Chapter 5

Retail Marketing Strategy

McGraw-Hill/Irwin
Retailing Management, 6/e Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
 5-2

Retailing Strategy

Human Resource
Retail Locations Management
Chapters 7,8 Chapter 9

Retail Market Strategy

Chapter 5
Financial Strategy
Chapter 6

Information and Customer

Distribution Relationship
Systems Management
Chapter 10 Chapter 11
 5-3

“Strategy” Is Over Used

Retailers Talk About A Lot of Different

“Strategies”
– Sales Strategy
– Advertising Strategy
– Merchandise Strategy
– Location Strategy

Strategy Is Not Just Another Term for

A Management Decision
 5-4

Strategic vs. Tactical Decisions

Strategic Tactical
Direction Implementation
Strategy statement Annual plan
Broad Specific, detailed
Unstructured Structured
Problem solving Problem solving
Creativity Analytical
External focus Internal focus
Irregular Regular
Long-term Short-term
Difficult to evaluate Easy to evaluate
Note: Success Comes for Having a Good Strategy and Executing It Well
 5-5

Elements in Retail Strategy

• Target Market
Customer Needs
• Retail Format
© image100 Ltd

Method for Satisfying Needs

• Bases for Building Sustainable Competitive Advantage
Defending Position Against Competitors
 5-6

Analyzing McDonalds’ Retail Strategy

What Is McDonalds’:

The McGraw-Hill Companies, Inc./John Flournoy, photographer

-Target market?

-Retail offering (format)?

-Bases for competitive

advantage?
What Threats Might McDonald’s Face in the Future?
 5-7

Examples of Retail Strategies

• Starbucks

• Kohls

• Restoration Hardware

• Ukrop’s

What is the target market, retail

offering, and source of competitive
advantage for each retailer?
 5-8

Chico’s Strategy
Target Market
Woman 35 to 55 Who Want Comfortable, Casual,
But Stylish Apparel
Retail Format
Specialty Apparel Stores in Malls and Strip Centers
Selling Private Label, Coordinated Outfits
Bases for Building Sustainable Competitive Advantage
Unique Merchandise Sized 0,1,2,3
 5-9

Strategy for Looking for a Job

Determine Your Target
Market
– Area of Country
– Type of Company
– Type of Position
Assess and Exploit Your
Competitive Advantage
– Unique Skills,
Experience,
Knowledge Photodisc/Punchstock
 5-10

Why Does a Retailer Need

to Focus on a
Specific Target Market?

Why Not Sell to Everyone?

Retail Market Opportunities for 5-11

Women’s Apparel
 Criteria For Selecting
5-12

A Target Market

• Attractiveness --
Large, Growing,
Little Competition
More Profits
Consistent with Your
Competitive Rim Light/PhotoLink/Getty Images

Advantages
 5-13

Can A Retailer Develop a Sustainable

Competitive Advantage by:
• Building a Store at the Best
Location?
• Deciding to Sell Some Hot
Merchandise?
• Increasing Your Level of
Advertising?
• Attracting Better Sales Associates
by Paying Higher Wages?
• Providing Better Customer Service?
• Dropping the Price of Your
Merchandise?
PhotoLink/Getty Images
 5-14

How to Develop a Sustainable

Competitive Advantage
 Internal and External Bases for
5-15

Competitive Advantage
Retail Firm
•Low Cost
•Large Size
•Efficient
Distribution,
Operations
Vendors,
• Unique Customers
Suppliers
Knowledge
• Loyal Employees

Sources of
Capital
 5-16

Sources of Competitive Advantage

More Sustainable Less Sustainable

• Location • Better Computers
• Customer Loyalty • More Employees
• Customer Service • More Merchandise
• Exclusive Merchandise • Greater Assortments
• Low Cost Supply Chain • Lower Prices
Management
• More Advertising
• Information Systems
• More Promotions
• Buying Power with
Vendors • Cleaner Stores
• Committed Employees
 5-17

Loyalty

What does loyalty mean?

Is It the same as liking a store?
…Going to the store frequently?
Digital Vision / Getty Images
 5-18

How Retailers Build Loyalty

• Develop a strong brand for the

store or the store brands
• Develop clear precise
positioning strategies
• Create an emotional
attachment with customers Royalty-Free/CORBIS

through loyalty programs

 5-19

Approaches for Building

Customer Loyalty

Unique Positioning
Customer Service
Information About Customers (Database)
Unique Merchandise
Location
 5-20

Example of Positioning
 Creating Store Loyalty
5-21

Mental and Emotional Attachments

• Elements in a Strong Brand
– Top of the Mind Awareness
– Associations with Brand/Store Name

• Methods Used to Develop a Strong Brand

– Massive Exposure
– Symbols to Reinforce Image
– Consistent Positioning Creating Strong
Associations
– Limited Brand Extensions
 5-22

