1. Retail Market Strategy
Chapter 5
Retail Market Strategy
ONE OF THE KEY CHAPTERS IN THE TEXT…the summary project will challenge each team to evaluate whether their two stores being compared are being strategic about how they run the business (REVIEW CH 1 PIECHART AGAIN) – also refer to ex. 2-13/14, pages for more pointers on how to compare two stores.
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2. Questions What is a retailing strategy? (SEE BELOW)
What steps do retailers go through to develop a strategy?
What different strategic growth opportunities can retailers pursue?
What is a “situation audit”?
TARGET MARKET – BUSINESS FORMAT – SUSTAINABLE COMPETITIVE ADVANTAGE
Three “legs” of a successful strategy

3. 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
CHALLENGE: Adapting
to tactical realities while
sticking to a strategy (JCP)
But at the same time challenging to focus on and stick to a long-term strategy when dealing with short-term economic pressures, quarterly earnings pressures, etc.

4. Elements in Retail Strategy
Target Market
the market segment(s) toward which the retailer plans to focus its resources and retail mix
Retail Format
the nature of the retailer’s operations—its retail “pie chart”…what kind of business is it in?
Sustainable Competitive Advantage
an advantage over the competition
that can be supported over time
This is a key slide and key concept … see textbook page 112 (EXPECT A QUESTION ON THE MIDTERM)
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5. Examples of Retail Strategies
Best Buy
Chico’s
Barnes & Noble
Starbucks
Focus on BBY and Starbucks in this conversation – target market, retail offering (format) and competitive advantage. Where do you see threats to their strategy?
What is the target market, retail offering, and source of competitive advantage for each retailer?

6. Chico’s 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
Customer Service (“suggestion selling”)
Here’s another example…familiar w/Chicos?

7. Target Market
Why Does a Retailer Need to Focus on a Specific Target Market? Why Not Sell to Everyone? Should JCP try to be “America’s Favorite Store”?
Why not? (discuss) – can’t be “all things to all people” – how does a retailer with broad target mkt (like a food store) focus? Why hasn’t it worked for Sears?

8. Target market and retail format:
Retail Market Opportunities for Women’s Apparel
This is ex 5-1 (page 114) and it’s an important concept along with ex 5-3. Ties back to ch 4 (consumer behavior) and issue of mkt segmentation by demographic, lifestyle, psychographics. Example: Electronics store marketing to “digital natives” vs. “late adapters”

9. Example of Positioning
Ex 5-3 page 117—some parallel to KSS nine-box grid which drills down further once overall brand position has been established

10. A Positioning Question
If TARGET decides to focus upon a limited set of markets for women’s apparel, which should it pursue?
What should the retail strategy be for that target market?
Trade up from Walmart, trade down from Kohl’s?
JCP: Caught between Macys and Kohl’s??
DISCUSS: Should TGT try to get customers to trade up from WMT or trade down from KSS and JCP? Why?

11. Criteria For Selecting A Target Market
Attractiveness -- Large, Growing, Little Competition  Profits
Consistent with Your Competitive Advantages
Needs to be a “sweet spot” – a vacant market niche only works if enough people live there! (EXCEPTIONS?)
Again, see ex 5-3 page 139…where is the “sweet spot”?
Rim Light/PhotoLink/Getty Images

12. Ways to develop sustainable competitive advantages
Customer Loyalty (Target)
Location (Walgreens)
Human Resource Mgt. (Best Buy)
Logistics and IS (Walmart)
Unique Merchandise incl.
“exclusive brands” (Apple)
Customer Service (Nordstrom)
WHAT ARE YOU BEST AT?
In other words, there is more than one answer depending on your type of store, the rest of your strategy, etc. DISCUSS: examples for each bullet point
PhotoLink/Getty Images

13. 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
Who’s “best in class”?
Less Sustainable
Better Computers
More Employees
More Merchandise
Greater Assortments
Lower Prices
More Advertising
More Promotions
Cleaner Stores
WHY NOT PRICE?
Refer back to “EST” positioning discussed last week. Will discuss specific attributes like loyalty, location in slides to follow

14. Loyalty: Moving From Satisfaction to Commitment
What does loyalty mean?
Is It the same as liking a store?
…Going to the store frequently?
…starting with Loyalty, which doesn’t just “happen” by accident but needs to be planned and cultivated

15. Customer Loyalty: A key advantage
More than simply liking one retailer over another
Customers will be reluctant to patronize competitive retailers or service providers
Retailers build loyalty by:
Developing a strong brand for the store or exclusive store brands (FOCUS ON THE MERCHANDISE)
Developing clear positioning strategy (CONSISTENT)
Creating an emotional attachment with customers through loyalty programs (RELEVANT)
Executing their mission (RESPONSIVE)
Will discuss more specific loyalty-building strategies later in the term (CRM)

16. Retail Branding to build loyalty
Stores use brand (store’s name and store brands – private label brands) to build customer loyalty
Retail brand
Can create an emotional tie with customers that build their trust and loyalty
(TARGET, APPLE)
Facilitates store loyalty because it stands for a predictable level of quality
(NORDSTROM)
TGT is classic example…what others? (discuss jr apparel chains, restaurants)

17. Loyalty Programs
Part of a Customer Relationship Management (CRM) program (more on this in Chapter 11)
Purchase behaviors of members of loyalty programs
Are identified when they buy because they use some type of loyalty card or store-issued credit 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
(Example: Target “targeted” mailings)
Can you “buy” loyalty through a program with financial incentives?

