Retail Management

What is retailing?

• Retail - from the word retaillier means “to cut a piece’’ or “to break bulk”

• Retailing: all the activities involved in selling goods or services to the final
consumers for personal, non business use.

2
What is retailing?

• Retailing - matching consumer’s demand with supplies of different manufacturers.

• Retailing - activity that ensures that customers derive maximum value from the
buying process
• Retailers create value through a combination of

• service,

• price,

• accessibility and

• experience for their customers who pay for these

• Retailing is high intensity competition industry.

• The reasons for its popularity:

• ability to provide easier access to variety of products,

• freedom of choice and

• many services to consumers.

• Retailer: a person, agent, agency, company or organization instrumental in providing
the goods, merchandise, or services to the ultimate consumer.
Issues in Retailing
• How to:

• best serve customers while earning a fair profit?

• stand out in a highly competitive environment (consumers - have many choices)?

• grow business while retaining a core of loyal customers?

The Philosophy

Retailers can best address these questions by fully understanding and

applying the basic principles of retailing, as well as the elements in a
well-structured, systematic, and focused retail strategy.
Retailing Distribution Channel

• Distribution channel - facilitates product movement from the point of production to the
point of sale.
 A Typical Channel of Distribution

Manufacturer
Retailer

Final
Wholesaler
Consumer
Retailer’s Role in the Distribution Process
Multi-Channel Retailing
A retailer sells to consumers through multiple retail formats:

▪ Web sites

▪ Physical stores
Marketing Activity in Retailing

• Customers making purchase decisions at the store,

• retailing – not just a part of distribution function.

• Marketing activity that combines distribution and communication.

• From a distribution-oriented perspective - physical aspects of merchandise availability

and supply chain play an important role, to

• Consumer value oriented perspective for attaining sustainable competitive advantages.

Linking Marketing and Retailing
• Marketing Concept:
Customer centered, companywide approach to strategy development and
implementation; it is value-driven; and it has clear goals.

• Retailing Concept:

▪ Customer Orientation

▪ Coordinated effort

▪ Value Driven

▪ Goal Orientation
Retailing Concept
• Four principles that form the retailing concept, which should be understood
and applied by all retailers

Customer
orientation

Coordinated effort
Retailing Retail
Concept Strategy

Value driven

Goal orientation
Relationship Management among Retailers and Suppliers

• Disagreements may occur in the following areas:

▪ control over channel

▪ profit allocation

▪ number of competing retailers

▪ product displays

▪ promotional support

▪ payment terms

▪ operating flexibility
Distribution Types
• Exclusive: suppliers make agreements with one or few retailers, designating such
retailers as the only ones to carry certain brands or products within a specified
geographic area.

• Intensive: suppliers sell through as many retailers as possible.

• Selective: suppliers sell through a moderate number of retailers.

Comparing Exclusive, Intensive, and Selective Distribution
Characteristics of retailing
• Three factors that distinguish retailing from other type of businesses

Small Impulse
average sale purchases

Retailer’s
strategy

Popularity of
stores
Retail Strategy
• An overall plan for guiding a retail firm

• Influences the firm’s business activities

• Influences firm’s response to market forces

Six Steps in Strategic Planning
1. Define business type in terms of goods or services

2. Set long term and short term objectives

3. Determine target market

4. Devise standard operating procedures

5. Follow an integrated strategy path

6. Evaluate performance and take corrective actions

Functions Performed by Retailers

• Holding inventory

• Providing services

• Providing an assortment of products and services

• Breaking bulk
Functions of retailer
• Customer point of view: provides goods, required assortment, required place and
time

• Role of a retailer is to provide real added value or utility to the customer.

• This comes in different perspectives.

1) Form: utility regarding the form of a product that is acceptable to the customer.

2) Time: preferable shopping hours

3) Place: By being available at a convenient location, he creates place utility.

4) Ownership: Finally, when the product is sold, ownership utility is created.

5) Arranging Assortment

6) Breaking Bulk: retailers break bulk into smaller quantities

7) Holding stock: Retailers maintain an inventory that allows for instant availability of
the product to the consumers.

8) Promotional support: small manufacturers can use retailers to provide assistance

Customer Service
• Activities undertaken besides selling goods and services includes:

• Store hours

• Parking

• Shopper-friendliness

• Credit acceptance

• Salespeople
Relationship Retailing
• Retailers seek to establish and maintain long-term bonds with customers, rather than
act as if each sales transaction is a completely new encounter

• Concentrate on the total retail experience

• Monitor satisfaction

• Stay in touch with customers

Effective Relationship Retailing
• Use a “win-win” approach

• It is easier to keep existing customers happy than to gain new ones

• Develop a customer database

• Ongoing customer contact is improved with information on people’s attributes

and shopping behaviors
Growth and Development of Retail in
India
 Evolution of retail in India

Established New
formats Formats
Traditional Exclusive retail outlets
Formats Kirana shops
Convenience/ Hypermarket
Haats Internal retail
Melas department stores
PDS/ Malls / Specialty Malls
Mandis etc. Multiplexes
fair price shops
Pan/ Beedi shops Fast food outlets
Service galleries
Evolution of Retail in India
Pre 1990s 1990-2005 2005-2010 2010 Onwards
• Pure-play retailers • Substantial • Cumulative FDI inflow from April 2000 to
• Manufacturers
realised the investment March 2020 in the retail sector reached US$
opened their own
potential of the commitments by 2.12 billion
outlets
market large Indian • Retail 2020: Retrospect, Reinvent, Rewrite
• Most of them in corporate • Movement to smaller cities and rural areas
apparel segment • Entry in food and • More than 5–6 players with revenues over US$
general merchandise 1 trillion by 2020
category • Large-scale entry of international brands
• Pan-India expansion • Approval of FDI limit in multi-brand retail up
to top 100 cities to 51 per cent
• Repositioning by • Rise in private label brands by retail players
existing players • Sourcing and investment rules for supermarkets
were relaxed
• E-commerce has emerged as one of the major
segments
• 100 per cent FDI in single brand retail under the
automatic route
Retail in India
• The Indian retail industry - organized and unorganized sectors.

