1. BA 336 Retail Operations

2. Four Characteristics of Services Retailing
Intangibility
Inseparability
Perishability
Variability 2

3. Characteristics of Service Retailing
Intangibility
No patent protection possible
Difficult to display/communicate
service benefits
Quality judgment is subjective
Some services involve
performances/experiences 3

4. Characteristics of Service Retailing
Inseparability
Consumer may be involved in
service production
Centralized mass production difficult
Consumer loyalty may rest
with employees 4

5. 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) 5

6. 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 6

7. Elements of a Retail Strategy Retail Strategy

8. Components of Internal Analysis
Figure 3.2
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9. Resources, Capabilities and Core Competencies
Are a firm’s assets, including people and the value of its brand name
Represent inputs into a firm’s production process, such as:
Capital equipment
Skills of employees
Brand names
Financial resources
Talented managers
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10. Resources, Capabilities and Core Competencies
Tangible resources
Financial resources
Physical resources
Technological resources
Organizational resources
Intangible resources
Human resources
innovation resources
Reputation resources
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11. Tangible Resources
Financial Resources • The firm’s borrowing capacity • The firm’s ability to generate internal funds
Organizational Resources • The firm’s formal reporting structure and its formal planning, controlling, and coordinating systems
Physical Resources • Sophistication and location of a firm’s plant and equipment • Access to raw materials
Technological Resources • Stock of technology, such as patents, trade-marks, copyrights, and trade secrets
SOURCES: Adapted from J. B. Barney, 1991, Firm resources and sustained competitive advantage, Journal of Management, 17: 101; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 100–102.
Table 3.1
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12. Intangible Resources Human Resources • Knowledge • Trust
• Managerial capabilities
• Organizational routines
Innovation Resources • Ideas
• Scientific capabilities
• Capacity to innovate
Reputational Resources • Reputation with customers
• Brand name
• Perceptions of product quality, durability, and reliability
• Reputation with suppliers
• For efficient, effective, supportive, and mutually beneficial interactions and relationships
SOURCES: Adapted from R. Hall, 1992, The strategic analysis of intangible resources, Strategic Management Journal, 13: 136–139; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 101–104.
Table 3.2
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13. Applying the Retailing Concept
Customer Orientation
Retailing
Concept
Coordinated Effort
Retail
Strategy
Value-driven
Goal Orientation

14. Components of Strategic Planning
Strategic planning - Adapting the resources of the firm to the opportunities and threats of an ever-changing retail environment.
Through the proper use of strategic planning, retailers hope to achieve and maintain a balance between resources available and opportunities ahead.
LO 1

15. Components of Strategic Planning
Strategic planning consists of four components:
Development of a mission (or purpose) statement for the firm.
Definition of specific goals and objectives for the firm.
S(strengths)W(weaknesses)O(opportunities)T(threats) analysis.
Development of basic strategies that will enable the firm to reach its objectives and fulfill its mission.
LO 1

16. Mission Statement
It is a basic description of the fundamental nature, rationale, and direction of the firm.
Elements of a mission statement are:
How the retailer uses or intends to use its resources.
How it expects to relate to the ever-changing environment.
The kinds of values it intends to provide in order to serve the needs and wants of the consumer.
LO 1

17. Statement of Goals and Objectives
Provide:
Specific direction and guidance to the firm in the formulation of its strategy.
A control mechanism by establishing a standard against which the firm can measure and evaluate its performance.
LO 1

18. Retail Objectives
LO 1

19. Statement of Goals and Objectives
Market performance objectives
Establish the amount of dominance the retailer seeks in the marketplace.
Market share - The retailer’s total sales divided by total market sales.
LO 1

20. Statement of Goals and Objectives
Financial objectives
Profit-based objectives - Deal directly with the monetary return a retailer desires from its business.
Profit is the aggregate total of net profit after taxes— that is, the bottom line of the income statement.
Profit can be expressed as a percentage of net sales.
It can also be defined in terms of return on investment (ROI), which can be defined by—Return on assets (ROA) and Return on net worth (RONW).
LO 1

21. Strategic Profit Model
LO 1

22. Statement of Goals and Objectives
Financial objectives
Stockouts - Products that are out of stock and therefore unavailable to customers when they want them.
LO 1

23. Statement of Goals and Objectives
Financial objectives
Productivity objectives - State the sales objectives that the retailer desires for each unit of resource input.
Space productivity - Net sales divided by the total square feet of retail floor space.
Labor productivity - Net sales divided by the number of full-time–equivalent employees.
Merchandise productivity - Net sales divided by the average dollar investment in inventory.
Productivity objectives are vehicles by which a retailer can program its business for high-profit results.
LO 1

24. Open or acquire on store over the next four years
Remodel one existing store every three years
Increase operating profit margin in each story by .25 percent for each six-month period
Increase clothing sales in existing stores by 10 percent over the preceding year

25. Strategies
Are a carefully designed plan for achieving the retailer’s goals and objectives.
Retailers can operate with three strategies:
Get shoppers into your store.
Convert these shoppers into customers by having them purchase merchandise.
Implement the above two strategies at the lowest operating cost possible that is consistent with the level of service that your customers expect.
LO 1

26. SWOT Analysis Strengths:
What major competitive advantage(s) do we have?
What are we good at?
What do customers perceive as our strong points?
Ikea
Target
McDonald's
LO 1

27. SWOT Analysis Weaknesses
What major competitive advantage(s) do competitors have over us?
What are competitors better at than we are?
What are our major internal weaknesses?
Ikea
Target
McDonald's
LO 1

