Retail Market Strategy Chapter 5 PDF

CHAPTER 5 Retail Market Strategy CHAPTER 05 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Copyright © 2014 McGraw-Hill Education. All rights reserved...

CHAPTER 5 Retail Market Strategy CHAPTER 05 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter objectives 1. To Define retailing strategy. 2. To Analyze how can a retailer build a sustainable competitive advantage. 3. To differentiate between strategic growth opportunities that retailers can pursue. 4. To classify types of investments in global Retailing. 5. To analyze stages in retail planning process. (x) 5-2  1. Retail Strategy Elements in Retail Strategy Target Market the market segment(s) toward which the retailer plans to focus its resources and retail mix. It should be attractive (large, growing, profitable, little competition). Retail Format the nature of the retailer’s operations—its retail mix Sustainable Competitive Advantage an advantage over the competition that is not easily duplicated and can be maintained over a long time. © image100 Ltd 5-3 1. Retail Strategy Elements in Retail Strategy Thus, retail strategy determines “Retail Market” in which a retailer compete. Retail market: A group of consumers with similar needs and a group of retailers that satisfy those needs using a similar retail channel and format. 5-4 2. Approaches for retailers to 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. 5-5 Sources of sustainable and unsustainable 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 Effective Information More promotions systems Cleaner stores Buying power with vendors Committed employees 5-6 2.Approaches for sustainable competitive advantage A) 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 Thus, creating an emotional attachment with customers through loyalty programs 5-7  2.Approaches for sustainable competitive advantage A) Customer Loyalty (Retail Branding) Stores use brand (store’s name and store brands – private label brands) to build customer loyalty Retail brand 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 A retail brand, can create an emotional tie with customers that builds their trust and loyalty. 5-8 2.Approaches for sustainable competitive advantage A) Customer Loyalty (Positioning) Positioning- is the design and implementation of a retail mix to create an image of the retailer in the customer's mind relative to its competitors. Unique Merchandise Customer Service Customer Relationship Management Programs 5-9 2. Approaches for sustainable competitive advantage A) Customer Loyalty (Positioning) 5-10 2. Approaches for sustainable competitive advantage B) Vendor Relationships By developing strong relations with vendors, retailers may gain exclusive rights (1) to sell merchandise in a specific region, (2) to buy merchandise with better terms than competitors who lack such relations, or (3) to receive merchandise in short supply. Relationships with vendors, like relationships with customers, are developed over a long time and may not be easily offset by a competitor. 5-11 2. Approaches for sustainable competitive advantage C) Distribution and Info Systems All retailers strive to reduce operating costs. 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. Retailers can achieve these efficiencies by developing sophisticated distribution and information systems. 5-12 2. Approaches for sustainable competitive advantage C) Distribution and Info Systems By decreasing operating costs Flow of Information (no excess, no shortages) , Vendor the is more money available to Distribution Center invest in: Store -Better services -Increase in breadth and depth -Decrease in prices 5-13 2. Approaches for sustainable competitive advantage D) Human Resources Management Retailing is a labor-intensive business. “Employees are key to build a sustainable competitive advantage” Effective strategies for Recruiting and Retaining Talented Employees Employee Branding Develop positive organizational culture Knowledgeable and skilled employees committed to the retailer's objectives are critical assets that support the success of several companies. 5-14 2. Approaches for sustainable competitive advantage E) Location What are the three most important things in retailing? “location, location, location”. Location is the critical factor in consumer selection of a store. It is also a sustained competitive advantage that is not easily duplicated. Example: A high density of Starbucks stores special locations Creates a top-of-mind awareness makes it very difficult for a competitor to enter a market and find a good locations 5-15 3. Growth Strategies Market Penetration Market Expansion Retail Format Development Diversification Related vs. Unrelated Ryan McVay/Getty Images 5-16 3. Growth Opportunities 5-17 3. Growth Opportunities A) Market Penetration A market penetration opportunity involves directing investments toward existing customers using the present retailing format. Approaches for increasing market penetration include attracting customers by opening more stores in the target market or opening the stores for longer hours. Cross-selling means that sales associates in one department attempt to sell complementary merchandise related to original product directed toward their customers. More cross-selling increases sales from existing customers. Examples; Get current customer to visit store more often or buy on each visit. 5-18 3. Growth Opportunities Market penetration Cross Selling – sales associates in one department sell complimentary merchandise from other departments Example: when mobile shop engage in cross selling through providing mobile accessories and mobile cases. 5-19 3. Growth Opportunities B) 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 All franchising engagement are viewed as “Market expansion”. Any expansion in a recent geographic area represents “Market expansion”. 5-20 3. Growth Opportunities C) Retail Format Development Develops a new retail format with a different retail mix for the same target market. Adjusting the type of merchandise or services offered typically involves a small investment, while providing an entirely different format, such as a store-based retailer going into electronic retailing, require a much larger and riskier investment. Ex:Carrefour Express 5-21 3. Growth Opportunities D) Diversification Introduces a new retail format toward a market segment that is not currently served by the retailer Related diversification- In a related diversification opportunity, the present target market and/or retail format shares something in common with the new opportunity. This commonality might entail purchasing from the same vendors, using the same distribution and/or management information system, or advertising in the same newspapers to similar target markets. Designing private label merchandise is a related diversification because it builds on the retailer’s knowledge of its customers. 