Chapter 5

strategic retail planning process

set of steps a retailer goes through to develop a strategy and plan describes how retailers select target market segments, determine the appropriate retail format, adn build sustainable competitive advantages. Not always necessary to go through the entire process each time.

vertical integration

describes diversification by retailers into wholesaling or manufacturing retailers that integrate backward and manufacture products are making risky investments because the requisite skills to make products are different from those associated with retailing them.

retail format

describes the nature of the retailer's operations - its retail mix (type of merchandise and services offered, pricing policy, advertising and promotion programs, store design and visual merchandising, typical locations, and customer services) - that it will use to satisfy the needs of its target market

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discounts offered by loyalty programs may not create loyalty. Customers may join loyalty programs of competing retailers and continue to patronize multiple retailers. However, the data collected about customer shopping behavior by these programs can provide insighs that enable retailers to build and maintain loyalty.

1. What business are we in? 2. What should our business be in the future? 3. Who are our customers? 4. What are our capabilities? 5. What do we want to accomplish?

questions to ask when developing a mission statement

cross-selling

sales associates in one department attempt to sell complementary merchandise from other departments to their customers

unorganized retailing

sector includes small independent retailers - local kirana (small neighborhood) shops, owner-operated general stores, paan/beedi shops, convenience stores, and handcart and street vendors.

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Designing private-label merchandise is a related diversification because it builds on the retailers knowledge of its customers, whereas actually making the merchandise is an unrelated diversification.

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Efficient internal operations enable retailers to have a cost advantage over competitors or offer customers more benefits than competitors at the same cost.

technological, economic/consumer/social and regulatory changes/

Environmental dynamics that can affect market attractiveness

1. building strong relationships with customers 2. building strong relationships with suppliers 3. achieving efficient internal operations Each of these approaches involves developing an asset - loyal customers, strong vendor relationships, committed effective human resources, efficient systems, and attractive locations - that is not easily duplicated by competitors.

3 approaches for developing a sustainable competitive advantage are:

1. Direct investment 2. Joint venture 3. Strategic Alliance 4. Franchising

4 approaches retailers can take when entering nondomestic markets

size - larger retailers can invest in developing sophisticated systems and spread the fixed cost of these systems over more sales human resource management - view employees as assets rather than an expense supply chain management systems - sophisticated distribution and information systems

Approaches for improving internal operating efficiencies:

Has the largest population and strongest economy in Latin America. It is a country of many poor people and very few wealthy families. Retailers are offering credit and installment purchases to low-income families. The very wealthy Brazillians are approximately 10% of the population, but make up approximatel 20 million people.

Brazil

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By expanding internationally, retailers can increase their sales, leverage their knowledge and systems across a greater sales base, and gain more bargaining power with vendors. BUT international expansion is risky, because retailers must deal with government regulations, cultural traditions, consumer preferences, supply chains, and languages.

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By strengthening relationships with each other, both retailers and vendors can develop mutually beneficial assets and programs that give the retailer-vendor pair an advantage over competing pairs. Relationships with vendors, like relationships with customers, are developed over a long time and may not be easily offset by a competitor.

1) A globally sustainable competitive advantage 2) Adaptability - recognize cultural differences and adapt core strategy to the needs of local markets. 3) Global culture - it is not sufficient to transplant a home-country culture and infrastructure to another country. 4) Financial resources - global expansion requires long-term commitment and considerable up-front planning.

Characteristics of retailers that have successfully exploited international growth opportunities:

When it comes to retailing at least, government regulations are much less onerous in China than in India, and direct foreign investment is encouraged. Ranked at the top emerging retail market at A.T. Kearney's annual GLobal Retail Development Index (GRDI). Even as its GDP has slowed, China maintains a thriving retail market, likely to reach the $8 trillion mark soon and surpass the U.S as the world's largest. The infrastructure needed to support modern retailing also continues to develop. However, doing business in China is challenging: operating costs are increasing, managerial talent is becoming more difficult to find and retain, and an underdeveloped and inefficient supply chain predominates.

China

The nature of competition in retail markets is affected by barriers to entry, bargaining power of vendors, and competitive rivalry. Markets are more attractive when barriers to entry are high.

Competitive factors

In India and most emerging economies, the retail industry is divided into organized and unorganized sectors. Most Indians shop in open markets. Less than 5% of India's retail sales are through organized retail channels. Yet India's growing, well educated, aspirational middle class wants a more sophisticated retail environment and global brands - a demand that international retailers are struggling to meet. As the world's largest pluralistic democracy, with myriad cultures and 22 official languages, India actually is a conglomeration of discrete markets. Previously, government regulations greatly restricted foreign investments in retailing; today, though some of the restrictions have been relaxed, foreign retailers still must comply with a myriad of regulations before opening stores and shipping merchandise. A new rule requires retailers to ensure that 30% of the products they sell have been produced locally.

India

1. location is the most important factor determining which store a consume patronizes. 2. location in a sustainable competitive advantage because it is not easily duplicated.

