term4 retailing con so part a

8/8/2019 Term4 Retailing Con So Part A

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RETAILINGMANAGEMENT


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Retailing - Definition

Retailing is the set of activities that markets products or services to finalconsumers for their own personal or household use

It does this by organising their availability on a relatively large scaleand supplying them to consumers on a relatively small scale

It is the last channel of distribution. Any firm that sells a product /service to the final consumer is performing the retailing function

Retailers sell an assortment of goods and services from varioussources, buy them in large quantity and sell them in small quantities to

consumers. This is called SORTING

Retailing can also happen through NON-STORE RETAILING such asmail-order catalogues, in-home selling, online / internet shopping,television shopping, and vending facilities


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Functions of retailingTo the customers: Accessibility of location

Convenience of timing

Convenience of size

Information

Lifestyle support

Enhances quality of life Communicating with customers by way of advertising, sales promotion, etc

To the economy:

Contributes a chunk of the GDP

Generates employment

Generates taxes

Contributes foreign exchanges in case if exports

To the employer :

creates wealth

To the suppliers:

Forum for mfrs / suppliers to present their products / services to the customer

Economists have identified 4 basic types of utility:

Form : customer utility created by mfrs /producers by converting raw materials & parts to finished products

Time: customer utility by actions that ensure that products/services available to customer when they want

Place: customer utility by actions that ensure that products/services available to customer where they want

Ownership: customer utility by actions that direct flow of ownership of products/services to customer


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Strategic Planning in Retailing


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Retail Strategy

Definition: It is overall framework or plan of action thatguides a retailer. It involves adapting resources to the

ever-changing retail environment.

Key features:

It is for a minimum of 1 year durationoutlines the missionvision

values

goals

consumer market,

overall and specific activities and

control mechanisms


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Importance of developing and applying a

Retailing strategy

A good Retailing strategy is the overall plan guiding a retailing firm. Itinfluences the firms business activities and its response to market forces suchas Competitors and the economy. Any retailer should go through the foll.

Steps in strategic planning:

Define the type of business in terms of products/services and the companysspecific orientation (value, upmarket etc)

Set long-run and short-run objectives for (a) quantitative - bottomline / toplineetc (b) qualitative market image, credibility etc

Determine the customer market to which to appeal on the basis ofcharacteristics (gender , income level) and needs (products/services servicesand brand preferences)

Devise an overall and long-term plan that gives general direction to a firm andits employees

Implement an integrated strategy that combines factors such as store location,range, pricing, quality, promotion etc

Evaluate performance and correct deviations


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Elements of a Retail Strategy

Controllable variables - Retail Mix : management, layo

location, merchandising, pricing , promotion, tech.

Uncontrollable variables - Macro environment factors

Objectives

Mission

Identificationof consumers

Overall

strategy

Specific

activities

Control

Mision - nature, direction and rationale of the business

Ownership- sole / proprietorship / partnership/ corporation

Mngmt alternatives - new, organic, inorganic (M& A), owner / professional, own / franchise

Quantitative - turnover, profit, marketshare, productivity of space, labour

Qualitative - image, positioning, brand equity, reputation , societal, personal

Segmentation

Mass Market / Differentation thru physical , store service

after-sales service, locational / Niche etc

Tactical

Operational

Evaluation - assess, audit

Adjustment- feedback,correct


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Retail Price and

Service Strategic Positioning Alternatives

Quadrant 1

High Value

Strategy(LPHS)LP HP

LS

HS

Quadrant 3

Price-orientedStrategy(LPLS)

Quadrant 2

Service Oriented

Strategy(HPHS)

Quadrant 4

Poor ValueStrategy(HPHS)

Legend : LP = Low price, HP = High Price, HS = High price, LS = Low service


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Situation Analysis

It is the candid evaluation of the companyscurrent position and where it is headed.

