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McGraw-Hill/Irwin Retailing Management, 7/e © 2008 by The McGraw-Hill Companies, All rights reserved. Chapter 5 Retail Marketing Strategy.

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Presentation on theme: "McGraw-Hill/Irwin Retailing Management, 7/e © 2008 by The McGraw-Hill Companies, All rights reserved. Chapter 5 Retail Marketing Strategy."— Presentation transcript:

1 McGraw-Hill/Irwin Retailing Management, 7/e © 2008 by The McGraw-Hill Companies, All rights reserved. Chapter 5 Retail Marketing Strategy

2 5-2 Retailing Strategy Retail Market Strategy Chapter 5 Financial Strategy Chapter 6 Retail Locations Chapters 7,8 Human Resource Management Chapter 9 Information and Distribution Systems Chapter 10 Customer Relationship Management Chapter 11

3 5-3 Questions What is a retailing strategy? How can a retailer build a sustainable competitive advantage? What steps do retailers go through to develop a strategy? What different strategic growth opportunities can retailers pursue? What retailers are best positioned to become global retailers?

4 5-4 More attention to long-term strategic planning than ever before Due to the emergence of New competitors New formats New technologies Shifts in customer needs

5 5-5 Elements in Retail Strategy © image100 Ltd Target Market the market segment(s) toward which the retailer plans to focus its resources and retail mix Retail Format the nature of the retailers operationsits retail mix Sustainable Competitive Advantage an advantage over the competition

6 5-6 Analyzing McDonalds Retail Strategy Target market? Retail offering (format)? Bases for competitive advantage? What Threats Might McDonalds Face in the Future? The McGraw-Hill Companies, Inc./John Flournoy, photographer

7 5-7 Examples of Retail Strategies Steve & Barrys Chicos Curves Magazine Luiza Starbucks What is the target market, retail offering, and source of competitive advantage for each retailer?

8 5-8 Steven & Barrys Target Market Value and quality conscious consumers for university sportswear Retail Format stores are in middle-market malls extreme low prices, quality private-label merchandise, upscale surroundings (Old Navy on steroids) Bases for Building Sustainable Competitive Advantage No advertising Aggressive incentives from mall owners Creative approaches to working with vendors

9 5-9 Chicos Strategy Target Market Woman 35 to 55 Who Want Comfortable, Casual, But Stylish Apparel Retail Format Specialty Apparel Stores in Malls and Strip Centers Selling Private Label, Coordinated Outfits Bases for Building Sustainable Competitive Advantage Unique Merchandise Sized 0,1,2,3

10 5-10 Why Does a Retailer Need to Focus on a Specific Target Market? Why Not Sell to Everyone? Target Market

11 5-11 Target market and retail format: Retail Market Opportunities for Womens Apparel

12 5-12 If TARGET decides to focus on a limited set of markets for womens apparel, which should it pursue? What should be the retail strategy for that target market?

13 5-13 Criteria For Selecting A Target Market Attractiveness -- Large, Growing, Little Competition More Profits Consistent with Your Competitive Advantages Rim Light/PhotoLink/Getty Images

14 5-14 Opportunities for retailers to develop sustainable competitive advantages Customer Loyalty Location Human Resource Management Distribution and Information Systems Unique Merchandise Vendor Relations Customer Service PhotoLink/Getty Images

15 5-15 Can A Retailer Develop a Sustainable Competitive Advantage by: Dropping the Price of Your Merchandise? Building a Store at the Best Location? Deciding to Sell Some Hot Merchandise? Increasing Your Level of Advertising? Attracting Better Sales Associates by Paying Higher Wages? Providing Better Customer Service?

