Retail Strategy


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Retail Strategy

  1. 1. RETAIL STRATEGY <ul><li>RETAIL STRATEGY </li></ul><ul><li>A clear and definite plan outlined by the retailer to tap the market </li></ul><ul><li>A plan to build a long-term relationship with the consumers </li></ul><ul><li>Process of strategy formulation in retail is the same as that for any other industry </li></ul><ul><li>It starts with the retailer defining or stating the mission for the organization </li></ul><ul><li>The mission is at the core of the existence of the retailer </li></ul><ul><li>Other aspects of the strategy may change over a period of time or vary for different markets </li></ul>
  2. 2. RETAIL STRATEGY <ul><li>Establish Mission </li></ul><ul><li>Analyze Situation Objectives </li></ul><ul><li>Identify Options </li></ul><ul><li>Set Objectives </li></ul><ul><li>Obtain & Allocate Resources </li></ul><ul><li>Develop Implementation Plan </li></ul><ul><li>Monitor Progress & Control </li></ul>
  3. 3. RETAIL STRATEGY <ul><li>DEFINE MSSION OR PURPOSE </li></ul><ul><li>Mission statement is a long term purpose of the organization </li></ul><ul><li>It describes what the retailer wishes to accomplish in the markets in which he chooses to operate </li></ul><ul><li>Retailers mission statement would normally highlight the following </li></ul><ul><li>The products and services that will be offered </li></ul><ul><li>The customers who will be served </li></ul><ul><li>The geographic areas that the organization chooses to operate in </li></ul><ul><li>The manner in which he firm intends to compete </li></ul>
  4. 4. RETAIL STRATEGY <ul><li>CONDUCT A SITUATION ANALYSIS </li></ul><ul><li>Once the retail mission is defined, the retail organization needs to look inwards </li></ul><ul><li>Understand what its strengths and weaknesses are </li></ul><ul><li>Look outwards to analyze its opportunities and threats </li></ul><ul><li>Situation analysis helps the retailer determine his position and his strengths and weaknesses </li></ul><ul><li>Helps formulate a clear picture of the advantages and opportunities which can be exploited </li></ul><ul><li>The weaknesses need to be worked upon </li></ul><ul><li>This forms the basis or he core element of any strategy </li></ul>
  5. 5. RETAIL STRATEGY <ul><li>IDENTIFY OPTIONS / STRATEGIC ALTERNATIVES </li></ul><ul><li>After determining the strengths and weaknesses vis-à-vis he environment retailer needs to consider various alternatives available to tap a particular market </li></ul><ul><li>Igor Ansoff presented a matrix which looked at growth opportunities </li></ul><ul><li>He focused on firm’s present and potential products in the existing and new markets </li></ul><ul><li>Ansoff’s matrix also helps to understand the options available to a retailer </li></ul>
  6. 6. RETAIL STRATEGY <ul><li>IDENTIFY OPTIONS / STRATEGIC ALTERNATIVES </li></ul><ul><li>The alternatives available to a retailer are : </li></ul><ul><li>Market Penetration </li></ul><ul><li>Market Development </li></ul><ul><li>Retail Format Development </li></ul><ul><li>Diversification </li></ul>
  8. 8. RETAIL STRATEGY <ul><li>MARKET PENETRATION </li></ul><ul><li>Strategy may focus either on: </li></ul><ul><li>- Increasing the number of customers </li></ul><ul><li>- Increasing the quantity purchased by customers(basket </li></ul><ul><li>size) </li></ul><ul><li>- Increasing the frequency of purchase </li></ul><ul><li>Increasing the number of customers can be achieved by adding new stores and by modifying the product mix </li></ul><ul><li>Another approach is to encourage salespeople to cross sell </li></ul><ul><li>Market penetration strategy is the least risky one, since it leverages many of the firm’s resources and capabilities </li></ul><ul><li>However, market penetration has limits </li></ul><ul><li>Once the market approaches saturation, a new strategy needs to be pursued if the firm is to continue growth </li></ul>
