KENYATTA UNIVERSITY

DIGITAL SCHOOL OF VIRTUAL AND OPEN LEARNING

IN COLLABORATION WITH

SCHOOL OF BUSINESS

DEPARTMENT: BUSINESS ADMINISTRATION

UNIT CODE & NAME: RETAIL MARKETING MANAGEMENT

BBA 407

WRITTEN BY: DR. REUBEN NJUGUNA

Lesson 1

RETAIL MARKETING

1.1 Introduction to Retail

Transformation is one word which can best describe the state of the retail industry at a global and
the Indian level. Retailing by its very nature, is a dynamic industry. The past decade has been one
of turmoil and transition in the world of retail. Some economies roared ahead, and then rebounded.
Competition heated up and consumer spending cooled down. New giants emerged and erstwhile
leaders faded. Entire industry segments emerged only to make way for new ones once again.
Mergers, acquisitions and bankruptcies hastened consolidation. Technological advances
transformed business practices. New leaders reengineered business models and invested in new
infrastructure.

1.2 What is Retail?

Retail is the final stage of any economic activity. By virtue of this fact, retail occupies an important
place in the world economy. In an attempt to understand the scope of the term retail, various
definitions of the term have been examined.

According to Philip Kotler, ‘Retailing includes all the activities involved in selling goods or
services to the final consumers for personal, non-business use. A retailer or retail store is any
business enterprise whose sale volume comes primarily from retailing.

1.3 The Functions of a Retailer

From the customer’s point view, the retailer serves him by providing the goods that he needs, in
the required assortment, at the required place and time. From an economic standpoint, the role of
a retailer is to provide real added value or utility to the customer. This comes from four different
perspectives:
The first utility is regarding the form of a product that is acceptable to the customer. The retailer
does not supply raw materials, rather offers finished goods and services in a form that customers
want. The retailer performs the function of storing the goods and providing us with an assortment
of products in various categories. He creates time utility by keeping the store open when the
consumers prefer to shop. By being available at a convenient location, he creates place utility.
Finally, when the product is sold, ownership utility is created.

All these are real benefits, which retailers offer by getting close to potential customers. It is
necessary, therefore, for retailers to fully understand the motivations that drive their customers.
The retailer serves the consumer by functioning as a marketing intermediary and creating time,
place and by ownership utility for the consumer.

The retailer also serves the manufacture by performing the function of distributing the goods to
the end consumer, and thus forming a channel of information to the consumer. He is the final link
in the distribution chain and very vital too. For several product categories where brand loyalty is
not very strong or for unbranded products, the retail’s recommendation is vital.

1.4 The Rise of the Retailer

In the not so distant past, manufacturers, created a product, advertised it slickly and sold it through
their distribution channel. The manufacturing companies enjoyed economic power, as they were
significantly bigger in size as compared to the distributors or the retailers. They determined prices
of the products that the retailer could stack and also the dealer and distributors margins. They
would also independently advertise for their products. In case of a dispute with the distributor or
retailer, it would not be rare for the manufacturer to discontinue supplies. However, much has
changed. Today, retail has emerged as a separate function by itself. The environment in a large
organized retail store is significantly different from that in a traditional or a mom and pop store.
In this secretion, we examine the reasons behind this change

1.5 Proximity to the Customer

Today, with the emergence of large supermarkets and various other formats like the department
stores. The retailer is the closet to the consumer. Most stores have their own policies and decide
how to influence shoppers. In an age of global manufacturing and selling, the organization may be
based in one part of the world and may actually retail its products in various other regions. The
retailer is the first contact point that the consumer has with the product, this has given the retailer
tremendous power.

1.6 The Rise of Consumerism

Retailers are a part of a dynamic world today. The retailer faces a more knowledgeable and
demanding consumer and since business exists to satisfy the needs of the consumers, the demands
and expectations of the consumers often have forced retail organizations to change their formats
and product offerings.

While a large number of retail formats continue to exist in most market across the world, what has
also changed is the range of service offered. The customer demands convenience, and a certain
level of comfort while shopping. Time required to shop and to travel to a particular location are
important factors that affect the consumer’s decision. This has led to the rise of specialists and the
increase in the services offered by the retailer. For example, the petrol pump not only retails petrol
and diesel, but also has a speed mart and an ATM.

1.7 The Introduction of the Private Label

An increasingly large number of retailers now decide on the products that they want to stock. They
decide on the brands that they want to stock. Retail shelf space I now of prime importance. Another
significant change is that, most retail stores have developed their own in-store brands/products
known as private labels. These private labels cater specifically to the needs of their target
customers and have been created not only by the large departmental and specialty stores, but also
by the grocery retail chains.

1.8 Technology
With the increasing use of technology and the use of the Point Sale scanning systems and the
barcode, a wealth of information is now available to the retailer. This information enables the
retailer to understand the consumer profile of his store, the products purchased, the price ranges
and the promotional offers which have worked. Retailers have developed their own customer cards
which help them track purchases and learn more about the lifestyles of their customers. What is
more, they can create products targeted for specific customers.

The arrival of the Interne net has made it possible for business to develop across geographies at
both businesses-to business or B2B levels. This has not only enhanced the economies of scale
available, but has also made it easier to enter the retail market.

1.9 THE GLOBAL RETAIL MARKET: ISSUES & CHALLENGE

The global retail sector is headed for a slowdown with economic recession becoming a reality in
many economies of the world. Retailers world over; will need to adapt their strategies in response
to the same. Moreover, the maturing of many markets and the aging of consumers in many
economies has also triggered retailers to rethink their strategies. At the same time, the emerging
markets of china and India have begun a rebalancing of the global economy that will have a he
impact on the global market.

The significance of retail in the world economy can be gauged from the fact that largest corporation
in the world – Wal-Mart – is retain chain.

The significance of retail is apparent not only from its contribution to various economies but also
by level of employment generated by the industry. In India, where organized retail is just beginning
to make its presence felt, it already contributes close to 6-7% of the employment. In the developed
markets, organized retail controls a significantly higher portion of trade as compared to that in a
country like India. Food and grocery constitutes the largest segment of retailing and also forms a
significant part of the trade of the key global retailers.

The world of retail is a fast changing one and calls for constant evolution on the part of the retailer.
A Retailer not only needs to keep up with the ever changing expectations and demands of the
customers but also needs to keep track of the competition, the changes in technology and the socio
economic climate of the nation that he is operating in.
As stated earlier, till a few years ago, the American economy fuelled economic growth in many
parts of the world, but an economic slowdown has forced many retailers to start looking at other.
Rising fuel prices have also had a negative effect on the rapid expansion of the trade in various
parts of the world. Retail at a fuel level, is a reality, which has to be understood and faced by
retailers worldwide.

The emergence of new markets: Asia, especially china and India are the emerging marketplaces.
In the past, the sheer size of China and India did not necessarily lead to their having an impact as
a market. The technological, transportation and industrial revolutions of the past two decades have
hanged much of that. Increasing urbanization in both the markets has fast emerged as an important
factor in the rise of these nations as important emerging markets. Together, China and India, or
Chindia as they are now emerged, are estimated to see the GDP rise to $6 trillion by the year 2020.
They will consume 45-50% or the world’s natural resources and have the potential of becoming
the world’s largest exporters of goods and services with a 25% share. Few marketers and retailers
can hence, ignore such a market.

The Empowered Consumer

Retaining the consumer is far more difficult today than it was a decade ago. Consumer lifestyles
and demographics are changing rapidly. Spending power is increasing and technology is aiding
consumers to make sound shopping decisions. Given the increased amount of choice in terms of
products and formats, consumers now demand more for less from the shopping experience: more
quality, choice, consistency, convenience and service, for less money, time, effort and risk.
Competition is not just on price, but on multiple fronts.

Technology Enabled Efficiencies

Technology has enabled businesses and consumers to build efficiencies on the basis of the ability
to receive and transmit data, at a fast speed. This information has today become critical for
achieving efficiencies in all aspects of retailing. In the near future, retailer-supplier partnerships
will depend on technology, substituting information for inventory in the pipeline to reduce costs
while improving productivity. Retailers will rely on technology to establish links with consumers
through electronic retailing and customer relationship marketing.

The Rise of the E-age

The emergence of Internet retailing or e-tailing as is popularly known has been a key driver of
change in retail. The increase in the number of Internet users not only in the developed markets
but also globally, has placed new demands on retailers. Online shopping facilitated by auction sites
are the new realities of retail. Internet savvy consumers understand the power to shop and buy on
their own terms. Internet both enhances and competes with the store i.e., the brick and mortar
experience. Comparison-shopping is a new reality of the e-age. Retail Snapshot 1.2 focuses on
some interesting findings of a research study presented at the World Retail congress, 2008.

1.10 RETAIL 2010: THE SHAPE OF THINGS TO COME

Global competition, global and educated customers demanding more product information and
limited brand loyalty are the realities of retail in the world today. The adage that the customer is
king is more relevant today than ever before, as it is the customer who drives the sale and in effect,
the retail operation. Given such a scenario what is it that the retailer needs to gear up for in the
near future?

Theology will no doubt, play a key role I creating future successes, however, collaborating with
suppliers, vendors and using technology to empower customers may be the new business realities
for retailers. Retailers such as Wal-Mart, Tesco, etc. are aggressively moving forward with plans
to upgrade their existing network infrastructures to intelligent networks.

Zara, the popular Spanish apparel retailer, provides store employee with PDAs so that they can
enter custom orders for shoppers who want items that are not at the store. Transmitting the order
in real time directly from the sales floor to the manufacturing plant, cuts the time it takes to
produce custom orders from 10 days to two two days. Providing customized service keeps Zara
from losing a sale – or even worse, losing a customer. Agility in response and integration within
the organization will be key to future successes.
Retail in the years to come, will be an age where the old adage of Darwinsm will hold good. The
competitive marketplace required retailers to build competitive and cost advantages in their lines
of business. This will be a challenge, as understanding the consumer will not simply be on the
basis of demographics. As lifestyles change, buying behaviour will become more complex and
hence, less predictable. A retailer will have to choose whom to cater to; the days of one size fitting
all may be over.

The environmental changes occurring will force the retailers to re-examine and rethink their
competitive strategies. Competition at the next level may not necessarily come from traditional
competitors, but from new ideas or methods of doing business. As consumer lifestyles change and
an increasing section of the population works from home, the method of shopping will also change.
Channels of distribution will blur, and the internet will emerge as a powerful channel of
distribution, while mobile commerce may soon become a reality.

Lifestyle retailing, which means the policy of tailoring a retail offering closely to the lifestyles of
specific target market segments, will continue to evolve as consumer lifestyles evolve. Lifestyle
retailers will continue to be at the forefront of retail change. The emergence of restaurants catering
to specific cuisines and target audiences and niche retailers are examples of lifestyle retailing.
Retailers may choose to target different segments with different product offerings, thereby catering
to different lifestyles.

In an age where the consumer is faced with a crunch on time, the mall my change to an
entertainment centre. Retailers will need to not only grasp customer trends but also in terms of
richness and reach.

1.10.1 The 10 trends in global retailing

1. Social responsibility
Relatively affluent consumers in affluent countries are increasingly concerned about the impact
that companies have on society, which includes the impact on the physical environment, on
workers in countries that supply products, and the impact that products have on the consumers
 who purchase them. This focus on social responsibility and product safety is likely to grow,
especially as more consumers become aware of these issues through mass media.

2. Global consumer growth shifts away from the US

During the past decade, the extraordinary growth of consumer spending in the US was a driving
force for the global economy and for the global retailing industry in particular. Quite the
opposite is true in the rest of the world – particularly in Asia. In China for example, economic
growth has been fueled by exports.

3. Commoditization run amok

We live in an age of great technological innovation. This has enabled ordinary people to enjoy
standards of living unimaginable even to royalty a century ago. Improvements in
manufacturing efficiency enable the highest quality products to be sold at amazingly low
process. Commoditization takes place when consumers view products as essentially
undifferentiated other than on the basis of price.

Traditionally, basic products were considered commodities – petrol, cooking oil, basic apparel.
Yet today consumers see electronics fashion and processed foods as commodities. Avoiding
commoditization, therefore, is becoming one of the signal challenges of our time for global
retailers. Those that differentiate on the basis of something other than price will be the winners
of the future.

4. The rise of ‘long tail’ retailing

Some of the most successful stories in retailing in recent years in recent year have not so much
from industry giants that target the mass market but from smaller chains with a narrower focus.

The market has become saturated while the population of developed countries has become
more fragmented in terms of incomes and shopping behavior. Within the mass marked,
retailers and their suppliers have become highly focused on price competition, thereby driving
down margins and failing to provide consumers with clearly differentiated offerings.
 But what is the long tail? Consider how consumer income in any country is distributed. It
resembles a bell-shaped curve in what statisticians call a normal distribution. The middle of
the bell is the mass market, where the greatest share of income exists and where most retailers
compete. The ends of the tail are smaller, representing a smaller share of income. Yet these
ends have of tern been ignored by retailers intent on reaping the economies of scale associated
with the mass market in the middle. This is starting to change. As a result of improvements in
information technology, it is now possible to operate a portfolio of small, targeted businesses
just as efficiently as one large business. Hence, retailers seeking growth can invest in new
businesses along the long tail rather than expanding existing mass market formats

5. The fight to plant the flag in India

India has become the next big thing for the world’s leading retailers. On the surface, this seems
to represent the triumph of hope over experience. India is, after all, a country with more than
a billion people which is moving towards a true market economy. For the world’s leading
retailers, India is a gamble, but one worth taking.

6. Retail investment in services

As countries grow and achieve economic affluence, consumer spending on goods as share of
GDP tends to decline, while spending on services grows disproportionately. This has certainly
been the case in developed nations such as the EU japan and the US. In part, this is due to the
higher rate of inflation in services. That, in turn is due to the lower productivity growth in
service industries. The relative decline in the prices of goods leaves consumers with
comparatively more cash to spend on services. Retailers that can successfully sell services
related to their core merchandise or simply based on the strength of their brand names, can
increase their growth through expanded share of the wallet

7. Emerging market investment in developed retailers

One of the notable aspects of the global economy largely has been the huge surpluses of key
emerging countries. China for example, has accumulated #1.4 trillion of foreign currency
reserves. Russia and Middle Eastern oil exporters have, likewise, accumulated vast reserves.
In the past, such funds were normally invested in low-yielding government securities.
 Increasingly, however, countries are diverting some of these reserves into investment funds
that purchase Western companies or sizable interest in those companies.

8. Multi-channel integration
The rise of online retailing has taken market share from store retailers in some markets. Yet in
the US 40% of the online retail sales are conducted by store retailers themselves. The
opportunity to create a seamless multi-channel experience for consumes exists. The reality,
however, is that many store retailers are failing to do this and that most do not integrate their
online businesses with their store businesses. In addition, store retailers are competing with
non-store retailers who own a sizable share of online retailing.

To win this battle, the best retailers will most likely focus on enriching the brand experience
for distinct custom segments across multiple channels.

9. Focus on customer experience

One of the leading problems faced by many retailers is a lack of differentiation among
competitors that leads customers to view stores as commodities. One way to tackle this
problem is to focus o improving the experience of consumers in the store. These encompasses
far more than customer services – important though that is and include all the elements
influencing consumers such a store layout, signage, lighting service and the ease and speed of
transactions.

10. Retail as world-class marketers

In the past, manufacturers of fast moving consumer goods (FMCG) were considered the
leading marketers in the world. As retailers become bigger and more powerful, suppliers had
to focus more on relationships with their customers than their consumers. Trade spending
became more important than mass media advertising.