• Largely unorganized - consists of small independent, owner-managed shops

• Most Indian shopping takes place in open markets and millions of independent
grocery shops.

• Unaccounted number of low-cost kiosks (tea stalls, snack centre, barbershops etc.)
and pushcarts/mobile vendors
Growth Drivers for Retail in India

Favourable
demographics

Easy consumer Rise in

credit and income and
increase in purchasing
quality products Growth power
Drivers
Change in
Brand
consumer
consciousness
mindset
Strategies Adopted
• Strong distribution and logistic network

• Expansion

• Omni-channel retailing

• Collaborative growth (P&G India launched Innovation Sourcing Fund)

• Offering discounts

• Offering value added Services

Strategies Adopted
• Leveraging Partnerships

• Strong supply chain

• Joint Ventures (Reliance Brands Ltd. formed a joint venture with Bally - Swiss luxury brand)

• Changing the perception

• Hyper-Personalisation based on

• behavioral data, brands performance, demographic preference and pin codes as marketing
strategy to boosts sales
Key Challenges Faced by Indian Retailing
▪ Bottlenecks in supply chain

▪ Limited assortments and increased costs of sourcing.

▪ Legal issues – operating for longer hours and utilization of part-time employees.

▪ Inadequate political or bureaucratic support.

▪ High Real estate cost – due to constrained supply - major factor inhibiting growth of
large format stores.
Key Challenges Faced by Indian Retailing
▪ Challenge from the Kirana store who practices CRM diligently,

• open longer hours,

• stock most of the goods required by the residents in a given area,

• provide credit,

• home delivery and

• in many cases source products that they do not stock, at no extra cost.
Key Challenges Faced by Indian Retailing

▪ Not willing to pay a premium - shopping experience - by the large format retailers.

▪ High costs for the organized sector as compared the unorganized sector (is mostly owner
operated, has negligible real estate and labor costs and little or no taxes to pay).

▪ Correct merchandise mix is critical to retailing.

▪ Keeping inventory low is a challenge.

 Building and Sustaining
Relationships in Retailing
Overview
“value” & “relationship”

• Retailer offers a good value for the money

• Want to do business with that retailer

What is Value?
Channel Perspective Customer Perspective

• Value chain - series of activities • Perception of the value chain.

• Benefits vs. price paid.

Customer Value

• Delivered value = TCV - TCC

Retail Value Chain
• Represents the total bundle of benefits offered to consumers through a channel of
distribution
• Store location and parking, retailer ambience, customer service, brands/products carried, product
quality, retailer’s in-stock position, shipping, prices, image, and other elements
Potential Pitfalls to Avoid in Planning a
Value-Oriented Retail Strategy
• Planning value solely from a price perspective
• Providing value-enhanced services that customers do not want or will
not pay extra for
• Competing in the wrong value/price segment
• Believing augmented elements alone create value
• Paying lip service to customer service
A Value-Oriented Retailing Checklist
• Is value defined from a consumer perspective?
• Does the retailer have a clear value/price point?
• Is the retailer’s value position competitively defensible?
• Are channel partners capable of value-enhancing services?
• Does the retailer distinguish between expected and
augmented value chain elements?
• Has the retailer identified potential value chain elements?
• Is the retailer’s value-oriented approach aimed at a distinct
market?
• Is the retailer’s value-oriented approach consistent?
A Value-Oriented Retailing Checklist
• Is the retailer’s value-oriented approach effectively
communicated?
• Can the target market clearly identify the retailer’s
positioning?
• Does the retailer’s positioning consider sales versus
profits?
• Does the retailer set customer satisfaction goals?
• Does the retailer measure customer satisfaction levels?
• Is the retailer careful to avoid the pitfalls in value-
oriented retailing?
• Is the retailer always looking out for new opportunities
that will create customer value?
Three Aspects of Value-Oriented Retail Strategy

Expected

Augmented

Potential
Customer Service

• Expected customer service • Augmented customer service

is the service level that includes the activities that enhance the
customers want to receive shopping experience and give retailers
from any retailer such as a competitive advantage.
basic employee courtesy.