  9. 9. RETAIL STRATEGY <ul><li>MARKET EXPANSION / DEVELOPMENT </li></ul><ul><li>When a retailer is said to reach out to new market segments or </li></ul><ul><li>completely changes his customer base </li></ul><ul><li>This strategy involves : </li></ul><ul><li>- Tapping new geographical markets </li></ul><ul><li>- Introducing new products to the existing range that appeal to a </li></ul><ul><li>wider audience </li></ul><ul><li>Expansion by adding new retail stores to existing network is an example of geographical expansion </li></ul><ul><li>Introducing a pharmacy in a supermarket (eg. The medicine Shoppe at the Haiko Supermarket in Mumbai) is an example of a retailer introducing new products, appealing o a different audience </li></ul><ul><li>Another example is McDonald’s who introduced ice creams for Rs.7 </li></ul><ul><li>This not only created add on sales, but also brought in customers who had the perception that McDonald’s is an expensive fast food restaurant </li></ul>
  10. 10. RETAIL STRATEGY <ul><li>RETAIL FORMAT DEVELOPMENT </li></ul><ul><li>When a retailer is said to introduce new retail format to customers </li></ul><ul><li>Example fast food retailers like McDonald’s and Subway offer limited menus inside large department stores </li></ul><ul><li>Another example is bookstore chain Crosswords, opening smaller format stores by the name Crossword Corner at Shopper’s Stop </li></ul><ul><li>Strategy may be appropriate if the retailer’s strengths are related to specific customers, rather than to specific products </li></ul><ul><li>In this situation retailer can leverage its strengths by developing a new product targeted to his existing customers </li></ul>
  11. 11. RETAIL STRATEGY <ul><li>SET OBJECTIVES </li></ul><ul><li>Translation of mission statement into operational terms </li></ul><ul><li>Indicate </li></ul><ul><li>Results to be achieved </li></ul><ul><li>Give direction to and set standards for the measurement of performance </li></ul><ul><li>Management sets both long term and short term objectives </li></ul><ul><li>One or two year time frames for achieving specific targets are short term objectives </li></ul><ul><li>Long term objectives are less specific and reflect the strategic dimension of the firm </li></ul><ul><li>Two important focus areas of retailers - Market Performance </li></ul><ul><li>- Financial Performance </li></ul><ul><li>Objectives are set keeping these focus areas in mind </li></ul><ul><li>Sales volume targets </li></ul><ul><li>Market hare targets </li></ul><ul><li>Profitability targets </li></ul><ul><li>Liquidity targets </li></ul><ul><li>Returns on investment targets </li></ul>
  12. 12. RETAIL STRATEGY <ul><li>OBTAIN AND ALLOCATE RESOURCES NEEDED TO COMPETE </li></ul><ul><li>Resources needed by a retailer - Human Resources </li></ul><ul><li>- Financial Resources </li></ul><ul><li>1. Human Resource </li></ul><ul><li>HR plan must be consistent with overall strategy of the organization </li></ul><ul><li>HR management focuses on issues such as recruiting, selecting, training, </li></ul><ul><li>compensating, and motivating personnel </li></ul><ul><li>These activities must be managed effectively and efficiently </li></ul><ul><li>2. Financial Resources </li></ul><ul><li>Takes care of the monetary aspects of business </li></ul><ul><li>Shop rent, salaries and payments for merchandise </li></ul>
  13. 13. RETAIL STRATEGY <ul><li>DEVELOP THE STRATEGIC PLAN </li></ul><ul><li>At this stage strategy is determined through which retailer will achieve objectives </li></ul><ul><li>The retailer determines and defines his target market </li></ul><ul><li>The retailer finalizes the retail mix that will serve the audience </li></ul><ul><li>Target Market – that segment of consumer market that the retail orgn.decides to serve </li></ul><ul><li>No definite process of deciding and selecting the target market </li></ul><ul><li>Most retailers look at the entire market in terms of both size and consumer segments to </li></ul><ul><li>which it might appeal </li></ul><ul><li>From these segments he identifies smaller number of segments that appear promising </li></ul><ul><li>These become possible targets </li></ul><ul><li>Variables like growth potential, investment needed to compete, the strength of competition, etc are evaluated. </li></ul><ul><li>This enables the retailer to arrive at the best alternative that is most compatible with the organizations resources and skills </li></ul>
