chapter 5 - retail marketing strategy
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McGraw-Hill/IrwinRetailing Management, 7/e © 2008 by The McGraw-Hill Companies, All rights reserved.
Chapter 5
Retail Marketing Strategy
5-2
Retailing Strategy
Retail Market Strategy Chapter 5
Financial Strategy Chapter 6
Retail Locations Chapters 7,8
Human Resource Management
Chapter 9
Information and Distribution Systems Chapter 10
Customer Relationship Management Chapter 11
5-3
Questions
■ What is a retailing strategy?■ How can a retailer build a sustainable
competitive advantage?■ What steps do retailers go through to develop a
strategy?■ What different strategic growth opportunities can
retailers pursue?■ What retailers are best positioned to become
global retailers?
5-4
More attention to long-term strategic planning than ever before
Due to the emergence of ■ New competitors■ New formats■ New technologies■ Shifts in customer needs
5-5
Elements in Retail Strategy
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■ Target Market the market segment(s) toward which the retailer plans
to focus its resources and retail mix■ Retail Format
the nature of the retailer’s operations—its retail mix■ Sustainable Competitive Advantage
an advantage over the competition
5-6
Analyzing McDonalds’ Retail Strategy
Target market?
Retail offering (format)?
Bases for competitive advantage?
What Threats Might McDonald’s Face in the Future?
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5-7
Examples of Retail Strategies
Steve & Barry’s
Chico’s
Curves
Magazine Luiza
Starbucks
What is the target market, retail offering, and source of competitive advantage for each retailer?
5-8
Steven & Barry’s
■ Target Market Value and quality conscious consumers for university sportswear
■ Retail Format stores are in middle-market malls extreme low prices, quality private-label merchandise, upscale
surroundings (“Old Navy on steroids”)■ Bases for Building Sustainable Competitive Advantage
No advertising Aggressive incentives from mall owners Creative approaches to working with vendors
5-9
Chico’s Strategy
■ Target Market Woman 35 to 55 Who Want Comfortable,
Casual, But Stylish Apparel■ Retail Format
Specialty Apparel Stores in Malls and Strip Centers Selling Private Label, Coordinated Outfits
■ Bases for Building Sustainable Competitive Advantage Unique Merchandise Sized 0,1,2,3
5-10
Why Does a Retailer Need to Focus on a Specific Target Market?
Why Not Sell to Everyone?
Target Market
5-11
Target market and retail format: Retail Market Opportunities for Women’s Apparel
5-12
■ If TARGET decides to focus on a limited set of markets for women’s apparel, which should it pursue?
■ What should be the retail strategy for that target market?
5-13
Criteria For Selecting A Target Market
■ Attractiveness -- Large, Growing, Little Competition More Profits
■ Consistent with Your Competitive Advantages
Rim Light/PhotoLink/Getty Images
5-14
Opportunities for retailers to develop sustainable competitive advantages
■ Customer Loyalty■ Location■ Human Resource Management■ Distribution and Information Systems■ Unique Merchandise■ Vendor Relations■ Customer Service
PhotoLink/Getty Images
5-15
Can A Retailer Develop a Sustainable Competitive Advantage by:
■ Dropping the Price of Your Merchandise?
■ Building a Store at the Best Location?■ Deciding to Sell Some Hot
Merchandise?■ Increasing Your Level of Advertising?■ Attracting Better Sales Associates by
Paying Higher Wages?■ Providing Better Customer Service?
5-16
Sources of Competitive Advantage
More Sustainable■ Location■ Customer Loyalty■ Customer Service ■ Exclusive Merchandise ■ Low Cost Supply Chain
Management■ Information Systems■ Buying Power with Vendors■ Committed Employees
Less Sustainable■ Better Computers■ More Employees■ More Merchandise■ Greater Assortments■ Lower Prices■ More Advertising■ More Promotions■ Cleaner Stores
5-17
Internal and External Bases for Competitive Advantage
Retail Firm•Low Cost
•Large Size•Efficient Distribution, Operations
• Unique Knowledge• Loyal Employees
Sources ofCapital
Vendors, Suppliers
Customers
5-18
What does loyalty mean?