16 5-16 Sources of Competitive Advantage More Sustainable Location Customer Loyalty Customer Service Exclusive Merchandise Low Cost Supply Chain Management Information Systems Buying Power with Vendors Committed Employees Less Sustainable Better Computers More Employees More Merchandise Greater Assortments Lower Prices More Advertising More Promotions Cleaner Stores

17 5-17 Internal and External Bases for Competitive Advantage Retail Firm Low Cost Large Size Efficient Distribution, Operations Unique Knowledge Loyal Employees Sources of Capital Vendors, Suppliers Customers

18 5-18 What does loyalty mean? Is It the same as liking a store? …Going to the store frequently? Loyalty

19 5-19 Customer Loyalty More than simply liking one retailer over another Customers will be reluctant to patronize competitive retailers Retailers build loyalty by: Developing a strong brand for the store or store brands Developing clear and precise positioning strategies Creating an emotional attachment with customers through loyalty programs

20 5-20 Retail Branding Retail brand Can create an emotional tie with customers that build their trust and loyalty Facilitates store loyalty because it stands for a predictable level of quality Stores use brand (stores name and store brands – private label brands) to build customer loyalty

21 5-21 Loyalty Programs Part of an overall Customer Relationship Management (CRM) program Purchase behaviors of members of loyalty programs Are identified when they buy because they use some type of loyalty card Saved in Data Warehouse What they buy When they buy How much they buy How often they buy How much they spend What channel they use Develop personalized marketing effort to them

22 5-22 Approaches for Building Customer Loyalty Unique Positioning Location Customer Service Information About Customers (Database) Unique Merchandise

23 5-23 Example of Positioning

24 5-24 Location What are the three most important things in retailing? location, location, location Location is a competitive advantage A high density of Starbucks stores Creates a top-of-mind awareness makes it very difficult for a competitor to enter a market and find a good locations

25 5-25 Human Resources Employees are key to build a sustainable competitive advantage Strategies for Recruiting and Retaining Talented Employees Employee Branding Develop positive organizational culture

26 5-26 Distribution and Info Systems Flow of Information Vendor Distribution Center Store -Better services -Increase in breadth and depth -Decrease in prices By decreasing costs here, the is more money available to invest in:

27 5-27 Unique Merchandise: Private Labels Sears Kenmore -- appliances Federateds Inc. – fine apparel Kmarts Martha Stewart -- home JCPenneys Arizona -- jeans Jules Frazier/Getty Images Rob Melnychuk/Getty Images Jacobs Stock Photography/Getty Images

28 5-28 Vendor Relationships Low Cost - Efficiency Through Coordination Electronic Data Interchange (EDI) Collaborative Planning and Forecasting to Reduce Inventory and Distribution Costs Exclusive Sale of Desirable Brands Special Treatment Early Delivery of New Styles Shipment of Scare Merchandise

29 5-29 High Quality Customer Service Difficult to Achieve People Are Not Machines -- Inconsistent Retail Sales Associates At Bottom of Labor Pool Goes Beyond Hiring Good People at High Wages and Training Them -- Organizational Culture

30 5-30 Critical Tradeoff In Developing Strategic Advantage Focus Leads to Developing A Competitive Advantage But Focus Reduces Flexibility Low Cost, Consistent Image, Vendor Relationships Reduces Flexibility Similar to Dating and Marriage – Commitment to a Relationship (Vendor) Reduces Flexibility

31 5-31 Growth Strategies Ryan McVay/Getty Images Market Penetration Market Expansion Retail Format Development Diversification Related vs. Unrelated

32 5-32 Growth Opportunities

33 5-33 Market Penetration Attract customers from target market – Walgreens on every corner Get current customer to visit store more often or buy on each visit Cross Selling – sales associates in one department sell complimentary merchandise from other departments Example: Manicurist sells services plus hand lotion or nail polish Example: Salesperson sells leaf blower directs customer to electrical department to purchase a 100 foot extension cord.