Distribution and Info Systems

Flow of Information
Vendor By decreasing costs here, the
is more money available to
Distribution Center
invest in:
Store -Better services
-Increase in breadth and depth
-Decrease in prices

StockTrek/Getty Images
 5-23

Private Labels
Rob Melnychuk/Getty Images

Sears’ Kenmore -- appliances

Federated’s Inc. – fine apparel

Kmart’s Martha Stewart -- home

Jules Frazier/Getty Images

JCPenney’s Arizona -- jeans

Jacobs Stock Photography/Getty Images

 5-24

Vendor Relationships

• Low Cost - Efficiency Through Coordination

– Electronic Data Interchange (EDI)
– Collaborative Planning and Forecasting to
Reduce Inventory and Distribution Costs
• Exclusive Sale of Desirable Brands
• Special Treatment
– Early Delivery of New Styles
– Shipment of Scare Merchandise
 5-25

High Quality Customer Service

• Difficult to Achieve
– People Are Not Machines -- Inconsistent
– Retail Sales Associates At Bottom of Labor
Pool
• Goes Beyond Hiring Good People at High
Wages and Training Them -- Organizational
Culture
 Critical Tradeoff In Developing
5-26

Strategic Advantage
Focus Leads to Developing
A Competitive Advantage
But
Focus Reduces Flexibility

• Low Cost, Consistent Image, Vendor

Relationships Reduces Flexibility
• Similar to Dating and Marriage – Commitment
to a Relationship (Vendor) Reduces Flexibility
 5-27

Growth Opportunities

•Market Penetration
•Market Expansion

•Retail Format Development

•Diversification
Ryan McVay/Getty Images

­Related vs. Unrelated

 5-28

Growth Opportunities
 5-29

Market Penetration

• Attract customers from target market – Walgreens “on

every corner”

• Get current customer to visit store more often or buy on

each visit

Cross Selling – sales associates in one department sell

complimentary merchandise from other departments

Example: Manicurist sells services plus hand lotion or nail polish

Example: Salesperson sells leaf blower directs customer to electrical

department to purchase a 100 foot extension cord.
 5-30

International Growth Opportunities

Europe
China
Mexico
Latin America
Japan

Steve Cole/Getty Images

 5-31

Why Do Category Killers and

Supercenters Succeed Globally?
Developed operating expenses
Scale economies for buying
merchandise globally
Unique systems and standardization
formats that facilitate control over
multiple stores
Understand that consumers are
willing to forego service for lower Ryan McVay/Getty Images

prices
 Key to Success in
5-32

Global Retailing
• Domestic market leadership – strong base
• Exploiting core competencies – competitive
advantage
– Low cost - Wal-Mart, Carrefour
– Fashion Reputation - The Gap, Zara, H&M
– Category dominance – Best Buy, Office Depot
– Unique Image, Brand – Disney, IKEA, Starbucks
• Adaptability
• Global Culture
• Long-term commitment
 5-33

Succeeding Internationally

Adaptability
Global culture
Financial resources
Global sustainable
competitive advantage

PhotoLink/Getty Images
International Market
5-34

Entry Strategies

Direct Investment
Joint Ventures
Strategic Alliances
Franchising
 5-35

Steps in the Strategic

Retail Planning Process
1. Define the business mission
2. Conduct a situation audit:
Market attractiveness analysis
Competitor analysis
Self-analysis

3. Identify strategic opportunities

4. Evaluate strategic alternatives

5. Establish specific objectives and allocate resources

6. Develop a retail mix to implement strategy

7. Evaluate performance and make adjustments

 5-36

Elements in a Market Analysis

100

50

0
1 s t Qt r 2 n d Qt r 3 r d Qt r 4 t h Qt r

MARKET COMPETITIVE ENVIRONMENTAL ANALYSIS OF

FACTORS FACTORS FACTORS STRENGTHS &
WEAKNESSES
Size Barriers to entry Technology Management
Bargaining power of Economic capabilities
Growth
vendors Regulatory Financial resources
Seasonality Locations
Business cycles Competitive rivalry Social
Operations
Threat of superior Merchandise
new formats Store Management
Customer loyalty
 5-37

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 – military
base towns
• Seasonality – can be an issue as
resources are necessary during peak
season only
 5-38

Questions for
Analyzing the Environment

• New developments or changes --

technologies, regulations, social
factors, economic conditions
• Likelihood changes will occur
• Key factors determining change
• Impact of change on retail market
firm, competitors
 5-39

Competitive Factors

Barriers to
Entry

Bargaining
Power of Competitive Large
Vendors Rivalry Customers

Threat of
Substitution
 5-40

Competitive Rivalry

• Large number of competitors all about the

same size
• Slow growth
• High fixed costs
• Lack of perceived differences between
competing retailers

Royalty-Free/CORBIS
 5-41

Performing a Self-Analysis
• At what is our company good?
• In which of these areas is our company
better than our competitors?
• In which of theses areas does out
company’s unique capabilities provide a
sustainable advantage or a basis for
developing one?

