Retail Management

Chapter 5: Retail Strategy

LEARNING OBJECTIVES

• Define the retail strategy.

• Illustrate how retailers build a sustainable competitive
advantage.
• Classify the different strategic growth opportunities
retailers pursue.
• Identify issues that arise as domestic retailers become
global retailers.
• Know the steps retailers go through to develop a
strategic plan.
CONTENTS

• What is retail strategy?

• Central concepts in retail market strategy
• Global growth opportunities
• The strategic retail planning process
• Strategic planning in real world
• Additional
 What is retail strategy?

“The term strategy is frequently used in retailing. For

example, retailers talk about
their merchandise strategy, promotion strategy, location
strategy, channel strategy,
or branding strategy”
Definition of Retail Market Strategy

Retailer’s target market

Retail Format and resources the retailer plans to

Strategy use to satisfy the target market’s needs

Build a sustainable competitive advantage

Retail Strategy - Target market

• Market segment(s) toward which the retailer plans

• Focus its resources and retail mix
Retail Strategy – Retail Format

• Describes the nature of the retailer’s operations

• Retail mix
• Use to satisfy the needs of its target market

Retail
Mix
Retail Strategy – Sustainable competitive advantage

• An advantage the retailer

has over its competition
• Not easily copied by
competitors
• Can be maintained over
a long period of time
Central concepts in retail market strategy

“Illustrate how retailers build a sustainable

competitive advantage”
Target Market and Retail Format

A retail market is a group of consumers with similar needs

and a group of retailers that satisfy those needs using a
similar retail channels and format

Read chapter 4:
Customer Buying Behavior
Example:
Retail
Market
Segments
for
Apparel
Building a Sustainable Competitive Advantage

• Builds a wall around its position in a retail market around its present
and potential customers and its competitors
• Some advantages are sustainable over a long period of time, while
others can be duplicated by competitors almost immediately
Approaches for Developing a Sustainable
Competitive Advantage
Thinking??

• Develop a long-term advantage by offering

broader or deeper assortments of national
brands

• If the broader and deeper assortment

attracts a lot of customers, competitors will
simply go out and buy the same branded
merchandise
Example: McDonald

McDonald’s has developed a

competitive advantage by
projecting an image of fast
service, consistent quality,
and clean restrooms
Three approaches for developing a sustainable
competitive advantage

CX SX EX
Building Building
Achieving
strong strong
efficient
relationships relationships
internal
with with
operations
customers suppliers
CX + EX + SX = SIR (Success In Retail)
Relationships with Customers—Customer Loyalty

• Customers are committed to

buying merchandise and
services from a particular
retailer
• Loyalty is more than simply
liking one retailer over
another.
• Loyalty means that
customers will be reluctant
to switch and patronize a
competitive retailer
Read chapter 11
 • Building a strong brand image
1

• Creating a unique positioning in target market

2
Approaches
for 3
• Offering unique merchandise

developing
loyalty 4
• Providing excellent customer service

• Implementing a customer relationship management program

5

• Building a retail community

6
 Positioning
Example:
Hypothetical
Perceptual
Map of
Women’s
Apparel
Market
Relationships with Suppliers

Relationships with vendors, like relationships with customers, are

developed over a long time and may not be easily offset by a
competitor.

Read chapter 13:

Buying Merchandise
Efficiency of Internal Operations

Read chapter 9 & 16 Read chapter 10 & 11

Location

• Location is a pervasive
source of advantage
in retailing
• “What are the three
most important things
in retailing?” -
“Location, location,
location.”
• Two reasons:
• Determining which
store a consumer
patronizes
• Not easily duplicated Read chapter 7 & 8
Multiple Sources of Advantage

• Cannot rely on a single

approach, such as good
locations or excellent customer
service
• Retailers use multiple
approaches to build as high a
wall around their position as
possible
• Built multiple bases of
sustainable competitive
advantages through unique
merchandise, excellent
customer service, and strong
customer and vendor
relationships
Global growth opportunities

“…growth opportunity is becoming particularly

attractive to large retailers as they begin to
saturate their domestic market…”
International expansion is risky

• Deal with different government regulations

• Cultural traditions
• Consumer preferences
• Supply chains
• Languages
Attractiveness of International Markets

