UNIT III

RETAILING DECISIONS

Choice of retail locations - internal and external atmospherics Positioning of retail shops Building retail store Image - Retail service quality management Retail Supply Chain Management Retail Pricing Decisions. Location decisions can be very complex in retailing, costs can be very high, there is no flexibility once a decision has been made and the attributes of the location can have a big impact on the retailers strategy The importance of location decisions is because of the following reasons: 1. Location is a major cost factor because of : Capital investment cost is very high if it is to be owned The rental cost also can be sizeable The transportation cost depends on locations Affects the cost of Human resources as you have to match the salaries in the locality It is a long term decision and can not be changed very soon 2. Location is a major revenue factor because of : Customer traffic depends on the location also to a great extent. A customer always wants to have his car or bike services at the nearest workshop. He wants to buy the groceries in the nearest supermarket Volume of business is affected by location Location decisions can offer a competitive advantage, if properly done. 3. The Indian business always wants to own the property and this increases the cost involved Two terms are used with respect to location decisions and they are Location and Site. Location is a broader term and it indicates the store and the trading area from where the majority of customers originate whereas a site refers to the particular building or part of the building. Mount Road can be a location and Spencer Plaza can be the site Discussion Points : 1. Where would you like to locate a store to sell designer clothes (expensive items) for men ? 2. Where would you locate your retail store to sell BMW cars? Levels of location decisions and the determining factors A retailer has to take retailing location decisions based on the following three 1. Selection of a city or town 2. Selection of an area within the city 3. Identification of a specific site 1. Selection of a city or Town : The factors to be considered for selecting the city are: Size of the citys trading area: Trading area is the area from which the customers originate. It can be suburbs and other towns near-by Population and growth of the population trends can decide the potential for retailing

Purchasing power of the people: The growth in population should be supplemented with purchasing power. A prosperous city like Bangalore or Ludhiana or Jullunder can be a good location for upscale products because of the high purchasing power of customers Total retail trade potential for different lines of trade: A particular city may become famous for certain lines of retail like Kanchipuram for silk saris and Hyderabad for pearls Number, size and quality of competition: The quality and quantity of competition in the area is to be anaysed before taking a decision Starting cost or development cost: The cost of land, rental value etc also affect the attractiveness. In India, large organized retail chains like FoodWorld and Subhiksha preferred to start the activities in metros like Chennai or Bangalore since the land value and other costs were more reasonable in these cities at that time. 2. Selection of an area within the city ; The following factors are to be considered Customer attraction power of a shopping area : People get attracted to come to T Nagar in Chennai and Commercial Street in Bangalore for shopping. Locating a retail outlet in these areas may attract customers to come to your store Qualitative and quantitative nature of competitive stores: Most of the gold jewelry retailing is done in T Nagar in Chennai and all potential gold buyers will visit T Nagar. However the number of jewelry shops is very high there. For electronic items, Richie street may be an option in Chennai Access to the area : It should be possible for people to reach that area easily and quickly and there should be less traffic congestion. Traffic congestion in and around T Nagar of late is becoming a problem Nature of governmental regulations: Some laws may not permit setting up of commercial ventures in certain locations 3. Selection of a specific site within the area : Factors to be considered are Adequacy and potential of those who visit the site : If your site is located in Usman road, there will be adequate number of people visiting past your site. Ability of the site to intercept the traffic: The site should be attractive to the customers passing through the street or site. If a large number of school children only move through the street, it may not be a good location to set up a speciaised electronic store. Complementary nature of adjacent stores: The site will have greater potential if adjacent stores sell complimentary products. Thus a store selling school books will have greater potential if it is located near stores selling school uniforms Adequacy of parking space: This is a very important criterion as most of the families have their own conveyance. Otherwise, the valet parking is to be provided. Types of retail locations 1. Free standing sites : These are retail locations that remain unattached to any other retail stores or shopping centres etc. In the case of kiosks, it may be inside a shopping mall. The characteristics are: It is convenient for customers as they have exclusive parking space generally The visibility is good and it attracts the customers It has fewer restrictions regarding signage, working hours etc as they are independent as compared to a shopping centre The customer flow may be less because there are no other shops in the same premise to attract customers Free standing sites are more expensive if owned or even rented 2

2.

Locating in Central Business Districts: The Central Business district is the traditional business area in a city or town. It draws many people into their area during business hours. It could be Mount Road or Parrys Corner in Chennai. The characteristics are as below: It is normally a hub of public transportation like bus or train. There is a high level of pedestrian traffic There are also a large number of residences near-by Parking area in normally very limited. Parking problems and drive times will discourage the shoppers from a distance Shopping in the evenings and week-ends wi be slow Generally CBD areas suffer from a lack of planning 3. Locating in a shopping centre A shopping centre is a group of retail and other commercial establishments that is planned , developed , owned and managed as a single property. Spencers Plaza is an example of a shopping centre. The characteristics are as below: By combining many stores in one location, a disproportionately large number of customers visit the site than if the stores are in individual locations. It is not uncommon for the sale of one store to increase after a competitor sets up shop in the same site. The developer and the management should ensure that they select the retailers carefully and provide the consumers a one-stop experience for all that they want to buy with a well-balanced assortment of merchandise The shopping centre management maintains all common facilities like parking, airconditioning, house-keeping, corridors, lift/escalators, security, etc The management also involves in advertising and sales promotion during festivals, seasons etc in a limited way Most of the departmental stores have one or more prominent retailers who are called anchors. Spencer Plaza has Landmark who could draw customers . These anchors are often given special deals. 4. Locating in specialized markets: Most of the cities in India have special market places for certain particular product category. In Chennai Usman Road is famous for jewelry and saris, Richie street for electronic goods, Broadway for spectacle frames etc. These places provide an established retail area to the prospective retailers to start a particular business , where they have o make no efforts to attract customers to their shop 5. Periodic Markets Another peculiar type found in our country is the periodic market, which is established at particular paces on a particular day in a week The retailers operating here have a mobile set-ups which they carry from one pace to another These cater to the low income or middle income groups These outlets do not offer credit to customers, the infrastructure-related costs are very low and carry no big overheads. Only a nomina fee has to be paid to the governments or paanchayats Factors that are considered before making a location decision