34 5-34 Market Expansion Market expansion growth opportunity involves using the existing retail format in new market segments Dunkin Donuts – new stores (and at gas stations) outside northeastern Abercrombie & Fitch (for college students) opens lower-priced chain Hollister Co. for highschoolers

35 5-35 Retail Format Development Develops a new retail format with a different retail mix for the same target market Multi-channel retailing UK based TESCO: Tesco Express: small stores located close to where customers live and work Tesco Metro: bring convenience to city center location by specializing in ready-to-eat meals Tesco Superstores: traditional stores Tesco Extra: one-stop destination with the widest range of food and non-food products

36 5-36 Diversification Introduces a new retail format toward a market segment that is not currently served by the retailer Related diversification Unrelated diversification Vertical integration into wholesaling or manufacturing

37 5-37 Global Growth Opportunities Steve Cole/Getty Images Specialty store retailers with strong brand and unique merchandise? McDonalds Starbucks Zara H & M Discount and food retailers with deep assortments and low prices? Wal-Mart Carrefour Royal Ahold Metro AG Who Is Successful and Who Isnt?

38 5-38 IKEA Operates 254 stores in 35 countries Unique, well-designed, functional furniture at low prices for consumers who have sophisticated tastes but have no intention to spend lots of money You do our part. We do our part. Together, we save money.

39 5-39 Why Do Category Killers and Supercenters Succeed Globally? Developed operating expenses Scale economies for buying merchandise globally Unique systems and standardization formats that facilitate control over multiple stores Understand that consumers are willing to forego service for lower prices Ryan McVay/Getty Images

40 5-40 Key to Success in Global Retailing Globally sustainable competitive advantage Low cost, efficient operations - Wal- Mart, Carrefour Strong private label brands: Starbucks, KFC Fashion Reputation - The Gap, Zara, H&M Category dominance – Best Buy, IKEA, Toys R Us Adaptability Global Culture Financial Resources

41 5-41 Evaluating Global Growth Opportunities Rankings are based on weighted score using growth (55%), risk (25%), and market size (20%)

42 5-42

43 5-43 Evaluating Global Growth Opportunities China Increasing operating costs Lack of managerial talent Underdeveloped and inefficient supply chain India Prefers small family-owned stores Restricts foreign investment Consider challenges and how to overcome them

44 5-44 International Market Entry Strategies Direct Investment Joint Ventures Strategic Alliances Franchising Lawrence Lawry/Getty Images Profit and Risk

45 5-45 Stages in the Strategic Retail Planning Process 1. Define the business mission 2. Conduct a situation audit: Market attractiveness analysis Competitor analysis Self-analysis 3. Identify strategic opportunities 5. Establish specific objectives and allocate resources 7. Evaluate performance and make adjustments 6. Develop a retail mix to implement strategy 4. Evaluate strategic alternatives

46 5-46 Elements in a Situation Audit MARKET FACTORS COMPETITIVE FACTORS ENVIRONMENTAL FACTORS ANALYSIS OF STRENGTHS & WEAKNESSES Barriers to entry Bargaining power of vendors Competitive rivalry Threat of superior new formats Technology Economic Regulatory Social Size Growth Seasonality Business cycles Management capabilities Financial resources Locations Operations Merchandise Store Management Customer loyalty

47 5-47 Market Factors Market size – large markets attractive to large retail firms Growth – typically more attractive than mature or declining Seasonality – can be an issue as resources are necessary during peak season only Business cycles – retail markets can be affected by economic conditions – military base towns

48 5-48 Competitive Factors Barriers to entry Scale economies of big box retailers Service and unique, high-end products of small retailers Bargaining power of vendors Markets are less attractive when only a few vendors control the merchandise sold in it Competitive rivalry Defines the frequency and intensity of reactions to actions undertaken by competitors Conditions leading to intense rivalry: a large number of same size retailers, slow growth, high fixed costs, a lack of perceived differences between competing retailers

49 5-49 Questions for Analyzing the Environment New developments or changes -- technologies, regulations, social factors, economic conditions Likelihood changes will occur Key factors determining change Impact of change on retail market firm, competitors

50 5-50 Strengths and Weaknesses Analysis Management Capability: Capabilities and experience of top management Depth of Management--capabilities of middle management Management s commitment to firm Financial Resources: Cash flow from existing business Ability to raise debt or equity financing Operations: Overhead cost structure Quality of operating systems Distribution capabilities Management information systems Loss prevention systems Inventory control system Merchandising Capabilities: Knowledge and skills of buyers Relationships with vendors Capabilities in developing private capabilities Store Management Capabilities Management capabilities Quality of sales associates Commitment of sales associates to firm Locations Customers Loyalty of customers

