5th Edition PPT 5-1

Chapter 5
Retail Marketing Strategy

McGraw-Hill/Irwin PPT 5-2 Levy/Weitz: Retailing Management, 5/e

Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Retailing Strategy
Retail Locations Chapters 7,8 Human Resource Management Chapter 9

Retail Market Strategy Chapter 5 Financial Strategy Chapter 6

Information and Distribution Systems Chapter 10

PPT 5-3

Customer Relationship Management Chapter 11

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
Direction

Tactical
Implementation

Strategy statement
Broad Unstructured Problem solving Creativity External focus Irregular

Annual plan
Specific, detailed Structured Problem solving Analytical Internal focus Regular

Long-term
Difficult to evaluate
Note:
PPT 5-5

Short-term
Easy to evaluate

Success Comes for Having a Good Strategy and Executing It Well

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 5-6

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 5-7

Analyzing McDonalds Retail Strategy

What Is McDonalds:
-Target market? -Retail offering (format)? -Bases for competitive advantage? What Threats Might McDonalds Face in the Future?
PPT 5-8

Examples of Retail Strategies

Starbucks

Target 7 Eleven

Olive Garden
What is the target market, retail offering, and source of competitive advantage for each retailer?
PPT 5-9

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, PPT 5-10 Knowledge

Why Does a Retailer Need to Focus on a Specific Target Market?

Why Not Sell to Everyone?

PPT 5-11

Retail Market Opportunities for Womens Apparel

PPT 5-12

Methods for Segmenting Markets

Buying Situations Benefits Sought Geographic

Lifestyle, Psychographics Demographics

PPT 5-13

Criteria For Selecting A Target Market

Attractiveness -Large, Growing, Little Competition More Profits Consistent with Your Competitive Advantages

PPT 5-14

Can A Retailer Develop a Sustainable Competitive Advantage by:

PPT 5-15

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?

Internal and External Bases for Competitive Advantage

Retail Firm Low Cost Large Size Efficient Distribution, Operations Unique Knowledge Loyal Employees

Vendors, Suppliers

Customers

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Sources of Capital

Sources of Competitive Advantage

More Sustainable

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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

Loyalty
What does loyalty mean? Is It the same as liking a store? Going to the store frequently?

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Approaches for Building Customer Loyalty

Unique Positioning Customer Service Information About Customers (Database Retailing) Unique Merchandise Location

PPT 5-19

Example of Positioning

PPT 5-20

Basis of Loyalty, Commitment

Costs Location

Shopper Programs Unique Merchandise Mental, Emotional Attachment

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Frequent

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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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

PPT 5-23

Early Delivery of New Styles Shipment of Scare Merchandise

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 5-24

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 5-25

Growth Opportunities

Market Penetration
Market Expansion
Retail Format Development Diversification

- Related vs. Unrelated

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Growth Opportunities

PPT 5-27

International Growth Opportunities

Europe China

Mexico, Latin America

Japan

PPT 5-28

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 - Toys R Us, Office Depot Unique Image, Brand Disney, IKEA, Starbucks

Adaptability

Global Culture
Long-term commitment

PPT 5-29

International Market Entry Strategies

Direct Investment
Joint Ventures Strategic Alliances Franchising

PPT 5-30

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
PPT 5-31

Elements in a Market Analysis

MARKET FACTORS Size Growth Seasonality Business cycles

COMPETITIVE FACTORS Barriers to entry Bargaining power of vendors Competitive rivalry Threat of superior new formats

ENVIRONMENTAL FACTORS

ANALYSIS OF STRENGTHS & WEAKNESSES

Management capabilities Financial resources Locations Operations Merchandise Store Management Customer loyalty

Technology Economic Regulatory Social

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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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Porters Five Forces

Barriers to Entry

Bargaining Power of Vendors

Competitive Rivalry

Large Customers

Threat of Substitution
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Strengths and Weaknesses Analysis

Management Capability:
Capabilities and experience of top management Depth of Management--capabilities of middle management Managements commitment to firm

