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Chapter 1- An Introduction to Retailing

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1 Chapter 1- An Introduction to Retailing
Chapter 2- Building and Sustaining Relationships in Retailing Chapter 3- Strategic Planning in Retailing

2 Retailing Retailing encompasses the business activities involved in selling goods and services to consumers for their personal, family, or household use. It includes every sale to the final consumer.

3 Issues in Retailing How can we best serve our customers while earning a fair profit? How can we stand out in a highly competitive environment where consumers have so many choices? High unemployment, low consumer confidence, high savings rates have reduced consumer spending. At the same time retail competition has increased through increased format blurring (sales of cameras at office supply stores, carpeting and major appliances at home improvement centers). How can we grow our business while retaining a core of loyal customers?

4 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.

5 The Framework of Retailing

6 An Ideal Candidate for a Retailing Career
Must be a people person (more important than technical knowledge). Technical skills can be taught more easily than people skills Must be flexible Should be decisive Must have analytical skills Must have stamina

7 Table 1-1: The 10 Largest Retailers in the United States (2011)
Rank Company Main Emphasis 1 Wal-Mart Full-line discount stores, supercenters, membership clubs 2 Kroger Supermarkets, convenience stores, jewelry stores 3 Target Full-line discount stores, supercenters 4 Walgreens Drugstores 5 Home Depot Home centers 6 Costco Membership warehouse clubs 7 CVS Caremark Pharmacies 8 Lowe’s 9 Best Buy Electronics, major appliances 10 Sears Holdings Department store, discount (Kmart)

8 Figure 1-4: A Typical Channel of Distribution
Retailer Manufacturer Wholesaler Final Consumer

9 Figure 1-5: The Retailer’s Role in the Sorting Process

10 Multi-Channel Retailing
A retailer sells to consumers through multiple retail formats: Web sites Physical stores

11 Multi-Channel Retailing
Cross selling across channels (in-store product availability info on Web site) Consistent pricing in all channels (credibility) Can buy, and return product regardless on channel Role of each channel Store– try on, ease of return, fast availability (immediacy), compare offerings Web– 24/7, product information, product reviews by customers, personalization (tailored assortment based on past purchases), most current pricing, closeout sales Catalog-permanency, true color

12 Figure 1-6: Apple

13 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

14 Exclusive vs Intensive Distribution
Exclusive Distribution– Fate of retailer is tied to manufacturer success, retailer has no “free-rider” concerns, retailer has less price competition, manufacturer is better assured of high levels of customer support Intensive Distribution- Manufacturer is better assured of maximizing sales (especially for convenience goods), retailers face strong competition for price and service, intratype competition Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall

15 Figure 1-7: Comparing Distribution Types

16 Figure 1-8: Special Characteristics Affecting Retailers
Impulse Purchase Small Average Sale Retailer’s Strategy Popularity of Stores

17 Retail Strategy An overall plan for guiding a retail firm
Influences the firm’s business activities Influences firm’s response to market forces

18 Six Steps in Strategic Planning
1. Define the type of business (corporate mission) 2. Set long-run and short-run objectives 3. Determine the customer market 4. Devise an overall, long-run plan 5. Implement an integrated strategy 6. Evaluate and correct (fine-tune)

19 “Expect More. Pay Less” at Target

20 Aspects of Target’s Strategy
Growth objectives Appeal to a prime market Distinctive image Focus Customer service Multiple points of contact Employee relations Innovation Commitment to technology Community involvement Monitoring performance

21 Figure 1-10: Applying the Retailing Concept
Customer Orientation Retailing Concept Coordinated Effort Retail Strategy Value-driven Goal Orientation

22 The Build-A-Bear Experience: Never Boring

23 Customer Service Activities undertaken by a retailer in conjunction with the basic goods and services it sells. This includes: Store hours Parking Shopper-friendliness Credit acceptance Salespeople

24 A Customer Respect Checklist
Do we trust our customers? Do we stand behind what we sell? Is keeping commitments to customers important to our company? Do we value customer time? Do we communicate with customers respectfully? Do we treat all customers with respect? Do we thank customers for their business? Do we respect employees?

25 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

26 Effective Relationship Retailing
Use a “win-win” approach It is easier to keep existing customers happy than to gain new ones (present value of current customers income stream– cost of keeping existing customers content versus cost of replacing them with new customer Develop a customer database (loyalty programs) Ongoing customer contact is improved with information on people’s attributes and shopping behaviors

27 Types of Loyalty Programs
Additional discounts at register Not a real loyalty program 1 free with every “n” items purchased Easily copied, no customer database Rebates based on cumulative purchases Customer maintains records Can develop “heavy half” programs like Hilton Targeted offerings and mailing based on purchase history Tesco example “Market research staff know more about my customers than board chairperson”

