DC Lecture Three : Retail Strategic Planning and Evaluating the Competition


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DC Lecture Three : Retail Strategic Planning and Evaluating the Competition

  2. 2. Distribution Channels MKTG 1058 LECTURE THREE Part A: Retail Strategic Planning and Operations Management (Chapter 2) Part B: Evaluating the Competition in Retailing (Chapter 4) 3-22
  3. 3. Lecture 3: Part A Retail Strategic Planning and Operations Management (Chapter 2) 3-33
  4. 4. Learning Objectives of Chapter 2:  Explain why strategic planning is so important and be able to describe the components of strategic planning: statement of mission; goals and objectives; an analysis of strengths, weaknesses, opportunities, and threats; and strategy.  Describe the text’s retail strategic planning and operation management model, which explains the two tasks that a retailer must perform and how they lead to high profit. 3-4
  5. 5. Components of Strategic Planning Planning Is the anticipation and organization of what needs to be done to reach on objective. Strategic Planning Involves adapting the resources of the firm to the opportunities and threats of an ever changing retail environment. 3-5
  6. 6. Retail Strategy overall plan for guiding a retail An firmInfluences the firm’s business activitiesInfluences the firm’s response to market forcesStrategy is more critical than just developing a marketing or retail plan. (strategy = planning; why?) 3-6
  7. 7. Benefits of Strategic Retail Planning  Provides thorough analysis of the requirements for doing business for different types of retailers  Outlines retailer goals  Allows retailer to determine how to differentiate itself from competitors  Allows retailer to develop an offering that appeals to a group of customers  Offers an analysis of the legal, economic, and competitive environment  Provides for the coordination of the firm’s total efforts  Encourages anticipation and avoidance of crises 3-7
  8. 8. There are many models of StrategicPlanning:1. Dunne and Lusch Model (our prescribed text)2. Berman and Levy Model3. Levy and Weitz Model
  9. 9. Elements of aRetail Strategy (Berman & Evans Model) 3-9
  10. 10. The Levy & Weitz Model
  11. 11. Why the differences? The Berman & Evans model is a ‘process’ model; that is it looks at retailing strategy as a series of steps. It is more process or step based approach (where are we now→ where are going→ how do we get there) The Levy & Weitz model is more ‘issue-based’; it is not concerned about steps but rather focuses on the KEY issues of retail strategy
  12. 12. The Dunne and Lusch Model ofStrategic Planning in Retailing
  13. 13. Dunn & Lusch Model Looks nearly the same as the Berman & Evans model But:  Shows the impact of the external environmental, social and competitive forces on strategic planning  Elaborates the areas of:  Retail Marketing Strategy  Operations Management  This makes this model more contextually aligned to retailing strategy
  14. 14. Dunne & Lusch model focuses on these areas Think about how each of these aspects must be assessed in order to determine the effectiveness of the retail organization “are we using the right approaches?
  15. 15. Components of Strategic Planning (Dunne)  Mission Statement  Statement of Goals and Objectives  Strategies  SWOT Analysis 3-15
  16. 16. Components of Strategic Planning  Mission Statement is a basic description of the fundamental nature, rationale, and direction of the firm. Visit the website of a famous international retailing organization. View their mission statement. What does it say? http://www.ikea.com.sg/about_ikea/about_ikea.asp 3-16
  17. 17. Cold Storage: Our Vision To be the leading Fresh Food People. Our Mission We always care for our customers 3-17
  18. 18. Elements of a Mission Statement the kinds of values it intends to offer to serve the needs and wants of the consumers how it expects to how the retailer relate to the uses or intends ever-changing to use its environment resources 3-18
  19. 19. Components of Strategic Planning  Goals and Objectives Are the performance results intended to be brought about through the execution of a strategy.  Some objectives are financially based but others might be related to market performance indicators  Some objectives are quantitative, others are qualitative 3-19
  20. 20. Goals and Objectives Market Financial Performance Performance Objectives Objectives Societal Personal Objectives Objectives 3-20
  21. 21. Statement of Goals and Objectives  Market Performance Objectives represents how a retailer desires to be compared to its competitors.  Sales Volume  Market Share Is the retailer’s total sales divided by total market sales.  Financial Performance Objectives Represent the profit and economic performance a retailer desires. 3-21
  22. 22. Financial Performance Objectives: Profitability  Net Profit Margin  Asset Turnover  Return on Assets  Financial Leverage  Return on Net Worth 3-22