Stockbyte/Punchstock Images
 5-42

Strengths and Weaknesses Analysis

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

Financial Resources:
Cash flow from existing business
Ability to raise debt or equity financing
Operations: Store Management Capabilities
Overhead cost structure Management capabilities
Quality of operating systems Quality of sales associates
Distribution capabilities Commitment of sales associates to firm
Management information systems
Loss prevention systems Locations
Inventory control system

Merchandising Capabilities:
Knowledge and skills of buyers Customers
Relationships with vendors Loyalty of customers
Capabilities in developing private
capabilities
 Illustration of the
5-43

Strategic Retail Planning Process

Kelly Bradford – Owner of Gifts To Go

– Two Store Chain in Chicago
– Target Market – Upper Income Men and
Women Looking for Gifts between $50 and
$500
– Strong Customer Loyalty Based on Knowing
What Customers Want, Providing Good
Customer Service
– Low Turnover Among Associates
 Mission Statement for
5-44

Gifts To Go

“The mission of Gifts to Go is to be the

leading retailers of higher-priced gifts in
the Chicago and provide a stable income
of $100,000 per year for the owner.”
Define growth opportunities will and won’t
consider
Indicates objective of company
 Situation Analysis of
5-45

Gifts to Go
• Market Factors
– Chicago is an attractive market. (+)
– Relatively expensive gifts are not affected
much by the economy. (+)
– Gifts are highly seasonal. (-)
• Competitive Factors
– Many in area. Primary department stores, craft
galleries, catalogs, and Internet retailers (-)
– Lack of large suppliers, customer (+)
– Opportunities for differentiation (+)
– Limited competitive rivalry. (+)
 Situation Analysis of
5-46

Gifts to Go (continued)
• Environmental Factors
– Potential Threat - Development of electronic
channel by traditional bricks and mortar retailers (-)
• Strengths and Weaknesses
– Management Capability – Limited
– Financial Resources – Good
– Operations – Poor
– Merchandise Capabilities – Good
– Store Management Capabilities – Excellent
– Locations – Excellent
– Customer Loyalty – Good
– Customer Database - Good
 Growth Opportunities for
5-47

Gifts to Go
• Market Penetration
– Increase size of present
stores
– Open additional gifts stores in
Chicago area
• Market Expansion
– Open gift stores outside
Chicago area
– Sell lower priced gifts in Ryan McVay/Getty Images

present stores
 Growth Opportunities for
5-48

Gifts to Go (continued)
• Retail Format Development
– Sell non-gift merchandise to same customers in
present or new stores
– Sell similar gifts to same customers through an
electronic channel
• Diversification
– Manufacture craft gifts
– Open an apparel store targeting teenagers
– Open a category killer store selling a broader
assortment of gifts
Evaluating Growth Opportunities for
5-49

Gifts to Go
Market Attractiveness

• Market Penetration
– Increase size of present stores (low)
– Open additional gifts stores in Chicago area
(medium)
• Market Expansion
– Open gift stores outside Chicago area – new
geographic segment (medium)
– Sell lower priced gifts in present stores – new
benefit segment (medium)
Evaluating Growth Opportunities for
5-50

Gifts to Go (continued)
Market Attractiveness
• Retail Format Development
– Sell non-gift merchandise to same customers in
present or new stores (High)
– Sell similar gifts to same customers through an
electronic channel (High)
• Diversification
– Manufacture craft gifts (High)
– Open an apparel store targeting teenagers (High)
– Open a category killer store selling a broader
assortment of gifts (High)
Evaluating Growth Opportunities for
5-51

Gifts to Go
Competitive Position
• Market Penetration
– Increase size of present stores (High)
– Open additional gifts stores in Chicago area
(Medium)
• Market Expansion
– Open gift stores outside Chicago area (Low)
– Sell lower priced gifts in present stores (low)
Evaluating Growth Opportunities for
5-52

Gifts to Go (continued)
Competitive Position
• Retail Format Development
– Sell non-gift merchandise to same customers in
present or new stores (Low)
– Sell similar gifts to same customers through an
electronic channel (Medium)
• Diversification
– Manufacture craft gifts (Low)
– Open an apparel store targeting teenagers (Low)
– Open a category killer store selling a broader
assortment of gifts (Low)
Market Attractiveness/Competitive
5-53

Position Matrix
 5-54
Steps in Using Market Attractiveness -
Competitive Position Matrix

• Define strategic opportunities

• Identify market attractiveness and competitive
position factors
• Assign weight based on importance of factors
• Rate opportunities on market attractiveness
and competitive position
• Calculate scores and evaluate opportunities
 Characteristics of
5-55

International Markets
5-9
 Attractiveness Ratings for
5-56

International Growth Opportunities

 5-57

Competitive Position in International

Growth Opportunities