51 5-51 Performing a Self-Analysis At what is our company good? In which of these areas is our company better than our competitors? In which of theses areas does out companys unique capabilities provide a sustainable advantage or a basis for developing one? Stockbyte/Punchstock Images

52 5-52 Illustration of the Strategic Retail Planning Process Kelly Bradford – Owner of Gifts To Go Two Store Chain in Chicago Target Market – Upper Income Men and Women Looking for Gifts between $50 and $500 Strong Customer Loyalty Based on Knowing What Customers Want, Providing Good Customer Service Low Turnover Among Associates

53 5-53 Mission Statement for Gifts To Go The mission of Gifts to Go is to be the leading retailers of higher-priced gifts in the Chicago and provide a stable income of $100,000 per year for the owner. Define growth opportunities will and wont consider Indicates objective of company

54 5-54 Situation Analysis of Gifts to Go Market Factors Chicago is an attractive market. (+) Relatively expensive gifts are not affected much by the economy. (+) Gifts are highly seasonal. (-) Competitive Factors Many in area. Primary department stores, craft galleries, catalogs, and Internet retailers (-) Lack of large suppliers, customer (+) Opportunities for differentiation (+) Limited competitive rivalry. (+)

55 5-55 Situation Analysis of Gifts to Go Environmental Factors Potential Threat - Development of electronic channel by traditional bricks and mortar retailers (-) Strengths and Weaknesses Management Capability – Limited Financial Resources – Good Operations – Poor Merchandise Capabilities – Good Store Management Capabilities – Excellent Locations – Excellent Customer Loyalty – Good Customer Database - Good

56 5-56 Growth Opportunities for Gifts to Go Market Penetration Increase size of present stores Open additional gifts stores in Chicago area Market Expansion Open gift stores outside Chicago area Sell lower priced gifts in present stores Ryan McVay/Getty Images

57 5-57 Growth Opportunities for Gifts to Go Retail Format Development Sell non-gift merchandise to same customers in present or new stores Sell similar gifts to same customers through an electronic channel Diversification Manufacture craft gifts Open an apparel store targeting teenagers Open a category killer store selling a broader assortment of gifts

58 5-58 Evaluating Growth Opportunities for Gifts to Go Market Attractiveness Market Penetration Increase size of present stores (low) Open additional gifts stores in Chicago area (medium) Market Expansion Open gift stores outside Chicago area – new geographic segment (medium) Sell lower priced gifts in present stores – new benefit segment (medium)

59 5-59 Evaluating Growth Opportunities for Gifts to Go (continued) Market Attractiveness Retail Format Development Sell non-gift merchandise to same customers in present or new stores (High) Sell similar gifts to same customers through an electronic channel (High) Diversification Manufacture craft gifts (High) Open an apparel store targeting teenagers (High) Open a category killer store selling a broader assortment of gifts (High)

60 5-60 Evaluating Growth Opportunities for Gifts to Go Competitive Position Market Penetration Increase size of present stores (High) Open additional gifts stores in Chicago area (Medium) Market Expansion Open gift stores outside Chicago area (Low) Sell lower priced gifts in present stores (low)

61 5-61 Evaluating Growth Opportunities for Gifts to Go (continued) Competitive Position Retail Format Development Sell non-gift merchandise to same customers in present or new stores (Low) Sell similar gifts to same customers through an electronic channel (Medium) Diversification Manufacture craft gifts (Low) Open an apparel store targeting teenagers (Low) Open a category killer store selling a broader assortment of gifts (Low)

62 5-62 Market Attractiveness/Competitive Position Matrix

63 5-63 Steps in Using Market Attractiveness - Competitive Position Matrix Define strategic opportunities Identify market attractiveness and competitive position factors Assign weight based on importance of factors Rate opportunities on market attractiveness and competitive position Calculate scores and evaluate opportunities

64 5-64 Attractiveness Ratings for International Growth Opportunities

65 5-65 Competitive Position in International Growth Opportunities


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