Situation Analysis includes: SWOT Analysis Trend spotting Merchandising Responsiveness

Judgement of resources, competition, regulations,markets etc


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Retailing Macro Environment

Macro Economic Factors affecting Retailing

Political & Legal: Customer rights, customer protection andsafety, various laws of the land which govern or affect retailing -wages, corporate ethics, governance

Economic: GDP, incomes, employment, interest rates, inflation,trade deficit / surplus

Sociocultural :Social class, reference groups, culture, subculture Technological : products/services , technological processes,

production, info handling

Demographic: Customer Age, sex, marital status, householdsize, education, geographic location

Physical: products/services availability, air and water quality, noisepollution


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Retailing Micro Environment

Micro Economic Factors affecting Retailing

Markets :

Segments, sizes, behaviors, trends, locations, level of

service demand Suppliers and intermediaries :

Supply channels, availability of goods, number ofalternatives, locations, geographical concentration,

volume concentration Competitors :

Number, strategies, potential new entrants, rivalry


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Retail Industry

A Perspective on Regulations, Infrastructure


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Key Regulatory and Infrastructural Factors

affecting the Retail Industry in India

Barriers to FDI Lack of Industry status Structural bottlenecks Real Estate Regulations

Supply Chain Bottlenecks Taxation Systems Multiple legislations and licensing Customer Preferences

HR Regulations and challenges Domination by manufacturers


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Factors Description ImplicationsBarriers to FDI FDI not permitted in pure

retailing

Franchisee arrangementallowed

Absence of Global Players

Limited exposure to bestretail practices

Lack of Industry Status Government does notrecognize the industry

Restricted availability ofFinance

Restricts growth and scalingup

Structural Impediments Lack of Urbanization

Poor transportationinfrastructure

Consumer habit of buyingfresh foods

Administered pricing

Lack of awareness of Indianconsumers

Restricted retail growth

Growth of small, One-storeformats, with unmatchablecost structure

Wastage of almost 20%-25%

of farm produce

Key Regulatory and Infrastructural

Factors affecting the Retail Industry


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Factors Description Implications

High cost of real estate Pro-tenant rent laws

Non-availability ofGovernment land, zoningrestrictions

Lack of clear ownership

titles, high stamp duty (10%)

Difficult to find good realestate in terms of location andsize

High land cost owing toconstrained supply

Disorganized nature oftransactions

Supply Chain Bottlenecks Several segments like foodand apparel reserved for SSIs

Distribution, logistics

constraints restrictions ofpurchase and movement offood grains, absence of coldchain infrastructure

Long intermediation chain

Limited product range

Makes scaling up difficult

High cost and complexity of

sourcing & planning Lack of value addition andincrease in costs by almost15%

Key Regulatory and Infrastructural

Factors affecting the Retail Industry


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Complex Taxation System Differential sales tax ratesacross states

Multi-point octroi

Sales tax avoidance bysmaller stores

High Customs duty

Added cost and complexityof distribution

Cost advantage for smallerstores tax evasion

Multiple Legislations Stringent labor laws

governing hours of work,minimum wage payments

Multiple licenses/clearances required

Limits flexibility in

operations

Irritant value in establishingchain operations; adds tooverall costs


affecting the Retail Industry


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Customer Preferences Local consumption habits

Need for variety

Cultural issues

Leads to productproliferation

Need to stock largernumber of SKUs at storelevel

Increases complexity insourcing & Planning

Increases the cost of store

management




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H R Challenges Highly educated class doesnot consider retailing aprofession of choice

Lack of proper training

Lack of trained personnel

Higher trial and error inmanaging retail operations

Increase in personnel costs


Manufacturers Backlash No increase in margins Manufactures refuse to dis-intermediate and pass onintermediary margins to

retailers




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List of a few licenses required for opening a 50000 sq.ft.retailstore!

1Shops & Establishments - Registration certificate , Trade License

2Labour

3Weights and Measures

4Liquor

5Chemist

6Pollution Control

7Generator / Electricity Board Clearence

8Traffic Police Clearance

9Contractor for Labour

10Hoarding/ Outdoor media / Signages

11Airport Authority - if tall building

12Entertainment - from Police authorities if medium sized entertainment

13Health - Health Deptt

14Fire

15Food license if ready-to-eat food items are sold and consumed Eg. bakery

16Water & Drainage

17Sales Tax - Central & State

18Excise Registration

19Import License (Import/Export Code Number)

20Patents & Trade Marks

21PF Registration

22ESI Registration

23Transportation Permits (Octroi)

24APMC licence for commodities

25Music software license for playing music in store


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Retailing in International

Markets

International Retailing refers to retailing operations

in multiple countries


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Retailing in the Global /

International Markets

Why go global?