Retailers became the principal holders of relationships with consumers. Moreover, through
their sale of private label goods, they became leading supplies in their own right. Today some
of the world’s top retailers are aggressively hiring top marketers way from FMCG companies.
 Their goal is to become marketing powerhouses, to build strong brand identify in order to
compete with other retailers and, increasingly to compete with branded suppliers through
private label sales.

1.11 Review Questions

1. What is retail and what is its role in marketing?
2. What are the functions performed by a retailer?
3. Why has the retailer emerged as a leader in the marketing channel?
4. What are the issues facing global retailers and how can they be overcome?

1.12 Suggested Readings

 Akehurst, Gary., (2008). Retail Structure. New York, USA: Routledge.
 Rachman, David, J., (2008). Retail Strategy and Structure, New Jersey, USA: Prentice
Hall.

 Walters, D. & Hanrahan, J., (2007). Retail Strategy: Planning and Control, New York,
USA: Macmillan.
 S. & Moore, C., (2005). Principles of Retailing. USA: Butterworth-
Heinemann.
 Levy, Michael & Weitz, Barton A., (2008). Retailing Management. USA: McGraw Hill.
 Enrollment of Selling

Lesson 2

SALES PROMOTION

2.1 Introduction

Promotion is the process of communication by a seller to the market (current and potential
buyers) who may be:

i) Consumer audience-purchasers of product/service

ii) Channel audience- distributors, retailers or agents

iii) All stakeholder audience-all publics with interest

The promotional mix is the total marketing communications program of the organization
consisting of a specific combination or blend of promotional tools used to reach the target market
for a given product or brand. These promotional tools include:

1 Advertising
2 Personal selling
3 Sales promotion
4 Public relations
5 Direct marketing (telesales, catalogues, direct mail, television, radio)

2.2 Sales Promotion

Refers to those marketing activities other than personal selling, advertising and publicity, that
stimulate consumer purchasing and dealer effectiveness, such as displays, shows and exhibitions,
demonstrations and various non-recurrent selling efforts not in the ordinary routine (American
Marketing Association).

Sales promotion therefore is a direct inducement offering extra incentive all along the marketing
channel (from the manufacturers through middlemen to consumers) to accelerate the movement
of the product from the producer to the consumer.

NOTE:

Sales promotion:

i) Is an acceleration tool designed to speed up the selling process.

ii) Normally involves a direct inducement (for example money, prizes, extra products, gifts or
specialised information) which provides extra incentive to buy, visit a shop, request literature or
take some other action.

iii) May be used anywhere along the marketing channel, from the manufacturer to the dealer,
from the dealer to consumer, or from manufacturer to consumer.

Objectives of Sales Promotion

Firms use sales promotion for different reasons. A single sales promotion activity may be used to
achieve one or several objectives such as:

(a) To identify and attract new customers

(b) To introduce new products

(c) To increase the total number of users for an established brand

(d) To induce present consumers to buy more

(e) To educate customes regarding product improvements

(f) To bring more customers into retail shops

(g) To maintain sales in off seasons

(h) To increase retail inventories so that more goods may be sold

(i) To combat or offset competition

Advantages of Sales Promotion

 It often has eye-catching appeal

 Themes and toolds can be distictive

 The consumer may recieve something of value, such as coupons or free merchandise

 It helps draw customer traffic and maintain loyalty to the retailer

 Impulse purchases are increased

 Customers can have fun, particularly with contests and demonstrations

Disadvantages

 It may be hard to terminate certain promotions without adverse customer reactions

 The retailer's image may be hurt if trite promotions are used

 Frovolous selling points may be stressed rather than the retailer's product assortment,
prices, customer services and other factors

 Many sales promotions have only short-term effects

 It should be used mostly as a supplement to other promotional tools

Categories of Sales Promotion Methods

There are two broad categories namely:

1. Sales Promotion aimed at the Retailer

2. Sales Promotion aimed at Consumers

Sales promotions can be directed at either the customer, sales staff, or distribution channel
members (such as retailers). Sales promotions targeted at the consumer are called consumer
sales promotions. Sales promotions targeted at retailers and wholesalers are called trade sales
promotions. Some sale promotions, particularly ones with unusual methods, are considered
gimmick by many.

1. Sales promotion aimed at the Retailer

Manufacturers need some sort of help from retailers in promoting their products. Retailers are
generally not particularly concerned about which products consumers purchase as long as the
products are bought from their own shops. On the other hand, the manufacturer is not really
concerned about which shop the consumer patronises as long as the right product (i.e. his
product) is bought. Thus, there is inherent conflict of promotion goals between the manufacturer
and the retailer, which the manufacturer must resolve before any help can be expected from the
retailer in promoting his product.

The manufacturer's success in the use of sales promotion devices aimed aimed at stimulating
retailer support depends on the retailer's perception of advantage. The most common sales
promotion methods used by manufacturers include:

(i) Promotion Allowances

They are sometimes offered a retailer for actively promoting the sale of the manufacturer's
product for a specified period of time. They generally take the form of a reduction from the
invoice price of the merchandixe and are particularly useful in the introduction of new products.
Retailers are sometimes reluctant to stock a new product if the demand for it has not been
established. To encourage stocking, the manufacturer convinces the retailer that the demand is
forthcoming and makes the retailer's sharing in the promotional effort worthwhile.

To accomplish this, the supermarket owner may be offered some shilling per case off the invoice
price if he agrees to purchase a minimum number of cases and to display the product in a
prominent location in the shop for a stated period of time.

(ii) Buying Allowances

A buying allowance is a temporary price reduction to retailers for purchasing specified quantities
during a specified period. I'ts in a way similar to apromotion allowance except the retailer in this
case is not asked to actively promote the product. It encourages the retailer to purchase the
product or to buy in larger quantities than usual. The manufacturer hopes that the retailer will
voluntarily push the product because of the higher profit margin resulting from the discounted
price and the

fact that a larger inventory is in the shop.

(iii) Point of Purchse Displays

These are window, floor and counter displays that allow a retailer to remind customers and
stimulate impulse purchases. It consists of in-store displays designed to lift sales. Materials used
include items like outside signs, window displays and posters. From a promotional perspective,
displays may remind customers, inform customers, stimulate impulse behaviour, facilitate self
service, encourage retailers to carry particular products, and reduce retailer costs if
manufacturers provide the displays.

(iv) Free Merchandise

With this pormotion method, free products are offered to retailres and/or wholesalers who
purchase a stated quantity of thesame or different products.
(v) Merchandise Allowance

Cosists of a manufacurer's agreement to pay resellers certain amounts on money for providing
special promotional efforts such as advertising or displays. Before payment is mde, the retailre's
performance must be verified.

(vi) Spiffs

A spiff (push money) is a monetary award paid to retail salesman by a manufacturer for selling
the manufacturer's line of products. The amount paid is in addition to the rgular salary earned by
the salesperson and paid by the retailer. The method is employed wen personal selling is an
important part of the marketing effort. Implementation of the method requires the consent of the
retailer.

(vii) Sales Contests)

The desire to participate in contests seems t be a fairly universal human characteristic. Contests
stmulate retailer's activity is pushing the manufacturer's products. There should be many prizes
so as to generate enthusiasm among the retailers and reduce the number of totl loser.. Prizes are
awarded on the basis of a per cent increase in sales during the life of the contest - not on the total
units sold.

(viii) Trade Exhibitions

Participation in the Nairobi International Show and other district shows around Kenya is one of
the most effective, interesting and expensive sales promotion devices a manufacturer can use.
The shows lend themselves well to the purpose of giving out sample merchandise to prospective
ciustomers, distributing brochures, pamphlets and other advertising material to showgoers. Many
orders are written for new customers and buyers.
A booth at a show is an excellent device for generating good public relations with customers and
with competitors. Representatives of the participating comany can gain insights into the attitudes
of people towards the company and the competitors just by listening to the comments that are
made. To be successful, a show must be very carefully planned and co-ordinated.

(ix) Coupons

A coupon is a certificate with a stated value which is presented to a retail shop for a price
reduction of a specified item. Retailers advertise special discounts for customers who redeem
advertised coupon. The purpose of a coupon is to bring customers into a particular shop and
build the sales volume of a specific brand.

Advantages

a) In many cases, manufacturers pay to advertise and redeem them

b) According surveys, 99% of consumers redeem coupons at least once during the year

c) They contribute to the consumer's perception that a retailer offers good value

d) Ad effectiveness can be measured by counting redeemed coupons

Disadvantages

a) Possible negative effect on the retailer's image

b) Consumers shopping only if coupons are available

c) Low redemption rates

d) Retailer and consumer fraud

e) Handling costs

2. Sales Promotion aimed at the Consumer

It is particularly useful when the manufacturer is introducing a new product. The most visible
forms of sales promotions are those that are aimed at the ultimate purchaser of the product. Sales
promotion can be used to encourage consumers to buy more of the product at one time, thus
increasing total usage.

Some of the most common and successful sales promotion techniques aimed at the consumer
include the following:

(i) Free Samples

These are free tastes, smells and/use of items that are given to customers.

Uses:

To stimulate the trial of a product, to increase the sales volume in the early stages of the
product's life cycle, to obtain the desirable distribution.

Samples may be distributed by post, door to door or in shops or included with another product.

The size of the sample is important. If it is too small, it may not provide the consumer with a
good test. If it is too lartge, it may delay the purchase of the product - and purchase is the desired
is the desired result of sampling. The sample however should be smaller that the product on the
retailer's shelves, and be packaged , as it usually is, in a miniature of the regular product package
in order to generate product recognition.
(ii) Coupons

A coupon is a certificate with a stated value which is presented to a retail shop for a price
reduction of a specified item. Retailers advertise special discounts for customers who redeem

advertised coupon. The purpose of a coupon is to bring customers into a particular shop and
build the sales volume of a specific brand.

(iii) Premiums

A premium is an item that is offered free or at a substantially reduced price to stimulate the
purchase of the product being promoted. It's intended to produce quick sales. It does not have to
be related to the product, although it is directly associated with its sale; but it should be a useful
item that consumers would want to apy the retail price for. A premium can be attached to, or put
inside the package of the package of the product itself.

(iv) Consumer Contests and Sweepstakes

Thay are similar in tha they both imply opportunities to win something. A contest offers prizes
based on the skills of entrants. To enter a contest, it is necessary to create/complete something
and submit it, together with proof of product purchase, to be judged. Contests are used to
generate traffic at the retail level.

A Sweepstake offers prizes based on the luck of the entrants. To enter a sweepstake, it is only
necessary to submit one's name in order to have a chance to win that is equal to that of anyone
else who enters. They are employed to stimulate lagging sales and, like contests, are used with
other sales promotion menthods.

(v) Frequent Shopper (Loyalty) Programs

- Foster customer relationships by awarding discounts or prizes to people for continued

patronage.

- In most cases, customers accumulate points (or their equivalent) which are then redeemed for
cash, discounts or prizes

Advantages

- Loyalty (Customers amass points only by shopping at a specific firm(s)

- Increased shopping

- Competitive edge for a retailer similar to others

Disadvantages

- Some consumers feel these programs are not really free and would rather shop at lower-priced
stores without loyalty programs

- It may take a while for shoppers to gather enough points to earn meaningful gifts

- Their profit margins may be smaller if retailers with these programs try to price competitively
with firms without loyalty programs

(vi) Prizes

Are similar to loyalty programs, but they are give with each purchase. They encourage loyalty.
Problems are the cost of prizes, the difficulty of termination and the possible impact on image.
(vii) Referral gifts

-Presents or gifts are given to current customers when they bring in new customers.

- Encourages existing customers to bring in new ones

- A technique that has no important shortcomings and recognises the value of friends in
influencing purchases

(viii) Matchbooks, pens, calendars and shopping bags

- Given to customers

-Differ from prizes since they promote retailer's names

- They should be used as supplements

- The advantage is longevity

- There is no real disadvantage

(ix) Special events

- Used to generate consumer enthusiasm

- Can range from store grand openings to fashion shows

Generally, when planning a special event, the potential increase in consumer awareness and store
traffic needs to be weighted against that event's costs

2.3 PERSONAL SELLING

Personal Selling involves oral communication with one or more prospective customers for the
purpose of making a sale. The level of personal selling used by the retailer depends on the image
it wants to convey, the products sold, the amount of self-service and the interest in long-term
customer relationships as well as customer expectations. Retail sales people may work in a store,
visit consumer homes or places of work, or engage in telemarketing.

Objectives of Personal Selling

The goals of personal selling are to:

(i) Persuade customers to buy (since they enter a store after seeing an ad).
(ii) Stimulate sales of impulse items or products related to customer’s basic purchases.
(iii) Complete customers’ transactions.
(iv) Feed back information to company decision makers.
(v) Provide proper level of customer service.
(vi) Improve and maintain customer satisfaction
(vii) Create awareness of items also marketed through the web, mail and telemarketing.

Advantages

 The salesperson can adapt a message to the needs of the individual customer.
 A salesperson can be flexible in offering ways to address customer needs.
 The attention span of the customer is higher than with advertising.
 There is less waste; most people who walk into a store are potential customers.
 Customers respond more often to personal selling than to ads.
 Immediate feedback is provided.

Disadvantages

 Only a limited number of customers can be handled at a given time.

 The costs of interacting with each customer can be high.
  Customers are initially not lured into a store through personal selling.
 Self-service may be discouraged.
 Some customers may view salespeople as unhelpful and as too aggressive.

Types/Nature of Personal Selling

There are many types grouped into three major categories:

- Order-takers
- Order-creators
- Order-getters

1. Order-takers
They respond to already committed customers and they can be further classified into:

Inside order-takers: Their task is transactional in nature i.e. receiving payments and passing
over the goods. A good example here is of cashiers in a supermarket.

Delivery sales people: Their main duty is only to deliver products to customers.

Outside order-takers: They visit the customers but their primary function is to respond to
customer requests other than to persuade them.

Note: In order-taking, the salesperson performs routine clerical and sales functions such as:
setting up displays, stocking the shelves, answering simple questions and ringing up sales. This
type of selling is most likely in stores that are strong in self-service but also have some personnel
on the floor.

2. Order-creators
Their task is not to close the sale but to “persuade the customer” to specify the company’s products
to the consumers. They are more common in pharmaceutical industries. For instance, convincing
doctors to prescribe the company’s drugs.
 3. Order-getters
They persuade customers to place an order directly. They are of many types:

New business salespeople: They are employed to persuade prospects to buy company’s products.

Organizational Salespeople: These salespeople have the job of maintaining close long-term
relationship with organizational customers.

Consumer salespeople: Their task involves selling products to individual consumers.

Technical Support salespeople: They are employed to support other salespeople especially where
the products are of technical and complex in nature.

Merchandisers: Their task is to give advice on how goods should be displayed, implement sales
promotion, check stock levels and maintain contact with store managers.

Functions

Store sales personnel may be responsible for all or many of the tasks shown in the figure below
and described next.

FIGURE 1: Typical Personal Selling Functions

 Greets Determines Shows
Customer wants Merchandise
Customer

Salesperson Gives a sales

Presentation

Closes the Answers Demonstrates

Feedback sale Objections goods/services

On entering a store or a department in it, (or being contacted at home), a sales person greets the
customer. Typical in-store greetings are: “Hello, may help you?” With any greeting, the
salesperson seeks to put the customer at ease and build rapport.

