Chapter- 5 Retail Market Strategy – Flashcards

Retail Strategy - is a statement indentifying 1. The retailer target market 2. The formate the retailer plans to use to satisfy the target markets needs 3. The bases on which the retailers plans to build a sustainable competitive advantage

Target Market- is the market segments towards which the retailer plans to focus its responses and retail mix

Retail Format- Describes the nature of the retailers operations- its retails mix (type of merchandise and services offered, pricing, advertising, promotion programs, store design and visual merchandising, typical locations and customer services)- that it will use to satisfy the needs of it target market.

Sustainable Competitive Advantage - is an advantage the retailers has over its competition that is not easily copied by computers and thus can be maintained over a long period of time.

Retailing Concept- is a retail mgmt orientation that focuses on determining the needs of the retailers target market and satisfying those needs more effectively and efficiently than competitors - Succesful retailers are customer centric/ they focus on the needs of their customers and satisfy those needs better than their competitors do.

Retail Market- is a group of consumers with similar needs( market segment) and a group of retailers that satisfy those that satisfy those needs using a similar retail format -

Sustainable Competive Advantage - establishing a competitive advantage means that the retailers in effect builds a wall around its position in a retail market, that is around its present and potential customers and its competitors. - when the walls is high it will be hard for competitors outside the wall ( retailers operating in other markets or entrepreneurs) to enter the market and compete for the retailers target customers. Three approaches: 1. Building Strong relationships with customers 2. Buidling strong relationships with suppliers 3. Achieving effcient internal operations

Customer Loyalty- means that customers are committed to buying merchandise and services from a particular retailer Steps in developing loyalty: 1. Developing a strong brand image 2. Having a clear and consistent positioning 3. Providing outstanding customer service 4. Undertaking customer relationship mgmt (CRM) programs In addition- providing convenient locations encourages patronage- which can develop loyalty/ having human resource mgmt practices develops competent.. committed sales assoaciated leading to better customers service and loayility.

Brand Image- retailers build customers loyalty by developing a well known attractive image of their brand, their name. For example- McDonalds includes many favorable beleifs such as fast service, quality - Strong brand images facility customer loyalty because they reduce the risks associated with purchases/ they assure customers will receive constant level of quality

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 - A perceptual maps are developed so that the distance between two retailers positions on the map indicates how similar the stores appear to consumers.

Private- Label Brands ( Store brands or own brands)- are marketed by a retailers and available only from that retailers. Example- Costcos powerful private label brand Kirkland Signature, engenders strong brand loyalty among a significant group of consumers.

Customers Service- can develop customer loyalty by offering excellent customer service.

Customer Relationship Mgmt Programs- are activities that focus on identifying and building loyalty with a retailer most valued customers. - Programs typically involve offering customers reward based on amount of service or mchandise they purchase. Example- airlines offer free tickets to travelers who have flown prescribed number of miles., subway gives customers a free sandwich for each 10 they purchase

Vender Relations- by strengthening relationships with each other, both retailers & vendors can develop mutually beneficial assets and programs that will give the retailer-vender pair an advantage over competing pairs. example- Ralph Lauren and JCPenny collaborated to develop the American Living merchandise sold exuclisculy at JCpenney. - These collaborations are a win- win situations. By working together, both parties develop sustainable competitive advantage and increase their sales and profits.

Distribution And Information Systems- improve supply chain efficiency, the customer purchase data collected by information system provide an opportunity for retailers to tailor store merchandise assortments to the market served by each of its stores and to tailor promotion to the specific needs of individual customers. - the sate about its customor buying buying behavior are valuable asset offering advantage that is not easily duplicated by competitors.

Location- ""What are the free most important things in retaining?" Is location, Location, Location - Critical opportunity for developing competitive advantage for two reasons 1. Locations is the most important factor determine which store a consumer patronizes" For example, most people shop at supermarket closes to where they live 2. Location is a sustainable competitive advantage because it is not easily duplicated. Once walgreens has put a store at the best location at an intersection, CVS is relegated to the second best location - Starbucks has many locations- makes it hard for other businesses to enter the market.

Multiple Sources Advantage - an advantage that is sustainable for a long period of time, retailers rely on a single approach. Example McDonalds based on providing customers with a good value that meets there epecations, having good value , having good customer service.