Is It the same as liking a store?
…Going to the store frequently?
Loyalty
5-19
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 Creating an emotional attachment with customers
through loyalty programs
5-20
Retail Branding
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
Stores use brand (store’s name and store brands – private label brands) to build customer loyalty
5-21
Loyalty Programs
■ Part of an overall Customer Relationship Management (CRM) program
■ Purchase behaviors of members of loyalty programs Are identified when they buy because they use some type of
loyalty card Saved in Data Warehouse
• What they buy• When they buy• How much they buy• How often they buy• How much they spend• What channel they use
■ Develop personalized marketing effort to them
5-22
Approaches for Building Customer Loyalty
■ Unique Positioning■ Location■ Customer Service■ Information About Customers (Database)■ Unique Merchandise
5-23
Example of Positioning
5-24
Location
■ What are the three most important things in retailing?
“location, location, location”■ Location is a competitive advantage
A high density of Starbucks stores• Creates a top-of-mind awareness• makes it very difficult for a competitor to enter a
market and find a good locations
5-25
Human Resources
■ “Employees are key to build a sustainable competitive advantage”
■ Strategies for Recruiting and Retaining Talented Employees
■ Employee Branding■ Develop positive organizational culture
5-26
Distribution and Info Systems
Flow of Information
Vendor
Distribution Center
Store -Better services-Increase in breadth and depth-Decrease in prices
By decreasing costs here, the is more money available to invest in:
5-27
Unique Merchandise: Private Labels
Sears’ Kenmore -- appliances
Federated’s Inc. – fine apparel
Kmart’s Martha Stewart -- home
JCPenney’s Arizona -- jeans Jules Frazier/Getty Images
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5-28
Vendor Relationships
■ 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
5-29
High Quality Customer Service
■ Difficult to Achieve People Are Not Machines -- Inconsistent Retail Sales Associates At Bottom of Labor Pool
■ Goes Beyond Hiring Good People at High Wages and Training Them -- Organizational Culture
5-30
Critical Tradeoff In Developing Strategic Advantage
Focus Leads to Developing A Competitive Advantage
ButFocus Reduces Flexibility
■ Low Cost, Consistent Image, Vendor Relationships Reduces Flexibility
■ Similar to Dating and Marriage – Commitment to a Relationship (Vendor) Reduces Flexibility
5-31
Growth Strategies
Ryan McVay/Getty Images
■ Market Penetration■ Market Expansion■ Retail Format Development■ Diversification
Related vs. Unrelated
5-32
Growth Opportunities
5-33
Market Penetration
■ Attract customers from target market – Walgreens “on every corner”
■ Get current customer to visit store more often or buy on each visit
Cross Selling – sales associates in one department sell complimentary merchandise from other departments
Example: Manicurist sells services plus hand lotion or nail polish
Example: Salesperson sells leaf blower directs customer to electrical department to purchase a 100 foot extension cord.
5-34
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
Abercrombie & Fitch (for college students) opens lower-priced chain Hollister Co. for highschoolers
5-35
Retail Format Development
■ Develops a new retail format with a different retail mix for the same target market
■ Multi-channel retailing■ UK based TESCO:
Tesco Express: small stores located close to where customers live and work
Tesco Metro: bring convenience to city center location by specializing in ready-to-eat meals
Tesco Superstores: traditional stores Tesco Extra: one-stop destination with the widest
range of food and non-food products
5-36
Diversification
■ Introduces a new retail format toward a market segment that is not currently served by the retailer
■ Related diversification■ Unrelated diversification■ Vertical integration into wholesaling or
manufacturing
5-37
Global Growth Opportunities
Steve Cole/Getty Images
■ Specialty store retailers with strong brand and unique merchandise?
McDonald’s Starbucks Zara H & M
■ Discount and food retailers with deep assortments and low prices?