28 Relationship Management Among Retailers and Suppliers
Disagreements may occur in the following areas (channel conflict): control over channel (private label) profit allocation (resale price control) number of competing retailers (exclusive, selective or intensive distribution) product displays promotional support (cooperative advertising funds and restrictions) payment terms (payment on time) operating flexibility gray market sales markdown monies, chargebacks by dominant retailers Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall

29 Approaches to the Study of Retailing
Institutional Functional Strategic

30 Parts of Retail Management: A Strategic Approach
Building relationships and strategic planning Retailing institutions Consumer behavior and information gathering Elements of retailing strategy Integrating, analyzing, and improving retail strategy


32 Chapter Objectives To explain what “value” really means and to highlight its pivotal role in retailers’ building and sustaining relationships To describe how both customer relationships and channel relationships may be nurtured in today’s highly competitive marketplace 32

33 Chapter Objectives (cont.)
To examine the differences in relationship building between goods and services retailers To discuss the impact of technology on relationships in retailing To consider the interplay between retailers’ ethical performance and relationships in retailing 33

34 Definition of Value Value = Results + Process Quality
Price + Customer Access Costs Results = Overall quality, instructions, ease of assembly, taste/quality/health, warranty, product testing by retailer Process Quality = Wide aisles, ease of finding, high in-stock position, fun experience, short waiting times Price= Costs + delivery + assembly + credit Customer access costs= warehouse club membership fees, inconvenient location, poor store hours, inadequate parking

35 What is Value? (cont.) Channel Perspective
Value is a series of activities and processes (the “value chain”) that provide a certain value for the consumer. Customer Perspective Value is a perception that the shopper has of the value chain. It is the view of all the benefits from a purchase versus the price paid. 35

36 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 36

37 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 37

38 Figure 2-2: 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? 38

39 Figure 2-2: A Value-Oriented Retailing Checklist (cont.)
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? 39

40 Customer Service Expected customer service is the service level that customers want to receive from any retailer such as basic employee courtesy. Augmented customer service includes the activities that enhance the shopping experience and give retailers a competitive advantage. 40

41 Expected Versus Augmented Levels of Customer Service
Expected– Must have elements; do not differentiate retailer. While absence of these expected values provides anguish, presence does not provide satisfaction Augmented—Services that can provide a competitive advantage. Double warranty, special delivery, product demonstrations

42 Figure 2-4: Classifying Customer Services

43 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? 43

44 Table 2-1: Typical Customer Services
Credit Delivery Alterations/ Installations Packaging/gift wrapping Complaints/Returns handling Gift certificates Trade-ins Trial purchases Special sales Extended store hours Mail/phone orders 44

45 Table 2-1b: Miscellaneous Customer Services
Bridal registry Interior designers Personal shoppers Ticket outlets Parking Water fountains Pay phones Baby strollers Restrooms Restaurants Babysitting Fitting rooms Beauty salons Fur storage Shopping bags Information 45

46 Figure 2-6: Turning Around Weak Customer Service
Focus on Customer Concerns Empower Frontline Employees Show That You Are Listening Express Sincere Understanding Apologize and Rectify the Situation 46

47 Principles of Category Management
Retailers listen more to customers Profitability is improved because inventory more closely matches demand By being better focused, each department is more desirable for shoppers Retail buyers are given more responsibilities and accountability for category results Retailers and suppliers must share data and be more computerized Retailers and suppliers must plan together 47

48 Figure 2-7: Elements Contributing to Effective Channel Relationships

49 Three Kinds of Service Retailing
Rented goods services– leased cars, hotel rooms, carpet cleaning equipment Owned goods services– plumbing, appliance repair, Non-goods services– haircut, professional services (physician, lawyer) 49

50 Four Characteristics of Services Retailing
Intangibility Inseparability Perishability Variability 50

51 Figure 2-8a: Characteristics of Service Retailing
Intangibility No patent protection possible Difficult to display/communicate service benefits Quality judgment is subjective Some services involve performances/experiences 51

52 Figure 2-8b: Characteristics of Service Retailing
Inseparability Consumer may be involved in service production Centralized mass production difficult Consumer loyalty may rest with employees 52

53 Figure 2-8c: Characteristics of Service Retailing
Perishability Services cannot be inventoried Lost revenues from unsold services are lost forever Effects of seasonality can be severe Planning employee schedules can be complex Need to balance supply and demand (yield management pricing) 53

54 Figure 2-8d: Characteristics of Service Retailing
Variability Standardization and quality control hard to achieve Customers may perceive variability even when it does not actually occur Need to industrialize/mechanize/service blueprint services to factor out variability 54

55 Figure A2-1: Lessons in Service Retailing

56 Technology Icons 56

57 Examples of Consumerism in Retailing
Proper testing of items for safety issues Programming cash registers not to accept payment for recalled goods Charging fair prices for goods in short supply--Home Depot plywood example in hurricane Age labeling of toys, warning labels on goods beyond legal requirements

58 Store Sale 58

59 Understanding the Americans with Disabilities Act


61 Chapter Objectives To show the value of strategic planning for all types of retailers To explain the steps in strategic planning for retailers: situation analysis, objectives, identification of consumers, overall strategy, specific activities, control, and feedback

