RETAIL MANAGEMENT

Unit — III
Store Location and Layout: Introduction, Target Market and Retail Format, Gauging Growth
Opportunities, Building a Sustainable Competitive Advantage, the Strategic Retail Planning
Process, Differentiation Strategies, Positioning Decisions,

Retail Pricing- Introduction, Establishing Pricing Policies, Factors Influencing Pricing, Pricing
Strategies, Psychological pricing, Mark-up and Mark-down Pricing

STORE LOCATION AND LAYOUT: INTRODUCTION

STORE LOCATION AND LAYOUT

Store Location:- Retail stores should be located where market opportunities are best. After a
country, region city or trade area, and neighborhood have been identified as satisfactory; a
specific site must be chosen that will best serve the desired target market. Site selection can be
the difference between success and failure. A through study of customers and their shopping
behavior should be made before a location is chosen. The finest store in the world will not live
up to it potential if it is located where customers cannot or will not travel to shop. The primary
role of the retail store or center is to attract the shopper to the location. Alternatively, retailers
must take the store to where the people are, either at home or in crowds. Examples of taking the
store to where the crowds are include airport location, theme parks and vending machines. Every
retail store strive for its competitive advantage. For some stores, it is price. For others, it is
promotional expertise of the special services that are offered. Despite any differences among the
various stores that may competing for the shopper’s penny location offers a unique asset for all
stores because once a site is selected, it cannot be occupied by another store. This advantage,
however, points to the importance of location analysis and site selection. Once a facility is built,
purchased, or leased, the ability to relocate may be restricted for a number of years. In short,
location and site selection is one of the most important decisions made by a retail owner.

Location is the most important ingredient for any business that relies on customers. It is also one
of the most difficult to plan for completely. Location decisions can be complex, costs can be
quite high, there is often little flexibility once a location has been chosen and the attribute of
location have a strong importance on retailers overall strategy.
Location: Where to physically locate a retail store may help or hinder store traffic. Well placed
stores with high visibility and easy access, while possibly commanding higher land usage fees,
may hold significantly more value than lower cost sites that yield less traffic. Understanding the
trade-off between costs and benefits of locations is an important retail decision.

Importance of Location in Retail Business

Retail store location is also an important factor for the marketing team to consider while setting
retail marketing strategy. Here are some reasons:

 Business location is a unique factor which the competitors cannot imitate. Hence,
 It can give a strong competitive advantage. Selection of retail location is a long-term
decision.
 It requires long-term capital investment.
 Good location is the key element for attracting customers to the outlet.
 A well-located store makes supply and distribution easier.
 Locations can help to change customers’ buying habits.

A location decision is influenced by the flow of pedestrian and vehicular traffic, which determine
the footfalls in a retail store. Footfalls refer to the no. of customers who visit a store in a defined
time period.

Adopting and adapting are a few basic store layouts can unlock unrealized sales potential.

Straight Floor Plan

Straight Floor Plan

The straight floor plan is an excellent store layout for most any type of retail store. It makes use
of the walls and fixtures to create small spaces within the retail store. The straight floor plan is
one of the most economical store designs.

The downside to this plan is the sight lines in the store. Depending on the front entrance, it may
be difficult for a customer to see the variety of merchandise you have. Customers might not
quickly find the products they want to purchase. 

Diagonal Floor Plan

Diagonal Floor Plan.   

The diagonal floor plan is a good store layout for self-service types of retail locations. It offers
excellent visibility for cashiers and customers. The diagonal floor plan invites movement and
traffic flow to the retail store.

This plan is more "customer friendly." Unlike a straight plan, which can feel like a maze, this
floor plan offers the customer a more open traffic pattern.

Angular Floor Plan

Angular Floor Plan

The angular floor plan is ideal for high-end specialty stores. The curves and angles of fixtures
and walls makes for a more expensive store design. However, the soft angles create better traffic
flow throughout the retail store.

This design has the lowest amount of available display space, so it is best for specialty stores
who display edited inventories versus large selections. 

Geometric Floor Plan

Geometric Floor Plan.   

The geometric floor plan is a suitable store design for clothing and apparel shops. It uses racks
and fixtures to create an interesting and out-of-the-ordinary type of store design without a high
cost.

This plan makes a statement about the products the store sells and the customers it wants to
attract. So make that statement speaks to the message you want to associate with your brand. 

Mixed Floor Plan

Mixed Floor Plan.   

As you might have guessed, the mixed floor plan incorporates the straight, diagonal and angular
floor plans to create the most functional store design. The layout moves traffic towards the walls
and back of the store. 

It is a solid layout for most any type of retailer. Some of the most-admired examples of customer
experience can be attributed to stores that have multiple shapes, elevations, and designs. This
appeals to a larger array of customers. 

