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Chapter 5 - Retail Market Strategy

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Chapter 5 - Retail Market Strategy

  1. 1. Chapter 5 The Retail Market StrategyBecky, Sarah, Preston
  2. 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. 3. Criteria For Selecting A Target Market Attractiveness -- Large, Growing, Little Competition More Profits Consistent with Your Competitive Advantages
  4. 4. Can A Retailer Develop aSustainableCompetitive Advantage by: Dropping the Price of Your Merchandise? Building a Store at the Best Location? Deciding to Sell Some Hot Merchandise? Increasing Your Level of Advertising? Attracting Better Sales Associates by Paying Higher Wages? Providing Better Customer Service?
  5. 5. Sources of Competitive AdvantageMore Sustainable Less Sustainable Location  Better Computers Customer Loyalty  More Employees Customer Service  More Merchandise Exclusive Merchandise  Greater Assortments Low Cost Supply Chain  Lower Prices Management Information Systems  More Advertising Buying Power with  More Promotions Vendors  Cleaner Stores Committed Employees
  6. 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. 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. 8. Approaches for BuildingCustomer Loyalty Brand Image Positioning Unique Merchandise Customer Service Customer Relationship Management Programs
  9. 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. 10. Human ResourcesManagement “Employees are key to build a sustainable competitive advantage” Strategiesfor Recruiting and Retaining Talented Employees Employee Branding Develop positive organizational culture
  11. 11. Distribution and Info SystemsFlow of Information By decreasing costs Vendor here, there is more money Distribution Center available to invest in: Store -Better services -Increase in breadth and depth -Decrease in prices
  12. 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. 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. 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. 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. 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. 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. 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. 19. Global GrowthOpportunities Attractiveness of International Markets  Only 12 of the 50 largest retailers internationally have stores in one country.  Two Factors used to determine the Attractiveness of Different International Opportunities  PotentialSize of Retail Market in the country  Degree of Support form the country  See Exhibit 5-5 (page 126)
  20. 20. Global GrowthOpportunities Keys to Success  Globally Sustainable Competitive Advantage  Most successful when then expansion opportunity builds on the retailer’s core bases of competitive advantage  Ex. Walmart  Some retailers have a competitive advantage due to emulation of American culture  Adaptability  Retailersrealize they must adapt their core strategy and store designs/layouts to the needs of the local market  Ex. Color preferences, sizes  Government regulations and cultural values may also affect how a store is operated.
  21. 21. Global GrowthOpportunities Keys to Success  Global Culture  Retailers must thing globally  Ex. Carrefour’s global management structure  Financial Resources  Long-term commitment with considerable up-front planning  Can be difficult to generate short-term profits.  All stores initially have difficulty achieving success in new global markets
  22. 22. Global GrowthOpportunities Entry Strategies  Direct Investment  Retailfirm invests and owns a retail operation in a foreign country  Joint Venture  Entering retailer teams up with a local retailer to form a new company in which profits are shared  Strategic Alliance  Collaborative relationship between two firms for a single project  Franchising
  23. 23. The StrategicRetail Planning Process This is a set of steps a retailer goes through to develop, strategize, and plan. It describes how retailers select target market segments, determine the appropriate retail format, and build a sustainable competitive advantage. It is not always necessary to go through the entire process each time a strategy and plan are developed.
  24. 24. The StrategicRetail Planning Process 1. Define the business mission 2. Conduct a Situation Audit: Market Attractiveness Analysis Competitor Analysis Self-analysis 3. Identify Strategic Opportunities 4. Evaluate Strategic Alternatives 5. Establish Specific Objectives and Allocate Resources 6. Develop a Retail Mix to Implement Strategy 7. Evaluate Performance and Make Adjustments Exhibit 5-7; Pg. 131
  25. 25. The StrategicRetail Planning Process Step 1: Define Business Mission  The mission statement is a broad description of retailer’s objectives and the scope of activities it plans to undertake.  Itdefines the general nature of the target segments and retail formats on which the firm will focus on.  The principle objective of a publically held firm is to maximize stockholder wealth. Firms are concerned about their impact on society.
  26. 26. The StrategicRetail Planning Process Step 1: Define Business Mission  When developing a mission statement, managers need to answer five questions:  What business are we in?  What should our business be in the future  Who are our customers  What are our capabilities  What do we want to accomplish
  27. 27. The StrategicRetail Planning Process Step 2: Conduct a Situation Audit (SWOT Analysis)  This is an analysis of the opportunities and threats in the retail environment, and the strengths and weaknesses of the retail business relative to its competition.  The elements analyzed include:  Market Factors: Sixe, Growth, Seasonality, Business Cycles  Competition Factors: Barriers to entry, Bargaining Power of Vendors, Competition Rivalry  Internal Factors: Management Capabilities, Financial Resources, Location, Operations, Merchandise, Store Management, Customer Loyalty
  28. 28. The StrategicRetail Planning Process Step 3: Identify Strategic Opportunities
  29. 29. The StrategicRetail Planning Process Step 4: Evaluate Strategic Alternatives  The evaluation determines the retailer’s potential to establish a sustainable competitive advantage and reap long-term profits from opportunities being evaluated The retailer must focus on opportunities that utilize its strengths and its competitive advantage.
  30. 30. The StrategicRetail Planning Process Step 4: Evaluate Strategic Alternatives  Market attractiveness, strengths, and weaknesses need to be considered in this process.  The greatest investments should be made in market opportunities in which the retailer has a strong competitive position.
  31. 31. The StrategicRetail Planning Process Step5: Establish Specific Objectives and Allocate Resources  The specific objectives are goals against which progress toward the overall objective can be measured.  The specific objectives have three components:  The performance sought, including a numerical index against which progress may be measured.  A time frame which the goal is to be achieved.  The level of investment needed to achieve the objective.
  32. 32. The StrategicRetail Planning Process Step 6: Develop a Retail Mix to Implement Strategy  Investments will be made and control and evaluate performance.  [This will be covered in Sections III and IV]
  33. 33. The StrategicRetail Planning Process Step7: Evaluate Performance and Make Adjustments  If the retailer is meeting or exceeding its objectives, changes aren’t needed.  If the retailer fails to meet its objectives, reanalysis is required.  Reanalysis starts with reviewing the implementation programs but may indicate that the strategy or mission statement needs to be reconsidered. Conclusions may result in starting a new planning process, including a new situation audit.
  34. 34. Assignment 1Groups 1 & 2 Using a technology of your choice, find different companies that is a good example of each advantage (Customer Loyalty, Relationships with Suppliers, Efficiency of Internal Operations, and Location). Give specific examples as to why each firm is successful in its advantage. Be sure to use a different business for each advantage.
  35. 35. Assignment 2Groups 4 & 5 Find an example of Market Penetration. Find an example of Market Expansion. Find an example of Format Development. Find an example of Diversification. Using a technology of your choice, explain how the business is using each growth strategy and why the business is doing so. You must use a different business for each example. Be sure to give specific examples!
  36. 36. Assignment 3Groups 6 & 7 Using a technology of your choice, layout Steps 1 through 6 of the Strategic Planning Process for an existing business of your choosing. Then, choose the step in the Strategic Retail Planning Process that you believe is the most important and explain why you believe it is the most important. Back up your explanations with specific examples.

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