Location is a critical opportunity for developing competitive advantage for two reasons:

The attractiveness of a target market in which a retailer is involved or considering is affected by the size of the market, market growth, cycliccality of sales and seasonality. Growing markets are typically more attractive than mature or declining markets. Firms are often interested in minimizing the business cycle's impact on their sales. Thus, retail markets for merchandise that is affected by economic conditions (cars, major appliances) are less attractive than retail markets that are less affected by economic conditions (food). Markets with highly seasonal sales are unnattractive.

Market Factors

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Of the 20 largest retailers in the world, only 3 operate in one country. Expanding operations to international markets is particularly attractive for large retailers as they saturate their domestic market.

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Retail strategy isn't just another synonym of retail management.

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Retailers and manufactureres have different customers. The immediate customer for a manufacturer's products are retailers, while the retailer's customers are consumers. Thus, marketing activities of both are very different.

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Retailing is a labor-intensive business, in which employees play a major role providing services to customers and building customer loyalty. Underinvesting in employees makes operations more inefficient and less profitable. Knowledgeable and skilled employees committed to the retailer's objectives are critical assets that support the success of these retailers.

In 2015 ranked as one of the top countries in terms of retail growth; even though economic and political issues challenge is retail growth prospects, the market simply is too big for retail firms to ignore. Yet, corruption is rampant, and various administrative authorities can impede operations if they do not receive what they regard as appropriate bribe payments. Retailers also encounter severe logistical challenges in supporting their operations in Russia, including long delays at borders and ports and a scarcity of containers. The quality of domestic products made in Russia tends to be poor, so retailers cannot rely on local suppliers. Russia has Europe's largest Internet market (grows 10% annually). Threat for a financial crisis.

Russia

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Some U.S retailers have a competitive advantage in global markets because American culture is emulated in many countries, espcially by young people.

1. Define the business mission 2. Conduct a SWOT analysis - internal environment (strengths and weaknesses analysis) - external environment (opportunities and threats anaalysis) 3. Identify strategic opportunities 4. Evaluate strategic opportunities 5. Establish specific objectives and allocate resources 6. Develop a retail mix to implement strategy 7. Evaluate performance and make adjustments

Stages in the strategic planning process

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The emerging international markets that receive the most attention from global retailers are: Brazil, Russia, India, and China (BRIC nations).

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The retail strategy indicates how a retailer will deal effectively with its environment, customers, and competitors.

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The retail strategy is the bridge between understanding the world of retailing and more tactical merchandise management and store operations undertaken to implement the retail strategy.

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The use of sophisticated distribution and information systems offers an opportunity for retailers to reduce operating costs - the costs associated with running the business - and make sure that the right merchandise is available at the right time and place.

1. the potential size of the retail market in the country 2. the degree to which the country does and can support the entry of foreign retailers engaged in modern retail practices 3. the risks or uncertainties in sales and profits

Three factors that are often used to determine the attractiveness of international opportunities are:

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To build an advantage that is sustainable for a long period of time, retailers typically cannot rely on a single approach, such as good locations OR excellent customer service. Instead, they use multiple approaches to build as high a wall around their position as possible.

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Typically, retailers have the greatest competitive advantage and most success when they engage in opportunities that are similar to their present retail operations and markets. THUS, market penetration growth opportunities have the greatest chances of succeeding. AND, retailers have the least opportunity to exploit a competitive advantage when they pursue diversification opportunities.

market expansion growth opportunity

involves using the retailer's existing retail format in new market segments

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While the principle objective of a publicly held firm is to maximize its stockholder's wealth, firms also are concerned about their impact on society. Owners of small, privately held firms frequently have other objectives, such as achieving a specific level of income and avoiding uncertainty rather than maximizing income.

mission statement

a broad description of a retailer's objectives and the scope of activities it plans to undertake Attempts to answer 2 questions: What type of business are we? What do we need to do to accomplish our goals and objectives? These questions must be answered at the highest corporate levels. defines the general nature of the target segments and retail formats, on which the firm will focus.

retail community

a group of consumers who have shared involvement with a retailer

retail market segment

a group of consumers with similar needs and a group of retailers that satisfy those needs using a similar retail channels and format can be defined in terms of the customers' geographic location, demographics, lifestyle, buying situation, or benefits sought.

market penetration growth opportunity

a growth opportunity directed toward existing customers using the retailer's present retailing format involve either attracting new consumers from the retailer's current target market who don't patronize the retailer currently or devising approaches that get current customers to visit the retailer more often and/or buy more merchandise on each visit. approaches include opening more stores in the target market and/or keeping existing stores open for longer hours, displaying merchandise to increase impulse purchases, and training salespeople to cross-sell.

retail strategy

a statement identifying (1) the retailers target market, (2) the format and resources the retailer plans to use to satisfy the target market's needs, and (3) the bases on which the retailer plans to build a sustainable competitive advantage.

1. the performance sought, including a numerical index against which progress may be measured. 2. a time frame within which the goal is to be achieved 3. the level of investment needed to achieve the objective

components of specific objectives for opportunities

barriers to entry

conditions in a retail market that make it difficult for other firms to enter the market some of these conditions are: scale economies, customer loyalty, and the availability of great locations.

scale economies

cost advantages due to a retailer's size

customer relationship management (CRM) programs loyalty or frequent-shopper programs

activities that focus on identifying and building loyalty with a retailer's most valued customers. involve offering customers rewards based on the amount of services or merchandise they purchase.

sustainable competitive advantage

advantage the retailer maintains over its competition that is not easily copied by competitors and thus can last over a long period of time.