The sales person next find out what the person wants: Is the person just looking, or is there a
specific good or service in mind? For what purpose is the item to be used? Is there a price range
in mind? What other information can the shopper provide to help the salesperson?

At this point, the salesperson may show merchandize. He/she selects the product most apt to satisfy
the customer. The salesperson may try to trade up (discuss a more expensive version) or offer a
substitute (if the retailer does not carry or is out of the requested item).

The salesperson makes a sales presentation to motivate the customer to purchase. He/she can use
either the canned sales presentation method (a memorized, repetitive speech given to all
customers interested in a particular item) or the need-satisfaction method (based on the principle
that each customer has different wants; thus a sales presentation should be geared to the demands
of the individual customer). This method is more utilized in retailing.

The salesperson can use a demonstration to show the utility of an item and allow customer
participation. They are often used with stereos, autos, health clubs and watches.
A customer may have questions, and the salesperson must address them properly. After all
questions are answered, the salesperson tries to close the sale. This means getting the shopper to
purchase. Typical closing lines are: “Will you take it with you or have it delivered?” “Cash or
credit card?” “Would you like this gift wrapped?”

For personal selling to work well, salespeople must be enthusiastic, knowledgeable, interested in
customers, and good communicators.

The Retail Sales Process

Seven basic steps occur during the retail selling process. The length of time that a salesperson
spends in each one of these steps depends on the product type, the customer and the selling
situation. The steps are discussed into details below:

Step1: Prospecting and Qualifying

Prospecting is the search process of finding/identifying potential customers. Potential customers

are qualified by using the following characteristics:

- Willingness to buy
- Financial ability
- Authority to buy
- Whether or not they are accessible
Prospecting involves two steps:

Defining a prospect: This is done by considering the characteristics listed above.

Searching for potential Customers: This is normally done by using the prospect definition. The
salesperson looks for available source for names of probable prospects.
Sources of Prospecting

- Friends and acquaintances

- Center of influence
- Inquiries (Selling literature to people or organization, giving literature of the
products/services during exhibitions, having literature available in supermarkets and
stores)
- Cold canvassing/cold calling
- Customer referrals
- Sales spotters (e. g. agents of the real estates)
- Trade shows and exhibitions
- Internal records
- Personal observation
- Secondary sources (directories, newspapers, magazines, research report etc)
- Service personnel
Step 2: Pre-approach (Planning for the sales call)

This step involves gathering strategic information about the prospect. At the minimum, the
salesperson should know the potential buyer’s name, position in the organization, responsibilities
and the type of product purchased.

This information is helpful for the salesperson to know about the prospect’s personality traits,
interests and hobbies, political views, family status, lifestyle etc. this helps the salesperson to
prepare a sales presentation appropriate for each prospect.

Importance of Planning

i) Planning builds the confidence of the salesperson

ii) It reflects professionalism
iii) It helps the salesperson to customize the sales presentation
iv) Planning increases productivity of the salesperson
Step 3: Approach

The key to a successful approach is discerning the customer’s needs as soon as possible by asking
the right questions and listening. What the salesperson hears about the customer’s problem or need
is more important than anything the salesperson can possibly contribute at this point.

The salesperson should ask only a few well-chosen questions to find out more about the need or
problem to be solved. He/she should also find out if the user of the product is someone different
from the customer.

Types of Approach

(a) Introductory approach

It includes greeting the prospect using a firm handshake referring them by name and introducing
one by name.

(b) Compliment approach

This involves complimenting the prospect about something good you have seen with them or their
offices. Indirect compliments are preferred.

(c) Reference approach

This approach is used by mentioning satisfied customers who are known and respected by
customers.

(d) Sample approach

The salesperson offers a trial product, a luncheon, free seminar etc and then uses that opportune
moment to approach the prospect.

(e) Dramatic approach

This focuses on demonstrating performance of the product.

Note: The approach step takes a very short time.

Step 4: Presentation

Once the initial contact has been established and the salesperson has listened to the customer’s
problems and needs, the sales person is in the position to present the merchandise and sales
message correctly. How the salesperson presents the product or service depends on the customer
and the situation.

A good sales presentation should move the prospect from the approach step to the presentation
step smoothly and logically. No matter what the objective is, the presentation must meet five basic
characteristics (requirements).

Characteristics of a good sales presentation

a) Obtain instance attention by engaging the prospects with questions and by relating the
product/service to the prospect’s needs.
b) Create interest by engaging more than one sense e. g. use of audiovisual.
c) Stimulate desire: This can be done by producing proof of performance.
d) Secure conviction-This can be done by:
- Answering objections accurately
- Presenting facts about the product being offered
- Giving information on warranties and guarantee
e) A good presentation should motivate the prospect to take positive action i. e buying the
product by:
- Translating features into benefits
- Giving discounts

Theories/styles used during presentation

i) Stimulus response
ii) Mental state
iii) Need-satisfaction
iv) Problem solving theory
 v) Canned approach

How to improve chances of closing a sale during presentation

Self-confidence

This can be enhanced by:

- Having good product knowledge, customer knowledge, industry knowledge, company

knowledge etc.
- Being good at using audio-visual
- Carrying enough samples
- Practicing
- Anticipating the questions
Appearance (Groom)

This should be situational. The salesperson should groom him/herself to suit the prospect. He/she
should look friendly and maintain a friendly smile.

Good listening skills

- The salesperson should give the prospect time to talk

- Note down the questions, issues, concerns etc
- Repeat what the prospect says
Show enthusiasm

This can be done by being excited about the product, customer, company etc.

Offer compliments: They should be sincere and specific.

Ask questions

Promise after-sales service

Good Communication skills: In terms of verbal, non-verbal and written.

Step 5: Handling/Answering objections

Techniques that are helpful in handling objections

(i) Counter-balance (Yes-but) method

This concerns very genuine issues. E. g. if a prospect claims about high price of the product, you
agree but you give a convincing reason of why they are high.

(ii) Boomerang technique

Turning objections into a reason to buy.

(iii) Direct denial

(iv) Failure-to-hear method
Should be used by people who are very good listeners.

(v) Asking a question

The question should be related to the objection

(vi) Indirect denial method

Step 6: Closing the sale

This is the most difficult part of the salesperson n the selling process. By some estimates, almost
three-quarters of all lost sales occur during this stage of the selling process because the sales person
did not ask for the sale. The salesperson was either afraid of rejection or, worse, was unaware that
the customer was ready to make the purchase. A salesperson may opt to use any of the closing
techniques that are listed below:

- Assumptive close: the salesperson assumes that the prospect has decided to buy the
product.
- Alternative-choice method
- Summary of selling point
- Direct request
- Balance sheet method i. e. benefits and weaknesses
- Limited supply method: Uses two dimensions- the price dimension and the product type
 - Attachment close: Leaving the product with the prospect for testing.
- Continuous yes close
- Contingent close

Step 7: Follow-up

Follow-up is very necessary because of reasons such as

 Repeat business
 Customer referrals
 To ensure product delivery and installation
 To maintain long-term relationship with the customers
Follow-up Techniques

A good follow-up technique begins with a sincere written expression of appreciation in addition
to the thank you given after closing the sale.

The second follow-up activity is to check whether the product was delivered to the customer. This
is followed by confirming whether the buyer knows how to operate the product and if not, he/she
should be taken through the process of how to operate it. The salesperson finally should ensure
that the product is properly installed so as to offer the customer the most distinct satisfactory
service.

2.4 ADVERTISING

It refers to paid non-personal communication through various media by business firms, non-profit
organizations and individuals who are in some way identified in the advertising message and who
hope to inform and/or persuade members of a particular audience. It includes communication of
products, services, institutions and ideas.

Retailers advertising's function is primarily to inform potential buyers of the availability and price
of a retailer's offering, with the objective of developing consumer preferences for a particular
retailer.
The most commonly used advertising media include internet, newspapers, radio, television and
printed circulars.

Types of Retail Advertising

I) Institutional Advertising

ii) Promotional Advertising

Institutional Advertising

Focuses on the retailer as an organization and is designed to reinforce the retailer's image and
positioning in the market and to build the retail brand. Its purpose is to improve long-term
performance overall.

Promotional Advertising

It attempts to improve short-term performance by focusing on the products that the retailer is
selling or its prices.

Advantages of Advertising

 A large audience is attracted. In print media, circulation is supplemented by the passing of

a copy from one reader to another.
 The costs per viewer, reader or listener are low
 A number of alternative media are available, so a retailer can match a medium to the target
market.
 The retailer has control over message content, graphics, timing and size (or length), so a
standardized message in a chosen format can be delivered to the entire target.
 In print media, a message can be studied and restudied by the target market.
  Editorial content (a TV show, a new story etc) often surrounds an ad. This may increase its
credibility or the probability it will be read.
 Self-service or reduced-service operations are possible since a customer becomes aware of
a retailer and its offerings before shopping.

Disadvantages

 Standardized messages lack flexibility (except for the Web and its interactive nature). They
do not focus on the needs of individual customers.
 Some media require large investments. This may reduce the access of small firms.
 Media may reach a large geographic area, and for retailers, this may be wasteful. A small
supermarket chain may find that only 40% of an audience resides in its trading area.
 Some media require a long lead time for placing ads. This reduces the ability to advertise
fad items or to react to some current event themes.
 Some media have a high throwaway rate. Circulars may be discarded without being read.
 A 30-second TV commercial or small newspaper ad does not have many details.

Steps in Planning a Retail Advertising Campaign

A retailer's advertising campaign is a seven-step process:

1. Identification of the Advertising Target

2. Selecting advertising objectives
3. Budgeting for the campaign
4. Designing (Developing) the message
5. Media Selection
6. Scheduling of ads
7. Evaluating the results
Step 1: Identification of the Advertising Target

At the start of an advertising campaign, the retailers and/or manufacturers need to answer one
fundamental question; “What is the audience we are trying to reach with our message?”
The advertising target is the group of people towards which ads are aimed. Advertisers must be
very clear who their target audience is. They should gather and analyze information on
demographics of persons; consumer attitudes towards purchase and the use of both the advertiser’s
products and of competing products. This helps in building an information base on which to
develop a campaign.

Step 2: Selecting advertising objectives

Advertising objectives are set by a marketing strategy. They should flow from the retailer's
promotion objectives, but should be more specific because advertising itself is a specific element
of the promotion mix. The objectives should be chosen only after the retailer considers several
factors that are unique to retailing. These factors include: Age of the store, store's location, and
type of merchandise sold, the competition, the size of trading area, and what support is available
from suppliers. The most common retailer's advertising objectives are as follows:

 Make newcomers in a trading area aware of your existence

 Make customers aware of your large stock selection
 Inform a specific target market of your product offering
 Increase traffic during slow sales periods
 Move old merchandise at the end of a selling season
 Strengthen your store's image or reputation
 Make consumers think of you first when a need for your products occurs, especially if the
product or service is not commonly purchased
 Retain your present customers
NOTE: Although the ultimate goal of every advertising campaign is to generate additional sales,
increasing sales was not listed as an advertising objective. That is because other elements of the
retail mix that are outside of advertising's control could negatively impact sales. E. g. selecting the
wrong merchandise for the target market, charging too high a price for the merchandise in
comparison to competition, or improperly displaying the merchandise in the store.

Regardless of the objective chosen, it must be aimed at a specific market segment and be
measurable over a give period.

Step 3: Budgeting for the Campaign

A well-designed retail advertising campaign requires money that could be spent on other areas
such as more merchandise or higher salaries for employees. When developing a budget, the retailer
should first determine who is going to pay for the campaign; i.e. will the retailer be the sole sponsor
or will it get co-op support from other retailers and /or the manufacturer.

Retailer-Only Campaigns

If a retailer decides to do the campaign alone, it generally uses one of the following methods to
determine the amount of money to be spent on the advertising campaign:

(i) The Affordable (Arbitrary) method

Used by many small retailers by allocating all the money they can afford for advertising in any
given budget period. The method should be employed when the amount spent on advertising will
add substantially more value to the retailer than an alternative use of the funds, such as increasing
the sales force or adding more fixtures.

Limitation:

The logic of the approach suggests that advertising does not stimulate sales of profits but rather is
supported by sales and profits. However, some retailers have little choice but to use this approach.

Thus, although the affordable method may not be ideal in terms of advertising theory, it is certainly
defensible given the financial constraints that confront the small retailer.

(ii) Percentage-of-sales method

It is a type of benchmarking whereby the retailer uses the industry's best practices as a standard.
The retailer targets a specific percentage of forecasted sales to be used for advertising based on the
assumption that successful, similar firms should be used as a guide. A more suitable guide to the
level of advertising expenditures is the retailer's past sales experience when the level of advertising
expenditures has achieved management's objective.

Weaknesses

a) The amount of sales becomes the factor that influences the advertising outlay. In a correct cause-
and-effect relationship, the level of advertising should influence the amount of sales. In addition,
this technique does not reflect the retailer's advertising goals.

b) It gives more money to departments that are already successful and fails to give money to
departments that could be successful if given a little extra money.

Advantages

a) It provides a controlled, generally affordable amount to spend, and if spent wisely, it may work
out well in practice.

b) It allows the retailer to follow objectives in an affordable, controlled manner.

c) If the allocated budget is carefully applied in appropriate amounts over the year in such a way
that they relate to expected sales percentages each month, the method can work well.

(iii) Task-and-objective method

The retailer prioritizes its advertising objectives and then determines the advertising tasks that need
to be performed to achieve those objectives. Associated with each task is an estimate of the cost
of performing the task. When all of these costs are totaled, the retailer has its advertising budget.
In short, this method begins with the retailer's advertising objectives and then determines what it
will cost to achieve them.
More and more retailers are moving towards this method as they realize that their shrinking funds
can no longer be wasted on promotions that don't pay off. Many of the major retailers use a
combination of the percentage-of-sales method, which they use to keep pace with competitors, and
the task-and-objective method which reflects the different tasks they must accomplish to reach
their objectives.

Co-Op Campaigns

Although most retail advertising is paid for solely by the retailer, sometimes the manufacturers
and other retailers may pay part or all of the costs for the retailer’s advertising campaign.

Types of Co-Op Campaigns

(i) Vertical cooperative advertising: This allows the retailer and other supply chain members to
share the advertising burden. For instance, the manufacturer may pay up to 40% of the cost
of the retailer’s advertising of the manufacturer’s products, up to a ceiling of 4% of annual
purchases by the retailer from the manufacturer.
Retailers must prioritize their objectives to determine whether they can get a better return on
their money by using vertical co-op advertising or by assuming total sponsorship of
advertising a message with high priority.

Advantages to a retailer are the reduced ad costs, assistance in preparing ads, greater market
coverage and less planning time.

Disadvantages to a retailer include less control, flexibility, and distinctiveness.

(ii) Horizontal cooperative advertising

Happens when two or more retailers ban together to share the cost of advertising. It is most often
used by small non-competing retailers (such as independent hardware stores, retailers in the same
shopping centre and franchisees of a given firm. Advantages and disadvantages are similar to those
in a vertical cooperative advertising. Two further benefits are the bargaining power of retailers in
dealing with the media and the synergies of multiple retailers working together. It tends to give
small retailers more bargaining power in purchasing advertising than they would otherwise have.
Also, if properly conducted, it can create substantially more store traffic for all participants.

Step 4: Designing (Developing) the Message

Creative messages are vital in that they enable the retailer to reach the objectives. Creative
decisions are important for retailers because their advertising messages generally seek an
immediate reaction from the consumer while having a short life span. Retail ads must accomplish
three goals:

(a) Attract and retain attention; that is, they must be able to break through the competitive
clutter.
(b) Achieve the objective of the advertising strategy.
(c) Avoid errors, especially legal ones.

