LOG 561 RETAIL MANAGEMENT
BUILDING AND SUSTAINING
RELATIONSHIPS IN RETAILING
What is Value? (cont.)
Channel
Perspective
• Value is a series
of activities and
processes (the
“value chain”)
that provide a
certain value for
the consumer.
Customer
Perspective
• Value is a perception
that the shopper has of
the value chain.
• It is the view of all the
benefits from a
purchase versus the
price paid.
Value and value chain…
Value Chain (Porter,1985)
Role: disaggregates a firm into its strategically relevant
activities in order to identify and understand sources of
competitive advantages
The value chain is unique to each business
…Competing in a business involves performing a set of
discrete activities, in which competitive advantage
resides
The Value Chain
• An analytical tool that describes all
activities that make up the economic
performance and capabilities of the firm.
• It is used to analyze and examine
activities that create value for a given
firm.
Copyright © 2004 SouthWestern. All rights reserved.
3–6
Service
Marketing and Sales
Outbound Logistics
Procurement
Technological Development
Human Resource Management
Firm Infrastructure
The Basic Value
Chain
Operations
Inbound Logistics
Identifying the Value Chain
Value
Support
Activities
What buyers
are willing to
pay
Primary Activities
Value Chain Analysis
• Allows the firm to understand the parts of its
operations that create value and those that do
not
• A template that firms use to:
– Understand their cost position
– Identify multiple means that might be used to
facilitate implementation of a chosen businesslevel strategy
Copyright © 2004 SouthWestern. All rights reserved.
3–8
Value Chain Analysis (cont’d)
• Primary activities involved with:
– A product’s physical creation
– A product’s sale and distribution to buyers
– The product’s service after the sale
• Support activities
– Provide the support necessary for the primary
activities to take place
Copyright © 2004 SouthWestern. All rights reserved.
3–9
Value Chain Analysis (cont’d)
• Value chain
– Shows how a product moves from raw-material stage
to the final customer
• To be a source of competitive advantage, a
resource or capability must allow the firm:
– To perform an activity in a manner that is superior to
the way competitors perform it, or
– To perform a value-creating activity that competitors
cannot complete
Copyright © 2004 SouthWestern. All rights reserved.
3–10
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
Potential Pitfalls to Avoid in Planning
a Value-Oriented Retail Strategy
• Planning value solely from 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
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 value-enhancing services?
Does the retailer distinguish between expected and
augmented value chain elements?
• Has the retailer identified potential value chain elements?
• Is the retailer’s value-oriented approach aimed at a distinct
market?
• Is the retailer’s value-oriented approach consistent?
A Value-Oriented
Retailing Checklist (cont.)
• Is the retailer’s value-oriented approach effectively
communicated?
• Can the target market clearly identify the retailer’s
positioning?
• Does the retailer’s positioning consider sales versus
profits?
• Does the retailer set customer satisfaction goals?
• Does the retailer measure customer satisfaction
levels?
• Is the retailer careful to avoid the pitfalls in valueoriented retailing?
• Is the retailer always looking out for new opportunities
that will create customer value?
Customer Service
• Augmented
• Expected
customer service
customer service
includes the
is the service level
activities that
that customers
enhance the
want to receive
shopping experience
from any retailer
and give retailers a
such as basic
competitive
employee courtesy.
advantage.
Expected Versus Augmented Levels of
Customer Service
• Expected– Must have elements;
do not differentiate retailer. While
absence of these expected values
provides anguish, presence does
not provide satisfaction
• Augmented—Services that can
provide a competitive advantage.
Double warranty, special delivery,
product demonstrations
Figure 2-4: Classifying Customer
Services
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?
• 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?
Turning Around Weak Customer
Service
Focus on
Customer Concerns
Show That You Are
Listening
Empower Frontline
Employees
Express Sincere
Understanding
Apologize and Rectify
the Situation
Customer Relationship Management
(CRM)
• A business philosophy and set of strategies,
programs, and systems that focus on
identifying and building loyalty with a
retailer’s most valuable customers.
11-20
CRM
• All customers are not equally profitable, and
more or less profitable customers need to be
treated differently
• Retailers now concentrate on providing more
value to their best customers using targeted
promotions and services to increase their
share of wallet – the percentage of the
customers’ purchases made from the retailer
11-21
Customer Loyalty
• Committed to purchasing merchandise and
services from a retailer
• Resist efforts of competitors to attract the
loyal customer
• Emotional attachment to retailer
– Personal attention
– Memorable positive experiences
– Brand building communications programs
11-22
Can Offering Price Discounts Achieve
Customer Loyalty?