  23. 23. Financial Performance Objectives: Profitability  Net Profit Margin Is the ratio of net profit (after taxes) to total sales and shows how much profit a retailer makes on each dollar of sales after all expenses and taxes have been met.  Asset Turnover Is the total assets and shows how many dollars of sales a retailer can generate on an annual basis with each dollar invested in assets. 3-23
  24. 24. Financial Performance Objectives: Profitability Return on Assets (ROA) Is net profit (after taxes) divided by total assets. Financial Leverage Is total assets divided by net worth or owners’ equity and shows how aggressive the retailer is in its use of debt. Return on Net Worth (RONW) Is net profit (after taxes) divided by owners’ equity. 3-24
  25. 25. Strategic Profit Model Exhibit 2.1 3-25
  26. 26. The importance of understandingthis model: Past year exam questions have come out on this topic- REFER to Specimen Questions at the end of this lecture note You need to remember the formulae- not given in the exam The next few slides (taken from another text Levy and Weitz) show more examples of how the ratios are worked out
  27. 27. Components of the Strategic Profit Model ProfitManagement Asset Management
  28. 28. The Strategic Profit Model:An Overview Profit Margin x Asset turnover = Return on assets Net profit x Net sales (crossed out) = Net profit Net sales (crossed out) Total assets Total assetsNet Profit Margin: reflects the profits generated from each dollar of salesAsset Turnover: assesses the productivity of a firm’s investment in its assets
  29. 29. The Strategic Profit Model:Evaluating the Area of ‘Profit Management’ Sales A Gross 100 Margin - 40 Cost of Net Profit Goods Sold Net Profit 15 60 Margin - 15%  Total Sales Expenses 100 25
  30. 30. The Strategic Profit Model:Examining the Area of ‘Asset Management’ Inventory B 5 Sales Asset Current + Accounts 100 Turnover Assets Receivable  2.5 10 4 Total Assets 40 + + Other Current Fixed Assets Assets 30 1
  31. 31. The Strategic Profit Model:Return on Assets Profit Management Sales Net Profit Gross Mar 100 A 15 40 - Net Profit Margin Cost Goods Sold ÷ - 15% Sales Total Exp. 60 Return on ( Net Profit Net Sales ) 100 25 Assets Times Inventory Asset Management 37.5% Sales 5( Net Profit Total Assets ) Asset Turnover 100 Current Assets + A/R 2.5 ÷ Total Assets 10 4 B ( Net Sales Total Assets ) 40 + Fixed Assets + Other Current Assets Net Profit = Net Profit x Net Sales 30 1 Total Assets Net Sales Total Assets
  32. 32. Financial Implications of Strategies Used ByTwo Different Kinds of Retailers: Bakery and Jewelry Store So what implications can you derive from the figures shown above? What does it tell you about the NATURE of retailing operations as compared between the two types of businesses? Discuss.
  33. 33. Financial Performance Objectives: Productivity Productivity Objectives: State the sales objective that the retailer desires for each unit of resource input: floor space, labor, and inventory investment. 3-33
  34. 34. a) Space Productivity  Space productivity - net sales divided by the total square feet of retail floor space. A space productivity objective states how many dollars in sales the retailer wants to generate for each square foot of store space. 3-34
  35. 35. b) Labor Productivity  Labor productivity - net sales divided by the number of full-time-equivalent employees. A labor productivity objective reflects how many dollars in sales the retailer desires to generate for each full-time-equivalent employee. 3-35
  36. 36. c) Merchandise Productivity  Merchandise productivity - net sales divided by the average dollar investment in inventory. This objective (also known as sales-to-stock ratio) states the dollar sales the retailer desires to generate for each dollar invested in inventory. 3-36
  37. 37. Statement of Goals and Objectives  Societal Objectives Reflects the retailer’s desire to help society fulfill some of its needs.  Employment objectives  Payment of taxes  Consumer choice  Equity  Benefactor 3-37
  38. 38. Statement of Goals and Objectives  Personal Objectives Reflects the retailer’s desire to help individuals employed in retails fulfill some of their needs. Self-gratification Status and respect Power and authority 3-38
  39. 39. Retail Objectives Profitability Personal Societal Objectives Objectives Exhibit 2.2 3-39
  40. 40. Key issues in SWOT Strengths - (a) What major competitive advantage(s) do we have? (b) What are we good at? (c) What do customers perceive as our strong points? Weaknesses - (a) What major competitive advantage(s) do competitors have over us? (b) What are competitors better at than we are? (c) What are our major internal weaknesses? 3-40
  41. 41. Key issues in SWOT (cont’d) Opportunities - (a) What favorable environmental trends may benefit our firm? (b) What is the competition doing in our market? (c) What areas of business that are closely related to ours are undeveloped? Threats - (a) What unfortunate environmental trends exist that may hurt our future performance? (b) What technology is on the horizon that may soon have an impact on our firm? 3-41