  14. 14. RETAIL STRATEGY <ul><li>DEVELOP THE STRATEGIC PLAN </li></ul><ul><li>Considerations for successful market segmentation </li></ul><ul><li>Measurable : The segment should be measurable and identifiable? </li></ul><ul><li>Accessible : Focusing market marketing efforts on a particular market segment should have a positive impact towards eliciting the desired response </li></ul><ul><li>Economically viable : The expense and efforts of focusing the marketing efforts in potential segments should be justified. </li></ul><ul><li>Stable : The consumer characteristics are indicators of market potential. Hence stable indicators to be considered. </li></ul>
  15. 15. RETAIL STRATEGY <ul><li>DEVELOP THE STRATEGIC PLAN </li></ul><ul><li>After choosing the target market the retail mix needs to be developed </li></ul><ul><li>This process involves </li></ul><ul><li>the determination of the merchandise mix </li></ul><ul><li>the pricing policy </li></ul><ul><li>types of location the retail stores would be located at - </li></ul><ul><li>services to be offered - </li></ul><ul><li>communication platform that would be adopted by the retailer </li></ul><ul><li>Next is the formulation of positioning strategy. This refers to </li></ul><ul><li>the image the retailer wants the customers to have in their minds about </li></ul><ul><li>the products and services </li></ul>
  16. 16. RETAIL STRATEGY <ul><li>IMPLEMENT THE STRATEGY, EVALUATE AND CONTROL </li></ul><ul><li>Implementation is the key to success of any strategy </li></ul><ul><li>Effective implementation of the retailers desired positioning requires </li></ul><ul><li>Every aspect of stores to be focused on the target market </li></ul><ul><li>Merchandising must be single-minded </li></ul><ul><li>Displays must appeal to target market </li></ul><ul><li>Advertising must talk to the target market </li></ul><ul><li>Personnel must have empathy for the target market </li></ul><ul><li>Customer service must be designed with the target customer in mind </li></ul>
  17. 17. RETAIL STRATEGY <ul><li>IMPLEMENT THE STRATEGY, EVALUATE AND CONTROL </li></ul><ul><li>After implementation the management needs feedback and should focus on </li></ul><ul><li>Performance </li></ul><ul><li>Effectiveness of long term strategy by periodic evaluation </li></ul><ul><li>Ensuring that the plans do not degenerate into fragmented ad-hoc efforts </li></ul><ul><li>Ensuring that all efforts are in harmony with he overall competitive strategy of business </li></ul><ul><li>Management can also use the process to decide on </li></ul><ul><li>Any future policy change </li></ul><ul><li>Modifications if any, in the plan, to ensure that the combination of the retailing mix variables support the firms strategy </li></ul>
  18. 18. RETAIL STRATEGY <ul><li>INTERNATIONAL EXPANSION – A GROWTH STRATEGY </li></ul><ul><li>Factors facilitating the rise of international retail trade </li></ul><ul><li>Removal of trade barriers between countries </li></ul><ul><li>The rise of consumerism </li></ul>
  19. 19. RETAIL STRATEGY <ul><li>Concept of international retailing (RETAIL INTERNATIONALIZATION) </li></ul><ul><li>More than just replicating retail stores in other countries and markets </li></ul><ul><li>Defined as “The management of retail operations in markets which are different from each other in their regulation, economic development, social conditions, cultural environment and retail structure.” </li></ul><ul><li>Typically retailers start as regional players </li></ul><ul><li>They develop operational efficiencies as they expand in size </li></ul><ul><li>Growth in size gives them financial resources </li></ul><ul><li>International expansion happens when retailer reaches a dominance in domestic market </li></ul><ul><li>Saturation in domestic market is also a reason for retailer to look at international expansion </li></ul>
  20. 20. RETAIL STRATEGY <ul><li>INTERNATIONAL EXPANSION – A GROWTH STRATEGY </li></ul><ul><li>Decision on entering a new market </li></ul><ul><li>Confidence of having a sound understanding of that market </li></ul><ul><li>Understanding of the cultural and buying habits of the local population </li></ul><ul><li>Ability to use technology, systems and processes available in that market </li></ul><ul><li>Understanding of the expected growth rates, density of population, income levels </li></ul>
