Retailing Management - Lecture notes from my Marketing Degree at Aston University PDF

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Lecture notes from my Marketing Degree at Aston University ...

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RETAILING MANAGEMENT ASSESSMENT - 20% coursework, 80% exam (2 essays from a choice of 4) TEXT BOOK: Levy, M., B.A. Weitz and Grewal, D (2014) Retailing Management, 9th international edition COURSEWORK: 1000 words, conduct review of one elements of the retail mix within a specialist retail environment of my choice, to reflect upon my own retail experience as a consumer, and draw conclusions pertinent for retail marketing strategy (Deadline: 8th December)  see slides of Lecture 2

LECTURE 1 – WHAT IS RETAILING? Retailing refers to “a set of business activities that adds value to the products and services sold to consumers for their personal or family use”. Retail is not only products in stores, E.g: - Sales of services - Hair cut - Home delivered pizza A retailer is “a business that sells products and/or services to consumers for personal or family use”. Retailers are a key component in a supply chain that links manufacturers to consumers. In fact, a supply chain is a set of firms that make and deliver goods and services to consumers. SUPPLY CHAIN: Manufacturing  wholesaler  retailer  consumer Manufacturers typically design and make products and sell them to retailers or wholesalers. (When manufacturers like Nike and Apple sell directly to consumers, they are performing both production and retail business activities). Wholesalers engage in buying, taking title

to, often storing, and physically handling goods in large quantities and then reselling the goods (usually in smaller quantities) to retailers or other businesses. Retailers perform similar functions to wholesalers, but direct their efforts to satisfying the needs of consumers. In some supply chains, the manufacturing, wholesaling, and retailing activities are performed by independent firms, but most supply chains feature some vertical integration. VERTICAL INTEGRATION  means that a firm performs more than one set of activities in the channel, as occurs when a retailer engages in wholesaling activities by operating its own distribution centers to supply its stores. Firms engage in two types of vertical integration: 1. BACKWARD INTEGRATION  arises when a retailer performs some wholesaling and manufacturing activities, such as operating warehouses or

designing private-label merchandise. (Firm gains ownership of its suppliers) E.g. Starbucks buys its own coffee beans as well as customized mugs and products to sell in its stores. It backward vertically integrated when it bought a coffee farm in China, because normally it would have to buy coffee beans from a coffee bean supplier. The competition for good-quality beans is very high; by buying its own coffee farm, Starbucks ensures that it will have a bean supply and that it will receive it at a reasonable price. 2. FORWARD INTEGRATION  occurs when a maunfacturer undertakes wholesaling and retailing activities. (Firm gains ownership of its distributors) E.g. Ralph Lauren, the luxury fashion brand, not only has control of design and manufacturing for its product, but also provides wholesale stock to many department stores and private boutiques both in US and overseas. Firms may also utilize a combination of both integration, called balanced integration strategy. ADVANTAGES OF VERTICAL INTEGRATION: - It allows to invest in assets that are highly specialized - It gives you more control over your business - It allows for positive differentiation - It offers more cost control - It provides more competitive advantages DISADVANTAGES OF VERTICAL INTEGRATION: - It can have capacity-balancing problems - It can create some barriers to market entry - It can cause confusion with the business - It requires a huge amount of money HOW RETAILERS ADD VALUE TO CONSUMERS But why are retailers needed? In fact, retailers are more efficient at performing various activities that increase the value of products and services for consumers. These value-creating activities include: - providing an assortment of products and services (this enables customers to choose from a wide selection of products, brands, sizes, and prices at one location) - breaking bulk (offering the products in smaller quantities tailored to individual consumers’ and households’ consumption patterns) - holding inventory so the products are available when needed - offering services that make it easier for consumers to buy and use products THE RETAIL MANAGEMENT DECISION PROCESS In order to provide value to their customers and develop an advantage over their competitors, retailers must make several management decisions.