. 1. Population characteristics and the trends : Population size, density, rate of growth, number of households, income level, education, age, occupation etc are studied before taking a location decision 2. Purchasing power and distribution : If purchasing power is high, the market should be good 3. Business Climate : If the general economic climate of the area is good, the business will be good because of increased level of prosperity 4. Competition : A place is over-stored if thee are too many retail outlets, is saturated if itt has enough outlets and is under-stored if it has less number of stores than required. This factor must be analysed thoroughly before taking a decision. INTERNAL AND EXTERNAL ATMOSPHERICS Atmospherics refers to the stores physical characteristics that are used to develop an image of the store so that the customers are attracted towards it It is defined as the physical elements in a stores design that appeals to the consumers and encourages them to buy.. There are two types of atmospherics and they are: 1. External atmospherics: This refers to the outer look like the frontal elevation, display windows, surrounding landscape etc 2. Internal atmospherics: This refers to the colour of walls, lighting, air-conditioning, dressing room etc that helps to enhance the display and provide additional comfort to the customers Role of atmospherics in retail strategy or the importance of atmospherics Enhances the image of the outlet in the minds of the customers It attracts the customers to visit the store and remain there for long periods Creates a USP ( unique selling proposition) Generates excitement ( a separate play area for children) Facilitates easy movements within the store ( clear signages of product sections) Facilitates easy access to merchandise in the shelves Ensures that the space inside and outside is used optimally The merchandise is presented in an attractive and effective way to the customers The customer does not waste time in looking for materials Enhances the in-house experience of the customers The choice of physical surroundings, signages, fixtures, dcor etc will enhance the image of the store in he minds of the customer Another factor in atmospherics is the attire or dress worn by the employees. If properly chosen and worn, this will boost the image of the store. Customers generally fee embarrassed to ask somebody if he works there. Proper uniform will help solve the problem and it wi give an image of being professional Aromas or scents present in the environment will also affect the customers perception favourably Background soft music tempts the customer to stay for more time within the premises and makes him more relaxed Immediate effects of atmospherics 1. Customer experiences pleasure or displeasure. Playing Tamil music will be received well in Chennai or Tamil Nadu but may not be liked , if done in Delhi or Punjab. 4

2. Customer experiences stimulant or dampening: The nature of music played should match the mood and age of the customers. A shop selling to youth may play fast music. 3. Customer experiences dominance or being submissive: The dominant colours in the stores create this effect. The colour red creates a feeling of being assertive whereas the colour blue gives a feeling of tranquility and submissiveness Components of atmospherics 1. 2. 3. 4. Exterior atmospherics Interior atmospherics Store layout Visual merchandising 1. Exterior atmospherics - Elements Storefront should be attractive enough for the customers to fee llike entering Entrances should be functional and aesthetic. In rura and semi-urban India, there is generally no door at the entrance Window display very common for shops selling apparels or gift items or shoes. Considered as very important for image building, for products like Titan watches. During discount offers, the retailers keep such items at the display window mentioning the discount applicable Sign Board : It is painted or a neon lighted board with the name of the store, its trade mark etc. Many outlets like Spencers, pizza Hut, McDonalds, Ford etc have their standardized board Height of building Size of building Visibility Uniqueness Surrounding stores Surrounding area Parking facilities Plays a very major role. Sometimes customers decide whether to visit a store or not, depending on the paring availability. Parking should be spacious, available even during peak hours, cost of parking should be reasonable, vehicle should be safe and secure while being parked and the waking from the parking space to stores should be minimum. Retailers can also offer valet service

2. Interior atmospherics Elements Flooring Should be appealing, non-slippery and attractive Lighting Should be neither too bright nor too dull, al merchandise to be clearly visible Scents Pleasant scents enhance the experience quality Fixtures Wall Temperature Should be set to make the customers comfortable Aisles Trial room Cleanliness 5

Self service Price labels should be easy to read and understand Personnel Friendly, well attired and knowledgeable Music should be soft, pleasing and enjoyable

3. Stores layout Layout refers to how various merchandise or groups of merchandise are arranged within the stores for the convenience of the shoppers. This should be customer-friendlly in the sense that it must offer adequate space for the customers to move through the stores as we s for the effective display of the merchandise. Good store display will motivate the customers to move through the stores and even look at things which was not in their current shopping list The placement of racks and shelves within the stores is very important and this determines the space available to the customers to move and enjoy shopping. Too many racks and shelves also confuse the customers. Many retailers have the shelves placed along the walls to save space. Types of stores layout : 1. Grid layout: Grid consists of rows and columns type of arrangement and is followed in all conventional shops. Here customers can easily locate the items of their choice. and is suitable for customers who frequent the shop, say three times in a week. Even though it is not very aesthetic, it makes it very customer-friendly. This arrangement makes the best use of the available space. The grid layout is shown below.