Macro Environmental Factors affecting


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Macro-Environmental Factors affecting

International Retailing

Political - Eg. Democracy, etc

Economic Eg. Tariff and non-tariff barriers,

government and bank regulations

Socio-cultural

Technological

Demographic

Global Retail Mix


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Global Retail Mix

Strategic Orientation

Total

customisation

Focus on

differences

Total

Globalisation

Focus on

similarities

50

0

100

50

0

100

Ret Re


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Methods of International

retailing Exporting

Licensing Product / Brand

Licensing store brand

Agents Management contract - fee / revenue sharing

Franchising

Strategic Alliances

Joint ventures

Acquisition

Subsidiaries


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Methods of International

retailingRate the following based on Investment , Risk and Growth

Exporting

Licensing Product / Brand

Licensing store brand

Agents

Management contract - fee / revenue sharing

Franchising

Strategic Alliances

Joint ventures

Acquisition

Subsidiaries

Opportunities and Threats in Global


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Opportunities and Threats in GlobalRetailing

Opportunities :

Better growth opportunities

Offer products / services not available in the foreign

countries

Less competition

Novelty of new products / services

Tax and investment advantages may be provided by govts

Threats:

Cultural differences

Language bias

Restrictive trade and economic policies, protectionism


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Types of channels

Exclusive Distribution

One or few retailers selling certain product lines ,mostlynon-competing brands

Reason : to ensure brand image, consistency, control etc

Intensive Distribution many retailers selling certainproduct lines , could carry competing brands

Reason reach, volume, etc

Selective Distribution moderate no. of retailers , abalance between the above 2 types

A f h ll f d b t d t il


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A few challenges faced by todays retailers

Type of Competition Formats and strategies Merchandise

Intertype Different Similar

Intratype Similar Similar

Type of Competition Channel Merchandise

Vertical Competition(channel conflict) Same channel Same

Systems Competition Different channels Same Consumers money

Note: A vertical marketing system is a professionally managed and controlled marketing

channel designed to foster economies in the production and distribution ofproducts/services

1. Competition


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2. Changing technology - in the entire value chain of

distribution

3. Changing demographics Population growth, income

growth

Strategic Response to the above:

Retailers respond by strategies such as altering the

positioning, retail mix etc

A few challenges faced by todays

retailers.contd

Theories of structural change in Retailing


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Theories of structural change in Retailing1. Wheel of retailing: Proposed by Malcolm Mc Nair, a professor at Harvard University.

3 phases in the Wheel of Retailing:

States that new retail firms begin as low-margin, low-priced low-status stores thatcompete with established stores by appealing to price-sensitive shoppers. This isentry phase

Trade-up phase: stores become more profitable and competitive and upgrade theirofferings mid-price

Vulnerability phase: stores become high-cost

2. Dialectic process: 2 opposing store formats merge into a superior formThesis X Antithesis = Synthesis

3. Darwinism / natural selection: stores evolves to meet changes in macro-environment

4. Retail accordion: alternating between, say, specialisation and diversification

5. Polarisation: Eg.clear shift towards smaller stores and bigger stores with medium-sizedstores suffering the most


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Formats in Retailing


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Based on

Ownership

Based on store-based

retail mix

Non-store

retailing

Retailing

Formats


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Independent - single outlet / store

Chain - multiple outlets / stores

Franchising - rights to use trademarks, formats &processes

Leased department (shop-in-shop) - given to outside

parties

Vertical marketing system- more than one member ofchannel owned by a single firm

Consumer Cooperative - retail firms owned by consumers


Based on Ownership

ormats n eta ng


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A. Food-oriented:

Convenience store

Supermarket

Superstore

Combination store

Warehouse Club / Warehouse store

B. General Merchandise :

Speciality store

Department store

discount store

Variety store

Factory outlet /Seconds outlet

Membership club

ormats n eta ngBased on Store-based Retail

Mix


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Characteristics of Retail Stores

Format Location

Addition to

Food Pricing Ambience / Service

Width Depth

A. Food-oriented:

Convenience store N M L Nil M M

Supermarket N H H Nil L M

Superstore S H H

Health,

beauty ,

Gen.