No!
Retail strategies like these can be
copied by competitors
These strategies encourage customers
to be always looking for the best deal
rather than developing a relationship
with a retailer
McGraw-Hill Companies, Inc./Gary He, photographer
11-23
Identifying Best Customers
• Estimating Lifetime Value (LTV)
– The expected contribution from the customer
to the retailer’s profits over his or her entire
relationship with the retailer
• Use past behaviors to forecast future
purchases, the gross margin from these
purchases, and the costs associated with
serving the customers
• Classifying Customers by recency,
frequency, and monetary value of
purchases (RFM Analysis)
(c) Brand X Pictures/PunchStock
11-24
Which Customer Probably Has
the Greatest Lifetime Value
Purchases Over Last 10 Weeks
1 2 3 4 5 6 7 8 9 10
Jack $20 $20 $20 $20 $20 $20 $20 $20 $20 $20
Jill $210 $0 $0 $0 $0 $0 $0 $0 $0 $0
11-25
The CRM Process
CRM is an iterative process that turns customer
data into customer loyalty through four
activities:
1. Collecting customer data
2. Analyzing the customer data and identifying
target customers
3. Developing CRM programs
4. Implementing CRM programs
11-26
CRM Process Cycle
11-27
Collecting Customer Data:
Customer Database
• Transactions – a complete history of purchases
– Purchase date, price paid, SKUs bought, whether or not the purchase
was stimulated by a promotion
• Customer contacts by retailer (touch points) --visits to web site,
inquires to call center, direct mail sent to customer
• Customer preferences
• Descriptive information about customer
– Demographic and psychographic data
• Customer’s responses to marketing activities
11-28
Collecting Customer Data:
Identifying Information
Approaches that store-based retailers use:
• Asking for identifying information
– Telephone number, name and address
• Offering frequent shopper cards
– Loyalty programs that identify and provide rewards to
customers who patronize a retailer
– Private label credit card (that has the store’s name on
it)
• Connecting Internet purchasing data with the
stores
11-29
Privacy Concerns
• Control over Collection
– Do customers know what
information is being collected?
– Do customers feel they can
decide upon the amount and
type of information collected
by retailers?
• Control over Use
– Do customers know how the
information will be used by the
retailer?
– Will the retailer share the
information with third parties?
Steve Cole/Getty Images
11-30
Category Management
•
Retailers often follow three core
principles:
1. Focus on Strategic Management of a
Product Group
• Customer shopping behavior
• Categories defined by retail type
Definition of Category
• Category
- Groups of products
- Related or
substitutions
• Space utilization
Brand Management
Brand Management
• Value of the brand
– Profit generated
• Retaining and
acquiring new
customers
Category
Management
• Customer’s buying
behavior and
decision making
hierarchy
Category Management
2. Collaboration between Retailers and
Vendors
• Trade Partners
3. Satisfying the Customer’s Needs
• Shopping preferences, routines, and
shopping styles
Principles of Category Management
• Retailers listen more to customers
• Profitability is improved because inventory more
closely matches demand
• 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
Figure 2-7: Elements Contributing to
Effective Channel Relationships
Three Kinds of Service Retailing
• Rented goods services– leased cars, hotel rooms,
carpet cleaning equipment
• Owned goods services– plumbing, appliance repair,
• Non-goods services– haircut, professional services
(physician, lawyer)
Four Characteristics of
Services Retailing
•
•
•
•
Intangibility
Inseparability
Perishability
Variability
Figure 2-8a: Characteristics of
Service Retailing
Intangibility
• No patent protection possible
• Difficult to display/communicate
service benefits
• Quality judgment is subjective
• Some services involve
performances/experiences
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
Figure 2-8c: Characteristics of
Service Retailing
Perishability
• Services cannot be inventoried
• Lost revenues from unsold services are lost forever
• Effects of seasonality can be severe
• Planning employee schedules can be complex
• Need to balance supply and demand
(yield management pricing)
Figure 2-8d: Characteristics of
Service Retailing
Variability
• Standardization and quality control hard
to achieve
• Customers may perceive variability even
when it does not actually occur
• Need to industrialize/mechanize/service
blueprint services to factor out variability
Figure A2-1: Lessons in
Service Retailing
Examples of Consumerism
in Retailing
• Proper testing of items for safety issues
• Programming cash registers not to
accept payment for recalled goods
• Charging fair prices for goods in short
supply
• Age labeling of toys, warning labels on
goods beyond legal requirements
QUESTIONS???