The advertising objectives must be translated into a specific message. The content and format of
an advertising message therefore depends on the following factors:

(i) The products features, use and benefits

(ii) Audience characteristics- their educational level, sex, age, race, income and
occupation, etc.
(iii) The objectives of the advertising campaign. If the campaign’s objective, for example
is to increase brand awareness, the message may use a lot of repetition of the brand
name and words and illustrations associated with it.
(iv) The media being used. Radio ads require concise, simple messages. Newspaper and
magazine advertisements can include long explanations and details.
(v) The amount of money being spent. This influences the size of space that can be bought
and whether colour can be used.
Approaches that Retailers use to Develop Ad Messages

It is becoming imperative for retailers to find a unique way to break through the competitive clutter
to get the consumer’s attention and hold it. After all, if consumers have already seen or read the
ad, why should they view it again? Following are some of the common approaches the retailers
use to gain repeated viewing:

Testimonials: Ad messages which are presented and endorsed by someone who is seen as an

expert and trustworthy to consumers.

Lifestyle: Shows how the retailer’s products fit in with the consumer’s lifestyle.

Fantasy: Creates a fantasy for the consumer that is built around the retailer’s products.

Humorous: Builds a campaign around humour that relates to using the retailer’s products.

Slice-of-life: Depicts the consumer in everyday settings using the retailer’s products.

Mood/Image: Builds a mood around using the retailer’s product.

** READING ASSIGNMENT: Read on Media Alternatives that a

retailer can select for placing an advertisement. This includes:
Newspaper Advertising, Television Advertising, Radio Advertising,
Magazine Advertising, Direct mail, Internet and Miscellaneous
Media. Refer to the text book titled, “RETAILING” authored by
“Dunne & Lusch”, Page 369-374.

Step 5: Media Selection

Selection of the wrong media by the retailer can cost a lot of money in ineffectual advertising.
wide variety of media are available and each of these media has its own characteristics that result
in advantages or disadvantages. Marketers must understand these characteristics in order to select
the proper medium for their message. Characteristics and functions which an advertiser should
evaluate for each medium include:

(i) Reputation
Some media are more credible, trustworthy and prestigious than others.

(ii) Life span

There is variation as to the length of time the different types of media remain in the home. E. g.
magazines are kept in the home for months, providing prospective customers with the opportunity
for many re-exposures to ads. Newspapers on the other hand are normally kept for only a few days.

(iii) Target audience

Although the total audience for a medium is quite large, the proportion of the total audience which
are good prospects for a company’s product may quite small. The firm should not, therefore blindly
rely on total circulation, viewership, or listenership figures as the basis of media selection.

(iv) Cost
A company’s advertising budget obviously places a constraint on the kind of media which it selects
as well as the frequency with which it uses each medium.

(v) Flexibility
Some media permit the advertising executive greater flexibility in terms of the amount of “advance
notice” he must give in order to place his message in them.

(vi) Message Reproduction

Media vary in their ability to deliver a physical advertisement. Print media utilizes only the visual
channel and the quality of reproduction varies for newspapers and magazines. Radio utilizes only
the aural channel, whereas TV (and the cinema commercial) delivers the highest degree of realism
through the use of sight, sound and sometimes colour.

(vii) Availability of Medium

Sometimes there is difficulty in getting space or airtime in the media. In Kenya for instance, it is
more difficult to get space in the daily newspapers on Fridays and Wednesdays than on other days
of the week

(viii) Opportunity to convey Complex Messages

Newspapers, magazines and direct mail provide a better opportunity to convey complex messages
than other media.

(ix) Ability to reach a large Audience

In Kenya and other developing countries, television reaches a very small proportion of the
population and newspapers and magazines are mainly read in the urban centers. The radio in these
countries is the medium which reaches the most people.

(x) Literacy Level of Target Audience

In Kenya and other African countries with high illiteracy rates, the radio and mobile cinema are
the best vehicles of reaching illiterate present and potential customers.

Step 6: Scheduling of Ads

Retailers should time when its ads should be received by the consumers. In order to know the time
of day, day of week, week of month and month of year that the ads should appear retailers should
consider the following conventional wisdom:

a) Ads should appear on, or right before the days when customers are most likely to purchase.
If most people shop for groceries Thursday through Saturday, grocery store ads might
appear on Wednesday and Thursday.
b) Advertising should be concentrated around the times when people receive their salaries. If
they get paid at the end of the month, then advertising should be concentrated at that point.
c) If the retailer has limited funds, it should concentrate its advertising during periods of
highest demand.
d) The retailer should time its ads to appear during the time of day or day of week when the
maximum reach will be obtained.
e) The higher the degree of habitual purchasing of a product class, the more the advertising
should precede the purchasing time.

Step 7: Evaluating the Results

The question on whether the advertising will produce the results depends on how well the ads were
designed and how well the advertising decisions were made.

Some retailers try systematically to assess the effectiveness and efficiency of their advertising.

Advertising effectiveness is the extent to which the advertising has produced the result desired (i.
e. helped to achieve the advertising objective).

Advertising efficiency is concerned with whether the advertising result was achieved with the
minimum effort (e. g. Shillings).

The effectiveness or efficiency of advertising can be assessed on a subjective basis. Most, but not
all, ineffective advertising is due to one of 10 errors:

 The retailer bombarded the consumer with so many messages and sales that any single
message or sale tends to be discounted. A retailer that has a major sale every week will
tend to wear out its appeal.
 The advertising was not creative or appealing. It may be just more “me too” advertisng in
which the retailer does not effectively differentiate itself from the competition.
 The ad didn’t give customers all the information they need e.g. store hours, address, sizes,
styles, colours and other product attributes. The retailer may assume that customers already
know this information.
 Advertising funds were spread too thinly over too many departments or merchandise lines.
 There may be poor internal communications among salespeople, cashiers, stock clerks and
management.
 The ad was not directed to the proper target market.
 The retailer did not consider all media options. A better buy was available but the retailer
did not take time to find out about it.
 The retailer made too many last-minute changes in the advertising copy, increasing both
the cost of the ad and the chance for error.
 The retailer took co-op funds just because they were “free” and therefore presumably a
good deal.
 The retailer used a medium that reached too many people not in the target market. Thus,
 too much money was spent on advertising to people who were not potential customers.

2.5 PUBLICITY

There is a relationship between publicity and public relations and therefore it is important to
appreciate the definition of the two variables first.

Public relations entails any communication that fosters a favorable image for the retailer among
its publics (consumers, investors, government, channel members, employees and the general
public). It may be non-personal or personal, paid or non-paid and sponsor controlled or not
controlled.

Publicity is any non-personal form of public relations whereby messages are transmitted through
mass media, the time or space provided by the media is not paid for, and there is no identified
commercial sponsor.

Characteristics of Publicity

(i) Publicity messages are normally informative unlike advertising messages which are
informative, persuasive or both.
(ii) People find publicity items to be more credible than ads, perceive its material as news,
thus it may reach people with more impact than advertising does.
(iii) Publicity releases do not, unlike ads, have an identified sponsor.
(iv) Publicity is free as opposed to advertisement which can be quite expensive.

Objectives of Publicity

Publicity seeks to accomplish one or more of these goals:

(i) Increase awareness of the retailer and its strategy.

(ii) Maintain or improve the company’s image.
(iii) To maintain a certain level of positive visibility with the public.
 (iv) Show the retailer as a contributor to the public’s quality of life.
(v) Demonstrate innovativeness.
(vi) Present a favourable message in a highly believable manner.
(vii) Minimize total promotion costs.

Advantages of Publicity

(i) An image can be presented or enhanced.

(ii) A more credible source presents the message.
(iii) There are no costs for the message’s time or space.
(iv) A mass audience is addressed.
(v) Carryover effects are possible (if a store is perceived as a community-oriented, its value
positioning is more apt to be perceived favourably.
(vi) People pay more attention to news stories than to clearly identified ads.

Disadvantages

(i) Some retailers do not believe in spending any funds on image-related communication.
(ii) There is little retailer control over publicity message and its timing, placement and
coverage by a given medium.
(iii) It may be more suitable for short-run, rather than long-run planning.
(iv) Although there are no media costs for publicity, there are costs for a public relations
staff, planning activities and the activities themselves (such as store openings).

Forms of Publicity

Among the common forms of publicity as a promotion tool are:

(a) News releases

Consist of a single typewritten page of about three hundred words or so.

(b) Captioned Photographs

A photograph with a brief description that explains the picture’s content. They are especially
effective for illustrating a new improved product that has highly visible features. They are also
used to illustrate a firm’s personnel and welfare policies.

(c) Feature articles

They are longer that news releases-up to three thousand words. They differ from news releases,
also in that they are not necessarily “news” as such but rather often deal with stories about the
company and topics of interest to the people whom the medium reaches.

(d) Speeches
They are normally delivered by company executives. They are popular devices an they can cover
topics such as the unique features of a product, or unusual aspects of the production process that
may be news worthy information to certain publics.

(e) News Conferences

Involve inviting a number of representatives of the press to a meeting at which executives of the
organization discuss the publicity item. They are particularly appropriate when understanding of
an item can only be attained through a discussion and question and answer exchanges.

Factors to consider when selecting the form of Publicity to be used

 Type of information to be presented

 Characteristics of the target audience
 The receptivity of the media personnel
 Amount of information to be presented
Lesson 3

UNDERSTANDING THE CUSTOMER

3.1 Introduction

The quality of a retail strategy depends on how well a firm identifies and understands its customers
and forms its strategy mix to appeal to them. This entails identifying consumer characteristics,
needs and attitudes; recognizing how people make decisions; and then devising the proper target
market plan. This chapter aims at exploring the impact on consumers of the elements such as
demographics, lifestyles, needs and desires, shopping attitudes and behaviour, retailer actions that
influence shopping and environmental factors. By studying these elements, a retailer can devise
the best possible target market plan and do so in the context of its overall strategy.

Consumer Demographics and Life-styles

Demographics are objective, quantifiable, easily identifiable and measurable population data.

Life-styles are the ways in which individual consumers and families (households) live and spend
time and money.

Consumer Demographics
Both groups of consumers and individual consumers can be identified by such demographics as
gender, age, population growth rate, life expectancy, literacy, language spoken, household size,
marital and family status, income, retail sales, mobility, place of residence, occupation, education
and ethnic/racial background.

A retailer should have some knowledge of overall trends, as well as the demographics of its own
target market. Because most retailers are local or operate in only part of a region, they must
compile data about the people living in their trading areas and those most apt to shop there. For a
give business and location, the characteristics of the target market (the customer group to be sought
by the retailer) can be studied on the basis of some combination of these demographic factors and
a retail strategy planned accordingly:

 Market size: The retailer should find out how many people are in the potential target
market.
 Gender: The potential market should be analysed to find out if the target market is more
male or female, or whether they are equal in proportion.
 Age: The retailer should seek to know what the prime age groups that the firm wants to
appeal are.
 Household size: The average household size of potential consumers needs to be sought by
the retailer.
 Marital and family status: The retailer need also to find out whether potential consumers
are single or married and whether the families do have children.
 Income: Is the potential target market lower income, middle income, or upper income? Is
discretionary (flexible) income available for luxury purchases?
 Retail Sales: The retailer needs to find out the area’s sales forecast for the retailer’s
goods/services category.
 Mobility: The percentage of the potential target market that moves into and out of the
trading area annually should be identified.
 Where people live: How large is the trading area from which potential customers can be
drawn?
  Employment status: Does the potential target market include working women?
 Occupation: The retailer needs to find out the industries and occupations that people in the
area are working. Are they professionals, office workers or of some other designation?
 Education: What is the education level of the potential customers?
 Ethnic/racial background: Does the potential target market cover a distinctive racial or
ethnic group?

3.2 Consumer Life-styles

They are based on social and psychological factors, and influenced by demographics. A retailer
should first have some knowledge of consumer life-style concepts and then determine the life-style
attributes of its own target market. The social factors include:

 Culture: A distinctive heritage shared by a group of people that passes on a series of beliefs,
norms and customs.
 Social class: It involves informal ranking of people based on income, occupation,
education and other factors. People often have similar values in each social class.
 Reference groups: They influence people’s thoughts and behaviour. They are- aspirational
groups - a person does not belong but wishes to join; membership groups – a person does
belong; dissociative groups – a person does not want to belong. Face-to-face groups such
as families have the most impact. Within reference groups are opinion leaders whose views
are well respected and sought.
 Family life cycle: Describes how a traditional family moves from bachelorhood to children,
to solitary retirement. At each stage, attitudes, needs, purchases and income change.
Retailers must be alert to the many adults who never marry, divorced adults, single-parent
families and childless couples. The household life cycle incorporates life stages for both
family and non-family households.
 Time utilization: These are activities a person is involved in and the amount of time
allocated to them. The broad categories are work, transportation, eating, recreation,
entertainment, parenting, sleeping and (retailer’s hope) shopping. Today most consumers
 allocate less time to shopping.

Psychological Factors

They help in identifying and understanding consumer life-styles and they include:

 Personality: Sum total of an individual’s traits which make that individual unique. They
include: a person’s level of self-confidence, innovativeness, autonomy (independence),
sociability, emotional stability and assertiveness (boldness).
 Class consciousness: The extent to which a person desires and pursues social status. Helps
to determine the use of reference groups and the importance of prestige purchases. A class-
conscious person values the status of goods, services and retailers.
 Attitudes (opinions): Are the positive, neutral or negative feelings a person has about
different topics. They are also feelings consumers have about a given retailer and its
activities.
 Perceived risk: It is the level of risk a consumer believes exists regarding the purchase of
a specific good or service from a given retailer, whether or not the belief is correct. There
are six types: functional (will a good or service perform well?), physical (can a good or
service hurt me?), financial (can I afford to buy?), Social (What will peers think of my
shopping here?), Psychological (Am I doing the right thing?), and time (How much effort
must I exert in shopping?). Perceived risk is high if the retailer or its brands are new, a
person is on a budget, a person has little experience, there are many choices and a purchase
is socially visible or complex.
 Importance of a purchase to the consumer: Affects the amount of time he or she will spend
to make a decision and the range of alternatives considered. If a purchase is important,
perceived risk tens to be higher, and the retailer must adapt to this.

A retailer can develop a life-style profile of its target market by answering these questions and
then use the answers in developing its strategy:

 Culture: What values, norms and customs are most important to the potential target
market?
  Social class: Are potential consumers lower, middle, or upper class? Are they socially
mobile?
 Reference groups: To whom do people look for purchasing advice? Does this differ by god
or service category? How can a firm target opinion leaders?
 Family (household) life cycle: In what stage(s) of the cycle are the bulk of potential
customers?
 Time utilization: How do people spend time? How do they value their shopping time?
 Personality: Do potential customers have identifiable personality traits?
 Class consciousness: Are potential customers status-conscious? How does this affect
purchases?
 Attitudes: How does the potential target market feel about the retailer and its offerings in
terms of specific strategy components?
 Perceived risk: Do potential customers feel risk in connection with the retailer? Which
goods and services have the greatest perceived risk?
 Importance of the purchase: How important are the goods/services offered to potential
customers?

Consumer needs and desires

Needs are a person’s basic shopping requirements consistent with his or her present demographics
and life-styles.

Desires are discretionary shopping goals that have an impact on attitudes and behaviour. A person
may need a car to get to and from work and seek a dealer with Saturday service hours.

