Chapter 2
Building and Sustaining Relationships
in Retailing
Dr. Pointer
Chapter Objectives
To explain what “value” really means
and highlight its pivotal role in retailers’
building and sustaining relationships
To describe how both customer
relationships and channel relationships
may be nurtured in today’s highly
competitive marketplace
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Chapter Objectives_2
To examine the differences in
relationship building between goods and
services retailers
To discuss the impact of technology on
relationships in retailing
To consider the interplay between
retailers’ ethical performance and
relationships in retailing
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Overview
• To be successful as a retailer, he/she must apply
concepts of value and relation building so that :
a. customers believes retailer offers good value for
money and will want to shop often with them over
competitors
b. wholesalers will also want to do business
because they know customers patronize the
retailers
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What is Value?
 The bottom line:
Consumers will demand more for less from the
shopping experience
They will spend less time shopping
They will split the commodity-shopping trip from
the value-added shopping trip
Value is the difference between what is paid for
item and the perception of what is received
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What is Value?
Channel Perspective:
 Value is a series of
activities and
processes - the value
chain - that provides
a certain value for the
consumer
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Customer Perspective
 Value is the
perception that the
shopper has of the
value chain
 It is the view of all the
benefits from a
purchase versus the
price paid.
Retail Value Chain
Represents the total bundle of benefits
offered to consumers through a channel
of distribution
– Store location and parking, retailer
ambience, customer service,
brands/products carried, product
quality, retailer’s in-stock position,
shipping, prices, image, and other
elements
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Retailer Relationship
• Relationship retailing seeks to form and
maintain long-term bonds with customers,
rather than act as if each sales transaction
is a new encounter
• Customer Relationship is key
• Loyal customers are the backbone of a
prosperous business
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4 Factors Key to Relationship
Retailing
•
•
•
•
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Customer Base
Customer Service
Customer satisfaction
Loyalty programs/defection rates
Customer Base
• Analyze customers to see who they are
• Population trends – U.S. population is aging,
• Various factors influence shopping behavior
- More women than men shop
- Know the important reasons given for
shopping at various types of retailers
* apparel retailers *supermarkets
* discounters
Core customers (best customers) – nurture the
relationships
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Customer Service
• Customer service refers to the identifiable,
maybe intangible, activities done along with
products/service to sell products
• Expected – service level that customers
want to receive
• Augmented – activities that enhances the
shopping experience and gives a
competitive advantage
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3 Aspects of Value-Oriented
Retail Strategy
Expected
Augmented
Potential
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Potential Pitfalls to Avoid in Planning
a Value-Oriented Retail Strategy
• Planning value with just a price perspective
• Providing value-enhanced services that
customers do not want or will not pay extra
for
• Competing in the wrong value/price segment
• Believing augmented elements alone create
value
• Paying lip service to customer service
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Figure 2.2 A Value-Oriented
Retailing Checklist
 Is value defined from a consumer
perspective?
 Does the retailer have a clear value/
price point?
 Is the retailer’s value position
competitively defensible?
 Are channel partners capable of
delivering value-enhancing
services?
 Does the retailer distinguish
between expected and augmented
value chain elements?
 Has the retailer identified
meaningful potential value chain
elements?
 Is the retailer’s value-oriented
approach aimed at a distinct market
segment?
 Is the retailer’s value-oriented
approach consistent?
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 Is the retailer’s value-oriented
approach effectively
communicated to the target
market?
 Can the target market clearly
identify the retailer’s positioning
strategy?
 Does the retailer’s positioning
strategy consider trade-offs in
sales versus profits?
 Does the retailer set customer
satisfaction goals?
 Does the retailer periodically
measure customer satisfaction
levels?
 Is the retailer careful to avoid the
pitfalls in value-oriented retailing?
 Is the retailer always looking out
for new opportunities that will
create customer value?
Customer Service
• Expected customer
service is the
service level that
customers want to
receive from any
retailer such as
basic employee
courtesy
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• Augmented
customer service
includes the
activities that
enhance the
shopping experience
and give retailers a
competitive
advantage
Fundamental Decisions
What customer services are expected and
what customer services are augmented for
a particular retailer?
What level of customer service is proper to
complement a firm’s image?
Should there be a choice of customer
services?
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Fundamental Decisions_2
Should customer services be free?
How can a retailer measure the benefits of
providing customer services against their
costs?
How can customer services be terminated?
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Table 2.1 Typical Customer
Services
 Credit
 Delivery
 Alterations/
Installations
 Packaging/ gift
wrapping
 Complaints/ Return
handling
 Gift certificates
 Trade-ins
 Trial purchases
 Special sales
 Extended store hours
 Mail and phone
orders
Retailers must chose the level. Which of these and how extensive
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Table 2.1 Miscellaneous
Customer Services
 Bridal registry
 Restrooms
 Interior designers
 Restaurants
 Personal shoppers
 Baby-sitting
 Ticket outlets
 Fitting rooms
 Parking
 Beauty salons
 Water fountains
 Fur storage
 Pay phones
 Shopping bags
 Baby strollers
 Information
Retailers must chose the level. Which of these and
how extensive
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Figure 2.6 Turning Around Weak
Customer Service
Focus on
Customer Concerns
Empower Front-Line
Employees
Show That You Are
Listening
Express Sincere
Understanding
Apologize and Rectify
the Situation
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Customer Satisfaction
• Customer satisfaction occurs when the
value and expectations are meet or exceed
during the retail experience
• Most customers do not complain when
dissatisfied. They just shop elsewhere
• Retailers need to readily seek consumer
feedback to determine level of
satisfaction/dissatisfaction
HOW?
