Mini project of project and operations

research management

By
Ravikiran S
MBA 3rd sem
141GCMD093

Mini project on problems faced by retail industry to attract the

customers
1. Introduction

1.1 history
The word retail means the sale of goods or commodities in small quantities directly to
consumers Retailing can be defined as a distribution channel function, where an organization,
buying the products from supplying firms or manufacturing the products themselves, sells
these directly to consumers. Many a times, consumers buy from an organization who is not
the manufacturer of the products, rather it is a reseller of the products obtained from others.
However, in some cases we may find the product manufacturers operating their own retail
outlets in a corporate channel arrangement. Retailing is beneficial to both consumers and
sellers. On the one hand it enables the consumers to purchase small quantities of an
assortment of products at a reasonably affordable price, on the other it offers an opportunity
to suppliers to reach their target market. Through retail promotions they can build product
demand and provide consumer feedback to the product marketer. Thus retail consists of sale
of goods and services from individuals or businesses to the end-user. A retailer earns profit by
purchasing large quantities of goods and services either from manufacturers directly or
through a wholesale and he is a part of an integrated system called the supply chain.
Many managers realise that their businesses must deliver goods and services that really do
meet with the rising expectations of their customers. Ultimately this will be achieved only
when organisations develop a better understanding of customer needs and motivation. In
recent years, increasing pressures have forced industry to reconsider and improve their
efficiency to maintain their profitability and competitive nature.
Many Retail industries have created diverse products in an attempt to satisfy customers and
be highly competitive. For example, banks offer internet banking products which has positive
impact on bank performance. Banks have become more involved in the granting of home
loans (previously mainly offered by building societies) and other aspects not strictly
associated with traditional banking activities, such as factoring and electronic products.
The present study focuses on selected independent variables namely customer loyalty,
relationship management, retail industry should maintain as a strategy to attract and retain
customers in the industry.
In the aftermath of globalisation, the operating environment of the industry has become more
dynamic and competitive. In search of competitive advantage, companies are placing more
focus on service quality. As the companies compete in the market place with generally
undifferentiated products, service quality becomes a primary competitive weapon.
Current scenario of retail industry in India
Retail sales in India amounted to about Rs.7400 billion in 2002, expanded at an average
annual rate of 7% during 1999-2002. With the upturn in economic growth during 2003, retail
sales are also expected to expand at a higher pace of nearly 10%. Across the country, retail

sales in real terms are predicted to rise more rapidly than consumer expenditure during 200308. The forecast growth in real retail sales during 2003- 2008 is 8.3% per year, compared
with 7.1% for consumer expenditure. Modernization of the Indian retail sector will be
reflected in rapid growth in sales of supermarkets, departmental stores and hypermarts. Sales
from these large-format stores are to expand at growth rates ranging from 24% to 49% per
year during 2003-2008, according to a latest report by Euro monitor International, a leading
provider of global consumer-market intelligence. A. T. Kearney Inc. places India 6th on a
global retail development index. The country has the highest per capita outlets in the world 5.5 outlets per 1000 population. Around 7% of the population in India is engaged in retailing,
as compared to 20% in the USA. In a developing country like India, a large chunk of
consumer expenditure is on basic necessities, especially food-related items. Hence, it is not
surprising that food, beverages and tobacco accounted for as much as 71% of retail sales in
2002. The share of food related items had, however, declined over the review period, down
from 73% in 1999. This is not unexpected, because with income growth, Indians, like
consumers elsewhere, have started spending more on non-food items compared with food
products. Sales through supermarkets and department stores are small compared with overall
retail sales. Nevertheless, their sales have grown much more rapidly, at almost a triple rate
(about 30% per year during the review period). This high acceleration in sales through
modern retail formats is expected to continue during the next few years, with the rapid
growth in numbers of such outlets due to consumer demand and business potential.
The factors responsible for the development of the retail sector in India can be broadly
summarized as follows:

Rising incomes and improvements in infrastructure are enlarging consumer markets and

accelerating the convergence of consumer tastes. Looking at income classification, the

National Council of Applied Economic Research (NCAER) classified approximately
50% of the Indian population as low income in 1994- 95; this is expected to decline to
17.8% by 2006-07.
Liberalization of the Indian economy which has led to the opening up of the market for
consumer goods has helped the MNC brands like Kelloggs, Unilever, Nestle, etc. to
make significant inroads into the vast consumer market by offering a wide range of
choices to the Indian consumers.
Shift in consumer demand to foreign brands like McDonalds, Sony, Panasonic, etc.
The internet revolution is making the Indian consumer more accessible to the growing
influences of domestic and foreign retail chains. Reach of satellite T.V. channels is
helping in creating awareness about global products for local markets. About 47% of
Indias population is under the age of 20; and this will increase to 55% by 2015. This
young population, which is technology-savvy, watch more than 50 TV satellite channels,
and display the highest propensity to spend, will immensely contribute to the growth of
the retail sector in the country. As India continues to get strongly integrated with the
world economy riding the waves of globalization, the retail sector is bound to take big
leaps in the years to come.