2. Free-form layout: In this format, the fixtures and aisles are placed asymmetrically and this provides informal setting and customers feel comfortable to browse and shop. This is also called boutique layout. Here the role of sales personnel is important to guide the shoppers As the movement of customers is haphazard, the possibilities of shoplifting is high in this arrangement which is shown below.

3.

Race track layout Customers visiting stores with this format wil be made to go through specific paths and therefore they will be made to visit as many departments as possible. They wil be exposed to a large number of products and promotion materials. This is also known as loop layout. Loop design encourages impulsive purchases as shoppers are exposed to items other than what they came in to buy. For example, Big Bazaar and Pantaloon store in Gurgaon have adopted this to draw the customers to multiple sections.

4. Storeyed layout ; This is most popular in India and most of the Leading chains like Spencers, Nillgris, Shoppers Stop etc follow this. This utilizes the space most effectively. This saves substantial amount of initial investment of the retailer in view of the real estate cost RETAIL POSITIONING A positioning strategy is a plan of action of how the retailer will compete in the targeted markets and how it will differentiate itself from the competition. Retail positioning is the process of creating and maintaining a distinctive and valued image of the retailer in the minds of the customer. The important thing is how the customer views the retailer and his offerings in terms of product and services Positioning can be a deliberate attempt to differentiate from the rest of the market either by offering superior value / quality like Saravana Bhavan or great price competitiveness like Saravana Stores Broadly there are three positioning strategies as beow: Product differentiation is achieved through unique or exclusive products or brands, ownbranded products and unusually broad and deep merchandise offerings. Think of Achi branded products or MTR products 7

Service or personality augmentation; This can be done in many ways like convenient location of the retail outlets, long working hours, working on Sundays and holidays, Knowledgeable and courteous staff, home delivery, generous return policy etc Price leadership : This can be established by offering value for money. McDonald chain al over the world is known for offering best value for money. Wal-Mart is also known to follow this

Positioning is not something which can not be changed. If sales and market share start falling, the management should take a re-look at the positioning. Repositioning needs to be considered if there is a big discrepancy between the perceptions of the customer and the retailer Building retail store Image or building brand image A brand is a name, sign, symbol, slogan or anything that is used to identify and distinguish a specific product, service, or business. A legally protected brand name is called a proprietary name. Brand means a set of emotional and sensory inputs a consumer associates with a particular product or service in their memory system Brand is the complete bundle of thoughts a customer has in his or her mind about a company, product or service developed through communications and experience, including the distinguishing "human" characteristics of a brand personality (eg, warm and friendly, strong and reliable) Consumers feel differently when they stay at Taj group of hotels as compared to Ramprasad group of hotels.. Strong brand names can affect customers decision making process , motivate repeat visits and purchases and build loyalty. People like to buy silk saris from Nallis rather than from some shop in Parrys corner. A strong brand image also enables the retailers to charge higher price and make more margins. Brands with weaker images will have to resort to discounting to maintain their market share How to build retail brand image? 1. Create a high level of brand awareness 2. Develop favourabe associations with the brand name 3. Consistently reinforce the trend Let us now elaborate these steps: 1. Creating a high level of brand awareness : Brand awareness is the ability of the potential customer to recall or recognize the brand. Aided recall is when the customers indicate that they know the brand when the name is told to them. Top-of-mind awareness is that the customer remembers that particular brand so well and comes first in his mind The top-of-mind awareness is created by - Having a name that is easy to remember (Nalli) - Repeated advertisements ( Chennai silks) - Repeated sponsorships (RMKV) 8

2.

Have a large number of outlets (Hot Chips) Catchy slogans, attractive logos, etc

Develop associations Brand association are anything that is linked to connected to the brand in the minds of the customer. Some common associations that the customers develop with their brand name are as below - Merchandise category: Chennai silks will have the customers associate its name with silk saris. Krishna Sweets will have the customers associate its name with sweets. So whenever the customer has a need to buy sweets, this name comes in his mind because of the association. - Price or quality: Wal-Mart is associated with low price sand good value - Specific attribute or benefit: (The convenience store 7-Eleven is part of an international chain of retail stores)

3.

Consistent reinforcement of the image of the brand The retailers brand image is developed and maintained through the retailers communication program and other elements of communication mix. The other elements are merchandise assortment, pricing, the design of the stores, web site and the customer service that the store offers. Retailer needs to be consistent in his messages and send the same kind of message through various elements. If price is the main brand strength, the same has to be conveyed always and through al elements. Retailers need to develop an integrated communication program, a program that integrates all communication elements to deliver a comprehensive and consistent message. Without the consistency, the various elements may work at cross-purposes. For example, the TV advertising may mention and highlight about the variety of merchandise in the store, the sales promotion may be pitched on attractive prices. In such a case different messages may be going to the customer and so the customer may not form a unique image about the store. Retail image dimensions To measure the image of the retail store or shopping centre, it is essential to identify the relevant customer attitudes. Lot of work on this has been done in the western world. The most comprehensive presentation is Fisks conceptual model in which he summarizes the store qualities as below: Dimension 1. Location convenience Determinants 1. Access Route 2. Traffic barrier 3. Travelling time 4. Parking availability 1. Number of brands stocked 2. Quality 3. Breadth of assortment 4. Depth of assortment 1. Price of a particular item 2. Price of same item in another store 9

2.