Merch. L M

Combination store S / O H H

Drugstore,

Gen. Merch L L

Warehouse Club / Warehouse store O H H Gen. Merch L L

B. General Merchandise :

Speciality store S L H L M / H

Department store S H H M / H M / H

discount store S / O H H L M

Variety store S / O H H M L

Factory outlet /Seconds outlet O L L L L

Membership club O L L L L

Range

Legend: N = Neighbourhood, S = Shopping centre, O =Outskirts , H = High, M = Medium , L = Low


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- Non store

Types:

Direct Selling - word -of-mouth / person-to-person

Direct Marketing - on Mail, phone, fax or computer

Electronic / Internet Retailing - on the Internet

Vending machines / kiosks - through machines, non-personal


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NON-STORE RETAILING

TYPES OF NONSTORE RETAILERS


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TYPES OF NONSTORE RETAILERS


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NON-STORE RETAILING

CLASSIFICATION Retailing activities resulting in transactions that occur away from a physical store are

called nonstore retailing

Types of nonstore retailing are: Direct selling: Personal contact between a sales person and a consumer away from a

store that results in a sale; two kinds of direct selling are door to doorandparty plan

Telemarketing: Refers to a sales person initiating contact with a prospective customer andclosing a sale over the telephone

Automatic vending: the sale of products through a machine with no personal contactbetween buyer and seller

Online retailing: When an enterprise uses its website to offer products for sale and thenindividuals or organizations use their computers to make purchases from this company, theparties have engaged in electronic transactions

Direct marketing: Uses advertising (direct mail, catalog retailing, televised shopping) tocontact consumers who, in turn, buy products without visiting a retail store; comprises alltypes of nonstore retailing other than direct selling, telemarketing, automatic vending, and

online retailing Airport retailing duty free shopping at airports


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NON-STORE RETAILING - BENEFITS

The non-store distribution channel is marked by low entrythresholds. Compared to store retailing that requires a retailoutlet, inventory, cash flow to hire staff and advertising, non-store retail start-ups usually have to invest little to reach out topotential buyers of the goods and services they offer.

Non-store retailing is therefore not only used by establishedBrick and mortar retailers (physical or store-based retailers)who develop an online, multi-channel Bricks and clickspresence, but also by the individual Pure play (pure e-tailers), to create an E-shop.

The rise of Social media helps to connect sellers to potentialbuyers.


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FORMS OF NON-STORE RETAILING

Automatic

vending

Direct mail

andcatalogs

Television

home

shopping

On-line

retailing

Tele-

marketing

Direct

selling

High

Low

Activ

ec

ust

Active retailer involvementLow High


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ELECTRONIC RETAILING

Electronic retailing (also called e-tailing and Internet retailing)

The World Wide Web can serve one or more of these rolesfor a retailer: Project a retail presence. Generate sales as the major source of revenue for an onlineretailer or as a complementary source of revenue for a store-based retailer. Enhance the retailer's image. Reach geographically dispersed consumers includingforeign ones.

Provide information to consumers about the productscarried, store locations, usage information,...


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ADVANTAGES OF E-TAILING TO

MARKETERS

Quick adjustments to market conditions. Lower costs.

Popular and convenient

Relationship building.

Audience sizing. Powerful tool for buildingcustomer relationships.

Can increase speed and efficiency. Offers greater flexibility in offers and programs.

