1. Retail Marketing Strategy
Chapter 5
Retail Marketing Strategy
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

3. Retailing Strategy Human Resource Management Chapter 9
Retail Locations Chapters 7,8
Retail Market Strategy Chapter 5
Financial Strategy Chapter 6
Information and Distribution Systems Chapter 10
Customer Relationship Management Chapter 11

4. Questions What is a retailing strategy?
How can a retailer build a sustainable competitive advantage?
What steps do retailers go through to develop a strategy?
What different strategic growth opportunities can retailers pursue?
What retailers are best positioned to become global retailers?

5. More attention to long-term strategic planning than ever before
Due to the emergence of
New competitors
New formats
New technologies
Shifts in customer needs

6. 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
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7. Analyzing McDonalds’ Retail Strategy
Target market?
Retail offering (format)?
Bases for competitive advantage?
The McGraw-Hill Companies, Inc./John Flournoy, photographer
What Threats Might McDonald’s Face in the Future?

8. Examples of Retail Strategies
Steve & Barry’s
Chico’s
Curves
Magazine Luiza
Starbucks
What is the target market, retail offering, and source of competitive advantage for each retailer?

9. Steven & Barry’s Target Market
Value and quality conscious consumers for university sportswear
Retail Format
stores are in middle-market malls
extreme low prices, quality private-label merchandise, upscale surroundings (“Old Navy on steroids”)
Bases for Building Sustainable Competitive Advantage
No advertising
Aggressive incentives from mall owners
Creative approaches to working with vendors

10. Chico’s Strategy Target Market
Woman 35 to 55 Who Want Comfortable, Casual, But Stylish Apparel
Retail Format
Specialty Apparel Stores in Malls and Strip Centers Selling Private Label, Coordinated Outfits
Bases for Building Sustainable Competitive Advantage
Unique Merchandise Sized 0,1,2,3

11. Target Market
Why Does a Retailer Need to Focus on a Specific Target Market? Why Not Sell to Everyone?

12. Target market and retail format:
Retail Market Opportunities for Women’s Apparel

13. Question?
If TARGET decides to focus upon a limited set of markets for women’s apparel, which should it pursue?
What should the retail strategy be for that target market?

14. Criteria For Selecting A Target Market
Attractiveness -- Large, Growing, Little Competition More Profits
Consistent with Your Competitive Advantages
Rim Light/PhotoLink/Getty Images

15. Human Resource Management Distribution and Information Systems
Opportunities for retailers to develop sustainable competitive advantages
Customer Loyalty
Location
Human Resource Management
Distribution and Information Systems
Unique Merchandise
Vendor Relations
Customer Service
PhotoLink/Getty Images

16. 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?

17. Sources of Competitive Advantage
More Sustainable
Location
Customer Loyalty
Customer Service
Exclusive Merchandise
Low Cost Supply Chain Management
Information Systems
Buying Power with Vendors
Committed Employees
Less Sustainable
Better Computers
More Employees
More Merchandise
Greater Assortments
Lower Prices
More Advertising
More Promotions
Cleaner Stores

18. Internal and External Bases for Competitive Advantage
Retail Firm
Low Cost
Large Size
Efficient
Distribution,
Operations
Unique
Knowledge
Loyal Employees
Sources of
Capital
Vendors, Suppliers
Customers

19. Loyalty What does loyalty mean? Is It the same as liking a store?
…Going to the store frequently?

20. 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

21. 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

22. Loyalty Programs
Part of an overall Customer Relationship Management (CRM) program
Purchase behaviors of members of loyalty programs
Are identified when they buy because they use some type of loyalty card
Saved in Data Warehouse
What they buy
When they buy
How much they buy
How often they buy
How much they spend
What channel they use
Develop personalized marketing effort to them

23. Approaches for Building Customer Loyalty
Unique Positioning
Location
Customer Service
Information About Customers (Database)
Unique Merchandise

24. Example of Positioning

25. 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

26. Human Resources
“Employees are key to build a sustainable competitive advantage”
Strategies for Recruiting and Retaining Talented Employees
Employee Branding
Develop positive organizational culture

27. Distribution and Info Systems
Flow of Information
By decreasing costs here, the is more money available to invest in:
Vendor
Distribution Center
-Better services
-Increase in breadth and depth
-Decrease in prices
Store

28. Unique Merchandise: Private Labels
Sears’ Kenmore -- appliances
Federated’s Inc. – fine apparel
Kmart’s Martha Stewart -- home
JCPenney’s Arizona -- jeans
Rob Melnychuk/Getty Images
Jules Frazier/Getty Images
Jacobs Stock Photography/Getty Images