Potential retail strategy - elements not yet perfected by a competing firm in the retailer’s category
Retailing Relationships
Retailer Relationships
In relationship retailing four factors to be considered

• Customer base

• Customer service

• Customer satisfaction

• Loyalty programs
Classifying Customer Services
Customer Service Strategy: Fundamental Decisions

• What customer services are expected and what customer services are augmented
for a particular retailer?
• What level of customer service is proper to complement a firm’s image?
• Should there be a choice of customer services?
• Should customer services be free?
• How can a retailer measure the benefits of providing customer services against
their costs?
• How can customer services be terminated?
 Typical Customer Services
• Credit • Gift certificates

• Delivery • Trial purchases

• Alterations/ Installations • Special sales

• Packaging/gift wrapping
• Extended store hours
• Complaints/Returns
handling • Mail/phone orders
Miscellaneous Customer Services
• Bridal registry • Restrooms

• Interior designers • Restaurants

• Personal shoppers • Babysitting

• Ticket outlets • Fitting rooms

• Parking • Beauty salons

• Water fountains • Shopping bags

• Baby strollers • Information

Turning Around Weak Customer Service

Focus on Empower Frontline

Customer Concerns Employees

Express Sincere Show That You Are

Understanding Listening

Apologize and Rectify

the Situation
Turning Around Weak Customer Service
Loyalty Programs
• Consumer loyalty (frequent shopper) programs reward a retailer’s best customers,
those with whom it wants long-lasting relationship.
Rewards Program Categories
• Economic

• Hedonistic

• Social-relational

• Informational

• Functional
The Loyalty Ladder
• Tool for marketing communicators – works on the idea that consumers can be
moved along a continuum of loyalty using number of IMC techniques.
Channel Relationships
• Within a value chain, the members of the distribution channel jointly represent a
value delivery system.

• All parties that develop, produce, deliver, sell and service particular goods and
services.

• Strong positive channel relationships - members of a value delivery system better

serve each other and the final consumer.
Elements Contributing to Effective Channel Relationships
Three Kinds of Service Retailing

• Rented-goods services - consumers lease and use goods for specified periods of
time.

• Owned-goods services - goods owned by consumers are repaired, improved, or

maintained.

• Non-goods services - whereby intangible personal services are offered.

Four Characteristics of Services Retailing

• Intangibility

• Inseparability

• Perishability

• Variability
Managing Unique Characteristics of Service Retailing

Intangibility
• Display/distribute customer testimonials.
• Explain in detail how the service will be performed and what the expected results
will be.
• Have strong, clearly stated guarantees of performance.
• Be competitively priced.
Managing Unique Characteristics of Service Retailing
Inseparability
• Prominently promote major points of distinction with competition
• At the time a service is completed, encourage customers to schedule appointments
for a follow-up service visit or call.
• If possible, rotate employees who interact with customers each time they buy a
service so that customers do not leave if a popular employee goes elsewhere.
• Call customers after a service is performed to demonstrate the firm’s interest in
them.
Managing Unique Characteristics of Service Retailing

Perishability
• Carefully plan each work day to optimize service visits or calls.
• Be prepared to do alternative tasks if the weather is bad.
• Offer appropriate other services that are popular during off-season.
• Be willing to work longer hours during peak periods and fewer hours during
slower times.
Managing Unique Characteristics of Service Retailing
Variability
• Develop and implement systematic procedures for performing each service—
including a series of steps to be undertaken every time the same service is requested.
• Train employees well.
• Computerize as many steps as possible, such as inputting customer information,
verifying that each step has been completed, and billing.
• Regularly observe employee actions to be sure they are done correctly.
Factors Affecting Consumer Perceptions of Service Retailing
Technology and Relationships in Retailing
• Technology - beneficial to retailing relationships - if it facilitates a better
communication flow
• between retailers and their customers,
• as well as between retailers and their suppliers.
Ethical Performance And Relationships In Retailing

Ethical challenges fall into three interconnected categories:

• Ethics relates to the retailer’s moral principles and values.

• Social responsibility involves acts benefiting society.

• Consumerism entails protecting consumer rights.

Analysing Consumer
Behaviour
Rise of Consumer Democracy
• Change in the consumer markets - “rise of consumer democracy”.

• More choices than ever before – technology and development of global markets,.

• Marketers have to work harder to make sure that consumer choose their products.
Study of Consumer Behaviour
1. Objects Of Purchase

2. Objectives of purchase

3. Organization of purchase

4. Operations of purchasing

5. Occasions for purchase

6. Outlets for purchase

Consumer Behaviour
• Consumer Behaviour is defined as

“The behaviour that consumers display in searching for, purchasing, using,

evaluating and disposing of products and services that they expect will satisfy
their needs”

• Consumer Behaviour focuses on how individuals make decisions to spend their

available resources
• Time
• Money
• Effort

on consumption related items

Importance of Consumer behaviour:
• Ever increasing intensifying competition.

• More aggressive competitors emerging with greater frequency.

• Changes basis of competition.

• Geographic sources of competition are becoming wider.

• Niche attacks are becoming frequent.

• Pace of innovation is rapid.

• Price competition becoming more aggressive.

• Product differentiation is declining.

Understanding Retail Consumer
Retail Consumer Behavior
Introduction
• Success of retail strategy - how well a firm identifies and understands its customers

• What strategy mix they use to appeal the consumers?

• This implies:
• Identifying consumer characteristics

• Needs

• Attitudes

• Recognizing how people make decisions

• Devising proper target market plan

• Environmental factors that affect purchase decisions

What Makes Retail Shoppers Tick
Consumer Demographics
• Consumer data that is objective, quantifiable, easily identifiable, and measurable.
Consumer Lifestyles
• Ways in which consumers and families live and spend time/money

• Based on social & psychological factors, and are influenced by demographic factors

• Retailer should be able to determine the lifestyle attributes of its own target market
Understanding Consumer Lifestyles: Social Factors

Reference
Culture
Groups

Social Time
Class
Lifestyle Utilization

Household Family
Life Life
Cycle Cycle
Information Gathering and
Processing in Retailing
How Information Flows in a Retail Distribution
Channel

Information Information Information

and the and the and the
Supplier Retailer Consumer
Retail Information System (RIS)

▪ Anticipates the information needs of retail managers

▪ Collects, organizes, and stores relevant data on a continuous basis

▪ Directs the flow of information to the proper decision makers

A Retail Information System
Data-Base Management

❖ A major element in an RIS

❖ System gathers, integrates, applies, and stores information in related subject areas
Retail Data-Base Management in Action
Data Mining and Micromarketing

❖ Data mining is the in-depth analysis of information to gain specific insights

about customers, product categories, vendors, etc.

