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Chapter 5
 The Retail
 Market
 Strategy

Becky, 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 a
Sustainable
Competitive 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
   Advantage
More 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
Approaches for Building
Customer Loyalty
 Brand  Image
 Positioning
 Unique Merchandise
 Customer Service
 Customer Relationship Management
  Programs
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 Resources
Management
 “Employees are key to build a sustainable
 competitive advantage”

 Strategiesfor Recruiting and Retaining
  Talented Employees
 Employee Branding
 Develop positive organizational culture
Distribution and Info Systems
Flow 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 Growth
Opportunities
 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 Growth
Opportunities
 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 Growth
Opportunities
 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 Growth
Opportunities
 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 Strategic
Retail 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 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

            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 Strategic
Retail 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 Strategic
Retail 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 Strategic
Retail 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 Strategic
Retail Planning Process
 Step   3: Identify Strategic Opportunities
The Strategic
Retail 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 Strategic
Retail 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 Strategic
Retail 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 Strategic
Retail 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 Strategic
Retail 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 1
Groups 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 2
Groups 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 3
Groups 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.

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Chapter 5 - Retail Market Strategy

  • 1. Chapter 5 The Retail Market Strategy Becky, Sarah, Preston
  • 2. 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
  • 3. Criteria For Selecting A Target Market  Attractiveness -- Large, Growing, Little Competition More Profits  Consistent with Your Competitive Advantages
  • 4. Can A Retailer Develop a Sustainable Competitive 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?
  • 5. Sources of Competitive Advantage More 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
  • 6. 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
  • 7. 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
  • 8. Approaches for Building Customer Loyalty  Brand Image  Positioning  Unique Merchandise  Customer Service  Customer Relationship Management Programs
  • 9. 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
  • 10. Human Resources Management  “Employees are key to build a sustainable competitive advantage”  Strategiesfor Recruiting and Retaining Talented Employees  Employee Branding  Develop positive organizational culture
  • 11. Distribution and Info Systems Flow 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
  • 12. 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
  • 13. Growth Strategies Target Markets Existing New Market Market Existing Penetration Expansion Retail Format Diversification Format New (unrelated/ Development related) Exhibit 5-4; Pg. 123
  • 14. 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.
  • 15. 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
  • 16. 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
  • 17. 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
  • 18. 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
  • 19. Global Growth Opportunities  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)
  • 20. Global Growth Opportunities  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.
  • 21. Global Growth Opportunities  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
  • 22. Global Growth Opportunities  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
  • 23. The Strategic Retail 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.
  • 24. 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 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
  • 25. The Strategic Retail 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.
  • 26. The Strategic Retail 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
  • 27. The Strategic Retail 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
  • 28. The Strategic Retail Planning Process  Step 3: Identify Strategic Opportunities
  • 29. The Strategic Retail 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.
  • 30. The Strategic Retail 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.
  • 31. The Strategic Retail 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.
  • 32. The Strategic Retail 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]
  • 33. The Strategic Retail 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.
  • 34. Assignment 1 Groups 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.
  • 35. Assignment 2 Groups 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!
  • 36. Assignment 3 Groups 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.