29. 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

30. High Quality Customer Service
Difficult to Achieve
People Are Not Machines -- Inconsistent
Retail Sales Associates At Bottom of Labor Pool
Goes Beyond Hiring Good People at High Wages and Training Them -- Organizational Culture

31. Critical Tradeoff In Developing Strategic Advantage
Focus Leads to Developing
A Competitive Advantage
But
Focus Reduces Flexibility
Low Cost, Consistent Image, Vendor Relationships Reduces Flexibility
Similar to Dating and Marriage – Commitment to a Relationship (Vendor) Reduces Flexibility

32. Growth Strategies Market Penetration Market Expansion
Retail Format Development
Diversification
Related vs. Unrelated
Ryan McVay/Getty Images

33. Growth Opportunities

34. Market Penetration
Attract customers from target market – Walgreens “on every corner”
Get current customer to visit store more often or buy on each visit
Cross Selling – sales associates in one department sell complimentary merchandise from other departments
Example: Manicurist sells services plus hand lotion or nail polish
Example: Salesperson sells leaf blower directs customer to electrical
department to purchase a 100 foot extension cord.

35. Market Expansion
Market expansion growth opportunity involves using the existing retail format in new market segments
Dunkin’ Donuts – new stores (and at gas stations) outside northeastern
Abercrombie & Fitch (for college students) opens lower-priced chain Hollister Co. for high school students

36. Retail Format Development
Develops a new retail format with a different retail mix for the same target market
Multi-channel retailing
UK based TESCO:
Tesco Express: small stores located close to where customers live and work
Tesco Metro: bring convenience to city center location by specializing in ready-to-eat meals
Tesco Superstores: traditional stores
Tesco Extra: one-stop destination with the widest range of food and non-food products

37. Diversification
Introduces a new retail format toward a market segment that is not currently served by the retailer
Related diversification
Unrelated diversification
Vertical integration into wholesaling or manufacturing

38. Global Growth Opportunities
Who Is Successful and Who Isn’t?
Specialty store retailers with strong brand and unique merchandise?
McDonald’s
Starbucks
Zara
H & M
Discount and food retailers with deep assortments and low prices?
Wal-Mart
Carrefour
Royal Ahold
Metro AG
Steve Cole/Getty Images

39. IKEA Operates 254 stores in 35 countries
Unique, well-designed, functional furniture at low prices for consumers who have sophisticated tastes, but have no intention to spend a lot
“You do our part. We do our part. Together, we save money.”

40. Why Do Category Killers and Supercenters Succeed Globally?
Developed operating expenses
Scale economies for buying merchandise globally
Unique systems and standardization formats which facilitate control over multiple stores
Understand that consumers are willing to forego service for lower prices
Ryan McVay/Getty Images

41. Key to Success in Global Retailing
Globally sustainable competitive advantage
Low cost, efficient operations - Wal-Mart, Carrefour
Strong private label brands: Starbucks, KFC
Fashion Reputation - The Gap, Zara, H&M
Category dominance – Best Buy, IKEA, Toys R Us
Adaptability
Global Culture
Financial Resources

42. Evaluating Global Growth Opportunities
Consider challenges and how to overcome them
China
Increasing operating costs
Lack of managerial talent
Underdeveloped and inefficient supply chain
India
Prefers small family-owned stores
Restricts foreign investment

43. Evaluating Global Growth Opportunities
Rankings are based on weighted score using growth (55%),
risk (25%), and
market size (20%)

44. Growth, Risk, and Market Size of Top 30 Countries

45. International Market Entry Strategies
Direct Investment
Joint Ventures
Strategic Alliances
Franchising
Profit and Risk
Lawrence Lawry/Getty Images

46. Stages in 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
5. Establish specific objectives and allocate resources
7. Evaluate performance and make adjustments
6. Develop a retail mix to implement strategy
4. Evaluate strategic alternatives

47. Elements in a Situation Audit

48. Market Factors
Market size – large markets attractive to large retail firms
Growth – typically more attractive than mature or declining
Seasonality – can be an issue as resources are necessary during peak season only
Business cycles – retail markets can be affected by economic conditions – military base towns

49. Competitive Factors Barriers to entry Bargaining power of vendors
Scale economies of big box retailers
Service and unique, high-end products of small retailers
Bargaining power of vendors
Markets are less attractive when only a few vendors control the merchandise sold within it
Competitive rivalry
Defines the frequency and intensity of reactions to actions undertaken by competitors
Conditions leading to intense rivalry: a large number of same size retailers, slow growth, high fixed costs, a lack of perceived differences between competing retailers

50. Questions for Analyzing the Environment
New developments or changes -- technologies, regulations, social factors, economic conditions
Likelihood changes will occur
Key factors determining change
Impact of change on retail market firm, competitors