Growth Strategies: 4 types of growth opportunities that retailers may pursue 1. Market Penetration 2. Market Expansions 3. Retail format developments 4. Diversifaction -Vertical axis indicates the synergies between the retailers present markets and the growth opportunity - The horizontal axis indicates the synergies between the retailers present retail mix and the retail mix of the growth opportunity

Market Penetration Growth opportunity - is a growth opportunity directed toward existing customers using the retailers present retailing format. - Such opportunities involve either attracting new consumers from the retailers current target market who don't patronize the retailer currently/ or by devising approaches that get current customers to visit the retailer more often or buy more merchandise on each visit. - Market pentration approaches include opening more stores in the target market/ or keeping existing stores open for longer hours.

Cross-Selling- means that sales associates in one department attempt to sell complementary merchandise from other departments to their customers. Example- a sales associate who has just sold a Blue- ray player to a customer will take the customer to the accessories department to sell special cables to impprove the performance of the player

Retail Format Deveopment Growth Opportunity- is an opportunity in which a retailer develops a new retail format -a format with a different retail mix- for the same target market. Example- Tesco has employed a retail formats that all cater to essentially the same target market

Diversification Growth Opportunity- is one in which a retailer introduces a new retail format directed toward a market segments that not currently served by the retailer. Are either: 1. Related 2. Unrelated

1. Related- the retailers present target market or retail format shares something in common with the new opportunity. - This commonality higher entail purchasing from the same vendors, operating in similar locations, using the same distribution or mgmt information system, or advertising in the same newspappers to similar target market Example- Home depot bilt a wholesale building business called HD Supply. Mgmt felt that this growth opportunity would be synergistic with the firms retail business, because its stores were already selling similar merchandise to contractors. Viewed as related diversification, because the target customers would be similar, and the new large contractor market could be served using warehouse similar to home Depot present retail stores

2. Unrelated Diversification Growth- in contrast, has little commonality between the retailers present business and the new growth opportunity. - Example- HD supply actually was an unrelated diversification. The large contractor market served by HD supply sold primarily pipes, lumber and concrete- products with limited sales in Home Depots rails stores. Selling these supply to large contractors involved competitive bidding and transporting large bulky order to job sites- skills Home depot lacked.

Vertical Integration- describes diversification by retailers into wholesaling or manufacturing - Example- some retailers go beyond designing their private-label merchandise to owning factories that manufacture the merchandise. - When retailers integrate backward and manufacture products, they are making risky investments because the require skills tom make products that are different from those associated with retailing them.

Attractiveness Of International Markets- two factors that are often used to determine the attractiveness of different international oppourunties. 1. The potential size of the retail market in the country 2. The degree to which the country does and can support the entry of foreign retailers - Most attractive countries are those with large growing potential sales as indicated by the level and growth rate of present retail sales and the amount of people in the country to spend on services and merchandise as GDP. - China and India are by far the largest retail markets in emerging economies. 1. China 2. Russia 3. United States

India- retail industry is divided intro organized and unorganized sectors. 1.The unorganized retailing includes the small independent retailers- the local kirama shops, owner operated stores. - Non-Indian firms cannot have controlling interest in retail firms and thus partners with an Indian Firm. Example- Walmarts Entry into India is a partnership with Bharti Enterprises to open wholesale outlets called Best Price Modern Wholesale. The outlets are allowed to sell only to firms that register by showing tax documents that prove they own retail outlets.

China- government regulations of retailing are much less onerous in China than in India and direct foreign investment in encouraged.

Russia- the impediments to market entry are less visible but more problematic. Corruption is rampant, with various administrative authorities capable of impeding operations if payments are not made. Over 70 percent of international container shipments come through Saint Petersburg port- which is very congested

Brazil- brazilian retailers have developed some very innovative practices for retailing to low income families, cinluding offering credit and installment purchases.

Keys To Success: 1. A globally sustainable competitive advantage 2. Adaptability 3. Global culture 4. Financial Recources

Globally Sustainable Competitive Advantage- some U.S retailers have a competitive advantage in global markets because American culture is emulated in many countries, particularly by young people- due to rising prosperity and the rapidly increasing access to networks such as MTV that feature American programing, fashion trends in the United States are spearing people in emrgining counties

Direct Investment- occurs when a retail firm invests in and owns a retail operation in a foreign country. - This entry strategy requires the highest level of investment and exposes the retailer to the greatest risks, but it also has the highest potential returns ** A key advantage of direct investment is that retailer has complete control of the operations Example- mcDonalds chose this entry strategy for the U.K market, building a plant to produce buns when local suppliers could not meet its specifications

Joint Venture- is formed when the entering retailers pools its resources with local retailers to form a new company in which ownership, control and profits are shared. - Reduces the entrants risks. - In adition to sharing the financial burden, the local partner provides an understanding of the market and has access to local resources, such as vendors and real estate Disadvantages- problems with this entry approach can arise if the partners disagree or the government places restrictions on the repatriation profits

3. Strategic Alliance- is a collaborative relationship between independent firms. Example- a retailer might enter an international market through direct investment but use independent firms to facilitate its local logistical and warehousing activities.