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

Operations:
Overhead cost structure Quality of operating systems Distribution capabilities Management information systems Loss prevention systems Inventory control system

Store Management Capabilities

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
PPT 5-35

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 wont consider Indicates objective of company

PPT 5-37

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. (+)

PPT 5-38

Situation Analysis of Gifts to Go

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 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 5-40

Growth Opportunities for Gifts to Go

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 Manufacture craft gifts Open an apparel store targeting teenagers Open a category killer store selling a broader assortment of gifts

Diversification

PPT 5-41

Evaluating Growth Opportunities for Gifts to Go Market Attractiveness

Market Penetration

Market Expansion

Increase size of present stores (low) Open additional gifts stores in Chicago area (medium) Open gift stores outside Chicago area new geographic segment (medium) Sell lower priced gifts in present stores new benefit segment (medium)

PPT 5-42

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) Manufacture craft gifts (High) Open an apparel store targeting teenagers (High) Open a category killer store selling a broader assortment of gifts (High)

Diversification

PPT 5-43

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)

PPT 5-44

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) Manufacture craft gifts (Low) Open an apparel store targeting teenagers (Low) Open a category killer store selling a broader assortment of gifts (Low)

Diversification

PPT 5-45

Market Attractiveness/Competitive Position Matrix

High
Maximum investment

Medium
Invest to challenge leader

Low
Opportunities investment Build strength or exit

Market Attractiveness

Consolidate position

Aggressive investment

Selective investment
Build on strengths Protect position Manage for cash generation

Cautious investment

Harvest or divest

Cautious investment

Harvest or divest

Harvest or divest

Minimal investment Competitive Position

PPT 5-46

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 5-47

Characteristics of International Markets

U.S. Population (Millions) Business Climate Logistical Infrastructure 266 3 Exc.

Germany 82 10 Good

Japan 126 24 Avg.

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Attractiveness Ratings for International Growth Opportunities

PPT 5-49

Competitive Position in International Growth Opportunities

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Evaluation of International Growth Opportunities

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Risk and Rewards in Latin America: Country Risk Assessment

Market Size (GDP Billions)
400 350 300 250 200 150 100 50 0 Colombia Chile Brazil

Mexico

Short-Term Risk Long-Term Risk

Argentina

Peru

Venezuela

Low

Medium

High

RISK
PPT 5-52
Source: Coopers & Lybrand Analysis, Global Retailing: Assignment Latin America, Chain Store Age Executive, April 1996, seciton 2, p. 4.

Evaluation of Retail Market Opportunities in European Community

High
SPAIN

Low

MARKETS Restricted Open

ITALY FRANCE

UNITED KINGDOM NETHERLANDS

GERMANY
LUXEMBOURG BELGIUM PORTUGAL

IRELAND
GREECE DENMARK

GROWTH
PPT 5-53

Market Attractiveness Ratings for Growth Opportunities in Merchandise Categories

Womens( Juniors Mens 1) (2) (3) Childrens Furniture Cons. Elec. Soft Home (4) (5) (6) (7)

Weight

Factors Market size 20 9 7 5 4 5 6 7

Growth
Vendor power Competitive intensity Social trends Score

20
15 20

4
5 4

3
4 3

6
10 10

5
9 2

4
2 5

8
1 2

6
8 10

25
10

5
540

5
445

6
720

6
505

6
485

4
435

9
805

PPT 5-54

Competitive Position Ratings in Merchandise Categories

Weight
Womens Juniors Mens Childrens Furniture Cons. Elec. Soft Home (1) (2) (3) (4) (5) (6) (7)

Factors Location Vendor relationship Costs Skills of buyers Image with customer Score 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 5-55

Evaluation of Merchandise Category Opportunities

1,000

High

Medium
Soft home

Low

High

Market Attractiveness

667

Mens clothing
Womens clothing

Medium

Childrens clothing

Low

333

Juniors clothing

Furniture

Consumer electronics

1,000
PPT 5-56

667

333