  42. 42. Some examples of SWOT summaries for major retailingorganizations: Tesco 3-42
  43. 43. Some examples of SWOT summaries for major retailingorganizations: Carrefour 3-43
  44. 44. Some examples of SWOT summaries for major retailingorganizations: Wal-Mart 3-44
  45. 45. Strategies  Strategy Is a carefully designed plan for achieving the retailer’s goals and objectives. 3-45
  46. 46. Minimal Retail Strategies  Get shoppers into your store.  Convert these consumers into customers by having them purchase merchandise.  Do this at the lowest operating cost possible that is consistent with the level of service that your customers expect. 3-46
  47. 47. Retail Strategies: Differentiation  Many retailers go further and use strategies that enable them to differentiate themselves from the competition in order to accomplish these three tasks. They do this by means of differentiation -- that is, what sets them apart from their competition  How do you think retailers can set themselves apart from rival retailers? What strategies could be used? 3-47
  48. 48. Differentiation in Retailing 1. price, which is a very dangerous strategy to use, unless a retailer has substantially lower operating costs, since it can easily be copied by the competition and will result in reducing profits or causing losses. 2. physical differentiation of the product 3. the selling process by offering outstanding service 4. after-purchase satisfaction by taking care of the customer after the sale has been made 5. location or the ease with which the customer can get to the retailer 6. never being out-of-stock on sizes, colors, and styles that the retailers target market expects the retailer to carry 3-48
  49. 49. Retailing Strategies  Target Market Is the group or groups of customers that the retailer is seeking to serve.  Location Is the geographic space or cyberspace where the retailer conducts business.  Retail mix Is the combination of merchandise, assortment, price, promotion, customer service, and store layout that best serves the segments targeted by the retailer. 3-49
  50. 50. Strategies  Retail mix: Is the combination of merchandise, assortment, price, promotion, customer service, and store layout that best serves the segments targeted by the retailer. 3-50
  51. 51. The Retail Mix 3-51
  52. 52. Retail Mix Strategies 1. Merchandise strategy: • What is the optimum range of product lines to carry? The VARIETY, BREADTH and the DEPTH of the range (covered in chapter; see page 293) • Which lines will optimize profits? • Which lines provide best inventory turnover? • How would the merchandise selection help to differentiate the retail store? 3-52
  53. 53. Retail Mix Strategies 2. Location strategy: • Where is the best location of the store (site selection) • How does the location of the store impact on the pulling power of customers within the trading area? • What about competition around the location? Is it under or over stored? • What is the best location within a mall or shopping centre? 3-53
  54. 54. Retail Mix Strategies 3. Price strategy: • How does the retailer use pricing as a means of competition and defending market share • Price is often used as a short-term promotional incentive in order to draw traffic into the store • And achieve sales volume and market share gains 3-54
  55. 55. Retail Mix Strategies 4. Customer service strategy: • How does the retailer use staff to differentiate from other competitors? • The staff needs to be highly motivated (financial and non-financial) in order to provide consistently high quality of customer service • The staff needs to be both customer oriented as well as having high degree of product knowledge 3-55
  56. 56. Retail Mix Strategies 5. Promotions strategy: • How does the retailer use the different tools of promotions (promotions mix) in order to generate attention and store visits? • Key aspects of retail promotions strategy • Often short term focus • Covering a specific trading area • Usually focused on building store image and loyalty 3-56
  57. 57. Analyze the retailing (marketing mix) of differenttypes of retailers 3-57
  58. 58. Example: Retail mix for an up-market watch store(Hour Glass) Fine watches and accessories, only top brands Skim pricing Selective media and events promotions High profile Project class and malls status in store design and layout Professional, excellent product knowledge 3-58
  59. 59. Types of Retail Strategies (Berman) 3-59
  60. 60. Understanding the “Retail Concept”  This is a critical topic for your course  Make sure in your field work on the project, you thoroughly understand the true retail concept of the store in question  The retail concept is similar to the “marketing concept”  What does the store stand for? What do its customers think about it?  What attributes make up the store image and its experiences it offers to its customers? 3-60