Is a truly global medium Measurable results


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IMPEDIMENTS TO SHOPPING ON-

LINE

Issues about Shopping on the Internet1. Entertainment and Social Experiences

2. Safety and security of electronic transactions

3. Ordering and Getting Merchandise

4. Assistance in Screening Alternatives

5. Providing Information to Evaluate Merchandise6. Lack of touch and feel

7. Return of defective merchandise and difficulty in reversal of transactions

8. Lower PC penetration in developing countries and lower speeds /connectivity of Internet

9 . Frauds like phishing, credit card abuse, hacking etc

Electronic retailing sales will grow only if the format offers consumersadvantages over the existing retail formats.


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WHY DO PEOPLE PATRONIZE A

STORE-BASED RETAILER?

Merchandise Assortments

Service

-Convenience - go to store, find right merchandise,return merchandise

-Information to make good selections

Price - Total cost to customer

-Entertainment

Social interaction


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WHY DO PEOPLE PATRONIZE AN

ONLINE RETAILER?

Convenience

Information tailored to individual consumers to help themmake easier and better purchase decisions

Very low transactions costs

Distance to store is irrelevant time-saving Store hours are irrelevant

Buying is easy and private

Provides greater product access and selection

Provides access to comparative information

Buying is interactive and immediate


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DIRECT SELLING BENEFITS AND

LIMITATIONS

Benefits :

Personal attention

Convenience of time and place of

presentation

Limitations:

High costs for sellers Negatives about direct selling


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DIRECT MARKETING

This definition is given by direct marketing

association (DMA) as below:-

Direct marketing is an interactive system ofmarketing which uses one or more advertising

media to effect a measurable response and or/

transaction at any location

REASONS FOR THE GROWTH IN


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REASONS FOR THE GROWTH IN

DIRECT MARKETING


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TYPICAL ADVANTAGES OF MAIL

ORDER OVER RETAIL OUTLETS

BENEFITS OF DIRECT


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BENEFITS OF DIRECT

MARKETING TO CUSTOMERS

Mail order shopping is fun , convenient,

and hassle free.

Time saving and money saving too.

Industrial customers can learn about many

products and services without tying up

time in meeting salespeople.


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DIRECT MARKETING

BENEFITS TO SELLER

It allows greater prospect selectivity.

The message can be personalized and

customized.

The direct marketer can build a continuousrelationship with each customer.

Direct marketing material receives higher

readership.


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Direct marketing permits testing of

alternative media and messages.

DM permits privacy in that the direct

marketers offer and strategy are not

visible to competitors.

DIRECT MARKETING - BENEFITS TO

SELLER..CONTD


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PUBLIC ISSUES IN DIRECT MARKETING

IrritationIrritation

UnfairnessUnfairness

Deception/fraudDeception/fraud

Invasion of privacyInvasion of privacy

ervices Retailing


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ervices RetailingDefn: Retailing involving identifiable but

intangible transactions between the services

retailer and the consumer

Characteristics of Retailing Services


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Characteristics of Retailing Services

Intangibility - only consumed & not touched, seen

Perishability - not inventoried eg. Hotel room occupancyInseparability - produced and consumed together

Heterogeneity/Variability - variation in quality of service

Classification of Retailing Services


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C ass cat o o eta g Se ces

Based on :

Degree of Intangibility

more intangible eg. Car rentals, ironing, food I.e.

something tangible along with the service itself

less intangible eg.insuranceRecipient of service

By way of service delivered :

continuous Eg. Banking

sporadic - car repair



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g

Based on Goods involvement:

Rented-goods services: consumers lease and use goods for

specified periods of time

Owned-goods services : goods owned by consumers are

repaired, improved or maintainedNon-goods services: intangible services without any goods

involvement



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g

Based on Category of services :

Financial services - banking , mutual funds

Leisure services - hotels, resorts, entertainment centres,

theatres

Health services - HospitalEducation and information services - schools , colleges

Communication services - telecom

Personal and repair services - lawyers, hairdressers


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Retailing customers and

Shopping Behaviour

Trends affecting the way the


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consumer behaves

Social

TrendsPopulation

trends

Economic

Trends

ren s a ec ng e way e


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e s a ec g e ay econsumer behaves