Merchandise suitability

3. Value for price

4. Sales effort and stores services

5. Congeniality

6. Post-transaction satisfaction

3. 1. 2. 3. 4. 5. 6. 7. 1. 2. 3. 4. 5. 1.

Discounts Courtesy of salesmen Helpfulness f salesmen Reliability and usefulness of advertising Billing procedure Adequacy of credit arrangements Delivery promptness and care Eating facilities Store layout Store dcor Merchandise display Class of customers Store traffic and congestion Satisfaction with goods purchased and used 2. Satisfaction with returns 3. Satisfaction with price 4. Satisfaction with accessibility to store

The above list is not comprehensive and may not apply to al industries. Banks may have to develop other dimensions relevant to them Image concept is most relevant in respect of the retail sector because of the customer intimacy with the store. Like the producers who only deal with the limited number of wholesalers, retailers relate directly with the consumers through physical premises, sales force, offerings, and services. Thus customers develop personal images of retail stores based on their experience Mc Donald chain has positioned itself as a family restaurant in India as Indians go out with family. Big Bazaar discount store , to overcome the notion that Indian masses perceive low prices to indicate low quality, stressed on sabse sastha, sabse acha RETAIL SERVICE QUALITY MANAGEMENT Customer service is the set of activities and programs undertaken by retailers to make the shopping experience more rewarding for their customers. These activities increase the value that the customers are receiving from the merchandise and services that they purchase Alll the employees of the retail company contribute to the customer service and it is not only the sales personnel. Employees working in the distribution centre of the retail firm contribute to service by ensuring that all merchandise that the customer wants are available in the store at the time that they want. Employees working in the house-keeping department ensure that the store is kept clean and the air conditioning is working fine. Some of the service provided at the retail sector can be in the following areas. Acceptance of credit cards Alterations of merchandise ATM terminals Child-care facilities Credit Delivery to home or office Demonstrations Display of merchandise Dressing room Extended store hours Signages to locate and identify merchandise Gift wrapping Parking 10

Special facilities for handicapped customers Play area for children Repair services Rest rooms Return privileges Shopping carts Special orders Warranties Manufacturers make the quality of products consistent from item to item. But the quality of retail service can change from one store to another and even from one sales person to another within the same store. It is very difficult to manage service provided by all salesmen. The challenge of providing consistent high-quality service provides an opportunity to deveop a competitive advantage. There are two approaches to develop and manage sustainable service quality 1. Customisation approach This approach encourages the service providers to tailor their services to meet each customers personnel needs. For example in apparel shop or in a shoes retailing shop, the sales assistants try and help the customers to choose the right item. The customized service approach results in many customers receiving superior service. But the service may be inconsistent because service delivery depends on the judgement and capability of service provider. 2. Standardisation approach It is based on establishing a set of rules and procedures and ensuring that they are followed strictly and consistently. Since everyone follows the same S.O.P (Standard Operating Procedure), the inconsistency in service is avoided or reduced Through standardization, the fast food chain McDonald has ensured that the same quality of food is served all over the globe and served in time. The food may not be exactly what every customer wants but it is consistent, served in time and at low cost Store design and layout also plays a role in the standardization approach. In many situations, the customers do not need any assistance in selection but only want to know where the product / brand is located and buy it quickly. In these situations, the retailer can provide service by providing a layout and signages at proper locations which will enable the customer to locate the item easily. COST OF CUSTOMER SERVICE It must be understood that the higher the quality of service provided, higher is the cost. Savoy Hotel in London offers very special benefits to the customers. Every floor has a customer service representative and attends the needs of the guests. The customer gets complimentary fruit basket every day and the customer can decide what fruit he likes to have. But Savoy is expensive place to stay. Many retail companies in USA were following a very generous goods return policy and provided no questions asked service. However there were misuses of this and the companies incurred a high cost. Factors in service quality management

11

Customers base their evaluation of store service on their perception and not necessarily on hard facts. Five factors that customers generally use to evaluate the retailer quality are: Reliability: Accuracy of billing, availability of the wanted product/brand Assurance (Trust) : Guarantees, Warranties, return policies etc Tangibility : Appearance of stores, arrangement, sales people Empathy: Personalized service, recognition by name Responsiveness: Returning calls and e mails, giving prompt attention and service HOW BRADMOOR , WORLDS PREMIER RESORT IN USA MANAGES THE FIVE FACTORS case study 1. Reliability: Every employee attends a training program before they are put into the job of handling the guests. They are trained to give an estimated time for any service that the customer demands (room service, laundry service, arranging taxi etc). When an employee makes a promise, he has to fulfill the same. Employees are told never to guess the expected time. If they do not know they have to check with the superiors before committing 2. Assurance: It conveys trust by empowering the employees. If any guest faces a problem with respect to the food not being as per his order, the employee has powers to offer him something other item like dessert free to satisfy the customer. In India Pizza Corner offers free Pizza if it is delivered beyond 40 minutes 3. Tangibility: Broadmoor spent $ 200 million during 1992 to 2002 to upgrade the facilities in the resort by renovating the rooms and adding a new outdoor swimming pool 4. Empathy. Employees are always told to address the guests by name. To accomplish this all employees are told to find the names of the guests through name tags, luggage ID tags etc.When every one addresses him by name he gets a feeling of being taken care of. 5. Responsiveness: Every employee is instructed to follow HEART model - Hear what a guest has to say - Empathize with them - Apologize for the situation - Respond to the guests needs - Take action and follow it up THE GAPS MODEL FOR IMPROVING RETAIL SERVICE QUALITY In order to increase the retail service quality, the retailer has to reduce the Service Gap which is the gap or difference between the customer expectations and perception of the service delivered to him. Four factors affect the service gap: 1. Knowledge Gap : The difference between customer expectations and the retailers perception of customer expectations 2. Standards Gap : The difference between the retailers perception of customers expectations and the customer service standards of the retailer 3. Delivery Gap : The difference between the retailers service standards and the actual service provided to the customer 4. Communication Gap: The difference between the actual service provided to the customers and service promised in the retaiers communication program These four gaps add to the service gap. Therefore the retailer must try and reduce each of these gaps. Thus the key to improving service quality is to do the following: 1. Understand the level of service that the customers expect 2. Set standards for providing customer service 12