  61. 61. Strategies Value Proposition: A clear statement of the tangible and/or intangible results a customer receives from shopping at and using the retailer’s products or services. 3-61
  62. 62. Applying the Retailing ConceptCustomer Orientation Coordinated Effort Retailing Retail Concept Strategy Value Driven Goal Orientation 3-62
  63. 63. Examples of Retail Strategies•Starbucks What is the target market, retail•Courts offering, and source of competitive advantage for each•Bread Talk retailer?•Hour Glass 3-63
  64. 64. Read up about the retailing strategies of TESCO Good weblink: http://www.tescoplc.com/plc/about_us/strategy/
  65. 65. Service RetailingEven though manyflyers tried JetstarAsia for the firsttime because of itslow fares, theairline’s customerservice won themover. 3-65
  66. 66. Retail Planning and Management  Strategic Planning Is a plan of action detailing how the retailer will respond to the environment in an effort to establish a long-term course of action to follow. 3-66
  67. 67. After Strategic Planning we need to think of“operations management”  In the lectures to come ahead  All aspects of store management  Merchandise planning  Marketing and Promotions  Finance  HR  Customer Service  Logistics 3-67
  68. 68. Retail Planning and Management Administration Involves the acquisition, maintenance, and control of resources that are necessary to carry out the retailer’s strategy. 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 planning High-Profit Retailing To be a high profit retailer, the retailer needs good strategic planning coupled with strong operations management. 3-68
  69. 69. Retail Strategic Planning and OperationsManagement Model Exhibit 2.4 3-69
  70. 70. Understanding the Environment Consumer Behavior - Understand the determinants of consumers shopping behavior. Competitor Behavior - Develop a competitive strategy that is not easily imitated. Supply Chain Behavior - Keep abreast of supply chain members behavior and the possible effects it may have on ones strategy. Socioeconomic Environment - Understand how economic and demographic trends will influence future sales. Technological Environment - Gather knowledge in regard to opportunities for improving operating efficiency. Legal and Ethical Environment - Be familiar with local, state and federal regulations; stay current with evolving legal patterns that may effect the industry while operating at the highest ethical standards. 3-70
  71. 71. Operations management  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.  High Performance Results - Achieved through the development and implementation of well-designed strategic, operational, and administrative plans. High performance results are indicative of industry leaders. Retailers must set high financial performance objectives so that they can at least maintain average operating results if planned results are not achieved. 3-71
  72. 72. In an earlier model used for discussion in Module One (Dunne & Lusch) We looked at these aspects of retailing: Think about how each of these aspects must be assessed in order to determine the effectiveness of the retail organization “are we using the right approaches?
  73. 73. Lecture 3: Part B Evaluating the Competition in Retailing (Chapter 4) 3-7373
  74. 74. Learning Objectives for Chapter 4 (Dunne):  Explain the various models of retail competition  Distinguish between various types of retail competition  Describe the four theories used to explain the evolution of retail competition  Describe the changes that could affect retail competition 3-74
  75. 75. Models of Retail Competition  The Competitive Marketplace  Market Structure  The Demand Side of Retailing  The Supply Side of Retailing  The Profit-Maximizing Price  Non-price Decisions  Competitive Actions 3-75
  76. 76. The Competitive Marketplace  While retailers typically compete for customers on a local level, catalog and electronic retailers compete at national and international levels.  Competition in retailing can come from different stores, different formats and from non-store alternatives 3-76
  77. 77. Retailers compete for target customers on fivemajor fronts:  The price for the value offered  Service level  Product selection (merchandise line width and depth)  Location or access (the overall convenience of shopping for the retailer)  Customer experience (the customers’ positive feelings and behaviors in the purchase process) 3-77
  78. 78. Market Structure  Pure Competition  Pure Monopoly  Monopolistic Competition  Oligopolistic Competition 3-78
  79. 79. Market Structure Pure Competition Occurs when a market has homogenous products and many buyers and sellers, all having perfect knowledge of the market, and ease of entry for both buyers and sellers. Pure Monopoly Occurs when there is only one seller for a product or service. 3-79
  80. 80. Market Structure  Monopolistic Competition Occurs when the products offered are different, yet viewed as substitutable for each other and the sellers recognize that they compete with sellers of these different products.  Oligopolistic Competition Occurs when relatively few sellers, or many small firms who follow the lead of a few larger firms, offer essentially homogeneous products and any action by one seller is expected to be noticed and reacted to by the other sellers. 3-80