The potential size of the retail market in the

1 country

The degree to which the country does and

Three 2 can support the entry of foreign retailers
factors engaged in modern retail practices

3 The risks or uncertainties in sales and profits

Indicators of the Potential, Support, and Risk in
International Markets
Example: Country Attractiveness
Keys to Success in Global Retailing

• globally sustainable competitive

1 advantage

Four • adaptability
2
characteristics
• global culture
3

• financial resources
4
Entry Strategies Direct
investment

Four
Franchising Joint Venture
approaches

Strategic
Alliance
The strategic retail planning process

“…describes how retailers select target market

segments, determine the appropriate retail format,
and build sustainable competitive advantages…”
Stages in the
Strategic
7 steps
Planning
Process
Step 1: Define the Business Mission

The mission statement is a broad description of a retailer's

objectives and the scope of activities it plans to undertake.
Step 2: Conduct a SWOT Analysis (Conduct a
situation Audit – Elements in situation audit)
Step 3: Identify Strategic Opportunities

• Identify opportunities for increasing retail sales

Step 4: Evaluate Strategic Opportunities

• Evaluate opportunities that have been identified in the SWOT analysis

• Must focus on opportunities that utilize its strengths and its competitive
advantage
• The greatest investments should be made in market opportunities for which
the retailer has a strong competitive position
Step 5: Establish Specific Objectives and Allocate
Resources

Specific objectives have three components:

✓ the performance sought, including a numerical index against
which progress may be measured
✓ a time frame within which the goal is to be achieved
✓ the level of investment needed to achieve the objective
Step 6: Develop a Retail Mix to Implement the
Strategy
• Decisions related to the elements in the retail mix are discussed in Sections III
and IV

Read chapter 12 to 18
Step 7: Evaluate Performance and Make
Adjustments
• Evaluate the results of the strategy and implementation program
• If the retailer is meeting or exceeding its objectives, changes aren’t needed
• If the retailer fails to meet its objectives, reanalysis is required.
Strategic Planning in the Real World

The challenge of the retail business is the

human condition
- Howard Schultz
Strategic decisions are made in a sequential
manner

• the business mission is defined,

• the SWOT analysis may uncover a
• the SWOT analysis is performed, logical alternative for the firm to
• strategic opportunities are consider,
identified, • the mission statement may need
• alternatives are evaluated, to be reformulated,
• objectives are set, • the objective would need to be
• resources are allocated, changed,
• the implementation plan is • the resources would need to be
developed, increased
• performance is evaluated • consider not investing in the
opportunity at all
• adjustments are made
Student Retail Project

• What is unique advantage??

• What is target market? Target Audience? Persona Customer?
• How about your CX, SX, EX??
• SWOT analysis
 Additional

“Retail is Detail” – James Gulliver

Steps of Retail Strategy Planning
Strategic planning is formal process marked by specific activities
where firms engage to build marketing plan.
The actions included in strategic planning are:

1. Objective Setting
2. Situational Analysis
3. Customer Analysis
4. Tactical Planning
5. Implementation and Control

Strategic planning is a formal process that firms should do to develop plan for
how to best compete
Visions and Missions

• Keeping members focused, takes consistent

communication, effective management, & efficient
resourcing

• Mission statements: what firm does or wants to do

• critical process/performance to satisfy customer

• Vision statement: what company hopes to do and be in

future
• future oriented, meant to inspire
Decisions and Strategy

• Strategic planning evaluates market and

factors that influence it, consumer needs,
competition, capabilities,& implications
• Strategic planning is internally and
externally oriented
• Situational and customer analysis
captures factors that will support and
those that will challenge
• Helps retailers make decisions around
growth opportunities, consumer
targeting, and performance
Situation Analysis

Helps decision makers understand what to do and when to

do it.
• A situation analysis focuses on:
✓ context
✓ organizational capabilities
✓ customer needs
✓ Competition
✓ Describes environment,
✓ how our abilities can deliver value to consumer needs
✓ our actions/reactions
Situation Analysis (cont.)