The Indian retail sector is estimated to have a market size of about $ 180 billion; but the
organised sector represents only 2% share of this market. Most of the organised retailing in

the country has just started recently, and has been concentrated mainly in the metro cities.
India is the last large Asian economy to liberalize its retail sector. In Thailand, more than
40% of all consumer goods are sold through the super markets and departmental stores. A
similar phenomenon has swept through all other Asian countries. Organised retailing in India
has a huge scope because of the vast market and the growing consciousness of the consumer
about product quality and services. A study conducted by Fitch, expects the organized retail
industry to continue to grow rapidly, especially through increased levels of penetration in
larger towns and metros and also as it begins to spread to smaller cities and B class towns.
Fuelling this growth is the growth in development of the retail-specific properties and malls.
According to the estimates available with Fitch, close to 25mn sq. ft. of retail space is being
developed and will be available for occupation over the next 36-48 months. Fitch expects
organized retail to capture 15%-20% market share by 2010. A McKinsey report on India says
organised retailing would increase the efficiency and productivity of entire gamut of
economic activities, and would help in achieving higher GDP growth. At 6%, the share of
employment of retail in India is low, even when compared to Brazil (14%), and Poland
(12%).

1.8.1 Different Forms of Retailing: Emergence of new formats of retailing in India

Hypermarts
Large supermarkets, typically (3,500 - 5,000 sq. ft)
Mini supermarkets, typically (1,000 - 2,000 sq. ft)
Convenience store, typically (7,50 - 1,000 sq. ft)
Discount/shopping list grocer
Traditional retailers trying to reinvent by introducing self-service formats as well as
value-added services such as credit, free home delivery etc.

1.9 problems of attracting new customers in retail industry

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9.

Location
Additional services
Product quality
Facilities
Reliability
Process
Value for money
Personnel service
Promotional activities

1.9.1 Location
The location of any store is always very important. Location can mean convenience and
accessibility. Location can also refer to the number of stores in a particular geographical
setting. According to Martinez-Ruiz, suggest that once a location is near to the home then

transaction costs associated with purchase such as transport costs and time spent are likely to
be reduced.
According to Reilly who developed Reilly law of retail gravitation which proposes that
people are drawn to larger shopping thus larger cities tend to attract more customers to shop
their than smaller ones therefore the need for supermarkets to consider location when putting
up facilities. This is further supported by Craig who uses the central place theory to explain
how people living far away are attracted to larger stores which are centrally located in larger
shopping malls offering more collection of goods and services than those stores within their
own vicinity offering fewer goods and services.
1.9.2Additional services
This dimension will consist of four elements membership card, parking lot, baby areas and
delivery of goods. Martinez-Ruiz asserts that customers always look for convenience benefit
in the modern environment. Additional services are essentially important in the retail business
and play a role in determining customer satisfaction through creation of convenience. For
example, Grewal concur that additional services like the availability of parking can create
convenience for customers with vehicles thus leading to a positive effect on customer
satisfaction. Other additional services like the membership card/loyalty card also provide
access to discounts and promotional goods.
1.9.3 Product quality
If a product fulfils the customers expectations, the customer will be pleased and consider that
the product is of acceptable or even high quality. If his or her expectations are not fulfilled,
the customer will consider that the product is of low quality. This means that the quality of a
product may be defined as its ability to fulfil the customers needs and expectations.
Quality needs to be defined firstly in terms of parameters or characteristics, which vary from
product to product. For example, for a mechanical or electronic product these are
performance, reliability, safety and appearance. For pharmaceutical products, parameters
such as physical and chemical characteristics, medicinal effect, toxicity, taste and shelf life
may be important. For a food product they will include taste, nutritional properties, texture,
and shelf life and so on.
1.9.4 Facilities
Under this dimension we use three elements like display, music and clean and spacious
atmosphere to measure the effect of supermarket facilities on customer satisfaction.
According to Inman a grocery store is described as a place of sensory stimuli where
consumers find colourful product displays coupled with fruits and flowers with perfectly
displayed packages of snacks and advertisements covering the floor. They further argue that
some customers then use the in store stimuli as cues to remind them of what groceries they
need and also assert that certain consumers enter shops without the intention of buying
certain goods but end up buying a particular set of goods because the in store stimuli has
triggered unrecognized needs and desires leading to in store decision making.
1.9.5 Reliability

