Transcript Channel Institutions - Retailing

Chapter 10
Channel Institutions - Retailing
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Learning Objectives
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Understand what retailing is all about
Global retail scene and trends
Indian retail scene and trends
Types of retailers
Trade and retail formats, trading area
Retail management strategies and operations
Measuring retail performance
Franchising and e-tailing
FDI in retail in India
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What is Retailing?
• Any business entity selling to consumers
directly is retailing – in a shop, in person, by
mail, on the internet, telephone or a vending
machine
• Retail also has a life cycle – newer forms of
retail come to replace the older ones – the
corner grocer may change to a supermarket
• Includes all activities involved in selling or
renting products or services to consumers for
their home or personal consumption
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Retailing
• Term retail derived from French word
‘retaillier’ meaning ‘to break bulk’
• Characteristics:
– Order sizes tend to be small but many
– Caters to a wide variety of customers. Keeps a
large assortment of goods
– Lot of buying in the outlet is ‘impulse’- inventory
management is critical
– Selling personnel and displays are important
elements of the selling process
– Strengths in ‘availability’ and ‘visibility’
– Targeted customer mix decides the marketing mix
of the retailer
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Retailing
• Retail stores are independent of the
producers – not attached to any of them
• A survey shows that only 35% of
supermarket purchases are preplanned. The rest are ‘impulse’- greatly
influenced by quality of the
merchandising efforts
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Functions of Retailers
• All marketing functions in order to
provide consumers a wide variety
• Helps create time, place and
possession utilities
• May add form utility (alteration of a
trouser bought by a customer)
• Helps create an ‘image’ for the products
he sells
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Functions of Retailers
• Add value through:
– Additional services – extended store
timings, credit, home delivery
– Personnel to identify and solve customer
problems
– Location in a bazaar to facilitate
comparison shopping
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How do Customers Decide on
a Retailer?
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Price
Location and right ambience
Product selection
Fairness in dealings
Friendly sales people
Vehicle parking facilities
Specialized services provided
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Theories in Retailing
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• Wheel of retailing: from a simple, low margin
retailer to adding value through additional
services and going on to a premium store.
• Accordion theory: a general retailer grows into
a specialized one and then on to being a bigger
general retailer
• Theory of natural selection: environmental
factors influence the evolution of retail stores
• Retail life cycle: innovation, quick growth,
maturity and decline
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Kinds of Retailers
Type of
retailer
Characteristics
Specialty store
Narrow product lines with deep assortment – apparel,
furniture, books
Department
store
Several product lines in different departments –
Shoppers Stop, Big Bazaar
Supermarket
Large, low-cost, low-margin, high volume, self-service
operation with a wide offering
Convenience
store
Small stores in residential areas, open long hours all
days of the week – limited variety of fast moving
products like groceries, food
Discount store
Standard merchandise sold at lower prices for low
margins
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Kinds of Retailers
Type of
retailer
Characteristics
Corporate
chains
More outlets owned and controlled by one firm – Globus
Voluntary chain
Wholesaler sponsored group of independent retailers
Retailer co-ops
Independent retailers with centralized buying operations
and common promotions
Consumer coops
Co-op societies of groups of consumers operating their
own stores – farmers, industrial workers etc
Franchise
organisation
Contractual arrangement between the producer and
retailers – selling products exclusively – Kemp Toys
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Retailing Scene - Global
• Well organised in most developing countries
• Global biz worth about $ 6.6 trillion
• Retail market size is $2325 bln in the US and
$ 280 bln in India.
• Organised retail is 85% in the US and about
5% in India. China 20% Taiwan 80%
• Retail sector is part of the service sector and
if organised, is a major contributor to a
country’s GDP
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Retailing Scene - Global
• High potential for generating employment – 2
mln retail outlets in the US employ about 22
mln people
• Retail sector contributes significantly to the
growth of the economy
• Organised retail is becoming powerful over its
suppliers (who may also be big corporates)
• Producers of goods taking action to protect
their turf
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Retailers’ Strengths
• Choice of merchandise is their prerogative –
put pressure on producer suppliers
• Many new products on offer. Can charge
penalty if products do not do well
• New developments in IT help them run
operations optimally and keep track of loyal
customers. Also helps them identify profitable
store locations.
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The Indian Retail Scene
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Salient Features
• Estimated over 12 mln retail outlets with
most of them in the unorganized sector
• 10 outlets per 1000 population
• Average per capita space – 2 sq ft
compared to 15 sq ft in the US
• Organized retail is estimated between 4
to 7% but growing fast
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Organized Retail
• Growing trends attracting global players
• Some of them like Wal Mart and Tesco have
already created buying hubs here.
• In Jan 2006, GOI has permitted FDI upto 51%
in single brand retail outlets
• Well known brands like Marks & Spencer,
Reebok, Levis, Adidas, Nike,McDonalds,
KFC, Swarowski are already in India.