When a retail strategy aims to satisfy consumer needs and desires, it appeals to consumer motives
(the reasons for their behaviour).

There are three market segments that attract retailer attention. They are: in-home shopping, online
shoppers and outshoppers.

In-home shopping

This is not always a captive audience. Shopping is often discretionary, not necessary. Convenience
in ordering an item, without traveling for it is important. These shoppers are often active store
shoppers, and they are affluent and well educated. Many in-home shoppers are self-confident,
younger and venturesome.

Online shopping

People who shop online are well-educated and have above average incomes. However, unlike
many other retail formats, the Web has multiple uses for people that go beyond purchasing online:
“Retailers selling online must regard the internet as a medium through which people not only buy
but also sort through their buying decisions. While many online households buy goods or services
online, a much higher number have researched goods or services on the internet only to buy the
items at a store (supermarket) or from other retail outlets. For retailers, it’s really important to
avoid judging the success of an online presence simply in terms of sales.

Outshopping

It is important for both local and surrounding retailers. Outsshoppers are often male, young
members of a large family and new to the community. Income and education vary by situation.
Outshoppers differ in their life-styles from those who partronise hometown stores. They enjoy fine
foods, like to travel, are active, like to change stores and read out-of-town newspapers. They also
downplay hometown stores and compliment out-of-town stores.

Shopping Attitudes and Behaviour

This includes: people’s attitudes towards shopping, where people shop and the way in which they
make purchase decisions.

Attitudes towards Shopping

Research on people’s attitude towards shopping has been done and the findings indicate that there
are negative perceptions about shopping that retailers must attempt to turn around. They are
discussed below:

Shopping Enjoyment:

In general people don’t enjoy shopping as much as in the past. Research findings indicate that the
following variables would make a customer choose one retailer from a group of similar retailers
situated near each other: the retailer whose layout is best known by the customer, retailer with the
best employee attitudes, the cleanest retailer, the retailer that appeared neatest and nicest inside.

Attitudes towards shopping

Retail shopping is often viewed as a chore. Consumers want to spend fewer hours cruising the mall
in search of the perfect item and instead get what they need as quickly as possible. This trend has
been dubbed ‘precision shopping’.

Shifting feelings about Retailing

There has been a major change in attitudes towards spending, value and shopping with established
retailers. More consumers tent to wit for sales before making their purchases. Retailers have helped
to condition consumers to low prices by offering frequent price promotions. This trend has
dampened retailers’ potential profits, as consumers who were once loyal to a particular store are
now willing to turn on a dime if a well-stocked, lower-priced competitor comes along. This intense
focus on price may lead more retailers to adopt an ‘everyday low price’ strategy in an effort to
attract a steady customer base and to eliminate margin-eroding sales.

Why people buy or do not buy on a shopping trip

It is critical for retailers to determine why shoppers leave without making a purchase. According
to Kurt Salmon Associates, here are the top 10 reasons why shoppers leave a store without buying:
  Cannot find an appealing style
 Cannot find the right size or the item is out of stock
 Nothing fits
 No sales help is available
 Cannot get in and out of the store easily
 Prices are too high
 In-store experience is very stressful
 Cannot find a good value
 Store is not merchandised conveniently
 Seasonality is off

Attitudes by Market Segment

In their banking activities, upscale consumers are more interested in dealing with “highly
professional, competent bankers” than middle-income consumers, who consider “friendliness” and
“location” to be more important. Grocery shoppers can be divided into four categories: shopping
avoiders, who dislike grocery shopping; time-starved shoppers, who pay more for convenience;
responsible shoppers, who feel grocery shopping is a key household task; and traditional shoppers,
who plan store trips carefully.

Attitudes toward private brand

Many consumers believe private (retailer) brands are as good as or better than manufacturer
brands. In a landmark nationwide study, 75% of consumers defined store brands as ‘brands’ and
ascribed to them the same degree of positive product qualities and characteristics such as:-
guarantee of satisfaction, packaging, value, taste and performance that they attribute to
manufacturer brands.

Where People shop

Consumers patronage differs sharply by type of retailer. Thus it is vital for firms to recognize the
venues where consumers are most likely to shop and plan accordingly.

Many consumers do cross-shopping whereby they (a) shop for a product category at more than
one retail format during the year or (b)visit multiple retailers on one shopping trip. The first occurs
because these consumers feel comfortable shopping at different formats throughout the year, their
goals vary by occasion, they shop wherever sales are offered, and they have a favorite format for
themselves and another one for other household members. Visiting multi[le retailers on one
shopping trip occurs because consumers want to save travel time and shopping time; both can be
reduced when visiting more than one retailer per shopping.

3.3 The Consumer Decision Process

Besides identifying target market characteristics, a retailer should know how people make
decisions. This requires familiarity with consumer behavior, which is the process by which people
determine whether, what, when, how, from whom, and how often to purchase goods and services.

In considering whether to buy an item, the consumer considers features, durability, distinctiveness,
value, ease of use, etc. In choosing the retailer to patronize for that item, the consumer considers
location, assortment, credit availability, sales help, hours, customer service, etc.

The consumer decision process has two parts: the process itself and the factors affecting the
process. There are six steps in the process: stimulus (newspaper ads), problem awareness (stocking
new models), information search (point-of-sale displays and good sales people), evaluation of
alternatives (clearly noticeable differences among products), purchase, and post-purchase
behaviour (extended warranties and money-back returns). The greater the role a retailer assumes
in the decision process, the more loyal the consumer will be.

3.4 Review Questions

1. What are the factors which affect the buying behavior of a retail shopper?
2. What is the consumer buying process?
3. How has the Kenyan consumer changed? What are the challenges that the new consumer
poses for the retailer?
3.5 Suggested Readings

 Customers as innovators, Anew Way to Create Value, Stefan Thomke and Eric von Hippel,
Harvardd Business review, April 2002.
 Why we Buy: The Science of shopping, Paco Underhill.
 Understanding the service requirements of the mature market, Shank, D.M and Nahhas, F.
Journal of Restaurant and Foodservice Marketing, 1994, Vol. 1 No. 2, pp. 23-43
Lesson 4

MANAGING HUMAN RESOURCE MANAGEMENT IN RETAILING

4.1 Human Resource Management

It involves recruiting, selecting, training, compensating and supervising personnel in a manner

consistent with the retailer’s organization structure and strategy mix. Personnel practices are
dependent on the line of business, the number of employees, the location of outlets and other
factors.

4.2 Special Human Resource Environment of Retailing

Retailers face a human resource environment characterized by a large number of inexperienced

workers, long hours, highly visible employees, a diverse workforce, many part-time workers and
variable customer demand. These factors complicate employee hiring, staffing, and supervision.

The need for a large retail labour force often means hiring persons with little or no prior experience.
People are attracted to retailing because they find jobs near to home; and retail positions may
require limited education, training and skill. Also, the low wages paid for some positions result in
the hiring of inexperienced people. This leads to high employee turnover, poor performance,
lateness and absenteeism.

Long working hours in retailing which includes weekends, turn off prospective employees; many
retailers now have longer hours since shoppers want to shop in the evenings and weekends. Some
retailers require at least two full-time shifts of employees.

Retailing employees are highly visible to customers since they interact directly with the customers.
Therefore, when being selected and trained great care must be taken with regard to their manners
and appearance (neat grooming and appropriate attire).

Many retailers have diverse workforce in terms of age, gender, work experience, race, education
levels, etc. This means that firms must train and supervise their workers so that they interact well
with one another-and are sensitive to the perspectives and needs of one another.

Due to their long hours, retailers regularly hire part-time workers. Some part-time employees are
more lackadaisical, late, absent or likely to quit than full-time employees. Such employees must
be closely monitored.

4.3 The Human Resource Management Process in Retailing

It consists of interrelated personnel activities including recruitment, selection training,

compensation and supervision. Diversity involves two premises:

i) That employees be hired and promoted in a fair and open way without regard to gender,
ethnic background and other related factors; and
ii) That in a diverse society, the workplace should be representative of such diversity.

There are several aspects of labour laws for retailers to satisfy. They must not

 Hire underage workers

 Pay workers “off the books”.
 Require workers to engage in illegal acts
 Discriminate in hiring or promoting workers
 Violate worker safety regulations
  Deal with suppliers that disobey labor laws

Step 1: Recruiting Retail Personnel

Recruitment is the activity whereby a retailer generates a list of job applicants. The sources can be
internal, external or both. External sources refer to any source outside the company and it includes:
educational institutions, other channel members, competitors, advertisements, employment
agencies and unsolicited (voluntary) applicants.

Internal sources on the other hand refer to sources within the company and it comprises of currents
and former employees and employee recommendations. In addition to these sources, the Web is
playing a bigger role in that many retailers have a career or job section on their website.

For entry-level sales jobs, retailers rely on educational institutions, ads, walk-ins (or write-ins),
web sites and employee recommendations. For middle-management positions, retailers rely on
employment agencies, competitors, ads, and current employee referrals. The retailer’s goal is to
generate a list of potential employees, which is reduced during selection. However, retailers that
only accept applications from those who meet minimum background standards can save a lot of
time and money.

Step 2: Selecting Retail Personnel

This is done by matching the traits of potential employees with job requirements. Job analysis and
description, the application blank, interviewing, testing (optional), references, and a physical exam
(optional) are tools in the process; they should be integrated.

In job analysis, information is amassed on each job’s functions and requirement: duties,
responsibilities, aptitude, interest, education, experience and physical tasks. It is used to select
personnel, set performance standards and assign salaries.

A goal-oriented job description can enumerate basic functions, the relationship of each job to
overall goals, the interdependence of positions and information flows.

An application blank is usually the first tool used to screen applicants; providing data on education,
experience, health, reasons for leaving prior jobs, outside activities, hobbies and references. It is
usually short, requires little interpretation, and can be used as the basis for probing in an interview.
With a weighted application blank, factors having a high relationship with job success are given
more weight than others. Retailers that use such a form analyse the performance of current and
past employees and determine the criteria (education, experience and so on) best correlated with
job success (as measured by longer tenure better performance, etc). After weighted scores are
awarded to all job applicants, a minimum total score becomes a cutoff point for hiring.

An application blank should be used along with a job description. Those meeting minimum job
requirements are processed further; others immediately rejected. In this way, an application blank
provides a quick and inexpensive method of screening.

The interview seeks information that can be amassed only by a personal questioning and
observation. It lets an employer determine a candidate’s verbal ability, note his or her appearance,
ask questions keyed to the application, and probe career goals. Interviewing decisions must be
made about the level of formality, the number and length of interviews, the location, the person(s)
to do the interviewing and the interview structure. These decisions often depend on the
interviewer’s ability and the job’s requirements.

Small firms tend to hire an applicant who has a good interview. Large firms may add testing. A
candidate who does well in an interview then takes a psychological test (to measure personality,
intelligence, interest and leadership) and/or achievement tests (to measure learned knowledge).

Tests must be administered by qualified people. Standardized exams should not be used unless
proven effective in predicting job performance. Because achievement test deal with specific skills
or information, like the ability to make a sales presentation, they are easier to interpret than
psychological tests, and direct relationships between knowledge and ability can be shown. In
administering tests, retailers must not violate any federal, state or local law.
To save time and operate more efficiently, some retailers – large and small – use computerized
application blanks and testing. This is where people use cyber cafes to apply for jobs, complete
application blanks and answer several questions. This speeds up hiring process and attracts a lot
of applicants.

Many retailers get references from applicants from applicants that can be checked either before or
after an interview. References are contacted to see how enthusiastically they recommend an
applicant, check the applicant’s honesty and ask why an applicant left a prior job.

Some firms require a physical exam because of the physical activity, long hours and tensions
involved in many retailing positions.

Step 3: Training Retail Personnel

Every new employee should receive pre-training, indoctrination on the firm’s history and policies,
as well as a job orientation on hours, compensation, the chain of command and job duties. New
employees should also be introduced to co-workers: “Effective orientation inspires recruits and
provides information that they do not know about their jobs and the retailer.

Training programs teach new (and existing) personnel how best to perform their jobs or how to
improve themselves. Training can range from one-day sessions on operating a computerized cash
register, personal selling techniques, or compliance with affirmative action programs to two-year
programs for executive trainees on all aspects of the retailer and its operations.

Training should be an ongoing activity. New equipment, legal changes, new product lines, job
promotions, low employee morale and employee turnover necessitate not only training but also
retraining.

There are several training decisions and can be divided into three categories: identifying needs,
devising appropriate training methods and evaluation. Shot-term training needs can be identified
by measuring the gap between the skills that workers already have and skills desired by the firm
(for each job). This training should prepare employees for possible job rotation, promotions and
changes in the company. A longer training plan lets a firm identify future needs and train workers
appropriately.

There are many training methods for retailers: lectures, demonstrations, films, programmed
instruction, conferences, sensitivity training, case studies, role playing, behaviour modeling and
competency-based instruction. Some techniques may be computerized. Retailers often use more
than one technique to reduce employee boredom and cover the material better. For training to
succeed, a conducive environment is needed based on several principles:

 All people can learn if taught well; there should be a sense of achievement.
 A person learns well when motivated; intelligence alone is not sufficient.
 Learning should be goal-oriented.
 A trainee learns more when he or she participates and is not a passive listener.
 The trainer must provide guidance and adapt to the learner and to the situation.
 Learning should be approached as a series of steps rather than a one-time occurrence.
 Learning should be spread out over a reasonable period of time rather than be compressed.
 The learner should be encouraged to do homework or otherwise practice.
 Different methods of learning should be combined.
 Performance standards should be set and good performance recognized.
A training program must be regularly evaluated. Comparisons can be made between the
performance of those who receive training and those who do not, as well as among employees
receiving different types of training for the same job. Evaluations should always be made in
relation to stated training goals. In addition, training effects should be measured over different
time intervals (such as immediately, 30 days later and 6 months later) and proper records
maintained.

Step 4: Compensating Retail Personnel

Total compensation – direct payments (salaries, commissions and bonuses) and indirect payments
(paid vacations, health and life insurance and retirement plans) – should be fair to both the retailer
and its employees. To better motivate employees, some firms also have profit-sharing. Smaller
retailers often pay salaries, commissions and/or bonuses, and have fewer fringe benefits. Bigger
ones generally pay salaries, commissions and/or bonuses and offer more fringe benefits.

With a straight salary, a worker is paid a fixed amount per hour, week, month, or year. Advantages
are retailer control, employee security and known expenses. Disadvantages are retailer
inflexibility, the limited productivity incentive and fixed costs. With a straight commission
earnings are directly tied to productivity (such as sales volume). Advantages are retailer flexibility,
the link to worker productivity, no fixed costs, and employee incentive. Disadvantages are the
retailer’s potential lack of control over the tasks performed, the risk of low earnings to employees,
cost variability and the lack of limits on worker earnings. Sales personnel for autos, real-estate,
furniture, jewelry and other expensive items are often paid a straight commission – as are direct-
selling personnel.

To combine the attributes of salary and commission plans, some retailers pay their employees as
salary plus commission. Shoe salespeople, major appliance salespeople, and some management
personnel are among those paid in this manner. Some bonuses supplement salary and/or
commission, normally for outstanding performance.