62 Chapter Objectives (cont.)
To examine the individual elements of a retail strategy (both controllable and uncontrollable), and to present strategic planning as a series of integrated steps To demonstrate how a strategic plan can be prepared

63 Retail Strategy The overall plan or framework of action that guides a retailer One year in duration Outlines mission, goals, consumer market, overall and specific activities, and control mechanisms

64 Elements of a Retail Strategy Retail Strategy

65 Benefits of Strategic Retail Planning
Provides thorough analysis of the requirements for doing business for different types of retailers Outlines retailer goals Allows retailer to determine how to differentiate itself from competitors Allows retailer to develop an offering that appeals to a group of customers Offers an analysis of the legal, economic, and competitive environment Provides for the coordination of firm’s total efforts Encourages anticipation and avoidance of crises

66 Organizational Mission
Retailer’s commitment to a type of business and to a distinctive role in the marketplace.

67 Ownership and Management Alternatives
Sole proprietorship is an unincorporated retail firm owned by one person A partnership is an unincorporated retail firm owned by two or more persons, each with a financial interest A corporation is a retail firm that is formally incorporated under state law; it is a legal entity apart from its officers

68 Figure 3-3: Checklist to Consider When Starting a New Business

69 Figure 3-4: Checklist for Purchasing an Existing Retail Business

70 Figure 3-5a: Selected Kinds of Retail Goods and Service Establishments
Durable Goods Stores: Automotive group Furniture and appliances group Lumber, building, and hardware group Jewelry stores Nondurable Goods Stores: Apparel group Food group General merchandise group Gasoline service stations

71 Figure 3-5b: Selected Kinds of Retail Goods and Service Establishments
Service Establishments (Personal): Laundry and dry cleaning Beauty/barber shops Funeral services Health-care services Service Establishments (Amusement): Movie theaters Bowling alleys Dance halls Golf courses Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall

72 Figure 3-5c: Selected Kinds of Retail Goods and Service Establishments
Service Establishments (Repair): Automobile repair Car washes Consumer electronics repair Appliance repairs Service Establishments (Hotel): Hotels Motels Trailer parks Camps

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

74 Positioning Approaches
Mass merchandising is a positioning approach whereby retailers offer a discount or value-oriented image, a wide or deep merchandise selection, and large store facilities. Niche retailing occurs when retailers identify specific customer segments and deploy unique strategies to address the desires of those segments rather than the mass market.

75 Figure 3-6: Niche Retailing by Babies “R” Us

76 Selected Retail Positioning Strategies

77 Target Market Selection
Three techniques Mass marketing Concentrated marketing Differentiated marketing

78 La Boqueria

79 Strategic Implications of Target Market Techniques
Retailer’s location Goods and service mix Promotion efforts Price orientation Strategy

80 Developing an Overall Retail Strategy
Uncontrollable Variables: Consumers Competition Technology Economic conditions Seasonality Legal restrictions Controllable Variables: Store location Managing business Merchandise management and pricing Communicating with customer Retail Strategy

81 Retail Strategy– Low Costs
Removal of bad costs Use of private label products to reduce costs of national/manufacturer brands Reduce product proliferation Obtain best net price instead of focus on promotional monies, trade incentives and forward buying

82 Retail Strategy– Low Costs (cont.)
Supply chain initiatives Low promotional expense (everyday low pricing) Proper employee utilization

83 Retail Strategy--Differentiation
Well-thought out private labels (Trader Joe’s, Target, King Arthur flour, etc.) Hiring right employees (value-profit chain) Empowering employees Use of a fun atmosphere “Little things that mean a lot” Money-back guarantees

84 Legal Environment and Retailing
Store Location zoning laws blue laws environmental laws direct selling laws local ordinances leases and mortgages Managing the Business licensing provisions personnel laws antitrust laws franchise agreements business taxes recycling laws

85 Legal Environment and Retailing
Merchandise Management and Pricing trademarks merchandise restrictions product liability laws and lemon laws sales taxes unit-pricing laws collusion laws sale prices price discrimination laws

86 Legal Environment and 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 cooling-off laws

87 Sample Strategic Plan Sally’s is a small, independently owned, high-fashion ladies clothing shop located in a suburban strip mall. It is a full-price, full-service store for fashion-forward shoppers. Sally’s carries sportswear from popular designers, has a personal shopper for busy executives, and has an on-premises tailor. The store is updating its strategic plan as a means of getting additional financing for an anticipated expansion. 87

88 Additional Concerns for Global Retailing
In addition to the strategic planning process: assess your international potential get expert advice and counseling select your countries develop, implement, and review an international retailing strategy

89 Factors Affecting the Success of a Global Retailing Strategy
Timing A balanced international program A growing middle class Matching concept to market Solo or partnering Store location and facilities Product selection

90 Factors to Consider When Engaging in Global Retailing

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