❖ Micromarketing is an application of data mining whereby retailers use

differentiated marketing and develop focused retail strategy mixes for specific
customer segments
The Marketing Research Process in Retailing

Define issue or problem to be researched

Examine secondary data

Generate primary data

Analyze data

Make recommendations

Implement findings
Marketing Research in Retailing

The collection and analysis of information relating to specific issues or problems

facing a retailer
Secondary Data

Advantages Disadvantages

• Inexpensive • May not suit current study

• Fast • May be incomplete

• Several sources and perspectives • May be dated

• Generally credible • May not be accurate or credible

• Provides background information • May suffer from poor collection

techniques
Secondary Data Sources

Internal External

• Sales reports • Data bases

• Billing reports • Academic Search Premier

• Inventory records • Government

• Performance reports • Retail Trade

• Public records
Primary Data

Advantages Disadvantages

• Collected for specific purpose • May be more expensive

• Current • Tends to be more time consuming

• Relevant • Information may not be acquired

• Known and controlled source • Limited perspectives

Primary Data Decisions
• In-house or outsource?
• Sampling method?
• Data collection method?
Survey Methods
• In person

• Over the telephone

• By mail

• Online

• Disguised

• Non-disguised
Mystery Shoppers

• Retailers hire people to pose as customers in order to evaluate aspects of the store
environment
Experiments

• An experiment is a research method in which one or more elements of a retail

strategy mix are manipulated under controlled conditions.
Simulation

• A simulation is a type of experiment whereby a computer program is used to

manipulate the elements of a retail strategy mix rather than test them in a real-life
setting.
Strategic Planning in
Retailing
Retail Strategy
• The overall plan or framework of action that guides a retailer

• Outlines mission, goals, consumer market, overall and specific activities, and
control mechanisms
Elements of a Retail Strategy
Organizational Mission
Retailer’s commitment to a type of business and to a distinctive role in
the marketplace.
Ownership and Management Alternatives

• Sole proprietorship

• Partnership

• A corporation
Kinds of Retail Goods and Service Establishments
• Durable Goods Stores
• Nondurable Goods Stores
• Service Establishments (Personal):
• Service Establishments (Amusement):
• Service Establishments (Repair):
• Service Establishments (Hotel):
Objectives
• After situation analysis, a retailer sets objectives, the long-run and short-run
performance targets it hopes to attain.

• Mould strategy and translates the organizational mission into action.

• A firm can pursue goals related to one or more of these areas:

• sales,
• profit,
• satisfaction of publics, and
• image.
Sales
• Sales objectives are related to the volume of goods and services a retailer sells.

• Growth, stability, and market share are the sales goals most often sought.

• Some retailers set sales growth as a top priority.

• They want to expand their business.

• There may be less emphasis on short-run profits.

Profit
• With profitability objectives, retailers seek at least a minimum profit level during a
designated period, usually a year.

• Firms with large capital expenditures in land, buildings, and equipment often set
return on investment (ROI) as a goal.
Satisfaction of Publics
• Retailers typically strive to satisfy their publics: stockholders, customers, suppliers,
employees, and government.
Image and Positioning

An image represents how a given retailer is perceived by consumers and others.

Positioning Approaches

• Mass merchandising - retailers offer a discount or value-oriented

image, a wide or deep merchandise selection, and large store facilities.

• Niche retailing - retailers identify specific customer segments and

deploy unique strategies to address the desires of those segments
rather than the mass market.
Selected Retail Positioning Strategies
Identification of Consumer Characteristics and Needs
• Target market - The customer group sought by a retailer.

• Three techniques:

• Mass marketing

• Concentrated marketing

• Differentiated marketing
 Strategic Implications of Target Market Techniques
Strategic Mass Marketing Concentrated Marketing Differentiated Marketing
Implications
Retailer’s Near a large population Near a small or medium Near a large population
location base population base base
Goods and Wide selection of Selection geared to market Distinct goods/services
service mix medium-quality items segment—high- or low- aimed at each market
quality items segment
Promotion efforts Mass advertising Direct mail, E-mail, and Different for each segment
subscription segmented social media
Price orientation Popular prices High or low High, medium, and low—
depending on segment
Strategy One general strategy for a One specific strategy Multiple specific
large homogeneous directed at a specific, strategies, each directed at
(similar) group of limited group of customers different (heterogeneous)
consumers groups of consumers
Developing an Overall Retail Strategy
Controllable Variables: Uncontrollable Variables:

• Store location • Consumers

• Managing business • Competition

• Merchandise management • Technology

and pricing
• Economic conditions
• Communicating with
customer • Seasonality

• Legal restrictions
The Impact of the Legal Environment on Retailing
• Store Location
• zoning laws - location choices and the type of facilities constructed.