FIRST STEP: Understanding the World of Retailing  retail managers need to know the environment in which they operate before they can develop and implement effective strategies. The critical environmental factors in the world of retailing are: the macroenvironment and the microenvironment. (Microenvironment focuses specifically on competitors and customers). SECOND STEP: Developing the Retail Strategy  the next stages in the retail management decision-making process are based on formulating a retail strategy. The retail strategy indicates how the retailer plans to focus its resources to accomplish its objectives. It identifies: 1. The target market, or markets, toward which the retailers will direct its efforts 2. The nature of the merchandise and services the retailer will offer to satisfy the needs of the target market 3. How the retailer will build a long-term advantage over its competitors THIRD STEP: Implementing the Retail Strategy  to implement a retail strategy, retailers develop a retail mix that satisfies the needs of its target market better than that of its competitors. The retail mix is a set of decisions retailers make to satisfy customer needs and influence their purchase decisions. Elements in the retail mix include: - the types of merchandise and services offered (variety/assortment) - merchandise pricing

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advertising and promotional programs store design merchandise display assistance to customers provided by salespeople convenience of the store’s location

Definitions: Variety  the number of merchandise categories a retailer offers (breadth of merchandise) Assortment  the number of different items offered in a merchandise category (depth of m) A retail market  group of consumers with similar needs (a market segment) and a group of retailers that satisfy those needs using a similar retail format.

MULTICHANNEL RETAILING A retail channel is the way a retailer sells and delivers merchandise and services to its customers. The most common channel used by retailers is a store; but there are also a variety of nonstore channels including the Internet, catalogs, direct selling, television home shopping. Multichannel retailers are those that sell merchandise or services through more than one channel. In fact, customers like to interact with retailers in different ways; by using a combination of channels for selling merchandise or service, retailers can exploit the unique benefits of each channel and overcome the limitations to attract and satisfy more customers. BENEFITS OF EACH CHANNEL? BENEFITS OF MULTICHANNEL RETAILING So how can retailers use multiple channels to improve their offerings to their customers and build a competitive advantage? 1. Overcoming the Limitations of an Existing Format  Increased Assortment: for example, by complementing their store channel with an Internet channel, retailers can dramatically expand the assortment offered to their customers  Low-cost, Consistent Execution: a limitation of the store channel is its costly and inconsistent execution. In fact, training and retraining knowledgeable sales associates is expensive; adding an Internet channel offers an opportunity to provide “personal” service at a low cost  Current Information: for example, once a catalog is printed, it cannot be updated easily. Internet can be used to provide customers with real-time o,fprùatop, anpit stpcl availability and price reductions on clearance

merchandise 2. Increasing Customer Satisfaction and Loyalty By providing a greater array of benefits through multichannel offerings, retailers can increase their share of customers’ wallets, which is the percentage of purchases made from the specific retailer. In fact, the customers who formerly made purchases in a retailer’s store, now would make other purchases through the retailer’s Internet channel. 3. Gaining Insights into Consumer Shopping Behaviour An electronic channel provides valuable insights into how and why customers shop and are dissatisfied or satisfied with their experiences. 4. Expanding Market Presence The market for store-based retailers is typically limited to consumers living in close proximity to the retailer’s stores. By adding the Internet channel, retailers can expand their market without having to build new stores. 5. Building a Strategic Advantage Multichannel retailers havethe opportunity to develop a strategic advantage over single-channel competitors. Two strategic resourses that multichannel retailers have are: - propriety information about customer purchase history and shopping behaviour - unique “how-to” knowledge about coordinating operational activities across channels CHALLENGES OF EFFECTIVE MULTICHANNEL RETAILING? MULTICHANNEL APPROACHES

Mini-case: Failure of HMV HMV is one of the leading specialist retailers of music, film, games and technology products in the UK. Founded in 1921. -

Global expansion, more than 200 UK stores in 2004 Record-breaking sales and profits, strong brand