Reliability refers to how much trust can be afforded the supermarket staff and organization
for example through parameters like accurate billing.
Reliability refers to the promises given by the store. If the store cannot keep or breaks the
promises, it dissatises customers and results in negative word-of-mouth. In contrast, when
the company is able to keep its promises, it increases customer condence in the store and
creates customer satisfaction and lead to loyalty.
1.9.6 Process
Process will be measured using three elements such as number of checkout counters/ express
checkout counters, opening hours and queue waiting time at counters. It is important to
manage these elements of process in service delivery as they can make or break Customer
satisfaction.
1.9.7 Value for money
According to Ciavolino & Dahlgaard Value for money is the perceived level of quality
relative to the price paid for a product or service. Value of money is based on competitive
pricing of products, discounts awarded to customers, and promotions. Cronin & Taylor
claimed that customer satisfaction is not only affected by customer services but also by price
and convenience.Additionally, several researches have been done the value for money and the
value attached to it by customers. These studies also point out the difference between price
and quality and how they influence perceived value, customer satisfaction and customer
behaviour.
1.9.8 Personnel service
Some researchers suggest that people like to socialize outside their homes for example Tuber
asserts that certain groups of people like o shop at particular stores because the stores offer
them opportunities to socialize with fellow shoppers and he also claims that shoppers prefer
to shop at stores where they find friendly and courteous personnel. Refers to the quality of
service related to the core products. Quality will be measured using variables like personnel
service, friendly staff, courteous and knowledgeable staff. The speed of solving problems is
also an important variable. We also keep in mind the ability of staff to offer personalize
service such as being able to recognize frequent customers and even greet them by name.
Calmer describes service quality as a third ring of perceived value after the basic product or
service and extended support services. Service can reduce the non-monetary sacrifices made
by shoppers such as time and convenience and also increase the benefits of shopping at a
store in this case and Coop Forum. Furthermore, perceived service quality has been found to
have positive impact on perceived service value.

Hence the major problem is identified to attract the new customers in the retail industry and
the issue is the Availability and product quality.

1.10 background of the problem

Traditionally companies have relied only on differentiation of products and services to retain
their customers and also to satisfy the consumers. However, times have changed, due to fierce
competition from new players entering the market, imitation of new features and increase in
number of new offers, customers have acquired new choices and they have also become more
price sensitive, which has forced marketers to adapt differentiated and customer oriented
strategies in order to enable them to stand out in the competition and gain a competitive
edge.in todays competitive grocery store sector, customer demands are bound to increase
from time to time due to the improvement of service quality in parallel with product variety.
Due to the tremendous growth of service industry in which retailing sector plays an important
role, it is vital for retailers to understand the degree of importance of listening to the inner
voice of customers needs to create, increase level of satisfaction. Ultimately, effective
satisfaction leads to prospective long term relationship and loyalty through repeating
purchase and recommendation, which helps retailers maintain their market share and
position. Consumers needs have become sophisticated and it is imperative that grocery
stores look for building long term and stable relationships with their customers as a way of
driving satisfaction up since satisfaction does translate later into loyalty and retention.
1.10.1 Formulation of problem
The service industry and in particular, the retail market has been vital to the world economy
and undergone the ever intensified competition under recent crisis and economic turn-down
period. The modern retail industry is booming across the world. Therefore, it is essential for
retailers to use strategies which focus on satisfying current customers. Supermarkets and
Hypermarkets have played an important role in food distribution since they appeared. For
modern life, the existence of traditional markets has been gradually replaced by their
descendent supermarkets and people depend on supermarkets for their basic grocery needs.
Shopping at the grocery store has become a big deal and it is one of the most important food
sources for many households. In addition, unlike previous studies that have focused more on
service industry such as bank, healthcare, beauty etc.the researchers considered a supermarket
setting which fully represents both product and service characteristics.
Customer satisfaction should be paramount for any firms marketing strategy. It is through
satisfaction of customers that firms remain afloat and prosper. Customers have become an
important part of any firm especially those in the grocery retail sector and many researchers
have also placed emphasis on the importance of customers. Customers are the purpose of
what we do and rather than depending on us, we very much depend on them. The customer is
not the source of a problem we should not perhaps make that customer should go away
because our future and our security will be put in jeopardy. That is the main reason why
organizations today are focusing on customer satisfaction and loyalty.