• blue laws – restriction - days and hours of operating stores

• environmental laws - limit the use of certain sites

• direct selling laws - protect consumer privacy

• local ordinances - involve fire, smoking, outside lighting, capacity, and other rules

• leases and mortgages - require parties to abide by stipulations in tenancy documents

The Impact of the Legal Environment on Retailing
• Managing the Business
• licensing provisions

• personnel laws - non-discriminatory hiring, promoting, and firing of employees

• antitrust laws - limit large firm mergers and expansion

• franchise agreements - abide by various legal provisions

• business taxes - include real-estate and income taxes

• recycling laws - mandate that retailers participate in recycling for various materials
The Impact of the Legal Environment on Retailing
• Merchandise Management and Pricing
• trademarks
• merchandise restrictions
• product liability laws
• sales taxes
• unit-pricing laws
• collusion laws
• sale prices
• price discrimination laws
The Impact of the Legal Environment on Retailing
• Communicating with the Customer
• truth-in-advertising and selling laws

• truth-in-credit laws

• telemarketing laws

• bait-and-switch laws

• inventory laws

• labeling laws
Factors Affecting the Success of a Global Retailing Strategy

• Timing

• A balanced international program

• Matching concept to market

• Solo or partnering

• Store location and facilities

• Product selection
Factors to Consider When Engaging in Global Retailing
• Institutional factors

• Operations factors

• Consumer factors

• Merchandising factors

• Store location factors

• Pricing factors

• Image and Promotion factors

Retail Formats
Retail Institutions by Ownership
Format

• The retail format is the store ‘package’ that the retailer presents to the shopper.

• A format is defined as a type of retail mix, used by a set of retailers.

• Formats are the media through which retailers deliver values to customers.
Classification Method for Retail Institutions

I
Ownership

II
Store Based

III
Non-store Based

IV
Based on Location
1. Classification Based on Ownership

• Independent
• Chain

Ownership • Franchise
• Leased department
• Consumer cooperative
2. Store-based Retailer

Classified as:

• Food-oriented Retailers

• General Merchandise Retailers

 General
Food-oriented
Merchandise
Retailers
Retailers
• Convenience store • Department store
• Conventional • Specialty store
supermarket • Variety store
• Hypermarkets • Full-line discount store
• Box (limited line) store • Off-price stores
• Warehouse store • Flea markets
 3. Non-store Based

• Direct marketing
• Direct selling

Non-store Based • Vending machine

• World wide web
• Other emerging retail
formats
4. Classification Based on Retail Location

• Free standing location

• Business-associated location

• Specialized markets

• Airports
Retail Institutions Characterized by
Ownership
Independent Retailers
• Owns a single retail unit.

• More than 80% of total retail establishments.

• Smaller consumer segments

• Location – serve customers with targeted merchandise mix, prices, and other
services.
Competitive State of Independent Retailers
Advantages Disadvantages

• Flexibility - formats, locations, and • Lack of bargaining power

strategy
• Lack of economies of scale
• Control over investment costs,
personnel functions, and strategies • Labor intensive operations

• Personal image • Low level of technology

• Consistency and independence • Over-dependence on owner

• Strong entrepreneurial leadership • Limited long-run planning

Chain Retailers
• Operates multiple outlets (store units).

• Strong bargaining power (with suppliers) - volumes of purchases.

• Many of them buy directly from the manufacturers.

• New brands reach these stores faster.

• Efficiency - centralization of purchasing, warehousing and computerization.

Competitive State of Chains
Advantages Disadvantages

• Bargaining power • Limited flexibility

• Cost efficiencies • Higher investment costs

• Efficiency • Complex managerial control

• Defined management philosophy • Limited independence among personnel

• Considerable efforts in long-run • Excessive standardization due to extreme

planning concern for bargaining power
Franchising

• Contractual agreement between a franchisor and franchisee that allows the

franchisee to conduct business under an established name and according to a given
pattern of business.

• Franchisee pays an initial fee and a monthly percentage of gross sales in exchange
for the exclusive rights to sell goods and services in an area.
Franchise Formats
Product/Trademark Business Format

• franchisee acquires the identity of a • franchisee receives assistance:

franchisor by agreeing to sell products location, quality control, accounting
and/or operate under the franchisor systems, startup practices,
name management training

• franchisee operates autonomously

Factors for Prospective Franchisees to Consider
Structural Arrangements in Retail Franchising
Three structural arrangements dominate retail franchising
Competitive State of Franchising

Advantages Disadvantages
• low capital required • over-saturation could occur

• acquisition of well-known names • franchisors may overstate potential

• operating/ management skills taught • contractual confinement

• cooperative marketing possible • agreements may be cancelled or

voided
• exclusive rights
• royalties are based on sales, not profits
• less costly per unit
From the Franchisor’s Perspective

Benefits Potential Problems

• national or global presence possible • potential for harm to reputation

• qualifications for franchisee/ • lack of uniformity may affect

operations are set and enforced customer loyalty

• money obtained at delivery • ineffective franchised units may

damage resale value, profitability
• royalties represent revenue stream
• potential limits to franchisor rules
Leased Departments
• Department in a retail store that is rented to an outside party

• Proprietor is responsible its business and pays a percentage of sales as rent

• Department store sets operating restrictions to ensure consistency and coordination

Competitive State of Leased Departments
Benefits Potential Pitfalls

• one-stop shopping to customers • lessees may negate store image

• lessee handle management • procedures may conflict with department

store
• reduces store costs
• problems may be blamed on department
• provides a stream of revenue store rather than lessee
Vertical Marketing Systems

Independent Channel System

Functions:
Manufacturing
Wholesaling
Retailing

Ownership:
Independent Manufacturer
Independent Wholesaler
Independent Retailer
Vertical Marketing Systems

Partially Integrated Channel System

Functions:
Manufacturing
Wholesaling
Retailing

Ownership:
Two channel members own all
facilities and perform all functions.
Vertical Marketing Systems

Fully Integrated Channel System

Functions:
Manufacturing
Wholesaling
Retailing

Ownership:
All production and distribution functions
are performed by one channel member.
Retail Theories and Formats
Retail Institutions by Store-Based Strategy Mix
Theories of Retail development

Retail canvass - changes continuously

Traditional retailers (mom-and-pop stores) existing with

malls, departmental stores and large price format stores.