Throughout the late 90s, lack of investments in online offering. HMV was very well placed to exploit the Internet, given its power of the brand, its heritage in music, its unrivalled access to content from film, game and music companies. "I accept that supermarkets are a thorn in our side but not for the serious music, games or film buyer and … downloadable music is just a fad and people will always want the atmosphere and experience of a music store rather than online shopping.“ (managing director of HMV in 2002) @Corrective actions were made, but too late: - Market value from £1bn to £15m - From 200+ UK stores to 120

LECTURE 2 – RETAIL MARKET STRATEGY A retail strategy is a statement identifying: 1. The retailer’s target market 2. The format the retailer plans to use to satisfy the target market’s needs 3. The bases on which the retailer plans to build a sustainable competitive advantage The target market  is the market segment (s) toward which the retailer plans to focus its resources and retail mix. The retail format  describes the nature of the retailer’s operations – its retail mix that will be used to satisfy the needs of its target market A sustainable competitive advantage  is an advantage the retailer has over its competition that is not easily copied by competitors and thus can be maintained over a long period of time. In fact, the retailing concept is a retail management orientation that focuses on determining the needs of the retailer’s target market and satisfying those needs more effectively and efficiently than competitors do.

CHARACTERISTICS OF STRATEGIC DECISIONS -

Made infrequently Long-term (a strategy is long-term, you don’t change it every 3 months) Require significant investment Not easily reversed

Important for effective competitive positioning: - Value creation - Differentiation WHY STRATEGIC THINKING – 4 ELEMENTS -

New competitors (Intra competition e.g. Department Stores, Scrambled merchandise) New formats New technologies Shift in customer needs

Poor performance and intensifying competition may trigger the need to update retail market strategy. TARGET MARKET (1) AND RETAIL FORMAT/RETAIL MIX (2) Successful retailers are customer centric: they focus on the needs of their customers and satisfy those needs better than their competitors do. So, first step  identify TARGET MARKET. Market segments can be defined in terms of the customers’ geographic, location, demographics, lifestyle, buying situation, or benefits sought. The criteria for selecting the target market are mainly two: 1. Attractiveness – size, growth rate, intensity of competition, seasonality, fluctuation 2. And that it needs to be consistent with the retailer’s competitive advantage Second step  define the RETAIL MIX. The retail format/mix involves the retail mix that will be used to satisfy the needs of the target market. A well-planned and integrated retail mix will provide a focused position in the marketplace and differentiate the retail establishment from other competitors. The key elements of a retail mix are the following: - Store Location - Store Image - Merchandising management - Retail Pricing - Communication mix - Customer Service RETAIL FORMAT (RETAIL MIX) EXAMPLES Low-end approach:

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Low rental location No services or services charged at additional fee Spartan fixtures and displays Simple retail personnel organisation Price emphasis in promotion Self-service or high sales per store personnel ratio Crowded store interior Most merchandise visible

High-end approach:  Central location  Elaborate services available and included in price  Elaborate fixtures and displays  Elaborate retail personnel organisation  No price emphasis in promotion  Product demonstrations, low sales per personnel ratio  Spacious store interior  Most merchandise in back room THE RETAIL ENVIRONMENT Verhoef et al., (2009): Customer Experience comprises two elements: 1. Those under the control of the retailer 2. Those outside the control of the retailer – which together encapsulate a broad understanding of the multiple factors that impact customers experience. BUILDING A SUSTAINABLE COMPETITIVE ADVANTAGE (3) The final element in a retail strategy is the retailer’s approach to building a sustainable competitive advantage. Establishing a competitive advantage means that the retailer, in effect, builds a wall around its position in a retail market, that is, around its present and potential customers and competitors. A high wall, hence a good competitive advantage, allows a retailer to generate greater sales or margins and/or retain more customers than its competition; therefore, establishing a sustainable competitive advantage is the key to positive long-term financial performance. Criteria for a SCA: valuable, rare, in-imitable, non-substitutable There are 5 main APPROACHES FOR DEVELOPING A SUSTAINABLE COMPETITIVE ADVANTAGE: 1. 2. 3. 4. 5.