28. SWOT Analysis Opportunities
What favorable environmental trends may benefit our firm?
What is the competition doing in our market?
What areas of business that are closely related to ours are undeveloped?
Ikea
Target
McDonald's
LO 1

29. SWOT Analysis
Threats
What unfortunate environmental trends may hurt our future performance?
What technology is on the horizon that may soon have an impact on our firm?
LO 1

30. Building competitive advantage
Physical differentiation
The selling process
After-purchase satisfaction
Location
Never being out of stock

31. Strategies
The retailer must develop a retail marketing strategy with strong financial elements.
A fully developed marketing strategy should address the following considerations: the specific target market, location, the specific retail mix that the retailer intends to use, and the retailer’s value proposition.
LO 1

32. Strategies
Target market - Group of customers that the retailer is seeking to serve.
Location - Geographic space or cyberspace where the retailer conducts business.
Retail mix - Combination of merchandise, price, advertising and promotion, location, customer service and selling, and store layout and design.
LO 1

33. Strategies
Value proposition - A clear statement of the tangible and/or intangible results a receives from shopping at and using the retailer’s products or services.
LO 1

34. 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. 34

35. Value and value chain…

36. Value Chain (Porter,1985)
Role: disaggregates a firm into its strategically relevant activities in order to identify and understand sources of competitive advantages
The value chain is unique to each business
…Competing in a business involves performing a set of discrete activities, in which competitive advantage resides
Competitive advantage cannot be understood by looking at a firm as a whole. It steams from the many discrete activities the firm performs in designing, producing, marketing, delivering and supporting its product.
A systematic way of examining all the activities a firm performs and how they interact is necessary for analyzing the sources of competitive advantage. The VALUE CHAIN is the essential tool in analyzing competitive advantage.
The VALUE CHAIN disaggregates a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation. A firm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors.

37. The Value Chain
An analytical tool that describes all activities that make up the economic performance and capabilities of the firm.
It is used to analyze and examine activities that create value for a given firm.

38. The Basic Value Chain Service Marketing and Sales
Human Resource Management
Technological Development
Outbound Logistics
Firm Infrastructure
Procurement
Operations
Inbound Logistics
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39. Identifying the Value Chain
What buyers are willing to pay
Support Activities
Primary Activities
Every firm is a collection of activities that are performed to design, produce, market, deliver and support its product. All this activities can be represented using a value chain (figure above), as a reflection of firm’s history, its strategy, its approach to implementing strategy, and the underlying economics of the activities themselves.
In competitive terms, value is the amount buyers are willing to pay for firm’s products/services. Value is measured by total revenue, a reflection of the price a firm’s product commands and the units it costs involved in creating the product. A firm is profitable if the value it commands exceeds the costs involved in creating the product.
The value chain displays value activities and margin. Value activities are physically and technologically distinct activities a firm performs. Margin is the difference between total value and the collective cost of performing the value activities.

40. Value Chain Analysis
Allows the firm to understand the parts of its operations that create value and those that do not
A template that firms use to:
Understand their cost position
Identify multiple means that might be used to facilitate implementation of a chosen business-level strategy
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41. Value Chain Analysis (cont’d)
Primary activities involved with:
A product’s physical creation
A product’s sale and distribution to buyers
The product’s service after the sale
Support activities
Provide the support necessary for the primary activities to take place
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42. Value Chain Analysis (cont’d)
Shows how a product moves from raw-material stage to the final customer
To be a source of competitive advantage, a resource or capability must allow the firm:
To perform an activity in a manner that is superior to the way competitors perform it, or
To perform a value-creating activity that competitors cannot complete
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43. 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 43

44. 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 44

45. 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? 45

46. 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 46

47. Retail Strategic Planning and Operations Management Model
LO 2

48. The Retail Strategic Planning and Operations Management Model
Operations management - Deals with activities directed at maximizing the efficiency of the retailer’s use of resources. It is frequently referred to as day-to-day management.
The need to strive for a high profit is tied to the extremely competitive nature of retailing.
LO 2

49. Merchandising

50. Types of Merchandise
Staple Goods – items that are constantly in demand by customers. Examples are toothpaste, milk, or bread.
Used consistently and replaced on a regular basis
Sales are easily predictable because they are bought on a consistent basis.
Convenience Goods – small, inexpensive items that customers purchase frequently. Examples are gum, bottled water, or magazines.
Found in convenience stores, grocery stores or gas stations.

51. Fashion Goods – items that are popular at a certain time
Fashion Goods – items that are popular at a certain time. An example is clothing.
Includes any item that comes in or out of style
Retailer will maximize sales by acquiring the product as it is gaining popularity
Seasonal Goods – products that are popular only at a certain time of year. Examples are swimsuits, boxed chocolates, or snow skis.

52. The Merchandise Mix
Businesses must pay close attention to their target market and must obtain, develop, maintain, and continually improve upon their merchandise mix.
Components of the Mix
Merchandise Mix – made up of all the products that a business sells
Product Line – a group of closely related products that a business sells
Product Items – the products that make up a product line. A specific model or brand

53. Merchandise Mix Strategies
Development – develop new products to bolster the company’s image or to expand their market share.
Expansion – businesses can choose to add either new product items or new product lines.
Modification – altering a company’s existing product.
Deletion – may occur when a product is no longer useful, obsolete, not fashionable, or room is needed for another product.

54. Any questions???