  81. 81. Understanding competition using the Five Forces Model (Porter)This model helps to explain the intensity of competition in a givenindustry or market. The five forces are essentially sources of 3-81competition that directly affect the profitability of the retail business
  82. 82. Application Example: Using the Five Forces Model to analyze the Asian Airline Market 3-82 Marketing : An Introduction© Armstrong, Kotler & da Silva An Asian Perspective
  83. 83. Applying the Porter’s model to a retailingindustry situation: The threat of new Threat of new retailers coming entrants into the market and setting up shops or opening of new malls The choices that The manufacturers or The retail firm the buyer has- distributors who sell versus other can he buy from to the retailer- how existing rival many different big are they and how retailers- how retailers or just a powerful are their fierce is the few? brands? competition? Supplier power Buyer power Consumers can buy online off the Internet or shop in other countries such as Thailand Substitutes or Malaysia 3-83 © Strategy in Marketing (Pearson Asia 2010)
  84. 84. Competitive Factors (Five Forces)■ The nature of the competition in retail markets is affected by barriers to entry, the bargaining power of vendors, and competitive rivalry. Retail markets are more attractive when competitive entry is costly.■ Barriers to entry are conditions in a retail market that make it difficult for firms to enter the market. These conditions include scale economies, customer loyalty, and availability of locations. 3-84
  85. 85. Competitive Factors- Five Forces (cont’d)■ Scale economies are cost advantages due to a retailers size. Markets dominated by large competitors with scale economies are typically unattractive.■ Retail markets dominated by a well-established retailer that has developed a loyal group of customers offer limited profit potential.■ The availability of locations may impede competitive entry.■ A retail market with high entry barriers is very attractive for retailers presently competing in that market, but unattractive for retailers not already in that market. 3-85
  86. 86. Competitive Factors- Five Forces (cont’d)■ Another competitive factor is the bargaining power of vendors. Markets are unattractive when a few vendors control the merchandise sold in it. In these situations, the vendors have an opportunity to dictate prices and other terms, such as delivery dates, and thus reduce the retailers profits.■ The final industry factor is the level of competitive rivalry in the retail market, which is the frequency and intensity of reactions to actions undertaken by competitors. Conditions that may lead to intense rivalry include: (1) a large number of competitors that are all about the same size, (2) slow growth, (3) high fixed costs, and (4) the lack of perceived differences between competing retailers. 3-86
  87. 87. So which of the four kinds of market structuresbest typifies retailing in our local market?  All depends  Retailing can be characterized as monopolistic or, in rare cases, oligopolistic competition. The distinction between monopolistic competition and oligopolistic competition lies in the number of sellers.  Conventional economic thought suggests that for oligopoly to occur, the top four firms have to account for over 60 to 80 percent of the market. While some national retailers do have large market shares; oligopolistic competition does not actually occur on a national level. However, it is not uncommon at a local level. 3-87
  88. 88. Market Structure  Outshopping Occurs when individuals in one community travel usually to a larger community to shop. This happens when local prices become too high, merchandise selection too limited, or services too poor, then residents of these communities will travel to larger communities to shop. 3-88
  89. 89. The Demand Side of Retailing Exhibit 4.1 Demand as a Function of Price Price Quantity Demanded 3-89
  90. 90. The Supply Side of Retailing Total Costs Dollars TC= FC+VC Unit Sales Quantity or Sales Volume 3-90
  91. 91. The Profit-Maximizing Price  A profit-maximizing price seeks to get as much profit as possible from the sale of each unit. In the real world of marketing and retailing, is it possible to achieve profit maximizing positions in business? Why or why not? 3-91
  92. 92. The Relationship of Price Versus NonpriceActions and Demand CurvePrice Price Quantity Quantity Pricing Actions move Non-price Actions seek the consumer up and to shift the demand down the current curve to the right and demand curve make it more inelastic 3-92