TARGET MARKET AND RETAIL FORMAT

TARGET MARKET

What is a Target Market?

A target market is a group of consumers or organizations most likely to buy a company’s
products or services. Because those buyers are likely to want or need a company’s offerings, it
makes the most sense for the company to focus its marketing efforts on reaching them.

Definition: Target market is the end consumer to which the company wants to sell its end
products too. Target marketing involves breaking down the entire market into various segments
and planning marketing strategies accordingly for each segment to increase the market share.

Description: In simple words, not all products can be consumed by all customers and each
product has a different set of consumers who want to purchase the product. In order to attract a
particular segment of the market, the company at times, modifies the product accordingly.
Creating the target market involves conceptualizing the product, understanding the need of the
product in a market, studying its target audience etc. Target marketing would revolve around
deploying marketing techniques for a particular segment of markets which could be key to attract
new customers, expand business opportunities across geographies and expand distribution
network to widen the reach.

There are various steps involved in defining the target market. The first is to understand the
problem of a customer whom you are addressing. Once it is done, the customers can be identified
who are interested in that product. For example, you make water purifiers – so you address the
problem of contaminated water quality. We know that farm houses do not have a regular water
connection and the water they get from underground is hard. So, there is a wide opportunity for
water-purifier makers to enter into this segment and tap the market. The next step is to
understand your customer according to the region, income level, etc. Always think about the
market, know your competition and the pricing of the product. It will help you in creating a
benchmark.

There are two important features, which the company should always consider before it decides to
capture a separate market segment. First is the attractiveness of the segment, which means that it
has less competition, high margin business etc. The second is that it falls in line with the
company’s objective, vision etc.

GAUGING GROWTH OPPORTUNITIES

Growth is an very important in business. And, while it may be tempting to cynically question
whether growth should be an objective in its own right, it’s important to understand that growth
has two benefits. The first is that firms often access capital through loans or other financial
instruments. Thus, growth is required to repay lenders and investors with interest. In doing this,
firms maintain access to capital, which funds new initiatives that drive innovation. Second,
growth is a reflection that the firm is meeting customer needs. Thus, there’s a virtuous cycle:

 Firms access to innovate

 Innovation attracts customers, who increase their spend with the firm
 The firm repays its investors with interest before accessing new lines of capital to invest
in innovative strategic initiatives to service customers better

Growth is a positive and reflects that the firm is delivering customer value. Yet, there are many
paths to take to drive growth. At its most basic level, they can be evaluated as penetration,
expansion, development, and diversification. The easiest way to think about this is by imagining
a simple matrix.

Firms can grow with their current customer target and current business by increasing penetration
levels. For retailers this means capturing a larger share of their shoppers’ spending by increasing
the frequency of trips or size of transactions. What’s important to understand here is that the firm
stays within its current scope of capabilities, and customer target.

Firms can also choose to grow by targeting new customers with their current offerings. In retail,
we’d typically think of expansion as opening new stores or outlets in a new market. Kroger is a
good example of this growth strategy, as they have acquired other supermarket chains like
Dillon’s, Fry’s, Smith’s, and others to extend their geographic footprint across the country.

Firms may choose to grow through development, such as servicing their current target with a
new business. In retail, we’d consider an expansion of services like online ordering or at-home
delivery of the creation of a new format. Wal-Mart provides a number of good examples of this.
Their acquisition of jet.com gave Wal-Mart new capabilities in e-commerce, accelerating what
they could have developed on their own. Similarly, their test of multiple formats like Wal-Mart
discount stores, SuperCenters, Neighborhood Markets and Wal-Mart Express reflects an effort to
satisfy their current target with slightly new businesses.

The final way a firm can choose to grow is through diversification: targeting new customers with
a new business. The best examples of this within in retail are outside of the food space. For
example, in fashion retail, some brands own manufacturing and retailing functions; they are
vertically integrated. This is more difficult to do in food retailing because the product assortment
is not necessarily unique across outlets. That is, a can of Campbell’s Condensed Tomato Soup is
the same whether it is found in a Kroger or a Target or a Piggly Wiggly store. That said,
diversification can be a viable strategic growth strategy, especially if a retailer has the means to
develop and produce its own store brand/private label items.

Growth Strategies and It’s Types (With Diagram)

Growth strategies are basically about decisions related to allocating available resources among

different target markets and retail formats, transferring resources from one set of merchandise to

others and managing and nurturing a portfolio of business in such a way that the overall

organizations objectives are obtained.

A retailer has four types of growth strategies to pursue, as shown below:

1. Market Penetration

2. Market Expansion

3. Retail Format Development

4. Diversification
The horizontal axis indicates the synergies between a retailer’s current retail mix and the growth

opportunity. ‘Retail mix’ implies that whether the present format is capable enough to grab the

prevalent opportunities or needs to be changed. On the other side, vertical axis represents the

synergies between the retailer’s current markets and growth opportunity markets. It implies

whether opportunities exist in the retailer’s current trading area or not.