Step 5: Supervising Retail Personnel

Supervision is the manner of providing a job environment that encourage employee

accomplishment. The goals are to oversee personnel, attain good performance, maintain morale,
motivate people, control costs, communicate and resolve problems. Supervision is provided by
personal contact, meetings and reports. Every company wants to continually motivate employees
so as to harness their energy on behave of the retailer and achieve its objectives. Job motivation
is the drive within people to attain work-related goals. It may be positive or negative. Employee
motivation should be approached from two perspectives: What job-related factors cause employees
to be satisfied or dissatisfied with their positions? What supervision style is best for both the retailer
and its employees?
Each employee looks at job satisfaction in terms of minimum expectations (“dissatisfiers”) and
desired goals (“satisfiers”). A motivated employee requires fulfillment of both factors.

Minimum expectations relate mostly to the job environment, including a safe workplace, equitable
treatment for those with the same jobs, some flexibility in company policies, an even-tempered
boss, some freedom in attire, a fair compensation package, basic fringe benefits (such as vacation
time and medical coverage), clear communications and job security. These elements can generally
influence motivation in only one way – negatively. If minimum expectations are met, they are
taken for granted and do little to motivate the person to go “above and beyond.”

Desired goals relate more to the job than to the work environment. They are based on whether an
employee likes the job, is recognized for good performance, feels a sense of achievement, is
empowered to make decisions, is trusted, has a defined career path, receives extra compensation
when performance is exceptional and is given the chance to learn and grow. These elements can
have a huge impact on job satisfaction and motivate a person to go “above and beyond”.
Nonetheless, if minimum expectations are not met, an employee might still be dissatisfied enough
to leave even if the job is quite rewarding

Styles of supervising Retail Employees

 Management assumes employees must be closely supervised and controlled, and that only
economic inducements really motivate. Management further believes that the average worker
lacks ambition, dislikes responsibility and prefers to be led. This is the traditional view of
motivation and has been applied to lower-level retail positions.
 Management assumes employees can be self-managers and assigned authority, motivation is
social and psychological, and supervision can be decentralized and participatory. Management
also thinks that motivation, the capacity for assuming responsibility, and a readiness to achieve
company goals exist in people. The critical supervisory task is to create an environment so
people achieve their goals by attaining company objectives. This is a more modern view and
applies to all levels of personnel.
 Management applies a self-management approach and also advocates more employee
involvement in defining jobs and sharing overall decision making. There is mutual loyalty
 between the firm and its workers, and both parties enthusiastically cooperate for the long-term
benefit of each.

Most important things that managers can do to develop and maintain motivated employees have
no cost, but rather are a function of the daily interactions that managers have with employees
pertaining to work. These can be called “the power of I’s”. There are five of them: (1) Interesting
work. (2) Information, communication and feedback. (3) Involvement and ownership in decisions.
(4) Independence, autonomy and flexibility. (5) Increased visibility, opportunity and
responsibility.
 FRANCHISING IN RETAIL BUSINESS

5.1 INTRODUCTION TO FRANCHISING

Franchising is a format of business that is used extensively in retailing. Large retail companies
often use this technique to scale their geographical presence through partner organizations
that are given franchise rights to run the organization’s business in their name and style. The large
organization becomes the franchisor and gets a sum of money, or a fraction of the
income that the business partner organization (franchisee) generates, from operating such
franchised business. In the case of start-up business, the franchisor often protects the interest of
franchisee by providing guarantee of a specified minimum income.
Globally, franchised businesses generate an estimated $1 trillion in income roughly twenty times
the size of Kenya’s current GDP.
Franchising also results in increased employment, earnings and entrepreneurship. It is a
particularly good developmental tool in countries where financial resources are inadequate, and
the need to stimulate individual initiative is acute. Franchising helps promote sharing of
technology, trademarks, marketing techniques, intellectual property and business design rights. It
also has the effect of creating relationships between one economy and another—thereby benefiting
developing countries or nations shifting to a market economy.
In fact, franchising has two beneficial aspects. The first is for franchisee, for which it reduces the
risk since the business is operated with proven know-how and the brand of the franchisor.
Other benefit that accrues to the franchisor is that he is utilizing franchisee’s financial and physical
resources to expand his business. In short, retail franchising leads to development of a network of
interdependent entities that allows many to share a specific retail brand and best practices
associated with it.
Thus, franchising is a strategic alliance between groups of people who have specific relationships
and responsibilities with the common goal of dominating markets, and getting and keeping more
customers than their competitors.

5.1.1 Franchising in Kenya

Franchising as a way to expand retailing came to Kenya only in early 90s. In contrast to the US
experience where franchising in was initially popularized by the fast food industry.
In recent years, there has been a huge influx of foreign brands into the country since Kenya is
viewed as an ideal place for new business ventures. Rapid changes in consumer attitudes in the
Country despite the fact that many people live in villages and have limited purchasing power have
encouraged many global brands to set up shop in Kenya. The country also has a large and growing
middle class with a growing disposable income, and a significant number of wealthy consumers.
Franchising allows Kenya to build its retail infrastructure, and develop its
Domestically oriented businesses, in a way that is efficient and profitable for the national economy.

Franchising is expected to spur the growth of the economy because it encourages private
enterprise. It also reduces the risk of flight of capital, while offering the potential to deliver
products and services that meet global standards. Franchising also offers the growing band of small
entrepreneurs in the country an opportunity to realize their dreams with lower risk and capital
outlay. However, despite repeated attempts by industry experts to persuade policy makers to allow
foreign direct investment (FDI) in multi-brand retail operations have failed. There has been
vigorous opposition from small-time traders and shopkeepers. This is because they fear that the
organised techniques and the financial muscle of large foreign retail companies would drive them
out of business. The powerful trading community has raised the spectre of large scale
unemployment to deter the government from permitting hundred per cent FDI in retailing.
Consequently, foreign retailers have established their presence in the Kenyan retail landscape
through franchising agreements.

5.2 TYPES OF RETAIL FRANCHISING

In today’s retail, two kinds of franchising arrangements are in vogue, (i) Business format
franchising (ii) Product/Trade name franchising

5.2.1 Product/Trade Name Franchising

In such franchise agreements, the franchisee gets the right to use trade names, trade mark and or
products from the franchisor. For example Arrow, Woolworths, Deacons, etc.
are brands franchised in Kenya. Walt Disney has been successful in having its label on all kinds
of goods for children, like clothing, toys and school equipment.

5.2.2 Business Format Franchising

In this type of franchise arrangement, the franchisee acquires the right to use a format of
conducting business and the best practices associated with it. These include a typical set of
product and services that are sold under the franchisor’s trade name and trade mark. In Kenya,
business format franchising is done in the case of Galitos, Bata, KFC, etc. Such franchisees
maintain the styling and design aspects determined by the franchisor in their retail environments,
right from store design to service standards to deliveries.

5.3 TYPES OF FRANCHISE AGREEMENTS

In the following section we discuss variety of franchise agreements that are popular globally. Our
analysis also includes the merits and demerits of each.

5.3.1 Direct Franchising Format

The most elementary arrangement is the direct franchising format wherein a franchisee is granted
the right of franchise by the franchisor under an execution of business contract. The control and
monitory aspects of operations rests with the franchisor. Therefore, the singular advantage for the
franchisee is that he gets a readymade and established business format that can be replicated. The
converse side of this arrangement is that franchisee is bound to operate within strictly defined
operation guidelines and has little room for flexibility or
improvisation.
5.3.2 Subsidiary Franchising
Wherever laws and regulations allow foreign organizations to set up their subsidiaries in Kenya,
franchising is done through a subsidiary. The franchiser controls the subsidiary directly. The
important advantage of this approach is that through the subsidiary company the franchisor has a
physical presence in the country as body corporate. In this case, the franchise contract can be
framed in accordance with domestic contract laws, and is subject to the jurisdiction of local courts.
Most foreign automobile companies work this way; franchise rights for retailing and dealerships
are given to other entities by the subsidiary office in Kenya, which controls all the processes in
retail and distribution. Here the subsidiary office enters into an agreement with the franchisees.

5.3.3 Regional/Area Franchiser or Multiple Franchising

Here the franchiser offers franchise rights to a franchisee only for a region, or a specific geographic
area. There are separate franchisees for each area or region in the country. This kind of arrangement
is also known as multiple franchising, since more than one franchisee is given the franchise rights
for the same brand. One example is KFC in Kenya where franchise rights are given to different
organization in every region. Such agreements offer the franchisee the right to open a multiple
outlets according to a predetermined schedule and within a given area.

5.3.4 Unit Franchiser

The franchiser offers rights to a franchisee to open and run just one store through an exclusive
agreement. This arrangement involves many franchisees. The strength of this format is that
each franchisee pays full attention to his store and its performance. Many Titan Watches ’ ‘World
of Titan’ stores fall under this category too.

1.3.5 Master Franchising

In master franchising agreements the franchise rights or a specific geographical spread is granted
to franchisee by the franchisor. Such franchisees are designated as a master franchisee that in turn
appoints franchise outlets by itself or appoints sub-franchisees to cover the geographical territory.
The legal implications of this format are two sets of agreements, one signed between franchisor
and master franchisee, and the other between master franchisee and sub-franchisees. Many
footwear store brands are franchised in this fashion. The major advantage of this kind of
franchising is the rapid increase in scale following specified standards and processes. Further, since
the sub-franchisees often are familiar with the local market,
business viability can be ensured.

5.4 FRANCHISE OPERATIONS ARRANGEMENTS

5.4.1 Franchiser Owned and Franchisee Operated

The franchiser owns or has the property lease so that it is sure of the location for a long time. It
allows the franchisee to operate the business for a consideration. The capital investments are made
by the franchiser, but the operations are handled by the franchisee that follows the norms and
standards agreed upon. Commissions are generally lower in such arrangements.

5.4.2 Franchisee Owned and Franchisee Operated

In this kind of franchise agreement, the franchisee is accountable for the operation as well as all
the financial investments. The franchisor provides only the operating guidelines and expertise. The
products that are sold through such outlets often bought outright by the franchisee, or sometimes
on a consignment basis. Under this mode the franchise makes more commissions when compared
to the franchisor-owned and franchise-operated option.

5.5 KEY SUCCESS FACTORS IN FRANCHISING

Over the years studies have proved that a franchising model is successful only if; i. The prospective
franchisor has developed the brand, and has tested its goods and services in actual market
conditions ii. Franchisors have gained both brand and operating experience through the
establishment and operation of their own outlets before seeking expansion via franchise methods.

5.5.1 Implementation of a Pre-Tested Model

Franchising will yield good results if it is done after creating a brand and testing it for successful
operations. Retail organizations should look at establishing a successful Company–
Owned and Company–Operated (COCO) model before seeking expansion through the franchise
route.

5.5.2 Transfer of Knowledge and Inputs by the Franchiser

A well-known and trusted brand automatically draws customers. The relevant inputs that a
franchisor must provide its franchisees are:
a. Operating best practices
b. Training of personal
c. Store design and lay out
d. Advertising to build the brand
e. Various seasonal and value-based promotions
In some cases, companies also provide minimum sales guarantees, though these are rare since they
reduce the incentive for franchisees to sell. Another advantage for franchisees is that they have to
interact only with one supplier, greatly simplifying business operations.

5.5.3 The Franchisee is the Franchisor’s Face to Customers

At the operating level, it is franchisee that faces the customers. Therefore, it is important that a
franchisee conform to established standards and procedures for the store interiors, layout, visual
experience and portfolio of merchandise carried. Any deviation from this may lead to customer
dissatisfaction with the brand. Usually, the franchise agreement will specify the
guidelines and standards. This is important, because by doing so the entire brand experience gets
translated to ultimate customer. It is very important that both franchisor and franchisee present a
‘single face’ to the customer to ensure a win-win situation for both.

5.5.4 Creating a Win-Win Situation by Reducing Risks

In a franchise arrangement, both the franchiser and the franchisee must stand to gain. Risks in a
franchise agreement can be reduced if both franchisor and franchisee agree to share the investment
costs and profit. This ultimately leads the growth of both the franchisee and franchisor. There is
larger possibility of failure when a franchisor insists that all costs are to be borne by franchisee
while wanting a substantial share of returns.

5.5.5 An Attitude of Ownership and Shared Responsibilities

Most franchisees fail when they do not feel that they really own franchise. This happens because
they feel that they are running franchisor’s business, and it is the franchisor’s responsibility to
make things happen. It is therefore very important that in a franchise relationship nothing should
left vague; all the responsibilities should be clearly defined, for both the franchisee and franchisor.

5.5.6 Periodic Performance Review

Periodic performance reviews are important if a franchise is to succeed. These periodic reviews
highlight potential areas of concern, and enable proactive planning and remedial actions to
be taken to eliminate such concerns. Another purpose of such review is to bring out gaps in the
deliverables and expectations of either franchisee or franchisor. If any gaps are found, they
should be handled with speed and concern.

5.6 REVIEW QUESTIONS

1. Briefly describe the franchising form of retailing, and its advantages for retailing in Kenya.
2. Outline the major types of franchising.
3. What are the different types of franchise agreements, their advantages and disadvantages?
Explain with suitable examples.
4. Describe the key success factors for successful franchising in Kenya.

5.7 SUGGESTED READINGS

1. Winsperger J. (et al), (2004), Economics and Management of Franchising Networks, US :
Physica Verlag
2. Foster, Dennis L. (2006), Franchising the Inside Story,US; Create Space
3. Sugars B. and Sugars Brad, (2005), successful Franchising, US; McGraw Hill
4. Mendelssohn, M. (2004), Franchising Law, US; Richmond Law & Tax Ltd.
Lesson 6

CHOOSING A STORE SELECTION

6.1 Types of Retail Locations

Various options are available to the retailer for choosing the location of his store. The choice of
the location of the store agar depends on the target audience and the kind of merchandise to be
sold. For example, the location of a convenience store would not be suitable for hat of an expensive
jeweler/fashion boutique. Typically, a store location may be classified as:

1. Freestanding/isolated store
2. Part of a business district
3. Part of a shopping center

1) The isolated store of a Freestanding Location

A freestanding location is a store located along a major traffic artery, without any other
competitive retailers around. The biggest advantage of such a location is that there is no
competition around. Due to this, rents are usually low ad facilities like ample parking are
available. When taking a decision to locate a store as an isolated store, a retailer needs to
bear in mind that the advertising cost for such a location are usually high, as the retailer
needs to draw out customers to visit the location. Gas station, convenience stores, hotels
and fast food restaurants on highways, many a times operate as freestanding locations
 2) Part of a Business District
A retail store can also be located as a part of a business district. A business district is a
place of commerce in the city, which developed historically as the center of trade and
commerce in the city or town and most probably, would have no pre set format or structure.
A business district can be classified as a Central, secondary or a Neighborhood Business
District.

3) Part of Shopping Centre

A shopping center has been defined by the International council of shopping Centers as ‘a
group of retail and other commercial establishments that is planned, developed, owned and
managed as a single property. The availability of parking is an important feature of a
shopping center.

6.2 Steps Involved In Choosing a Retail Location

Step 1: Market Identification
The first step in arriving at a decision on retail location is to identify the makes attractive to a
retailer. This is important as he needs to understand the market well, especially in a country like
India, where every region as its own peculiarities and needs. Similarly, this is also important in
case of an international expansion. The characteristics of the markets of Europe are different from
those of America and the Far East.

Step 2: Determining the Market Potential

In order to determine the market potential, the retailer needs to take into consideration various
elements. The chief among them are:
 Demographic Features of the Population
 Understanding the features of the population is integral to developing a retail marketing
strategy. Data on the population of India can be obtained from the Census of India reports.
Merely getting an idea of the size of the population is not enough

 The Characteristics of the Households in the Area

The retailer needs to have a clear understanding of the the average household income and
the distribution of the income in the area. This very essential as the level of income largely
determines the kind of retail facilities required.

