Lecture #5: Retail Strategy
These lecture notes are provided as a study aid in preparation for examinations. Students should review their class notes, and compare to the outline presented below. To assist in reviewing for exams, students are advised to rewrite their notes in accordance with the outline.
A retail strategy is a specific statement that defines the target market(s) of the retailer, the store(or non-store) format that will be used, the 4Ps, and how the firm hopes to maintain its competitive advantage over others.
A strategy statement is essential for the firm to survive into the long-run. Without a strategy, it is like the firm being adrift at sea. It is the steering mechanism for the business, and must be fine-tuned and updated frequently in order to stay the course.
A retail market consists of those consumers with a similar set of needs or wants, and retailers with a similar format for satisfying those needs or wants. The chart on p. 150 illustrates how clothing can be sold in five different formats, and also appeal to possibly three different fashion segments. Note that not all of the cells of the 5 X 3 matrix are occupied, which may signal either un-exploited opportunities or undesirable positions.
What is a competitive advantage? It is a particular element of the retailer's strategy that can be maintained (hopefully) over a long period of time. These advantages may come in virtually any form, such as legal advantages, customer relations, customer service, location, merchandising, personnel, facilities, middlemen, customer loyalty, database, etc.
Positioning is often thought of as the "fifth P," meaning that it is under the control of the marketer. Technically speaking, positioning is a perceptual variable. It is how the customer views your company, store, or product. While the perception is that of the consumer, it is up to the marketer to try to influence that perception.
The Retail Format-Market Expansion Grid outlines four possible strategic growth areas. Each of these four options has the common goal of trying to increase sales. The chart on p. 160 should be viewed, and will serve as the basis of class discussion.
International opportunities should not be overlooked, as there may be great possibilities for profit overseas. Still, retailers must be careful to NOT assume that the US model of business can be exported to other countries without making modifications. Similarly, others should not assume that the US will embrace other countries' ideas. Examples: hypermarkets in the US, and Sam's Club in Hong Kong.
All of this leads up to developing the retail strategy, which consists of the following stages (in order):
In basic marketing, I talk of the "marketing bullseye," which features a target market in the crosshairs of a scope, surrounded by the 4Ps. "All good marketers" should focus first on defining who the target(s) is/are, and then building their 4Ps marketing program around that target.
In retailing, the marketing bullseye functions much the same way, but with the addition of the retailing format. The target audience influences the type of retail format to be employed; thus, retail format becomes an additional marketing program variable to be considered (along with the 4Ps).
One should not attempt to build a retail format first, and then decide on a target market. The target market must always drive all other marketing decisions. The mere existence of a retail format does not predict marketing success, because the format may be a total mismatch for customers and their varied wants and needs.
The goal is to select a target market and subsequent retail format that will allow for the development of a sustainable competitive advantage. Although no format is secure in the long run (meaning that even such venerable powerhouse formats as fast food may some day topple), it is possible to build a format that can be defended for many years. Examples: Sonic, Fazoli's, and Subway.
The trick, of course, is in building that sustainable advantage. It is critical to build customer loyalty. Although the statistics in this anecdote are probably more cliche than fact, it has been said that it costs four times as much to recruit a new customer as it does to retain a current one. While the cost figures may be debatable, the message is still clear: hang on to your customers! They are the basis of your long-term survival.
Customer reward programs can be very helpful in retaining customers. These can take many varied forms, but generally they amount to long-term discounts for multiple purchases. For example, Family Christian bookstores has a loyalty program whereby cardholders receive "punches" on their card for each purchase (and sometimes multiple punches for large purchases). After ten punches, the customer gets an unlimited in-store shopping spree with everything 25% off. (DrG confession: my family uses this card strategically for the purpose of Christmas gift buying.)
Positioning is also important. The retailer must strive to position itself uniquely in the customer's mind. Stores (and products) that are perceptually too similar in consumer minds become clear substitutes one for the other. But while we are striving to find that unique position, we must be careful to not grab a market position that offers little potential or is clearly a non-viable option. Consider the chart on p. 153. There is a huge gap in the lower-right quadrant, indicating that no one is offering extensive service and traditional styling in clothes (JC Penney is only marginally in this category). It would be foolish to try to occupy a position featuring high service with fashion-backward merchandise!
Location is also another major factor. Having stores on the corners of major intersections can help ensure sales. Walgreen's, with their incredibly thick checkbook, enters a market and literally buys the asphalt out from beneath existing stores, demolishes the old buildings, and erects shiny, new drugstores in their place. It is actually quite easy tomonitor traffic flows. Most cities (Amarillo included) publish a web page with traffic count tallies. For example, the busiest intersection in Amarillo is Coulter at I-40. In second position is Bell at SW45th, followed by Western at SW45th, and Bell at I-40. Each of these have over 50,000 cars per day.
Another factor worth mentioning are unique and/or quality merchandise. It should go without saying that products should be of high quality, but often it is overlooked. It is hard to sustain a long-term advantage without good products! By being unique, though, the retailer can further set themselves apart from the rest. Target has done an excellent job of this by hiring designer Michael Graves to develop a line of truly unique housewares available only at Target.
Finally, superb customer service is a mark of distinction, and in this era of self-service and unmotivated, undertrained clerks, it is a way to further cement one's position.
But for long-term survival, it is likely the retailer will need to rely on two or more sources of advantage. One advantage alone is probably not enough on which to build a business empire. Thus, combined proficiencies in, say, product quality, service, and location, can make for an insurmountable advantage.
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