Theories have been propounded to explain such

developments
Theories of Retail development

• The Wheel of Retailing

• The Melting Pot Theory

• Scrambled Merchandising

• Retail Life Cycle

Wheel of Retailing
 Wheel of Retailing
Based on 4 principles:

• Price-sensitive shoppers will trade customer services, wide selections, and

convenient locations for lower prices

• Price-sensitive shoppers are often not loyal and will switch to retailers with lower
prices

• New institutions are frequently able to have lower operating costs than existing
formats

• As retailers move up the wheel, they typically do so to increase sales, broaden the
target market, and improve their image
Retail Strategy Alternatives
 Wheel of Retailing
Criticism

▪ Not explaining all changes

▪ Many stores do not begin as low-price, low-service

Melting Pot Theory/Dialectic process

New value proposition by one retailer gives rise to

two new retailers with the same proposition.

Successful retail ‘formula’ - wild fire and many

retailers adopt it without knowing the KSFs.

Mortality rate increases and many of them are not

sure of the reason of failure

Example: grocery sector India, white goods

sector, mobile phone retailers, etc.
Scrambled Merchandising
• Wheel of retailing focuses on product quality, prices, and customer service,
scrambled merchandising involves a retailer increasing its width of assortment.

• Scrambled merchandising occurs when a retailer adds goods and services that
may be unrelated to each other and to the firm’s original business.
Why Scrambled Merchandising? (Format Blurring)
• Desire for one-stop shopping format.

• Concern to adopt “hot” products to increase store traffic

• Increase store sales per square foot and same store sales (recessionary period)

• Electronic goods retailers need to offset maturity of businesses and reduced price
levels

• Looking to make up for lost sales due to Web

• Desire for cross selling opportunities

• Looking for high gross profit businesses

Retail Life Cycle

• Development – New retail concept developed

• Introduction (Early growth) – Retail concept tried by consumers

• Growth – Retail concept becomes more popular; added competition

• Maturity – Retail concept at peak of popularity; highly competitive

• Decline – Retail concept loses popularity due to firms in other stages

How Retail Institutions Are Evolving

• Mergers, diversification, and downsizing

• Cost-containment and value-driven retailing

Retail Institutions Characterized by Store-
Based Strategy Mix
Convenience Store Strategy Mix
Prices:
Location:
Average to
Neighborhood
Above average

Atmosphere and
Merchandise: Services:
Medium width Average
& low depth
of assortment; Promotion:
average quality Moderate
Conventional Supermarket Strategy Mix

Location: Prices:
Neighborhood Competitive

Merchandise: Atmosphere and

Extensive width and Services:
depth of assortment; Average
average quality; Promotion:
manufacturer, private, Heavy use of
and generic brands newspapers, flyers,
and coupons
Combination Store Strategy Mix

Location: Prices:
Community shopping Competitive
center or isolated site
Atmosphere and
Services:
Merchandise: Average
Full assortment plus
health and beauty aids Promotion:
and general merchandise Heavy use of
newspapers, flyers
 Warehouse Store

Location:
Prices:
Secondary site, often in
Very low
industrial area
Atmosphere and
Merchandise: Services:
Moderate width and Low
low depth of
assortment; emphasis on
Promotion:
manufacturer brands
Little or none
bought at discount
 Specialty Store

Location:
Location: Prices:
Business
Business district or
district or Competitive to
shopping center
shopping center Above average
Atmosphere and
Merchandise: Services:
Very narrow width and Average to excellent
extensive depth of
assortment; average to Promotion:
good quality Heavy use of displays
Extensive sales force
 Traditional Department Store

Location: Prices:
Business district, shopping Average to
center or isolated store Above average
Atmosphere and
Merchandise: Services:
Extensive width and Good to excellent
depth of Promotion:
assortment; average to Heavy ad and catalog
good quality use; direct mail;
personal selling
 Full-Line Discount Store

Location:
Prices:
Business district, shopping
Competitive
center or isolated store
Atmosphere/Services:
Merchandise: Slightly below
Extensive width and average to average
depth of
Promotion:
assortment; average to
Heavy on newspapers;
good quality
price-oriented; selling
 Variety Store

Location: Prices:
Business district, shopping Average
center or isolated store

Merchandise: Atmosphere/Services:
Good width and Below average
some depth of
assortment;
Promotion:
below-average
Use of newspapers
to average quality
 Factory Outlet

Location:
Prices:
Out of the way site
Very Low
or discount mall

Atmosphere/Services:
Merchandise: Very low
Moderate width and
poor depth of
assortment; Promotion:
low continuity Little
Factory Outlet Strategy

• Factory outlet as an outlet for unsold merchandise at traditional stores (ends, off
season, returns, etc).

