PPT 5-1

5th Edition5th Edition

PPT 5-2

Chapter 5

Retail Marketing StrategyRetail Marketing Strategy

McGraw-Hill/IrwinLevy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

PPT 5-3

Retailing Strategy

Retail Market Strategy Chapter 5

Financial Strategy Chapter 6

Retail Locations Chapters 7,8

Human Resource Management

Chapter 9

Information and Distribution Systems Chapter 10

Customer Relationship Management Chapter 11

PPT 5-4

“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

PPT 5-5

Strategic vs. Tactical Decisions

Strategic TacticalDirection 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

PPT 5-6

Elements in Retail Strategy

• Target Market

Customer Needs

• Retail Format

Method for Satisfying Needs

• Bases for Building Sustainable Competitive Advantage

Defending Position Against Competitors

PPT 5-7

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

PPT 5-8

Analyzing McDonalds’ Retail Strategy

What Is McDonalds’:

-Target market?

-Retail offering (format)?

-Bases for competitive advantage?

What Threats Might McDonald’s Face in the Future?

PPT 5-9

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?

PPT 5-10

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

PPT 5-11

Why Does a Retailer Need to Focus on a

Specific Target Market?

Why Not Sell to Everyone?

PPT 5-12

Retail Market Opportunities for Women’s Apparel

PPT 5-13

Methods for Segmenting Markets

Demographics

Geographic

Lifestyle, Psychographics

Buying Situations

Benefits Sought

PPT 5-14

Criteria For Selecting A Target Market

• Attractiveness -- Large,

Growing, Little

Competition More

Profits

• Consistent with Your

Competitive

Advantages

PPT 5-15

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?

PPT 5-16

Internal and External Bases for Competitive Advantage

Retail Firm•Low Cost

•Large Size•Efficient Distribution, Operations

• Unique Knowledge• Loyal Employees

Sources ofCapital

Vendors, Suppliers Customers

PPT 5-17

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

PPT 5-18

What does loyalty mean?

Is It the same as liking a store?

…Going to the store frequently?

Loyalty

PPT 5-19

Approaches for Building Customer Loyalty

Unique Positioning

Customer Service

Information About Customers (Database Retailing)

Unique Merchandise

Location

PPT 5-20

Example of Positioning

PPT 5-21

Basis of Loyalty, Commitment

• Costs

– Location

– Frequent Shopper Programs

– Unique Merchandise

• Mental, Emotional Attachment

PPT 5-22

Creating Store LoyaltyMental 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

PPT 5-23

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

PPT 5-24

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

PPT 5-25

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

PPT 5-26

Growth Opportunities

•Market Penetration

•Market Expansion

•Retail Format Development

•Diversification

Related vs. Unrelated

PPT 5-27

Growth Opportunities

PPT 5-28

International Growth Opportunities

Europe

China

Mexico, Latin America

Japan

PPT 5-29

Key to Success inGlobal 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 - Toys ‘R’ Us, Office Depot

– Unique Image, Brand – Disney, IKEA, Starbucks

• Adaptability

• Global Culture

• Long-term commitment

PPT 5-30

International Market Entry Strategies

Direct Investment

Joint Ventures

Strategic Alliances

Franchising

PPT 5-31

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

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

PPT 5-32

Elements in a Market Analysis

0

50

100

1s t Qtr 2nd Qtr 3r d Qtr 4th Qtr

MARKET MARKET FACTORSFACTORS

COMPETITIVE COMPETITIVE FACTORSFACTORS

ENVIRONMENTAL ENVIRONMENTAL FACTORSFACTORS

ANALYSIS OF ANALYSIS OF STRENGTHS & STRENGTHS & WEAKNESSESWEAKNESSES

Barriers to entryBargaining power of vendorsCompetitive rivalryThreat of superior new formats

TechnologyEconomicRegulatorySocial

SizeGrowthSeasonalityBusiness cycles

Management capabilitiesFinancial resourcesLocationsOperationsMerchandiseStore ManagementCustomer loyalty

PPT 5-33

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

PPT 5-34

Porter’s Five Forces

Competitive

Rivalry

Bargaining Power of Vendors

Barriers to Entry

Large Customers

Threat of Substitution

PPT 5-35

Strengths and Weaknesses Analysis

Management Capability: Capabilities and experience of top managementDepth of Management--capabilities of middle managementManagement’s commitment to firm

Financial Resources:Cash flow from existing businessAbility to raise debt or equity financing