Building strong relationships with customers – Customer Loyalty Building strong relationships with suppliers Achieving efficient internal operations Location Multiple sources of value

1. Relationships with Customers (CL) Customer loyalty means that customers are committed to buying merchandise and services from a particular retailer. Some activities that retailers engage in to build loyalty are: -

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Developing a strong brand image o Can create an emotional tie with customers that build their trust and loyalty o Facilitates store loyalty because it stands for a predictable level of quality Having a clear and consistent positioning Providing outstanding customer service Undertaking customer relationship management (CRM) programs

(page 116 if needs to go into detail) 2. Relationships with Suppliers Developing strong relationships with companies that provide merchandise and services to the retailer, such as real estate developers, advertising agencies, and transportation companies. Of these relationships with suppliers, the most important are relationships with vendors. 3. Efficiency of Internal Operations In addition to strong relationships with external parties, customers and suppliers, retailers can develop competitive advantages by having more efficient internal operations. Efficient internal operations enable retailers to have a cost advantage over competitors or offer customers more benefits than do competitors at the same cost. Larger retailers -> more bargaining power with vendors, thus can buy merchandise at lower costs. In addition to size, other approaches for improving internal operating efficiencies are:  Human Resource Management, employees play a major role providing services for customers and building customer loyalty. Therefore it is essential for retailers to build human resource assets by: -

developing programs to motivate and coordinate employee efforts providing appropriate incentives fostering a strong and positive organizational culture and environment managing diversity

 Distribution and Information Systems, the use of sophisticated distribution and information systems offers an opportunity for retailers to reduce costs and avoid stock-outs.

4. Location Location is a pervasive source of advantage in retailing. It is a critical opportunity for developing competitive advantage for two reasons: -

Location is the most important factor determining which store a consumer patronizes Location is a sustainable competitive advantage because it is not easily duplicated

E.g. Starbucks has developed a strong CA by having a high density of stores and making it difficult for competitors to enter a market and find good locations. 5. Multiple Sources of Value To build an advantage that is sustainable for a long period of time, retailers must use multiple approaches, not just one. E.g. McDonald’s long-term success is based on providing customers with a good value that meets their expectations, having good customer service, possessing a strong brand name, and offering convienient locations. GROWTH STRATEGIES

Four types of growth opportunities that retailers may pursue: 1. Market Penetration 2. Market Expansion 3. Retail Format Development 4. Diversification MARKET PENETRATION

A market penetration growth opportunity is a growth opportunity directed toward existing customers using the retailer’s present retailing format. Such opportunities involve: - either attracting new consumers from the retailer’s current target market - or devising approaches that get current customers to visit the retailer more often/buy more merchandise on each visit This -

is mainly done through: opening more stores in the target market extending opening hours displaying merchandise for impulse purchases training salespeople to cross-sell

Definition: cross-selling  means that sales associates in one department attempt to sell complementary merchandise from other departments to their customers. MARKET EXPANSION A market expansion growth opportunity involves using the retailer’s existing retail format in new market segments. This is mainly done through: - different products assortment (for different target groups) - opening stores in different geographic areas RETAIL FORMAT DEVELOPMENT A retail format development 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. E.g. Tesco has employed a retail format development growth strategy by operating several diffferent food store formats that all cater to the same target market: - Tesco Express, Tesco Metro stores, Tesco Superstores, Tesco Extra stores (Other e.g. multichannel retailing) DIVERSIFICATION A diversification growth opportunity is one in which a retailer introduces a new retail format directed toward a market segment that’s not currently served by the retailer. Diversification opportunities are either related or unrelated:  Related diversification – the retailer’s present target market or retail format shares something in common with the new opportunity (E.g. purchasing by the same vendors, operating in similar locations, advertising in the same newspapers etc)  Unrelated diversification – has little commonality between the retailer’s present business and the new growth opportunity

Vertical Integration describes diversification by retailers into wholesaling or manufacturing. For example, some retailers go beyond designing their privatelabel merchandise to owning factories that manufacture the merchandise GROWTH OPPORTUN...