• Unspoken issue – making goods especially for factory outlet (less complaints from
traditional retailers, but issue of comparative value).

• Can also diminish value of brand.

• Factory outlet - means of bypassing off-price chains; also to control geographic

distribution.

• Means of attracting another market segment that retailer would normally not access.
 Retail Formats
Non-Store-Based Strategy and Other Forms of Retailing
Non store-Based and Other forms of
Retailing
Non-store Retailing

• Retailing strategy that is not store-based

• Direct marketing

• Web-based retailing is the fastest-growing area

• M-commerce

• Social media commerce

Direct Marketing
• Customer is initially exposed to a good or service through a non-personal medium
(direct mail, TV, radio, magazine, newspaper etc.)

• Then orders by mail, phone, fax, or computer

• Popular products are: gift items, apparel, magazines, books and music
Advantages of Direct Marketing
• Reduced costs

• Lower prices

• Large geographic coverage

• Convenient to customers

• Ability to pinpoint customer segments

• Ability to supplement regular business without additional outlets

Limitations of Direct Marketing
• Products often cannot be examined prior to purchase

• Costs may be underestimated

• Clutter exists

• Long lead time required

• Industry reputation sometimes negative

Executing a Direct Marketing Strategy
Media Selection

• Printed catalogs

• Direct-mail ads and brochures

• Inserts with monthly credit card and other bills (statement stuffers)

• Freestanding displays

• Ads or programs in mass media

• Banner ads or hot links on the Web

Outcome Measures

• Overall response rate (R)

• Frequency of purchases (F)

• Average purchase amount (M)

• Sales volume by product category

• Value of list brokers

Direct Selling

• Includes personal contact with consumers in their homes (and other non-store
locations such as offices) and phone solicitations initiated by retailer

• Cosmetics, jewelry, vitamins, household goods & services, magazines &

newspapers are among items sold this way

• Emphasizes convenient shopping and personal touch (detailed demonstrations)

• Consumers are likely to be attentive (not exposed to competing brands)

Direct Selling – Decline
• Online transactions – easier, more product options for shoppers.

• Customers not available for home selling.

• Less interest in direct selling jobs.

• Limited market coverage.

• Low Sales productivity – small average transaction.

Direct Selling – Decline
• Consumers unreceptive - not open doors to salespeople or talk to telemarketers.

• Sales force turnover is high because employees are often poorly supervised part-
timers.

• Compensation - 25 to 50 percent of the revenues generated.

• Legal restrictions.

• Door-to-door has a poor image.

Nontraditional Retailing
• Hybrid formats that do not fit into store and nonstore-based categories to extend
retailers’ footprint :

• Vending machines

• Video kiosks

• Airport retailing
Vending Machines
• Vending machines are a cash- or card-operated retailing format that dispenses
goods (beverages) and services (electronic games)

• Eliminates the use of sales personnel and allows 24-hour sales

• Machines placed wherever convenient for consumers: inside or outside stores,

airports, train stations, street corners, school, colleges, parks etc.
Electronic Retailing - World Wide Web

• The World Wide Web (Web) is a way to access information on the Internet.

• People work with easy-to-use Web addresses (sites) and pages.

• Web users see words, charts, pictures, and video while hearing audio
The Role of the Web
• Project a retail presence

• Enhance image

• Generate sales

• Reach geographically-dispersed customers

• Provide information to customers

• Promote new products

• Demonstrate new product benefits

The Role of the Web
• Provide customer service

• Conduct a retail business efficiently

• Obtain customer feedback

• Promote special offers

Retail Location - Free standing location
• Site – not connected to other retailers
• Success – Store’s drawing power
• No/low competition
• Low rent
• Better visibility
• Difficulty in attracting customers
• No shared costs
• E.g. Dhabas or Food chains on highways
Video Kiosks

• A video kiosk is a freestanding, interactive, electronic computer terminal that

displays products and related information.

• Some kiosks are located in stores to enhance customer service; others let
consumers place orders.

• There are 2.2 million video kiosks in use throughout the world, nearly 1 million of
which are Internet-connected.
Other Retailing Formats - Recycled Merchandise Retailers
Other Retailing Formats - Car Boot Sales
Other Retailing Formats - Mobile Vans
Airport Retailing
• Large group of prospective shoppers

• Captive audience

• Strong sales-per-square-foot of retail space

• Strong sales of gift and travel items

• Longer operating hours

• Duty-free shopping possible

A Value based Model of Format Choice

A format is defined as the system for delivering the value promised to the shoppers
so as to create a sustainable competitive advantage.
 Process of Format Selection
Retailer’s
Shoppers Competitors
Objectives

Define Value Proposition

Enablers and Deterrents in the Environment

How to Deliver Value Proposition

Store or Non-Store Format and their Derivatives

Location, Size, Merchandise, Display, Services, Price

Online and Omni-channel
Retailing
Retailing
• Online retail stores are virtual establishments that sell a variety of consumer- or
business-to-business products through e-commerce transactions.
Right Online Format
Online Business Models

• Single-channel Web Firms

• Multi-channel Merchants

• Manufacturer-Direct
Approaches to Retailing Channels
Sustainable Competitive Strategies
• Payments and transactions

• Service Quality

• Legal and Commercials

Web Strengths: Consumer Appeal
How has the World Wide Web Changed Shopping Behavior?