Wal-Mart Carrefour Royal Ahold Metro AG
Who Is Successful and Who Isn’t?
5-38
IKEA
■ Operates 254 stores in 35 countries
■ Unique, well-designed, functional furniture at low prices for consumers who have sophisticated tastes but have no intention to spend lots of money
■ “You do our part. We do our part. Together, we save money.”
5-39
Why Do Category Killers and Supercenters Succeed Globally?
■ Developed operating expenses■ Scale economies for buying
merchandise globally■ Unique systems and standardization
formats that facilitate control over multiple stores
■ Understand that consumers are willing to forego service for lower prices
Ryan McVay/Getty Images
5-40
Key to Success in Global Retailing
■ 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■ Global Culture■ Financial Resources
5-41
Evaluating Global Growth Opportunities
Rankings are based on weighted score using growth (55%),
risk (25%), and market size (20%)
5-42
5-43
Evaluating Global Growth Opportunities
■ China Increasing operating costs Lack of managerial talent Underdeveloped and
inefficient supply chain■ India
Prefers small family-owned stores
Restricts foreign investment
Consider challenges and how to overcome them
5-44
International Market Entry Strategies
Direct Investment
Joint Ventures
Strategic Alliances
Franchising
Lawrence Lawry/Getty Images
Profit and Risk
5-45
Stages in the Strategic Retail Planning Process
1. Define the business mission
2. Conduct a situation audit: Market attractiveness analysis Competitor analysis Self-analysis
3. Identify strategic opportunities
5. Establish specific objectives and allocate resources
7. Evaluate performance and make adjustments
6. Develop a retail mix to implement strategy
4. Evaluate strategic alternatives
5-46
Elements in a Situation Audit
0
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1st Qtr 2nd Qtr 3r d Qtr 4th Qtr
MARKET MARKET FACTORSFACTORS
COMPETITIVE COMPETITIVE FACTORSFACTORS
ENVIRONMENTAL ENVIRONMENTAL FACTORSFACTORS
ANALYSIS OF ANALYSIS OF STRENGTHS & STRENGTHS & WEAKNESSESWEAKNESSES
Barriers to entryBargaining power of vendorsCompetitive rivalryThreat of superior new formats
TechnologyEconomicRegulatorySocial
SizeGrowthSeasonalityBusiness cycles
Management capabilitiesFinancial resourcesLocationsOperationsMerchandiseStore ManagementCustomer loyalty
5-47
Market Factors
■ 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
■ Business cycles – retail markets can be affected by economic conditions – military base towns
5-48
Competitive Factors
■ Barriers to entry Scale economies of big box retailers Service and unique, high-end products of small retailers
■ Bargaining power of vendors Markets are less attractive when only a few vendors control the
merchandise sold in it
■ Competitive rivalry Defines the frequency and intensity of reactions to actions
undertaken by competitors Conditions leading to intense rivalry: a large number of same
size retailers, slow growth, high fixed costs, a lack of perceived differences between competing retailers
5-49
Questions for Analyzing the Environment
• New developments or changes -- technologies, regulations, social factors, economic conditions
• Likelihood changes will occur
• Key factors determining change
• Impact of change on retail market firm, competitors
5-50
Strengths and Weaknesses Analysis
Management Capability: Capabilities and experience of top managementDepth of Management--capabilities of middle managementManagement’s commitment to firm
Financial Resources:Cash flow from existing businessAbility to raise debt or equity financing
Operations:Overhead cost structureQuality of operating systemsDistribution capabilitiesManagement information systemsLoss prevention systemsInventory control system
Merchandising Capabilities:Knowledge and skills of buyersRelationships with vendorsCapabilities in developing private capabilities
Store Management CapabilitiesManagement capabilitiesQuality of sales associatesCommitment of sales associates to firm
Locations
CustomersLoyalty of customers
5-51
Performing a Self-Analysis
■ At what is our company good?■ In which of these areas is our company better
than our competitors?■ In which of theses areas does out company’s
unique capabilities provide a sustainable advantage or a basis for developing one?