18. Approaches for Building Customer Loyalty
Unique Positioning
Location
Customer Service
Information About Customers (Database)
Unique Merchandise
CRM (Customer Relationship Management):
Identifying and catering to your best customers
Will talk in a later class about CRM

19. Location: Another competitive advantage
What are the three most important things in retailing?
“location, location, location” (maybe not exactly!)
Location is a competitive advantage
Walgreens goes for saturation
Apple wants to be in “the best malls” not every one
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
Walgreens another example of a store creating competitive advantage through its real estate strategy

20. Logistics and Info Systems: Another sustainable competitive advantage
Flow of Information
By decreasing costs here, the is more money available to invest in:
Vendor
Distribution Center
-Better services
-Increase in breadth and depth
-Decrease in prices
Walmart always finding ways to lower costs and then prices
Store
Will discuss logistics in a later week but need to think about cost-effective execution as a way to be RESPONSIVE (WMT competitive advantage, they market around it)

21. Vendor Relationships: Another advantage
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 Scarce Merchandise
Special events, marketing support
Costco works w/vendors on special packaging
Tommy Macys, many other examples of exclusive brands

22. Human Resources: Another advantage
“Employees are key to building a sustainable competitive advantage”
Strategies for Recruiting and Retaining Talented Employees
Employee Branding (Best Buy…Geek Squad)
Positive organizational culture (Nordstrom)
Creation of customer service mentality
Examples? Nordstrom, BBY (Geek Squad)…stores known for their service or expertise

23. Growth Strategies FOUR KEY WAYS TO GROW: Market Penetration
Market Expansion
Retail Format Development
Diversification
Related vs. Unrelated
Segue to another important MIDTERM concept – ex 5-4 page 144 – gets into the issue of format development vs. competitive advantages
Ryan McVay/Getty Images

24. Four Types of Growth Opportunities
Spend more time on this chart…examples from class on each quadrant?? (YUM BRANDS video)
PENETRATION: Walgreens opening more stores in existing mkts. EXPANSION: Starbucks opening stores in China
FORMAT DEVELOPMENT: Best Buy offering Geek Squad and expanding it into a freestanding business, developing freestanding phone stores. DIVERSIFICATION: Chicos opening SOMA innerwear stores

25. 1. Market Penetration
Attract customers from target market – Walgreens “on every corner”
Get current customer to visit store more often or buy more 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.
EXAMPLES include Walgreens, Kohl’s opening new stores even in existing markets

26. 2. 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 U.S.
Culvers expands in the Southwest
A bank expands to a new geographic market
Apple opens stores in new countries
Culvers opening stores in TX

27. 3. Retail Format Development
Develops a new retail format with a different retail mix for the same target market
Multi-channel retailing is one approach
Example: Barnes & Noble develops website first, then develops “Nook” e-reader as another way to sell books to its customers
Chicos opens “Soma” intimate apparel stores targeted to the same customer
SA Elite and other “small format” concepts

28. 4. Diversification
Introduces a new retail format toward a market segment that is not currently served by the retailer (A&F and Hollister)
Related diversification (TRADER JOES, ALDI)
Unrelated diversification
Vertical integration into wholesaling or manufacturing (CRAFTSMAN at Costco)
Trader Joes and Aldi owned by the same company (related diversification, both in the food business)

29. 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
THIS IS KEY…will be something each team will want to use as a tool to evaluate its two stores during the final presentations at the end of the term (Ex 5-7 pg 131). These are steps that should happen BEFORE establishing target market, format and comp. advantage.

30. Elements in a Situation Audit
Expanding on point #2 on previous slide…ELEMENTS OF A SITUATION AUDIT (Ex 5-8 page 132)–

31. Audit Step 1: 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
As a retailer, are you in a big but declining market?
Market size: Are you in the “sweet spot”? If it’s not high-volume, is it a growing niche?

32. Audit Step 2: 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 within it
Competitive rivalry
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
EXAMPLES: Blockbuster/Netflix…Walgreens/Osco…tablet market
Are you competing against somebody with a stronger sustainable advantage on their turf? (WMT=price)

33. Analyzing the Environment
Audit Step 3:
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
5-year “best and worst case” scenarios
Think about what the future looks like, for example how will smartphones continue to affect how consumers shop and how retailers operate?

34. Audit Step 4: Performing a Self-Analysis
At what is our company good?
In which of these areas is our company better than our competitors? (Nordstrom: Shoes)
In which of these areas does our company’s unique capabilities provide a sustainable advantage or a basis for developing one?
Importance of applying the thought process to your business no matter how well-established it is, not just for start-ups! (see ex 5-9 pg 135)
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35. 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
This slide is a continuation of #35….then:
AS TIME PERMITS: Conduct TGT strategic audit using some of these criteria, at the whiteboard.

36. Keywords
brand image Set of associations consumers have about a brand that are usually organized around some meaningful themes.
positioning The design and implementation of a retail mix to create in the customer’s mind an image of the retailer relative to its competitors. Also called brand building.

37. Criteria for Evaluating Market Segments
Actionable
Retailer should know what to do to satisfy needs for the customers are in the segment
Identifiable
Retailer is able to determine which customers are in the segment
It’s one thing to identify market segments using these criteria, but the important thing: Is the segment big enough (or targeted enough) to drive sales?

38. Criteria for Evaluating Market Segments
Substantial
Market segment must be larger enough or its buying power significant to generate sufficient profits
Reachable
Retailer can target promotions and other elements of the retail mix to customers in the segment
Video on mkt segmentation after the break