• Decoupled ordering, payment, and delivery

• Website design/interaction – drives retailer image

• Fulfillment/reliability: 24/7/365. Buy, pay, pick-up anywhere, anytime

• Customer service – info from retailer, must also provide peer-reviews

• Security/privacy – personalize for “me only when I need it”

Reasons NOT to Shop Online
• Online shopping accounts very small % overall retail spend!

• Lack of trust in retailer

• Fear of fraud

• Lack of security (credit card access)

• Lack of personal communication

• High shipping costs

Optimizing Customers’ Web-Based Service Experience

• Service experience

• Personalization

• Customer reviews

• One-click checkout

• Demonstration videos
The Omni-Channel Retailer

Retailer
Omni-channel Retailing

• Omni-channel - an approach that provides integrated shopping experience.

• Synergies among formats

• Retailer views each channel as creating value

• Channels are viewed as complementary, not competitive

• The experience - seamless.

Principles of Omni Channel Retailing
• Use same product identification in all channels

• Price goods the same in all channels

• Assess infrastructure economies.

• Direct marketer data base and delivery system.

• Cross promote goods across channels.

• Use suitable partners

Why are Retailers Using Multiple Channels to
Interact with Customers?

• Customer Want to interact in different ways

• Each channel offers a unique set of benefits for Customers
 Will Consumers Shop
Electronically from Home
or
Go to the Mall?
Shopping Online

Technological concerns are becoming

less important
• Access to Internet
• Bandwidth
• Privacy, Security concerns

Are the benefits of shopping on-line greater than the benefits of going to a store?
Reasons for Becoming a Omni-Channel Retailer
• Increase Share of Wallet

• Overcome Limitations of Existing Format

• Expand Market

• Leverage Existing Assets

• Brand Name, Inventory, Customer Database

• Develop Insights in Customer Shopping Behavior

Issues Confronting a Omni-Channel Retailer

• Maintaining Brand Image Across Channels

• Merchandise Assortment Offered in Each Channel

• Pricing Across Channels

Customers Want to be Recognized No Matter What Channel they Use

Internet

Call Center

Customers
Customer
Brick & Mortar Relationship

Pervasive

Kiosk
Integration – Key to Omni-Channel Retailing
Illustration of Omni-Channel Integration
Consumer does not find
desired item in the store.

Consumer goes to
kiosk to search for
product

Kiosk links to
chain’s web-site
allowing
consumers to find
and purchase item
Consumer places
order online for
home delivery or
store pick-up at a
later time
Enhancing Customer Shopping Experience

• Making stores mini-fulfilment hubs

• Offering flexibility of delivery choices.

Enhancing Customer Shopping Experience
• Equipping the store associate with

• data on products available across different distribution channels and

• access to meaningful insights on their customer - offer a personalized experience.

Enhancing Customer Shopping Experience

• Understanding customer shopping context and tailor messages accordingly.

• Gather information from several touch points, both offline and online and

• match the content to the overall buying cycle.

Shopping in the Future
Factors Driving E-Commerce Growth
• Growth of logistics and Warehouses

• Internet content in local languages

• Mobile commerce

• Increasing investment

• Consumer spending

• Payment's modernisation
Understanding Retail Consumer
What Makes Retail Shoppers Tick
Consumer Demographics
• Consumer data that is objective, quantifiable, easily identifiable, and measurable.
• Gender • Marital & family status
• Age • Income
• Population growth rate • Mobility
• Life expectancy • Place of residence
• Literacy • Occupation
• Language spoken • Education etc.
• Household size
Understanding Consumer Lifestyles: Social Factors

Reference
Culture
Groups

Social Time
Class
Lifestyle Utilization

Household Family
Life Life
Cycle Cycle
Understanding Consumer Lifestyles: Psychological Factors

Personality Attitudes

Perceived Class
Risk
Lifestyle Consciousness

Purchase
Importance
Perceived Risk and Consumers
Gender Segmentation and Retail Prices
Consumer Needs and Desire
• While developing target market profile, retailer should identify key consumer
needs and desires
Three Special Market Segments
There are three market segments that attract retailer attention:

• In-Home Shoppers

• Online Shoppers

• Outs hoppers
Top Reasons for Leaving a Store Without Buying
• Change in shopping goals

• Deficiencies in merchandise assortment (cannot find an appealing style, right size,

fit)

• Lack of salesperson support and unsatisfactory in-store experience

• Prices are too high

• In-store experience is stressful

• Cannot find a good value

Consumer Decision Process
Key Factors in the Purchase Act
Types of Consumer Decisions

Extended High

Limited RISK & TIME

Routine Low
Types of Purchase Decisions
Extended Problem Solving
-High financial or Social Risk

Limited Problem Solving

-Some Prior Buying Experience

Habitual Decision Making

-Store Brand, Loyalty
Customer Loyalty

Brand Loyalty

Store Loyalty
Impulse Buying

• Completely Unplanned

• Partially Unplanned

• Unplanned Substitution
Stages in the Buying Process
Stimulating Need Recognition

• Advertising and Direct Mail

Factors Affecting Amount of Information Search

• Characteristics of the Product

• Characteristics of Customer
• Market Characteristics
Sources of Information
Internal

External
Retailer Actions
Mass Marketing
• Supermarket or a drugstore sells to a broad spectrum of customers;
• does not focus efforts on any one kind of consumer
Concentrated marketing
• Retailer tailors strategy to the needs of distinct consumer groups
• does not attempt to satisfy other people outside the segment
Differentiated marketing
• Retailer aims at two or more distinct consumer groups
• With different strategy mix for each
Devising a Target Marketing Strategy