5-22 3. Growth Opportunities D) Diversification Unrelated diversification-an unrelated diversification lacks any commonalty between the present business and the new business. Example: Volvo engage in providing apparel clothes. Vertical integration is diversification by retailers into wholesaling or manufacturing-When retailers integrate by manufacturing products, they are making risky investments because the skills required to make products are different from those associated with retailing them. 5-23 4) Types of investments in global Retailing (International Market Entry Strategies) Direct Investment Joint Ventures Strategic Alliances Franchising 5-24 A) Direct investment Direct investment involves a retail firm investing in and owning a division or subsidiary that builds and operates stores in a foreign country. This entry strategy requires the highest level of investment and exposes the retailer to significant risks, but has the highest potential returns. Example: Apple investment in China 5-25 B) Joint venture A joint venture is formed when the entering retailer pools its resources with a local retailer to form a new company in which ownership, control, and profits are shared. A joint venture reduces the entrant’s risks. The local partner understands the market and access to resources Problems with this entry approach can arise if the partners disagree or the government places restrictions on the repatriation of profits. Example: Toyota and BMW 5-26 C) Strategic Alliance A strategic alliance is a collaborative relationship between independent firms. For example, a foreign retailer might enter an international market through direct investment but develop an alliance with a local firm to perform logistical and warehousing activities. D) Franchising Offers the lowest risk and requires the least investment. However, the franchisor has limited control over the retail operations in the foreign country, profit potential is reduced with respect to franchisee. 5-27 5. Stages in the Strategic Retail Planning Process 5-28  29 Step 1. Develop Mission statement The mission statement is a broad description of a retailer's objectives and the scope of activities it plans to undertake. It should define the general nature of the target segments and retail formats that the firm will consider. In developing the mission statement, managers must answer five questions: (1) What business are we in? (2) What should be our business in the future? (3) Who are our customers? (4) What are our capabilities? (5) What do we want to accomplish? 5-29 Step 2: Conduct a Situation Audit A situation audit is an analysis of the opportunities and threats in the retail environment and the strengths and weaknesses of the retail business relative to its competitors. A situation audit is composed of four elements: market factors, competitive factors, environmental factors, and strengths and weaknesses analysis. 5-30 Elements in a Situation Audit 5-31 Step 2: Conduct a Situation Audit (A. Market Factors) Some critical factors related to consumers and their buying patterns are market size and growth, sales cyclicality, and seasonality. 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. The high seasonality the less attractiveness. Business cycles – retail markets can be affected by economic conditions. The high business cycles the less attractiveness. 5-32 Step 2: Conduct a Situation Audit (B. Competitive Factors) The nature of the competition in retail markets is affected by barriers to entry, the bargaining power of vendors, and competitive rivalry. Retail markets are more attractive when competitive entry is costly. Barriers to entry-are conditions in a retail market that make it difficult for firms to enter the market. These conditions include scale economies, customer loyalty, and availability of locations. Scale economies of big box retailers which reduce market attractiveness. Bargaining power of vendors Markets are less attractive when only a few vendors control the merchandise sold within it. 5-33 Competitive Factors Competitive rivalry Defines the frequency and intensity of reactions to actions undertaken by competitors. The high competitive rivalry, the less market attractiveness. Conditions leading to intense rivalry: a large number of same size retailers, slow growth and a lack of perceived differences between competing retailers 5-34 Step 2: Conduct a Situation Audit (C. Environment factors) Environmental factors that affect market attractiveness are technological, economic, regulatory, and social changes. When a retail market is going through significant changes in technology, present competitors are vulnerable to new entrants that are skilled at using the new technology. Some retailers are more affected by economic conditions than others. Government regulations can reduce the attractiveness of a retail market. Finally, trends in demographics, lifestyles, attitudes, and personal values affect retail markets' attractiveness. 5-35 D. Performing a Self-Analysis (strengths and weakness analysis) The most critical aspect of the situation audit is for a retailer to determine its unique capabilities in terms of its strengths and weaknesses relative to the competition. A strengths and weaknesses analysis indicates how well the business can seize opportunities and avoid harm from threats in the environment. 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? Stockbyte/Punchstock Images 5-36 Step 3: Identify Strategic Opportunities After completing the situation audit, the next step is to identify opportunities for increasing retail sales. The strategic alternatives (growth strategies) are defined in terms of the squares in the retail market matrix. Review slides from P.18 to P.26 5-37 5-38 Step 4: Evaluate Strategic Opportunities The evaluation of strategic opportunities identified in the situation audit determines the retailer's potential to establish a sustainable competitive advantage and reap long-term profits from the opportunities under evaluation. Thus, a retailer must focus on opportunities that utilize its strengths and its area of competitive advantage. Both the market attractiveness and the strengths and weaknesses of the retailer need to be considered in evaluating strategic opportunities. The greatest investments should be made in market opportunities where the retailer has a strong competitive position. 5-39 Step 5: Establish Specific Objectives and Allocate Resources The retailer's overall objective is included in the mission statement. The specific objectives are goals against which progress toward the overall objective can be measured. Specific objectives have three components: (1) the performance sought, including a numerical index against which progress may be measured, (2) a time frame within which the goal is to be achieved, and (3) the level of investment needed to achieve the objective. Typically, the performance levels are financial criteria such as return on investment, sales, or profits. 5-40 Step 6: Develop a Retail Mix to Implement Strategy The next step is to develop a retail mix for each opportunity in which investment will be made and to control and evaluate performance. 5-41 Step 7: Evaluate Performance and Make Adjustments The final step in the planning process is evaluating the results of the strategy and implementation program. If the retailer fails to meet its objectives, reanalysis is needed. This reanalysis starts with reviewing the implementation programs; but it may indicate that the strategy (or even the mission statement) needs to be reconsidered. This conclusion would result in starting a new planning process, including a new situation audit. 5-42