1.11 Availability and product quality management issues

Fast and consistent corrective action and preventive action (CAPA) processes are central to
maintaining regulatory compliance and improving the quality of your product and service.
The reality, however, is that many organizations today are struggling to establish an effective
product quality management system. Companies have geographically dispersed research &
development and manufacturing environments where information about product quality is

decentralized and inconsistent. This is further complicated by the fact that different locations,
business units, and departments use completely separate processes and tools to communicate
and resolve product deficiencies. Most of these are siloed and disconnected providing very
little visibility across the enterprise. These broken processes lead to re-work, recalls, and
regulatory issues.
The need to improve product quality management in the manufacturing and retail phases of
the product lifecycle is only half the equation. There is a greater benefit when companies can
analyse product quality factors, derive insights, and take action to improve designs very early
in the development process. Actions may include choosing reliable raw materials, picking
consistent suppliers, or standardizing processes that create better quality products. Agile
Product Quality Management for Process provides a collaborative environment across the
extended enterprise where teams dynamically update, access, and analyse information about
product quality from internal departments, customers, and suppliers. Centralized information
plus visibility creates a platform for next-generation products decision making.

1.11.1 Agile Product Quality Management

Quality Management for Process has a broad range of capabilities allowing companies to
maintain regulatory compliance and take rapid corrective action when necessary throughout
the product lifecycle. It is the only solution that systematically eliminates product
deficiencies at their root by closely linking product deficiency data to the enterprise product
record. The product record is the complete, up-to-date definition of a companys product,
including bills of materials, specifications, approved suppliers, processes, and procedures.
This means that Agile Product Quality Management for Process doesnt just provide the
ability to react and respond it exposes trends and drive quality decisions earlier in the process
to prevent many problems from eventually occurring.
Agile Product Quality Management for Process helps your company to improve its product
by aggregating and tracking product and process problems, customer complaints, and audits.
It also integrates critical product documents such as nonconforming material reports
(NCMR), corrective action requests (CAR), and supplier corrective action requests (SCAR).
By storing this information within the enterprise product record, it is directly linked to
research & development, sourcing, compliance and other critical business processes. As such,
companies can take appropriate, short-term corrective actionor, if necessary, take long-term
preventive action by adjusting the development and manufacturing processes to resolve and
eliminate deficiencies.
Teams within a companys research & development and direct procurement departments must
have the ability to view and monitor escalated customer complaints and supplier quality.
Agile Product Quality Management for Process provides this continuous visibility, making
critical quality and failure data available within the product record and enabling your research
and development and procurement departments to proactively formulate and source materials
that will yield more-reliable products. Agile Product Quality Management for Process
accelerates your design for quality initiatives by providing visibility to product issues at the
point of decision, i.e. selecting an ingredient/ packaging material, or further investing with a
given supplier.

Companies today face an array of regulatory and compliance issues, sometimes due to their
industry and products and other times due to their markets or geographical coverage. Agile
Product Quality Management for Process integrates compliance processes and data directly
with the product recordproviding audit trails, corrective action processes, and a single
source of truth around the quality issues of all products and components. With the integration
of auditable, closed-loop development and product change processes, companies can enable a
true design for compliance platform.
Agile Product Quality Management for Process is a key component of any enterprise quality
landscape. Working in coordination with ERP and CRM quality processes and context, Agile
PLM provides product-centric processes that enable closed loop management and
containment across the quality enterprise landscape. Agile Product Quality Management for
Process complements and enhances all quality initiatives regardless of the source of the issue
or the target for the resolution.
Statement of the problem
The customer is regarded as the most important factor in the industry and in the economy.
That is why the phrase Customers are always right is known to all employees in any
organisation to enable them to satisfy the customer at all times.
This has become a critically important factor in the buying decision of the customer. An
organisations strategy can be described as its overall plan or policy to achieve its goals
amongst the organisation goals is the goal to satisfy customers. It is possible,
even in the Age of the customer, to keep clients happy and run a successful business based
on high client retention through continual client satisfaction Customer satisfaction is a
customers response, or a judgement, to a product or service in terms of the extent to which
consumption meets expectations Lamb, Hair McDaniel, Bosh off & Terblanche. High
customer expectations and intensifying fierce competition are macro environment demands
surrounding the financial service industry.
These demands emphasise the 3 need for high quality performance and service excellence in
all aspects of the industry. Ardennes (1998) has shown that satisfying customer needs,
particularly in terms of all quality performance has been found lacking, despite the