3. Implement programs for delivering service that meets the standards 4. Undertake communication programs that will inform the customers accurately about the service that will be offered

Ways to reduce knowledge gap: The most critical step in providing good service is to understand what service the customer realy wants. Many retailers take wrong decisions because they are not aware of what the customer expects. Retailer may fill his store with all varieties of merchandise thinking that this will improve his service quality but the customers may actually think that they are spending too much time at the payment counter and it should be made faster. 1. Do comprehensive study to understand what the customer expectations are..The leading J C Penny in USA collects answers to their questionnaire every year from 50,000 customers and get their feedback on the service provided. As the questions are same, they are able to assess whether the service perception is improving or declining. 2. Measure the satisfaction of individual transaction: Kingfisher Airlines gives a feedback form during the flight to the passengers and ask them to fill up the same so that the customer can give his opinion of the service provided to him as he is experiencing the service. 3. Customer panels and interviews / discussions: Many financial service providers like Bajaj Finance arrange a meeting of their select customers once every quarter to understand the customer perceptions on the service provided. Car servicing companies call their customers over phone after a few days of service and ask them for feedback on how the service was provided 4. Interacting with customers: Owners of small retail outlets interact with customers every day for every purchase and get first hand feedback immediately 5. Customer complaints: Customer complaints are recorded and analysed periodically so that the problem areas are identified 6. Feedback from employees: Another good source from which we can understand customer expectations are the stores employees who handle customers every day, every hour. Ways to reduce the standards gap After the retailer gain knowledge of what customer expectations are, the next step is to use this information to set standards and develop systems for delivering high quality service. Service standards should be closer to customer expectations than internal operating constraints 1. Top management should be committed to high quality. Top management must be willing to incur additional expenditure in order to improve the service. Any additional service efforts would mean increased cost. Top management should also appreciate efforts taken by employees to improve service 2. Top management should define the role of service providers & set service goals: Many successful retail dealerships like that of Toyota have given clear instructions to employees like every phone call should be answered within three rings, each customer to the 13

showroom should be greeted within 30 seconds etc. Goals should measurable, specific and achievable. 3. Assess the service quality continuously: Many retailers use Mystery shoppers to assess the service quality. Mystery shoppers are actually people whom the retail management sends to the store to see how they are treated by the employees. The mystery shoppers typically find out how the customers are received, how long it takes for someone to attend the customer, how knowledgeable the salesmen are, etc. 4. Train and give information to the employees on a continuous basis on the customer expectations and how to provide Ways to reduce the delivery gap To reduce the delivery gap and provide that exceeds standards, retailers must give their employees instrument and emotional support, give necessary skill and knowledge, improve internal communication, reduce conflicts and empower employees to handle situations 1. Provide instrumental and emotional support: A bank employee may be able to offer better service with a computer terminal on his table. A billing counter operator will bill faster if he has a bar code reader. Hence appropriate instruments are to be provided. Service providers will have to tackle difficult situations when the customer may not be right. Under these conditions, he will need emotional understanding of the fellow employees and also the employer. 2. Improve internal communication: While providing customer service, the store employees have to often manage the conflict between the interest of the customer and that of the firm. J C Penny has policy of accepting the returned goods without asking questions. Sometimes the customer may not have used the item properly but would demand his cash back. The loyal employees of J C Penny will not like their company to lose. Retailers can reduce such conflict by having clearly mentioned policy guidelines in their sales manuals so that it is clear to the customer as well as to the employee. 3. Empower the store employees: Allow the employee at the lowest level to take decisions concerning the customer service issues. But you have to train and coach the staff so that they do not go beyond limits. 4. Provide incentives: Incentives are paid to employees who solve a service related problem with the customer. Ways to reduce the communication gap If we overstate the service levels in the advertisements and other communication channels, the customers expectation is raised. When the expectation is not realized, then there is a gap. 1. Realistic commitments : Advertising program is developed by the marketing department whereas the stores personnel are the ones to deliver service. Poor communication between these areas may result in a mismatch between the promise made in the ad and the actual service provided. 2. Manage customer expectations: Many times when a customer takes his car for service, they do not mind the delivery time as long as it is communicated properly at the time of their giving the car for service. Customers only want the car to be given back as per the promise made. Hence being honest ant transparent helps 3. Listen to the customers: Customers can become very emotional about their real or imaginary problems with the retailer. Often this emotional problem can be managed by giving a very patient listening to the customer to get the complaints off their chests. Store 14

employees must allow the customers to air their grievances without interruption. It is hard to reason with an irritated customer. In a supermarket, the customer may not sometimes be satisfied if you replace a defective product with a new one. He may want an apology also. 4. Provide a fair solution: Customers typically prefer tangible resolution of their complaints. Extra discounts or additional benefit coupons will be better than a verbal apology. 5. Resollve the problem quickly: Customers are more satisfied if the first persn whom they take their complaints to, solves it. The more persons he has to meet, the more irritated he becomes. RETAIL SUPPLY CHAIN MANAGEMENT As sellers of the merchandise to the final customers, retailers are dependant on the supply of merchandise in order to provide a high level of service to the to their customers. In some cases, the manufacturer may deliver directly to the retailer, in many cases, the product goes through a complex route of transportation, warehousing, and various handling devices in order to move from the production location to the customers home. Some products like fruits, vegetables , etc also need refrigerated storage. Supply chain V 1 Regional Distribution Centre 1 Retail outlet 1 Retail outlet 2 customers Retail outlet 3 V4 Regional Distribution Centre 2 Retail outlet 4 Retail outlet 5