  93. 93. Non-Price Decisions  Retailers that are able to remove themselves from price competition by differentiating themselves in some other way will achieve higher profits than those that fail to do this.  The retailer can offer private label merchandise that has unique features or offers better value than competitors.  The retailer could provide other benefits to the customer.  The retailer could master stock-keeping with its basic merchandise assortment. 3-93
  94. 94. Non-price Decisions Non-price competition strategies: Position itself as different from the competition by altering its merchandise mix to offer higher quality goods, great personal service, etc. Offering private label merchandise. Provide free services or products, such as free gas to out of town customers. Strive to always have basic merchandise in stock. 3-94
  95. 95. Non-price Decisions  Store Positioning Is when a retailer identifies a well-defined market segment using demographic or lifestyle variables and appeals to this segment with a clearly differentiated approach. 3-95
  96. 96. Competitive Actions  With so many retail establishments competing against each other, the profitability of all the retailers suffers.  Market Equilibrium - When the return on investment is high enough to justify keeping capital invested in retailing, but not so high to invite more competition 3-96
  97. 97. Competitive Actions  Competitive activity can be examined by the number of retail establishments of a given type per thousand households. 3-97
  98. 98. Competitive Actions  Overstored Is a condition in a community where the number of stores in relation to households is so large that to engage in retailing is usually unprofitable or marginally profitable.  Understored Is a condition in a community where the number of stores in relation to households is relatively low so that engaging in retailing is an attractive economic endeavor. 3-98
  99. 99. Suppliers as Partners and Competitors  While suppliers operate as partners to retailers in the channel, they also double up as competitors  Competitors in what sense?  Retailers need to compete to gain support of product supply, promotions and margins  The manufacturer could sell directly and compete as a retailer 3-99
  100. 100. Case Study: Lim Chee Guan and Kim JooGuan
  101. 101. Suppliers as Competitors and Partners  Suppliers compete for gross margins throughout the supply chain. The retailer must develop a loyal group of patrons that encourages the supplier to accommodate the needs of its retail partner.  Suppliers as partners – Suppliers can be a critical competitive advantage to retailers when they provide a unique product or promotion 3-101
  102. 102. Types of Competition  Intra-type and Inter-type Competition  Divertive Competition 3-102
  103. 103. Types of Competition  Intra-type Competition Occurs when two or more retailers of the same type as defined by NAICS codes in the Census of Retail Trade, compete directly with each other for the same households.  Inter-type Competition Occurs when two or more retailers of a different type, as defined by NAICS codes in the Census of Retail Trade, compete directly by attempting to sell the same merchandise lines to the same households. 3-103
  104. 104. Intra-type and Inter-type Competition  Intra-type competition for books. 3-104
  105. 105. Intra-type and Intertype Competition  Inter-type competition for video rentals. 3-105
  106. 106. Intra-type and Intertype Competition Intertype CompetitionSupermarkets offering Home Meal Replacements (HMR) McDonald’scompete with fast-food restaurants Supermarket Food Giant Supermarket Intratype Competition 3-106
  107. 107. Types of Competition  Divertive Competition Occurs when retailers intercept or divert customers from competing retailers.  It is significant because many retailers operate close to their break-even point, thus making them susceptible to any downturn in sales 3-107
  108. 108. Evolution of Retail Competition  The Wheel of Retailing  The Retail Accordion  Retail Life Cycle 3-108
  109. 109. Evolution of Retail Competition  The Wheel of Retailing Theory Describes how new types of retailers enter the market as low-status, low-margin, low- price operators; however, as they meet with success, these new retailers gradually acquire more sophisticated and elaborate facilities, and thus become vulnerable to new types of low-margin retail competitors who progress through the same patter. 3-109
  110. 110. Wheel of retailing  Wheel of Retailing Hypothesis - New retailers enter the market as low-status, low-margin, low-price operators. However, as they meet with success, these new retailers gradually acquire more sophisticated and elaborate facilities making them vulnerable to new types of low-margin retail competitors who progress through the same pattern.  The three stages are 3-110
  111. 111. Wheel of retailing stages:1. Entry Phase - New retailers enter the market as low-status, low-margin, low-profit operators.2. Trading-Up Phase - The new retailers experience success and acquire more sophisticated and elaborate facilities.3. Vulnerability Phase - Retailers find it necessary to raise prices and margins and therefore become susceptible to new types of low-margin competition. 3-111