1. Market Penetration:

A market penetration opportunity exists when a retail company penetrates its existing market

with same product range but with attractive offers. Under market penetration, retailers usually try

to attract competitors’ customers or those who come to store but do not buy merchandise.

The underlying objectives are:

(i) To increase/broaden the existing customer base

(ii) To gain competitive edge

(iii) To restructure a market that has reached its maturity stage in its product life cycle

(iv) To increase the usage of merchandise offered by its existing customers — for example, by

offering loyality programmes.

2. Market Expansion:

A market expansion opportunity exists when a retailer sells the same product range with no/some

alteration in the new market. It means that merchandise will remain the same but will be

marketed to a new customer group.

How to expand market:

(i) By searching a new market to sell, either by exporting or by entering into a totally new

market.

(ii) By introducing new product packaging or dimensions with regard to colour and size.

(iii) By using new means of distribution and selling.

(iv) By developing different price policies for different customer groups.

3. Format Development:

Retail format opportunity is the name given to a strategy where a business offers a new retail

format with some sort of new retail mix to the same target market. For example, Amazon.com

began selling electronic items such as CDs, videos, pen drives and other electronic items in

addition to books and literature.

In India, one example of retail format development opportunity is when ‘Big Bazaar’, a leading

retailer started providing home services like plumber, electrician, furniture, kitchen interiors

besides general merchandise. The main advantage of such retail strategy is that instead of

developing a new retail format, here retailers offer new goods and services in addition to their

regular merchandise that comparatively involves less investment.

4. Diversification:

In retailing, diversification is a much used and much talked about set of strategies. A

diversification strategy may involve related or unrelated dimensions. Essentially, diversification

opportunity involves a substantial change in the business definition – individually or jointly in

terms of customer functions, alternative technologies or customer groups.

Building a Competitive Advantage

Regardless of the industry, market or segment in which a firm

competes, their over-arching goal is to create sustainable competitive
advantage.

Sustainable competitive advantage means that a firm has an edge

over their competition, which competitors cannot easily overcome and
is thus enduring over time. These advantages can be in intellectual
property, including technology leadership and strategic assets, scale,
or barriers to entry. They allow the firm to compete on differentiation or
cost in markets spanning from niche to mass.

Note: competitive advantages support HOW a firm competes. They

are not WHAT a firm does to compete. Think about Wal-Mart, for
example. One might argue that low prices are their competitive
advantage. However, other retailers can and do reduce their prices to
match Wal-Mart. Instead, Wal-Mart has an unmatched supply chain,
focused on reducing costs. This focus extends from vendor
relationships and negotiation through the distribution network to store
operations and to the advertising. That is, at every step of the supply
chain Wal-Mart seeks to reduce and remove costs. Further, they
communicate this advantage to their customers; their brand is
synonymous with value.

Thus, a competitor can’t simply reduce costs to compete with Wal-

Mart because Wal-Mart’s competitive advantage is the infrastructure
that supports the entire supply chain, which is focused on cost
reduction. Further, Wal-Mart’s price leadership is part of their branding
and well understood by consumers. So, while a competitor may be
able to match prices, they have a different cost basis than Wal-Mart
and thus reduce their own margins in reducing costs. Over time, this
makes them less competitive because they do not have the resources
to invest in their business to match Wal-Mart’s capabilities.

Think about Amazon as another example. As you’ve read, there is a

heightened interest in convenience among consumers. So, it might be
compelling to think that Amazon’s competitive advantage is that they
offer at-home delivery. However, this higher level of service to support
convenience is an output of their true strategic advantage–impressive
infrastructure to support efficiency in transactions and fulfillment.

Think about the wide breadth of products available at Amazon. Their

algorithm recommends adjacent and complementary items. Their
extensive network of warehouses store, pick, and package products.
Their relationships with logistics partners like UPS and the United
Stated Postal Service support efficient delivery.

Hopefully, you see that delivery isn’t Amazon’s competitive advantage.

Instead, their edge is infrastructure through their web interface, their
algorithm, their network of warehouses, and their relationships with
carriers. These support transaction and fulfillment, which enables
them to provide an expansive set of products and deliver them at very
low costs.

Firms may possess powerful internal strengths like patents or

customer contracts that would be costly or time intensive for a
competitor to replicate. Or, they may compete with a robust
distribution system that is so expansive that competitors cannot match
it. Or, they may operate in a market so concentrated that they already
possess the bulk of the market share or potential, making it
unattractive to other competitors. Regardless, these advantages
inform HOW the firm competes. When the advantages are
sustainable, they create an on-going edge that competition cannot
bridge.