V2

V3

V5

V6 V - VENDOR OR SUPPLIER

Retail outlet 6

The above figure represents a normal supply chain. There are cases where the vendor directly sends to retailers also. Retailers are taking an increasing role in SCM. The large retailers own their own distribution centres and are taking a leadership role in SCM. Efficient supply chain management provides two benefits to customers 1. Reduced stock-out The number of times that stock-out occurs is minimized. 15

2. Tailored assortments ( means the right merchandise required by each retailer) 1. Reduced stock-out : The worst thing that can happen to a retailer is non-availability of an item wanted by a customer when the customer has visited the store. If a customer visits Viveks to buy a Samsung LCD TV 32 inches and if it is not available, he would go to Croma and buy the same. Not only that, he would also buy some more items that he normally buys from Vivek. Therefore the stores should do everything to ensure that the number of times that stock-out occurs is reduced to a minimum. 2. Availability of the right items: Another benefit of an efficient SCM is that each store gets what is exactly required by the customers in that area. Big Bazaar in Nelson Manickam road may need different kind of items compared to Big Bazaar in T Nagar. This is alos made possible because of superior information system as details of each sale are captured in the information system. Efficient supply chain management which also includes information management provides benefits to retailer in the following ways: 1. Higher return on investment: It increases the sales, net profit margins, and improves inventory turnover ratio. Retailers can also reduce their transportation expenses by coordinating deliveries. A good information system that coordinates among the vendors and the buying staff of the firm helps to buy things at a lower cost and improve margin. 2. Strategic advantage: A critical factor in Wal-Marts success is its information and supply chain management. Even though competitors understand this, they are not able to achieve the same level of performance because of two reasons, 1) Wal-Mart has made substantial investments in in developing its systems and it has the business volume to justify this 2) Its systems are not simply some software any firm can buy from any supplier but they are customized for Wal-Mart through experience and earning Pull-type and Push-type supply chains: 1. Pull supply chain: This is a supply chain where orders for the merchandise is generated at the stores level on the basis of the sales data captured at the computer terminals. Basically in this type of supply chain, the demand for an item pulls it through the chain 2. Push supply chain: In this type, merchandise is allocated to the stores by the management based on the forecasts. Once a forecast is made, periodically some quantities are delivered to the stores. This method is less sophisticated. Pull supply chain has the following advantages: - Since the orders are based on customer demand, there are less chances of stock-outs or over stocking - Pull approach increases the inventory turnover - When the demand is difficult to forecast, this is the best method However the pull supply chain has some drawbacks also - It requires a more costly and sophisticated information system to support it - For some merchandise, the retailers do not have the flexibility to adjust the inventory to suit the demand. For example large volumes may have to be ordered to take price advantage for some merchandise - For products with steady demand like bread, eggs, milk etc, push type is better as the demand can be predicted more accurately 16

LOGISTICS PHYSICAL FLOW OF MATERIALS IN SUPPLY CHAIN The following figure illustrates the physical flow of materials within the supply chain

VENDOR

DISTRIBUTION CENTRE

STORES

CUSTOMER

1. Merchandise flows from vendor to distribution centre 2. Merchandise flows from distribution centre to stores 3. Alternatively merchandise can directly go from vendor to stores Logistics is the aspect of SCM that refers to planning, implementation and control of the efficient flow and storage of goods and related information from the point of production to the point of consumption. Logistics involves managing inbound transportation, outbound transportation and also the activities undertaken in the retailers distribution centre. Advantages of using distribution centres Each distribution centre supplies to several stores. It is always possible to forecast the combined demand for three or four stores more accurately than a single store Because of the existence of distribution centre, the stores can carry less inventory which results in the overall lower level of inventory. It is easier to avoid going out-of-stock as they can always replenish the stocks from what is available at distribution centres Retail store space is always more expensive than that of distribution centre. Therefore by keeping lower level of stocks in the stores, the required store space is reduced. Distribution centres are suited to large scale retailers and not to those who have only a few stores. The typical store that will benefit from distribution centre Distribution centres are suitable for non-perishable merchandise Distribution centres are suitable for items that have uncertain demand Selling merchandise that needs to be replenished very frequently like grocery items because if they are delivered directly to stores, the stores will waste lot of time Activities that are managed at the distribution centre 1. Management of inbound transportation: Now buyers spend a lot of time in coordinating the physical flow of items into their distribution centres. Although many manufacturers may pay the transport expenses to the distribution centre, the retailers want to negotiate with trucking companies and reduce costs 2. Receiving and checking: Receiving is the process of recording the receipt on arrival. Checking is to find out whether the receipt is as per the order in quantity and quality. Goods are also checked for damage, shortages, excess etc 17