Stockbyte/Punchstock Images
5-52
Illustration of the Strategic Retail Planning Process
Kelly Bradford – Owner of Gifts To Go Two Store Chain in Chicago Target Market – Upper Income Men and Women
Looking for Gifts between $50 and $500 Strong Customer Loyalty Based on Knowing What
Customers Want, Providing Good Customer Service Low Turnover Among Associates
5-53
Mission Statement for Gifts To Go
“The mission of Gifts to Go is to be the leading retailers of higher-priced gifts in the Chicago and provide a stable income of $100,000 per year for the owner.”
■ Define growth opportunities will and won’t consider
■ Indicates objective of company
5-54
Situation Analysis of Gifts to Go
■ Market Factors Chicago is an attractive market. (+) Relatively expensive gifts are not affected much by
the economy. (+) Gifts are highly seasonal. (-)
■ Competitive Factors Many in area. Primary department stores, craft
galleries, catalogs, and Internet retailers (-) Lack of large suppliers, customer (+) Opportunities for differentiation (+) Limited competitive rivalry. (+)
5-55
Situation Analysis of Gifts to Go
■ Environmental Factors Potential Threat - Development of electronic channel by
traditional bricks and mortar retailers (-)
■ Strengths and Weaknesses Management Capability – Limited Financial Resources – Good Operations – Poor Merchandise Capabilities – Good Store Management Capabilities – Excellent Locations – Excellent Customer Loyalty – Good Customer Database - Good
5-56
Growth Opportunities for Gifts to Go
■ Market Penetration Increase size of present stores Open additional gifts stores in
Chicago area■ Market Expansion
Open gift stores outside Chicago area
Sell lower priced gifts in present stores
Ryan McVay/Getty Images
5-57
Growth Opportunities for Gifts to Go
■ Retail Format Development Sell non-gift merchandise to same customers in present
or new stores Sell similar gifts to same customers through an electronic
channel■ Diversification
Manufacture craft gifts Open an apparel store targeting teenagers Open a category killer store selling a broader assortment
of gifts
5-58
Evaluating Growth Opportunities forGifts to Go
Market Attractiveness
■ Market Penetration Increase size of present stores (low) Open additional gifts stores in Chicago area (medium)
■ Market Expansion Open gift stores outside Chicago area – new geographic
segment (medium) Sell lower priced gifts in present stores – new benefit segment
(medium)
5-59
Evaluating Growth Opportunities forGifts to Go (continued)
Market Attractiveness
■ Retail Format Development Sell non-gift merchandise to same customers in present or new
stores (High) Sell similar gifts to same customers through an electronic
channel (High)■ Diversification
Manufacture craft gifts (High) Open an apparel store targeting teenagers (High) Open a category killer store selling a broader assortment of gifts
(High)
5-60
Evaluating Growth Opportunities forGifts to Go
Competitive Position
■ Market Penetration Increase size of present stores (High) Open additional gifts stores in Chicago area (Medium)
■ Market Expansion Open gift stores outside Chicago area (Low) Sell lower priced gifts in present stores (low)
5-61
Evaluating Growth Opportunities forGifts to Go (continued)
Competitive Position
■ Retail Format Development Sell non-gift merchandise to same customers in present or new
stores (Low) Sell similar gifts to same customers through an electronic
channel (Medium)■ Diversification
Manufacture craft gifts (Low) Open an apparel store targeting teenagers (Low) Open a category killer store selling a broader assortment of gifts
(Low)
5-62
Market Attractiveness/Competitive Position Matrix
5-63
Steps in Using Market Attractiveness - Competitive Position Matrix
• Define strategic opportunities
• Identify market attractiveness and competitive position factors
• Assign weight based on importance of factors
• Rate opportunities on market attractiveness and competitive position
• Calculate scores and evaluate opportunities
5-64
Attractiveness Ratings forInternational Growth Opportunities
5-65
Competitive Position in International Growth Opportunities
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