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Organized Retail - Features
• Sponsored by companies or corporate groups
• Large formats like supermarkets, department
stores and now hypermarkets
• Right ambience to make shopping a pleasure
• Use latest technology for customer care and
supply chain management.
• Large employment potential
• Effectively manage operating costs
• Offer consumers value for money
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Retailing Trends - India
• Consumer wants more benefits without
additional costs
• Rising income levels – cheap no longer
works, but ‘value for money’
• Explosion of communication channels
influences choices of products
• Increased literacy has made consumer more
conscious of his bargaining power
• Growing number of urban nuclear families
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Retailing Trends - India
• Influence of retailer increasing – assortment
plus other facilities offered
• Rural consumers want the same things as
their urban counterparts and are willing to pay
for it
• Better organized supply chains to cater to a
large number of outlets in different locations
• Improved infrastructure helping the
consumers
• Bigger volumes help in economies of scale
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FDI in Retail in India
• MNC players showing interest to operate in
India
• Resistance from the existing players
• So far only cash-and-carry permitted
• Franchisees also allowed – KFC, Tag Heuer,
Swatch, McDonalds
• Jan 2006, 51% FDI permitted in single brand
businesses:
– All products should be under the same brand
name
– Same brands should be sold internationally
– Branding at the time of manufacturing itself
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Trade / Retail Format
• Range of goods and customer service
dimensions determine the ‘format’. Elements
distinguish between stores and include:
– Store ambience. (Kemp Fort)
– Saving in time for shopping – interiors of practical
design – reduce time for search and pick-up of
goods
– Location
– Physical characteristics – external appearance,
arrangement of goods
• All these are parts of the positioning strategy
and influence the ‘footfalls’ to the store.
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Categories of Shoppers (1)
• Identified by Cook & Walters
• Task focused shopper – visits the store to buy
specific things he has planned for
– Convenience, minimum time, easily accessible
goods, pleasing store format
– Grocery shopping is an example
• Leisure shopper – more interested in the
ambience and environment
– Has plenty of time, wants to have a good time
while shopping
– Lifestyle stores are examples
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Category of Shoppers (2)
• Convenience goods (low value): probable
gain from shopping and making comparisons
is small compared to the time, effort and
mental discomfort required in the search toothpaste
• Shopping goods (high value): gain is large refrigerator
• Specialty goods: clearly distinguished by
brand preferences – Maruti Zen car or TagHeuer watch
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Trading area…
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Trading Area
• Catchment area from where most of the
customers of a retail store come
– Corner grocery store caters to the locality in which
it is situated
– Discount stores have a wider area. Subhiksha
locations for consumers in 2 km radius
– Specialty stores have a much wider trading area –
MTR, Shoppers’ Stop etc
• Trading area increases with the size of the
store and the variety it offers
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Retail Strategy
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• Some of the ‘convenience’ factors
expected by customers:
– Access to the store
– Access to products within the store
– Possession utility – making goods
available and visible
– Speed of completing the transaction
process
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Strategy Guidelines
Market focus
Format selected
Appropriate strategy
Existing
Current
Market penetration
Existing
New
Format development
New
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Existing
New
Market expansion
Diversification
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Retail Strategy Steps
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• Mission statement – purpose of the
organisation
• The ownership pattern
• Clearly stated objectives
• Segmentation and positioning of the retailer
• Overall operational strategy
• Planning of routine activities
• ‘Control’ mechanisms to be put in place
• Define parameters for measuring performance
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Retail Strategy
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Positioning of the retailer
Merchandising
Pricing strategy
Target market segments
Customer service
Customer communication
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Positioning Strategy
• Wide range with a high value add –
Lifestyle brand of stores
• Limited range but a high value add –
Tanishque jewelry store
• Limited range with a limited value add –
Bata stores
• Wide range of goods but a limited value
add – a Food World outlet
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Merchandising
• A set of activities involved in acquiring goods
and services and making them available at
the places, times and prices and the quantity
that enable a retailer to reach his goals
• The most critical function in retail
• Directly effects the revenue and profitability of
the store
• Also takes into account the assortment of
goods and their quality
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Customer Service Strategy
• Developed to create ‘stickiness’ in customers
• Personal data collected using IT – including
purchasing practices and preferences
• Customer loyalty programs planned
• Create ‘customer’ delight
• Location strategy to give competitive
advantage
• Understanding the buying profile of the
customers
Communication …
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Customer Communication
• The manner in which the retailer makes
himself known to his customers. Has two
parts to it:
– The messages which the retailer sends to his
customers and prospects
– The word of mouth support which satisfied
customers give to the retailer by talking to others
• Retailer communicates about:
– Announcing the opening of a store
– Promotions running in the store
– Additional facilities introduced by the stores
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Pricing Strategy
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Premium and indicating high value
Reasonable pricing with good value
Low pricing but high value for money
All strategies are focused on giving
value to the customer
Product differentiation….