3. Storing and cross docking: Some merchandise is stored in the distribution centre in the racks and shelves after they are taken out of cartons. Some merchandise is directly allotted to specific stores and they are taken directly to the conveyor for onward transportation and these materials stay in the centre only for a few hours 4. Getting the merchandise ready for display in the store: This would mean fixing the price tags, putting the apparels on hanger, etc. It is better to do these at the centre than doing at the store since there is a specific space allotted for these activities at the centre. 5. Prepare to send the merchandise to store: Every morning, the computer system gives a printout of items to be dispatched to different stores. There is a document called pick ticket and accordingly, the forklift goes to different areas and picks up the required quantity of merchandise for different stores 6. Management of outbound transportation: Many national level retailers run more than 100 trucks every day to their stores. Because of the complexity, they use sophisticated routing and scheduling with a view to minimize the time taken and the cost incurred. 7. Reverse Logistics: This refers to the flow of the materials returned from customer because of defects. This moves backwards from customers to stores to distribution centres and finally to vendors. Transportation costs of these can be high as quantities are low. RETAILING PRICING DECISIONS The importance of pricing decisions is growing because the customer today has several choices of retail stores. The customers tend to evaluate the value that they receive from different stores. Retailers offer several benefits like availability of variety, convenient location, parking, etc. Value is the ratio of what they receive (the perceived benefits) to what they pay. Value = (Perceived benefits / price). Customers opt for the stores that offer higher value. Value can be increased either by increasing the perceived benefits or by decreasing the price. A price-conscious customer will go to the store which offers the lowest possible price. A status conscious customer will go to the store which offers high value. Factors considered by the retailers to set the prices 1. Customer price sensitivity: Generally as the price is increased, the sales volume goes down. Because fewer and fewer customers will fee that the deal offers a good value. Pricesensitivity determines the various quantities sold at different prices. If the increase / decrease of the prices of an item affect the sales volume substantially, then the item is price-sensitive. Before deciding on the retail price, the stores management will consider how price-sensitive the particular item is. In this connection another term is used and it is called price elasticity. Price elasticity = ( Percentage change in qty sold / percentage change in price) Different items have different levels of price elasticity. 1) Essential items like food, milk, etc have low elasticity. Luxury goods like TV, washing machines etc have higher price elasticity 2) The products which has many substitutes will have higher elasticity. If a bank increases its interest rate on loans, the customers will shift to another bank as they have choices 3) The luxury products (as compared to his income) will be more price elastic. For a clerk in an office, items like jewelry will be luxurious and so the price elasticity will be high. The price sensitivity of the customers is based on their personal, social or geographical factors and this is a major challenge for retailers. Take the case of Caf Coffee Day (CCD). This is a coffee bar chain and is located in prime places like upscale residential localities, 18

shopping centres, airports, multiplexes etc. They charge Rs 50 to Rs 150 for various types of coffee. It is banking on its dcor, ambience, and experience to play a major role in pulling the crowds Based on the price-sensitivity, customers can be divided into segments as below: a) Economic type: They shop for the lowest price. They do not give importance for factors other than price b) Convenience oriented: This type does not enjoy shopping and they shop only when they have to. They generally choose the nearest locations and spend minimum effort and time to shop. They do not mind paying higher prices for reduction in shopping effort. People visit the nearest Kirana stores for this purpose. c) Image oriented: These customers are not price sensitive. They look for prestige value while shopping. These customers will go to Taj or Park Sheraton for dinner. d) Variety oriented: These customers look for choices and they like the stores that stock varieties. They go to Nallis for saris, GRT for jewelry etc Loyalty oriented: Over the years, the customers will start trusting certain stores and will buy only from them even if it is more expensive 2. Competition: Retailer can price above or below or at par with the competition depending on his pricing policy. Saravana Bhavan keeps its price much higher than the competition whereas the Saravana Stores keeps its price much lower than the competition. This because Saravana Bhavan has a policy of offering superior value to the customer through the product quality whereas Saravana Stores has a policy of offering superior value to the customer through low prices Most retailers regularly collect competitive price information to see if there is any need to review their own pricing A retailer will have to consider the following factors a) What is the competition doing price-wise? b) Review competitor ads and other promotional efforts periodically to get more information c) How will the competition react to your pricing policies Retailers will generally avoid price wars where all parties will have to keep on reducing prices. 3. Cost: Cost is another important factor on which pricing is dependant. Normally price is fixed as cost plus a certain margin. However this again is subject to company policy. Different items may have different profit mark ups. A retailer may decide to intentionally sell some items below cost and use this to pull customers to his store where the customers will buy many more items 4. Suppliers: Supplier or manufacturer also has a strategy with respect the final prices to the customer. They may not like their product image to be spoilt by discounting the prices by retailers. Mercedes-Benz does not want their dealers to offer price discounts to customers. Bu if a Mercedes dealer wants to increase his sale by discounting, it goes against the policy of the manufacturer. Therefore at times, there may be a conflict on interest. Similarly the supplier does not want his dealer to overcharge also as it may affect the sale The retailer will stock many brands of a product and will sometimes consciously promote the brand that offers him higher level of commission 19