4. Franchising- offers lower risk and requires the least investment. - Retailers has limited control over the retail operations in the foregin country, its potential profit is reduced, and the risk of assisting in the creation of a local domestic computer increases.

The Strategic Retail Planning Process- is the set of steps a retailer goes through to develop a strategy and plan. It describes how retailers selects target markets segments, determine the approbate retail formate, and build sustainable competitive advantages.

Step 1: Define The Business Mission- first step in the strategic planning process is to define the business mission. Mission Statement- is a broad description of a retailers objectives and the scope of activities it plans to undertake - The mission statement defined the general nature of the target segments and retail formate on which the firm will focus. In developing mission statement: 1. What business are we in? 2. What should our business be in the future? 3. who are our customers 4. What are out capabilities? 5. What do we want to accomplish - Defines the retailers onkectives and the scope of activities it plans to undertake

Step 2: Conduct A Situation Audit- an analysis of the opportunities and threats in the retail environments and the strengths and weaknesses of the retail business relative to its competitors.

a. Market Factors- some critical factors related to consumers and their buying patterns are the target market size and growth, sales, cyclicality, and seasonality Market size- typically measured in retail sales dollars.

a. Barriers To Entry- are conditions in a retail market that make it difficult for other firms to enter the market. Some of these conditions are 1. Scale economies 2. Customer loayility 3. Availability of great locations b. Scale Economies- are cost advantages due to a retailers size. Markets dominated by large competitors with scale economies are typically unattractive because the dominant firms have sustainable cost advantages. Example- an entrepreneur would view the drugstoe market as unattractive because it is dominated by three large firms, Walgreen CVS and rite aid. - these firms have considerable costs advantages over an entrepreneur because they have significant bargaining power over supplies and can buy merchandise at lower prices. C. Bargaining Power Of Vendors- markets are less attractive when only a few vendors control the merchandise sold in the market. In such situations vendors have the opportunity to dictate prices and other terms( like delivery dates) reducing the retailer profits For example, markets for retailing fashionable cosmetics is less attractive because two suppliers, Estee Launder , provide most of the desirable image, the suppliers have the power to sell their products to retailers at high prices.

D. Competitive Rivalry - final competitive factor. Is the frequency and intensity of reactions to actions underrated by competitors. When price is high, price wars erupt, employee raids occur, advertising and promotion expenses increase, and profit potential falls Conditions that may lead to intense rivalry: 1. Large number of competitors that are all about the same size 2. Slow growth 3. high fixed costs 4. Lack of perceived differences between competing retailers. For example. Home Depot And Lowes have an intense rivalry in many markets

Environmental Factors- that can affect market attractivness include technoligical, economic, regulatory and social changes.

Strengths And Weaknesses Analysis- indicates how well the business can seize opportunities and avoid harm from threats in the environment. Outlines some issues to consider in performing a strengths and weaknesses analysis.

Step 3. identify strategic opportunties- after the situation audit. next step is to identify opportunities for increasing retail sales.

Step 4: Evaluate Strategic Opportunties- in the strategic process is to evaluate opportunities that have been identified in the visitation audit. - The evaluation determines the retailers potential to establish a sustainable competitive advantage and reap long term profits from the opportunities being evaluated. - Both market acttractiness and strengths/ weakness need to be considered in evaluating strategic opportunities.

Step 5: Establish Specific Ojectives and Allocate Resources- Establish a specific objective for each opporunity. The retailers 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 3 components 1. The performance sought, including a numerical index against which process may be measures 2. A time frame within which the goal is to be a chivied 3. The level of investment needed to achieve the objective

Step 6: Develop A Retail Mix to Implement the Strategy- develop a retail mix for each opportunity in which an investment will be made and control and eveulate performance

Step 7: Final step is to evaluate the results of the strategy and implementation program. If the retailer fails to meet its objectives, reanalysis is requires. - typically this reanalysis starts with reviewing the implementation programs, but it may indicate that the strategy or even mission statemnt needs to be reconsidered.