CHAPTER TWO

THE COMPETITIVE BEHAVIOR OF RETAIL INSTITUTIONS

Learning Objectives

After going through this unit, the students will learn:

➢ What a retail strategy is.

➢ How can a retailer build a sustainable competitive advantage.
➢ What steps do retailers go through to develop a strategy
➢ What different strategic growth opportunities can retailers pursue, and
➢ What retailers are best positioned to become global retailers
2.1.Retail Strategies

"Strategy" implies different things to different people at different times. It is popular to use the
term "strategy" these days. As a result, individuals discuss military tactics, economic plans, game
strategies (such as cricket or chess), national strategies, global strategies, and many more
strategies.

A retail organization's mission and vision are outlined in its retailing strategy. It is a methodical
approach that gives retailers with a broad framework for dealing with rivals, as well as technical
and global shifts. Traditional merchants used to primarily react to changes in the business
environment, but with increased business complexity, this is no longer the case. The reason for
this is because competition in all retailing disciplines is expanding, and changes in customer tastes,
needs, wants, technical environment, and other external environmental variables are occurring at
a rapid pace. Long-term plans, as well as a continual review of strengths, weaknesses,
opportunities, and threats (SWOT analysis), are essential to guarantee that growth, opportunities,
and action are taken at the appropriate moment to battle possible dangers in the current business
environment.

What is strategically correct is more essential than what is immediately lucrative (Kotler on
'Winning Markets: Market-Oriented Strategic Planning'). This section attempts to answer the
question of how a store will succeed in a competitive market.

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A retail strategy is a specific plan that the retailer sets in order to tap the market and create a long-
term relationship with the consumer.

A retail strategy is a marketing plan that outlines how a company plans to provide its products or
services to customers and influence their purchasing decisions. A store's strategy relates to how it
and its products market things to certain clientele. Each retail organization must make judgments
regarding every aspect of its marketing mix. A marketing mix includes the product, price, location,
promotion, and packaging. To address the demands of potential customers, internet marketing
tactics as well as those of physical businesses must be devised. A business plan is used to develop
a retail marketing strategy.

A company's strategy offers a primary purpose and direction to the organization's actions, the
people who work in it, and, in many cases, the world outside. Employing appropriate tactics and
disseminating them to all essential groups within and outside the business organization would
garner cooperation from all directions.

Strategy, when clearly stated by senior management and executed properly, gives the purpose and
focus for all other activities and sets the company on the path to success. ‘Every long journey starts
with taking the first step,’ says a proverb. Certainly, developing a plan is merely the beginning,
but the beginning is the most important point in every business.

2.2.Five Principles of Retail Strategy

a. The customer is the most important person in your business

The customer holds the key to every successful retail operation. Whatever a retailer does must
revolve around the customer. Knowing the customer well gives the retailer a strategic advantage.

b. Retail is Detail

The success of retail is in detail. How do you become more detailed? What detail should you
focus on? Address those gaps that will help in improving the understanding about the customer.
Every retailer must focus on the detail and get the detail right the majority of the time. Learn
from mistakes and ensure that mistakes are not repeated. Too many customers will turn
customers away.

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 c. Understand the 6Ps of retail marketing mix

Product (you need products that your customers want to buy and product range that will satisfy
your customers’ needs and desires. The product must also deliver a profit for you to have a
successful business), Price (price must be consistent across the marketing mix and meet all
requirements for your business), Place (you must provide somewhere for your customers to
purchase your product, be that a physical store, a catalogue or an e-commerce website),
Promotion (once you have a product at the right price, in a place where the customer can access
it, you need to tell them about this and promote your business and your products), Presentation
(the way the products are placed in the store plays an important role in boosting sales), and
People (they are the greatest asset for a retailer be it the employees or customers)

d. Go the extra mile for your customer

Providing great customer service starts with understanding and knowing your customer;
however, knowing them is the start of the journey and you will need to deliver more than just
customer service. to be successful you must deliver world-class customer service; you must “go
the extra mile for the customer”.

e. Location, location, location

The final retail principle is: location, location, location. History has dictated that this is one of the
most important factors in the success of a physical store, and still to this day it will have a major
impact on your success. The best location of your store will be dictated by your brand and
product strategies.

The internet has changed our shopping habits and will continue to do so. E-commerce websites
have opened up the world of “non-geographic” retail= a retail world without the need to visit the
physical store. The emergence of “etail” from retail has been the biggest change over the past 20
years.

2.3.Retail Environment

Excellent businesses examine their operations from the outside in. These organizations constantly
analyze the changing environment and change their operations to capitalize on the greatest

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chances. The retail industry, in particular, is continually creating new opportunities. In both good
and terrible years.

The overall marketing environment also generates new dangers such as an energy crisis, a rapid
increase in interest rates, a major recession, and enterprises experiencing market collapse. Several
abrupt shifts in the marketing landscape have occurred recently.

We can distinguish between the micro and macro environments of merchants. The micro
environment is made up of the players in the retailer's immediate surroundings who have an impact
on its capacity to service its markets: suppliers, middlemen, customers, rivals, and the general
public. Legal, social, economic, and technical influences comprise the macroenvironment.