  112. 112. The Wheel of Retailing Theory Exhibit 4.3 3-112
  113. 113. Evolution of Retail Competition  Retail Accordion Describes how retail institutions evolve from outlets that offer wide assortments to specialized stores and continue repeatedly through the pattern. 3-113
  114. 114. The Retail Accordion Wide Assortment Time Narrow Assortment Wide Assortment 3-114
  115. 115. Evolution of Retail Competition  Retail Life Cycle Describes four distinct stages that a retail institution progresses through: Introduction Growth Note: this is not the Maturity same as the Product Life Cycle Decline 3-115
  116. 116. Evolution of Retail Competition: The Retail Life Cycle Introduction Begins with an aggressive, bold entrepreneur who is willing and able to develop a different approach to retailing of certain products. During this stage profits are low, despite increasing sales levels. Growth Sales and profits explode, validating the entrepreneur’s good idea. New retailers enter the market and begin to copy the retailers idea. Late in this stage both market share and profitability approach their maximum levels. 3-116
  117. 117. Evolution of Retail Competition: The Retail Life Cycle  Maturity Market share stabilizes and profits decline because:  managers use to managing simple small retail outlets must now manage large complex firms,  industry has over-expanded, and  competitive assaults by new retail formats.  Decline The once promising idea is no longer needed in the marketplace. As a result, market share and profits fall 3-117
  118. 118. Retail Institutions in the Four Stages ofThe Retail Life Cycle Exhibit 4.4 3-118
  119. 119. Retail Life Cycle in Asia  Do you see changing patterns of retailing in cities in Asia?  What changes are taking place in terms of new malls and retailing formats?  What are the more mature and declining forms of retailing?  What are the newly emerging ones?  Do you think customers accept new types of retailing concepts easily? 3-119
  120. 120. Resource-Advantage Theory  Resource-advantage theory Is based on the idea that all firms seek superior performance in an ever-changing environment.  Illustrates two important lessons for retailers:  Superior performance at any point in time is a result of achieving a competitive advantage in the market place as a result of some tangible or intangible entity (“resource”).  All retailers cannot achieve superior results at the same time. 3-120
  121. 121. Future Changes in Retail Competition Nonstore New Retailing Retailing Formats Integration of Heightened Global Technology Competition Private Label Use 3-121
  122. 122. Future Changes in Retail Competition  Non-store Retailing  Direct selling  Catalog sales  E-tailing 3-122
  123. 123. Non store retailing Nonstore Retailing - Analysts contend that nonstore retailing (especially those that utilize the Internet) will experience significant growth during the next decade. Some of the forces contributing to this growth are:a.Consumers’ need to save time.b.Consumers’ desire to “time-shift.”c. The erosion of enjoyment in the shopping experience.d.The lack of qualified sales help in stores to provide information.e.The explosive development of the telephone, computer, and telecommunications equipment that facilitates nonstore shopping.f. The consumers preference for lower prices, which often eliminates the middlemans profit 3-123
  124. 124. Non-store Retailing  Direct Selling: Engaging in the sale of a consumer product or service on a person-to- person basis away from a fixed retail location.  Direct Marketers: Those who sell products by catalog, mail order, and the internet. 3-124
  125. 125. Non-store Retailing E-Tailing: The general belief that electronic, interactive, at-home shopping is definitely the place to be. Gen Xers and Baby Boomers tend to view the internet as a supplement to their daily lives. Gen Y customers are able to exist in both electronic and traditional worlds at once. 3-125
  126. 126. Non-store Retailing  Bricks & Click Approach: An approach that involves a tangible retail store that also offers its merchandise on the internet.  Online Only Approach: An online only approach is when the retailer only offers merchandise or services via the internet and not through a tangible store. 3-126
  127. 127. Future Changes in Retail Competition New Retail Formats  Super centers  Recycled Merchandise Retailers  Liquidators 3-127
  128. 128. Future Changes in Retail Competition: New Retail Formats  Off-price Retailers Sell products at a discount but do not carry certain brands on a continuous basis. They carry those brands they can buy from manufacturers at closeout or deep one-time discount prices.  Supercenters Combine a discount store and grocery store to carry 80,000 to 100,000 products in order to offer one- stop shopping. 3-128
  129. 129. Future Changes in Retail Competition: New Retail Formats Recycled Merchandise Retailers Are establishments that sell used and reconditioned products. Liquidators Liquidates leftover merchandise when an established retailer shuts down or downsizes 3-129