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Product Differentiation
• Feature exclusive national brands not
available in competing retailers – unlikely
• Exclusivity of products – specialty stores
• Mostly private labels – Westside
• Feature, big, specially planned
merchandising events – Kemp Fashion sows
• Introduce new products before competition -again unlikely
Performance measures…
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Competitive Advantage
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Location: most important
Building customer relationship through service
Getting preferential treatment from vendors
Managing information effectively
People management – employees should
demonstrate ‘ownership’ of the stores
• Good management of the merchandise
• Overall store management – ambience, easy
access, quick check-outs, help in buying
decisions
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Building Relationships
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• Customer value= product value + service
value + image value
• Some of the factors to deliver customer value:
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Should be what the customer thinks is right
Should be consistent
System in place to measure customer satisfaction
Retailer communication to customer is clear on
promised value proposition
– Positioning of retailer in line with targeted market
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Retail Performance Measures
• Gross margin return on inventory
investment – GMROI
– Gross margin multiplied by ratio of sales to
inventory (50%*4= 200%)
• Gross margin per full time equivalent
employee
• Gross margin per square foot
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Category Types
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• Routine: small value items like milk,
bread etc
• Destination: customer’s first choice for
specific products – apparel, footwear
• Season: retailer is known for selling
seasonal merchandise – mangoes,
strawberries
• Convenience: cigarettes from panwalas
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Category Management
• Category is a ‘basic unit’ for making
buying decisions by a retailer
• Category management focuses on:
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– Efficient introduction of new products into
stores
– Effective product promotions to improve
off-takes
– Optimum store assortment reflecting
trading area customer needs
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Category Management
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• Reflects the trading area customer profile
• Stocking on shelves in a manner which customers
would prefer
• Serves as a differentiator between two retailers
selling same merchandise
• Ensure multiple purchases and impulse buying
through proper availability and visibility
• Dynamic decisions to reflect changing customer
needs
• Create unique customer value to ensure ‘stickiness’
• Ensure profitability of all categories
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Merchandise Buying Rules
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• Selection of vendor: price, quality,
reliability
• Selection of merchandise: sampling,
negotiated terms, order and delivery
times, inventory norms, re-ordering
costs etc
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Franchising
• Franchisor is the firm which wants to
sell its goods or services
• Franchisee is the firm or group that are
willing to sell the products or services
on behalf of the franchisor
– The first party gives advice and help to the
second to find good locations, blue prints
for a store, financial, marketing and
management assistance
Franchisor benefits…
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Benefits to Franchisor
• Faster expansion
• Local franchisee pays lower advertising
rates than a national firm
• Owners motivated to work more hours
than mere employees
• Local taxes and licenses are
responsibility of franchisees
Franchisee benefits…
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Benefits to Franchisee
• Quick recognition among potential customers
• Management training provided by principal
• Principal may buy ingredients and supplies
and sell to franchisee at lower prices
• Financial assistance
• Promotional aids, in-store displays etc
Electronic channels…
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Retailing on the Internet
• Unlimited assortment
• Items may not be on hold – someone has to
deliver the product – delays
• No product touch or feel
• More info makes the customer a better
shopper
• Comparison shopping possible
• Consumer has to plan purchases ahead
• No need to handle cash – payment can be
on-line
• Shopping is 24X7
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E-tailing Issues
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Logistics support to selling
Payment gateway
Customer product returns
Conflicts with Brick &Mortar – overcome
by selling separate products
FDI in retail….
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Key Learnings
• Any business selling / renting a product or
service to a consumer is retailing
• A consumer selects a retailer based on price,
location, merchandise selection, fairness in
dealings, helpful sales people and other
services
• Organized retail is growing strong and
negotiating better terms from producer
suppliers
• In India, upto 51% foreign investment is
permitted in single brand businesses
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Key Learnings
• Most theories in retailing highlight the way in
which retailers progress through different
stages line in a life cycle.
• Consumers look for convenience factors like
location, access to products, visibility and
quick transactions.
• Providing these elements could also help
build competitive advantage for a retailer.
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Key Learnings
• Category is a basic unit for making buying
decisions for a retailer.
• Category management focuses on right
assortment, introduction of new products and
effective promotions.
• Categories reflect the profile of the trading
area of the retailer.
• The purpose of category management is to
ensure both footfalls and stickiness.
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Key Learnings
• Format defines the physical features of the
store and its service
• Trading area is the catchment area from
where the customers of store come from
• Retail strategy is built on positioning, product
offerings, merchandising and communication
• Retail performance is measured by utilisation
of space, inventory and manpower
• E-tailing is buying goods on the Internet
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End of Notes – Chapter 10
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