Population variables: Demographics such as income, age,

gender, marital and family status, distribution andgeographic trends

For eg.todays children, teenagers and youth may be a thrust

focus for communication

For eg. As customers age, they change their spending habits

and the high performance retailers of the next decade will be

those that adapt best to these changes

For eg. Conspicuous consumption : consumption that is

highly visible, attracts special attention, is status-oriented

and involves symbolic merchandise . Young consumers

prefer conspicuous consumption

Refer Indian Socio-Economic Classification (SEC) Model ofCAER



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g y

consumer behaves

Geographic variables: Urbanization

For eg. In India, Tier II cities are growing at faster rates than

Metros and present better opportunities for retaiing

investmentCities such As Kochi, Coimbatore, Mangalore, Lucknow,

Indore, Vizag, Pune have improving infrastructure with land

available at much cheaper rates for purchase or rent



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g y

consumer behaves

Economic variables:

Trends such as :

Disposable income less taxes) I.e. take-home pay

Discretionary incomes (disposable income minus monies

needed to sustain necessities of life)

Credit card culture

Consumerism



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g y

consumer behavesSocial variables:

Trends such as :

Women working and their impact - while this increases disposable

incomes, they are more time-starved and shopping should be convenient

and quick

Emergence of nuclear families

DINKS (Double Income No kids couples)

Yuppies (Young upwardly mobile professionals)

Marriage age / rates

Divorce age / rates

Lifestyle changes - Psychographics (activities, interests & opinions),

Engels law, Rama Bijapurkars model

Health and Environmental concerns


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Classification of consumers

based on shopping behaviour Strategic shopper : seeks quality, value, convenience

and service

Social shopper : treat shopping as an experience

Apathetic shopper: seek speed, efficiency and

convenience in shopping


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Ways Retailers enhance

businessEssentially, Retailers enhance business in 3 ways:

Improve walk-ins (footfalls)

Improve conversion (no.of customers buying as a

percentage of customers who walk in)

Improve bill values (Transaction value)

Major Factors influencing


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Major Factors influencing

Consumer Behaviour

Culture

social class

income

education

reference

groups

family

situations

Motives

Perception

Information

processing

Learning

Attitudes

Personality

Consumer

shopping

model

(see next

slide)


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Customer shopping model

StimulusProblemrecognition

Active

Infogathering

(search)

Evaluatio

n ofAlternati

ves

Purchase

Post-

purchase

evaluation

The shopping behaviour of consumers is actually a complex problem-

solving process. It involves decision-making employing cognitive

processes - interpreting stimuli, organises thoughts and ideas. For low-

value low-involvement products, this process is so rapid that we do not

notice it is happening

Key terms of the consumer shopping model


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Key terms of the consumer shopping model A stimulus can be a cue (external to the individual) or drives

(internal to the individual)

Problem recognition occurs when the consumers desired state ofaffairs is different from the consumers present state of affairs

placing the consumer in a state of unrest

Problem solving (also Decision making):

Habitual problem solving occurs when consumer relies on pastexperiences and learning to convert the problem into a situation in

which less involvement / thought uis required - the consumer is clear

as to which brand to buy, which retailer to gbuy from etc

Limited problem solving occurs when consumer has a strong

preference for the brand or the store but not both Extended problem solving occurs when the consumer is clear about

the problem but not decided on the brand or the store

Routine problem solving : buys out of habit and nearly skips steps

o ves or pa ron s ng a e a


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p gstore

General store characteristics : no. of store, reputation

Physical : layout, ambience, fixtures

Convenience: parking, aisle spaces, access

Merchandise : quality, range, value / lifestyle

Pricing

Store personnel - friendly, knowledgeable, empathy

Visual merchandising and displays

Service - speed , returns, exchanges Promotion - advtg, sales promotion


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Customer Segmentation and


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Customer Segmentation and

DifferentiationCustomer Segmentation - a strategy by which retailerstarget groups of consumers with broadly homogeneous

buying behaviour and thereby offer the retail mix to meet

such segments. Also called concentrated marketing.

Without segmentation, marketing can be termed massmarketing

In a differentiation marketing strategy, retailers cater to

multiple customer segments / offer competitiveadvantages which other retailers do not have

term4 retailing con so part a

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