  130. 130. Future Changes in Retail Competition: Heightened Global Competition Increased Rate of Change Greater Creation of Diversity New Retail Formats 3-130
  131. 131. Global competition Heightened Global Competition - The rate of change in retailing appears to be directly related to the stage and speed of economic development in the countries concerned. 1. Even the least-developed countries are experiencing dramatic changes in retailing activities as newer formats are introduced. 2. Retailing in other countries exhibits even greater diversity in its structure than retailing in the United States. 3. The introduction of new retailing formats in one part of the country will impact retailers in other parts of the country. This is true regardless of whether the change occurs domestically or internationally. 4. Still, it is amazing that retailers from larger countries often do not have the level of success when entering a new country as compared to retailers from smaller countries. Retail experts attribute this failure by large country retailers to two factors. a. a lack of understanding of the new countrys culture. b. retailers from smaller countries have always had to deal with international issues if they were to expand. 3-131
  132. 132. International Aspects of Retailing(additional notes) 3-132
  133. 133. Retailing formats vary by country marketsFactors include: stage of economic development, consumer income levels,shopping preferences, product categories, etc 3-133
  134. 134. Top 25 Retail BrandsDownload the brand report:http://www.brandz.com/output/retail.aspx 3-134
  135. 135. Some of the largest global retailers:135 3-135
  136. 136. Global Retailers in Asia 3-136
  137. 137. The Retail Format Decisions: should the international retailer  Use the same format that operates in the home 137 country and replicate it in the foreign country market: example hypermarket  Use more than one form of retail trading format?  Tesco uses a few in the UK  Or use a completely adapted retail format that is common in the local market? 3-137
  138. 138. Changing the retail format A retailer can offer different types of retailing formats to suit different market segments 138 Even within a local country market, there could be different formats: Tops in Thailand 3-138 http://www.tops.co.th/main.html
  139. 139. The retail format: Local market conditions Population concentrations Transportation infrastructures 139 Customer buying patterns and preferences Stage of retail life cycle in the local market  Not all country markets are at the same stage of economic and retail development  The international retailer must study local market conditions to see if the retail format fits the stage of economic development 3-139
  140. 140. The rapidly changing Indian Retail landscape 140 Kiranas (Mom-&-Pop shops) General small-scale malls Mega malls 3-140
  141. 141. Retail Life Cycles: perhaps we could envisageAsian countries as follows? Malaysia ECONOMIC VIABILITY OF THE RETAIL FORMAT Philippines 141 Singapore Thailand Vietnam Superstore Integrated 3-141 concepts Malls
  142. 142. Adapting the product (merchandise) fordifferent country markets TESCO - Thailand 3-142 TESCO- Malaysia
  143. 143. The M&S product ranges Compare the product range between the UK stores and that in 143 Singapore http://www.marksandspe ncer.com/ 3-143
  144. 144. Store presentations of global retailers 3-144
  145. 145. Future Changes in Retail Competition: Integration of Technology Supply Chain Management Customer Customer Management Satisfaction 3-145
  146. 146. Use of technology in retailing  Retailers on the forefront of technology who seek to understand their consumers will achieve higher levels of effectiveness in their efforts.  Examples  CRM  Online marketing  Supply chain management  RFID 3-146
  147. 147. Future Changes in Retail Competition  Increasing Use of Private Labels  Helps in protecting retailer niche  Sets retailer apart from competition  Get customers in the store 3-147
  148. 148. Future Changes in Retail Competition Private Label Branding Strategies  Developing a partnership with well-known celebrities, noted experts, and institutional authorities.  Developing a partnership with traditionally higher- end suppliers to bring an exclusive variation on their highly regarded brand name to the market.  Reintroducing products with strong name recognition that have fallen from the retail scene.  Branding an entire department or business; not just a product line. 3-148
  149. 149. Past Year Exam QuestionsRetail Strategic Planning and Operations Management (Chapter 2) 3-149
  150. 150. May 2008Nov 2007 3-150
  151. 151. Nov 2007 3-151
  152. 152. 3-152
  153. 153. Nov 2007 3-153
  154. 154. April 2007 3-154
  155. 155. October 2006 3-155
  156. 156. Past Year Exam QuestionsEvaluating the Competition in Retailing (Chapter 4) 3-156
  157. 157. May 2008 3-157