 Competitive and Compatibility

While determining the market potential, it is necessary to check the compatibility of the
retail store with the other retail outlets in an area. For example, a good location for a gift
shop would be near a department store or a theater or restaurant, as such a location would
allow potential customers to spend time looking at the gift shop’s windows.

 Low and Regulations

Before opening a retail store in a region, it is essential to have a good understanding of the
laws and regulations for opening a retail shop in the area. Various permissions which are
needed, the hours for which the store can operate, the minimum wages to be offered to the
persons working, the holidays required, etc. can affect the profitability of the store.

 Trade Area Analysis

An integral part of determining the market potential is the analysis of the trade areas. A
trade area is the geographic areas that generated the majority of the customers for the
store

Step 3&4: Identify alternate sites and Select the Site

After having determined the market potential and taking a decision on the location of the store, a
retailer has to select the site to locate the store.
 Traffic
This refers to both pedestrian and vehicular traffic. The traffic that passes the sire is an
important determinant of the potential sales that can be generated from that store.
However, it is essential that the traffic is suitable to the kind of products to be retailed in
the store.

 Accessibility of the market is also a key Factor

Accessibility of the market is defined in terms of availability of public transport and
road/local train connections to reach the market. Public ran sport refers to the means of
reaching the market the, the frequency of bus/train services and connectivity the different
parts of the city.

 The Total Number of Stores and the Type of Stores that Exist in the Area
A market with a large number of stores, usually, has more people visiting the area than
locations where one or two stores exist. The type of stores that exist in the area is also
equally important. If a particular place is a market for cloth or footwear, it may not be the
best place for other product categories.

 Amenities Available
Depending on the type of product to be retailed, facilities like free and ample parking
become important.

 To buy or to Lease
An important factor to be considered before taking the decision on the site is the decision
to buy the store or to lease it. If the store is to be lased, then the terms of lease will have to
be studied carefully.
  The Product Mix Offered
The kind of mix to be offered by the retailer also affects his choice of location. For example
a food and grocery retailer or a supermarket would need to locate his store near or in a
residential area. Locating a supermarket in a pure business district may not be very
advisable. Similarly, for a designer who rentals upmarket high fashion garments, it is
necessary that the store is located in an upmarket are in keeping with the image that it seeks
to create.

Lesson 7

RETAIL MERCHANDISING

7.1 INTRODUCTION TO RETAIL MERCHANDISING

A term that is often used in retail sector is merchandising. This is part of a jargon that is related to
Retail Trading.
Merchandising is defined as a specific practice which retailer employs to accomplish the sale of
product to a customer. If we look at retail store level, Merchandising refers to the following
aspects:
i) Range of availability of variety products
ii) Visual display of products in an enticing way
iii) Process of Product Inventory Planning and Management.

Therefore, appropriate management of merchandising typically leads to increase on ROI and thus
profitability of a store. As mentioned earlier, merchandiser (retailer) needs to pay greater attention
to all aspects of merchandising to ensure profitability of the retail outlet. Some of these aspects are
as follows:
i) Types of products at outlet for sale
ii) Optimum presentation of such products to customers
iii) Determination of reasonable retail price of such products
In the initial days, the merchandising was a practice that was confined to physical format of
retailing. However, now with the advent of online retailing the same principles of merchandising
also apply to the virtual or online formats.

7.2 MERCHANDISE PLANNING

The concept of merchandise planning is based on a process oriented approach. The obvious
outcome of such planning process is:
i) Optimisation of sales
ii) Minimisation of inventory holding costs
iii) Maximisation of sales through-put
iv) Minimisation of losses arising either from markdown or stock-out
The essence of merchandise planning is enshrined in the 7R
model as shown in Fig. 1.1 below.

Figure 1.1: 7R model of Merchandising Planning

As is obvious from the Figure 10.1, the whole purpose of merchandise planning is the optimization
of the 7R (Seven Rights) so that the objectives of higher sales, lower inventory holding and profit
maximization is achieved.

7.3 MERCHANDISE HIERARCHY

The merchandise hierarchy defines the planning of the merchandise mix for a retail organization.
The merchandise hierarchy is defined as the organized group of the merchandise mix at different
levels, depending on the complexity of the
retailer and product that he wishes to sell. The grouping can have up to seven levels as depicted in
Figure 1.2. The definition of merchandise hierarchy establishes the fulcrum to develop a retail
outlet merchandise mix. The hierarchy starts with the division of a large organization and
percolates down to a specific stock keeping unit (SKU).
Figure 1.2 Merchandise Hierarchy

Utilizing the concept of merchandise hierarchy to develop a store merchandise mix leads to the
following advantages:
i) Quantification of merchandise mix elements at each level of merchandise hierarchy. It helps in
concrete ordering and stocking information.
ii) In case of any problem, analysis can drill down to rungs of hierarchy right up to SKU level.
iii) Development of mix enables a merchandiser to add or remove mix elements based on real time
performance feed back.
This also helps in developing a decision matrix amongst the management hierarchy which is
aligned to merchandising hierarchy. That, in turn, escalates remedial issues at an appropriate level.
In case of supermarket as an example for using merchandise hierarchy, the levels can be defined
as:

7.3.1 Range Planning

The concept of range planning in merchandise mix implies to define the elements at each and every
rung of a specific store‟s merchandise hierarchy in terms of percentage. At the apex level, it is the
strategic merchandising plan which is determined by top management and defines several critical
factors of merchandising. These largely include the figures for sales turn
over and stock quantity to be acquired.
Subsequently, a category level merchandise plan is developed to determine margin at each level
(right upto SKU level) that leads to over all profitability of the store. This, in turn, helps in
developing „Open to Buy‟ purchase plan. It is usually the first critical factor in the process of
merchandise planning. Next level plan is known as assortment plan. It refers to the
items that need to repleish the store stock to minimum and maximum stocking level for the various
products.
An example of the assortment of a shirt for 20 pieces in stock:
Small /2, Medium/6, Large/7, X‟tra Large/4, X‟tra X‟tra Large/1
=20 pieces.
In the example shown above, the assortment ratio is built on stock turn of 20 pieces for a specific
type of shirt. This results in establishing the replenishment cycle depending on the category of a
merchandise.
7.3.2 Planogram
The physical representation of merchandise assortment is termed as planogram. The major
advantage of a planogram is that it moves a step beyond pure numeric type of planning to a
visual orientation. Software packages for store space planning support planogram methodology.
This involves stock mapping utilizing graphic representation. This, in turn, leads both ease in
replenishment as well as optimal store space utilization.

Therefore, merchandise assortment planning can be implemented utilizing both numeric and visual
methodology. The whole purpose is to improve GMROI and GMROF. The planogram
technique is detailed in a later unit of this block.

7.4 THE BUYING FUNCTION

Merchandise buying is a critical function for any retail organization. As discussed earlier, the first
step in this process is the development of OTB plan. Development of such a plan helps retailer to
project and control future buying. Proper development of such plan leads to the right flow of
merchandise to the store, aligned with anticipated sales levels at desired stock turn values. This
process, if managed well, leads to positive cash flows. The benefits of OTB planning are:
i) Prevention of over buying
ii) Elimination of confusion
iii) Enablement of a store towards profit maximization

OTB plan has the following characteristics:

It is important for retailers to use an OTB plan. As most of the retailers tend to overstock when
sales are on upsurge and many times understock when they feel sales are on downswing. In a sense,
OTB helps a merchandiser to get a focus on the actual amount of stock that should be in his
inventory at the start of a month as well as the levels that should be received during the month.

In the Exhibit 1.A, a primer on OTB terms has been presented.

7.4.1 Advantages of an Open to Buy Plan
The advantages that a retailer derives from an OTB process are
as under:
1. Enables a retailer in estimating working capital requirement needed to be deployed in
inventory, month on month.
2. Attainment of best possible GMROI by ensuring right inventory levels.
3. Restrains a retailer on merchandise purchase commitment and enables a store to receive
right amount of merchandise on right time.
4. Enables an inflow of fresh merchandise for a store during a particular sales season.
5. Provides a comparison of performance as per the established plan and remedial action to
be taken in any specific area.
6. Assists merchandiser in getting his store maximum profitability.

7.5 CATEGORY MANAGEMENT

In a merchandise group, a category is defined as a type of products that leads to fulfillment of
similar needs and wants of a customer. Typically, products in a category, in a retail environment,
are displayed and by and large bought by customers in a group. That is why, at grocery stores in
Kenya all types of pulses and lentils are shelved together. This helps a customer in making choice
faster and thus enhances their shopping experience.
Therefore, category management is an important part of the whole process of merchandising as
was explained in the merchandise hierarchy chart. It is formally defined as the process of managing
categories leading to optimum profitability for each managed category. Many researchers feel that
concept of category management in retailing is akin to group production in Manufacturing
industry. In both, product groups become the focal point for attention of the management.

7.6 REVIEW QUESTIONS

1. Briefly describe the concept of merchandising as applicable to retailing. List 7R (rights) of
merchandising with the help of examples taken from pharma-retailing.
2. What is merchandising hierarchy? How is it useful in Range Planning?
3. List and describe eight important elements of an efficient OTB plan.
4. Describe six advantages of OTB plan? How do they maximize retail profitability?
5. List and discuss seven aspects of Category Management.

7.8 FURTHER READINGS

1. Bierre, M. & Kotzab, M. (2005), Retailing in a SCM Perspective, Copenhagen, Denmark:
Copenhagen Business School Press
2. Fernie, J. And Spacks, L, (2009) Logistics and Retail Management: Emerging Issues and New
Challenges in Retail Supply Chain, US; Kogan Page
3. Corada, James W. (2003), Digital Hand: How Computer Changed the work of American
Manufacturing, Transportation and Retail Industries, UK: Oxford University Press.
Lesson 8
RETAIL DESIGN AND VISUAL MERCHANDISING

8.1 INTRODUCTION TO RETAIL DESIGN

After finalizing the decision on the location and type of outlet from which the retailer is going to
run a business, it is necessary to consider how that business will physically appear in terms of look
and feel to potential customers. The environment in which the retailer-customer interface takes
place needs to be designed so that target customers feel comfortable, interested and encouraged to
purchase. Developing the appropriate sales environment is a two-stage interlinked process. One is
the design of the outlet itself, and the other is the presentation of the product-service offering
within.
Retail outlet design is a long term strategic decision. This is because the physical store
development and fittings are big investment for a retailer. These investments can have a long and
indirect payback period. Retail design often comprises the very essence of a retailer’s strategy
because it communicates, in the first instance, what a retailer stands for. The following matrix
shows the key elements of the physical design of a retail outlet.

The aspects that can change according to merchandise assortment are referred to as visual
merchandising. It is the visual merchandising that constitutes a strong bond between the retailer’s
identity and the management of the product range that it proposes to sell.
8.2 DESIGNS IN RETAILING
The physical design aspects of retailing have always been of paramount importance. A retail outlet
that is visually pleasing and has logical layout is, of course, appealing to customers. In
this quest, one should not loose the sight of making efficient use of space since it is a major
contributor to the profitability of a retail outlet. Innovative design has been used in saturated and
mature markets as a way of differentiation from competitors. An outstanding design that combines
an optimization of the sales space coupled with great product design and display, leads to the
strengthening of a particular retail brand and its corporate identity. Even in small retail operations,
owners or managers need to consider design in addition to day-to-day running of their businesses.
However, large retail chains have specialist departments of design management. Sometimes they
also outsource work to retail design agencies. Any retail manager must have appreciation for the
role of proper retail design. This is because retail designs lead to:
a. Reinforcement of the strategic aim of the retailer
b. Facilitation of day-to-day operations
c. Uplifting impact on staff morale

If these are achieved, then the retail design has succeeded in its objectives.

8.2.1 The Corporate Identity

The external façade of a retail outlet is useful for reinforcing a retailer's corporate identity. The
initial impression that the retailer makes with the exterior of the store or the web site homepage of
website (for an e-tailer) is very important. The retail fascia, which includes stylized visual features
above and around any windows and doors into the outlet, communicates the name of the business.
It may also incorporate a logo that helps customers to recognize the retailer from afar. This has led
to development of a totem-pole or roof-top signage. Fascias usually use distinctive corporate
lettering and colors, which can then be linked to other elements within the outlet. These include
in-store signage, point-of-purchase materials and carry-bags. The corporate identity may be
extended further to own-label packaging and product information sources like leaflets. It is simpler
to reinforce a corporate identity within the store environment. Non-store retailers can incorporate
colors and lettering within a website, or use a catalogue linked to the packaging used in home
delivery.
Large retail chains like ‘Reliance Retail’ frequently use the same or a similar corporate identity
across all formats in order to transfer the positive associations built up across the formats.

8.3 STORE DESIGN

In this section the design of physical stores will be discussed,
followed by designs for other retail formats.

FIVE ELEMENTS OF PHYSICAL STORE DESIGN

Physical design of a retail store is a combination of five keydesign elements.





In the above listing, the physical store elements, i.e. exterior and interior space, are considered to
be relatively constant. Therefore, the design methodology used for these elements has to be on
long term basis. The third element, fixtures have to be considered on a medium basis. Therefore,
the design should have elements of flexibility and replacement. The last two factors for physical
store design constantly undergo changes. The changes in merchandise are based on layouts,
displays and product presentation are based on seasonality, and different sets of people visit the
store at different points in time. Therefore, it is important to build into the design of the store the
flexibility to accommodate the changing nature of merchandise and people.

8.3.1 The exterior

The exterior of most retail outlets includes the fascia. The fascia constitute of following:
 Store entrances
 Size of store doors and windows
 Architectural features of the building housing the store

These exterior parameters are important in the overall exterior design to portray the feel of store
format, and the products that it offers. If one looks at the exterior design of super market, hyper
market or category killer store, we find that they have very bold fascia and wide entrance doors
that enable easy access to the store. Such stores hardly use window displays. However, standalone
stores have to adhere to the guidelines of the municipality or the town planner. Further, the may
also have to adhere the building guidelines in terms of signage, window display, etc. However,
key issue for these retail outlets is to provide entrances that allow easy access to all strata of society.

8.3.2 The interior

In many ways, the interior of a store is very similar to our personal living spaces. The interior of a
store generally comprises of:

heck-out counters together with electronic cash registers

Therefore, the principle of interior design of a retail outlet is to apply the above-mentioned fixtures
to create an optimum design for a particular type of outlet. For example, in making the selection
of materials to be used for interior of the store, designers have to consider the kind of products
being sold, the cost, store traffic, health, safety and environment issues.

INTERIOR DESIGN EXAMPLE 1

For a fast food retailer, the interior design considerations include easy of cleaning, hygiene, and
the ability to handle high levels of customer footfalls. Therefore, high quality durable tiling and
easy-to-clean laminates are kind of material that must be considered for floors, countertops and
tables. Walls should be painted with plastic emulsion paints that are easy to clean.

INTERIOR DESIGN EXAMPLE 2

While designing interior of youth-oriented fashion store, one design consideration is that re-fit is
likely to happen in less than five years. Therefore, one could use fashionable furnishing materials
that may be less expensive but are high on visual appeal. This may include use of glass and shiny
materials to create glitz and glamour.

However, all interior design elements of a retail outlet must conform to HSE (health, safety
environment) and other such standards that are prescribed under national policy and laws related
to shopping establishments.

