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Chapter 5 The Retail Market StrategyBecky, Sarah, Preston
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 mix Sustainable Competitive Advantage an advantage over the competition
Criteria For Selecting A Target Market Attractiveness -- Large, Growing, Little Competition More Profits Consistent with Your Competitive Advantages
Can A Retailer Develop aSustainableCompetitive 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?
Sources of Competitive AdvantageMore Sustainable Less Sustainable Location Better Computers Customer Loyalty More Employees Customer Service More Merchandise Exclusive Merchandise Greater Assortments Low Cost Supply Chain Lower Prices Management Information Systems More Advertising Buying Power with More Promotions Vendors Cleaner Stores Committed Employees
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
Retail Branding 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 Facilitates store loyalty because it stands for a predictable level of quality
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
Human ResourcesManagement “Employees are key to build a sustainable competitive advantage” Strategiesfor Recruiting and Retaining Talented Employees Employee Branding Develop positive organizational culture
Distribution and Info SystemsFlow of Information By decreasing costs Vendor here, there is more money Distribution Center available to invest in: Store -Better services -Increase in breadth and depth -Decrease in prices
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
Growth Strategies Target Markets Existing New Market Market Existing Penetration Expansion Retail Format Diversification Format New (unrelated/ Development related) Exhibit 5-4; Pg. 123
Growth Strategies Market Penetration Market Penetration Growth Opportunity- directed toward existing customers using the retailer’s present retailing format Ex. Opening more stores in the target market. Cross-selling- sales associates sell items that are not in their department Ex. Electronics Associate take a customer to clothing and sells them a pair of pants.
Growth Strategies Market Expansion Market Expansion Growth Opportunity- directed toward new customers using the retailer’s present retailing format Ex. Dunkin’ Donuts opening outside the US
Growth Strategies Retail Format Development Retail Format Development Growth Opportunity- directed towards existing customers using the retailer’s newly developed retailing format Ex. Tesco having both Tesco Metro and Tesco Express stores
Growth Strategies Diversification Diversification Growth Opportunity- directed toward new customers using the retailer’s newly developed retailing format; either Related or Unrelated Related Diversification Growth Opportunity- retailer’s present target market or retail format shares something in common with the market or format being considered
Growth Strategies Diversification Unrelated Diversification Growth Opportunity- retailer’s present target market or retail format and its new market or format have nothing in common Vertical Integration- retailers go into wholesaling or manufacturing
Global GrowthOpportunities Attractiveness of International Markets Only 12 of the 50 largest retailers internationally have stores in one country. Two Factors used to determine the Attractiveness of Different International Opportunities PotentialSize of Retail Market in the country Degree of Support form the country See Exhibit 5-5 (page 126)
Global GrowthOpportunities Keys to Success Globally Sustainable Competitive Advantage Most successful when then expansion opportunity builds on the retailer’s core bases of competitive advantage Ex. Walmart Some retailers have a competitive advantage due to emulation of American culture Adaptability Retailersrealize they must adapt their core strategy and store designs/layouts to the needs of the local market Ex. Color preferences, sizes Government regulations and cultural values may also affect how a store is operated.
Global GrowthOpportunities Keys to Success Global Culture Retailers must thing globally Ex. Carrefour’s global management structure Financial Resources Long-term commitment with considerable up-front planning Can be difficult to generate short-term profits. All stores initially have difficulty achieving success in new global markets
Global GrowthOpportunities Entry Strategies Direct Investment Retailfirm invests and owns a retail operation in a foreign country Joint Venture Entering retailer teams up with a local retailer to form a new company in which profits are shared Strategic Alliance Collaborative relationship between two firms for a single project Franchising
The StrategicRetail Planning Process This is a set of steps a retailer goes through to develop, strategize, and plan. It describes how retailers select target market segments, determine the appropriate retail format, and build a sustainable competitive advantage. It is not always necessary to go through the entire process each time a strategy and plan are developed.
The StrategicRetail Planning Process 1. Define the business mission 2. Conduct a Situation Audit: Market Attractiveness Analysis Competitor Analysis Self-analysis 3. Identify Strategic Opportunities 4. Evaluate Strategic Alternatives 5. Establish Specific Objectives and Allocate Resources 6. Develop a Retail Mix to Implement Strategy 7. Evaluate Performance and Make Adjustments Exhibit 5-7; Pg. 131
The StrategicRetail Planning Process Step 1: Define Business Mission The mission statement is a broad description of retailer’s objectives and the scope of activities it plans to undertake. Itdefines the general nature of the target segments and retail formats on which the firm will focus on. The principle objective of a publically held firm is to maximize stockholder wealth. Firms are concerned about their impact on society.
The StrategicRetail Planning Process Step 1: Define Business Mission When developing a mission statement, managers need to answer five questions: What business are we in? What should our business be in the future Who are our customers What are our capabilities What do we want to accomplish
The StrategicRetail Planning Process Step 2: Conduct a Situation Audit (SWOT Analysis) This is an analysis of the opportunities and threats in the retail environment, and the strengths and weaknesses of the retail business relative to its competition. The elements analyzed include: Market Factors: Sixe, Growth, Seasonality, Business Cycles Competition Factors: Barriers to entry, Bargaining Power of Vendors, Competition Rivalry Internal Factors: Management Capabilities, Financial Resources, Location, Operations, Merchandise, Store Management, Customer Loyalty
The StrategicRetail Planning Process Step 3: Identify Strategic Opportunities
The StrategicRetail Planning Process Step 4: Evaluate Strategic Alternatives The evaluation determines the retailer’s potential to establish a sustainable competitive advantage and reap long-term profits from opportunities being evaluated The retailer must focus on opportunities that utilize its strengths and its competitive advantage.
The StrategicRetail Planning Process Step 4: Evaluate Strategic Alternatives Market attractiveness, strengths, and weaknesses need to be considered in this process. The greatest investments should be made in market opportunities in which the retailer has a strong competitive position.
The StrategicRetail Planning Process Step5: Establish Specific Objectives and Allocate Resources The specific objectives are goals against which progress toward the overall objective can be measured. The specific objectives have three components: The performance sought, including a numerical index against which progress may be measured. A time frame which the goal is to be achieved. The level of investment needed to achieve the objective.
The StrategicRetail Planning Process Step 6: Develop a Retail Mix to Implement Strategy Investments will be made and control and evaluate performance. [This will be covered in Sections III and IV]
The StrategicRetail Planning Process Step7: Evaluate Performance and Make Adjustments If the retailer is meeting or exceeding its objectives, changes aren’t needed. If the retailer fails to meet its objectives, reanalysis is required. Reanalysis starts with reviewing the implementation programs but may indicate that the strategy or mission statement needs to be reconsidered. Conclusions may result in starting a new planning process, including a new situation audit.
Assignment 1Groups 1 & 2 Using a technology of your choice, find different companies that is a good example of each advantage (Customer Loyalty, Relationships with Suppliers, Efficiency of Internal Operations, and Location). Give specific examples as to why each firm is successful in its advantage. Be sure to use a different business for each advantage.
Assignment 2Groups 4 & 5 Find an example of Market Penetration. Find an example of Market Expansion. Find an example of Format Development. Find an example of Diversification. Using a technology of your choice, explain how the business is using each growth strategy and why the business is doing so. You must use a different business for each example. Be sure to give specific examples!
Assignment 3Groups 6 & 7 Using a technology of your choice, layout Steps 1 through 6 of the Strategic Planning Process for an existing business of your choosing. Then, choose the step in the Strategic Retail Planning Process that you believe is the most important and explain why you believe it is the most important. Back up your explanations with specific examples.