages of Franchising

• The retailer has limited control
• Potential profit is reduced
• Local domestic competitor increases

7 Steps in Strategic Planning Process

• Define the business mission
• Conduct a SWOT analysis
• Identify strategic opportunities for increasing retail sales
• Evaluate strategic alternatives
• Establish specific objectives and allocate resource
• Develop a retail mix to implement strategy
• Evaluate performance and make adjustments

Step 1: Define the Business Mission

• The mission statement is a broad description of a retailer's objectives and the scope of activities it plans to undertake

Managers need to answer

• What is our business?
• What should our business be in the future?
• Who are our customers?
• What are our capabilities?
• What do we want to accomplish?

Step 2: Conduct a SWOT Analysis

• Conduct a SWOT analysis for both the Internal Environment (SW Analysis) and External Environment (OT Analysis)

Step 3: Identify Strategic Opportunities

• Focus on opportunities that utilize strengths and its competitive advantage

Step 4: Evaluate Strategic Opportunities

• Evaluate the strategic opportunities that focus on strengths and competitive advantage

Step 5: Establish Specific Objectives and Allocate Resources

• The retailer's overall objective is included in the mission statement
• Establish specific objectives for where progress toward the overall objective can be measured

Step 6: Develop a Retail Mix to Implement Strategy

• The planning process develops a retail mix for each opportunity where an investment will be made and control is used to evaluate performance

Step 7: Evaluate Performance and Make Adjustments

• If the retailer is meeting or exceeding its objectives, no changes are needed
• If the retailer fails to meet its objectives, reanalysis is required