Chapter 5
Retail Marketing Strategy
McGraw-Hill/Irwin
Retailing Management, 6/e
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
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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
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“Strategy” Is Over Used
Retailers Talk About A Lot of Different
“Strategies”
– Sales Strategy
– Advertising Strategy
– Merchandise Strategy
– Location Strategy
Strategy Is Not Just Another Term for
A Management Decision
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Strategic vs. Tactical Decisions
Strategic
Tactical
Direction
Implementation
Strategy statement
Annual plan
Broad
Specific, detailed
Unstructured
Structured
Problem solving
Problem solving
Creativity
Analytical
External focus
Internal focus
Irregular
Regular
Long-term
Short-term
Difficult to evaluate
Easy to evaluate
Note:
Success Comes for Having a Good Strategy and Executing It Well
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Elements in Retail Strategy
• Target Market
Customer Needs
• Retail Format
© image100 Ltd
Method for Satisfying Needs
• Bases for Building Sustainable Competitive Advantage
Defending Position Against Competitors
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What Is McDonalds’:
-Target market?
-Retail offering (format)?
-Bases for competitive
advantage?
The McGraw-Hill Companies, Inc./John Flournoy, photographer
Analyzing McDonalds’ Retail Strategy
What Threats Might McDonald’s Face in the Future?
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Examples of Retail Strategies
• Starbucks
• Kohls
• Restoration Hardware
• Ukrop’s
What is the target market, retail
offering, and source of competitive
advantage for each retailer?
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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
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Strategy for Looking for a Job
Determine Your Target
Market
– Area of Country
– Type of Company
– Type of Position
Assess and Exploit Your
Competitive Advantage
– Unique Skills,
Experience,
Knowledge
Photodisc/Punchstock
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Why Does a Retailer Need
to Focus on a
Specific Target Market?
Why Not Sell to Everyone?
Retail Market Opportunities for
Women’s Apparel
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Criteria For Selecting
A Target Market
• Attractiveness -Large, Growing,
Little Competition
More Profits
Consistent with Your
Competitive
Advantages
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Rim Light/PhotoLink/Getty Images
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Can A Retailer Develop a Sustainable
Competitive Advantage by:
• 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?
• Dropping the Price of Your
Merchandise?
PhotoLink/Getty Images
How to Develop a Sustainable
Competitive Advantage
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Internal and External Bases for
Competitive Advantage
Vendors,
Suppliers
Retail Firm
•Low Cost
•Large Size
•Efficient
Distribution,
Operations
• Unique
Knowledge
• Loyal Employees
Sources of
Capital
Customers
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Sources of Competitive Advantage
More Sustainable
Less Sustainable
•
•
•
•
•
•
•
•
•
•
•
•
•
Location
Customer Loyalty
Customer Service
Exclusive Merchandise
Low Cost Supply Chain
Management
• Information Systems
• Buying Power with
Vendors
• Committed Employees
Better Computers
More Employees
More Merchandise
Greater Assortments
Lower Prices
More Advertising
More Promotions
Cleaner Stores
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Loyalty
What does loyalty mean?
Is It the same as liking a store?
…Going to the store frequently?
Digital Vision / Getty Images
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How Retailers Build Loyalty
• Develop a strong brand for the
store or the store brands
• Develop clear precise
positioning strategies
• Create an emotional
attachment with customers
through loyalty programs
Royalty-Free/CORBIS
Approaches for Building
Customer Loyalty
Unique Positioning
Customer Service
Information About Customers (Database)
Unique Merchandise
Location
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Example of Positioning
Creating Store Loyalty
Mental and Emotional Attachments
• Elements in a Strong Brand
– Top of the Mind Awareness
– Associations with Brand/Store Name
• Methods Used to Develop a Strong Brand
– Massive Exposure
– Symbols to Reinforce Image
– Consistent Positioning Creating Strong
Associations
– Limited Brand Extensions
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Distribution and Info Systems
Flow of Information
Vendor
Distribution Center
By decreasing costs here, the
is more money available to
invest in:
-Better services
-Increase in breadth and depth
-Decrease in prices
Store
StockTrek/Getty Images
Rob Melnychuk/Getty Images
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Private Labels
Sears’ Kenmore -- appliances
Federated’s Inc. – fine apparel
Kmart’s Martha Stewart -- home
Jules Frazier/Getty Images
JCPenney’s Arizona -- jeans
Jacobs Stock Photography/Getty Images
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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
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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
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
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Growth Opportunities
•Market Penetration
•Market Expansion
•Retail Format Development
•Diversification
Ryan McVay/Getty Images
- Related vs. Unrelated
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Growth Opportunities
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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.