8.3.3 Atmospherics
Atmospherics includes the creation of an aura or an outstanding ambience in retail outlet through a
combination of different types of:
 Aromas
 Sounds
 Colour
 Lighting
 Textures
 Temperature and humidity control

By simulating customer senses retailers can try to enhance the shopping experience. In the exhibit 11.A
below, are listed various elements that can be tweaked to create relevant atmospherics. In consultation
with the retail store management, the retail interior designer can choose appropriate sets of elements to
create an ambience that is suitable for the type of products being sold, and the kind of customers that are
likely to visit the store.

8.4 THE STRATEGIC ROLE OF STORE DESIGN

Large retailers have enormous investments tied up in physical assets with their retail outlets. The
strategic intent of store design is to ensure high levels of customer footfalls at the store to get an
adequate return on investments. A good store design must keep the customer comfortable, inspired
and even entertained. This helps the store ensure that customers are interested in store-based
shopping. The new generation customers are highly design savvy, and
they will not tolerate poorly designed and badly decorated retail spaces. In addition, the
competitive threats from new formats like online retailing and television-based shopping have
compelled retailers to pay greater attention to the design of retail outlets.
The advent of international fashion retailers such as Levi and Clarks in Kenya who offer very clean
cut and modern store interiors have set new standards. This has inspired home-grown retailers of
women apparel to do makeover of their stores to meet international benchmarks.
Store design also supports other elements of retail strategy. An interior that comprises of plush
carpeting, elegant sofas and marble embellishments denotes high quality merchandise. It can also
lead to the inference of a ‘high price positioning’. At the other end, bins and baskets and plain
vanilla lighting bring the notion of ‘basement bargain’ to a consumer’s mind. However, with
maturing of retail marketing, retail outlets have become a means to achieve a strategic end.

8.4.1 Concept of Flagship Stores

The large chain retailers with multiple stores often have a ‘flagship store’. A flagship store
generally operates in a very prestigious high footfall and high-street location. Such stores set gold
standard for that particular retail chain. Typically, flagship stores likely to be large in size,
furnished with latest interior store design concepts, and stock the high end of the product range of
that retail chain. The flagship stores are often located in cities famous for high fashion like London,
Paris, New York and closer to home international shopping destinations like Singapore and Dubai.
The flagship stores ensure top-of-the mind reinforcement of the retailer’s brand coupled with high
financial performance. They also perform a media relation function by hosting general and trade
media to view new product ranges, or retail concepts. Because of these strategic functions, the
operations and investments in a flagship store is cross-subsidized by other stores in the chain of
that retailer. Flagship stores are found not just in fashion retailing. Many other formats like
supermarkets, variety stores and category specialists also use the concept of ‘model store’ for
market
testing. These include:
i) New product lines
ii) New ways of visual merchandising
iii) New retail design concepts
In fact, many manufacturers also set up retail flagship stores to put their brands on a higher
pedestal. One such example in Kenya is, company owned and operated ‘Bata’ shoe stores.

8.5 RETAIL WEBSITE DESIGN

Many retail entrepreneurs have tried to use sophisticated design as a way of overcoming the
shortcomings of virtual retailing.
While many of the ideas have been innovative and attention grabbing, their incorporation into a
fully integrated online retail experience needs to be fully developed.
Most retail web sites follow a set formula: an opening page, company information, categories of
products that link to pages of tiny product photos that can be clicked for a closer look, and finishing
with an ordering facility. Whilst this type of standardized navigation helps the user become
familiar and functionally proficient, it does not provide much opportunity for differentiation.
A successful retail website needs to balance visual interest with ease of navigation and use. The
whole attraction and competitive advantage of website shopping is based on convenience. So,
reminding the customer of the frustrations incurred in store shopping such as not being able to
locate items, waiting for images to download, or complex checkout procedures is bound to cause
shopper dissatisfaction. However, virtual retailing does provide additional opportunities to stretch
the concept of the selling environment to new dimensions. For example, food retailers can display
recipe ideas in dining settings; sporting goods retailers can provide celebrity endorsements and
information alongside products; and specialty and leisure product retailers can offer advice tips
and chat-room opportunities for customers who have similar interests.

8.6 VISUAL MERCHANDISING

Visual merchandising is concerned with presenting products to customers within the retail space.
It is a term that is sometimes used as an alternative to merchandise display. However, these days
it is generally understood to encompass all activities concerned with the presentation of products
within the retail outlet, including the choice of store layout, the method of product presentation,
the choice of fixture and fittings, the construction of displays, and the use of point-of-sale material.
It also has a very close connection with the allocation of space within the outlet. Visual
merchandising is more important in some retail sectors than others. For example, fashion and home
furnishing retailers have always devoted considerable resources to displaying products in a
visually appealing way, whilst discount grocery retailers are much more concerned with space
efficiency. However, the need to adapt to style-conscious twenty-first-century customers is as
relevant to the way products are presented as the way a store environment is designed.

The implementation of a visual merchandising strategy within a retail business is not standardized
across the industry. In some retail companies, visual merchandising could be the
responsibility of corporate communications, promotion or marketing department. In other
organizations visual merchandising is given the status of a specialized function. Often a multiple
outlet retailer will employ a team of regional visual merchandisers who rotate through a number
of stores in a given area. The creative aspect of the visual merchandiser's role attracts people with
a design training or background, although specific training for visual merchandising is becoming
more common.
One of the advantages of using a centralized team is that the retail brand identity can be controlled
across all outlets, and visual merchandising can tie in with other corporate communication themes
and messages. There is, however, a danger that the centralized approach may prevent the retailer
from adapting to local themes, preferences and competition in the visual merchandising activity.
Visual merchandising helps educate customers about the
product/service in an effective and creative way, and draws the attention of the customer to enable
him to make a purchase decision within shortest possible time, and thus augment the selling
process.

8.7 STORE LAYOUTS

In retail stores, many different kinds of layouts are prevalent.
The selection of layout depends on following:
i) Nature of the product category
ii) Width and depth of the product range
iii) The fixtures and accessories utilized
iv) The physical size and shape of the retail store
Therefore, the whole objective of an efficient store layout is to improve customer touch points
with the merchandise. One widely used store layout is known as the ‘grid’. This layout is generally
used with shelving fixtures (the gondola is the most popular shelf type for this). The shelves are
separated by aisles through which customers move. The grid type of layout is a
space efficient and logical, but it is rather inflexible and standardized. It is not amenable for
developing new and interesting kinds of products displays. This layout is popular in supermarkets
as it is the most efficient way to display a very wide range of products.
As was discussed earlier, one of the important objectives in retail trade is to maximize GMROF
(Gross Margin Return on Footage) which is often influenced by the store layout.
Store layouts generally depict the size and location of the various departments of supermarkets,
and any permanent structures. Also, various fixture locations and customer movement patterns are
marked on it.

Straight Floor Plan

This is very optimal and useful store layout that can be applied to almost all types of retail stores.
It makes use of walls and fixtures to create small defined spaces within the retail store. It is also a
very cost efficient design.

Figure 1.5: Straight floor plan

Diagonal Floor Plan
A good store layout that is useful for self-service retail outlets is the diagonal floor plan. It offers
the advantage of outstanding visibility to both cashiers and customers. This plan, shown in Figure
1.6, helps customers move easily within the store.

Figure 1.6: Diagonal Floor Plan

Angular Floor Plan

The angular floor plan is often adopted by high-end specialist stores. This employs differently
shaped and curved fixtures to develop a luxurious store design. The soft angles provide a more
elegant way to move customers within the store.
Figure 1.7: Angular Floor Plan

Geometric Floor Plan

The clothing and apparel outlets typically use a geometric floor plan. In this design, as shown in
Figure 11.8, utilizes racks and fixtures to develop an interesting store design without incurring
high costs.

Figure 1.8: Geometric Floor Plan

Mixed Floor Plan

Such floor plans utilize the elements from the diagonal and angular floor plans to create a function-
specific store layout.
This layout facilitates the movement of customer traffic towards the wall and the back of the store.
This layout generally used by stores which stock intimate products.
Figure 1.9: Mixed Floor Plan

In the recent times, many retailers have experimented with variations on the basic grid layout. One
such variation is called ‘fishbone’ layout where the grids are angular instead of being straight.
Some specialist store retailers use combination of freeform layout for high end range products
combined with a grid layout for mass merchandise. The freeform layout is less systemic than other
types of layouts. However, it can accommodate a wider variety of fixtures, and is more conducive
to browsing. A retailer who has limited range of merchandise often uses a ‘boutique layout’. In
this, customer is surrounded with merchandise, and a high level of personal selling is done by sales
staff. In large electronic goods stores, there are specific
zone within grid layout which are called ‘service stations’. In this, customer and sales associates
sit down. Then, the prospective customer is shown features and operations of the
electronic gadgets that he wishes to purchase. In jewelry and gems stores the merchandise is often
kept behind the counter that is between the customer and the sales staff. This is done to minimize
security risks.
8.8 PRODUCT PRESENTATION
Merchandise in a retail store is generally presented in two ways. One way is to place or stack the
merchandise on variety of fixtures. This provides a neat and elegant way of presenting the
merchandise to customer. Sometimes, promotional items or markdown items dumped in baskets
or bins which enable customers to rummage through to find an appropriate piece.
The other major way to present a product is to hang the product either on hangers, on specially
made pods. It also involves using specially designed packaging. This is common for items like
necktie, scarves, set of socks etc. Sometimes, mannequins (both male and female) are used to show
how a garment, when worn, will look on a person. After one has decided how a product is going
to be presented, the retailer looks at various ways to improve product presentation through the use
of appropriate fixtures or packaging. The whole idea is to improve the visual appeal of the
merchandise, especially for clothing and apparel. Many times clothing is presented according to
colour themes, or as a set of mixed and matched accessories. Other ways of product grouping are
employed in an electronics or consumer durables store based on price ranges, technical features,
or size.

8.9 SPACE ALLOCATION

The space allocated to products often depends upon the need to optimize the financial productivity
of a retail store and maximize GMROF. Naturally, high priced and high margin products get better
displays and space allocation. In fact, space management looks into the following long term
objectives;
i) Market positioning
ii) Customer loyalty
At the same time it also needs to fulfill short term objectives like:
i) Stock turn ratios
ii) Sales turnover
iii) Profitability
A great looking retail store may not survive if it does not stock and sell enough products to keep
the business afloat. Similarly, if the store is too full of merchandise, many customers may perceive
that it is too crowded and may not enter the store. Therefore, retail space utilization has to be
optimum to aim at the targeted GMROF. While GMROF has often been used to assess the return
on value of retail space, new techniques look at cubic measurement as it is felt that other space
like ceiling, walls can also be utilized to display merchandise. Yet another parameter of space
allocation is quality of space. Certain areas which are towards the front of the store and close to
checkout counters yield higher productivity. Further complication in space allocation arises from
pragmatic consideration in placing merchandise that are heavy
or have odd size and shape. Therefore, it is important to understand that space allocation has
multiple variables.
CASE STUDY
Sephora
Sephora is a beauty retailer who has used store design and visual merchandising in a bold and
innovative way to carve out a distinctive positioning in a crowded marketplace. Sephora faces
many strong direct and indirect competitors. The retail market for beauty products in the UK
encompasses department stores, health and beauty specialists like Boots, Superdrug and Body
Shop, fashion retailers like Karen Millen and Miss Selfridge, who have extended their product
ranges; and even supermarkets. Traditionally, beauty-store environments have used polished
materials like marble, glass, gilt and mirrors to create a luxurious and clean feel, with pale and
cool colours such as white, cream, grey and pale green to relax the customer and provide a neutral
backdrop to the colourful merchandise. Sephora, however, has taken a very different stance,
combining a bold and rich colour theme with distinctive design features in both the store's
architectural design and the presentation of the products themselves.
The two most prominent features of the store's interior design are the deep-red plush carpet, which
covers the floor of the store, and the bold black and white tiling that is used on pillars
to break up expanses of space within the store and on the floor to create a sharp edge around the
red carpet. The black and white theme is reflected throughout in the fixtures, the signage,
carrier bags and the outfits that the sales associates wear. In addition to this unique store design,
Sephora has devised some extremely clever, attention-grabbing product design and
presentation combinations. One of these involves' the display of beautification tools such as nail
files and make-up brushes in glass cubes full of tiny metal balls. The resulting display method
allows ungainly objects to be housed neatly and effectively, with the repetition in the size and
shape of the containers providing a creative impact. The use of extensive colour blocking is also
used; for example in the bath time products where circular bottles of bath foams, oils, soaps and
novelties provide shape and colour impact when the customer enters the store; and the vast
spectrum of lip, eye and nail colours displayed on low level
counters Sephora's strategy is concentrated on the product and the selling environment. The
company does not advertise, and prices are competitive and displayed discreetly. The stores play
loud, dramatic and atmospheric music. There is a Hollywoodstyle make-up demonstration area in
the centre of the store, and staff wear a black glove on one hand which continues the
dramatic theme right to the point of sale. Yet, the store atmosphere is far from intimidating, the
accessibility of the product encourages involvement and trial, combining a sense of
fun and theatre within the store. In the words of the company: we seek to defy the traditional
'selling methodology' to give you what you want - Freedom, Beauty and Pleasure. Freedom in the
form of a hands-on, selfservice shopping environment" where you are free to touch,
smell and experience each and every product. You are also free to choose the level of assistance
you desire, from individual experience and reflection, to detailed expert advice. Beauty
comes to you through a splendid international array of unique and luxurious beauty products.
Pleasure comes through an environment designed to stimulate your senses - a blend of
expert advice, personal freedom, and special service displays bringing you the latest beauty tips
and treatment breakthroughs.
Sephora has a chequered history, starting out as a small specialist chain in its home country of
France, owned for a short time by Boots who then sold the chain in 1997 to luxury
branded-goods conglomerate LVMH. The backing of this multinational company has enabled
Sephora to grow into a major international force, with 70 outlets in the USA, 150 stores
in France, and around 90 stores in the rest of Europe in 2002.

8.10 Discussion Questions:

a. Discuss how Sephora’s unique store design influences its clientele?
b. What is Sephora’s product strategy?
c. What is the pleasure quotient of a Sephora Customer?

8.11 REVIEW QUESTIONS

1. Explain why retail design is a strategic issue for organizations operating in mature retail markets.
 1. Outline the aspects of retail management that come under the umbrella term 'visual
merchandising'. Explain why the term may have a different emphasis in different product sectors,
such as grocery retailing and fashion retailing for example.
2. By using observational research in your nearest shopping centre, make a critical analysis of the
use of design in a retailer that you think has a pleasant shopping environment. Then find a shop
you do not feel comfortable in and try to analyze why you feel that way.
3. Retail stores have been referred to as a form of free advertising. Do you agree with this
assessment? Explain.
4. Discuss the main considerations for retailers embarking on a space allocation exercise.
5. Using a large multi-channel retailer of your choice (one that you can visit), compare and contrast
the design and visual merchandising found in the various store and non-store outlets that are used.
To what extent is the retail brand
6. reinforced and supported by the different retail formats.

1.12 FURTHER READINGS

1. Bierre, M. & Kotzab, M. (2005), Retailing in a SCM Perspective, Copenhagen, Denmark:
Copenhagen Business School Press
2. Fernie, J. And Spacks, L, (2009) Logistics and Retail Management: Emerging Issues and
New Challenges in Retail Supply Chain, US: Kogan Page
3. Morgan, Tony (2008), Visual Merchandising: Window and Instore Displays for Retail, US:
Laurence King
4. Barr, Vilma and Field, K. (2001), Stores: Retail Display and Design, US: Vhps Rizzoli