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Loyalty Programs
• Loyalty programs (frequent shopper) reward
best customers
• Chief benefits: Getting a good deal (67%)
Advance notice of sales (30%)
Coupons (31%)
Rebates/cash back (29%)
Rewards must be useful and attainable in a
reasonable period of time
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Must Have Good
Channel Relationships
• Members of distribution channel jointly
represent the value delivery system
• Each channel member is dependent on the
others to achieve its objective
• Value delivery system is only as good as the
weakest link – all trade members are key
• The nature of the value delivery system is
dependent on the target market
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Category Management
can improves relationship
• A practice to improve relationships between
retailers and wholesalers
• Channel members collaborate to manage
products by categories
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Principles of Category Management
 Retailers listen more to customers
 Profitability is improved because inventory
matches demand more closely
 By being better focused, each department is
more desirable for shoppers
 Retail buyers are given more responsibilities
and accountability for category results
 Retailers and suppliers must share data and be
more computerized
 Retailers and suppliers must plan together
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Figure 2.7 Elements Contributing to
Effective Channel Relationships
Consumer orientation,common positioning goals, Inputs into
decisions,trust, fairness, reliability, good communication,
coordination, consistency, activities being performed as
promised, proper lead time, equitable profit distribution,
marketing support, timeliness of payments, good inventory
planning
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Difference Between Service
and Good Retailing
• Goods retailing – focuses on sales of
tangible products
• Service retailing – focuses on transactions
in which consumers do not acquire
ownership of a tangible product
• Some items are a combination of goods and
services
• Note: customer service and retailing of
service are difference concepts
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3 Kinds of Service Retailing
Rented goods services- rent or use
tangible goods for specific time
Owned goods services – repairs made to
goods
Nongoods services – intangible personal
services are sold
Service retailing is highly dependent on
personal interactions and word of mouth
communications
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Four Characteristics of
Services Retailing
Intangibility
Inseparability
Perishability
Variability
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Figure 2.8a Characteristics of
Service Retailing
Intangibility
•No patent protection possible
•Difficult to display/communicate service benefits
•Service prices difficult to set
•Quality judgment is subjective
•Some services involve performances/experiences
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Figure 2.8b Characteristics of
Service Retailing
Inseparability
•Consumer may be involved in service production
•Centralized mass production difficult
•Consumer loyalty may rest with employees
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Figure 2.8c Characteristics of
Service Retailing
Perishability
•Services cannot be inventoried
•Effects of seasonality can be severe
•Planning employee schedules can be complex
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Figure 2.8d Characteristics of
Service Retailing
Variability
•Standardization and quality control hard to achieve
•Services may be delivered in locations
beyond control of management
•Customers may perceive variability
even when it does not actually occur
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Consumers perception of service
retailing is dependent on:
Know customer
needs
Promptness of
service
Convenience
Clarity of benefits
Reliability of self
service tech
Service environment
Service quality and
reliability
Quality of employees
Information about
service
Respectful contact
with customers
Service provided
as promised
Dependability in
handling problems
Service performed
right the first time
Readiness to respond
to customer request
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Technology and Relationships
in Retailing
• Technology maybe beneficial in promoting
good relationships
• It facilitates good communications
• Technology use may be perceived as cold
and impersonal
• New Technology must be efficient and
cause minimal disruptions to suppliers,
employees and customers
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Examples of Technology Use
• Banking
• Supplier interactions
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Consumer Advantages to
Self-Checkout
Shorter lines
Increased speed
Privacy
This is used by many retailers now. What is the future of
self checkout?
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Ethical Performance
• Retailers must consider their ethical
performance in three board areas
1. Ethics
2. Social Responsibility
3. consumerism
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Ethics
• Ethics deals with doing what is acceptable
by retailers constituencies (customers,
public, suppliers, competitors, and others)
• Some examples of ethical practices are?
• Many firms have established a code of
ethics
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Social Responsibility
• Social responsibility refers to retailers acting
in the interest of society as well as
themselves
• Often being socially responsible may mean
increased costs but not for all activities
• Retailers know that consumers are aware of
how socially responsible they are
• Give some examples of socially responsible
acts of retailers.
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Consumerism
• Consumerism involves the activities of
government, business, and other
organizations to protect people from
practices that infringing on their rights as
consumers or that are dangerous and
unsafe..
• John F. Kennedy bill of rights…
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Retailers Must Avoid Practices that
Violate Consumers Rights
• Some retail practices are covered by
legislation, Americans with Disabilities Act
(ADA) which mandates disable consumers
have access to retailers’ stores
• People more apt to patronize firms viewed
as customer oriented
• Consumers are more knowledgeable, cost
conscious and selective these days
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Retailers Must Avoid practices that
violate consumers rights
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Large retailers may be viewed as indifferent
Self-service technology can be frustrating
Innovative technology is unsettling
Retailers directly interact with customers
and maybe blamed for many problems
(often problems are caused by producers)
Questions
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