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International Growth Opportunities
Europe
China
Mexico
Latin America
Japan
Steve Cole/Getty Images
Why Do Category Killers and
Supercenters Succeed Globally?
Developed operating expenses
Scale economies for buying
merchandise globally
Unique systems and standardization
formats that facilitate control over
multiple stores
Understand that consumers are
willing to forego service for lower
prices
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Ryan McVay/Getty Images
Key to Success in
Global Retailing
• Domestic market leadership – strong base
• Exploiting core competencies –
competitive advantage
– Low cost - Wal-Mart, Carrefour
– Fashion Reputation - The Gap, Zara, H&M
– Category dominance – Best Buy, Office Depot
– Unique Image, Brand – Disney, IKEA,
Starbucks
• Adaptability
• Global Culture
• Long-term commitment
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Succeeding Internationally
Adaptability
Global culture
Financial resources
Global sustainable
competitive advantage
PhotoLink/Getty Images
International Market
Entry Strategies
Direct Investment
Joint Ventures
Strategic Alliances
Franchising
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Steps 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
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
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Elements in a Market Analysis
MARKET
FACTORS
Size
Growth
Seasonality
Business cycles
COMPETITIVE
FACTORS
ENVIRONMENTAL
FACTORS
ANALYSIS OF
STRENGTHS &
WEAKNESSES
Barriers to entry
Bargaining power of
vendors
Competitive rivalry
Threat of superior
new formats
Technology
Economic
Regulatory
Social
Management
capabilities
Financial resources
Locations
Operations
Merchandise
Store Management
Customer loyalty
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Market Factors
• Market size – large markets attractive to
large retail firms
• Growing markets – typically more
attractive than mature or declining
• Business cycles – retail markets can be
affected by economic conditions – military
base towns
• Seasonality – can be an issue as
resources are necessary during peak
season only
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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
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Competitive Factors
Barriers to Entry
Bargaining
Power of
Vendors
Competitive
Rivalry
Threat of
Substitution
Large
Customers
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Competitive Rivalry
• Large number of competitors all about the
same size
• Slow growth
• High fixed costs
• Lack of perceived differences between
competing retailers
Royalty-Free/CORBIS
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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 theses areas does out
company’s unique capabilities provide a
sustainable advantage or a basis for
developing one?
Stockbyte/Punchstock Images
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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:
Store Management Capabilities
Overhead cost structure
Quality of operating systems
Distribution capabilities
Management information systems
Loss prevention systems
Inventory control system
Management capabilities
Quality of sales associates
Commitment of sales associates to firm
Locations
Merchandising Capabilities:
Knowledge and skills of buyers
Relationships with vendors
Capabilities in developing private
capabilities
Customers
Loyalty of customers
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
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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
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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. (+)
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Situation Analysis of
Gifts to Go (continued)
• 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
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Growth Opportunities for
Gifts to Go
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• 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
Growth Opportunities for
Gifts to Go (continued)
• 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
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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)
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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)
5-50
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)
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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)
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Market Attractiveness/Competitive
Position Matrix
5-53
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
5-54
Characteristics of
International Markets
5-9
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Attractiveness Ratings for
International Growth Opportunities
5-56
Competitive Position in International
Growth Opportunities
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