2.4.Level of Retail Strategy

The strategy of an organization involves where it wants to go and how it plans to get there. This
description refers to an organization's overall strategy as well as the strategies of its key sub-units.
The ramifications of strategy can be differentiated at many levels. Analytically, strategy is divided
into three levels:

➢ Corporate level strategy

➢ Business unit strategy or Retail Format level
➢ Functional level strategy

Strategic decisions at the corporate level are related to the organization's broad policies and are
especially beneficial in the event of multidivisional organizations or firms with diverse commercial
interests. Strategic choices at the corporate level are typically more value-oriented, conceptual,
and less tangible than those at the company or functional level. There is also more risk, expense,
and profit possibilities, as well as a higher requirement for flexibility in company level strategic
initiatives. They are logical implications of business level strategy's futuristic, inventive, and
widespread nature. Corporate strategy include major financial policy decisions involving
acquisition, diversification, and structural change.

Decision-makers at the business unit (retail format) level are largely concerned with the current
industry or product—market issue, as well as regulations affecting the integration of functional
units. Retail business level strategic decisions translate general corporate-level statements of

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direction and intent into concrete functional objectives and strategies for divisions or strategic
business units (an operating division of a company that serves a distinct product/market segment,
a well-defined set of customers, or a geographical area). Business-level strategic decisions should
encompass policies affecting new product development, marketing mix, research and
development, staff, and so on.

Functional strategic level strategy involves practical decision making in specific functional
domains such as production, marketing, people, and finance. Decisions at the functional level are
sometimes referred to as 'tactical' decisions. These judgments must be influenced by overarching
strategic considerations and must be compatible with the framework of corporate strategy.

2.5.Retail Strategy Planning Process

Retailers must adhere to a step-by-step approach or planning process. The planning process entails
the current state of the business, conceptualization, lists of possible strategic alternatives, and
execution of the chosen strategies. Given the importance of strategic decisions to the future
performance of the company, a methodical strategy is required. By examining the HR potential
and the unique selling proposition (USP) of a certain shop, the strategic planning process takes
shape. The strategic retail planning process is broken down into the following steps:

Step 1: Define the business mission

A mission statement is a broad explanation of a retailer's goals and the extent of operations that it
intends to perform.

1. What are we in business for?

2. What should our company's future focus be?

3. Who are our clients?

4. What are our strengths and weaknesses?

5. What do we want to achieve?

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Step 2: Conduct a Situation Audit

Situation audit-and analysis of the retail environment's prospects and dangers, as well as the retail
business's strengths and weaknesses in comparison to its competitors

Market Factors

➢ Market size – large markets attractive to large retail firms

➢ Growing markets – typically more attractive than mature or declining
➢ Business cycles – retail markets can be affected by economic conditions
➢ Seasonality – can be an issue as resources are necessary during peak season only

Competitive Factors

➢ Barriers to Entry
➢ Bargaining Power of Competitive
➢ Large Vendors
➢ Rivalry
➢ Customers
➢ Threat of Substitution

Environmental Factors (PESTLE)

New developments or changes -- technologies, regulations, social factors, economic conditions

Likelihood changes will occur

Key factors determining change

Impact of change on retail market and competitors

Strength and Weakness Analysis

Indicates how well that business can seize opportunities and avoid harm from threats in the
environment

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Step 3: Identify Strategic Opportunities

The next stage after completing the scenario assessment is to identify potential for improving retail
sales.

Step 4: Evaluate Strategic Opportunities

Assess the opportunities identified in the scenario audit. The examination analyzes the retailer's
ability to gain a sustained competitive advantage and enjoy long-term revenues from the options
under consideration.

Step 5: Establish Specific Objectives and Allocate Resources

• Have a precise goal for each chance.

• Three elements:

1. Desired performance There is a numerical index against which progress may be assessed.

2. The time limit in which the aim must be accomplished

3. The level of expenditure required to attain the goal

Step 6: Develop a Retail Mix to Implement Strategy

Create a retail mix for each investment opportunity, and then monitor and assess performance.

Step 7: Evaluate Performance and Make Adjustments

• Assess the strategy's and implementation program's outcomes.

• If the store meets or exceeds its goal, no modifications are necessary; however, if the retailer fails
to reach its goal, reanalysis is required.

• The conclusion would result in the initiation of a new planning process, including a new scenario
audit.

Although the objectives are adequately expressed and resources are carefully controlled, when it
comes to implementation, the old concepts or policies become invalid owing to a rapid shift in the

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internal or external environment. What should a shop manager do now that this is not an unusual
occurrence that may happen to any retailer? 'Be optimistic, but be prepared for the worst,' as the
saying goes. Retailers that are responsive to environmental changes usually prepare a variety of
alternate tactics in case changes in technology or client preferences render the current schemes
useless.

2.6.The nature of retail competition

The goal of this part is to provide a balanced picture of who you are competing against. You must
discuss your rivals' positions and strengths and limitations. This section should be written
concurrently with the competitive advantage portion of the strategy section.

The goal here is to examine your competitors' market positioning in order to identify a weakness
that your organization might exploit in its own market positioning.

One method is to compare your competition to each of the primary demand factors in your market
(price, quality, add-on services, etc.) and show the results in a table.

2.7.The competitive strategies of retailers

Long before you build a retail store, you must make some fundamental strategic considerations
about how your store will fit into the present marketplace. In other words, you must decide what
you want to accomplish with your firm.

Begin by asking yourself the following crucial question: "Why should a consumer shop in my
store?" The question is so deceptively basic that you could be startled by your answer. Your
response will most likely be broken down into the ways in which you, as a company, give value
to the items that manufacturers generate.

To be successful, any retail organization must add value to its items by implementing one of three
fundamental strategies and offerings: the most diverse range, the lowest price, or the finest
service.

Although all of these tactics bring value, they serve distinct clients. The problem is to be
competitive in all three categories while clearly exceeding your clients' expectations in one.