5. Legal and ethical constraints: a) The American law does not allow the retailer to charge a price lower than his cost. Some retailers may do this with a view to drive out the competition with an idea to increase the prices later after getting rid of competition, This is called Predatory pricing and is not allowed. b) MRP (Maximum Retail Price). The manufacturer sets this price so that his price is uniform throughout his market and unnecessary competition among the co-dealers is avoided. Manufacturers try to ensure that no retailer charges price below MRP Retail pricing objectives : There can be several objectives while setting the prices at the retail level to the end customers To Maximise the long-term and short-term profits To increase the sales volume or value To increase the market share To obtain a target rate of return on investment To be perceived as fair by all To be consistent To increase the customer flow to the store during lean periods To clear out the old stocks To avoid violation of governmental laws To increase repeat purchase Pricing approaches Broadly, the retailers adopt any one of the three approaches in terms of pricing and they are as below: 1. Discount Orientation: Here the low process is the key and the stores do not offer any other frills or luxury in the shopping experience. The firm Subhksha. Followed this in India. This appeals to the psyche of Indians who always look for value and equate the value to prices. Even some customers from richer sections of society patronize such stores 2. At-the-market orientation: Such stores normally fix average prices which are neither too low nor too high. They target on middle class customers who are very large in number. An example of such a store in India is Westside, which focuses on providing value-for-money merchandise for the entire family along with an international shopping experience. They follow a store brand only policy. This policy gives them adequate flexibility to fix prices as they have better control over their own brands 3. Upscale orientation: These stores stock distinctive products, provide high quality service and charge higher prices. There is also growing customer segment which looks for such stores. Caf Coffee Day can be an example of this type The table below offers a representative list of the pricing approaches along with their retail-mix strategies Variable Discouted price At-market price Upscale price Location No parking, poor Central business Monopoly, compatible location to layout, areas, target segment inaccessible Near competition Service Self-service, limited Support from Personalised attention, home offerings sales people delivery, exchange facility, customized offering Assortment Limited variety Medium Extensive assortment 20

Store environment Nature of brands

Poor quality fixtures, limited space, untidy Unbranded, loose quantities

Comparable to competition Fast moving brands

Inviting, impressive dcor, visual merchandise attractive Exclusive brands

Pricing strategies 1. Every Day Low Pricing (EDLP): EDLP has been popularized by retailers like WalMart. Here the goods are priced between the MRP and a deeply discounted price. Here Low does not mean very low prices but a level lower than the regular price.. This is also followed by Big Bazaar and these low prices are stable and offered all he time. For EDLP to work smoothly, the volumes will have to be very large so that the stores can negotiate better prices from the supplier. Benefits of EDLP are as below: Less reduction on prices compared to deep discounting. As these reduced prices are stable, he customers do not delay the purchases Reduced ad expenses as price itself pulls the customers. In the case of heavy discounting as done during a sale, more ad expenses are incurred Better inventory management since the sale is uniform throughout the year Improved customer service because the sales are uniform and the number of customers visiting is almost constant and the existing staff can take care. In the case of High Low pricing, there is a shortage of salesmen during discount sale period 2. High-Low Pricing: Here retailers offer higher prices than the competitors EDLP but they conduct sales often giving high discounts. They resort to ads during sale periods. The sale is done at the end of a season for two reasons. They are 1. To clear the stocks which remains unsold. 2) To attract the price-conscious segment of customers to visit the stores. Benefits of HLP are as below: Some merchandise can be used to target different customer segments: For example, a high fashion apparel is sold at high prices in the initial days so that the fashionconscious customers who cannot wait will buy initially. Once the novelty wears off, the item is discounted and sold in sale and price-conscious customers rush to buy Enthusiasm is created among customers: A Sale priod is usally heavily advertised and there is lot of excitement among customers because of discounting, raffles, additional benefits etc. This gives more visibility to the store and there is a good word-of-mouth publicity also Customer feels he gets high value: As the same items are sold at much higher prices throughout the year and discounted at the sale period, customers feel they get high value HLP is easier to implement as compared to EDLP since EDLP can be done only for known branded products so that the customers can compare the prices as they know the prices. Also EDLP requires large volume of sales so that negotiation can be done with supplier 3. Loss leader pricing: Retailer tends to keep the prices of certain often-used items like eggs, cheaper so that many customers will visit the stores often. When they visit, they can 21

be persuaded to buy other high-priced items. Other items that they may normally buy with eggs like milk, eggs etc may be priced high. Here eggs are the loss leaders. The retailer charges higher prices not for normal branded items whose price is known to all. He normally charges high for in-house brands. 4. Skimming pricing: This is a strategy were the retailer sets high prices initially for a product or service and then lowers the price over time. It allows the retailer to make some quick recovery of costs This is effective only when the demand is price inelastic Price change by one retailer can be easily matched by another. Market share will be obtained by a retailer who offers penetrative pricing Inventory turnover ratio can be low for skimmed products Retailer gets negative publicity if he has to reduce the prices quickly 5. Penetration pricing: Here the retailer sets a low price initially to gain acceptance from the customers who use different established brands. The objective of such a retailer could be to increase the market share or sales volume rather than profit maximization. The advantages of penetrative pricing is as below: Market penetration can be achieved very quickly Creates goodwill among the customers though valuable word-of-mouth publicity Since the margin is very low, there are efforts to control costs and this leads to better efficiency Low prices act as barriers for competition to enter 6. Price Lining: Retailers offer a limited number of pre-determined price positions within a merchandise category. For instance in the apparel category, all shirts may cost Rs 450 or Rs 650 or Rs 850. This is referred to as price lining. The advantages perceived are: Confusion that arises from the multiple choices is eliminated. Customers can choose the shirts at low, medium or high price Merchandising task for retailer is simplified. He groups all within a certain price line and accordingly looks for merchandise when he goes to buy.

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