  21. 21. RETAIL STRATEGY <ul><li>METHODS OF ENTERING A NEW MARKET </li></ul><ul><li>Export </li></ul><ul><li>Retailer having a distinct product / own brand that may be attractive </li></ul><ul><li>Franchising / licensing </li></ul><ul><li>Granting permission/license to a company in target country to use the property of the licensor </li></ul><ul><li>Property is intangible such as trade marks, patents and production techniques </li></ul><ul><li>Licensee pays a fee in exchange for the rights to use the intangible property </li></ul><ul><li>For franchising to be successful it is necessary for careful selection of partners </li></ul><ul><li>Partners should share the same understanding of the parent organizations vision mission, goals and the marketing plans and strategies </li></ul>
  22. 22. RETAIL STRATEGY <ul><li>METHODS OF ENTERING A NEW MARKET </li></ul><ul><li>Joint Venture </li></ul><ul><li>Strategic partnership between a local retailer and a international / foreign player </li></ul><ul><li>Benefits / Advantages </li></ul><ul><li>International player learns from expertise of domestic partner </li></ul><ul><li>Domestic retailer learns from foreign player the international practices </li></ul><ul><li>Key issues </li></ul><ul><li>Ownership, control, length of agreement, pricing, technology transfer, government regulations. </li></ul><ul><li>Many joint ventures involve one local partner and one foreign player </li></ul><ul><li>At times for convenience two retailers can also form a JV company to enter new market </li></ul>
  23. 23. RETAIL STRATEGY <ul><li>METHODS OF ENTERING A NEW MARKET </li></ul><ul><li>Acquisitions </li></ul><ul><li>One organization acquiring another organization </li></ul><ul><li>Easy way of entering non domestic market without any complications </li></ul><ul><li>Considerations : management structure </li></ul><ul><li>new operating culture </li></ul><ul><li>financial burden </li></ul><ul><li>Example : Shopper’s stop acquiring bookstore chain Crossword, </li></ul><ul><li>Wal-mart acquiring ASDA </li></ul><ul><li>Mergers </li></ul><ul><li>Imply : Coming together of two organizations to form a combined entity </li></ul><ul><li>Example : Retail giants Carrefour and Promodes in Europe </li></ul>
  24. 24. RETAIL STRATEGY <ul><li>METHODS OF ENTERING A NEW MARKET </li></ul><ul><li>Organic growth </li></ul><ul><li>Replication of retail format in a new non domestic market within the </li></ul><ul><li>regulatory framework of the new market. </li></ul><ul><li>It gives retailer the kind of control that he requires </li></ul><ul><li>It also requires a great deal of investment </li></ul><ul><li>Factors affecting decisions on entry in particular markets </li></ul><ul><li>Position in the domestic market : Expertise, leader, new entrant </li></ul><ul><li>Access to global systems </li></ul><ul><li>Ability to adapt to requirements of global markets </li></ul><ul><li>Long term commitment towards business </li></ul>
  25. 25. RETAIL STRATEGY <ul><li>RETAIL VALUE CHAIN </li></ul><ul><li>Retail Field : Very challenging and dynamic </li></ul><ul><li>Growth : Retailer grows from a single shop to a chain of retail stores. </li></ul><ul><li>From a local to a regional and national presence. </li></ul><ul><li>Strategy and planning becomes very important </li></ul><ul><li>Retailer should have a clear focus and strategy </li></ul><ul><li>Retail Strategy Models : Retailer can either become a pentagon player or a triangle </li></ul><ul><li>player </li></ul><ul><li>Pentagon : The retailer’s focus on </li></ul><ul><li>- Product Image </li></ul><ul><li>- Place </li></ul><ul><li>- Price / Value </li></ul><ul><li>- People </li></ul><ul><li>- Communications </li></ul>
  26. 26. RETAIL STRATEGY <ul><li>RETAIL VALUE CHAIN </li></ul><ul><li>Triangle : The retailer’s focus on </li></ul><ul><li>- Systems </li></ul><ul><li>- Logistics </li></ul><ul><li>- Suppliers </li></ul><ul><li>Above approaches to developing strategies are perhaps appropriate in mature marketplace </li></ul><ul><li>At present , retail in India is oriented towards the mass market </li></ul><ul><li>As such the retailer must consider all aspects of strategy development, such as product , price, place, communication and the supply chain </li></ul><ul><li>There is an absence of a robust infrastructure and inadequate capabilities of the service providers in India </li></ul><ul><li>Thus the retailer must necessarily invest in creating the appropriate support structure for its operations </li></ul>
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