51. Performing a Self-Analysis
At what is our company good?
In which of these areas is our company better than our competitors?
In which of these areas does our company’s unique capabilities provide a sustainable advantage or a basis for developing one?
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52. Strengths and Weaknesses Analysis
Management Capability: Capabilities and experience of top management Depth of Management--capabilities of middle management Management’s commitment to firm
Financial Resources: Cash flow from existing business Ability to raise debt or equity financing
Operations: Overhead cost structure Quality of operating systems Distribution capabilities Management information systems Loss prevention systems Inventory control system
Merchandising Capabilities: Knowledge and skills of buyers Relationships with vendors Capabilities in developing private capabilities
Store Management Capabilities Management capabilities Quality of sales associates Commitment of sales associates to firm
Locations
Customers Loyalty of customers

53. Illustration of the Strategic Retail Planning Process
Kelly Bradford – Owner of Gifts To Go
Two Store Chain in Chicago
Target Market – Upper Income Men and Women Looking for Gifts between $50 and $500
Strong Customer Loyalty Based on Knowing What Customers Want, Providing Good Customer Service
Low Turnover Among Associates

54. Mission Statement for Gifts To Go
“The mission of Gifts-to-Go is to be the leading retailers of higher-priced gifts in the Chicago and provide a stable income of $100,000 per year for the owner.”
Define growth opportunities will and won’t consider
Indicates objective of company

55. Situation Analysis of Gifts to Go
Market Factors
Chicago is an attractive market. (+)
Relatively expensive gifts are not affected much by the economy. (+)
Gifts are highly seasonal. (-)
Competitive Factors
Many in area. Primary department stores, craft galleries, catalogs, and Internet retailers (-)
Lack of large suppliers, customer (+)
Opportunities for differentiation (+)
Limited competitive rivalry. (+)

56. Situation Analysis of Gifts to Go
Environmental Factors
Potential Threat - Development of electronic channel by traditional bricks and mortar retailers (-)
Strengths and Weaknesses
Management Capability – Limited
Financial Resources – Good
Operations – Poor
Merchandise Capabilities – Good
Store Management Capabilities – Excellent
Locations – Excellent
Customer Loyalty – Good
Customer Database - Good

57. Growth Opportunities for Gifts to Go
Market Penetration
Increase size of present stores
Open additional gifts stores in Chicago area
Market Expansion
Open gift stores outside Chicago area
Sell lower priced gifts in present stores
Ryan McVay/Getty Images

58. Growth Opportunities for Gifts to Go
Retail Format Development
Sell non-gift merchandise to same customers in present or new stores
Sell similar gifts to same customers through an electronic channel
Diversification
Manufacture craft gifts
Open an apparel store targeting teenagers
Open a category killer store selling a broader assortment of gifts

59. Evaluating Growth Opportunities for Gifts to Go
Market Attractiveness
Market Penetration
Increase size of present stores (low)
Open additional gifts stores in Chicago area (medium)
Market Expansion
Open gift stores outside Chicago area – new geographic segment (medium)
Sell lower priced gifts in present stores – new benefit segment (medium)

60. Evaluating Growth Opportunities for Gifts to Go (continued)
Market Attractiveness
Retail Format Development
Sell non-gift merchandise to same customers in present or new stores (High)
Sell similar gifts to same customers through an electronic channel (High)
Diversification
Manufacture craft gifts (High)
Open an apparel store targeting teenagers (High)
Open a category killer store selling a broader assortment of gifts (High)

61. Evaluating Growth Opportunities for Gifts to Go
Competitive Position
Market Penetration
Increase size of present stores (High)
Open additional gifts stores in Chicago area (Medium)
Market Expansion
Open gift stores outside Chicago area (Low)
Sell lower priced gifts in present stores (low)

62. Evaluating Growth Opportunities for Gifts to Go (continued)
Competitive Position
Retail Format Development
Sell non-gift merchandise to same customers in present or new stores (Low)
Sell similar gifts to same customers through an electronic channel (Medium)
Diversification
Manufacture craft gifts (Low)
Open an apparel store targeting teenagers (Low)
Open a category killer store selling a broader assortment of gifts (Low)

63. Market Attractiveness/Competitive Position Matrix

64. Steps in Using Market Attractiveness - Competitive Position Matrix
Define strategic opportunities
Identify market attractiveness and competitive position factors
Assign weight based on importance of factors
Rate opportunities on market attractiveness and competitive position
Calculate scores and evaluate opportunities

65. Attractiveness Ratings for International Growth Opportunities

66. Competitive Position in International Growth Opportunities