McGraw-Hill/IrwinRetailing Management, 7/e © 2008 by The McGraw-Hill Companies, All rights reserved.

Chapter 5

Retail Marketing Strategy

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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

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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?

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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

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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

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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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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?

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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

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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

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Why Does a Retailer Need to Focus on a Specific Target Market?

Why Not Sell to Everyone?

Target Market

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Target market and retail format: Retail Market Opportunities for Women’s Apparel

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■ 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?

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Criteria For Selecting A Target Market

■ Attractiveness -- Large, Growing, Little Competition More Profits

■ Consistent with Your Competitive Advantages

Rim Light/PhotoLink/Getty Images

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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

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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?

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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

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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

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What does loyalty mean?

Is It the same as liking a store?

…Going to the store frequently?

Loyalty

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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

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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

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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

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Approaches for Building Customer Loyalty

■ Unique Positioning■ Location■ Customer Service■ Information About Customers (Database)■ Unique Merchandise

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Example of Positioning

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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

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Human Resources

■ “Employees are key to build a sustainable competitive advantage”

■ Strategies for Recruiting and Retaining Talented Employees

■ Employee Branding■ Develop positive organizational culture

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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:

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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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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

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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

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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

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Growth Strategies

Ryan McVay/Getty Images

■ Market Penetration■ Market Expansion■ Retail Format Development■ Diversification

Related vs. Unrelated

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Growth Opportunities

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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.

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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

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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

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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

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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?

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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.”

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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

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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

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Evaluating Global Growth Opportunities

Rankings are based on weighted score using growth (55%),

risk (25%), and market size (20%)

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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

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International Market Entry Strategies

Direct Investment

Joint Ventures

Strategic Alliances

Franchising

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Profit and Risk

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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

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Elements in a Situation Audit

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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

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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

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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

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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

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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

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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

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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

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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

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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. (+)

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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

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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

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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

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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)

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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)

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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)

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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)

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Market Attractiveness/Competitive Position Matrix

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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

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Attractiveness Ratings forInternational Growth Opportunities

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Competitive Position in International Growth Opportunities