• Customer analysis includes consideration of needs of current and

future consumers as well as characteristics

• Assessment of customer within analysis does not require much rigor

• Competition includes assessment of strengths and weaknesses of

competitive set

• Decision-makers can assess their direct influencers on strategic

opportunities and threats
Internal analysis

• Human Resource
1. Is the present strength of employees at various levels sufficient for future action?
2. Are the employees trained and capable to perform the tasks assigned to them?
3. Are the employees loyal to the store?
4. Are the employees punctual and regular?
5. Are the employees skilled matched to their assigned tasks?
• Financial Resource
1. What is the total cash flow from the store’s present activities?
2. What is the ability of the retail store to collect money at the time of
requirement/emergency?
3. How effective and stable are the financial policies?
4. What is the ratio between fixed and current assets?
5. What are the contingency plans in case of negative cash flow?
Internal analysis

• Physical Resources
1. What is the contribution of fixed assets?
2. What is the position of abandoned/unused assets?
3. How effective and updated are the store’s information systems?
• Intangible resources
1. What are the present capabilities of the company’s management?
2. How effective is the R&D cell?
3. How good is the competitor’s intelligence system?
4. How effective are the store’s loyalty programmes?
5. What is the capability of a retail store manager?
6. Are customers loyal towards the company’s products?
Short and Long-Run Objectives

• Some firms might expect to achieve objectives quickly, while

others are expected to require more time

• Important to identify leading indicators: meaningful factors whose

change indicates/predicts future change

• By tracking shoppers, data might show that they are on track to

grow revenue by the x%
Target Market Techniques

• Effective customer analysis includes work around how firm will

position itself as unique
• Physical differences (layout, assortment, service levels, pricing) or
perceptual (focus on what the use of product means to a
customer)
• Slogan does not create differentiation
• Effective positioning follows defined process, the first step being
identify relevant competitive set
• Identification of determinants of demand is important because it
shows variables that influence consumer choice
Target Market Techniques (cont.)
• Next step is for firm to analyze position relative to competition using
positioning grid or value curve
• Positioning grid helps marketers identify white space: areas for competitive
entry that aren’t currently occupied
• Value curves reflect performance on each factor

• With results of grid and curves in mind, retailer should consider

what positioning best fits them given their capabilities, resources,
priorities, and investments

• Positioning process helps describe how firm is uniquely different

from others
Key Variables in Planning

• Firms use strategic planning to develop plans for how to best

compete
• Not all variables are controllable: economic trends, government
regulation, volatility of supply, cultural changes, etc.
• Consumers are using digital interfaces and low-cost fulfillment to
order products online and in apps
• Demographic changes have elevated interest in health: consider
what this means and what the implications are
• Cultural values evolved around economic disparity, and pressuring
governments to increase minimum wage
Tactical Decisions

• Short-term actions firms take to affect controllable elements of

strategy

• Within firm, decision-makers and managers outline specific

initiatives that will be undertaken and delegate roles to support
them

• Within smaller tactical decisions, a firm can ultimately deliver

strategic goal or prevent its accomplishment
Retail Audits

• Audits are reviews to assess how well store operators meet

organizational standards, provide satisfactory experiences, and
implement priority initiatives

• Health and safety, loss prevention, & merchandising audits

• Review on-shelf products and ensure pricing compliance

The Feedback Process

• Feedback can make process iterative and roundabout

rather than sequential
• Feedback is fundamental to effective control
Quantitative
• change in store traffic
• sales revenue
• satisfaction scores
• operating profit
Qualitative
• Positive/negative comments from customers
Building a Competitive Analysis

Goal is to create sustainable competitive advantage

• Firm has edge over competition which they cannot easily
overcome
Advantages can be in intellectual property, technology
leadership, assets, scales, or barriers
• Supports how firm competes, not what it does to compete
• Wal-Mart and Amazon have strong competitive
advantage
• Firms can possess powerful internal strengths or can
compete with system that is so expansive it cannot be
matched
Retail Growth Opportunities

• Growth has two benefits

1. Firms access capital through loans
2. Reflection that firm is meeting customer needs
• Growth is positive and reflects that the firm is delivering
customer value
• Firms grow customer target and business by increasing
penetration levels
• Firms may choose to grow through development, such
as servicing current target with new business
• Last way is through diversification: targeting new
customers with new business
Retail Value Chain
KEY TERM

• bargaining power of vendors

• barriers to entry
• competitive rivalry
• cross-selling
• customer loyalty
• customer relationship management (CRM) program
• direct investment
• diversification growth opportunity
• frequent shopper program
• joint venture
• loyalty program
THANK FOR YOUR ATTENTION!