SWOT analysis

an analysis of the retailer's internal environment (strengths and weaknesses) and external environment (opportunities and threats)

retail format development growth opportunity

an opportunity in which a retailer develops a new retail format- a format with a different retail mix- for the same target market

Building a strong brand image - developing a well-known, attractive image of their brands and of the name over their doors. Reduces the risk associated with purchases. Assures customers that they will receive a consistent level of quality and satisfaction from the retailer. Can also create an emotional tie with a customer (leading to trust). Creating a unique positioning in the target market - on a perceptual map. Want to be near ideal points for the targeted segment. Offering unique merchandise - offer specific items that customers cannot find elsewhere and provide dedicated in-store experiences. Can also develop private-label brands. Providing excellent customer service - difficult to provide consistent service, because employees will always be less consistent than machines. implementing a customer relationship management program - offer rewards based on the number of services or merchandise purchased. building a retail community - members of the community share information with respect to the retailer's activities.

approaches to developing customer loyalty:

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employees will never provide a consistent level of service, because they vary in their training, motivation, and mood.

joint venture

formed when the entering retailer pools its resources with a local retailer to form a new company in which ownership, control, and profits are shared reduces the entrant's risks. In addition to sharing the financial burden, the local partner provides an understanding of the market and has access to local resources, such as vendors and real estate.

1. Market penetration 2. Market expansion 3. Retail format development 4. Diversification (unrelated/related)

four types of growth opportunities that retailers pursue:

perceptual map

frequently used to represent the customer's image and preferences for retailers the distance between two retailers' positions on the map indicates how similar those stores appear, according to consumers. (they thus compete vigorously)

unrelated diversification growth opportunity

has little commonality between the retailer's present business and the new growth opportunity

strategic alliance

is a collaborative relationship between independent firms.

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it is unusual for retailers to develop a long-term advantage by offering broader or deeper assortments of national brands. over time, all advantages erode due to competitive forces, but by building high walls, retailers can sustain their advantage for a longer time.

bargaining power of vendors

markets are less attractive when only a few vendors control the merchandise sold in the market In such cases, vendors have the opportunity to dictate prices and other terms (delivery dates), reducing the retailer's profits.

customer loyalty

means that customers are committed to buying merchandise and services from a particular retailer means that customers will be reluctant to switch and patronize a competitive retailer

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most retailers considering entry into foreign markets are successful multinational retailers that use sophisticated management practices. Thus, they would find countries that have modern retailing, more advanced infrasructures, and significant urban populations to be more supportive. Additionally, countries that lack strong domestic retailers but have stable economies and political environments would be more appealing.

direct investment

occurs when a retail firm invests in and owns a retail operation in a foreign country requires the highest level of investment and exposes the retailer to the greatest risks, but also has the highest potential returns. The retailer has complete control of the operations.

franchising

offers the lowest risk and requires the least investment, but also has the lowest potential return on investment The retailer has limited control over the retail operations in the foreign country, and any potential profits must be split with the franchisee. Potential threat that the franchisee will break away and operate as a competitor under a different name.

the aspects of the environment that might positively or negatively affect the retailer's performance. These factors associated with the market, competition, and environment dynamics are typically beyond the retailers control.

opportunities and threats analysis

diversification growth opportunity

opportunity in which a retailer introduces a new retail format directed toward a market segment thats not currently served by the retailer are either related or unrelated

private-label brands (store brands or own brands)

products marketed by and available only from that retailer to keep customers loyal.

1. what new developments or changes might occur, such as new technologies adn regulations or different social factors and economic conditions? 2. what is the likelihood that these environmental changes will occur? what key factors affect whether these changes will occur? 3. How will these changes affect each retail market, the firm, and its competitors?

questions to ask about environmental factors

the retailer's unique strategic capabilities relative to its competition. These unique capabailities are the assets, knowledge, and skills that the retailer posesses, such as the loyalty of its customers and the quality of its relationships with its vendors. reflect the retailers ability to develop a strategic advantage as an opportunity it is considering.

strengths and weaknesses analysis

positioning

the design and implementation of a retail mix to create an image of the retailer in the customer's mind relative to its competitors

competitive rivalry

the frequency and intensity of reactions to actions undertaken by competitors When high, price wars erupt, retailer's attempt to "steal" employees from one another, advertising and promotion expenses increase, and profit potential falls. Conditions leading to intense rivalry: (1) a large number of competitors that are all about the same size, (2) slow growth, (3) high fixed costs, (4) a lack of perceived differences between competing retailers.

target market

the market segment(s) toward which the retailer plans to focus its resources and retail mix

related diversification growth opportunity

the retailer's present target market and retail format shares something in common with the new opportunity (purchasing from the same vendors, operating in similar locations, using the same distribution or management information systems, or advertising in the same newspapers to similar target markets)