Operations:Overhead cost structureQuality of operating systemsDistribution capabilitiesManagement information systemsLoss prevention systemsInventory control system

Merchandising Capabilities:Knowledge and skills of buyersRelationships with vendorsCapabilities in developing private capabilities

Store Management CapabilitiesManagement capabilitiesQuality of sales associatesCommitment of sales associates to firm

Locations

CustomersLoyalty of customers

PPT 5-36

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

PPT 5-37

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

PPT 5-38

Situation Analysis ofGifts 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. (+)

PPT 5-39

Situation Analysis ofGifts 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

PPT 5-40

Growth Opportunities forGifts 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

PPT 5-41

Growth Opportunities forGifts 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

PPT 5-42

Evaluating Growth Opportunities forGifts 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)

PPT 5-43

Evaluating Growth Opportunities forGifts 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)

PPT 5-44

Evaluating Growth Opportunities forGifts 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)

PPT 5-45

Evaluating Growth Opportunities forGifts 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)

PPT 5-46

Market Attractiveness/Competitive Position Matrix

Mar

ket

Att

ract

iven

ess

Competitive Position

High LowMediumMaximum investment

Consolidate position

Invest to challenge leader

Opportunities investment

Build strength or exit

Selective investment

Build on strengths

Cautious investment

Harvest or divest

Protect position

Manage for cash generation

Harvest ordivest

Harvest ordivest

Aggressive investment

Cautiousinvestment

Minimal investment

PPT 5-47

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

PPT 5-48

Characteristics of International Markets

U.S. Germany Japan

Population (Millions) 266 82 126

Business Climate 3 10 24

Logistical Infrastructure Exc. Good Avg.

U.S. Germany Japan

Population (Millions) 266 82 126

Business Climate 3 10 24

Logistical Infrastructure Exc. Good Avg.

PPT 5-49

Attractiveness Ratings forInternational Growth Opportunities

PPT 5-50

Competitive Position in International Growth Opportunities

PPT 5-51

Evaluation of International Growth Opportunities

PPT 5-52

Risk and Rewards in Latin America: Country Risk Assessment

Source: Coopers & Lybrand Analysis, “Global Retailing: Assignment Latin America,” Chain Store Age Executive, April 1996, seciton 2, p. 4.

RISK

Mar

ket

Siz

e (G

DP

Bil

lion

s) 400

350

300

250

200

150

100

50

0

Low Medium High

Short-Term RiskLong-Term Risk

Chile Colombia

PeruVenezuela

Argentina

Mexico

Brazil

PPT 5-53

Evaluation of Retail Market Opportunities in European Community

High Low

UNITED KINGDOM

NETHERLANDS

Op

enR

estr

icte

dM

AR

KE

TS

SPAIN

ITALY

FRANCE

GERMANY

BELGIUM

PORTUGAL

LUXEMBOURG

IRELAND

GREECE

DENMARK

GROWTH

PPT 5-54

Market Attractiveness Ratings for Growth Opportunities in Merchandise Categories

Weight

Market size

Growth

Vendor power

Competitive intensity

Social trends

Score

Junior’s (2)

Men’s (3)

Children’s (4)

Furniture(5)

Cons. Elec. (6)

Soft Home (7)

Women’s(1)

Factors

20

20

15

20

25

10

9

4

5

4

5

540

7

3

4

3

5

445

5

6

10

10

6

720

4

5

9

2

6

505

5

4

2

5

6

485

6

8

1

2

4

435

7

6

8

10

9

805

PPT 5-55

Competitive Position Ratings in Merchandise Categories

Weight

Location

Vendor relationship

Costs

Skills of buyers

Image with customer

Score

Junior’s (2)

Men’s (3)

Children’s (4)

Furniture(5)

Cons. Elec. (6)

Soft Home (7)

Women’s(1)

Factors

20

25

20

10

25

100

9

8

8

6

8

800

9

7

8

7

8

785

8

5

5

5

5

560

6

7

6

9

6

655

4

4

3

5

5

415

2

3

1

4

2

225

4

7

7

8

8

675

PPT 5-56

Evaluation of Merchandise Category Opportunities

1,00

0

Mar

ket

Att

ract

iven

ess

High LowMedium

Soft home

Men’s clothing

Women’sclothing

Children’sclothing

Consumerelectronics

1,000 667 333

Low

Hig

hM

ediu

m

333

667

Junior’sclothing

Furniture