2.2 Objectives of the research

Today, with the focus on sustaining current levels of demand, many managers realise that
their business must deliver goods and services that really do meet with the rising expectations
of their customers. The purpose of this study is to identify moderating variables that can offer
information about areas of improvement that industry could use to attract and retain their
customers.

to define customer satisfaction and how it will lead to attraction and retention in the
industry;
to define customer loyalty and its importance to attraction and retention in industry;
to identify the importance of relationship

To execute a secondary study relating to customer loyalty, relationship, customer

satisfaction, attracting customers and retaining customers;
To improve the industrys ways of attracting and retaining customers. The former will
lead to customer satisfaction which again will lead to increased profitability.
To investigate the importance of customer loyalty.
To accurately report on the findings of the above mentioned empirical investigation
and make conclusions;
To make recommendations on methods through which institutions can adapt these
variables to improve service quality, attract and retain customers in the branch of the
financial services industry so as to enable them to satisfy customers.

2.3 Need and relevance

Retailing, at one time, might have been all about location, location, location, but the 2015
retail industry will be significantly different from that of today. The U.S. shakeout in
conventional malls will continue with a throwback to neighbourhood shopping centres
catering to very specific tastes. Shopping will become more experiential; eating, being
entertained and living the shopping experience will take on prominence. The global market
will grow rapidly in our flat world, with markets such as China and India granting access to
the worlds best retailers. By 2015, the retail landscape by country will be dramatically
different from today. We envision a knowledge revolution in global markets where the
successful retailers will be transferring their best retail practices from one territory to another.
Adapting to the changing retail environment anticipated by 2015 will require more flexibility
than ever by industry players. While the outsourcing of basic goods is projected to grow in
the global economy, companies also are adopting approaches for the outsourcing of non-core
competencies e.g., new product development, software development, business process
outsourcing and talent sourcing across national boundaries. Cost efficiencies arent the only
benefits of pursuing strategic outsourcing managements attention is focused on key business
issues, time-to-market may be collapsed, new alliances may be formed, and an understanding
of the inner workings of developing and emerging market cultures may be learned. We
believe that leading retail companies will be embracing this approach as we move toward
2015.
In order to reduce the many obstacles that naturally occur between retailers and suppliers, and
to overcome a lack of partnership between the two, the retail industry is moving toward
creating greater beneficial value through targeted collaboration. To achieve better alignment
of goals and drive greater efficiency, retailers and suppliers are becoming trading partners,
sharing details and processes on such things as product launches, trade promotions, inventory
management and supply chain operations. As
Collaborative strategic efforts have been proven to deliver joint value, we believe this trend
will continue and increase in importance during the next several years.
Technology is greatly contributing to improved operational efficiency for retailers, but the
importance of technology to future business success will become greater. There is, and will
be, an overwhelming need to effectively manage the business through business intelligence.

Demand-based management can succeed only with real-time data information delivered
through increasingly newer forms of technology delivery systems. As a result, retailing will
become more personal, and customer data and relationships will become a key asset for
retailers.
Information sharing will reach new levels in the industry. As the retail industry moves to
implement an intelligent value chain based on the exchange of data across the entire supply
chain resulting in greater efficiencies and just-in-time inventory management the need for
retailers to protect and provide security around customer information will be paramount.
Should personal data on product purchases, preferences, styles, etc., be used without
permission, customers will deny retailers the use of this data by disallowing the sharing of
personal information. The security of personal purchase data will become a critical retail
issue going forward.
With the accelerating pace of change and transformation expected for the retail industry
through 2015, we are excited about the prospects for the future retail marketplace. Perhaps,
more than in past years, the convergence of a number of anticipated drivers will fashion a
new retail environment that will build upon the strengths of the retail industry, yet encompass
new approaches, models, processes and technologies. These advances will change the retail
landscape and add more excitement to a business that thrives on enticing customers, through
innovation and personal appeal, to purchase goods and services. Branding ones business to
deliver a unique selling experience will continue to remain a highly important ingredient for
long-term success.